-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NEXq/FPJHN1tKxILtk4XnlIxClEBIPS6sMXiUw2zSrV0/hOZUMvBpU1QBuPzD+ZJ Rp6K5VCfw6qfCHjmKM/jzw== 0000950116-04-003688.txt : 20041206 0000950116-04-003688.hdr.sgml : 20041206 20041206171929 ACCESSION NUMBER: 0000950116-04-003688 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20041206 DATE AS OF CHANGE: 20041206 EFFECTIVENESS DATE: 20041206 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONSTELLATION FUNDS CENTRAL INDEX KEY: 0000914243 IRS NUMBER: 680325521 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-08104 FILM NUMBER: 041186871 BUSINESS ADDRESS: STREET 1: 1325 WESTLAKES DRIVE STREET 2: STE 350 CITY: BERWYN STATE: PA ZIP: 19312 BUSINESS PHONE: 5109887110 MAIL ADDRESS: STREET 1: 1325 WESTLAKES DRIVE STREET 2: STE 350 CITY: BERWYN STATE: PA ZIP: 19312 FORMER COMPANY: FORMER CONFORMED NAME: ALPHA SELECT FUNDS DATE OF NAME CHANGE: 19981216 FORMER COMPANY: FORMER CONFORMED NAME: TIP INSTITUTIONAL FUNDS DATE OF NAME CHANGE: 19971205 FORMER COMPANY: FORMER CONFORMED NAME: SOLON FUNDS/DE/ DATE OF NAME CHANGE: 19970424 N-CSR 1 n-csr.txt N-CSR 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. [Graphic Omitted: Constellation Group Logo] Annual Report September 30, 2004 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 HLAM Large Cap Value Fund 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 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 Constellation International Equity Fund Constellation Strategic Value and High Income Fund CONTENTS 1 Letter to Shareholders 2 Total Returns of the Constellation Funds 4 Disclosure of Fund Expenses 6 Investment Review: Constellation Clover Large Cap Value Fund 8 Investment Review: Constellation Clover Core Value Fund 10 Investment Review: Constellation Clover Small Cap Value Fund 12 Investment Review: Constellation Clover Core Fixed Income Fund 14 Investment Review: Constellation Chartwell Ultra Short Duration Fixed Income Fund 16 Investment Review: Constellation Chartwell Short Duration Fixed Income Fund 18 Investment Review: Constellation Chartwell High Yield Fund 20 Investment Review: Constellation HLAM Large Cap Value Fund 22 Investment Review: Constellation Pitcairn Diversified Value Fund 24 Investment Review: Constellation Pitcairn Select Value Fund 26 Investment Review: Constellation Pitcairn Diversified Growth Fund 28 Investment Review: Constellation Pitcairn Small Cap Fund 30 Investment Review: Constellation Pitcairn Family Heritage(R) Fund 32 Investment Review: Constellation Pitcairn Taxable Bond Fund 34 Investment Review: Constellation Pitcairn Tax-Exempt Bond Fund 36 Investment Review: Constellation Sands Capital Select Growth Fund 38 Investment Review: Constellation TIP Small Cap Value Opportunities Fund 40 Investment Review: Constellation TIP Financial Services Fund 42 Investment Review: Constellation TIP Healthcare & Biotechnology Fund 44 Investment Review: Constellation TIP Tax Managed U.S. Equity Fund 46 Investment Review: Constellation International Equity Fund 48 Investment Review: Constellation Strategic Value and High Income Fund 50 Financial Statements 128 Notes to Financial Statements 140 Report of Independent Registered Public Accounting Firm 141 Notice to Shareholders 142 Trustees and Officers of the Trust 145 Shareholder Voting Results Shareholder Services Constellation Fund shareholders receive annual and semiannual reports, and quarterly account statements. Shareholders who have questions about their accounts may call a toll-free number, 1 (866) 242-5742, visit our website, www.constellationfundsgroup.com, or write to Constellation Funds, P.O. Box 219520, Kansas City, Missouri 64105-9520. LETTER TO SHAREHOLDERS NOVEMBER 2004 TO OUR SHAREHOLDERS November 30, 2004 TO OUR CONSTELLATION FUNDS SHAREHOLDERS: We are pleased to provide you with the 2004 Annual Report for the Constellation Funds. This Report contains financial, expense and performance information through September 30, 2004, the last day of the Funds' fiscal year. We encourage you to visit our website at www.ConstellationFundsGroup.com for up-to-date performance information, current offering materials (including account applications), and timely information about the Funds and the financial markets. On November 8, 2004 we began offering shares of the Constellation HLAM Large Cap Quality Growth Fund. With the addition of this Fund, the Constellation Funds family now consists of 23 publicly-offered funds that cover the spectrum of investment styles and asset classes, from large cap U.S. growth equity to ultra short duration fixed income. The total net assets of the Group now exceed $2.2 billion, all of which is under the day-to-day management of nine highly regarded institutional money managers that serve as the Funds' sub-advisers. From the first group of sub-advisers, which included Turner Investment Partners, Clover Capital Management and Chartwell Investment Partners, we have added Pitcairn Investment Management (part of the Pitcairn Financial Group), Hilliard Lyons Asset Management (part of J.J.B. Hilliard, W.L. Lyons), and Sands Capital Management, as well as three firms with international expertise, Brandywine Asset Management, Oechsle International Advisors and The Boston Company Asset Management. We are dedicated to managing the Funds with three basic principles in mind: Oversight Accountability Insight By focusing on these core concepts, we aim to deliver high quality funds with an institutional focus, and to surround these products with skilled, professional sales and service support. We are glad that you have invested in one or more of the Funds in the Constellation Funds family, and we invite you to consider our larger, more varied line-up for your investment needs. Thank you for investing with us. /s/ John H. Grady - ----------------- John H. Grady President, Constellation Funds November 30, 2004 Constellation Funds 2004 Annual Report | 1 PERFORMANCE TOTAL RETURNS OF THE CONSTELLATION FUNDS Through September 30, 2004 Current performance may be lower or higher than the performance data quoted. Please call (866)242-5742 for most recent month end performance information.
Year (Annualized) Total Three to One Three Five Ten Since Assets Fund Name/Index Months Date Year Years Years Years Inception ($mill) - ------------------------------------------------------------------------------------------------------------------------------------ CONSTELLATION CLOVER LARGE CAP VALUE FUND (1.69) 1.07 14.07 4.00 2.64 N/A 4.36 $6.25 Russell 1000 Value Index 1.54 5.54 20.52 7.57 4.31 n/a 6.66 Inception Date: 10/31/97 - ------------------------------------------------------------------------------------------------------------------------------------ CONSTELLATION CLOVER CORE VALUE FUND(1) (0.94) 4.89 20.75 11.19 10.31 11.11 11.63 $59.71 Russell 3000 Value Index 1.42 5.72 20.89 8.29 5.03 12.50 12.89 Inception Date: 12/6/91 - ------------------------------------------------------------------------------------------------------------------------------------ CONSTELLATION CLOVER SMALL CAP VALUE FUND(1) (3.30) 5.88 23.72 12.69 15.77 N/A 14.60 $540.29 Russell 2000 Value Index 0.15 7.99 25.66 17.69 14.71 n/a 12.82 Inception Date: 2/28/96 - ------------------------------------------------------------------------------------------------------------------------------------ CONSTELLATION CLOVER CORE FIXED INCOME FUND 3.14 3.27 2.97 5.03 6.82 7.16 6.96 $32.33 Lehman Aggregate Bond Index 3.20 3.35 3.68 5.88 7.48 7.66 7.20 Inception Date: 12/6/91 - ------------------------------------------------------------------------------------------------------------------------------------ CONSTELLATION CHARTWELL ULTRA SHORT DURATION FIXED INCOME FUND -- CLASS I SHARES 0.56 1.30 1.63 1.99 3.85 5.09 5.03 $391.93 Merrill Lynch 3-Month U.S. Treasury Bill Index 0.37 0.84 1.10 1.47 3.11 4.23 4.22 Inception Date: 3/1/94 - ------------------------------------------------------------------------------------------------------------------------------------ CONSTELLATION CHARTWELL ULTRA SHORT DURATION FIXED INCOME FUND -- CLASS II SHARES 0.50 1.01 1.38 1.74 3.58 4.90 4.84 $8.89 Merrill Lynch 3-Month U.S. Treasury Bill Index 0.37 0.84 1.10 1.47 3.11 4.23 4.22 Inception date: 2/27/98(5) - ------------------------------------------------------------------------------------------------------------------------------------ CONSTELLATION CHARTWELL SHORT DURATION FIXED INCOME FUND -- CLASS I SHARES 1.30 1.58 1.84 2.88 4.77 5.66 5.43 $172.21 Lehman 1-3 Year U.S. Government Bond Index 1.05 1.00 1.16 3.25 5.22 5.79 5.56 Inception Date: 3/1/94 - ------------------------------------------------------------------------------------------------------------------------------------ CONSTELLATION CHARTWELL SHORT DURATION FIXED INCOME FUND -- CLASS II SHARES 1.34 1.39 1.68 2.66 4.57 6.03 5.77 $2.90 Lehman 1-3 Year U.S. Government Bond Index 1.05 1.00 1.16 3.25 5.22 5.79 5.56 Inception date: 4/28/99(5) - ------------------------------------------------------------------------------------------------------------------------------------ CONSTELLATION CHARTWELL HIGH YIELD FUND 4.40 4.99 9.34 6.93 (1.26) N/A (0.84) $10.17 Merrill Lynch High Yield, Cash Pay Index 4.64 6.03 12.23 12.07 6.61 n/a 5.39 Inception Date: 2/27/98 - ------------------------------------------------------------------------------------------------------------------------------------ CONSTELLATION HLAM LARGE CAP VALUE FUND (2.54) N/A N/A N/A N/A N/A (1.58) $1.44 Russell 1000 Value Index 1.54 n/a n/a n/a n/a n/a 5.00 Inception Date: 4/30/04 - ------------------------------------------------------------------------------------------------------------------------------------ CONSTELLATION PITCAIRN DIVERSIFIED VALUE FUND 0.82 4.61 18.23 8.37 N/A N/A 3.94 $152.20 Russell 1000 Value Index 1.54 5.54 20.52 7.57 n/a n/a 3.75 Inception Date: 8/4/00 - ------------------------------------------------------------------------------------------------------------------------------------ CONSTELLATION PITCAIRN SELECT VALUE FUND (0.74) 3.65 17.45 3.86 N/A N/A 3.31 $61.82 Russell 1000 Value Index 1.54 5.54 20.52 7.57 n/a n/a 3.51 Inception Date: 8/11/00 - ------------------------------------------------------------------------------------------------------------------------------------ CONSTELLATION PITCAIRN DIVERSIFIED GROWTH FUND (3.94) (1.29) 7.68 (0.17) N/A N/A (13.92) $104.53 Russell 1000 Growth Index (5.23) (2.63) 7.51 1.61 n/a n/a (13.14) Inception Date: 8/4/00 - ------------------------------------------------------------------------------------------------------------------------------------ CONSTELLATION PITCAIRN SMALL CAP FUND(1) (0.58) 4.29 19.72 13.82 N/A N/A 11.40 $92.85 Russell 2000 Index (2.86) 3.71 18.77 13.71 n/a n/a 3.51 Inception Date: 8/25/00 - ------------------------------------------------------------------------------------------------------------------------------------ CONSTELLATION PITCAIRN FAMILY HERITAGE(R) FUND (1.05) 3.65 16.15 6.96 2.67 10.64 10.09 $78.10 Wilshire 5000 Index (1.78) 2.08 14.76 6.12 (0.05) 10.73 10.46 Inception Date: 8/4/00(3) - ------------------------------------------------------------------------------------------------------------------------------------
2 | Constellation Funds 2004 Annual Report PERFORMANCE
Year (Annualized) Total Three to One Three Five Ten Since Assets Fund Name/Index Months Date Year Years Years Years Inception ($mill) - ------------------------------------------------------------------------------------------------------------------------------------ CONSTELLATION PITCAIRN TAXABLE BOND FUND 3.26 2.98 3.46 5.21 7.12 7.15 7.35 $43.24 Lehman U.S. Government/Credit Index 3.56 3.37 3.35 6.33 7.74 7.76 8.24 Inception Date: 8/4/00(3) - ------------------------------------------------------------------------------------------------------------------------------------ CONSTELLATION PITCAIRN TAX-EXEMPT BOND FUND 3.51 2.36 3.60 5.31 6.22 5.72 6.02 $113.88 Lehman Municipal Bond Index 3.88 3.18 4.59 5.78 6.77 6.77 7.35 Inception Date: 8/11/00(3) - ------------------------------------------------------------------------------------------------------------------------------------ CONSTELLATION SANDS CAPITAL SELECT GROWTH FUND -- CLASS I SHARES (4.09) 6.75 15.45 10.57 N/A N/A (8.89) $32.59 Russell 1000 Growth Index (5.23) (2.63) 7.51 1.61 n/a n/a (13.27) Inception Date: 8/27/04(6) - ------------------------------------------------------------------------------------------------------------------------------------ CONSTELLATION SANDS CAPITAL SELECT GROWTH FUND -- CLASS II SHARES (4.09) 6.75 15.45 10.57 N/A N/A (8.89) $70.03 Russell 1000 Growth Index (5.23) (2.63) 7.51 1.61 n/a n/a (13.27) Inception Date: 8/11/00 - ------------------------------------------------------------------------------------------------------------------------------------ CONSTELLATION TIP SMALL CAP VALUE OPPORTUNITIES FUND(1) 1.82 9.16 29.36 N/A N/A N/A 21.38 $14.53 Russell 2000 Value Index 0.15 7.99 25.66 n/a n/a n/a 11.64 Inception Date: 3/4/02 - ------------------------------------------------------------------------------------------------------------------------------------ CONSTELLATION TIP FINANCIAL SERVICES FUND(2) (0.93) (0.93) 12.31 10.77 8.24 N/A 12.27 $15.27 S&P 500 Financials Index 0.35 2.74 14.88 7.28 7.42 n/a 13.22 Inception Date: 5/22/96 - ------------------------------------------------------------------------------------------------------------------------------------ CONSTELLATION TIP HEALTHCARE & BIOTECHNOLOGY FUND(1)(2) (6.00) 3.14 12.12 7.44 N/A N/A 9.47 $35.37 S&P 500 Healthcare Index (5.39) (3.36) 4.80 (3.02) n/a n/a (4.01) Inception Date: 2/28/01 - ------------------------------------------------------------------------------------------------------------------------------------ CONSTELLATION TIP TAX MANAGED U.S. EQUITY FUND (4.12) (1.23) 9.95 2.62 N/A N/A (3.38) $5.08 After Taxes (Pre-Liquidation)(4) (4.12) (1.23) 9.95 2.62 n/a n/a (3.38) After Taxes (Post-Liquidation)(4) (2.68) (0.80) 6.47 2.24 n/a n/a (2.86) S&P 500 Index (1.87) 1.51 13.87 4.05 n/a n/a (1.34) Inception Date: 2/28/01 - ------------------------------------------------------------------------------------------------------------------------------------ CONSTELLATION INTERNATIONAL EQUITY FUND (2.25) 3.13 18.76 6.73 (3.72) 0.75 3.43 $107.00 MSCI All Country World ex-U.S. Index 1.01 5.15 23.15 11.38 0.49 4.25 5.33 Inception Date: 8/4/00(3) - ------------------------------------------------------------------------------------------------------------------------------------ CONSTELLATIONSTRATEGIC VALUEANDHIGHINCOME FUND 1.93 4.26 16.04 N/A N/A N/A 23.21 $0.71 S&P 500 Index (1.87) 1.51 13.87 n/a n/a n/a 14.75 Inception Date: 10/31/02 - ------------------------------------------------------------------------------------------------------------------------------------
Returns less than one year are cumulative. The Constellation Funds are distributed by Constellation Investment Distribution Company, Inc. Berwyn, PA 19312. 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 than one year are annualized. Fee waivers are in effect; if they had not been in effect, performance would have been lower. The indices 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. (1) Investing in technology and science companies and small and mid capitalization companies may subject the Funds to specific inherent risks, including above-average price fluctuations. (2) Funds that take a focus or sector specific approach are subject to greater risk from downturns affecting a specific issuer or industry. (3) For periods prior to August 2000, when the Fund began operating, the performance data quoted represents past performance of the Pitcairn Investment Management's similarly managed common trust fund, adjusted to reflect fees and expenses expected to be borne by the Fund. The common trust fund was not a registered mutual fund, and therefore, was not subject to certain investment and tax restrictions which may have adversely affected performance. (4) After-tax returns are shown using the highest individual federal income tax rates in effect at the time of each distribution. They do not reflect the impact of state and local taxes. Your after-tax return depends on your individual tax situation, and may differ form the figures presented here. If you own fund shares in a tax-deferred account such as an IRA or 401(k) plan, this information does not apply to your investment because these accounts are not subject to current taxes. After-tax returns for most funds are calculated using the tax liability implied by each fund's declared distributions. However, the exact tax characteristics of many distributions are not known until after the close of the year. For certain funds, conservative estimates are used based on fund history until final amounts become available. (5) Class II Shares for the periods prior to the inception date shown, reflect the performance of the Funds' Class I Shares. (6) Class I Shares for the periods prior to the inception date shown, reflect the performance of the Fund's Class II Shares. Constellation Funds 2004 Annual Report | 3 DISCLOSURE OF FUND EXPENSES (UNAUDITED) All mutual funds have operating expenses. As a shareholder of a 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 your 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 on the next page illustrates your fund's costs in two ways: * ACTUAL FUND RETURN. This section helps you to estimate the actual expenses after fee waivers that your 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 $1,000 = $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 your 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 (in the "Annualized Expense Ratios" column) 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 your fund's comparative cost by comparing the hypothetical result for your 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 may not apply to your specific investment. 4 | Constellation Funds 2004 Annual Report DISCLOSURE OF FUND EXPENSES (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------ BEGINNING ENDING EXPENSES ACCOUNT ACCOUNT ANNUALIZED PAID VALUE VALUE EXPENSE DURING 3/31/04 9/30/04 RATIOS PERIOD* - ------------------------------------------------------------------------------------------------------------------------------------ Constellation Clover Large Cap Value Fund - ------------------------------------------------------------------------------------------------------------------------------------ Actual Fund Return $1,000.00 $ 984.70 1.25% $6.20 Hypothetical Fund Return 1,000.00 1,018.75 1.25 6.31 - ------------------------------------------------------------------------------------------------------------------------------------ Constellation Clover Core Value Fund - ------------------------------------------------------------------------------------------------------------------------------------ Actual Fund Return 1,000.00 1,006.00 1.06 5.32 Hypothetical Fund Return 1,000.00 1,019.70 1.06 5.35 - ------------------------------------------------------------------------------------------------------------------------------------ Constellation Clover Small Cap Value Fund - ------------------------------------------------------------------------------------------------------------------------------------ Actual Fund Return 1,000.00 990.00 1.22 6.07 Hypothetical Fund Return 1,000.00 1,018.90 1.22 6.16 - ------------------------------------------------------------------------------------------------------------------------------------ Constellation Clover Core Fixed Income Fund - ------------------------------------------------------------------------------------------------------------------------------------ Actual Fund Return 1,000.00 1,005.30 0.79 3.96 Hypothetical Fund Return 1,000.00 1,021.05 0.79 3.99 - ------------------------------------------------------------------------------------------------------------------------------------ Constellation Chartwell Ultra Short Duration Fixed Income Fund -- Class I Shares - ------------------------------------------------------------------------------------------------------------------------------------ Actual Fund Return 1,000.00 1,006.60 0.49 2.46 Hypothetical Fund Return 1,000.00 1,022.55 0.49 2.48 - ------------------------------------------------------------------------------------------------------------------------------------ Constellation Chartwell Ultra Short Duration Fixed Income Fund -- Class II Shares - ------------------------------------------------------------------------------------------------------------------------------------ Actual Fund Return 1,000.00 1,005.30 0.74 3.71 Hypothetical Fund Return 1,000.00 1,021.30 0.74 3.74 - ------------------------------------------------------------------------------------------------------------------------------------ Constellation Chartwell Short Duration Fixed Income Fund -- Class I Shares - ------------------------------------------------------------------------------------------------------------------------------------ Actual Fund Return 1,000.00 1,005.30 0.49 2.46 Hypothetical Fund Return 1,000.00 1,022.55 0.49 2.48 - ------------------------------------------------------------------------------------------------------------------------------------ Constellation Chartwell Short Duration Fixed Income Fund -- Class II Shares - ------------------------------------------------------------------------------------------------------------------------------------ Actual Fund Return 1,000.00 1,004.10 0.74 3.71 Hypothetical Fund Return 1,000.00 1,021.30 0.74 3.74 - ------------------------------------------------------------------------------------------------------------------------------------ Constellation Chartwell High Yield Fund - ------------------------------------------------------------------------------------------------------------------------------------ Actual Fund Return 1,000.00 1,040.10 0.90 4.59 Hypothetical Fund Return 1,000.00 1,020.50 0.90 4.55 - ------------------------------------------------------------------------------------------------------------------------------------ Constellation HLAM Large Cap Value Fund - ------------------------------------------------------------------------------------------------------------------------------------ Actual Fund Return 1,000.00 984.20 1.20 5.95 Hypothetical Fund Return 1,000.00 1,019.00 1.20 6.06 - ------------------------------------------------------------------------------------------------------------------------------------ Constellation Pitcairn Diversified Value Fund - ------------------------------------------------------------------------------------------------------------------------------------ Actual Fund Return 1,000.00 1,018.30 1.04 5.25 Hypothetical Fund Return 1,000.00 1,019.80 1.04 5.25 - ------------------------------------------------------------------------------------------------------------------------------------ Constellation Pitcairn Select Value Fund - ------------------------------------------------------------------------------------------------------------------------------------ Actual Fund Return 1,000.00 995.70 1.05 5.24 Hypothetical Fund Return 1,000.00 1,019.75 1.05 5.30 - ------------------------------------------------------------------------------------------------------------------------------------
* Expenses are equal to the Fund's annualized expense ratio multiplied by the average account value over the period, multiplied by 183/366 (to reflect the one-half year period).
- ------------------------------------------------------------------------------------------------------------------------------------ BEGINNING ENDING EXPENSES ACCOUNT ACCOUNT ANNUALIZED PAID VALUE VALUE EXPENSE DURING 3/31/04 9/30/04 RATIOS PERIOD* - ------------------------------------------------------------------------------------------------------------------------------------ Constellation Pitcairn Diversified Growth Fund - ------------------------------------------------------------------------------------------------------------------------------------ Actual Fund Return $1,000.00 $ 978.10 1.03% $5.09 Hypothetical Fund Return 1,000.00 1,019.85 1.03 5.20 - ------------------------------------------------------------------------------------------------------------------------------------ Constellation Pitcairn Small Cap Fund - ------------------------------------------------------------------------------------------------------------------------------------ Actual Fund Return 1,000.00 979.50 1.11 5.49 Hypothetical Fund Return 1,000.00 1,019.45 1.11 5.60 - ------------------------------------------------------------------------------------------------------------------------------------ Constellation Pitcairn Family Heritage(R) Fund - ------------------------------------------------------------------------------------------------------------------------------------ Actual Fund Return 1,000.00 1,004.30 1.24 6.21 Hypothetical Fund Return 1,000.00 1,018.80 1.24 6.26 - ------------------------------------------------------------------------------------------------------------------------------------ Constellation Pitcairn Taxable Bond Fund - ------------------------------------------------------------------------------------------------------------------------------------ Actual Fund Return 1,000.00 1,001.10 0.78 3.90 Hypothetical Fund Return 1,000.00 1,021.10 0.78 3.94 - ------------------------------------------------------------------------------------------------------------------------------------ Constellation Pitcairn Tax-Exempt Bond Fund - ------------------------------------------------------------------------------------------------------------------------------------ Actual Fund Return 1,000.00 1,010.90 0.63 3.17 Hypothetical Fund Return 1,000.00 1,021.85 0.63 3.18 - ------------------------------------------------------------------------------------------------------------------------------------ Constellation Sands Capital Select Growth Fund -- Class I - ------------------------------------------------------------------------------------------------------------------------------------ Actual Fund Return 1,000.00 1,008.90 1.11 5.57 Hypothetical Fund Return 1,000.00 1,019.45 1.11 5.60 - ------------------------------------------------------------------------------------------------------------------------------------ Constellation Sands Capital Select Growth Fund -- Class II - ------------------------------------------------------------------------------------------------------------------------------------ Actual Fund Return 1,000.00 1,005.90 1.22 6.12 Hypothetical Fund Return 1,000.00 1,018.90 1.22 6.16 - ------------------------------------------------------------------------------------------------------------------------------------ Constellation TIP Small Cap Value Opportunities Fund - ------------------------------------------------------------------------------------------------------------------------------------ Actual Fund Return 1,000.00 1,015.70 1.45 7.31 Hypothetical Fund Return 1,000.00 1,017.75 1.45 7.31 - ------------------------------------------------------------------------------------------------------------------------------------ Constellation TIP Financial Services Fund - ------------------------------------------------------------------------------------------------------------------------------------ Actual Fund Return 1,000.00 949.40 1.43 6.97 Hypothetical Fund Return 1,000.00 1,017.85 1.43 7.21 - ------------------------------------------------------------------------------------------------------------------------------------ Constellation TIP Healthcare & Biotechnology Fund - ------------------------------------------------------------------------------------------------------------------------------------ Actual Fund Return 1,000.00 968.40 1.52 7.48 Hypothetical Fund Return 1,000.00 1,017.40 1.52 7.67 - ------------------------------------------------------------------------------------------------------------------------------------ Constellation TIP Tax Managed U.S. Equity Fund - ------------------------------------------------------------------------------------------------------------------------------------ Actual Fund Return 1,000.00 961.90 1.25 6.13 Hypothetical Fund Return 1,000.00 1,018.75 1.25 6.31 - ------------------------------------------------------------------------------------------------------------------------------------ Constellation International Equity Fund - ------------------------------------------------------------------------------------------------------------------------------------ Actual Fund Return 1,000.00 977.50 1.36 6.72 Hypothetical Fund Return 1,000.00 1,018.20 1.36 6.86 - ------------------------------------------------------------------------------------------------------------------------------------ Constellation Strategic and High Income Fund - ------------------------------------------------------------------------------------------------------------------------------------ Actual Fund Return 1,000.00 999.80 0.25 1.25 Hypothetical Fund Return 1,000.00 1,023.75 0.25 1.26 - ------------------------------------------------------------------------------------------------------------------------------------
Constellation Funds 2004 Annual Report | 5 INVESTMENT REVIEW CONSTELLATION CLOVER LARGE CAP VALUE FUND INVESTMENT PHILOSOPHY & PROCESS The Constellation Clover Large Cap Value Fund is sub-advised by Clover Capital Management. The Fund seeks to produce attractive returns by investing in a diversified portfolio of stocks. The Fund's focus is on companies whose market capitalizations fall in the large cap category similar to the Russell 1000 Index. Clover Capital Management focuses on companies that trade at attractive values relative to their cash flow, book value, financial strength, peer and company-specific historical valuation. Clover believes that application of classic value investment disciplines can yield attractive long term returns. Using a combination of valuation screens, technical analysis, and fundamental research, the analyst team seeks to find companies that have inexpensive valuations and improving business fundamentals. FUND PERFORMANCE & POSITIONING For the fiscal year ended September 30, 2004 the Constellation Clover Large Cap Value Fund gained 14.07% compared with a return of 20.52% for the Russell 1000 Value Index. According to Lipper, the Fund ranked 395 out of 461 large cap value funds for the one year period ending September 30, 2004, placing it in the 86th percentile. Strong stock selection in the healthcare sector, specifically within the biotechnology and pharmaceutical industries, contributed positively to results for the year. Biogen Idec, a biotechnology company with four commercial drug products currently available and others in the development pipeline, was one of the Fund's strongest individual performers. Other individual holdings posting good relative results for the year include BP, an oil company with worldwide operations and Bank of America, a provider of financial services and products. Unfortunately, this strength was more than offset by sub-optimal stock selection in the materials, financial services and consumer discretionary sectors. SPX, an industrial conglomerate, down close to 40% during the period was a significant detractor for the Fund on an absolute and relative basis. The Fund was also hurt by poor performance from radio broadcast company, Clear Channel Communications and advertising company, Interpublic Group. Fund management believed that many advertising, media and communications companies were well positioned to benefit from a robust recovery in advertising spurred on by the presidential election and the summer Olympics. Significant media events such as these typically drive profits for media companies, but an oversupply of airtime and other factors kept pricing low and the expectations for a recovery were not met. While many of these companies remain healthy, generating free cash flows and maintaining strong fundamentals, the stocks of these companies suffered. There were no significant changes to Fund strategy during the period. The Fund uses a blend of fundamental and quantitative methodologies in the investment process. Fund management remains focused on identifying inexpensive stocks with improving fundamentals and improving investor sentiment. 6 | Constellation Funds 2004 Annual Report INVESTMENT REVIEW CONSTELLATION CLOVER LARGE CAP VALUE FUND FUND PROFILE As of September 30, 2004 Ticker TLCVX - ---------------------------------------------------- CUSIP 21038A505 - ---------------------------------------------------- % in 10 largest holdings 45.5% - ---------------------------------------------------- # of holdings 80 - ---------------------------------------------------- Price/Earnings Ratio (wtd. harmonic avg.) 16.02 - ---------------------------------------------------- Weighted Average Market Capitalization $85.1 billion - ---------------------------------------------------- Net assets $6 million - ---------------------------------------------------- Top 10 Holdings 1 Exxon Mobil 2 General Electric 3 Bank of America 4 American International Group 5 Citigroup 6 Anheuser-Busch 7 Microsoft 8 Albertson's 9 Verizon Communications 10 International Business Machines Investment Style value blend growth --------------------------- large |XXXXXXX| | | Market --------------------------- Capitalization medium | | | | --------------------------- small | | | | --------------------------- SECTOR WEIGHTINGS+ 26.8% Financials 11.4% Industrials 10.5% Consumer Discretionary 9.6% Energy 8.3% Consumer Staples 7.7% Information Technology 7.4% Cash Equivalents 6.3% Utilities 4.4% Materials 3.7% Telecommunication Services 3.0% Health Care 0.9% Exchange Traded Funds +Percentages based on total investments LIPPER INC. PERFORMANCE RANKING As of September 30, 2004 LIPPER LARGE CAP VALUE CATEGORY PERIOD RANK PERCENTILE 5 year (152 of 226 funds) 67% - ---------------------------------------------------- 3 year (292 of 341 funds) 86% - ---------------------------------------------------- 1 year (395 of 461 funds) 86% GROWTH OF $10,000 INVESTMENT IN THE FUND October 31, 1997 - September 30, 2004* Clover S&P 500 Russell 1000 LCF Index Value Index ------ ------- ------------ Oct 31 97 10000 10000 10000 Sep 98 9347 11283 10657 Sep 99 11793 14419 12652 Sep 00 14133 16334 13779 Sep 01 11947 11986 12551 Sep 02 9598 9530 10424 Sep 03 11779 11855 12964 Sep 04 13436 13499 15624 *These figures represent past performance, which is no guarantee of future results. The investment return and principal value of an investment will fluctuate, so an investor's shares, when redeemed, may be worth more or less than its original cost. The performance in the above graph does not reflect the deduction of taxes the shareholder will pay on fund distributions or the redemptions of fund shares. The inception date of the Constellation Clover Large Cap Value Fund is October 31, 1997. ANNUALIZED TOTAL RETURNS Periods ending September 30, 2004 Past 1 Past 3 Past 5 Since year years years inception 14.07% 4.00% 2.64% 4.36% Constellation Funds 2004 Annual Report | 7 INVESTMENT REVIEW CONSTELLATION CLOVER CORE VALUE FUND INVESTMENT PHILOSOPHY & PROCESS The Constellation Clover Core Value Fund is sub-advised by Clover Capital Management. The Fund seeks to produce attractive returns by investing in a diversified portfolio of stocks. The Fund invests in a broad range of large, medium and small capitalization companies which typically are found in the Russell 3000 Value Index. Clover Capital Management focuses on companies that trade at attractive values relative to their cash flow, book value, financial strength, peer and company-specific historical valuation. Clover believes that application of classic value investment disciplines can yield attractive long term returns. Using a combination of valuation screens, technical analysis, and fundamental research, the analyst team seeks to find companies that have inexpensive valuations and improving business fundamentals. FUND PERFORMANCE & POSITIONING For the fiscal year ended September 30, 2004 the Constellation Clover Core Value Fund posted a total return of 20.75% compared with a total return for the Russell 3000 Value Index of 20.89% and 25.62% for the Russell Midcap Value Index. According to Lipper, the Fund ranked 135 out of 212 mid-cap value funds for the one year period ending September 30, 2004, placing it in the 64th percentile. Strong stock selection and a significant overweighting in the healthcare sector contributed positively to results for the year. Several holdings in the energy sector, including Valero Energy and Pioneer Natural Resources also contributed positively to results. Other holdings in the Fund posting strong individual performance results include Countrywide Credit Industry, a diversified financial services company focusing on residential mortgage banking and Brunswick, a global manufacturer of fitness, leisure and boating products. The Fund's underweight position in Real Estate Investment Trusts hindered performance. The technology sector also detracted from performance for the period, largely due to the poor performance of Maxtor, a manufacturer of disk drives and computer storage devices, which was down more than 50% due to fierce price competition in the computer storage market. The Fund was also hurt by poor performance from radio broadcast company, Clear Channel Communications and advertising company, Interpublic Group. Fund management believed that many advertising, media and communications companies were well positioned to benefit from a robust recovery in advertising spurred on by the presidential election and the summer Olympics. Significant media events such as these typically drive profits for media companies, but an oversupply of airtime and other factors kept pricing low and the expectations for a recovery were not met. While many of these companies remain healthy, generating free cash flow and maintaining strong fundamentals, the stocks of these companies suffered. There were no significant changes to Fund strategy during the period. Clover Capital Management remained focused on identifying inexpensive stocks with improving fundamentals and improving investor sentiment. The current positioning of the Fund remains consistent. The largest sector investment is in financial services companies, with an emphasis on regional banks and personal lines insurance operators. The Fund continues to be underweight REITs. At the individual stock level, Management trims positions in stocks that have performed well and invests the proceeds in stocks of companies that are well positioned but whose stocks have not risen to their full potential. 8 | Constellation Funds 2004 Annual Report INVESTMENT REVIEW CONSTELLATION CLOVER CORE VALUE FUND FUND PROFILE As of September 30, 2004 Ticker CCEVX - ---------------------------------------------------- CUSIP 21038A604 - ---------------------------------------------------- % in 10 largest holdings 21.8% - ---------------------------------------------------- # of holdings 65 - ---------------------------------------------------- Price/Earnings Ratio (wtd. harmonic avg.) 14.76 - ---------------------------------------------------- Weighted Average Market Capitalization $12.2 billion - ---------------------------------------------------- Net assets $60 million - ---------------------------------------------------- Top 10 Holdings 1 Jones Apparel Group 2 CVS 3 Safeco 4 Countrywide Credit Industry 5 Radian Group 6 Ingram Micro, Cl A 7 SCANA 8 Pioneer Natural Resources 9 Yellow Roadway 10 CMS Energy Investment Style value blend growth --------------------------- large | | | | Market --------------------------- Capitalization medium |XXXXXXX| | | --------------------------- small | | | | --------------------------- SECTOR WEIGHTINGS+ 26.0% Financials 15.7% Cash Equivalents 11.3% Utilities 9.4% Industrials 8.5% Health Care 8.4% Consumer Discretionary 7.4% Information Technology 5.3% Consumer Staples 4.4% Materials 3.6% Energy +Percentages based on total investments LIPPER INC. PERFORMANCE RANKING As of September 30, 2004 LIPPER MID-CAP VALUE CATEGORY PERIOD RANK PERCENTILE 10 year (24 of 36 funds) 67% - ---------------------------------------------------- 5 year (65 of 100 funds) 65% - ---------------------------------------------------- 3 year (106 of 149 funds) 71% - ---------------------------------------------------- 1 year (135 of 212 funds) 64% GROWTH OF $10,000 INVESTMENT IN THE FUND September 30, 1994 - September 30, 2004* Clover Russell Russell Russell Core Value Midcap Value 3000 3000 Fund Index Index Value Index ---------- ------------ ----------- ------------ Sep 30 94 10000 10000 10000 10000 Sep 95 12543 12475 12931 12672 Sep 96 13926 14439 15390 14887 Sep 97 17606 20250 21342 21190 Sep 98 16550 19499 22330 21608 Sep 99 17564 21316 28207 25419 Sep 00 19965 24087 33338 27796 Sep 01 20864 24078 24034 25578 Sep 02 19535 22763 19510 21514 Sep 03 23756 29205 24568 26868 Sep 04 28686 36687 28071 32481 *These figures represent past performance, which is no guarantee of future results. The investment return and principal value of an investment will fluctuate, so an investor's shares, when redeemed, may be worth more or less than its original cost. The performance in the above graph does not reflect the deduction of taxes the shareholder will pay on fund distributions or the redemptions of fund shares. The inception date of the Constellation Clover Core Value Fund is December 6, 1991. ANNUALIZED TOTAL RETURNS Periods ending September 30, 2004 Past 1 Past 3 Past 5 Past 10 Since year years years years inception 20.75% 11.19% 10.31% 11.11% 11.63% Constellation Funds 2004 Annual Report | 9 INVESTMENT REVIEW CONSTELLATION CLOVER SMALL CAP VALUE FUND INVESTMENT PHILOSOPHY & PROCESS The Constellation Clover Small Cap Value Fund is sub-advised by Clover Capital Management. The Fund holds a diversified portfolio of stocks, focused on companies with market capitalizations that fall in the small cap category similar to the Russell 2000 Index. Clover Capital focuses on companies that trade at attractive values relative to their cash flow, book value, financial strength, peer and company-specific historical valuation. Clover believes that application of classic value investment disciplines within the smaller company universe can yield attractive long term returns. Using a combination of valuation screens, technical analysis, and fundamental research, the analyst team seeks to find companies that have inexpensive valuations and improving business fundamentals. FUND PERFORMANCE & POSITIONING For the fiscal year ended September 30, 2004 the Constellation Clover Small Cap Value Fund gained 23.72%, net of expenses, compared with a return of 25.66% for the Russell 2000 Value Index and a return of 18.77% for the Russell 2000 Index. According to Lipper, for the one year period ending September 30, 2004, the Fund ranked 120 out of 237 small cap value funds, placing it in the 51st percentile among peers. Performance was positively impacted by stock selection in the consumer discretionary, industrials and materials sectors. This strength was partially offset by sub-optimal selection within the financial services and energy sectors. Overall, sector & industry allocation had a negative impact on performance, as the benefit of underweighting the telecommunications segment was overwhelmed by the negative impact of an underweight position in materials and an overweight position in technology. The Fund's holdings in AK Steel Holding, a steel producer, American Eagle Outfitters, a casual clothing retailer focused on the teen and young adult market, Vans, a merchandiser of sports footware and apparel and Reliant Energy, a producer of electricity and ancillary services, contributed positively to results for the period. Several companies within the portfolio detracted from performance during the year. These include Maxtor, a manufacturer of disk drives and computer storage devices, Calpine, a power company, and Intermet, a company specializing in the manufacture of castings for the automotive and industrials business. Management made no major changes to Fund strategy during the period. Clover Capital Management remains focused on identifying inexpensive stocks with improving fundamentals and improving investor sentiment. Over the course of the last twelve months, the management team moved to reduce major overweight and underweight positions and bring the portfolio exposure more in line with that of the the Russell 2000 Value benchmark. This marginal shift was implemented in response to the maturing economic cycle and an investing environment characterized by extending valuations and higher share prices. The Fund's portfolio managers felt that the environment generally presented fewer opportunities for the portfolio to benefit from price dislocations within individual stocks and sectors and, as a result, positioned the Fund with greater sensitivity to benchmark weightings. 10 | Constellation Funds 2004 Annual Report INVESTMENT REVIEW CONSTELLATION CLOVER SMALL CAP VALUE FUND FUND PROFILE As of September 30, 2004 Ticker TCSVX - ---------------------------------------------------- CUSIP 21038A828 - ---------------------------------------------------- % in 10 largest holdings 9.8% - ---------------------------------------------------- # of holdings 151 - ---------------------------------------------------- Price/Earnings Ratio (wtd. harmonic avg.) 17.92 - ---------------------------------------------------- Weighted Average Market Capitalization $1.2 billion - ---------------------------------------------------- Net assets $540 million - ---------------------------------------------------- Top 10 Holdings 1 FelCor Lodging Trust 2 CMS Energy 3 AGCO 4 Province Healthcare 5 Stewart & Stevenson Services 6 Providian Financial 7 Platinum Underwriters Holdings 8 BankAtlantic Bancorp, Cl A 9 Webster Financial 10 Owens-Illinois Investment Style value blend growth ---------------------------- large | | | | Market ---------------------------- Capitalization medium | | | | ---------------------------- small |XXXXXXX| | | ---------------------------- SECTOR WEIGHTINGS+ 28.1% Cash Equivalents 20.4% Financials 12.7% Industrials 11.4% Consumer Discretionary 8.6% Information Technology 4.9% Materials 4.1% Health Care 3.6% Utilities 3.6% Energy 1.7% Consumer Staples 0.9% Telecommunication Services +Percentages based on total investments LIPPER INC. PERFORMANCE RANKING As of September 30, 2004 LIPPER SMALL CAP VALUE CATEGORY PERIOD RANK PERCENTILE 5 year (34 of 132 funds) 26% - ---------------------------------------------------- 3 year (142 of 172 funds) 83% - ---------------------------------------------------- 1 year (120 of 237 funds) 51% GROWTH OF $10,000 INVESTMENT IN THE FUND February 29, 1996 - September 30, 2004* Clover Small Cap Russell 2000 Russell 2000 Value Fund Index Value Index ---------- ------------ ------------- Feb 29 96 10000 10000 10000 Sep 96 10838 10752 10785 Sep 97 16169 14320 15385 Sep 98 12733 11596 13417 Sep 99 15511 13808 14199 Sep 00 20101 17037 16381 Sep 01 22543 13424 17299 Sep 02 20584 12175 17047 Sep 03 26072 16619 22444 Sep 04 32256 19739 28203 *These figures represent past performance, which is no guarantee of future results. The investment return and principal value of an investment will fluctuate, so an investor's shares, when redeemed, may be worth more or less than its original cost. The performance in the above graph does not reflect the deduction of taxes the shareholder will pay on fund distributions or the redemptions of fund shares. The inception date of the Constellation Clover Small Cap Value Fund is February 28, 1996. ANNUALIZED TOTAL RETURNS Periods ending September 30, 2004 Past 1 Past 3 Past 5 Since year years years inception 23.72% 12.69% 15.77% 14.60% Constellation Funds 2004 Annual Report | 11 INVESTMENT REVIEW CONSTELLATION CLOVER CORE FIXED INCOME FUND INVESTMENT PHILOSOPHY & PROCESS The Constellation Clover Core Fixed Income Fund is sub-advised by Clover Capital Management. The Fund seeks to produce attractive long-term total rates of return and a high level of current income by investing in a diversified portfolio of bonds. The Fund maintains a laddered maturity structure and a weighted average duration that is consistent with an intermediate-term bond portfolio. However, individual bonds may have a final maturity from one month to thirty years or more. The Fund focuses its investment in those sectors and individual issues that, in aggregate, are expected to produce a total rate of return greater than the return earned on the Lehman Aggregate Bond Index. Clover Capital Management combines a top down macro economic outlook with individual security selection evaluation and techniques. Factors such as the business cycle, Federal Reserve policy, and credit spreads are taken into account to establish an overall framework for sector allocation and yield curve positioning, as well as the overall posture of the portfolio (offensive or defensive). FUND PERFORMANCE & POSITIONING For the fiscal year ended September 30, 2004, the Constellation Clover Core Fixed Income Fund posted a net total return of 2.97% versus 3.68% for the Lehman Aggregate Bond Index. According to Lipper, the Fund ranked 287 out of 444 intermediate investment grade bond funds for the one year period ending September 30, 2004, placing it in the 65th percentile. The vast majority of the Fund's performance shortfall occurred during the first quarter of the fiscal year (September 30, 2003-December 31, 2003) and was primarily due to the strong performance in the corporate bond market. The rally in that sector was a continuation of the recovery from the prior year's debacle of corporate scandals. The Fund's relative performance was adversely impacted by the rally in corporate bonds because the Fund maintains a bias towards high quality issuers in the corporate sector. During most sharp moves in the market, lower quality and higher beta companies tend to lead performance in both directions. That phenomenon was evident in this rally as well, as lower quality issuers outpaced the Fund's higher quality holdings. While the Fund did experience some material spread tightening in bonds such as XTO Energy 7.50% due 4/15/12, as well as a tender offer for the holding in SLMA 0% due 10/3/22, this was offset by holdings in long Treasury bonds which underperformed similar maturity corporate bonds. Since 12/31/03, the Fund has performed much more in line with its benchmark as some of the steam ran out of the corporate bond rally and the Fund shifted its focus to that of income generation. With interest rates at relatively low absolute levels and credit spreads very tight, Fund managers expect that opportunities to earn principal appreciation in the bond market will be limited. Therefore, the Fund has concentrated on adding yield and improving its spread versus the benchmark while still maintaining a relatively high overall credit quality. In this environment, individual security selection will be increasingly important. During the past year, the Clover Capital Management added attractive holdings in the mortgage backed securities sector, as well as corporate bonds issued by companies including Thermo Electron, ConAgra Foods, and Bisys Group. Clover Capital Management intends to continue with this theme of bolstering the portfolio's yield through individual security selection to support returns in a challenging environment. 12 | Constellation Funds 2004 Annual Report INVESTMENT REVIEW CONSTELLATION CLOVER CORE FIXED INCOME FUND FUND PROFILE As of September 30, 2004 Ticker TCFIX - ---------------------------------------------------- CUSIP 21038A703 - ---------------------------------------------------- % in 10 largest holdings 38.4% - ---------------------------------------------------- # of holdings 57 - ---------------------------------------------------- Weighted Average Effective Duration 4.42 - ---------------------------------------------------- Weighted Average Quality AA3 - ---------------------------------------------------- Weighted Average Yield 4.13% - ---------------------------------------------------- Net assets $32 million - ---------------------------------------------------- Top 10 Holdings 1 FNMA Pool #254759 2 U.S. Treasury Bonds 3 Dial 4 FNMA Pool #738783 5 Marsh & McClennan 6 FNMA Pool #689022 7 Natural Fuel Gas 8 U.S. Treasury Bonds 9 Scana 10 Roadway Duration short long --------------------------- high | |XXXXXXXXX| | --------------------------- Quality | | | | --------------------------- low | | | | --------------------------- SECTOR WEIGHTINGS+ 41.9% Corporate Obligations 36.0% U.S. Government Mortgage-Backed Obligations 13.0% U.S. Treasury Obligations 3.5% U.S. Government Agency Obligations 3.2% Cash Equivalents 2.4% Convertible Bonds +Percentages based on total investments LIPPER INC. PERFORMANCE RANKING As of September 30, 2004 LIPPER INTERMEDIATE INVESTMENT GRADE BOND CATEGORY PERIOD RANK PERCENTILE 10 year (39 of 113 funds) 35% - ---------------------------------------------------- 5 year (113 of 258 funds) 44% - ---------------------------------------------------- 3 year (189 of 348 funds) 54% - ---------------------------------------------------- 1 year (287 of 444 funds) 65% GROWTH OF $10,000 INVESTMENT IN THE FUND September 30, 1994 - September 30, 2004* Clover Lehman Core Fixed US Aggregate Income Fund Bond Index ----------- ------------ Sep 30 94 10000 10000 Sep 95 11382 11407 Sep 96 11973 11964 Sep 97 13126 13129 Sep 98 14612 14639 Sep 99 14351 14585 Sep 00 15386 15604 Sep 01 17231 17625 Sep 02 18756 19141 Sep 03 19388 20174 Sep 94 19964 20916 *These figures represent past performance, which is no guarantee of future results. The investment return and principal value of an investment will fluctuate, so an investor's shares, when redeemed, may be worth more or less than its original cost. The performance in the above graph does not reflect the deduction of taxes the shareholder will pay on fund distributions or the redemptions of fund shares. The inception date of the Constellation Clover Core Fixed Income Fund is December 6, 1991. ANNUALIZED TOTAL RETURNS Periods ending September 30, 2004 Past 1 Past 3 Past 5 Past 10 Since year years years years inception 2.97% 5.03% 6.82% 7.16% 6.96% Constellation Funds 2004 Annual Report | 13 INVESTMENT REVIEW CONSTELLATION CHARTWELL ULTRA SHORT DURATION FIXED INCOME FUND INVESTMENT PHILOSOPHY & PROCESS The Constellation Chartwell Ultra Short Duration Fund is sub-advised by Chartwell Investment Partners. The Fund seeks to provide above market income, liquidity, and risk-adjusted total return. Fund management targets these goals using a low risk approach, selecting a core group of securities from better yielding sectors within the government markets, and enhancing liquidity and yield by combining very short maturities with fixed rate issues in a barbell structure. The Fund avoids higher risk strategies, including exposure to non-dollar currencies and lower quality credits. The Fund generally has a targeted duration of 0.5 years and holds 100% of the portfolio in government quality issues. FUND PERFORMANCE & POSITIONING For the 12 months ending September 30, 2004, the Fund returned 1.63% (Class I Shares), outperforming the Merrill Lynch 3-Month U.S. Treasury Bill Index return of 1.10%. During this period, the Fund has outperformed the average return of 1.12% achieved by funds in the Lipper Ultra Short Obligation category group. A move to generally higher interest rates, including an increase in the Fed Funds rate from 1.0% to 1.75%, had the most significant impact on short-term fixed income performance during the last year. Under these conditions, the Fund's performance benefited from its focus on better yielding securities because this excess income provided a cushion against higher rates. During the year, the Fund added a significant position in floating rate securities as Fund management anticipated a gradual increase in rates along with solid economic growth. This shift from fixed to floating rate securities provided both a rising income stream and a defensive price structure against rising rates. Longer term (2 to 3 years) fixed rate mortgage securities were the least defensive part of the fund's portfolio and lagged in return. 14 | Constellation Funds 2004 Annual Report INVESTMENT REVIEW CONSTELLATION CHARTWELL ULTRA SHORT DURATION FIXED INCOME FUND FUND PROFILE As of September 30, 2004 Ticker (Class I/Class II) TSDOX/TDGOX - ---------------------------------------------------- CUSIP (Class I/Class II) 21038A802/21038A885 - ---------------------------------------------------- % in 10 largest holdings 24.5% - ---------------------------------------------------- # of holdings 91 - ---------------------------------------------------- Weighted Average Effective Duration 0.62 - ---------------------------------------------------- Weighted Average Quality Government - ---------------------------------------------------- Weighted Average Life 0.70 - ---------------------------------------------------- SEC 30-day Yield 2.54% - ---------------------------------------------------- Net assets (CI/CII) $392 mil/$9 mil - ---------------------------------------------------- Top 10 Holdings 1 FNMA CMO/REMIC Ser 2002-81, Cl F 2 FNMA CMO/REMIC Ser 2002-82, Cl PC 3 GNMA CMO/REMIC Ser 2003-34, Cl PM 4 FHLMC CMO/REMIC Ser 2463, Cl PE 5 FHLB 6 FHLMC CMO/REMIC Ser 2586, Cl XG 7 FHLMC CMO/REMIC Ser 2650, Cl FX 8 FHLMC CMO/REMIC Ser 2527, Cl LU 9 FNMA CMO/REMIC Ser 2003-46, Cl PA 10 FHLMC CMO/REMIC Ser 2799, Cl F Duration short long -------------------------- high |XXXXXXX| | | -------------------------- Quality | | | | -------------------------- low | | | | -------------------------- SECTOR WEIGHTINGS+ 68.4% U.S. Government Mortgage-Backed Obligations 27.3% Cash Equivalents 4.3% U.S. Government Agency Obligations +Percentages based on total investments LIPPER INC. PERFORMANCE RANKING* As of September 30, 2004 LIPPER ULTRA SHORT OBLIGATION CATEGORY PERIOD RANK PERCENTILE 10 year (5 of 17 funds) 29% - ---------------------------------------------------- 5 year (12 of 29 funds) 41% - ---------------------------------------------------- 3 year (20 of 41 funds) 49% - ---------------------------------------------------- 1 year (13 of 72 funds) 18% *Rankings for Class I Shares GROWTH OF $10,000 INVESTMENT IN THE FUND September 30, 1994 - September 30, 2004* Chartwell Chartwell Merrill Lynch Ultra Short Ultra Short 3-month Dur FIF Dur FIF U.S. Treasury Class 1 Class 2 Bill Index ----------- ----------- ------------- Sep 30 94 10000 10000 10000 Sep 95 10688 10661 10588 Sep 96 11439 11382 11168 Sep 97 12147 12057 11770 Sep 98 12903 12891 12401 Sep 99 13592 13535 12984 Sep 00 14454 14348 13734 Sep 01 15479 15326 14483 Sep 02 15935 15738 14773 Sep 03 16158 15919 14968 Sep 04 16422 16139 15132 *These figures represent past performance, which is no guarantee of future results. The investment return and principal value of an investment will fluctuate, so an investor's shares, when redeemed, may be worth more or less than its original cost. The performance in the above graph does not reflect the deduction of taxes the shareholder will pay on fund distributions or the redemptions of fund shares. The inception date of the Constellation Chartwell Ultra Short Duration Fixed Income Fund (Class I Shares) is March 1, 1994. **Class II Shares were offered beginning on February 27, 1998. Class II Shares' performance for the periods prior to February 27, 1998 reflects the performance of the Fund's Class I Shares. The performance of the Class II Shares has been adjusted for the differences in fees between classes. ANNUALIZED TOTAL RETURNS Periods ending September 30, 2004 Past 1 Past 3 Past 5 Past 10 Since year years years years inception Class I Shares 1.63% 1.99% 3.85% 5.09% 5.03% Class II Shares 1.38% 1.74% 3.58% 4.90%** 4.84%** Constellation Funds 2004 Annual Report | 15 INVESTMENT REVIEW CONSTELLATION CHARTWELL SHORT DURATION FIXED INCOME FUND INVESTMENT PHILOSOPHY & PROCESS The Constellation Chartwell Short Duration Fixed Income Fund is sub-advised by Chartwell Investment Partners. The Fund seeks to provide above market income, liquidity, and risk-adjusted total return. Fund management targets these goals using a low risk approach, selecting a core group of securities from better yielding sectors within the government and corporate markets, and enhancing liquidity and yield by combining very short maturities with fixed rate issues in a barbell structure. The Fund avoids higher risk strategies, including exposure to non-dollar currencies and below "A" rated credits. The Fund generally has an average duration of between 1.5 and 2.0 years and holds no more than 20% of the portfolio in non-government issues. FUND PERFORMANCE & POSITIONING For the 12 months ending September 30, 2004, the Fund returned 1.84% (Class I Shares), outperforming the Lehman 1-3 Year U.S. Government Bond Index return of 1.16%. During this period, the Fund has outperformed the average return of 1.28% achieved by funds in the Lipper Short-Intermediate US Government category group. A move to generally higher interest rates, including an increase in the Fed Funds rate from 1.0% to 1.75%, had the most significant impact on short-term fixed income performance during the last year. Under these conditions, the Fund's performance benefited from its focus on better yielding securities because this excess income provided a cushion against higher rates. The Fund's high quality bias resulted in some lost opportunity for greater income from low quality credit issues, but is in keeping with the Fund's goal of avoiding higher risk strategies. Short maturity MBS passthrough securities and CMO's provided attractive income with limited price volatility as rates rose. Longer term (4+ years) fixed rate mortgage securities were the least defensive part of the Fund's portfolio. To enhance liquidity, the Fund has modestly shifted its MBS exposure into passthroughs by reducing its CMO weighting. 16 | Constellation Funds 2004 Annual Report INVESTMENT REVIEW CONSTELLATION CHARTWELL SHORT DURATION FIXED INCOME FUND FUND PROFILE As of September 30, 2004 Ticker (CI I/CI II) TSDGX/TDGTX - ---------------------------------------------------- CUSIP (CI I/CI II) 21038A877/21038A869 - ---------------------------------------------------- % in 10 largest holdings 30.1% - ---------------------------------------------------- # of holdings 87 - ---------------------------------------------------- Weighted Average Effective Duration 1.46 - ---------------------------------------------------- Weighted Average Quality Government - ---------------------------------------------------- Weighted Average Life 1.55 - ---------------------------------------------------- SEC 30-day Yield 3.17% - ---------------------------------------------------- Net assets (CI I/CI II) $172 mil/$3 mil - ---------------------------------------------------- Top 10 Holdings 1 FNMA Pool #535560 2 FNMA CMO/REMIC Ser 2001-68, Cl JL 3 FNMA CMO/REMIC Ser 2003-34, Cl GJ 4 FHLMC CMO/REMIC Ser 2416, Cl PN 5 FHLMC CMO/REMIC Ser 2515, Cl ED 6 FHLMC CMO/REMIC Ser 2590, Cl UL 7 FHLMC 8 FHLMC CMO/REMIC Ser 2744, Cl TA 9 FHLB 10 FNMA Pool #725284 SECTOR WEIGHTINGS+ 67.9% U.S. Government Mortgage-Backed Obligations 19.2% Cash Equivalents 7.4% U.S. Government Agency Obligations 3.7% Corporate Obligations 1.8% Asset Backed Securities +Percentages based on total investments LIPPER INC. PERFORMANCE RANKING* As of September 30, 2004 LIPPER SHORT-INTERMEDIATE US GOVERNMENT CATEGORY PERIOD RANK PERCENTILE 10 year (26 of 42 funds) 62% - ---------------------------------------------------- 5 year (54 of 69 funds) 78% - ---------------------------------------------------- 3 year (61 of 74 funds) 82% - ---------------------------------------------------- 1 year (14 of 81 funds) 17% *Rankings for Class I Shares Duration short long -------------------------- high |XXXXXXX| | | -------------------------- Quality | | | | -------------------------- low | | | | -------------------------- GROWTH OF $10,000 INVESTMENT IN THE FUND September 30, 1994 - September 30, 2004* Lehman Chartwell Chartwell 1-3 Year Short Dur Short Dur US Gov FIF Class 1 FIF Class 2 Bond Index ----------- ----------- ---------- Sep 30 94 10000 10000 10000 Sep 95 10879 10852 10818 Sep 96 11534 11477 11431 Sep 97 12353 12262 12219 Sep 98 13350 13221 13188 Sep 99 13736 14365 13609 Sep 00 14560 15215 14403 Sep 01 15921 16600 15940 Sep 02 16668 17352 16873 Sep 03 17026 17662 17345 Sep 04 17339 17959 17546 *These figures represent past performance, which is no guarantee of future results. The investment return and principal value of an investment will fluctuate, so an investor's shares, when redeemed, may be worth more or less than its original cost. The performance in the above graph does not reflect the deduction of taxes the shareholder will pay on fund distributions or the redemptions of fund shares. The inception date of the Constellation Chartwell Short Duration Fixed Income Fund (Class I Shares) is March 1, 1994. **Class II Shares were offered beginning on April 28, 1999. Class II Shares' performance for the periods prior to April 28, 1999 reflects the performance of the Fund's Class I Shares. The performance of the Class II Shares has been adjusted for the differences in fees between the classes. ANNUALIZED TOTAL RETURNS Periods ending September 30, 2004 Past 1 Past 3 Past 5 Past 10 Since year years years years inception Class I Shares 1.84% 2.88% 4.77% 5.66% 5.43% Class II Shares 1.68% 2.66% 4.57% 6.03%** 5.77%** Constellation Funds 2004 Annual Report | 17 INVESTMENT REVIEW CONSTELLATION CHARTWELL HIGH YIELD FUND INVESTMENT PHILOSOPHY & PROCESS The Constellation Chartwell High Yield Fund is sub-advised by Chartwell Investment Partners ("Chartwell"). Chartwell's philosophy of high yield bond management is defensive, stressing preservation of principal and compounding of the income stream as the keys to adding value in the high yield bond market. The Fund focuses on the higher quality tiers of the market, principally the BB and B-rated sectors, and on cash-pay issues only, which offer an attractive yield premium but a sharply lower incidence of credit erosion relative to the market as a whole. In evaluating investment candidates, Chartwell takes the perspective of a lender. The Fund emphasizes low beta companies with proven, predictable business models, and multiple sources of repayment. In particular, the focus is on large capitalization issues demonstrating attributes of financial transparency, stable-to-improving cash flow, internal deleveraging capacity, and ample financial flexibility. Chartwell's investment process relies heavily on the collective judgement of their portfolio management team. A formal credit committee meets weekly to address new purchase ideas, assess credit developments, and set portfolio strategy. The investment selection process is primarily bottom-up, with business cycle and interest rate analysis incorporated into the determination of industry exposure. New purchase decisions are debated by the group as a whole, and must be unanimous. Portfolios typically consist of 80-100 issues, with carefully controlled issue and industry concentrations. Duration is managed to within plus or minus one year of the reference index. Sell decisions may be initiated by any individual member of the credit committee, and are triggered by adverse credit or industry developments, price depreciation relative to the index, or excessive spread compression. FUND PERFORMANCE & POSITIONING For the 12 months ending September 30, 2004, the Fund returned 9.34%, net of expenses, compared to 12.23% for the Merrill Lynch High Yield, Cash Pay Index, and 11.26% for the Lipper High Current Yield fund average. The Fund experienced notably different performance patterns over the course of the twelve months ending September 30, 2004. During the first half of the year, from September 30, 2003 through March 31, 2004, the Fund underperformed, returning 5.13% vs. 8.21% for the Merrill Lynch High Yield, Cash Pay Index. However, the Fund outperformed the Index for the remainder of the year, from March 31, 2004 through September 30, 2004, returning 4.01% vs. 3.72% for the index. The performance shortfall during the first half of the year is attributable principally to three factors: the Fund's overweighting in single B issues, which underperformed both higher quality BB's and lower quality CCC's during the period; a significant underweight in electric utilities, which were strong performers during the last quarter of 2003 and comprised nearly 10% of the Index as of September 30, 2003; and the impact of trading costs due to above average fund cash flows during the first 6 months of the fiscal year. While the Fund's overweighting in single B issues hurt performance during the first six months of the fiscal year, that position contributed to the Fund's outperformance during the latter six months of the year. Single B issues proved to be the top performing sector from March 31, 2004 through September 30, 2004. Based on Fund management's expectation of an improving economy and gradually rising interest rates, the Fund is maintaining an overweight on economically sensitive B-rated issuers. Similarly, the decision to underweight utilities hurt performance during the first half of the year but helped during the second. The Fund maintains an underweight in electric utilities because the bulk of the issuers in the sector are rated CCC by S&P and Moodys. These ratings reflect overleveraged balance sheets, excessive financial complexity, and the impact of high energy prices on their operating margins. The Fund maintained a bias toward Single B issues throughout the year, but lowered exposure to the richly valued homebuilder and energy sectors. Exposure to industrial cyclicals increased during the period. In general, single B issues may be more likely to outperform when the economy is in an expansion phase and interest rates are rising. While recent economic data arguably points to a somewhat more moderate rate of growth, Fund management believes the the potential for continued economic expansion remains intact. Accordingly, the Fund is maintaining a consistent portfolio posture entering the 2005 fiscal year, with particular emphasis on B-rated consumer and industrial cylicals. 18 | Constellation Funds 2004 Annual Report INVESTMENT REVIEW CONSTELLATION CHARTWELL HIGH YIELD FUND FUND PROFILE As of September 30, 2004 Ticker PCSHX - ---------------------------------------------------- CUSIP 21038A851 - ---------------------------------------------------- % in 10 largest holdings 14.8% - ---------------------------------------------------- # of holdings 94 - ---------------------------------------------------- Weighted Average Market Capitalization ($ million) $10.2 - ---------------------------------------------------- Weighted Average Quality B - ---------------------------------------------------- Weighted Average Yield 8.3% - ---------------------------------------------------- Net assets $10 million - ---------------------------------------------------- Top 10 Holdings 1 Lasis Healthcare 2 Courtyard by Marriott, Ser B 3 Coinmach 4 Aztar 5 Ship Finance International 6 Mandaly Resort Group 7 Chesapeake Energy 8 Nextel Communications 9 AES 10 NRG Energy Duration short long -------------------------- high | | | | -------------------------- Quality | | | | -------------------------- low | |XXXXXXX| | -------------------------- SECTOR WEIGHTINGS+ 31.0% Consumer Discretionary 25.1% Industrials 10.9% Materials 7.8% Cash Equivalents 5.8% Health Care 4.7% Consumer Staples 4.4% Telecommunication Services 4.4% Financials 2.8% Utilities 2.6% Energy 0.5% Information Technology +Percentages based on total investments LIPPER INC. PERFORMANCE RANKING As of September 30, 2004 LIPPER HIGH CURRENT YIELD CATEGORY PERIOD RANK PERCENTILE 5 year (262 of 276 funds) 95% - ---------------------------------------------------- 3 year (331 of 350 funds) 95% - ---------------------------------------------------- 1 year (364 of 420 funds) 87% GROWTH OF $10,000 INVESTMENT IN THE FUND February 28, 1998 - September 30, 2004* Chartwell Merrill High Yield Lynch Bond Fund High Yield ---------- ---------- Feb 28 98 10000 10000 Sep 98 9278 9895 Sep 99 10080 10265 Sep 00 10137 10391 Sep 01 7739 10045 Sep 02 7116 9825 Sep 03 8653 12598 Sep 04 9461 14139 *These figures represent past performance, which is no guarantee of future results. The investment return and principal value of an investment will fluctuate, so an investor's shares, when redeemed, may be worth more or less than its original cost. The performance in the above graph does not reflect the deduction of taxes the shareholder will pay on fund distributions or the redemptions of fund shares. The inception date of the Constellation Chartwell High Yield Fund is February 27, 1998. Prior to May 1, 2002, Penn Capital Management Company, Inc. served as investment adviser to the Fund. ANNUALIZED TOTAL RETURNS Periods ending September 30, 2004 Past 1 Past 3 Past 5 Since year years years inception 9.34% 6.93% (1.26)% (0.84)% Constellation Funds 2004 Annual Report | 19 INVESTMENT REVIEW CONSTELLATION HLAM LARGE CAP VALUE FUND INVESTMENT PHILOSOPHY & PROCESS The Constellation HLAM Large Cap Value Fund is sub-advised by Hilliard Lyons Asset Management ("Hilliard Lyons"). The Fund invests in equity securities of U.S. companies with large market capitalizations that the manager believes to be high quality companies selling at compelling valuations. Hilliard Lyons creates a focused portfolio of 25 to 30 stocks that emphasizes companies that they believe have an enduring competitive advantage over their competition. Hilliard Lyons also strives to reduce the business risk of the portfolio; by focusing on shareholder-oriented management teams that have deployed capital to the benefit of shareholders over the years, they seek to reduce the company specific risk in the portfolio. By purchasing stocks at compelling valuations, a minimum discount of 25% of their calculation of intrinsic value, they seek to reduce the amount of price risk in the portfolio. Portfolio turner is generally very low because Hilliard Lyons emphasizes long-term ownership of companies and eschews trading in and out of different stocks. FUND PERFORMANCE & POSITIONING For the time period since the inception of the fund on April 30, 2004, through September 30, 2004, the Fund returned (1.58)% versus a gain of 5.00% for its benchmark, the Russell 1000 Value Index. Management concentrates the Fund's holdings in companies that have traditionally earned high returns on capital and that they believe have some sustainable advantage over their competition. Generally, these are not characteristics of companies in the energy, utilities and materials sectors of the economy, and as a result the Fund was underweighted in these sectors. During the 5 month period ended September 30, 2004, these sectors lead the performance of the Russell 1000 Value Index by a wide margin. Consequently, the Fund's performance trailed the Index significantly. As the price of oil and other commodities continued to soar ever higher, the prices of stocks in those sectors have benefited. The Fund's portfolio managers believe that most of the companies in those sectors do not earn their cost of capital over an entire economic cycle and, therefore, are not compelling businesses to own over longer periods of time. Fund management is comfortable with both the quality and the valuations of the businesses owned in the Fund. Berkshire Hathaway, Home Depot, Automatic Data Processing, Johnson & Johnson and PepsiCo are among the Fund's largest holdings. Although short-term performance has lagged, these types of companies are attempting to increase their intrinsic value consistently over time and the Fund's portfolio managers believe that this excellent business performance will be reflected in attractive rates of return over the next several years. 20 | Constellation Funds 2004 Annual Report INVESTMENT REVIEW CONSTELLATION HLAM LARGE CAP VALUE FUND FUND PROFILE As of September 30, 2004 Ticker HLCVX - ---------------------------------------------------- CUSIP 21038A836 - ---------------------------------------------------- % in 10 largest holdings 50.4% - ---------------------------------------------------- # of holdings 28 - ---------------------------------------------------- Price/Earnings Ratio (wtd. harmonic avg.) 17.97 - ---------------------------------------------------- Weighted Average Market Capitalization $43.4 billion - ---------------------------------------------------- Net assets $1 million - ---------------------------------------------------- Top 10 Holdings 1 Berkshire Hathaway, Cl B 2 Cincinnati Financial 3 Home Depot 4 Freddie Mac 5 Automatic Data Processing 6 Waters 7 American International Group 8 Johnson & Johnson 9 First Data 10 PepsiCo Investment Style value blend growth ---------------------------- large |XXXXXXX| | | Market ---------------------------- Capitalization medium | | | | ---------------------------- small | | | | ---------------------------- SECTOR WEIGHTINGS+ 34.2% Financials 26.3% Consumer Discretionary 15.1% Health Care 12.6% Consumer Staples 9.0% Information Technology 2.2% Telecommunication Services 0.6% Cash Equivalents +Percentages based on total investments GROWTH OF $10,000 INVESTMENT IN THE FUND April 30, 2004 - September 30, 2004* HLAM S&P 500 Large Cap Barra Russell 1000 Value Fund Value Index Value Index ---------- ----------- ------------ Apr 30 04 10000 10000 10000 Sep 04 9842 10442 10500 *These figures represent past performance, which is no guarantee of future results. The investment return and principal value of an investment will fluctuate, so an investor's shares, when redeemed, may be worth more or less than its original cost. The performance in the above graph does not reflect the deduction of taxes the shareholder will pay on fund distributions or the redemptions of fund shares. The inception date of the Constellation HLAM Large Cap Value Fund is April 30, 2004. CUMULATIVE TOTAL RETURNS Periods ending September 30, 2004 Since inception (1.58%) Constellation Funds 2004 Annual Report| 21 INVESTMENT REVIEW CONSTELLATION PITCAIRN DIVERSIFIED VALUE FUND INVESTMENT PHILOSOPHY & PROCESS The Constellation Pitcairn Diversified Value Fund is sub-advised by Pitcairn Investment Management ("Pitcairn"). The Fund invests in a diversified portfolio of equity securities that Pitcairn's analysts believe have exceptional appreciation potential relative to their sector and industry peers. The Fund is managed with the goal of producing returns in excess of its benchmark, the Russell 1000 Value Index, while keeping exposure to risk characteristics similar to that of the benchmark. The management process is designed to generate excess returns through superior stock selection. Management seeks to identify stocks with strong fundamental characteristics which are attractively priced relative to their peer groups. FUND PERFORMANCE & POSITIONING For the one-year period ended September 30, 2004, the Fund returned 18.23%. This compares to a 20.52% return for the Russell 1000 Value Index. The Constellation Pitcairn Diversified Value Fund ranked at the 46th percentile (214 out of 461 funds) when compared to the Lipper Multi-Cap Value category over the twelve-month period. Because the Fund maintains sector exposures that are consistent with those in the Russell 1000 Value, security selection is the most significant driver of Fund performance. Unfortunately, stock selection in the Fund over this time period did not meet expectations and performance suffered. While the Fund had a number of stocks that provided outstanding returns over the past year, it likewise had a number of stocks that turned in disappointing returns. The Fund did benefit from a modest tilt toward stocks with lower than average price/earnings multiples, lower dividend yields and smaller market capitalizations. This was offset to some degree by management's preference for stocks with stronger relative growth characteristics. A number of holdings posted very strong absolute and relative performance results. Among the stocks contributing most significantly to overall returns were: Norfolk Southern, a rail transportation holding company, Rockwell Automation, a provider of industrial automation products and systems, TXU, an electric utilities company. The Fund also benefited from strong stock selection within the financial services sector, which averaged more than 36% of the portfolio during the period. FleetBoston Financial, Countrywide Financial, First Bancorp of Puerto Rico and North Fork Bancorporation delivered good results for the year. Merck was the most significant detractor from performance for the year. This was largely attributable to a significant one day decline on the last trading day of the fiscal year prompted by the company's voluntary withdrawal of Vioxx, a widely prescribed drug treating arthritis and pain. Other companies detracting from Fund performance included Intuit, a company specializing in software for personal and small business finance, Micron Technology, a semiconductor company and Tribune, a media and newspaper company. There were no significant changes in the Fund's strategy during the year. The only changes made to the Fund's positioning were in response to Russell's mid year index reconstitution. These changes included modest increases and decreases to sector and industry exposures. 22 | Constellation Funds 2004 Annual Report INVESTMENT REVIEW CONSTELLATION PITCAIRN DIVERSIFIED VALUE FUND FUND PROFILE As of September 30, 2004 Ticker PTDVX - ---------------------------------------------------- CUSIP 21038A794 - ---------------------------------------------------- % in 10 largest holdings 35.1% - ---------------------------------------------------- # of holdings 53 - ---------------------------------------------------- Price/Earnings Ratio (wtd. harmonic avg.) 16.36 - ---------------------------------------------------- Weighted Average Market Capitalization $66.2 billion - ---------------------------------------------------- Net assets $152 million - ---------------------------------------------------- Top 10 Holdings 1 Exxon Mobil 2 Citigroup 3 Wells Fargo 4 ChevronTexaco 5 MBNA 6 North Fork Bancorporation 7 Bear Stearns 8 Walt Disney 9 Rockwell Automation 10 Hibernia, Cl A Investment Style value blend growth ---------------------------- large |XXXXXXX| | | Market ---------------------------- Capitalization medium | | | | ---------------------------- small | | | | ---------------------------- SECTOR WEIGHTINGS+ 37.1% Financials 13.3% Consumer Discretionary 11.5% Energy 9.7% Industrials 6.8% Information Technology 5.8% Utilities 5.4% Telecommunication Services 3.7% Consumer Staples 3.2% Health Care 2.6% Materials 0.9% Exchange Traded Funds +Percentages based on total investments LIPPER INC. PERFORMANCE RANKING As of September 30, 2004 LIPPER MULTI-CAP VALUE CATEGORY PERIOD RANK PERCENTILE 3 year (97 of 341 funds) 28% - ---------------------------------------------------- 1 year (214 of 461 funds) 46% GROWTH OF $10,000 INVESTMENT IN THE FUND August 31, 2000 - September 30, 2004* Pitcairn Russell 1000 DVF Value Index -------- ------------ Aug 31 00 10000 10000 Sep 00 10122 10092 Sep 01 9079 9193 Sep 02 7858 7635 Sep 03 9774 9495 Sep 04 11556 11444 *These figures represent past performance, which is no guarantee of future results. The investment return and principal value of an investment will fluctuate, so an investor's shares, when redeemed, may be worth more or less than its original cost. The performance in the above graph does not reflect the deduction of taxes the shareholder will pay on fund distributions or the redemptions of fund shares. The inception date of the Constellation Pitcairn Diversified Value Fund is August 4, 2000. ANNUALIZED TOTAL RETURNS Periods ending September 30, 2004 Past 1 Past 3 Since year years inception 18.23% 8.37% 3.94% Constellation Funds 2004 Annual Report | 23 INVESTMENT REVIEW CONSTELLATION PITCAIRN SELECT VALUE FUND INVESTMENT PHILOSOPHY & PROCESS The Constellation Pitcairn Select Value Fund is sub-advised by Pitcairn Investment Management ("Pitcairn"). Pitcairn constructs a focused portfolio of equity securities that its analysts believe have exceptional appreciation potential. The portfolio is structured to keep risk exposures controlled relative to the Russell 1000 Value benchmark. Individual security selection is expected to be the source for any excess returns. FUND PERFORMANCE & POSITIONING For the one-year period ended September 30, 2004, the Constellation Pitcairn Select Value Fund returned 17.45%. This compares to a 20.52% return posted by the Russell 1000 Value Index. The Constellation Pitcairn Select Value Fund ranked at the 53rd percentile (246 out of 461 funds) when compared to the Lipper Multi-Cap Value category over the twelve-month period. The Fund benefited from a bias toward smaller stocks in the first six months of the year when small capitalization stocks far outpaced large capitalization stocks. The Russell 2000 Index advanced close to 22% in the first half of the fiscal year compared to about 13% for the Russell 1000 Index. That effect faded in the second half of the year as large cap stocks began to outperform their smaller counterparts. In addition, while value stocks outperformed growth stocks over the time period, the Fund was disadvantaged by its emphasis on stocks with more pronounced growth characteristics. Individual holdings posting strong results include Alliance Data Systems, a data processing and services company, Countrywide Financial, a diversified financial services company, ChevronTexaco, a petroleum and chemical company, Rockwell Automation, a provider of industrial automation products and services and Spinnaker Exploration, an idependent energy company engaged in the exploration and production of oil and gas. These holdings contributed positively to results for the year. Companies detracting from performance included Flextronics, an electronics manufacturer, Kohl's, a department store retailer, Walt Disney, a diversified entertainment company and CenturyTel, a communications company focused on providing local exchange telephone services. There were no significant changes to the Constellation Pitcairn Select Value Fund's strategy during the year. The only changes made to the Fund, with regard to positioning, were in response to Russell's mid year index reconstitution. These changes included some modest increases and decreases to sector and industry exposures. 24 | Constellation Funds 2004 Annual Report INVESTMENT REVIEW CONSTELLATION PITCAIRN SELECT VALUE FUND FUND PROFILE As of September 30, 2004 Ticker PTSVX - ---------------------------------------------------- CUSIP 21038A752 - ---------------------------------------------------- % in 10 largest holdings 47.0% - ---------------------------------------------------- # of holdings 31 - ---------------------------------------------------- Price/Earnings Ratio (wtd. harmonic avg.) 16.57 - ---------------------------------------------------- Weighted Average Market Capitalization $47.9 billion - ---------------------------------------------------- Net assets $62 million - ---------------------------------------------------- Top 10 Holdings 1 North Fork Bancorporation 2 Stancorp Financial Group 3 Walt Disney 4 ChevronTexaco 5 MBNA 6 Sprint 7 Capital One Financial 8 Rockwell Automation 9 Radian Group 10 Devon Energy Investment Style value blend growth ---------------------------- large |XXXXXXX| | | Market ---------------------------- Capitalization medium | | | | ---------------------------- small | | | | ---------------------------- SECTOR WEIGHTINGS+ 35.6% Financials 12.0% Energy 10.0% Information Technology 8.9% Industrials 8.3% Consumer Staples 8.3% Consumer Discretionary 5.6% Utilities 4.7% Telecommunication Services 3.6% Health Care 2.0% Materials 0.6% Exchange Traded Funds 0.4% Cash Equivalents +Percentages based on total investments LIPPER INC. PERFORMANCE RANKING As of September 30, 2004 LIPPER MULTI-CAP VALUE CATEGORY PERIOD RANK PERCENTILE 3 year (296 of 341 funds) 87% - ---------------------------------------------------- 1 year (246 of 461 funds) 53% GROWTH OF $10,000 INVESTMENT IN THE FUND August 31, 2000 - September 30, 2004* Pitcairn Russell 1000 SVF Value Index -------- ------------ Aug 31 00 10000 10000 Sep 00 10514 10092 Sep 01 10094 9193 Sep 02 7757 7635 Sep 03 9628 9495 Sep 04 11308 11444 *These figures represent past performance, which is no guarantee of future results. The investment return and principal value of an investment will fluctuate, so an investor's shares, when redeemed, may be worth more or less than its original cost. The performance in the above graph does not reflect the deduction of taxes the shareholder will pay on fund distributions or the redemptions of fund shares. The inception date of the Constellation Pitcairn Select Value Fund is August 11, 2000. ANNUALIZED TOTAL RETURNS Periods ending September 30, 2004 Past 1 Past 3 Since year years inception 17.45% 3.86% 3.31% Constellation Funds 2004 Annual Report | 25 INVESTMENT REVIEW CONSTELLATION PITCAIRN DIVERSIFIED GROWTH FUND INVESTMENT PHILOSOPHY & PROCESS The Constellation Pitcairn Diversified Growth Fund is sub-advised by Pitcairn Investment Management ("Pitcairn"). The Fund invests in a diversified portfolio of equity securities that Pitcairn's analysts have identified as having exceptional appreciation potential relative to their sector and industry peers. In managing the portfolio, Pitcairn employs a disciplined investment process focused on risk management and security selection. The risk management process is designed to emphasize security selection as the primary driver of our relative returns. This is accomplished by minimizing sector and thematic bets in the portfolio. Pitcairn's security selection methodology emphasizes a company's growth prospects and relative valuation. Management seeks to identify stocks that offer significant growth potential, but are attractively valued relative to their peers. FUND PERFORMANCE & POSITIONING For the fiscal year ending September 30, 2004, the Pitcairn Diversified Growth Fund posted a return of 7.68%. Over the same period, the Fund's benchmark, the Russell 1000(R) Growth Index returned 7.51%. The Constellation Pitcairn Diversified Growth Fund ranked at the 40th percentile (255 out of 631 funds) when compared to the Lipper Large-Cap Growth category over the twelve-month period. Over the past twelve months, the performance of the Fund was driven largely by security selection. The Fund experienced a positive impact from securities held in the portfolio and the decision not to own certain securities included in the benchmark. In addition, the Fund benefited from management's preference to own stocks with lower relative price to earnings multiples. Holdings in the financial services and consumer sectors contributed positively to performance for the year. Individual holdings posting strong relative results included AT&T Wireless and Starbucks. AT&T Wireless shares gained after the company put itself up for sale. Starbucks performance was in response to better than expected operating results. Holdings in the technology sector had the most significant negative impact on performance during the past year. Specific holdings that detracted from Fund performance included Veritas Software, a developer of data storage software, Intuit, a company specializing in software for personal and small business finance, and Flextronics International, a provider of electronic components for use in a wide range of product and industry applications. Several bright spots within the sector include Qualcomm, a provider of digital wireless communications products and services and Rockwell Automation, a provider of industrial automation products and systems. Both of these companies posted strong relative results that had a positive impact on performance in the Fund. There were no significant changes made to the Fund's strategy during the year. In addition, the only changes made to the Fund's portfolio with regard to positioning were in response to Russell's mid year index reconstitution. These changes included some modest increases and decreases to sector and industry exposures. 26 | Constellation Funds 2004 Annual Report INVESTMENT REVIEW CONSTELLATION PITCAIRN DIVERSIFIED GROWTH FUND FUND PROFILE As of September 30, 2004 Ticker PTDGX - ---------------------------------------------------- CUSIP 21038A810 - ---------------------------------------------------- % in 10 largest holdings 35.1% - ---------------------------------------------------- # of holdings 60 - ---------------------------------------------------- Price/Earnings Ratio (wtd. harmonic avg.) 21.04 - ---------------------------------------------------- Weighted Average Market Capitalization $78.8 billion - ---------------------------------------------------- Net assets $105 million - ---------------------------------------------------- Top 10 Holdings 1 Pfizer 2 Microsoft 3 Johnson & Johnson 4 PepsiCo 5 Medtronic 6 Cisco Systems 7 MBNA 8 Wal-Mart Stores 9 Home Depot 10 Procter & Gamble Investment Style value blend growth ---------------------------- large | | |XXXXXXXX| Market ---------------------------- Capitalization medium | | | | ---------------------------- small | | | | ---------------------------- SECTOR WEIGHTINGS+ 26.0% Information Technology 24.4% Health Care 17.9% Consumer Discretionary 10.3% Consumer Staples 9.4% Financials 7.0% Industrials 1.4% Exchange Traded Funds 1.4% Energy 1.0% Telecommunication Services 1.0% Materials 0.2% Cash Equivalents +Percentages based on total investments LIPPER INC. PERFORMANCE RANKING As of September 30, 2004 LIPPER LARGE-CAP GROWTH CATEGORY PERIOD RANK PERCENTILE 3 year (293 of 513 funds) 57% - ---------------------------------------------------- 1 year (255 of 631 funds) 40% GROWTH OF $10,000 INVESTMENT IN THE FUND August 31, 2000 - September 30, 2004* Pitcairn Russell DGF 1000 GI -------- ------- Aug 31 00 10000 10000 Sep 00 8899 9054 Sep 01 4986 4922 Sep 02 3719 3814 Sep 03 4607 4802 Sep 04 4960 5163 *These figures represent past performance, which is no guarantee of future results. The investment return and principal value of an investment will fluctuate, so an investor's shares, when redeemed, may be worth more or less than its original cost. The performance in the above graph does not reflect the deduction of taxes the shareholder will pay on fund distributions or the redemptions of fund shares. The inception date of the Constellation Pitcairn Diversified Growth Fund is August 4, 2000. ANNUALIZED TOTAL RETURNS Periods ending September 30, 2004 Past 1 Past 3 Since year years inception 7.68% (0.17)% (13.92)% Constellation Funds 2004 Annual Report | 27 INVESTMENT REVIEW CONSTELLATION PITCAIRN SMALL CAP FUND INVESTMENT PHILOSOPHY & PROCESS The Constellation Pitcairn Small Cap Fund is sub-advised by Pitcairn Investment Management ("Pitcairn"). The Fund invests in a diversified portfolio of equity securities that Pitcairn's analysts believe have exceptional appreciation potential relative to their sector and industry peers. The Fund's primary focus is on small capitalization stocks. The Fund is diversified by issuer and industry and typically owns both value and growth stocks. In managing the portfolio, Fund management employs a disciplined investment process focused on risk management and security selection. The risk management process is designed to emphasize security selection as the primary driver of our relative returns. This is accomplished by minimizing sector and thematic bets in the portfolio. Pitcairn's security selection methodology emphasizes a company's growth prospects and relative valuation. Management seeks to identify stocks that offer significant growth potential, but are attractively valued relative to their peer groups. FUND PERFORMANCE & POSITIONING For the period ending September 30, 2004, the Constellation Pitcairn Small Cap Fund delivered a 19.72% return compared to 18.77% for the Russell 2000 Index. The Constellation Pitcairn Small Cap Fund ranked at the 53rd percentile (288 out of 541 funds) when compared to the Lipper Small Core category over the twelve-month period. A number of stocks enhanced the performance of the portfolio during the year, including Metris, a financial services company, Serologicals, a biotechnology company that engaged in corporate transactions that left the company focused on research/life sciences and improved operating results. First Bancorp of Puerto Rico benefited from solid profit growth and a higher multiple. Aeropostale, a specialty retailer focused on the teen and young adult market, enjoyed stronger same store sales which drove earnings and confidence in management's growth plan. Several of the Fund's holdings within the software and semiconductor industries detracted from performance for the year. Cypress Semiconductor, Kulicke and Soffa Industries, and Kana Software all sold off due to general slowing in semiconductor demand and an increasingly competitive software end market. Fund performance also was negatively impacted by Synovis Life Technolgies, a medical device company, and Collagenex Pharmaceuticals, a pharmaceutical company providing specialized medical therapies to the dental and dermatological markets. There were no significant changes to the Constellation Pitcairn Small Cap Fund strategy. The only changes made to the Fund, with regard to positioning, were in response to Russell's mid year index reconstitution. These changes included some modest increases and decreases to sector and industry exposures. 28 | Constellation Funds 2004 Annual Report INVESTMENT REVIEW CONSTELLATION PITCAIRN SMALL CAP FUND FUND PROFILE As of September 30, 2004 Ticker PTMVX - ---------------------------------------------------- CUSIP 21038A745 - ---------------------------------------------------- % in 10 largest holdings 29.8% - ---------------------------------------------------- # of holdings 67 - ---------------------------------------------------- Price/Earnings Ratio (wtd. harmonic avg.) 20.99 - ---------------------------------------------------- Weighted Average Market Capitalization $936.7 million - ---------------------------------------------------- Net assets $93 million - ---------------------------------------------------- Top 10 Holdings 1 Metris 2 Hyperion Solutions 3 Capital Automotive REIT 4 California Pizza Kitchen 5 Aeroflex 6 Lionbridge Technologies 7 Serologicals 8 Laureate Education 9 Aeropostale 10 Belden CDT Investment Style value blend growth ---------------------------- large | | | | Market ---------------------------- Capitalization medium | | | | ---------------------------- small | | |XXXXXXXX| ---------------------------- SECTOR WEIGHTINGS+ 22.1% Information Technology 21.3% Financials 13.0% Health Care 12.9% Consumer Discretionary 10.2% Industrials 5.7% Energy 5.2% Materials 4.2% Consumer Staples 2.3% Utilities 1.4% Telecommunication Services 0.9% Cash Equilvalents 0.8% Exchange Traded Funds +Percentages based on total investments LIPPER INC. PERFORMANCE RANKING As of September 30, 2004 LIPPER SMALL CAP CORE CATEGORY PERIOD RANK PERCENTILE 3 year (208 of 434 funds) 48% - ---------------------------------------------------- 1 year (288 of 541 funds) 53% GROWTH OF $10,000 INVESTMENT IN THE FUND August 31, 2000 - September 30, 2004* Pitcairn Russell 2000 Russell 2000 SCF Index Value Index -------- ------------ ------------ Aug 31 97 10000 10000 10000 Sep 00 10059 9706 9943 Sep 01 10412 7647 10501 Sep 02 10111 6936 10347 Sep 03 12822 9468 13624 Sep 04 15350 11245 17119 *These figures represent past performance, which is no guarantee of future results. The investment return and principal value of an investment will fluctuate, so an investor's shares, when redeemed, may be worth more or less than its original cost. The performance in the above graph does not reflect the deduction of taxes the shareholder will pay on fund distributions or the redemptions of fund shares. The inception date of the Constellation Pitcairn Small Cap Fund is August 25, 2000. ANNUALIZED TOTAL RETURNS Periods ending September 30, 2004 Past 1 Past 3 Since year years inception 19.72% 13.82% 11.40% Constellation Funds 2004 Annual Report | 29 INVESTMENT REVIEW CONSTELLATION PITCAIRN FAMILY HERITAGE(R) FUND INVESTMENT PHILOSOPHY & PROCESS The Constellation Pitcairn Family Heritage(R) Fund is sub-advised by Pitcairn Investment Management ("Pitcairn"). The Fund invests in a portfolio of equity securities that Pitcairn's analysts believe offer exceptional appreciation potential relative to their sector and industry peers. The Fund invests predominantly in companies in which the founding family still maintains significant influence over the direction of the firm. Influence may take the form of significant ownership by the family or a related foundation, senior executive positions held by family members or significant board presence of founding family members. The Fund is managed with the goal of producing returns in excess of its benchmark, the Wilshire 5000 Index, while keeping exposure to risk characteristics similar to that of the benchmark. Pitcairn's security selection methodology emphasizes a company's growth prospects and relative valuation. Management seeks to identify stocks that offer significant growth potential, but are attractively valued relative to their peer groups. FUND PERFORMANCE & POSITIONING For the one-year period ended September 30, 2004, the Fund returned 16.15%. This compares to a 14.76% return from the Wilshire 5000 Index and a 14.26% return for the Russell 3000 Index. The Constellation Pitcairn Family Heritage(R) Fund ranked in the 20th percentile (139 out of 684 funds) when compared to the Lipper Multi-Cap Core category over the twelve-month period. Over the past year, the Fund benefited from a modest tilt toward stocks with smaller market capitalizations and lower price/earnings multiples and dividend yields. This benefit was somewhat offset by management's preference for stocks with stronger than average growth characteristics, as growth stocks generally were out of favor over the last twelve months. Stock selection played a significant role in performance for the period. Portfolio holdings that contributed positively to performance over the past year included Yahoo!, an Internet services and search company, Qualcomm, a provider of digital wireless communications products and services, Worthington Industries (70%), Westport Resources, a steel processing company and Fastenal, an industrial and construction supply wholesaler. Detractors from Fund performance over the past year included King Pharmaceuticals, Vishay Intertechnology, an electronic components manufacturer, Albany Molecular Research, a drug development company and Viacom, a diversified broadcast and entertainment company. There were no significant changes to the Fund's strategy or positioning during the past year. 30 | Constellation Funds 2004 Annual Report INVESTMENT REVIEW CONSTELLATION PITCAIRN FAMILY HERITAGE(R) FUND FUND PROFILE As of September 30, 2004 Ticker PTFMX - ---------------------------------------------------- CUSIP 21038A786 - ---------------------------------------------------- % in 10 largest holdings 33.6% - ---------------------------------------------------- # of holdings 53 - ---------------------------------------------------- Price/Earnings Ratio (wtd. harmonic avg.) 19.58 - ---------------------------------------------------- Weighted Average Market Capitalization $41.0 billion - ---------------------------------------------------- Net assets $78 million - ---------------------------------------------------- Top 10 Holdings 1 Microsoft 2 Eli Lilly 3 Wal-Mart Stores 4 Stryker 5 MBNA 6 TCF Financial 7 Dell 8 iShares Dow Jones US Utilities Sector Index Fund 9 Berkshire Hathaway, Cl B 10 Kerr-McGee Investment Style value blend growth ---------------------------- large | | |XXXXXXXX| Market ---------------------------- Capitalization medium | | | | ---------------------------- small | | | | ---------------------------- SECTOR WEIGHTINGS+ 23.5% Financials 18.8% Information Technology 12.3% Health Care 10.8% Consumer Discretionary 10.1% Industrials 9.7% Consumer Staples 6.4% Energy 4.5% Exchange Traded Funds 2.9% Materials 0.7% Telecommunication Services 0.3% Utilities +Percentages based on total investments LIPPER INC. PERFORMANCE RANKING As of September 30, 2004 LIPPER MULTI-CAP CORE CATEGORY PERIOD RANK PERCENTILE 3 year (126 of 501 funds) 25% - ---------------------------------------------------- 1 year (139 of 684 funds) 20% GROWTH OF $10,000 INVESTMENT IN THE FUND September 30, 1994 - September 30, 2004* Pitcairn Family Hertigage(R) Wilshire Fund 5000 Index --------- ---------- Sep 30 94 10000 10000 Sep 95 11440 12910 Sep 96 12578 15353 Sep 97 17952 21191 Sep 98 19059 21886 Sep 99 24102 27785 Sep 00 29031 32639 Sep 01 22470 23196 Sep 02 19628 19132 Sep 03 23671 24154 Sep 04 27494 27720 *These figures represent past performance, which is no guarantee of future results. The investment return and principal value of an investment will fluctuate, so an investor's shares, when redeemed, may be worth more or less than its original cost. The performance in the above graph does not reflect the deduction of taxes the shareholder will pay on fund distributions or the redemptions of fund shares. The inception date of the Constellation Pitcairn Family Heritage(R) Fund is October 31, 1989. **For periods prior to August 4, 2000, when the Fund began operating, the performance data quoted represents past performance of the Sub-Adviser's similarly managed common trust fund, adjusted to reflect fees and expenses expected to be borne by the Fund. The common trust fund was not a registered mutual fund, and therefore was not subject to certain investment and tax restrictions which may have adversely affected performance. The common trust fund changed its investment strategy in April 1996. ANNUALIZED TOTAL RETURNS Periods ending September 30, 2004 Past 1 Past 3 Past 5 Past 10 Since year years years years inception 16.15% 6.96% 2.67%** 10.64%** 10.09%** Constellation Funds 2004 Annual Report | 31 INVESTMENT REVIEW CONSTELLATION PITCAIRN TAXABLE BOND FUND INVESTMENT PHILOSOPHY & PROCESS The Fund is managed with a focus on seeking maximum total rates of return consistent with moderate risk of capital and maintenance of liquidity. The Fund invests in a broad range of investment grade fixed income securities across the full maturity spectrum. Investments are actively managed with the goal of achieving a total return advantage over the Lehman U.S. Government/Credit Index. Additional value is gained by anticipating changing credit conditions and identifying unique anomalies offered by the marketplace. FUND PERFORMANCE & POSITIONING For the fiscal year ended September 30, 2004, the Pitcairn Taxable Bond Fund returned 3.46%. In comparison, the benchmark, the Lehman U.S. Government/Credit Index returned 3.35%. The Constellation Pitcairn Taxable Bond Fund ranked at the 71st percentile when compared to the Lipper General Municipal Debt category over the twelve-month period. During the fiscal year, corporate bonds outperformed all other investment grade sectors. Tyco International Group, Ford Motor Credit, and Harman International were the best performing bonds in the portfolio, while AT&T bonds lagged. AT&T suffered after management announced it will discontinue marketing to new residential customers. This shift caused many analysts to adjust their cash flow projections downward and subsequently the credit was downgraded to non-investment grade levels. The performance of the other corporate holdings during the fiscal year more than compensated for the decline in value of the portfolios' AT&T holdings and produced excess returns, after fees and expenses, to the benchmark. We did not make any significant changes to the Constellation Pitcairn Taxable Bond Fund. 32 | Constellation Funds 2004 Annual Report INVESTMENT REVIEW CONSTELLATION PITCAIRN TAXABLE BOND FUND FUND PROFILE As of September 30, 2004 Ticker PTGCX - ---------------------------------------------------- CUSIP 21038A729 - ---------------------------------------------------- % in 10 largest holdings 36.6% - ---------------------------------------------------- # of holdings 42 - ---------------------------------------------------- Average Effective Duration 5.04 - ---------------------------------------------------- Average Quality AA3 - ---------------------------------------------------- Average Maturity 8.34 - ---------------------------------------------------- Average Current Yield 5.81% - ---------------------------------------------------- Net assets $43 million - ---------------------------------------------------- Top 10 Holdings 1 Tyco International Group 2 U.S. Treasury Bonds 3 General Motors Acceptance 4 FHLMC 5 FHLB, Ser TV06 6 Lehman Brothers Holdings 7 FNMA 8 TVA, Ser B 9 Standard Credit Card Master Trust, Ser 1994-2, Cl A 10 Harman International SECTOR WEIGHTINGS+ 56.1% Corporate Obligations 5.1% Asset Backed Securities 1.9% U.S. Government Mortgage-Backed Obligations 20.4% U.S. Government Agency Obligations 14.8% U.S. Treasury Obligations 1.7% Cash Equivalents +Percentages based on total investments LIPPER INC. PERFORMANCE RANKING As of September 30, 2004 LIPPER CORPORATE DEBT FUNDS BBB RATING CATEGORY PERIOD RANK PERCENTILE 3 year (93 of 131 funds) 71% - ----------------------------------------------------- 1 year (124 of 175 funds) 71% Duration short long ---------------------------- high | | |XXXXXXXX| Quality ---------------------------- | | | | ---------------------------- low | | | | ---------------------------- GROWTH OF $10,000 INVESTMENT IN THE FUND September 30, 1994 - September 30, 2004* CONSTELLATION Lehman US PITCAIRN TAXABLE Govt/Credit BOND FUND Index ------------- ----------- Sep 30 94 10000 10000 Sep 95 11406 11435 Sep 96 11813 11951 Sep 97 12892 13097 Sep 98 14483 14778 Sep 99 14135 14539 Sep 00 15081 15516 Sep 01 17118 17559 Sep 02 17984 19175 Sep 03 19270 20423 Sep 04 19937 21107 *These figures represent past performance, which is no guarantee of future results. The investment return and principal value of an investment will fluctuate, so an investor's shares, when redeemed, may be worth more or less than its original cost. The performance in the above graph does not reflect the deduction of taxes the shareholder will pay on fund distributions or the redemptions of fund shares. The inception date of the Constellation Pitcairn Taxable Bond Fund is December 31, 1988. **For periods prior to August 4, 2000, when the Fund began operating, the performance data quoted represents past performance of the Sub-Adviser's similarly managed common trust fund, adjusted to reflect fees and expenses expected to be borne by the Fund. The collective trust fund was not a registered mutual fund, and therefore was not subject to certain investment and tax restrictions which may have adversely affected performance. ANNUALIZED TOTAL RETURNS Periods ending September 30, 2004 Past 1 Past 3 Past 5 Past 10 Since year years years years inception 3.46% 5.21% 7.12%** 7.15%** 7.35%** Constellation Funds 2004 Annual Report | 33 INVESTMENT REVIEW CONSTELLATION PITCAIRN TAX-EXEMPT BOND FUND INVESTMENT PHILOSOPHY & PROCESS The Constellation Pitcairn Tax Exempt Bond Fund is sub-advised by Pitcairn Investment Management ("Pitcairn"). The Fund is managed with a focus on providing income, exempt from federal income taxes; ensuring total rates of return consistent with moderate risk of capital; and maintaining adequate liquidity. Pitcairn invests in a broad range of investment grade fixed income securities across the full maturity spectrum. The Fund is a national market portfolio. This national emphasis is designed to improve total return possibilities, while at the same time reducing risk. Investments are actively managed with the goal of achieving a total return advantage over the Lehman Municipal Bond Index. Additional value is gained by anticipating changing credit conditions and identifying unique anomalies offered by the marketplace. FUND PERFORMANCE & POSITIONING For the fiscal year ending September 30, 2004, the Constellation Pitcairn Tax-Exempt Bond Fund returned 3.60%. The Fund's benchmark, the Lehman Municipal Bond Index, returned 4.59%. The Constellation Pitcairn Tax-Exempt Bond Fund ranked at the 61st percentile (183 out of 299 funds) when compared to the Lipper General Municipal Debt category over the twelve-month period. As rates remain near 40 year lows, investors looked for yield in areas that have been out of favor over the past several years. The Fund's underweight in several sectors led to the underperformance relative to the index. The portfolio was underweight in bonds backed by the Tobacco Master Settlement Agreement and in California bonds. Despite continued headline risk associated with Tobacco bonds, the segment outperformed during the fiscal year, after excessively poor performance during the prior fiscal year. California bonds also beat the overall municipal bond index, as a new Governor was able to bring to market large bond issues that staved off a cash crunch at the state level. There were no significant changes to the strategy of the Constellation Pitcairn Tax-Exempt Bond Fund during the last year. 34 | Constellation Funds 2004 Annual Report INVESTMENT REVIEW CONSTELLATION PITCAIRN TAX-EXEMPT BOND FUND FUND PROFILE As of September 30, 2004 Ticker PTTEX - ---------------------------------------------------- CUSIP 21038A737 - ---------------------------------------------------- % in 10 largest holdings 22.9% - ---------------------------------------------------- # of holdings 82 - ---------------------------------------------------- Average Effective Duration 7.07 - ---------------------------------------------------- Average Quality AA1 - ---------------------------------------------------- Average Maturity 12.24 - ---------------------------------------------------- Average Current Yield 5.00% - ---------------------------------------------------- Net assets $114 million - ---------------------------------------------------- Top 10 Holdings 1 California State GO, AMBAC 2 Oklahoma City, Water Utilities Authority RB, Ser A 3 Las Vegas, New Convention & Visitors Center RB, AMBAC 4 University of Hawaii RB, Ser A, FGIC 5 Henry County, Water & Sewer Authority RB, AMBAC 6 Health Facilities Finance Authority RB, St. Francis Memorial Hospital, Ser C, ETM 7 Public Facilities Authority RB, Franciscan Missionaries Project, Ser A, FSA 8 Cape May County, Municipal Utilities Authority RB, FSA 9 New York City, Transitional Finance Authority RB, Ser A 10 Fort Worth Water & Sewer RB SECTOR WEIGHTINGS+ 15.1% General Obligation 14.8% Utilities 11.3% Medical 9.4% Facilities 9.0% Higher Education 7.1% Development 6.9% Transportation 5.7% Power 5.4% School District 4.9% General Revenue 2.8% Airport 1.5% Single Family Housing 1.1% Water 1.1% Cash Equivalents 1.0% Public Improvement 1.0% Pollution 1.0% Education 0.9% Multi-Family Housing +Percentages based on total investments Duration short long ---------------------------- high | |XXXXXXXX | | Quality ---------------------------- | | | | ---------------------------- low | | | | ---------------------------- LIPPER INC. PERFORMANCE RANKING As of September 30, 2004 LIPPER GENERAL MUNICIPAL DEBT CATEGORY PERIOD RANK PERCENTILE 3 year (65 of 265 funds) 25% - -------------------------------------------------------- 1 year (183 of 299 funds) 61% GROWTH OF $10,000 INVESTMENT IN THE FUND September 30, 1994 - September 30, 2004* CONSTELLATION Lehman PITCAIRN TAX-EXEMPT Municipal BOND FUND Bond Index -------------------- ---------- Sep 30 94 10000 10000 Sep 95 10786 11119 Sep 96 11250 11791 Sep 97 12150 12855 Sep 98 13121 13976 Sep 99 12898 13878 Sep 00 13577 14736 Sep 01 14932 16270 Sep 02 16246 17725 Sep 03 16833 18414 Sep 04 17439 19259 *These figures represent past performance, which is no guarantee of future results. The investment return and principal value of an investment will fluctuate, so an investor's shares, when redeemed, may be worth more or less than its original cost. The performance in the above graph does not reflect the deduction of taxes the shareholder will pay on fund distributions or the redemptions of fund shares. The inception date of the Constellation Pitcairn Tax-Exempt Bond Fund is August 31, 1988. **For periods prior to August 11, 2000, when the Fund began operating, the performance data quoted represents past performance of the Sub-Adviser's similarly managed common trust fund adjusted to reflect fees and expenses expected to be borne by the Fund. The common trust fund was not a registered mutual fund, and therefore was not subject to certain investment and tax restrictions which may have adversely affected performance. The common trust fund changed its investment strategy in January 1997. ANNUALIZED TOTAL RETURNS Periods ending September 30, 2004 Past 1 Past 3 Past 5 Past 10 Since year years years years inception 3.60% 5.31% 6.22%** 5.72%** 6.02%** Constellation Funds 2004 Annual Report | 35 INVESTMENT REVIEW CONSTELLATION SANDS CAPITAL SELECT GROWTH FUND INVESTMENT PHILOSOPHY & PROCESS The Constellation Sands Capital Select Growth Fund is sub-advised by Sands Capital Management ("Sands Capital"). Sands Capital's basic investment philosophy is that of a growth investor. In short, Sands Capital believes that "the secret to common stock price appreciation is sustained above average growth of earnings" and the investment process applied to the Fund is consistent with that belief. To execute on that philosophy, the Fund invests in 25 to 30 companies that management believes have the long-term potential to significantly outperform the relevant index, the Russell 1000 Growth Index(R). The portfolio management team at Sands Capital finds that companies meeting their investment criteria are generally high-quality, seasoned and growing businesses; spread across an array of attractive and growing business spaces. FUND PERFORMANCE & POSITIONING Despite a year punctuated by geopolitical uncertainty, rising fuel prices, and the political machinations common to a presidential election year, the Fund's focused portfolio of leading growth companies once again significantly outperformed the Russell 1000 Growth Index(R). The Fund's continued strong performance is a testament to the manager's time tested process of owning leading, high quality businesses in attractive growth industries. The Russell 1000 Growth Index(R) finished the year ending September 30, 2004 up 7.51%. By comparison, the Fund was up 15.45% (Class II Shares) resulting in outperformance of 7.94%. Overall stock selection contributed approximately 7.00% to relative Fund performance and overall sector weight deviations contributed more than 1.50%. These contributions were only slightly offset by the portfolio's overall style factors, which detracted less than 1.00% from overall Fund performance. The Fund was overweighted relative to the benchmark in eBay, Starbucks, and Qualcomm. These individual stock positions were all significant contributors to overall Fund performance. Detractors from relative performance include Krispy Kreme Doughnuts and Kohl's. Going forward, management continues to expect the companies in the Fund to capitalize on the sustainable, long-term advantages they have created and to generate above-average growth. Turnover, or changes to holdings in the Fund, has historically been very low. As a result, investors can expect the Fund to be a long term owner of these types of "businesses enterprises", regardless of short-term stock performance, as long as the companies continue to meet the investment criteria of Sands Capital. 36 | Constellation Funds 2004 Annual Report INVESTMENT REVIEW CONSTELLATION SANDS CAPITAL SELECT GROWTH FUND FUND PROFILE As of September 30, 2004 Ticker (Class I/Class II) CFSIX/PTSGX - ---------------------------------------------------- CUSIP (Class I/Class II) 21038A711/21038A760 - ---------------------------------------------------- % in 10 largest holdings 56.8% - ---------------------------------------------------- # of holdings 27 - ---------------------------------------------------- Price/Earnings Ratio (wtd. harmonic avg.) 32.67 - ---------------------------------------------------- Weighted Average Market Capitalization $51.9 billion - ---------------------------------------------------- Net assets(CI/CII) $33 mil/$70 mil - ---------------------------------------------------- Top 10 Holdings 1 eBay 2 Starbucks 3 Genentech 4 Capital One Financial 5 Apollo Group, Cl A 6 Dell 7 Lowe's 8 Qualcomm 9 Harley-Davidson 10 Medtronic SECTOR WEIGHTINGS+ 33.2% Consumer Discretionary 27.2% Health Care 26.8% Financials 18.8% Information Technology 8.3% Financials 5.5% Industrials 4.5% Consumer Staples 2.5% Cash Equivalents +Percentages based on total investments LIPPER INC. PERFORMANCE RANKING* As of September 30, 2004 LIPPER LARGE-CAP GROWTH CATEGORY PERIOD RANK PERCENTILE 3 year (3 of 513 funds) 1% - -------------------------------------------------------------------------- 1 year (8 of 631 funds) 1% *Rankings for Class II Shares Investment Style value blend growth ---------------------------- large | | |XXXXXXXX| Market ---------------------------- Capitalization medium | | | | ---------------------------- small | | | | ---------------------------- GROWTH OF $10,000 INVESTMENT IN THE FUND August 31, 2000 - September 30, 2004* Constellation Sands CONSTELLATION SANDS Capital Select Growth CAPITAL SELECT GROWTH Russell 1000 Fund, Class I FUND, CLASS II Growth Index --------------------- --------------------- ------------ Aug 31 00 10000 10000 10000 Sep 00 8841 8841 9054 Sep 01 4863 4863 4922 Sep 02 4186 4186 3814 Sep 03 5694 5694 4802 Sep 04 6573 6573 5163 *These figures represent past performance, which is no guarantee of future results. The investment return and principal value of an investment will fluctuate, so an investor's shares, when redeemed, may be worth more or less than its original cost. The performance in the above graph does not reflect the deduction of taxes the shareholder will pay on fund distributions or the redemptions of fund shares. The inception date of the Constellation Sands Capital Select Growth Fund (Class II Shares) is August 11, 2000. **Class I Shares were offered beginning on August 27, 2004. Class I Shares performance for the periods prior to August 27, 2004 reflects performance of the Fund's Class II Shares. The performance of the Class I Shares has not been adjusted for the differences in fees between the classes. ANNUALIZED TOTAL RETURNS Periods ending September 30, 2004 Past 1 Past 3 Since year years inception Class I Shares 15.45%** 10.57%** (8.89)%** Class II Shares 15.45% 10.57% (8.89)% Constellation Funds 2004 Annual Report | 37 INVESTMENT REVIEW CONSTELLATION TIP SMALL CAP VALUE OPPORTUNITIES FUND INVESTMENT PHILOSOPHY & PROCESS The Constellation TIP Small Cap Value Opportunities Fund is sub-advised by Turner Investment Partners ("Turner"). The Fund invests in securities of companies operating in a broad range of industries based primarily on a fundamental analysis of each company and due consideration of such characteristics as price to cash flow, price to earnings and price to book value ratios. Turner uses a series of qualitative screens to identify "hidden" assets that may signify attractive return potential to share prices. The Managers look to identify a catalyst for positive change in each company's fundamentals. They seek companies with quality management teams that can take advantage of unique product opportunities and emphasize companies that are undervalued in the marketplace. FUND PERFORMANCE & POSITIONING For the twelve months ending September 30, 2004, the Fund posted a gain of 29.36% verses a gain of 25.66% for its benchmark, the Russell 2000 Value Index. Contributing the most to performance during this time frame were holdings in the autos and transportation, utility, and materials and processing sectors. Within the autos and transportation sector, diesel engine manufacturer, China Yuchai Industries posted very strong relative performance. Marine shipping companies OMI and General Maritime were also contributors within the autos and transportation sector. The strong demand for oil and a significant increase in daily rates for shipping benefited both companies. In the utility sector, wireless holdings Alamosa Holdings and NII Holdings contributed positively to performance. Both companies delivered good operating results, increasing earnings estimates and cash flow, due to increases in the subscriber base and improved roaming charges. The sectors underperforming the benchmark were energy and consumer staples. A slight underweight in the oil & gas industry within the energy sector detracted from performance. In the consumer staples sector, Interstate Bakeries had a negative impact on the portfolio. The Fund had held the stock based on the expectation that this company would undergo a significant restructuring that would improve operations and profitability. Unfortunately, company management was unable to execute on this strategy and the stock suffered. The Fund sold the position in March of 2004, well in advance of the company's September 2004 Chapter 11 bankruptcy filing. There were no significant changes in the portfolio positioning or strategy during the twelve months ending September 30, 2004. 38 | Constellation Funds 2004 Annual Report INVESTMENT REVIEW CONSTELLATION TIP SMALL CAP VALUE OPPORTUNITIES FUND FUND PROFILE As of September 30, 2004 Ticker TSVOX - ---------------------------------------------------- CUSIP 21038A208 - ---------------------------------------------------- % in 10 largest holdings 14.1% - ---------------------------------------------------- # of holdings 87 - ---------------------------------------------------- Price/Earnings Ratio (wtd. harmonic avg.) 14.84 - ---------------------------------------------------- Weighted Average Market Capitalization $1.2 billion - ---------------------------------------------------- Net assets $15 million - ---------------------------------------------------- Top 10 Holdings 1 OMI 2 Laidlaw International 3 Capital Automotive REIT 4 Terex 5 Amerco 6 Sterling Financial 7 Lone Star Technologies 8 Measurement Specialties 9 Ralcorp Holdings 10 Roper Industries SECTOR WEIGHTINGS+ 23.0% Financials 21.0% Industrials 20.4% Cash Equivalents 6.8% Materials 5.9% Consumer Discretionary 5.1% Energy 4.6% Information Technology 4.6% Telecommunication Services 4.9% Health Care 1.9% Utilities 1.8% Consumer Staples +Percentages based on total investments Investment Style value blend growth ---------------------------- large | | | | Market ---------------------------- Capitalization medium | | | | ---------------------------- small |XXXXXXX| | | ---------------------------- LIPPER INC. PERFORMANCE RANKING As of September 30, 2004 LIPPER SMALL CAP CORE CATEGORY PERIOD RANK PERCENTILE 1 year (50 of 541 funds) 9% GROWTH OF $10,000 INVESTMENT IN THE FUND March 31, 2002 - September 30, 2004* CONSTELLATION TIP SMALL CAP VALUE Russell 2000 OPPORTUNITIES FUND Value Index ------------------ ------------ Mar 31 02 10000 10000 Sep 02 8737 7705 Sep 03 11995 10144 Sep 04 15517 12747 *These figures represent past performance, which is no guarantee of future results. The investment return and principal value of an investment will fluctuate, so an investor's shares, when redeemed, may be worth more or less than its original cost. The performance in the above graph does not reflect the deduction of taxes the shareholder will pay on fund distributions or the redemptions of fund shares. The inception date of the Constellation TIP Small Cap Value Opportunities Fund is March 4, 2002. ANNUALIZED TOTAL RETURNS Periods ending September 30, 2004 Past 1 Since year inception 29.36% 21.38% Constellation Funds 2004 Annual Report | 39 INVESTMENT REVIEW CONSTELLATION TIP FINANCIAL SERVICES FUND INVESTMENT PHILOSOPHY & PROCESS The Constellation TIP Financial Services Fund is sub-advised by Turner Investment Partners ("Turner"). The Fund invests primarily in common stocks of financial services companies. Turner pursues a bottom-up strategy that blends quantitative and qualitative analysis to find financial services firms with superior earnings prospects, reasonable valuation, and favorable trading-volume and pricing patterns. Management emphasizes the philosophy that earnings expectations drive stock prices and believes that long term performance can be best achieved be investing in companies with improving fundamentals and superior earnings dynamics. Turner employs a disciplined investment process blending a proprietary quantitative model, rigorous fundamental research, and technical analysis. A stock becomes a sell candidate if Turner detects deterioration in the company's earnings growth potential or if portfolio managers identify a better idea for the portfolio. FUND PERFORMANCE & POSITIONING For the twelve months ending September 30, 2004, the portfolio posted a gain of 12.31% versus a gain of 14.88% for its benchmark, the S&P 500 Financials Index. The Lipper average for Financial Services funds was 16.98% over that time frame. The Constellation TIP Financial Services Fund ranked in the 84th percentile (87 out of 103 funds) when compared to the Lipper Financial Services category over the twelve-month period. Following positive stock market performance in 2003, Turner's view was 2004 would bring continued improvement in the economy and the market. This perspective is represented in many of the Fund's holdings within the financial services sector. For example, two of the Fund's brokerage holdings that underperformed, Charles Schwab and Morgan Stanley, are well positioned to benefit from economic expansion and more favorable equity markets. Unfortunately, factors such as violence in Iraq, concerns about a terrorist attack at the Olympics and Democratic and Republican conventions, higher energy prices, and corporate scandals in the mutual fund industry weighed on the market and these stocks. For example, many slower growing regional banks were seen as a safe haven and outperformed, and the Fund did not own many issues operating in the segments of the industry that performed well. Regional bank performance was also aided by a pickup in acquisitions. The Fund did not own FleetBoston, however, which performed well due to the acquisition by Bank of America. Positive contributors to the Fund's performance for the year included CapitalSource, a commercial finance lender and First Marblehead, a company that provides services to the rapidly growing market for private student loans. Investors Financial Services continued to report consistent earnings growth and the stock performed well. In addition, selected holdings within the financial data processing services industry contributed to performance. Examples are Alliance Data Systems and Global Payments, both beneficiaries of the growth in debit and credit cards replacing cash and checks for transactions. The Fund remains positioned to take advantage of continued improvement in the economy and stock market. In Turner's view, holdings within the securities brokerage industry are trading at attractive valuations and will benefit from continued global expansion. Also, many of the Fund's bank holdings such as City National, Silicon Valley Bancshares and East-West Bancorp are thought to be well positioned to grow even in a rising interest rate environment. There were no significant changes to the strategy or positioning of the Fund during the twelve months ending September 30, 2004. 40 | Constellation Funds 2004 Annual Report INVESTMENT REVIEW CONSTELLATION TIP FINANCIAL SERVICES FUND FUND PROFILE As of September 30, 2004 Ticker TFFIX - ---------------------------------------------------- CUSIP 21038A307 - ---------------------------------------------------- % in 10 largest holdings 35.3% - ---------------------------------------------------- # of holdings 37 - ---------------------------------------------------- Price/Earnings Ratio (wtd. harmonic avg.) 14.98 - ---------------------------------------------------- Weighted Average Market Capitalization $38.6 billion - ---------------------------------------------------- Net assets $15 million - ---------------------------------------------------- Top 10 Holdings 1 Citigroup 2 American International Group 3 Goldman Sachs Group 4 American Express 5 Morgan Stanley 6 Northern Trust 7 Affiliated Managers Group 8 Wells Fargo 9 Silicon Valley Bancshares 10 Golden West Financial SECTOR WEIGHTINGS+ 76.1% Financials 15.0% Cash Equivalents 8.9% Information Technology +Percentages based on total investments LIPPER INC. PERFORMANCE RANKING As of September 30, 2004 LIPPER FINANCIAL SERVICES CATEGORY PERIOD RANK PERCENTILE 5 year (35 of 64 funds) 55% - ------------------------------------------------------------ 3 year (28 of 94 funds) 30% - ------------------------------------------------------------ 1 year (87 of 103 funds) 84% Investment Style value blend growth ---------------------------- large | |XXXXXXXX | | Market ---------------------------- Capitalization medium | | | | ---------------------------- small | | | | ---------------------------- GROWTH OF $10,000 INVESTMENT IN THE FUND May 31, 1996 - September 30, 2004* CONSTELLATION TIP FINANCIAL SERVICES S&P 500 FUND Financials Index ------------------ ---------------- May 31 96 10000 10000 Sep 96 10752 10939 Sep 97 16893 17212 Sep 98 14579 16772 Sep 99 17684 19625 Sep 00 24439 26264 Sep 01 19326 22736 Sep 02 17204 19412 Sep 03 23389 24434 Sep 04 26269 28070 *These figures represent past performance, which is no guarantee of future results. The investment return and principal value of an investment will fluctuate, so an investor's shares, when redeemed, may be worth more or less than its original cost. The performance in the above graph does not reflect the deduction of taxes the shareholder will pay on fund distributions or the redemptions of fund shares. The inception date of the Constellation TIP Financial Services Fund is May 22, 1996. (1) Returns prior to November 12, 2001, represent performance of the Titan Financial Services Fund. ANNUALIZED TOTAL RETURNS(1) Periods ending September 30, 2004 Past 1 Past 3 Past 5 Since year years years inception 12.31% 10.77% 8.24% 12.27% Constellation Funds 2004 Annual Report | 41 INVESTMENT REVIEW CONSTELLATION TIP HEALTHCARE & BIOTECHNOLOGY FUND INVESTMENT PHILOSOPHY & PROCESS The Constellation TIP Healthcare & Biotechnology Fund is sub-advised by Turner Investment Partners ("Turner"). The Fund invests primarily in common stocks of healthcare and biotechnology companies. Turner pursues a bottom-up investment strategy that blends quantitative and qualitative analysis to find growth companies with superior earnings prospects, reasonable valuations, and favorable trading-volume and pricing patterns. Management emphasizes the philosophy that earnings expectations drive stock prices and believes that long term performance can be best achieved by investing in companies with improving fundamentals and superior earnings dynamics. Turner employs a disciplined investment process blending a proprietary quantitative model, rigorous fundamental research, and technical analysis. A stock becomes a sell candidate if Turner detects deterioration in the company's earnings growth potential or if portfolio managers identify a better idea for the portfolio. FUND PERFORMANCE & POSITIONING For the twelve months ending September 30, 2004, the Fund posted a gain of 12.12% verses a gain of 4.80% for its benchmark, the S&P 500 Healthcare Index. The Lipper average for Healthcare/Biotechnology funds was 9.16% over that time frame. The Constellation TIP Healthcare & Biotechnology Fund ranked in the 15th percentile (30 out of 194 funds) when compared to the Lipper Healthcare/ Biotechnology category over the twelve-month period. The biotechnology and managed care industries had the largest positive contribution to overall performance in the portfolio. Aetna and PacifiCare Health Systems contributed to positive results within the managed care industry. The main factors driving managed care stock performance were strong EPS growth derived primarily from excellent SG&A leverage, as well as data from various actuarial surveys indicating that 2005 healthcare costs are expected to continue to decelerate. In the biotech industry, Gilead Sciences, which manufactures the HIV medicine, Viread, was a contributor to the quarter's performance. Genentech, with the successful launch of their colorectal cancer drug Avastin, and OSI Pharmaceuticals, with strong Phase III data on their lung cancer drug Tarceeva, were also strong biotech performers that contributed to performance. Within the healthcare service industry, Mariner Health Care, a nursing home operator, contributed to performance as it was acquired for a significant premium. In addition, the Fund was underweight pharmaceuticals and benefited from not owning Merck. Merck's performance suffered dramatically resulting from its Vioxx recall. The Vioxx recall raises concerns of increased FDA oversight, perhaps leading to the requirement of additional clinical trials and a lengthier approval process for new drugs to reach the market. The majority of the fund's underperformance came from the pharmaceutical industry. Teva Pharmaceutical Industries was a detractor in the generic pharmaceutical industry. Schering-Plough, Wyeth, and Endo Pharmaceuticals Holdings also detracted from performance. Pharmaceutical stocks were under pressure as investors reacted to negative political rhetoric and generally disappointing research and development pipelines. The weakness in this group is illustrated by the -0.50% loss for the DRG Index for the twelve months ending September 30, 2004. There were no significant changes in the portfolio positioning or strategy of the Fund during the twelve months ending September 30, 2004. 42 | Constellation Funds 2004 Annual Report INVESTMENT REVIEW CONSTELLATION TIP HEALTHCARE & BIOTECHNOLOGY FUND FUND PROFILE As of September 30, 2004 Ticker THBCX - ---------------------------------------------------- CUSIP 21038A109 - ---------------------------------------------------- % in 10 largest holdings 32.4% - ---------------------------------------------------- # of holdings 50 - ---------------------------------------------------- Price/Earnings Ratio (wtd. harmonic avg.) 20.65 - ---------------------------------------------------- Weighted Average Market Capitalization $22.8 billion - ---------------------------------------------------- Net assets $35 million - ---------------------------------------------------- Top 10 Holdings 1 Pfizer 2 Anthem 3 Boston Scientific 4 Zimmer Holdings 5 Caremark Rx 6 UnitedHealth Group 7 Aetna 8 Wyeth 9 Charles River Laboratories International 10 Gilead Sciences SECTOR WEIGHTINGS+ 83.9% Health Care 16.1% Cash Equivalents +Percentages based on total investments LIPPER INC. PERFORMANCE RANKING As of September 30, 2004 LIPPER HEALTH/BIOTECHNOLOGY CATEGORY PERIOD RANK PERCENTILE 3 year (21 of 152 funds) 14% - ------------------------------------------------------------- 1 year (30 of 194 funds) 15% Investment Style value blend growth ---------------------------- large | | | | Market ---------------------------- Capitalization medium | | |XXXXXXXX| ---------------------------- small | | | | ---------------------------- GROWTH OF $10,000 INVESTMENT IN THE FUND February 28, 2001 - September 30, 2004* CONSTELLATION TIP HEALTHCARE & S&P 500 BIOTECHNOLOGY FUND Healthcare Index ------------------ ---------------- Feb 28 01 10000 10000 Sep 01 11151 9467 Sep 02 9851 7393 Sep 03 12336 8239 Sep 04 13831 8634 *These figures represent past performance, which is no guarantee of future results. The investment return and principal value of an investment will fluctuate, so an investor's shares, when redeemed, may be worth more or less than its original cost. The performance in the above graph does not reflect the deduction of taxes the shareholder will pay on fund distributions or the redemptions of fund shares. The inception date of the Constellation TIP Healthcare & Biotechnology Fund is February 28, 2001. ANNUALIZED TOTAL RETURNS Periods ending September 30, 2004 Past 1 Past 3 Since year years inception 12.12% 7.44% 9.47% Constellation Funds 2004 Annual Report | 43 INVESTMENT REVIEW CONSTELLATION TIP TAX MANAGED U.S. EQUITY FUND INVESTMENT PHILOSOPHY & PROCESS The Constellation TIP Tax Managed U.S. Equity Fund is sub-advised by Turner Investment Partners ("Turner"). The Fund invests in a diversified portfolio of stocks that are favorably priced in relation to their fundamental value and which Turner believes are likely to grow over time. The investment strategy is sensitive to the potential impact of personal income tax on shareholders' investment return. Management emphasizes the philosophy that earnings expectations drive stock prices and believes that long term performance can be best achieved by investing in companies with improving fundamentals and superior earnings dynamics. Turner employs a disciplined investment process blending a proprietary quantitative model, rigorous fundamental research, and technical analysis. FUND PERFORMANCE & POSITIONING For the twelve months ending September 30, 2004, the portfolio posted a gain of 9.95% verses a gain of 13.87% for its benchmark, the S&P 500 Index. The defensively oriented market of the past year focused on valuation and dividend yield. In this market, the growth style employed by Turner Investment Partners was out of favor. The main underperforming sector for the Fund was the financial services sector. Following positive stock market performance in 2003, Turner's view was 2004 would bring continued improvement in the economy and the market. For example, the Fund's brokerage holdings are well positioned to benefit from economic expansion and more favorable equity markets. Unfortunately, factors such as violence in Iraq, concerns about a terrorist attack at the Olympics and Democratic and Republican conventions, higher energy prices, and corporate scandals in the mutual fund industry weighed on the market and these stocks. The Fund did not own many slower growing regional banks, which were seen as a safe haven and outperformed. Regional bank performance was also aided by a pickup in acquisitions (for example, FleetBoston's acquisition by Bank of America.) The producer durables sector was another detractor from Fund performance. The decrease in capital expenditures and lack of reinvestment in the semiconductor tools hurt electronic production companies such as Applied Materials, KLA Tencor, and LAM Research. In addition, the Fund was underweight defensive industrial companies such as Illinois Tool Works and Boeing, which performed well due to the increase in military orders for airplane parts. The Fund did not own these securities, as Turner expected airplane orders to be down due to the commercial airline problems. Consumer discretionary was the sector contributing most to the performance of the Fund. The companies that contributed to performance were strong leaders in their industries regardless of market conditions. Examples are Yahoo! and eBay. Both companies have little competition in their niche markets and performed well. Coach also benefited from strong fundamentals and increased earnings. In addition, through Peabody Energy and XTO Energy, exposure to oil and natural gas in the energy sector also contributed to the Fund's relative return. There were no significant changes to the strategy or positioning of the Fund during the twelve months ending September 30, 2004. 44 | Constellation Funds 2004 Annual Report INVESTMENT REVIEW CONSTELLATION TIP TAX MANAGED U.S. EQUITY FUND FUND PROFILE As of September 30, 2004 Ticker TTMEX - ---------------------------------------------------- CUSIP 21038A406 - ---------------------------------------------------- % in 10 largest holdings 24.0% - ---------------------------------------------------- # of holdings 93 - ---------------------------------------------------- Price/Earnings Ratio (wtd. harmonic avg.) 22.28 - ---------------------------------------------------- Weighted Average Market Capitalization $64.1 billion - ---------------------------------------------------- Net assets $5 million - ---------------------------------------------------- Top 10 Holdings 1 General Electric 2 American International Group 3 Pfizer 4 Procter & Gamble 5 American Express 6 Goldman Sachs Group 7 T. Rowe Price Group 8 First Data 9 Cisco Systems 10 Morgan Stanley SECTOR WEIGHTINGS+ 20.9% Information Technology 17.7% Financials 14.7% Health Care 10.2% Industrials 10.1% Consumer Discretionary 9.4% Consumer Staples 7.9% Energy 3.9% Materials 2.3% Telecommunication Services 1.7% Utilities 1.2% Cash Equivalents +Percentages based on total investments Investment Style value blend growth ---------------------------- large | | |XXXXXXXX| Market ---------------------------- Capitalization medium | | | | ---------------------------- small | | | | ---------------------------- LIPPER INC. PERFORMANCE RANKING As of September 30, 2004 LIPPER MULTI-CAP CORE CATEGORY PERIOD RANK PERCENTILE 3 year (384 of 501 funds) 77% - --------------------------------------------------------------- 1 year (555 of 684 funds) 81% GROWTH OF $10,000 INVESTMENT IN THE FUND February 28, 2001 - September 30, 2004* CONSTELLATION TIP TAX MANAGED U.S. S&P 500 EQUITY FUND Index ----------------- ------- Feb 28 01 10000 10000 Sep 01 8181 8459 Sep 02 6291 6726 Sep 03 8041 8366 Sep 04 8841 9527 *These figures represent past performance, which is no guarantee of future results. The investment return and principal value of an investment will fluctuate, so an investor's shares, when redeemed, may be worth more or less than its original cost. The performance in the above graph does not reflect the deduction of taxes the shareholder will pay on fund distributions or the redemptions of fund shares. The inception date of the Constellation TIP Tax Managed U.S. Equity Fund is February 28, 2001. ANNUALIZED TOTAL RETURNS Periods ending September 30, 2004 Past 1 Past 3 Since year years inception 9.95% 2.62% (3.38)% Constellation Funds 2004 Annual Report | 45 INVESTMENT REVIEW CONSTELLATION INTERNATIONAL EQUITY FUND INVESTMENT PHILOSOPHY & PROCESS The Constellation International Equity Fund uses a multi-manager approach, relying on several sub-advisers with differing investment philosophies to manage the Fund's assets. The Fund is subadvised by Oechsle International Advisers, LLC, The Boston Company Asset Management, LLC and Brandywine Asset Management, LLC. Oechsle International Advisers employs a growth oriented approach, investing in companies that they believe have an above average potential for growth in revenues and earnings. The Boston Company employs a value oriented style, emphasizing stock selection based on traditional measures of value including low price-to-earnings, low price-to-cash and low price-to-book values. Brandywine Asset Management also employs a value oriented style, combining quantitative and fundamental analysis to identify undervalued stocks that have the potential to return to a more normal valuation. The Fund invests primarily in developed countries, but may invest in countries with emerging markets. The Fund will invest in companies across the market capitalization spectrum. FUND PERFORMANCE & POSITIONING For the 12 month time period ending September 30, 2004, the Fund returned 18.76% underperforming the 23.15% gain posted by its benchmark, the MSCI All Country World ex-U.S. Index. The Lipper average for International Multi Cap Core funds was 20.74% over that time frame. The Constellation International Equity Fund ranked in the 70th percentile (188 out of 268 funds) when compared to the Lipper International Multi Cap Core category over the twelve-month period. The portion of the Fund managed by Brandywine Asset Management was positioned with an overweighting in the consumer, health care and basic materials sectors. The portfolio was underweighted in the energy, financial, industrial, telecom, and utility industries. From a country standpoint, the portfolio held less than market exposure to the United Kingdom, Sweden, Spain, Italy, and Australia, with the largest relative bets in Hong Kong, Japan, Germany and emerging markets. Performance significantly lagged the index with the main detractors being holdings in the financial, basic materials, and industrial sectors. Lower relative exposure to the strong performing energy and utility stocks also hurt results. Offsetting this were solid gains in the technology, health care, and consumer cyclical selections. France and Germany were positive contributors to relative gains, while stock selection in Australia, Switzerland, Japan, Mexico, and the United Kingdom detracted from results. The portion of the Fund managed by Boston Company slightly underperformed the benchmark on a net of fee basis. Thirty-one out of 32 countries in the fund advanced, while nine out of ten sectors advanced. France experienced a turnaround in local consumer demand, while Germany continues to struggle in that department as a result of pending pension and welfare reforms. Sustained high commodity prices around the globe benefited materials companies in Australia, South Africa, and the UK. In addition, the UK continued to ride the residential real estate boom that has been buoying the economy for some time. Japanese exports dropped as China's government made a move to reign in excessive construction and infrastructure spending. However, this move should have a positive long-term impact on the Chinese economy and others around the world. An unprecedented economic boom in India experienced a hiccup when the economically progressive BJP Party was defeated in a stunning election upset by the Congress Party. Since then, the new government has indicated that they will fully support the current privatization movement and continue to pass pro-business legislation, and investors have taken note.From a sector perspective, defensive sectors were strong as oil prices drove energy companies to +40% annual returns and high commodity prices were supported by robust global demand. Utility companies also advanced confidently, due largely to their high dividend payments and defensive nature. Global consumer demand was lethargic in certain countries (e.g. France, Germany, and Japan), weighing down the consumer discretionary and consumer staples sectors. Information technology has been experiencing a year-long slump as a result of sluggish business IT spending and rising semi-conductor inventories. The portion of the Fund managed by Oechsle also underperformed the benchmark index. In the UK, a number of profit warnings contributed to severe share price markdowns by investors. Unfortunately some of these companies were holdings in the portfolio. In particular, caterer Compass Group, satellite TV company BSkyB. Pharmaceutical company, AstraZeneca languished as investors became conceded about its drug pipeline going forward. France was also somewhat disappointing as cosmetics group, L'Oreal and retailer Carrefour lagged the market significantly as the French consumer provided only intermittent evidence of returning to a strong spending pattern. Holdings in the energy sector contributed to performance, as record oil prices drove those stocks higher. The portfolio's underweight in technology was also a positive contributor. Underweightings to the industrials and materials sectors were distinctly negative for portfolio performance. 46 | Constellation Funds 2004 Annual Report INVESTMENT REVIEW CONSTELLATION INTERNATIONAL EQUITY FUND FUND PROFILE As of September 30, 2004 Ticker PTlEX - ---------------------------------------------------- CUSIP 21038A778 - ---------------------------------------------------- % in 10 largest holdings 13.3% - ---------------------------------------------------- # of holdings 271 - ---------------------------------------------------- Net assets $107 million - ---------------------------------------------------- Top 10 Holdings 1 Nestle 2 GlaxoSmithKline 3 Diageo 4 ENI 5 France Telecom 6 Total 7 Kookmin Bank ADR 8 Repsol YPF 9 Takeda Pharmaceutical 10 Pearson SECTOR WEIGHTINGS+ 21.8% Financials 18.2% Consumer Discretionary 11.6% Industrials 10.3% Health Care 9.8% Consumer Staples 8.5% Telecommunication Services 7.4% Materials 7.3% Energy 2.8% Information Technology 2.1% Utilities 0.2% Preferred Stock +Percentages based on total investments LIPPER INC. PERFORMANCE RANKING As of September 30, 2004 LIPPER INTERNATIONAL MULTI-CAP CORE CATEGORY PERIOD RANK PERCENTILE 3 year (169 of 221 funds) 76% - --------------------------------------------------------------------- 1 year (188 of 268 funds) 70% Investment Style value blend growth ---------------------------- large | |XXXXXXXX | | Market ---------------------------- Capitalization medium | | | | ---------------------------- small | | | | ---------------------------- GROWTH OF $10,000 INVESTMENT IN THE FUND September 30, 1994 - September 30, 2004* MSCI All CONSTELLATION Country World INTERNATIONAL Free ex-U.S. EQUITY FUND Index ------------- -------------- Sep 30 94 10000 10000 Sep 95 9771 10352 Sep 96 10798 11253 Sep 97 11972 12769 Sep 98 9963 11092 Sep 99 13032 14797 Sep 00 14002 15524 Sep 01 8866 10977 Sep 02 7310 9544 Sep 03 9077 12316 Sep 04 10780 15167 *These figures represent past performance, which is no guarantee of future results. The investment return and principal value of an investment will fluctuate, so an investor's shares, when redeemed, may be worth more or less than its original cost. The performance in the above graph does not reflect the deduction of taxes the shareholder will pay on fund distributions or the redemptions of fund shares. The inception date of the Constellation International Equity Fund is May 31, 1993. **For periods prior to August 4, 2000, when the Fund began operating, the performance data quoted represents past performance of the Pitcairn Investment Management similarly managed common trust fund, adjusted to reflect fees and expenses expected to be borne by the Fund. The common trust fund was not a registered mutual fund, and therefore was not subject to certain investment and tax restrictions which may have adversely affected performance. The common trust fund changed its investment strategy in April 1999. ANNUALIZED TOTAL RETURNS Periods ending September 30, 2004 Past 1 Past 3 Past 5 Past 10 Since year years years years inception 18.76% 6.73% (3.72)%** 0.75%** 3.43%** Constellation Funds 2004 Annual Report | 47 INVESTMENT REVIEW CONSTELLATION STRATEGIC VALUE AND HIGH INCOME FUND INVESTMENT PHILOSOPHY & PROCESS The Constellation Strategic Value and High Income Fund is a "fund of funds" which means that it invests substantially all of its assets in shares of other funds. Generally, the Fund will invest at least 40% and may invest up to 60% of its assets in each of two underlying Constellation Funds: the Constellation Chartwell High Yield Fund, sub-advised by Chartwell Investment Partners and the Constellation TIP Small Cap Value Opportunities Fund, sub-advised by Turner Investment Partners. The Fund will periodically adjust its asset allocation among these Funds in response to changing market and economic conditions. In addition, the Fund may, under certain circumstances, invest in other underlying Funds within the Constellation Funds family. Chartwell's philosophy in managing the Constellation Chartwell High Yield Fund is defensive, stressing preservation of principal and compounding of the income stream as the keys to adding value in the high yield bond market. The Fund focuses on the higher quality tiers of the market, principally the BB and B-rated sectors, and on cash-pay issues only, which offer an attractive yield premium but a sharply lower incidence of credit erosion relative to the market as a whole. The Constellation TIP Small Cap Value Opportunities Fund invests in securities of companies operating in a broad range of industries based primarily on a fundamental analysis of each company and due consideration of such characteristics as price to cash flow, price to earnings and price to book value ratios. Turner uses a series of qualitative screens to identify "hidden" assets that may signify attractive return potential to share prices. The Fund managers look to identify a catalyst for positive change in each company's fundamentals. They seek companies with quality management teams that can take advantage of unique product opportunities and emphasize companies that are undervalued in the marketplace. FUND PERFORMANCE & POSITIONING For the 12 months ending September 30, 2004, the Fund returned 16.04%, net of expenses, compared to 18.95% for a 50/50 blend of the Russell 2000 Value Index/Merrill Lynch High Yield, Cash Pay Index, and 9.20% for the Lipper Balanced fund average. The Fund maintained an allocation of 40.5% to the Constellation Chartwell High Yield Fund, 40% to the Constellation TIP Small Value Opportunities Fund and 19.5% to the Constellation HLAM Large Cap Value Fund. The Fund was allocated within the large cap value asset class in response to concerns regarding the potential for increasing market volatility that might more severely impact smaller capitalization securities. The Fund benefited most significantly from the performance of the Constellation TIP Small Cap Value Opportunities Fund, which outperformed the Russell 2000 Value benchmark, driven largely by good stock selection in the autos and transportation, utility, and materials and processing sectors. The Fund's exposure to the Constellation Chartwell High Yield Fund hurt performance during the first six months of the fiscal year, because of that Fund's overweighting to poorly performing single B issues. However, that position contributed positively to performance during the latter six months of the year, when single B issues proved to be the top performing sector within the high income bond space. Similarly, the decision to underweight utilities hurt performance during the first half of the year but helped during the second. The Fund maintains an underweight in electric utilities because the bulk of the issuers in the sector are rated CCC by S&P and Moody's. These ratings reflect overleveraged balance sheets, excessive financial complexity, and the impact of high energy prices on their operating margins. 48 | Constellation Funds 2004 Annual Report INVESTMENT REVIEW CONSTELLATION STRATEGIC VALUE AND HIGH INCOME FUND FUND PROFILE As of September 30, 2004 Ticker TSVIX - ---------------------------------------------------- CUSIP 21038A844 - ---------------------------------------------------- % in 3 holdings 100.0% - ---------------------------------------------------- # of holdings 3 - ---------------------------------------------------- Net assets $706 thousand - ---------------------------------------------------- 3 Holdings 1 Constellation Chartwell High Yield Fund, Cl I 2 Constellation TIP Small Cap Value Opportunities Fund, Cl II 3 Constellation HLAM Large Cap Value Fund, Cl II SECTOR WEIGHTINGS+ 59.6% Equity Funds 40.4% Fixed Income Fund +Percentages based on total investments LIPPER INC. PERFORMANCE RANKING As of September 30, 2004 LIPPER BALANCED CATEGORY PERIOD RANK PERCENTILE 1 year (9 of 545 funds) 2% Investment Style value blend growth ---------------------------- large | | | | Market ---------------------------- Capitalization medium | |XXXXXXXX | | ---------------------------- small | | | | ---------------------------- GROWTH OF $10,000 INVESTMENT IN THE FUND October 31, 2002 - September 30, 2004*
50/50 Hybrid of the Russell 2000 CONSTELLATION Value Index STRATEGIC and Merrill VALUE AND Merrill Lynch Lynch High HIGH INCOME S&P 500 Russell 2000 High Yield, Yield, Cash FUND Index Value Index Cash Pay Index Pay Index ------------- ------- ------------ -------------- ----------- Oct 31 02 10000 10000 10000 10000 10000 Sep 03 12860 11434 12971 12933 12989 Sep 04 14923 13020 16300 14514 15451
*These figures represent past performance, which is no guarantee of future results. The investment return and principal value of an investment will fluctuate, so an investor's shares, when redeemed, may be worth more or less than its original cost. The performance in the above graph does not reflect the deduction of taxes the shareholder will pay on fund distributions or the redemptions of fund shares. The inception date of the Constellation Strategic Value and High Income Fund is October 31, 2002. ANNUALIZED TOTAL RETURNS Periods ending September 30, 2004 Past 1 Since year inception 16.04% 23.21% Constellation Funds 2004 Annual Report | 49 FINANCIAL STATEMENTS STATEMENT OF NET ASSETS Constellation Clover Large Cap Value Fund September 30, 2004 Value Shares (000) - -------------------------------------------------------------------------------- COMMON STOCK (94.7%) - -------------------------------------------------------------------------------- CONSUMER DISCRETIONARY (10.8%) - -------------------------------------------------------------------------------- Clear Channel Communications 3,305 $103 Furniture Brands International (A) 2,955 74 General Motors 1,755 75 IAC/InterActiveCorp* 2,800 62 Interpublic Group* 2,855 30 Jones Apparel Group 2,285 82 RadioShack 3,080 88 Reebok International 900 33 Viacom, Cl B 1,970 66 Walt Disney 2,800 63 ----- 676 ----- - -------------------------------------------------------------------------------- CONSUMER STAPLES (8.5%) - -------------------------------------------------------------------------------- Albertson's 5,070 121 Anheuser-Busch 2,820 141 CVS 2,005 84 Gillette 1,840 77 HJ Heinz 1,235 44 Procter & Gamble 1,210 66 ----- 533 ----- - -------------------------------------------------------------------------------- ENERGY (9.9%) - -------------------------------------------------------------------------------- Baker Hughes 1,085 47 BP ADR* 1,790 103 ChevronTexaco 1,750 94 Diamond Offshore Drilling (A) 1,590 53 Exxon Mobil 6,620 320 ----- 617 ----- - -------------------------------------------------------------------------------- FINANCIALS (27.6%) - -------------------------------------------------------------------------------- ACE 1,995 80 Allstate 745 36 American International Group 3,270 222 AON 3,360 96 Bank of America 6,020 261 Bank of New York 3,270 95 Citigroup 3,560 157 FelCor Lodging Trust* 6,175 70 Goldman Sachs Group 265 25 Mellon Financial 3,615 100 Metlife 1,680 65 MGIC Investment 845 56 PNC Financial Services Group 625 34 Value Shares (000) - -------------------------------------------------------------------------------- Providian Financial* 4,800 $ 75 Prudential Financial 1,275 60 Regions Financial 1,900 63 US Bancorp 2,855 82 Wachovia 1,830 86 Wells Fargo 1,085 65 ------ 1,728 ------ - -------------------------------------------------------------------------------- HEALTH CARE (3.1%) - -------------------------------------------------------------------------------- Abbott Laboratories 1,085 46 Baxter International 1,060 34 Johnson & Johnson 1,085 61 Merck 845 28 Omnicare 770 22 ------ 191 ------ - -------------------------------------------------------------------------------- INDUSTRIALS (11.8%) - -------------------------------------------------------------------------------- Burlington Northern Santa Fe 2,590 99 CSX 2,845 95 Emerson Electric 1,035 64 General Electric 8,040 270 Honeywell International 2,235 80 Sotheby's Holdings, Cl A* 138 2 SPX 1,870 66 W.W. Grainger 1,085 63 ------ 739 ------ - -------------------------------------------------------------------------------- INFORMATION TECHNOLOGY (8.0%) - -------------------------------------------------------------------------------- BMC Software* 2,950 47 Computer Sciences* 985 46 Dell* 1,085 39 Flextronics International* 2,635 35 International Business Machines 1,300 111 Lexmark International, Cl A* 330 28 Microsoft 4,600 127 National Semiconductor* 1,770 27 Taiwan Semiconductor Manufacturing ADR* 5,562 40 ------ 500 ------ - -------------------------------------------------------------------------------- MATERIALS (4.6%) - -------------------------------------------------------------------------------- E.I. du Pont de Nemours 1,390 60 International Paper 2,110 85 International Steel Group* 990 33 Smurfit-Stone Container* 5,645 109 ------ 287 ------ 50 | Constellation Funds 2004 Annual Report FINANCIAL STATEMENTS Statement of Net Assets Constellation Clover Large Cap Value Fund Value Shares (000) - -------------------------------------------------------------------------------- TELECOMMUNICATION SERVICES (3.9%) - -------------------------------------------------------------------------------- AT&T 2,500 $ 36 SBC Communications 3,490 91 Verizon Communications 2,930 115 ------ 242 ------ - -------------------------------------------------------------------------------- UTILITIES (6.5%) - -------------------------------------------------------------------------------- CMS Energy* 5,695 54 Duke Energy 2,705 62 Energy East 1,755 44 KeySpan (A) 2,185 86 Public Service Enterprise Group 1,450 62 Sempra Energy 1,000 37 Xcel Energy 3,600 62 ------ 407 - -------------------------------------------------------------------------------- TOTAL COMMON STOCK (COST $5,646) 5,920 ================================================================================ - -------------------------------------------------------------------------------- EXCHANGE TRADED FUND (1.0%) - -------------------------------------------------------------------------------- iShares Russell 1000 Value Index Fund* 975 59 - -------------------------------------------------------------------------------- TOTAL EXCHANGE TRADED FUND (COST $57) 59 ================================================================================ RIGHTS (0.0%) - -------------------------------------------------------------------------------- Seagate (B)* 425 -- - -------------------------------------------------------------------------------- TOTAL RIGHTS (COST $0) -- ================================================================================ CASH EQUIVALENT (4.4%) - -------------------------------------------------------------------------------- BlackRock TempCash Fund, Institutional Shares 277,342 277 - -------------------------------------------------------------------------------- TOTAL CASH EQUIVALENT (COST $277) 277 ================================================================================ Value Shares (000) - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENT HELD AS COLLATERAL FOR LOANED SECURITIES (3.2%) - -------------------------------------------------------------------------------- Boston Global Investment Trust -- Quality Portfolio 200,400 $ 200 - -------------------------------------------------------------------------------- TOTAL SHORT-TERM INVESTMENT HELD AS COLLATERAL FOR LOANED SECURITIES (COST $200) 200 ================================================================================ TOTAL INVESTMENTS (103.3%) (COST $6,180) 6,456 ================================================================================ OTHER ASSETS AND LIABILITIES, NET (-3.3%) - -------------------------------------------------------------------------------- Obligation to return securities lending collateral (200) Payable due to Investment Adviser (5) Payable due to Administrator (1) Other assets and liabilities, net 1 - -------------------------------------------------------------------------------- TOTAL OTHER ASSETS AND LIABILITIES, NET (205) - -------------------------------------------------------------------------------- NET ASSETS (100%) $6,251 ================================================================================ - -------------------------------------------------------------------------------- NET ASSETS CONSIST OF: - -------------------------------------------------------------------------------- Portfolio capital of Class I Shares (unlimited authorization - no par value) based on 577,359 outstanding shares of beneficial interest $6,463 Accumulated net realized loss on investments (488) Net unrealized appreciation on investments 276 - -------------------------------------------------------------------------------- NET ASSETS $6,251 ================================================================================ - -------------------------------------------------------------------------------- NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-CLASS I SHARES $10.83 ================================================================================ * Non-income producing security. (A) The security or a portion of this security is on loan at September 30, 2004 (See Note 9 in the Notes to Financial Statements). The total value of securities on loan at September 30, 2004 was $194,810. (B) This security was issued for possible settlement of pending litigation and does not have an expiration date. ADR -- American Depositary Receipt Cl -- Class Amounts designated as "--" are either $0 or have been rounded to $0. The accompanying notes are an integral part of the financial statements Constellation Funds 2004 Annual Report | 51 FINANCIAL STATEMENTS STATEMENT OF NET ASSETS Constellation Clover Core Value Fund September 30, 2004 Value Shares (000) - -------------------------------------------------------------------------------- COMMON STOCK (96.5%) - -------------------------------------------------------------------------------- CONSUMER DISCRETIONARY (9.6%) - -------------------------------------------------------------------------------- American Eagle Outfitters* 23,000 $ 848 Brunswick 15,000 686 Delphi 66,000 613 Federated Department Stores 17,500 795 Jones Apparel Group (A) 50,000 1,790 RadioShack 17,000 487 Reebok International 14,000 514 ------- 5,733 ------- - -------------------------------------------------------------------------------- CONSUMER STAPLES (6.1%) - -------------------------------------------------------------------------------- ConAgra Foods 44,000 1,131 Constellation Brands, Cl A* 19,500 742 CVS 41,500 1,749 ------- 3,622 ------- - -------------------------------------------------------------------------------- ENERGY (4.1%) - -------------------------------------------------------------------------------- Pioneer Natural Resources (A) 39,500 1,362 Valero Energy (A) 13,300 1,067 ------- 2,429 ------- - -------------------------------------------------------------------------------- FINANCIALS (29.8%) - -------------------------------------------------------------------------------- Aflac 28,500 1,117 Capital One Financial 12,700 939 Citigroup 20,000 882 Countrywide Credit Industry 39,600 1,560 E*Trade Financial* 54,000 617 Fidelity National Financial 19,000 724 Freddie Mac 15,500 1,011 Goldman Sachs Group 7,000 653 Hibernia, Cl A 46,000 1,215 iStar Financial (A) 15,700 647 Marshall & Ilsley 15,000 605 Merrill Lynch 15,300 761 North Fork Bancorporation 14,700 653 Platinum Underwriters Holdings 20,500 600 Prudential Financial 26,000 1,223 Radian Group 31,500 1,456 Safeco 35,000 1,598 Webster Financial 17,500 864 Willis Group Holdings 18,500 692 ------- 17,817 ------- Value Shares (000) - -------------------------------------------------------------------------------- HEALTH CARE (9.7%) - -------------------------------------------------------------------------------- Aetna 7,000 $ 699 Baxter International 33,900 1,090 Express Scripts* 15,500 1,013 Quest Diagnostics 7,000 618 Thermo Electron* 33,300 900 Triad Hospitals* 23,300 802 WellChoice* 18,900 706 ------ 5,828 ------ - -------------------------------------------------------------------------------- INDUSTRIALS (10.8%) - -------------------------------------------------------------------------------- CSX 22,000 730 Dun & Bradstreet* 14,500 851 Lafarge ADR 21,500 469 Quebecor World 40,000 895 Republic Services 37,500 1,116 SPX 15,000 531 United Stationers (A)* 12,500 543 Yellow Roadway* 27,500 1,290 ------ 6,425 ------ - -------------------------------------------------------------------------------- INFORMATION TECHNOLOGY (8.4%) - -------------------------------------------------------------------------------- BISYS Group* 42,400 619 Compuware* 93,000 479 eFunds* 60,000 1,115 Fairchild Semiconductor International* 54,800 777 Ingram Micro, Cl A* 89,200 1,436 Solectron* 122,400 606 ------ 5,032 ------ - -------------------------------------------------------------------------------- MATERIALS (5.0%) - -------------------------------------------------------------------------------- Akzo Nobel ADR 15,800 561 Pactiv (A)* 45,000 1,046 Sappi ADR 42,600 610 Syngenta ADR 41,800 798 ------ 3,015 ------ 52 | Constellation Funds 2004 Annual Report FINANCIAL STATEMENTS Statement of Net Assets Constellation Clover Core Value Fund Value Shares (000) - -------------------------------------------------------------------------------- UTILITIES (13.0%) - -------------------------------------------------------------------------------- CMS Energy (A)* 130,000 $ 1,237 KeySpan (A) 26,000 1,019 NiSource 54,500 1,145 Public Service Enterprise Group 17,700 754 Puget Energy 45,500 1,033 SCANA (A) 38,000 1,419 Xcel Energy (A) 65,000 1,126 -------- 7,733 - -------------------------------------------------------------------------------- TOTAL COMMON STOCK (COST $46,929) 57,634 ================================================================================ - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENT HELD AS COLLATERAL FOR LOANED SECURITIES (17.2%) - -------------------------------------------------------------------------------- Boston Global Investment Trust -- Quality Portfolio 10,269,600 10,270 - -------------------------------------------------------------------------------- TOTAL SHORT-TERM INVESTMENT HELD AS COLLATERAL FOR LOANED SECURITIES (COST $10,270) 10,270 ================================================================================ CASH EQUIVALENT (0.7%) - -------------------------------------------------------------------------------- BlackRock TempCash Fund, Institutional Shares 439,946 440 - -------------------------------------------------------------------------------- TOTAL CASH EQUIVALENT (COST $440) 440 ================================================================================ TOTAL INVESTMENTS (114.4%) (COST $57,639) 68,344 ================================================================================ OTHER ASSETS AND LIABILITIES, NET (-14.4%) - -------------------------------------------------------------------------------- Receivable for investment securities sold 3,218 Obligation to return securities lending collateral (10,270) Payable due to Investment Adviser (36) Payable due to Administrator (7) Other assets and liabilities, net (1,535) - -------------------------------------------------------------------------------- TOTAL OTHER ASSETS AND LIABILITIES, NET (8,630) - -------------------------------------------------------------------------------- NET ASSETS (100%) $ 59,714 ================================================================================ Value (000) - -------------------------------------------------------------------------------- NET ASSETS CONSIST OF: - -------------------------------------------------------------------------------- Portfolio capital of Class I Shares (unlimited authorization - no par value) based on 3,616,521 outstanding shares of beneficial interest $44,961 Undistributed net investment income 6 Accumulated net realized gain on investments 4,042 Net unrealized appreciation on investments 10,705 - -------------------------------------------------------------------------------- NET ASSETS $59,714 ================================================================================ - -------------------------------------------------------------------------------- NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-CLASS I SHARES $ 16.51 ================================================================================ * Non-income producing security. (A) The security or a portion of this security is on loan at September 30, 2004 (See Note 9 in the Notes to Financial Statements). The total value of securities on loan at September 30, 2004 was $9,969,917. ADR -- American Depositary Receipt Cl -- Class The accompanying notes are an integral part of the financial statements Constellation Funds 2004 Annual Report | 53 FINANCIAL STATEMENTS STATEMENT OF NET ASSETS Constellation Clover Small Cap Value Fund September 30, 2004 Value Shares (000) - -------------------------------------------------------------------------------- COMMON STOCK (96.9%) - -------------------------------------------------------------------------------- CONSUMER DISCRETIONARY (15.4%) - -------------------------------------------------------------------------------- American Eagle Outfitters* 71,300 $ 2,627 Charming Shoppes (A)* 400,800 2,854 Cooper Tire & Rubber (A) 154,450 3,115 Cumulus Media, Cl A (A)* 250,900 3,611 Dollar Thrifty Automotive Group (A)* 171,200 4,165 Electronics Boutique Holdings (A)* 116,200 3,962 Entravision Communications, Cl A* 503,400 3,831 Hearst-Argyle Television (A) 81,700 1,998 Helen of Troy (A)* 195,125 5,311 HOT Topic (A)* 205,000 3,493 Men's Wearhouse (A)* 108,950 3,165 Nautilus Group (A) 171,600 3,876 Navigant International (A)* 329,000 5,373 O'Charleys* 165,000 2,690 Payless ShoeSource (A)* 346,000 3,505 Playtex Products (A)* 548,000 3,452 Reebok International 120,000 4,406 Scholastic (A)* 123,600 3,818 Service Corp International* 438,700 2,724 Sharper Image (A)* 70,300 1,508 ShopKo Stores (A)* 302,100 5,260 Sports Authority (A)* 110,000 2,552 Steiner Leisure (A)* 131,900 2,915 Too* 174,700 3,157 ------- 83,368 ------- - -------------------------------------------------------------------------------- CONSUMER STAPLES (2.3%) - -------------------------------------------------------------------------------- Chiquita Brands International (A)* 150,600 2,622 Natures Sunshine Products (A) 151,000 2,291 NBTY* 140,700 3,033 Rayovac* 167,100 4,403 ------- 12,349 ------- - -------------------------------------------------------------------------------- ENERGY (4.8%) - -------------------------------------------------------------------------------- Cabot Oil & Gas 117,750 5,287 Encore Acquisition* 150,000 5,175 Grey Wolf* 530,900 2,596 Key Energy Services* 479,150 5,294 Magnum Hunter Resources* 208,200 2,403 Reliant Energy (A)* 571,400 5,331 ------- 26,086 ------- - -------------------------------------------------------------------------------- FINANCIALS (27.5%) - -------------------------------------------------------------------------------- Advanta, Cl B (A) 121,500 2,939 American Financial Group 90,700 2,711 American Financial Realty Trust 188,000 2,653 Value Shares (000) - -------------------------------------------------------------------------------- AmeriCredit (A)* 152,100 $ 3,176 Arthur J. Gallagher (A) 164,200 5,440 Astoria Financial (A) 112,000 3,975 BankAtlantic Bancorp, Cl A 315,500 5,780 Bankunited Financial, Cl A (A)* 179,000 5,218 Colonial BancGroup 240,900 4,926 Delphi Financial Group, Cl A 81,625 3,279 Developers Diversified Realty (A) 75,800 2,968 FelCor Lodging Trust (A)* 845,800 9,566 FPIC Insurance Group (A)* 89,400 2,311 HCC Insurance Holdings (A) 131,950 3,978 HRPT Properties Trust (A) 362,650 3,986 Hudson United Bancorp (A) 77,700 2,863 Instinet Group (A)* 770,700 3,877 LTC Properties (A) 245,950 4,400 Meristar Hospitality (A)* 362,700 1,977 Metris (A)* 354,300 3,465 Mills 40,700 2,111 Ohio Casualty (A)* 219,400 4,592 PFF Bancorp 16,400 628 Phoenix (A) 226,100 2,356 Platinum Underwriters Holdings 228,500 6,690 Providian Financial (A)* 433,200 6,732 Raymond James Financial (A) 119,475 2,882 Rewards Network (A)* 260,400 1,737 Scottish Re Group (A) 250,800 5,309 Sky Financial Group 178,900 4,472 South Financial Group 143,900 4,058 Sterling Financial* 126,370 4,453 SWS Group 140,400 2,258 Triad Guaranty (A)* 56,400 3,129 US Restaurant Properties (A) 248,050 4,190 W.P. Stewart (A) 157,600 3,150 Waddell & Reed Financial, Cl A (A) 203,000 4,466 Webster Financial 114,000 5,630 -------- 148,331 -------- - -------------------------------------------------------------------------------- HEALTH CARE (5.5%) - -------------------------------------------------------------------------------- Andrx* 97,600 2,182 Curative Health Services (A)* 174,900 1,202 Dendrite International* 187,500 3,023 Hooper Holmes (A) 1,100,500 4,930 OCA (A)* 34,250 162 Orthofix International* 81,000 2,783 Province Healthcare* 353,600 7,397 Triad Hospitals* 145,000 4,994 Viasys Healthcare (A)* 173,300 2,899 -------- 29,572 -------- FINANCIAL STATEMENTS Statement of Net Assets Constellation Clover Small Cap Value Fund Value Shares (000) - -------------------------------------------------------------------------------- INDUSTRIALS (17.1%) - -------------------------------------------------------------------------------- AGCO (A)* 340,675 $ 7,706 Celadon Group* 194,225 3,700 CNF 121,800 4,993 Federal Signal (A) 185,300 3,443 First Consulting Group* 366,500 1,737 Flowserve* 122,800 2,969 GrafTech International (A)* 178,550 2,491 Lennox International (A) 209,200 3,125 Magnetek* 434,800 3,248 MAIR Holdings* 338,300 2,774 Mesa Air Group (A)* 610,000 3,111 Milacron (A)* 734,000 2,290 Molecular Devices (A)* 59,150 1,394 NCO Group (A)* 111,400 3,002 NS Group* 196,800 3,641 On Assignment* 462,400 2,053 Overnite 85,550 2,689 Reliance Steel & Aluminum 45,500 1,806 School Specialty (A)* 62,500 2,463 Stewart & Stevenson Services (A) 417,100 7,370 Terex* 103,100 4,475 Timken (A) 168,300 4,144 Tredegar (A) 237,000 4,313 United Rentals (A)* 254,300 4,041 Washington Group International* 65,600 2,271 Wolverine Tube* 217,450 2,512 Yellow Roadway* 101,800 4,773 ------- 92,534 ------- - -------------------------------------------------------------------------------- INFORMATION TECHNOLOGY (11.6%) - -------------------------------------------------------------------------------- Activision* 338,800 4,699 Acxiom (A) 204,500 4,855 BISYS Group* 257,500 3,762 Carreker (A)* 293,600 2,234 Checkpoint Systems (A)* 180,000 2,803 Ciber (A)* 457,300 3,439 Coherent (A)* 172,900 4,485 Cymer (A)* 102,000 2,923 Earthlink (A)* 218,600 2,251 eFunds* 109,500 2,036 ESS Technology* 194,300 1,331 Exar (A)* 249,700 3,536 FEI (A)* 52,850 1,044 Integrated Silicon Solutions (A)* 296,200 2,153 IXYS* 286,300 2,056 Packeteer (A)* 301,000 3,254 Pegasus Solutions (A)* 284,400 3,390 Register.com* 334,000 1,817 Value Shares (000) - -------------------------------------------------------------------------------- S1* 321,400 $ 2,565 THQ (A)* 143,700 2,796 Tier Technologies, Cl B (A)* 265,101 2,558 Zoran* 187,000 2,940 -------- 62,927 -------- - -------------------------------------------------------------------------------- MATERIALS (6.6%) - -------------------------------------------------------------------------------- AK Steel Holding (A)* 527,900 4,308 Arch Chemicals (A) 77,700 2,214 Buckeye Technologies (A)* 328,450 3,662 Caraustar Industries (A)* 238,150 3,994 Chesapeake (A) 113,200 2,719 Georgia Gulf 45,725 2,039 Owens-Illinois* 348,800 5,581 Packaging Corporation of America (A) 188,500 4,613 RPM International (A) 188,100 3,320 Wausau-Mosinee Paper 178,650 2,974 -------- 35,424 -------- - -------------------------------------------------------------------------------- TELECOMMUNICATION SERVICES (1.2%) - -------------------------------------------------------------------------------- Nice Systems ADR (A)* 226,300 4,893 Yak Communications (A)* 223,375 1,796 -------- 6,689 -------- - -------------------------------------------------------------------------------- UTILITIES (4.9%) - -------------------------------------------------------------------------------- Alliant Energy 80,200 1,995 Avista (A) 219,700 3,977 Calpine (A)* 1,274,700 3,697 CMS Energy (A)* 933,300 8,885 El Paso Electric* 187,300 3,010 Northeast Utilities 147,200 2,854 SEMCO Energy 364,850 2,003 -------- 26,421 - -------------------------------------------------------------------------------- TOTAL COMMON STOCK (COST $458,680) 523,701 ================================================================================ - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENT HELD AS COLLATERAL FOR LOANED SECURITIES (36.7%) - -------------------------------------------------------------------------------- Boston Global Investment Trust -- Quality Portfolio 198,311,800 198,312 -------- - -------------------------------------------------------------------------------- TOTAL SHORT-TERM INVESTMENT HELD AS COLLATERAL FOR LOANED SECURITIES (COST $198,312) 198,312 -------- ================================================================================ Constellation Funds 2004 Annual Report | 55 FINANCIAL STATEMENTS Statement of Net Assets Constellation Clover Small Cap Value Fund Value Shares (000) - -------------------------------------------------------------------------------- CASH EQUIVALENT (1.3%) - -------------------------------------------------------------------------------- BlackRock TempCash Fund, Institutional Shares 6,779,742 $ 6,780 - -------------------------------------------------------------------------------- TOTAL CASH EQUIVALENT (COST $6,780) 6,780 ================================================================================ TOTAL INVESTMENTS (134.9%) (COST $663,772) 728,793 ================================================================================ - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES, NET (-34.9%) - -------------------------------------------------------------------------------- Obligation to return securities lending collateral (198,312) Payable due to Investment Adviser (370) Payable due to Administrator (65) Other assets and liabilities, net 10,232 - -------------------------------------------------------------------------------- TOTAL OTHER ASSETS AND LIABILITIES, NET (188,515) ================================================================================ NET ASSETS (100%) $ 540,278 ================================================================================ - -------------------------------------------------------------------------------- NET ASSETS CONSIST OF: - -------------------------------------------------------------------------------- Portfolio capital of Class I Shares (unlimited authorization - no par value) based on 22,737,053 outstanding shares of beneficial interest $ 486,852 Undistributed net investment income 46 Accumulated net realized loss on investments (11,641) Net unrealized appreciation on investments 65,021 - -------------------------------------------------------------------------------- NET ASSETS $ 540,278 ================================================================================ - -------------------------------------------------------------------------------- NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-CLASS I SHARES $ 23.76 ================================================================================ * Non-income producing security. (A) The security or a portion of this security is on loan at September 30, 2004 (See Note 9 in the Notes to Financial Statements). The total value of securities on loan at September 30, 2004 was $188,355,796. ADR -- American Depositary Receipt Cl -- Class The accompanying notes are an integral part of the financial statements 56 | Constellation Funds 2004 Annual Report FINANCIAL STATEMENTS STATEMENT OF NET ASSETS Constellation Clover Core Fixed Income Fund September 30, 2004 Face Amount Value (000) (000) - -------------------------------------------------------------------------------- CORPORATE OBLIGATIONS (41.4%) - -------------------------------------------------------------------------------- CONSUMER DISCRETIONARY (1.2%) - -------------------------------------------------------------------------------- Wal-Mart Stores 6.875%, 08/10/09 $ 350 $ 397 - -------------------------------------------------------------------------------- CONSUMER STAPLES (10.0%) - -------------------------------------------------------------------------------- ConAgra Foods 7.875%, 09/15/10 700 825 Dial 7.000%, 08/15/06 1,250 1,337 Sysco 7.250%, 04/15/07 405 444 7.160%, 04/15/27 500 605 ------ 3,211 ------ - -------------------------------------------------------------------------------- ENERGY (7.8%) - -------------------------------------------------------------------------------- Air Products & Chemicals, MTN 7.340%, 06/15/26 250 293 Chevron 8.110%, 12/01/04 80 81 Natural Fuel Gas 6.303%, 05/27/08 1,000 1,082 Pioneer Natural Resource 7.200%, 01/15/28 450 507 XTO Energy 7.500%, 04/15/12 475 558 ------ 2,521 ------ - -------------------------------------------------------------------------------- FINANCIALS (8.7%) - -------------------------------------------------------------------------------- First Data 4.700%, 11/01/06 1,000 1,036 Marsh & McClennan 7.125%, 06/15/09 1,000 1,133 Prudential Financial 5.100%, 09/20/14 650 650 ------ 2,819 ------ - -------------------------------------------------------------------------------- INDUSTRIALS (5.5%) - -------------------------------------------------------------------------------- Roadway 8.250%, 12/01/08 925 1,045 Thermo Electron 7.625%, 10/30/08 665 742 ------ 1,787 ------ - -------------------------------------------------------------------------------- UTILITIES (8.2%) - -------------------------------------------------------------------------------- Carolina Power & Light 5.125%, 09/15/13 685 702 Emerson Electric 7.125%, 08/15/10 750 865 Face Amount Value (000) (000) - -------------------------------------------------------------------------------- Scana 5.810%, 10/23/08 $1,000 $ 1,071 ------- 2,638 ------- - -------------------------------------------------------------------------------- TOTAL CORPORATE OBLIGATIONS (COST $12,697) 13,373 ================================================================================ - -------------------------------------------------------------------------------- U.S. GOVERNMENT MORTGAGE-BACKED OBLIGATIONS (35.5%) - -------------------------------------------------------------------------------- FHLMC Pool #C01844 4.500%, 04/01/34 691 667 FNMA CMO/REMIC Ser 1994-17, Cl H 6.000%, 02/25/09 343 356 FNMA Pool #254759 4.500%, 06/01/18 1,664 1,663 Pool #255111 5.500%, 03/01/34 1,015 1,030 Pool #369214 5.000%, 04/01/09 84 86 Pool #535301 6.500%, 04/01/15 125 133 Pool #689022 5.000%, 05/01/33 1,107 1,098 Pool #694431 5.000%, 03/01/18 710 723 Pool #738783 7.000%, 02/01/25 1,154 1,233 GNMA CMO/REMIC Ser 2004-59, Cl DA 5.000%, 06/16/34 294 299 GNMA Pool #13125 8.000%, 10/15/06 3 3 Pool #187899 8.000%, 05/15/17 6 7 Pool #196477 10.000%, 04/15/10 24 27 Pool #202886 8.000%, 03/15/17 31 34 Pool #221235 8.500%, 07/15/17 18 20 Pool #331786 8.000%, 08/15/22 27 30 Pool #376400 6.500%, 02/15/24 151 160 Pool #439478 7.000%, 01/15/27 133 142 Pool #457921 5.500%, 12/15/28 194 199 Constellation Funds 2004 Annual Report | 57 FINANCIAL STATEMENTS Statement of Net Assets Constellation Clover Core Fixed Income Fund Face Amount Value (000) (000) - -------------------------------------------------------------------------------- Pool #462622 6.500%, 03/15/28 $ 234 $ 248 Pool #533974 6.500%, 05/15/32 129 136 Pool #553328 4.500%, 07/15/18 765 768 Pool #570400 6.500%, 09/15/31 285 301 Pool #604616 4.500%, 09/15/18 875 878 Pool #781029 6.500%, 05/15/29 84 89 Pool #781096 6.500%, 12/15/28 389 411 Pool #781231 7.000%, 12/15/30 195 208 Pool #781276 6.500%, 04/15/31 310 327 Pool #781328 7.000%, 09/15/31 204 218 -------- 11,494 -------- - -------------------------------------------------------------------------------- TOTAL U.S. GOVERNMENT MORTGAGE-BACKED OBLIGATIONS (COST $11,398) $ 11,494 ================================================================================ - -------------------------------------------------------------------------------- U.S. TREASURY OBLIGATIONS (12.9%) - -------------------------------------------------------------------------------- U.S. Treasury Bonds 7.500%, 11/15/16 1,200 1,542 6.375%, 08/15/27 325 388 6.250%, 08/15/23 500 584 5.500%, 08/15/28 1,000 1,075 U.S. Treasury Notes 5.625%, 02/15/06 550 574 -------- - -------------------------------------------------------------------------------- TOTAL U.S. TREASURY OBLIGATIONS (COST $3,914) 4,163 ================================================================================ - -------------------------------------------------------------------------------- U.S. GOVERNMENT AGENCY OBLIGATIONS (3.4%) - -------------------------------------------------------------------------------- FHLB 4.250%, 11/13/09 350 357 FHLB, Ser HL06 3.000%, 11/15/06 750 751 - -------------------------------------------------------------------------------- TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (COST $1,104) 1,108 ================================================================================ - -------------------------------------------------------------------------------- CONVERTIBLE BONDS (2.4%) - -------------------------------------------------------------------------------- Bisys Group, CV to 29.9458 Shares 4.000%, 03/15/06 650 637 Quebecor World, CV to 30.5880 Shares 6.000%, 10/01/07 128 131 -------- 768 -------- Value Shares (000) - -------------------------------------------------------------------------------- TOTAL CONVERTIBLE BONDS (COST $769) $ 768 ================================================================================ - -------------------------------------------------------------------------------- CASH EQUIVALENT (3.2%) - -------------------------------------------------------------------------------- BlackRock TempCash Fund, Institutional Shares 1,037,823 1,038 - -------------------------------------------------------------------------------- TOTAL CASH EQUIVALENT (COST $1,038) 1,038 ================================================================================ TOTAL INVESTMENTS (98.8%) (COST $30,920) 31,944 ================================================================================ - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES, NET (1.2%) - -------------------------------------------------------------------------------- Payable due to Investment Adviser (19) Payable due to Administrator (4) Other assets and liabilities, net 413 - -------------------------------------------------------------------------------- TOTAL OTHER ASSETS AND LIABILITIES, NET 390 - -------------------------------------------------------------------------------- NET ASSETS (100%) $32,334 ================================================================================ - -------------------------------------------------------------------------------- NET ASSETS CONSIST OF: - -------------------------------------------------------------------------------- Portfolio capital of Class I Shares (unlimited authorization - no par value) based on 3,148,968 outstanding shares of beneficial interest $30,914 Accumulated net realized gain on investments 396 Net unrealized appreciation on investments 1,024 - -------------------------------------------------------------------------------- NET ASSETS $32,334 ================================================================================ - -------------------------------------------------------------------------------- NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-CLASS I SHARES $ 10.27 ================================================================================ Cl -- Class CMO -- Collateralized Mortgage Obligation CV -- Convertible Security FHLB -- Federal Home Loan Bank FHLMC -- Federal Home Loan Mortgage Company FNMA -- Federal National Mortgage Association GNMA -- General National Mortgage Association MTN -- Medium Term Note REMIC -- Real Estate Mortgage Investment Conduit Ser -- Series The accompanying notes are an integral part of the financial statements 58 | Constellation Funds 2004 Annual Report FINANCIAL STATEMENTS STATEMENT OF NET ASSETS Constellation Chartwell Ultra Short Duration Fixed Income Fund September 30, 2004 Face Amount Value (000) (000) - -------------------------------------------------------------------------------- U.S. GOVERNMENT MORTGAGE-BACKED OBLIGATIONS (68.3%) - -------------------------------------------------------------------------------- FHLMC CMO/REMIC Ser 1106, Cl E 7.500%, 07/15/06 $ 3 $ 3 Ser 1377, Cl F (A) 2.313%, 09/15/07 325 325 Ser 1544, Cl L (A) 2.830%, 07/15/08 196 197 Ser 1552, Cl HA 7.000%, 11/15/22 123 123 Ser 161, Cl F 9.500%, 06/15/06 3 3 Ser 1832, Cl E 6.500%, 07/15/10 1,927 1,945 Ser 2118, Cl QD 6.500%, 10/15/27 1,066 1,073 Ser 2303, Cl TD 6.500%, 05/15/30 1,479 1,486 Ser 2357, Cl QG 6.500%, 01/15/30 812 812 Ser 2416, Cl PN 6.000%, 11/15/28 5,987 6,083 Ser 2440, Cl OG 6.500%, 12/15/30 4,909 5,010 Ser 2463, Cl PE 6.000%, 03/15/28 9,939 10,100 Ser 2483, Cl DC 5.500%, 07/15/14 3,002 3,038 Ser 2488, Cl GC 6.000%, 09/15/28 20 20 Ser 2496, Cl PJ 5.000%, 07/15/12 523 524 Ser 2517, Cl TL 4.500%, 04/15/26 304 304 Ser 2520, Cl BD 5.250%, 10/15/31 2,421 2,468 Ser 2522, Cl PB 4.750%, 11/15/14 2,311 2,313 Ser 2527, Cl LT 3.870%, 12/15/28 4,560 4,568 Ser 2527, Cl LU 3.790%, 12/15/28 6,921 6,933 Ser 2537, Cl LA 4.250%, 05/15/30 3,649 3,669 Ser 2543, Cl TA 4.500%, 02/15/18 2,924 2,935 Ser 2545, Cl HA 5.000%, 04/15/18 1,967 1,973 Face Amount Value (000) (000) - -------------------------------------------------------------------------------- Ser 2571, Cl FN (A) 2.359%, 08/15/32 $ 6,175 $ 6,239 Ser 2575, Cl LM 4.500%, 01/15/32 3,074 3,096 Ser 2586, Cl WA 4.000%, 12/15/32 5,407 5,425 Ser 2586, Cl XG 4.000%, 12/15/32 9,644 9,693 Ser 2590, Cl UL 3.750%, 03/15/32 3,543 3,541 Ser 2594, Cl YA 4.000%, 04/15/23 3,874 3,883 Ser 2615, Cl FC (A) 3.150%, 05/15/33 2,831 2,829 Ser 2628, Cl F (A) 2.109%, 06/15/32 4,642 4,634 Ser 2641, Cl FB (A) 3.050%, 07/15/33 5,000 4,994 Ser 2649, Cl PJ 3.500%, 06/15/33 4,001 3,951 Ser 2650, Cl FX (A) 2.109%, 12/15/32 9,343 9,323 Ser 2720, Cl FA (A) 2.109%, 01/15/29 3,544 3,565 Ser 2750, Cl FG (A) 2.109%, 02/15/29 6,055 6,062 Ser 2752, Cl FJ (A) 2.059%, 01/15/18 5,511 5,518 Ser 2752, Cl FM (A) 2.059%, 12/15/30 4,608 4,604 Ser 2752, Cl FP (A) 3.109%, 02/15/34 5,000 4,954 Ser 2764, Cl FB (A) 2.059%, 03/15/31 4,797 4,789 Ser 2767, Cl FC (A) 3.209%, 07/15/32 3,229 3,228 Ser 2770, Cl FH (A) 2.109%, 03/15/34 4,908 4,906 Ser 2778, Cl FV (A) 2.309%, 03/15/34 5,388 5,398 Ser 2799, Cl F (A) 2.360%, 05/15/34 6,357 6,355 Ser 2822, Cl FD (A) 2.360%, 03/15/33 2,031 2,047 Ser 2822, Cl FP (A) 2.360%, 11/15/32 4,984 4,964 Ser 2827, Cl HF (A) 3.109%, 05/15/33 1,933 1,937 Constellation Funds 2004 Annual Report | 59 FINANCIAL STATEMENTS Statement of Net Assets Constellation Chartwell Ultra Short Duration Fixed Income Fund Face Amount Value (000) (000) - -------------------------------------------------------------------------------- FHLMC Pool #184967 7.750%, 08/01/08 $ 46 $ 48 Pool #E64944 7.000%, 07/01/11 394 418 FNMA CMO/REMIC Ser 1996-32, Cl PM 6.500%, 04/25/25 634 634 Ser 2001-28, Cl A 6.000%, 02/25/29 9 9 Ser 2001-4, Cl PB 7.000%, 04/25/20 4,629 4,698 Ser 2001-50, Cl LD 6.500%, 05/25/30 1,467 1,481 Ser 2001-68, Cl A 6.000%, 07/25/29 474 474 Ser 2002-67, Cl AM 5.000%, 11/25/15 4,156 4,241 Ser 2002-81, Cl F (A) 2.340%, 04/25/32 15,000 15,082 Ser 2002-82, Cl FP (A) 2.340%, 02/25/32 5,000 5,031 Ser 2002-82, Cl PC 6.000%, 02/25/29 12,935 13,326 Ser 2002-83, Cl MA 4.500%, 03/25/09 1,055 1,057 Ser 2002-87, Cl FB (A) 2.350%, 10/25/31 2,000 2,010 Ser 2002-9, Cl PB 6.000%, 11/25/14 422 424 Ser 2003-119, Cl PU 4.000%, 11/25/33 4,750 4,780 Ser 2003-33, Cl AM 4.250%, 05/25/33 2,060 2,076 Ser 2003-33, Cl AU 4.000%, 03/25/33 3,290 3,305 Ser 2003-34, Cl AD 4.000%, 01/25/32 2,690 2,687 Ser 2003-34, Cl FX (A) 2.950%, 05/25/33 3,763 3,824 Ser 2003-46, Cl PA 4.000%, 06/25/10 6,478 6,500 Ser 2003-69, Cl NF (A) 3.150%, 07/25/33 3,978 4,038 Ser 2003-76, Cl FB (A) 2.290%, 08/25/33 4,328 4,326 Ser 2003-89, Cl FE (A) 3.250%, 09/25/33 2,231 2,232 Face Amount Value (000) (000) - -------------------------------------------------------------------------------- Ser 2004-29, Cl HF (A) 3.290%, 07/25/33 $ 3,732 $ 3,751 FNMA Pool #190054 7.000%, 10/01/13 624 663 Pool #704214 7.500%, 12/01/27 2,427 2,613 GNMA ARM Pool #8103 (A) 4.000%, 02/20/16 80 82 Pool #8287 (A) 4.625%, 11/20/17 85 86 Pool #8297 (A) 4.625%, 12/20/17 138 140 Pool #8321 (A) 4.000%, 02/20/18 341 342 Pool #8333 (A) 4.000%, 03/20/18 224 228 Pool #8345 (A) 4.000%, 04/20/18 125 125 Pool #8366 (A) 3.375%, 06/20/18 139 140 Pool #8404 (A) 4.750%, 09/20/18 8 8 Pool #8405 (A) 4.750%, 09/20/18 72 73 Pool #8462 (A) 3.375%, 02/20/19 14 14 Pool #8489 (A) 4.000%, 04/20/19 125 126 GNMA CMO/REMIC Ser 2003-34, Cl PM 4.000%, 04/20/33 10,944 10,844 -------- 273,776 -------- - -------------------------------------------------------------------------------- TOTAL U.S. GOVERNMENT MORTGAGE-BACKED OBLIGATIONS (COST $271,631) $273,776 ================================================================================ 60 | Constellation Funds 2004 Annual Report FINANCIAL STATEMENTS Statement of Net Assets Constellation Chartwell Ultra Short Duration Fixed Income Fund Face Amount Value (000)/Shares (000) - -------------------------------------------------------------------------------- U.S. GOVERNMENT AGENCY OBLIGATIONS (4.4%) - -------------------------------------------------------------------------------- FHLB (A) 4.750%, 09/29/14 $ 3,000 $ 2,970 1.910%, 06/08/06 1,750 1,750 FHLB (B) 2.700%, 01/27/06 9,750 9,743 FNMA (A) 1.990%, 02/24/06 2,950 2,949 --------- 17,412 --------- - -------------------------------------------------------------------------------- TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (COST $17,450) 17,412 ================================================================================ - -------------------------------------------------------------------------------- REPURCHASE AGREEMENT (27.2%) - -------------------------------------------------------------------------------- PNC Capital Markets 1.710%, dated 09/30/04, to be repurchased on 10/01/04, repurchase price $109,216,188 (collateralized by U.S. Government obligation, 1.850%, 11/17/05, par value $108,533,000, total market value $109,211,311) (C) 109,211 109,211 ================================================================================ TOTAL REPURCHASE AGREEMENT (COST $109,211) 109,211 ================================================================================ - -------------------------------------------------------------------------------- CASH EQUIVALENT (0.0%) - -------------------------------------------------------------------------------- BlackRock FedFund, Institutional Shares 539 1 - -------------------------------------------------------------------------------- TOTAL CASH EQUIVALENT (COST $1) 1 ================================================================================ TOTAL INVESTMENTS (99.9%) (COST $398,293) 400,400 ================================================================================ - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES, NET (0.1%) - -------------------------------------------------------------------------------- Payable due to Investment Adviser (87) Payable due to Administrator (49) Payable due to Shareholder Servicing Agent (2) Other assets and liabilities, net 567 - -------------------------------------------------------------------------------- TOTAL OTHER ASSETS AND LIABILITIES, NET 429 - -------------------------------------------------------------------------------- NET ASSETS (100%) $ 400,829 ================================================================================ Value (000) - -------------------------------------------------------------------------------- NET ASSETS CONSIST OF: - -------------------------------------------------------------------------------- Portfolio capital of Class I Shares (unlimited authorization - no par value) based on 38,744,618 outstanding shares of beneficial interest $396,787 Portfolio capital of Class II Shares (unlimited authorization - no par value) based on 875,707 outstanding shares of beneficial interest 8,886 Distributions in excess of net investment income (2) Accumulated net realized loss on investments (6,949) Net unrealized appreciation on investments 2,107 - -------------------------------------------------------------------------------- NET ASSETS $400,829 ================================================================================ - -------------------------------------------------------------------------------- NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-CLASS I SHARES ($391,933,872 / 38,744,618 SHARES) $ 10.12 ================================================================================ - -------------------------------------------------------------------------------- NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-CLASS II SHARES ($8,894,898 / 875,707 SHARES) $ 10.16 ================================================================================ (A) Variable rate security -- the rate reflected on the Statement of Net Assets is the rate in effect on September 30, 2004. (B) Delayed Interest (Step Bonds) -- The interest rate disclosed represents the effective yield at time of purchase. (C) Tri-Party Repurchase Agreement ARM -- Adjustable Rate Mortgage Cl -- Class CMO -- Collateralized Mortgage Obligation FHLB -- Federal Home Loan Bank FHLMC -- Federal Home Loan Mortgage Company FNMA -- Federal National Mortgage Association GNMA -- Government National Mortgage Association REMIC -- Real Estate Mortgage Investment Conduit Ser -- Series The accompanying notes are an integral part of the financial statements Constellation Funds 2004 Annual Report | 61 FINANCIAL STATEMENTS STATEMENT OF NET ASSETS Constellation Chartwell Short Duration Fixed Income Fund September 30, 2004 Face Amount Value (000) (000) - -------------------------------------------------------------------------------- U.S. GOVERNMENT MORTGAGE-BACKED OBLIGATIONS (67.6%) - -------------------------------------------------------------------------------- FHLMC CMO/REMIC Ser 1093, Cl F 7.500%, 06/15/06 $ 27 $ 27 Ser 1538, Cl J 6.500%, 06/15/08 160 168 Ser 161, Cl F 9.500%, 06/15/06 76 76 Ser 2416, Cl PN 6.000%, 11/15/28 5,987 6,083 Ser 2509, Cl EA 4.000%, 12/15/12 1,518 1,525 Ser 2510, Cl TA 4.000%, 06/15/32 1,826 1,802 Ser 2515, Cl ED 5.000%, 03/15/17 4,416 4,513 Ser 2537, Cl LA 4.250%, 05/15/30 3,613 3,632 Ser 2541, Cl MC 6.000%, 01/15/29 3,461 3,558 Ser 2543, Cl YJ 4.500%, 03/15/32 3,138 3,115 Ser 2552, Cl NH 4.500%, 04/15/21 1,750 1,763 Ser 2566, Cl LM 4.500%, 04/15/32 2,267 2,252 Ser 2575, Cl QP 4.500%, 11/15/31 3,036 3,039 Ser 2581, Cl PW 3.000%, 04/15/16 3,000 2,998 Ser 2583, Cl ND 4.250%, 12/15/10 1,610 1,620 Ser 2586, Cl XG 4.000%, 12/15/32 2,411 2,423 Ser 2590, Cl QY 3.750%, 04/15/28 1,999 2,002 Ser 2590, Cl UL 3.750%, 03/15/32 4,452 4,449 Ser 2596, Cl QE 4.000%, 03/15/33 2,798 2,723 Ser 2649, Cl PJ 3.500%, 06/15/33 2,403 2,373 Ser 2744, Cl TA 5.500%, 03/15/26 3,843 3,962 Face Amount Value (000) (000) - -------------------------------------------------------------------------------- FHLMC Pool #C66916 7.000%, 05/01/32 $ 459 $ 487 Pool #D94598 6.500%, 04/01/21 376 397 Pool #E97227 7.000%, 09/01/14 788 836 Pool #G10288 6.000%, 09/01/09 78 81 Pool #G10446 6.500%, 02/01/11 116 123 Pool #G30085 7.500%, 10/01/17 436 469 Pool #M90771 5.000%, 12/01/07 1,397 1,430 FNMA CMO/REMIC Ser 1991-133, Cl Z 8.000%, 09/25/06 178 184 Ser 1991-72, Cl G 8.000%, 07/25/06 24 24 Ser 1994-27, Cl PJ 6.500%, 06/25/23 667 684 Ser 1997-81, Cl PC 5.000%, 04/18/27 420 423 Ser 1999-15, Cl PC 6.000%, 09/25/18 88 90 Ser 2001-28, Cl A 6.000%, 02/25/29 5 5 Ser 2001-68, Cl JL 5.500%, 05/25/23 7,000 7,111 Ser 2002-60, Cl F1 (A) 2.240%, 06/25/32 1,474 1,476 Ser 2002-71, Cl AP 5.000%, 11/25/32 2,682 2,713 Ser 2002-72, Cl A 5.000%, 10/25/15 1,149 1,161 Ser 2003-119, Cl PU 4.000%, 11/25/33 2,036 2,048 Ser 2003-30, Cl MB 4.000%, 06/25/27 3,000 2,983 Ser 2003-34, Cl GJ 4.000%, 02/25/33 6,822 6,757 Ser 2003-42, Cl CA 4.000%, 05/25/33 2,232 2,207 62 | Constellation Funds 2004 Annual Report FINANCIAL STATEMENTS Statement of Net Assets Constellation Chartwell Short Duration Fixed Income Fund Face Amount Value (000) (000) - -------------------------------------------------------------------------------- Ser 2003-7, Cl PA 4.500%, 03/25/20 $ 1,591 $ 1,607 FNMA Pool #190054 7.000%, 10/01/13 1,199 1,274 Pool #250477 6.000%, 01/01/11 62 65 Pool #303096 7.500%, 12/01/09 170 180 Pool #313429 7.000%, 03/01/12 471 500 Pool #323441 7.000%, 12/01/13 851 903 Pool #323493 7.500%, 12/01/28 3,444 3,701 Pool #334593 7.000%, 05/01/24 29 32 Pool #535560 7.000%, 08/01/14 7,359 7,809 Pool #555973 7.500%, 12/01/14 2,514 2,676 Pool #6222 9.000%, 04/01/16 64 70 Pool #647567 6.000%, 06/01/17 925 970 Pool #704214 7.500%, 12/01/27 1,374 1,480 Pool #725284 7.000%, 11/01/18 3,657 3,882 Pool #8245 8.000%, 12/01/08 99 105 GNMA ARM Pool #8426 (A) 4.625%, 11/20/18 52 53 GNMA CMO/REMIC Ser 2002-13, Cl A 6.000%, 10/16/30 782 790 Ser 2002-72, Cl AB 4.500%, 10/20/32 2,776 2,718 GNMA Pool #2707 5.500%, 01/20/14 20 21 Pool #2802 5.500%, 07/20/14 20 21 Face Amount Value (000) (000) - -------------------------------------------------------------------------------- Pool #2843 5.500%, 11/20/14 $ 280 $ 292 Pool #344233 8.000%, 02/15/23 215 237 Pool #345123 8.000%, 12/15/23 365 402 Pool #351122 6.500%, 07/15/08 74 78 Pool #357343 6.500%, 10/15/08 33 35 Pool #462486 6.500%, 01/15/13 91 96 Pool #569337 6.500%, 04/15/22 117 124 Pool #578189 6.000%, 02/15/32 92 96 Pool #68224 8.000%, 06/15/12 151 164 Pool #780322 8.000%, 11/15/22 240 264 Pool #780327 8.000%, 11/15/17 115 126 Pool #780604 7.000%, 07/15/12 1,458 1,556 Pool #814 8.000%, 08/20/17 271 295 ------- 118,414 ------- - -------------------------------------------------------------------------------- TOTAL U.S. GOVERNMENT MORTGAGE-BACKED OBLIGATIONS (COST $117,794) 118,414 ================================================================================ U.S. GOVERNMENT AGENCY OBLIGATIONS (7.4%) - -------------------------------------------------------------------------------- FHLB (A) 4.750%, 09/29/14 4,000 3,960 FHLMC 2.400%, 03/29/07 4,125 4,065 FHLMC, MTN 4.000%, 11/17/08 1,000 1,002 FNMA 2.625%, 01/19/07 2,000 1,981 FNMA (A) 1.990%, 02/24/06 2,000 2,000 ------- 13,008 ------- Constellation Funds 2004 Annual Report | 63 FINANCIAL STATEMENTS Statement of Net Assets Constellation Chartwell Short Duration Fixed Income Fund Face Amount Value (000) (000) - -------------------------------------------------------------------------------- TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (COST $13,137) $ 13,008 ================================================================================ CORPORATE OBLIGATIONS (3.7%) - -------------------------------------------------------------------------------- FINANCIALS (1.6%) - -------------------------------------------------------------------------------- International Lease Financing 5.625%, 06/01/07 $ 2,650 2,800 - -------------------------------------------------------------------------------- UTILITIES (2.1%) - -------------------------------------------------------------------------------- National Rural Utilities 6.000%, 05/15/06 3,500 3,670 - -------------------------------------------------------------------------------- TOTAL CORPORATE OBLIGATIONS (COST $6,516) 6,470 ================================================================================ - -------------------------------------------------------------------------------- ASSET-BACKED SECURITIES (1.9%) - -------------------------------------------------------------------------------- Discover Card Master Trust I, Ser 2000-9, Cl A 6.350%, 07/15/08 150 157 Morgan Stanley Capital I, Ser 1998-XL1, Cl A2 6.450%, 06/03/30 2,865 2,930 PECO Energy Transition Trust, Ser 1999-A, Cl A6 6.050%, 03/01/09 125 132 -------- 3,219 -------- - -------------------------------------------------------------------------------- TOTAL ASSET-BACKED SECURITIES (COST $3,159) 3,219 ================================================================================ REPURCHASE AGREEMENT (19.2%) - -------------------------------------------------------------------------------- PNC Capital Markets 1.710%, dated 09/30/04, to be repurchased on 10/01/04, repurchase price $33,591,596 (collateralized by U.S. Government obligation, 1.850%, 11/17/05, par value $33,382,000, total market value $33,590,638) (B) 33,590 33,590 ================================================================================ TOTAL REPURCHASE AGREEMENT (COST $33,590) 33,590 ================================================================================ Value Shares (000) - -------------------------------------------------------------------------------- CASH EQUIVALENT (0.0%) - -------------------------------------------------------------------------------- BlackRock FedFund, Institutional Shares 820 $ 1 - -------------------------------------------------------------------------------- TOTAL CASH EQUIVALENT (COST $1) 1 ================================================================================ TOTAL INVESTMENTS (99.8%) (COST $174,197) 174,702 ================================================================================ OTHER ASSETS AND LIABILITIES, NET (0.2%) - -------------------------------------------------------------------------------- Payable due to Investment Adviser (48) Payable due to Administrator (22) Payable due to Shareholder Servicing Agent (1) Other assets and liabilities, net 485 - -------------------------------------------------------------------------------- TOTAL OTHER ASSETS AND LIABILITIES, NET 414 ================================================================================ NET ASSETS (100%) $175,116 ================================================================================ - -------------------------------------------------------------------------------- NET ASSETS CONSIST OF: - -------------------------------------------------------------------------------- Portfolio capital of Class I Shares (unlimited authorization - no par value) based on 17,151,216 outstanding shares of beneficial interest $174,073 Portfolio capital of Class II Shares (unlimited authorization - no par value) based on 290,113 outstanding shares of beneficial interest 2,645 Distributions in excess of net investment income (1) Accumulated net realized loss on investments (2,106) Net unrealized appreciation on investments 505 - -------------------------------------------------------------------------------- NET ASSETS $175,116 ================================================================================ NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-CLASS I SHARES ($172,212,555 / 17,151,216 SHARES) $ 10.04 ================================================================================ NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-CLASS II SHARES ($2,903,364 / 290,113 SHARES) $ 10.01 ================================================================================ (A) Variable rate security - the rate reflected on the Statement of Net Assets is the rate in effect on September 30, 2004. (B) Tri-Party Repurchase Agreement ARM -- Adjustable Rate Mortgage Cl -- Class CMO -- Collateralized Mortgage Obligation FHLB -- Federal Home Loan Bank FHLMC -- Federal Home Loan Mortgage Corporation FNMA -- Federal National Mortgage Association GNMA -- Government National Mortgage Association MTN -- Medium Term Note REMIC -- Real Estate Mortgage Investment Conduit Ser -- Series The accompanying notes are an integral part of the financial statements 64 | Constellation Funds 2004 Annual Report FINANCIAL STATEMENTS STATEMENT OF NET ASSETS Constellation Chartwell High Yield Fund September 30, 2004 Face Amount Value (000) (000) - -------------------------------------------------------------------------------- CORPORATE OBLIGATIONS (91.2%) - -------------------------------------------------------------------------------- CONSUMER DISCRETIONARY (30.7%) - -------------------------------------------------------------------------------- Albritton Communications 7.750%, 12/15/12 $ 105 $ 109 Amscan Holdings (A) 8.750%, 05/01/14 70 71 Aztar (A) 7.875%, 06/15/14 140 148 Cablevision Systems (A) 8.000%, 04/15/12 100 104 Charter Communications (A) 8.000%, 04/30/12 50 50 Charter Communications Holdings 10.750%, 10/01/09 50 41 Chattem 7.000%, 03/01/14 100 102 Courtyard by Marriott, Ser B 10.750%, 02/01/08 160 161 Denny's (A) 10.000%, 10/01/12 80 80 Echostar DBS (A) 6.625%, 10/01/14 100 99 Friendly Ice Cream 8.375%, 06/15/12 120 115 Gereral Nutrition Center 8.500%, 12/01/10 90 92 H&E Equipment 11.125%, 06/15/12 85 88 HLI Operating 10.500%, 06/15/10 29 32 Intrawest 7.500%, 10/15/13 100 104 Jean Countu Group (A) 8.500%, 08/01/14 105 104 LCE Aquisition (A) 9.000%, 08/01/14 115 119 Mandaly Resort Group 7.625%, 07/15/13 135 143 Mediacom Broadband 11.000%, 07/15/13 100 106 Mother's Work 11.250%, 08/01/10 100 98 NationsRent 9.500%, 10/15/10 120 130 Face Amount Value (000) (000) - -------------------------------------------------------------------------------- Norcraft (A) 9.000%, 11/01/11 $ 45 $ 49 Phillips Van-Heusen 7.250%, 02/15/11 100 104 Premier Entertainment 10.750%, 02/01/12 65 69 Service (A) 6.750%, 04/01/16 100 100 Sonic Automotive, Ser B 8.625%, 08/15/13 80 85 Tenneco Automotive, Ser B 10.250%, 07/15/13 100 114 Time Warner 9.750%, 07/15/08 135 134 Town Sports International 9.625%, 04/15/11 85 86 United Rentals 7.750%, 11/15/13 120 112 Vertis, Ser B 10.875%, 06/15/09 100 108 W.H. Holdings 9.500%, 04/01/11 60 65 ----- 3,122 ----- - -------------------------------------------------------------------------------- CONSUMER STAPLES (4.6%) - -------------------------------------------------------------------------------- Chiquita Brands (A) 7.500%, 11/01/14 125 125 Dole Foods 8.750%, 07/15/13 70 77 Merisant (A) 9.500%, 07/15/13 90 86 Stater Brothers Holdings (A) 8.125%, 06/15/12 85 89 United Agri Products (A) 8.250%, 12/15/11 85 92 ----- 469 ----- - -------------------------------------------------------------------------------- ENERGY (2.6%) - -------------------------------------------------------------------------------- Belden & Blake (A) 8.750%, 07/15/12 110 117 Chesapeake Energy 7.500%, 06/15/14 130 142 ----- 259 ----- Constellation Funds 2004 Annual Report | 65 FINANCIAL STATEMENTS Statement of Net Assets Constellation Chartwell High Yield Fund Face Amount Value (000) (000) - -------------------------------------------------------------------------------- FINANCIALS (4.3%) - -------------------------------------------------------------------------------- BCP Caylux Holdings (A) 9.625%, 06/15/14 $ 100 $ 108 Bluewater Finance 10.250%, 02/15/12 100 109 E*Trade Financial (A) 8.000%, 06/15/11 105 109 Western Financial 9.625%, 05/15/12 100 113 ------ 439 ------ - -------------------------------------------------------------------------------- HEALTH CARE (5.7%) - -------------------------------------------------------------------------------- Bio-Rad Laboratories 7.500%, 08/15/13 115 124 Iasis Healthcare (A) 8.750%, 06/15/14 165 173 Norcross Safety Products, Ser B 9.875%, 08/15/11 100 108 Res-Care 10.625%, 11/15/08 65 70 VWR International (A) 8.000%, 04/15/14 100 106 ------ 581 ------ - -------------------------------------------------------------------------------- INDUSTRIALS (24.8%) - -------------------------------------------------------------------------------- Aearo 8.250%, 04/15/12 70 71 Ainsworth Lumber (A) 7.250%, 10/01/12 75 76 Allied Security (A) 11.375%, 07/15/11 70 73 American Achievement (A) 8.250%, 04/01/12 100 105 Buhrmann U.S. (A) 8.250%, 07/01/14 115 115 CE Generation 7.416%, 12/15/18 99 103 Cenveo 9.625%, 03/15/12 100 110 Coinmach 9.000%, 02/01/10 155 161 Danka Business Systems 11.000%, 06/15/10 100 105 Face Amount Value (000) (000) - -------------------------------------------------------------------------------- Gencorp 9.500%, 08/15/13 $ 70 $ 75 Geo Group 8.250%, 07/15/13 100 103 IMCO Recycling 10.375%, 10/15/10 100 110 Integrated Electrical Services, Ser B 9.375%, 02/01/09 91 89 Jacuzzi Brands 9.625%, 07/01/10 100 110 Koppers Industries 9.875%, 10/15/13 100 110 Kraton Polymers (A) 8.125%, 01/15/14 125 123 Ply Gem Industries (A) 9.000%, 02/15/12 70 70 Rayovac 8.500%, 10/01/13 85 92 Sensus Metering 8.625%, 12/15/13 130 133 Sequa 9.000%, 08/01/09 100 110 Ship Finance International 8.500%, 12/15/13 145 144 THI Buildco (A) 8.500%, 09/01/14 100 105 Tech Olympic USA 9.000%, 07/01/10 100 110 Trinity Industries 6.500%, 03/15/14 125 123 ----- 2,526 ----- - -------------------------------------------------------------------------------- INFORMATION TECHNOLOGY (0.5%) - -------------------------------------------------------------------------------- FTD 7.750%, 02/15/14 50 50 ----- - -------------------------------------------------------------------------------- MATERIALS (10.8%) - -------------------------------------------------------------------------------- Autocam (A) 10.875%, 06/15/14 70 70 California Steel 6.125%, 03/15/14 130 127 Crown Euro Holdings 9.500%, 03/01/11 100 111 66 | Constellation Funds 2004 Annual Report FINANCIAL STATEMENTS Statement of Net Assets Constellation Chartwell High Yield Fund Face Amount Value (000) (000) - -------------------------------------------------------------------------------- Euromax International 8.500%, 08/15/11 $ 100 $ 107 Nalco 8.875%, 11/15/13 95 102 Nova Chemicals 6.500%, 01/15/12 85 88 Oregon Steel Mills 10.000%, 07/15/09 100 109 Owens-Brockway Glass Container 8.750%, 11/15/12 100 111 Russel Metals 6.375%, 03/01/14 75 75 Solo Cup 8.500%, 02/15/14 125 123 Wolverine Tube 10.500%, 04/01/09 70 77 ------ 1,100 ------ - -------------------------------------------------------------------------------- TELECOMMUNICATION SERVICES (4.4%) - -------------------------------------------------------------------------------- Centennial Cellular 10.125%, 06/15/13 105 110 General Cable (A) 9.500%, 11/15/10 50 55 Nextel Communications 7.375%, 08/01/15 130 140 Sup Essx Communication (A) 9.000%, 04/15/12 100 100 Ubiquitel Operating (A) 9.875%, 03/01/11 40 42 ------ 447 ------ - -------------------------------------------------------------------------------- UTILITIES (2.8%) - -------------------------------------------------------------------------------- AES 9.500%, 06/01/09 125 141 NRG Energy (A) 8.000%, 12/15/13 130 139 ------ 280 ------ - -------------------------------------------------------------------------------- TOTAL CORPORATE OBLIGATIONS (COST $9,185) 9,273 ================================================================================ Face Amount Value (000)/Shares (000) - -------------------------------------------------------------------------------- REPURCHASE AGREEMENT (7.7%) - -------------------------------------------------------------------------------- PNC Capital Markets 1.710%, dated 09/30/04, to be repurchased on 10/01/04, repurchase price $785,037 (collateralized by U.S. Government obligation, 1.850%, 11/17/05, par value $781,000, total market value $785,881) (B) $ 785 $ 785 ------ - -------------------------------------------------------------------------------- TOTAL REPURCHASE AGREEMENT (COST $785) 785 ================================================================================ - -------------------------------------------------------------------------------- CASH EQUIVALENT (0.0%) - -------------------------------------------------------------------------------- PNC Bank Money Market Fund 387 -- - -------------------------------------------------------------------------------- TOTAL CASH EQUIVALENT (COST $0) ================================================================================ TOTAL INVESTMENTS (98.9%) (COST $9,970) 10,058 ================================================================================ OTHER ASSETS AND LIABILITIES, NET (1.1%) - -------------------------------------------------------------------------------- Payable due to Investment Adviser (4) Payable due to Administrator (1) Other assets and liabilities, net 118 - -------------------------------------------------------------------------------- TOTAL OTHER ASSETS AND LIABILITIES, NET 113 - -------------------------------------------------------------------------------- NET ASSETS (100%) $ 10,171 ================================================================================ NET ASSETS CONSIST OF: - -------------------------------------------------------------------------------- Portfolio capital of Class I Shares (unlimited authorization - no par value) based on 1,986,209 outstanding shares of beneficial interest $ 25,239 Undistributed net investment income 2 Accumulated net realized loss on investments (15,158) Net unrealized appreciation on investments 88 - -------------------------------------------------------------------------------- NET ASSETS $ 10,171 ================================================================================ - -------------------------------------------------------------------------------- NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-CLASS I SHARES $ 5.12 ================================================================================ (A) Security sold within the terms of a private placement memorandum, exempt from registration under section 144A of the Securities Act of 1933, as amended, and may be sold only to dealers in the program or other "accredited investors". Security is considered liquid. (B) Tri-Party Repurchase Agreement Ser -- Series Amounts designated as "--" are either $0 or have been rounded to $0. The accompanying notes are an integral part of the financial statements. Constellation Funds 2004 Annual Report | 67 FINANCIAL STATEMENTS STATEMENT OF NET ASSETS Constellation HLAM Large Cap Value Fund September 30, 2004 Value Shares (000) - -------------------------------------------------------------------------------- COMMON STOCK (99.7%) - -------------------------------------------------------------------------------- CONSUMER DISCRETIONARY (26.4%) - -------------------------------------------------------------------------------- Comcast, Cl A* 1,940 $ 55 Gannett 425 36 Home Depot 2,045 80 Mattel 2,485 45 Nike, Cl B 380 30 Omnicom Group 630 46 TJX 1,950 43 Walt Disney 1,965 44 ----- 379 ----- - -------------------------------------------------------------------------------- CONSUMER STAPLES (12.7%) - -------------------------------------------------------------------------------- Costco Wholesale 715 30 CVS 1,140 48 Gillette 1,070 45 PepsiCo 1,225 59 ----- 182 ----- - -------------------------------------------------------------------------------- FINANCIALS (34.2%) - -------------------------------------------------------------------------------- American International Group 930 63 Berkshire Hathaway, Cl B* 35 100 Cincinnati Financial 2,270 94 Freddie Mac 1,115 73 Synovus Financial 1,910 50 US Bancorp 2,030 59 Washington Mutual 1,350 53 ----- 492 ----- - -------------------------------------------------------------------------------- HEALTH CARE (15.2%) - -------------------------------------------------------------------------------- Allergan 360 26 Cardinal Health 685 30 Johnson & Johnson 1,115 63 Waters* 1,455 64 Wyeth 935 35 ----- 218 ----- - -------------------------------------------------------------------------------- INFORMATION TECHNOLOGY (9.0%) - -------------------------------------------------------------------------------- Automatic Data Processing 1,630 67 First Data 1,445 63 ----- 130 ----- - -------------------------------------------------------------------------------- TELECOMMUNICATION SERVICES (2.2%) - -------------------------------------------------------------------------------- CenturyTel 925 32 - -------------------------------------------------------------------------------- Value Shares (000) - -------------------------------------------------------------------------------- TOTAL COMMON STOCK (COST $1,436) $1,433 ================================================================================ - -------------------------------------------------------------------------------- CASH EQUIVALENT (0.6%) - -------------------------------------------------------------------------------- BlackRock TempCash Fund, Institutional Shares 8,391 8 - -------------------------------------------------------------------------------- TOTAL CASH EQUIVALENT (COST $8) 8 - -------------------------------------------------------------------------------- TOTAL INVESTMENTS (100.3%) (COST $1,444) 1,441 ================================================================================ - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES, NET (-0.3%) - -------------------------------------------------------------------------------- Receivable due from Investment Adviser 1 Other assets and liabilities, net (5) - -------------------------------------------------------------------------------- TOTAL OTHER ASSETS AND LIABILITIES, NET (4) - -------------------------------------------------------------------------------- NET ASSETS (100%) $1,437 ================================================================================ - -------------------------------------------------------------------------------- NET ASSETS CONSIST OF: - -------------------------------------------------------------------------------- Portfolio capital of Class II Shares (unlimited authorization - no par value) based on 146,208 outstanding shares of beneficial interest $1,440 Net unrealized depreciation on investments (3) - -------------------------------------------------------------------------------- NET ASSETS $1,437 ================================================================================ NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-CLASS II SHARES $ 9.83 ================================================================================ * Non-income producing security. Cl -- Class The accompanying notes are an integral part of the financial statements 68 | Constellation Funds 2004 Annual Report FINANCIAL STATEMENTS STATEMENT OF NET ASSETS Constellation Pitcairn Diversified Value Fund September 30, 2004 Value Shares (000) - -------------------------------------------------------------------------------- COMMON STOCK (99.1%) - -------------------------------------------------------------------------------- CONSUMER DISCRETIONARY (13.3%) - -------------------------------------------------------------------------------- Fortune Brands 28,415 $ 2,105 Harrah's Entertainment 43,000 2,278 Home Depot 85,880 3,366 Kohl's* 36,100 1,740 Lear 29,175 1,589 Pulte Homes 25,580 1,570 Tribune 40,345 1,660 Viacom, Cl B 51,605 1,732 Walt Disney 184,800 4,167 ------- 20,207 ------- - -------------------------------------------------------------------------------- CONSUMER STAPLES (3.7%) - -------------------------------------------------------------------------------- Anheuser-Busch 42,800 2,138 PepsiCo 71,750 3,490 ------- 5,628 ------- - -------------------------------------------------------------------------------- ENERGY (11.5%) - -------------------------------------------------------------------------------- ChevronTexaco 95,060 5,099 Exxon Mobil 193,200 9,338 Spinnaker Exploration* 88,050 3,085 ------- 17,522 ------- - -------------------------------------------------------------------------------- FINANCIALS (37.2%) - -------------------------------------------------------------------------------- American International Group 45,960 3,125 Bear Stearns 43,480 4,182 Boston Properties 33,190 1,838 Capital Automotive REIT 89,540 2,800 Capital One Financial 44,590 3,295 Citigroup 159,365 7,031 Everest Re Group 27,415 2,038 Hibernia, Cl A 140,655 3,715 MBNA 190,555 4,802 North Fork Bancorporation 97,440 4,331 Radian Group 36,540 1,689 State Street 82,592 3,528 TCF Financial 84,600 2,563 Torchmark 54,390 2,892 Washington Mutual 49,205 1,923 Wells Fargo 114,580 6,832 ------- 56,584 ------- - -------------------------------------------------------------------------------- HEALTH CARE (3.2%) - -------------------------------------------------------------------------------- Merck 91,300 3,013 UnitedHealth Group 25,640 1,890 ------- 4,903 ------- Value Shares (000) - -------------------------------------------------------------------------------- INDUSTRIALS (9.7%) - -------------------------------------------------------------------------------- 3M 24,965 $ 1,996 Avery Dennison 33,770 2,221 General Dynamics 22,140 2,261 Norfolk Southern 68,670 2,042 Rockwell Automation 100,315 3,882 United Technologies 24,670 2,304 -------- 14,706 -------- - -------------------------------------------------------------------------------- INFORMATION TECHNOLOGY (6.8%) - -------------------------------------------------------------------------------- Alliance Data Systems* 40,195 1,630 Dell* 42,500 1,513 Flextronics International* 131,255 1,739 Hewlett-Packard 61,215 1,148 Microsoft 103,925 2,874 Texas Instruments 66,020 1,405 -------- 10,309 -------- - -------------------------------------------------------------------------------- MATERIALS (2.5%) - -------------------------------------------------------------------------------- E.I. du Pont de Nemours 57,615 2,466 International Paper 35,010 1,415 -------- 3,881 -------- - -------------------------------------------------------------------------------- TELECOMMUNICATION SERVICES (5.4%) - -------------------------------------------------------------------------------- Alltel 25,980 1,427 CenturyTel 98,560 3,375 Sprint* 170,910 3,440 -------- 8,242 -------- - -------------------------------------------------------------------------------- UTILITIES (5.8%) - -------------------------------------------------------------------------------- Dominion Resources 36,460 2,379 Entergy 55,930 3,390 FPL Group 45,780 3,128 -------- 8,897 -------- - -------------------------------------------------------------------------------- TOTAL COMMON STOCK (COST $133,442) 150,879 ================================================================================ - -------------------------------------------------------------------------------- EXCHANGE TRADED FUND (0.9%) - -------------------------------------------------------------------------------- iShares Russell 1000 Value Index Fund* 21,520 1,303 - -------------------------------------------------------------------------------- TOTAL EXCHANGE TRADED FUND (COST $1,278) 1,303 ================================================================================ TOTAL INVESTMENTS (100.0%) (COST $134,720) 152,182 ================================================================================ Constellation Funds 2004 Annual Report | 69 FINANCIAL STATEMENTS Statement of Net Assets Constellation Pitcairn Diversified Value Fund Value (000) - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES, NET (0.0%) - -------------------------------------------------------------------------------- Payable due to Investment Adviser $ (81) Payable due to Administrator (19) Payable due to Shareholder Servicing Agent (31) Other assets and liabilities, net 151 - -------------------------------------------------------------------------------- TOTAL OTHER ASSETS AND LIABILITIES, NET 20 ================================================================================ NET ASSETS (100%) $152,202 ================================================================================ - -------------------------------------------------------------------------------- NET ASSETS CONSIST OF: - -------------------------------------------------------------------------------- Portfolio capital of Class II Shares (unlimited authorization - no par value) based on 13,568,699 outstanding shares of beneficial interest $134,917 Accumulated net realized loss on investments (177) Net unrealized appreciation on investments 17,462 - -------------------------------------------------------------------------------- NET ASSETS $152,202 ================================================================================ NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-CLASS II SHARES $ 11.22 ================================================================================ * Non-income producing security. Cl -- Class REIT -- Real Estate Investment Trust The accompanying notes are an integral part of the financial statements 70 | Constellation Funds 2004 Annual Report FINANCIAL STATEMENTS STATEMENT OF NET ASSETS Constellation Pitcairn Select Value Fund September 30, 2004 Value Shares (000) - ----------------------------------------------------------------------------- COMMON STOCK (99.2%) - ----------------------------------------------------------------------------- CONSUMER DISCRETIONARY (8.3%) - ----------------------------------------------------------------------------- Lowe's 32,150 $ 1,747 Walt Disney 150,180 3,387 ------- 5,134 ------- - ----------------------------------------------------------------------------- CONSUMER STAPLES (8.4%) - ----------------------------------------------------------------------------- Anheuser-Busch 40,100 2,003 PepsiCo 31,735 1,544 Wal-Mart Stores 30,500 1,623 ------- 5,170 ------- - ----------------------------------------------------------------------------- ENERGY (12.0%) - ----------------------------------------------------------------------------- ChevronTexaco 59,430 3,188 Devon Energy 32,090 2,279 Spinnaker Exploration* 55,325 1,938 ------- 7,405 ------- - ----------------------------------------------------------------------------- FINANCIALS (35.7%) - ----------------------------------------------------------------------------- Capital Automotive REIT 72,255 2,260 Capital One Financial 35,160 2,598 Citigroup 45,715 2,017 Everest Re Group 20,360 1,513 MBNA 122,270 3,081 North Fork Bancorporation 81,430 3,620 Radian Group 49,830 2,304 Stancorp Financial Group 47,825 3,405 Wells Fargo 21,900 1,306 ------- 22,104 ------- - ----------------------------------------------------------------------------- HEALTH CARE (3.6%) - ----------------------------------------------------------------------------- Pfizer 72,800 2,228 - ----------------------------------------------------------------------------- INDUSTRIALS (9.0%) - ----------------------------------------------------------------------------- Avery Dennison 31,620 2,080 Rockwell Automation 60,580 2,345 Yellow Roadway* 23,785 1,115 ------- 5,540 ------- - ----------------------------------------------------------------------------- INFORMATION TECHNOLOGY (10.0%) - ----------------------------------------------------------------------------- Alliance Data Systems* 38,545 1,563 Hewlett-Packard 117,045 2,195 International Business Machines 10,850 930 Micron Technology* 126,775 1,525 ------- 6,213 ------- Value Shares (000) - ----------------------------------------------------------------------------- MATERIALS (1.9%) - ----------------------------------------------------------------------------- International Paper 29,965 $ 1,211 - ----------------------------------------------------------------------------- TELECOMMUNICATION SERVICES (4.7%) - ----------------------------------------------------------------------------- Sprint* 143,085 2,880 - ----------------------------------------------------------------------------- UTILITIES (5.6%) - ----------------------------------------------------------------------------- Dominion Resources 23,780 1,550 FPL Group 27,705 1,893 ------- 3,443 ------- - ----------------------------------------------------------------------------- TOTAL COMMON STOCK (COST $53,280) 61,328 ============================================================================= - ----------------------------------------------------------------------------- EXCHANGE TRADED FUND (0.6%) - ----------------------------------------------------------------------------- iShares Russell 1000 Value Index Fund* 6,020 365 - ----------------------------------------------------------------------------- TOTAL EXCHANGE TRADED FUND (COST $355) 365 ============================================================================= - ----------------------------------------------------------------------------- CASH EQUIVALENT (0.4%) - ----------------------------------------------------------------------------- PNC Bank Money Market Fund 234,264 234 - ----------------------------------------------------------------------------- TOTAL CASH EQUIVALENT (COST $234) 234 ============================================================================= TOTAL INVESTMENTS (100.2%) (COST $53,869) 61,927 ============================================================================= Constellation Funds 2004 Annual Report | 71 FINANCIAL STATEMENTS Statement of Net Assets Constellation Pitcairn Select Value Fund Value (000) - ----------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES, NET (-0.2%) - ----------------------------------------------------------------------------- Payable due to Investment Adviser $ (34) Payable due to Shareholder Servicing Agent (13) Payable due to Administrator (7) Other assets and liabilities, net (56) - ----------------------------------------------------------------------------- TOTAL OTHER ASSETS AND LIABILITIES, NET (110) ============================================================================= NET ASSETS (100%) $61,817 ============================================================================= - ----------------------------------------------------------------------------- NET ASSETS CONSIST OF: ---------------------------------------------------------------------------- Portfolio capital of Class II Shares (unlimited authorization - no par value) based on 5,689,389 outstanding shares of beneficial interest $53,453 Accumulated net realized gain on investments 306 Net unrealized appreciation on investments 8,058 - ----------------------------------------------------------------------------- NET ASSETS $61,817 ============================================================================= NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-CLASS II SHARES $ 10.87 ============================================================================= * Non-income producing security. REIT -- Real Estate Investment Trust The accompanying notes are an integral part of the financial statements 72 | Constellation Funds 2004 Annual Report FINANCIAL STATEMENTS STATEMENT OF NET ASSETS Constellation Pitcairn Diversified Growth Fund September 30, 2004 Value Shares (000) - -------------------------------------------------------------------------------- COMMON STOCK (98.5%) - -------------------------------------------------------------------------------- CONSUMER DISCRETIONARY (17.9%) - -------------------------------------------------------------------------------- Aeropostale* 43,270 $ 1,134 Best Buy 28,135 1,526 Dollar Tree Stores* 43,362 1,169 eBay* 22,517 2,070 Fortune Brands 28,580 2,117 Harrah's Entertainment 24,215 1,283 Home Depot 70,740 2,773 Kohl's* 22,300 1,075 Regis 18,605 748 Standard-Pacific 17,455 984 Starbucks* 30,101 1,368 Tribune 19,730 812 Walt Disney 73,630 1,660 ------- 18,719 ------- - -------------------------------------------------------------------------------- CONSUMER STAPLES (10.3%) - -------------------------------------------------------------------------------- Altria Group 32,100 1,510 Anheuser-Busch 19,187 958 PepsiCo 63,975 3,112 Procter & Gamble 44,585 2,413 Wal-Mart Stores 52,792 2,809 ------- 10,802 ------- - -------------------------------------------------------------------------------- ENERGY (1.4%) - -------------------------------------------------------------------------------- Halliburton 43,335 1,460 ------- - -------------------------------------------------------------------------------- FINANCIALS (9.4%) - -------------------------------------------------------------------------------- American International Group 28,210 1,918 Bear Stearns 11,690 1,124 Capital One Financial 25,965 1,919 Everest Re Group 10,145 754 Fifth Third Bancorp 25,350 1,248 MBNA 112,666 2,839 ------- 9,802 ------- - -------------------------------------------------------------------------------- HEALTH CARE (24.5%) - -------------------------------------------------------------------------------- Abbott Laboratories 43,913 1,860 Amgen* 38,962 2,208 Cephalon* 26,725 1,280 Health Management Associates, Cl A 50,953 1,041 Hospira* 43,020 1,317 Johnson & Johnson 93,776 5,282 Medtronic 59,527 3,090 Mylan Laboratories 99,635 1,794 Value Shares (000) - -------------------------------------------------------------------------------- Pfizer 194,481 $ 5,951 UnitedHealth Group 23,665 1,745 -------- 25,568 -------- - -------------------------------------------------------------------------------- INDUSTRIALS (7.0%) - -------------------------------------------------------------------------------- Avery Dennison 21,650 1,424 General Electric 1 -- L-3 Communications Holdings 21,320 1,428 Pentair 37,085 1,295 Rockwell Automation 41,595 1,610 United Parcel Service, Cl B 20,230 1,536 -------- 7,293 -------- - -------------------------------------------------------------------------------- INFORMATION TECHNOLOGY (26.0%) - -------------------------------------------------------------------------------- Affiliated Computer Services, Cl A* 28,945 1,611 Alliance Data Systems* 47,620 1,931 Applied Materials* 71,065 1,172 Cisco Systems* 168,337 3,047 Citrix Systems* 63,820 1,118 Dell* 57,949 2,063 Flextronics International* 78,515 1,040 Intel 117,688 2,361 Lexmark International, Cl A* 12,470 1,048 Micron Technology* 62,735 755 Microsoft 195,979 5,419 Qualcomm 50,834 1,985 Texas Instruments 68,050 1,448 Veritas Software* 56,750 1,010 Xilinx 43,271 1,168 -------- 27,176 -------- - -------------------------------------------------------------------------------- MATERIALS (1.0%) - -------------------------------------------------------------------------------- Worthington Industries 48,480 1,035 -------- - -------------------------------------------------------------------------------- TELECOMMUNICATION SERVICES (1.0%) - -------------------------------------------------------------------------------- Sprint* 53,430 1,076 - -------------------------------------------------------------------------------- TOTAL COMMON STOCK (COST $111,236) 102,931 ================================================================================ Constellation Funds 2004 Annual Report | 73 FINANCIAL STATEMENTS Statement of Net Assets Constellation Pitcairn Diversified Growth Fund Value Shares (000) - -------------------------------------------------------------------------------- EXCHANGE TRADED FUND (1.4%) - -------------------------------------------------------------------------------- iShares S&P MidCap 400/BARRA Growth Index Fund* 12,480 $ 1,499 - -------------------------------------------------------------------------------- TOTAL EXCHANGE TRADED FUND (COST $1,553) 1,499 -------- ================================================================================ CASH EQUIVALENT (0.2%) - -------------------------------------------------------------------------------- PNC Bank Money Market Fund 197,238 197 - -------------------------------------------------------------------------------- TOTAL CASH EQUIVALENT (COST $197) 197 ================================================================================ TOTAL INVESTMENTS (100.1%) (COST $112,986) 104,627 ================================================================================ - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES, NET (-0.1%) - -------------------------------------------------------------------------------- Payable due to Investment Adviser (54) Payable due to Shareholder Servicing Agent (22) Payable due to Administrator (13) Other assets and liabilities, net (10) - -------------------------------------------------------------------------------- TOTAL OTHER ASSETS AND LIABILITIES, NET (99) - -------------------------------------------------------------------------------- NET ASSETS (100%) $104,528 ================================================================================ Value (000) - -------------------------------------------------------------------------------- NET ASSETS CONSIST OF: - -------------------------------------------------------------------------------- Portfolio capital of Class II Shares (unlimited authorization - no par value) based on 19,510,329 outstanding shares of beneficial interest $185,527 Accumulated net realized loss on investments (72,640) Net unrealized depreciation on investments (8,359) - -------------------------------------------------------------------------------- NET ASSETS $104,528 ================================================================================ NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-CLASS II SHARES $ 5.36 ================================================================================ * Non-income producing security. Cl -- Class Amounts designated as "--" are either $0 or have been rounded to $0. The accompanying notes are an integral part of the financial statements 74 | Constellation Funds 2004 Annual Report FINANCIAL STATEMENTS STATEMENT OF NET ASSETS Constellation Pitcairn Small Cap Fund September 30, 2004 Value Shares (000) - -------------------------------------------------------------------------------- COMMON STOCK (97.1%) - -------------------------------------------------------------------------------- CONSUMER DISCRETIONARY (12.8%) - -------------------------------------------------------------------------------- Advance Auto Parts* 30,834 $ 1,061 Aeropostale* 91,759 2,404 California Pizza Kitchen* 122,130 2,669 Furniture Brands International 27,964 701 GameStop, Cl A* 73,599 1,362 Lin TV, Cl A* 23,355 455 Modine Manufacturing 30,190 909 Standard-Pacific 15,332 864 Wolverine World Wide 56,380 1,421 ------- 11,846 ------- - -------------------------------------------------------------------------------- CONSUMER STAPLES (4.1%) - -------------------------------------------------------------------------------- Cott 50,425 1,454 Pantry* 75,953 1,912 Peet's Coffee & Tea* 18,852 441 ------- 3,807 ------- - -------------------------------------------------------------------------------- ENERGY (5.6%) - -------------------------------------------------------------------------------- Cimarex Energy* 44,963 1,571 Maverick Tube* 29,032 895 Spinnaker Exploration* 44,103 1,545 W-H Energy Services* 58,401 1,212 ------- 5,223 ------- - -------------------------------------------------------------------------------- FINANCIALS (21.0%) - -------------------------------------------------------------------------------- Capital Automotive REIT 97,621 3,053 Central Pacific Financial 64,172 1,766 Commercial Capital Bancorp* 87,630 1,988 Flagstar Bancorp 38,760 825 Flushing Financial 105,128 1,998 IPC Holdings 32,636 1,241 Metris* 356,938 3,491 R&G Financial Corporation, Cl B 46,205 1,786 SL Green Realty 31,842 1,650 Stancorp Financial Group 13,443 957 Trico Bancshares 37,396 782 ------- 19,537 ------- - -------------------------------------------------------------------------------- HEALTH CARE (12.8%) - -------------------------------------------------------------------------------- Collagenex Pharmaceuticals* 170,166 1,115 Diagnostic Products 10,992 449 Enzon Pharmaceuticals* 117,979 1,882 LabOne* 64,793 1,894 Merit Medical Systems* 142,960 2,160 OSI Pharmaceuticals 66 4 Value Shares (000) - -------------------------------------------------------------------------------- Serologicals* 106,823 $ 2,492 Synovis Life Technologies* 200,729 1,919 ------- 11,915 ------- - -------------------------------------------------------------------------------- INDUSTRIALS (10.1%) - -------------------------------------------------------------------------------- Applied Films* 59,727 1,076 Applied Industrial Technologies 32,369 1,157 Cubic 38,095 872 Genesee & Wyoming, Cl A* 32,349 819 Laureate Education* 65,823 2,450 Trex* 34,610 1,533 Werner Enterprises 75,841 1,464 ------- 9,371 ------- - -------------------------------------------------------------------------------- INFORMATION TECHNOLOGY (21.9%) - -------------------------------------------------------------------------------- Aeroflex* 250,813 2,651 Anteon International* 31,318 1,148 Belden CDT* 109,680 2,391 CACI International, Cl A* 10,498 554 Corillian* 351,120 1,619 Cypress Semiconductor* 30,346 268 Hyperion Solutions* 94,805 3,222 Kronos* 39,720 1,759 Lionbridge Technologies* 293,458 2,521 Micrel* 47,438 494 Startek 44,337 1,390 Tech Data* 14,814 571 Veeco Instruments* 81,728 1,714 ------- 20,302 ------- - -------------------------------------------------------------------------------- MATERIALS (5.1%) - -------------------------------------------------------------------------------- Gibraltar Steel 28,036 1,014 Myers Industries 38,570 422 NN 38,221 438 Penford 46,895 816 RPM International 116,226 2,051 ------- 4,741 ------- - -------------------------------------------------------------------------------- TELECOMMUNICATION SERVICES (1.4%) - -------------------------------------------------------------------------------- US LEC, Cl A* 431,338 1,294 ------- - -------------------------------------------------------------------------------- UTILITIES (2.3%) - -------------------------------------------------------------------------------- Idacorp 41,446 1,204 New Jersey Resources 22,623 937 ------- 2,141 ------- - -------------------------------------------------------------------------------- TOTAL COMMON STOCK (COST $74,795) 90,177 ================================================================================ Constellation Funds 2004 Annual Report | 75 FINANCIAL STATEMENTS STATEMENT OF NET ASSETS Constellation Pitcairn Small Cap Fund September 30, 2004 Value Shares (000) - -------------------------------------------------------------------------------- EXCHANGE TRADED FUNDS (0.8%) - -------------------------------------------------------------------------------- iShares Russell 2000 Growth Index Fund* 3,463 $ 203 iShares Russell 2000 Index Fund* 4,934 562 - -------------------------------------------------------------------------------- TOTAL EXCHANGE TRADED FUNDS (COST $696) 765 ================================================================================ WARRANTS (0.0%) - -------------------------------------------------------------------------------- Imperial Credit Industries, Expires 01/31/08* 17,236 -- - -------------------------------------------------------------------------------- TOTAL WARRANTS (COST $0) -- ------- ================================================================================ RIGHTS (0.0%) - -------------------------------------------------------------------------------- OSI Pharmaceuticals (A)* 1,169 -- - -------------------------------------------------------------------------------- TOTAL RIGHTS (COST $0) -- ================================================================================ SHORT-TERM INVESTMENT HELD AS COLLATERAL FOR LOANED SECURITIES (0.5%) - -------------------------------------------------------------------------------- Boston Global Investment Trust -- Quality Portfolio (B) 434,700 435 ------- - -------------------------------------------------------------------------------- TOTAL SHORT-TERM INVESTMENT HELD AS COLLATERAL FOR LOANED SECURITIES (COST $435) 435 ================================================================================ - -------------------------------------------------------------------------------- CASH EQUIVALENT (0.4%) - -------------------------------------------------------------------------------- PNC Bank Money Market Fund 346,985 347 - -------------------------------------------------------------------------------- TOTAL CASH EQUIVALENT (COST $347) 347 - -------------------------------------------------------------------------------- TOTAL INVESTMENTS (98.8%) (COST $76,273) 91,724 ================================================================================ - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES, NET (1.2%) - -------------------------------------------------------------------------------- Obligation to return securities lending collateral (435) Payable due to Investment Adviser (55) Payable due to Shareholder Servicing Agent (19) Payable due to Administrator (11) Other assets and liabilities, net 1,644 - -------------------------------------------------------------------------------- TOTAL OTHER ASSETS AND LIABILITIES, NET 1,124 - -------------------------------------------------------------------------------- NET ASSETS (100%) $92,848 ================================================================================ Value (000) - -------------------------------------------------------------------------------- NET ASSETS CONSIST OF: - -------------------------------------------------------------------------------- Portfolio capital of Class II Shares (unlimited authorization - no par value) based on 6,067,679 outstanding shares of beneficial interest $76,666 Accumulated net realized gain on investments 731 Net unrealized appreciation on investments 15,451 - -------------------------------------------------------------------------------- NET ASSETS $92,848 ================================================================================ - -------------------------------------------------------------------------------- NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE- CLASS II SHARES $ 15.30 ================================================================================ * Non-income producing security. (A) This security was issued for possible settlement of pending litigation and does not have an expiration date. (B) Security purchased as collateral for loaned securities. The securities currently on loan include pending transactions. Cl -- Class REIT -- Real Estate Investment Trust Amounts designated as "--" are either $0 or have been rounded to $0. The accompanying notes are an integral part of the financial statements 76 | Constellation Funds 2004 Annual Report FINANCIAL STATEMENTS STATEMENT OF NET ASSETS Constellation Pitcairn Family Heritage(R) Fund September 30, 2004 Value Shares (000) - -------------------------------------------------------------------------------- COMMON STOCK (95.2%) - -------------------------------------------------------------------------------- CONSUMER DISCRETIONARY (10.8%) - -------------------------------------------------------------------------------- American Axle & Manufacturing Holdings 22,898 $ 670 Carnival 33,489 1,584 COX Communications, Cl A* 36,642 1,214 International Speedway, Cl A 16,767 837 Marriott International, Cl A 10,328 536 Nike, Cl B 22,058 1,738 Toll Brothers* 21,789 1,009 Viacom, Cl B 24,483 822 ------- 8,410 ------- - -------------------------------------------------------------------------------- CONSUMER STAPLES (9.7%) - -------------------------------------------------------------------------------- Estee Lauder, Cl A 19,415 811 JM Smucker 34,494 1,532 Lancaster Colony 20,814 878 Wal-Mart Stores 51,335 2,731 Wm. Wrigley Jr. 26,078 1,651 ------- 7,603 ------- - -------------------------------------------------------------------------------- ENERGY (6.4%) - -------------------------------------------------------------------------------- Apache 30,948 1,551 Devon Energy 20,087 1,427 Kerr-McGee 34,941 2,000 ------- 4,978 ------- - -------------------------------------------------------------------------------- FINANCIALS (23.5%) - -------------------------------------------------------------------------------- Berkshire Hathaway, Cl B* 725 2,081 Capital One Financial 20,530 1,517 Commerce Bancshares 33,332 1,603 Commercial Capital Bancorp* 67,470 1,531 Federated Investors, Cl B 60,820 1,730 Flagstar Bancorp 92,614 1,971 MBNA 99,715 2,513 Philadelphia Consolidated Holding* 9,614 530 Progressive 10,163 861 SL Green Realty 29,719 1,540 TCF Financial 82,750 2,506 ------- 18,383 ------- - -------------------------------------------------------------------------------- HEALTH CARE (12.3%) - -------------------------------------------------------------------------------- Cephalon* 15,280 732 Eli Lilly 45,768 2,748 Hillenbrand Industries 11,095 561 Medicis Pharmaceutical, Cl A 47,698 1,862 Stryker 54,055 2,599 Universal Health Services, Cl B 25,918 1,127 ------- 9,629 ------- Value Shares (000) - -------------------------------------------------------------------------------- INDUSTRIALS (10.1%) - -------------------------------------------------------------------------------- Danaher 20,270 $ 1,039 Fastenal 21,239 1,223 General Dynamics 16,166 1,651 Illinois Tool Works 16,740 1,560 Molex, Cl A 57,245 1,506 Werner Enterprises 46,018 889 ------- 7,868 ------- - -------------------------------------------------------------------------------- INFORMATION TECHNOLOGY (18.8%) - -------------------------------------------------------------------------------- Dell* 65,170 2,320 Fiserv* 33,300 1,161 Marvell Technology Group* 55,708 1,456 Microsoft 162,906 4,504 Paychex 37,253 1,123 Qualcomm 51,030 1,992 Vishay Intertechnology* 58,143 750 Yahoo!* 40,235 1,365 ------- 14,671 ------- - -------------------------------------------------------------------------------- MATERIALS (2.9%) - -------------------------------------------------------------------------------- Sigma-Aldrich 21,514 1,248 Worthington Industries 47,088 1,005 ------- 2,253 ------- - -------------------------------------------------------------------------------- TELECOMMUNICATION SERVICES (0.7%) - -------------------------------------------------------------------------------- Telephone & Data Systems 6,571 553 ------- - -------------------------------------------------------------------------------- TOTAL COMMON STOCK (COST $60,299) 74,348 ================================================================================ - -------------------------------------------------------------------------------- EXCHANGE TRADED FUNDS (4.6%) - -------------------------------------------------------------------------------- iShares Dow Jones US Telecommunications Sector Index Fund* 57,531 1,303 iShares Dow Jones US Utilities Sector Index Fund* 36,324 2,247 - -------------------------------------------------------------------------------- TOTAL EXCHANGE TRADED FUNDS (COST $3,676) 3,550 ================================================================================ CASH EQUIVALENT (0.3%) - -------------------------------------------------------------------------------- PNC Bank Money Market Fund 264,466 264 - -------------------------------------------------------------------------------- TOTAL CASH EQUIVALENT (COST $264) 264 - -------------------------------------------------------------------------------- TOTAL INVESTMENTS (100.1%) (COST $64,239) 78,162 ================================================================================ Constellation Funds 2004 Annual Report | 77 FINANCIAL STATEMENTS Statement of Net Assets Constellation Pitcairn Family Heritage(R) Fund Value (000) - ------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES, NET (-0.1)% - ------------------------------------------------------------------------- Payable due to Investment Adviser $ (53) Payable due to Shareholder Servicing Agent (16) Payable due to Administrator (9) Other assets and liabilities, net 19 - ------------------------------------------------------------------------- TOTAL OTHER ASSETS AND LIABILITIES, NET (59) - ------------------------------------------------------------------------- NET ASSETS (100%) $ 78,103 ========================================================================= - ------------------------------------------------------------------------- NET ASSETS CONSIST OF: - ------------------------------------------------------------------------- Portfolio capital of Class II Shares (unlimited authorization - no par value) based on 8,324,058 outstanding shares of beneficial interest $ 83,237 Accumulated net realized loss on investments (19,057) Net unrealized appreciation on investments 13,923 - ------------------------------------------------------------------------- NET ASSETS $ 78,103 ========================================================================= NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-CLASS II SHARES $ 9.38 ========================================================================= * Non-income producing security. Cl -- Class The accompanying notes are an integral part of the financial statements 78 | Constellation Funds 2004 Annual Report FINANCIAL STATEMENTS STATEMENT OF NET ASSETS Constellation Pitcairn Taxable Bond Fund September 30, 2004 Face Amount Value (000) (000) - -------------------------------------------------------------------------------- CORPORATE OBLIGATIONS (55.4%) - -------------------------------------------------------------------------------- CONSUMER DISCRETIONARY (4.3%) - -------------------------------------------------------------------------------- Harman International 7.320%, 07/01/07 $ 1,143 $ 1,249 May Department Stores 7.450%, 09/15/11 550 625 ------- 1,874 ------- - -------------------------------------------------------------------------------- CONSUMER STAPLES (1.9%) - -------------------------------------------------------------------------------- H.J. Heinz 6.000%, 03/15/08 750 811 ------- - -------------------------------------------------------------------------------- ENERGY (4.7%) - -------------------------------------------------------------------------------- BP Capital Markets 2.625%, 03/15/07 1,000 991 Burlington Resources Finance 5.600%, 12/01/06 1,000 1,049 ------- 2,040 ------- - -------------------------------------------------------------------------------- FINANCIALS (27.8%) - -------------------------------------------------------------------------------- Bank of America 5.375%, 06/15/14 1,000 1,038 Block Financial 8.500%, 04/15/07 235 263 CIT Group 7.750%, 04/02/12 1,000 1,183 Colonial Realty 8.050%, 07/15/06 400 434 Ford Motor Credit 7.600%, 08/01/05 600 623 7.375%, 10/28/09 904 990 General Motors Acceptance 6.875%, 09/15/11 1,537 1,612 Heller Financial 7.375%, 11/01/09 500 578 Household Finance 4.750%, 05/15/09 1,000 1,032 Kimco Realty, MTN, Ser B 7.900%, 12/07/07 450 511 7.620%, 10/20/04 465 466 Lehman Brothers Holdings 7.000%, 02/01/08 1,316 1,452 Merrill Lynch, MTN, Ser P 4.000%, 09/15/08 750 752 St. Paul 8.125%, 04/15/10 904 1,074 ------- 12,008 ------- Face Amount Value (000) (000) - -------------------------------------------------------------------------------- HEALTH CARE (2.4%) - -------------------------------------------------------------------------------- Bristol-Myers Squibb 4.750%, 10/01/06 $ 1,000 $ 1,033 ------- - -------------------------------------------------------------------------------- INDUSTRIALS (8.1%) - -------------------------------------------------------------------------------- Honeywell International 7.500%, 03/01/10 1,052 1,226 Tyco International Group 7.000%, 06/15/28 2,000 2,257 ------- 3,483 ------- - -------------------------------------------------------------------------------- SOVERIGN BOND (1.2%) - -------------------------------------------------------------------------------- Aid-Israel 5.500%, 04/26/24 500 516 ------- - -------------------------------------------------------------------------------- TELECOMMUNICATION SERVICES (2.6%) - -------------------------------------------------------------------------------- Verizon Communications 7.510%, 04/01/09 1,000 1,135 ------- - -------------------------------------------------------------------------------- UTILITIES (2.4%) - -------------------------------------------------------------------------------- Florida Power & Light 6.875%, 12/01/05 1,000 1,049 ------- - -------------------------------------------------------------------------------- TOTAL CORPORATE OBLIGATIONS (COST $22,932) 23,949 ================================================================================ U.S. GOVERNMENT AGENCY OBLIGATIONS (20.2%) - -------------------------------------------------------------------------------- FHLB, Ser TV06 4.875%, 11/15/06 1,500 1,560 FHLB, Ser XY07 (A) 2.250%, 10/29/07 500 500 FHLMC 6.250%, 03/05/12 1,500 1,582 5.200%, 03/05/19 1,000 981 FNMA 8.200%, 03/10/16 1,000 1,305 5.000%, 01/15/07 500 523 4.750%, 11/26/10 1,000 1,003 TVA, Ser B 6.235%, 07/15/45 1,175 1,286 ------- 8,740 ------- - -------------------------------------------------------------------------------- TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (COST $8,262) 8,740 ================================================================================ Constellation Funds 2004 Annual Report | 79 FINANCIAL STATEMENTS Statement of Net Assets Constellation Pitcairn Taxable Bond Fund Face Amount Value (000) (000) - -------------------------------------------------------------------------------- U.S. TREASURY OBLIGATIONS (14.6%) - -------------------------------------------------------------------------------- U.S. Treasury Bonds 8.750%, 05/15/17 $ 815 $1,150 8.125%, 08/15/19 1,500 2,054 7.875%, 02/15/21 615 832 7.625%, 11/15/22 913 1,219 7.500%, 11/15/16 830 1,067 ------ 6,322 ------ - -------------------------------------------------------------------------------- TOTAL U.S. TREASURY OBLIGATIONS (COST $5,472) 6,322 ================================================================================ - -------------------------------------------------------------------------------- ASSET-BACKED SECURITIES (5.1%) - -------------------------------------------------------------------------------- American Express Credit Account, Ser 2000-1, Cl A 7.200%, 09/17/07 904 921 Standard Credit Card Master Trust, Ser 1994-2, Cl A 7.250%, 04/07/06 1,199 1,279 ------ 2,200 ------ - -------------------------------------------------------------------------------- TOTAL ASSET-BACKED SECURITIES (COST $2,130) 2,200 ================================================================================ - -------------------------------------------------------------------------------- U.S. GOVERNMENT MORTGAGE-BACKED OBLIGATIONS (1.9%) - -------------------------------------------------------------------------------- FHLMC CMO/REMIC Ser 2430, Cl QB 5.500%, 02/15/15 805 822 ------ - -------------------------------------------------------------------------------- TOTAL U.S. GOVERNMENT MORTGAGE- BACKED OBLIGATIONS (COST $796) $ 822 ================================================================================ Value Shares (000) - ----------------------------------------------------------------------------- CASH EQUIVALENT (1.7%) - ----------------------------------------------------------------------------- PNC Bank Money Market Fund 716,113 $ 716 - ----------------------------------------------------------------------------- TOTAL CASH EQUIVALENT (COST $716) 716 - ----------------------------------------------------------------------------- TOTAL INVESTMENTS (98.9%) (COST $40,308) 42,749 - ----------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES, NET (1.1)% - ----------------------------------------------------------------------------- Payable due to Investment Adviser (12) Payable due to Shareholder Servicing Agent (9) Payable due to Administrator (5) Other assets and liabilities, net 516 - ----------------------------------------------------------------------------- TOTAL OTHER ASSETS AND LIABILITIES, NET 490 - ----------------------------------------------------------------------------- NET ASSETS (100%) $43,239 ============================================================================= - ----------------------------------------------------------------------------- NET ASSETS CONSIST OF: - ----------------------------------------------------------------------------- Portfolio capital of Class II Shares (unlimited authorization - no par value) based on 4,013,594 outstanding shares of beneficial interest $41,321 Accumulated net realized loss on investments (523) Net unrealized appreciation on investments 2,441 - ----------------------------------------------------------------------------- NET ASSETS $43,239 ============================================================================= NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-CLASS II SHARES $ 10.77 ============================================================================= (A) Delayed Interest (Step Bonds) -- The interest rate disclosed represents the effective yield at time of purchase. Cl -- Class CMO -- Collateralized Mortgage Obligation FHLB -- Federal Home Loan Bank FHLMC -- Federal Home Loan Mortgage Corporation FNMA -- Federal National Mortgage Association MTN -- Medium Term Note REMIC -- Real Estate Mortgage Investment Conduit Ser -- Series TVA -- Tennessee Valley Authority The accompanying notes are an integral part of the financial statements 80 | Constellation Funds 2004 Annual Report FINANCIAL STATEMENTS STATEMENT OF NET ASSETS Constellation Pitcairn Tax-Exempt Bond Fund September 30, 2004 Face Amount Value (000) (000) - -------------------------------------------------------------------------------- MUNICIPAL BONDS (97.7%) - -------------------------------------------------------------------------------- ALABAMA (0.9%) - -------------------------------------------------------------------------------- Bessemer RB, AMBAC, Callable 02/01/10 @ 102 5.600%, 02/01/30 $ 1,000 $ 1,074 ------- - -------------------------------------------------------------------------------- CALIFORNIA (10.1%) - -------------------------------------------------------------------------------- California State GO, AMBAC, Callable 04/01/14 @ 100 5.000%, 04/01/31 3,000 3,064 Community College Finance Authority RB, Mission Community College, MBIA Callable 05/01/07 @ 102 5.500%, 05/01/17 1,000 1,096 Health Facilities Finance Authority RB, St. Francis Memorial Hospital, Ser C, ETM 5.875%, 11/01/23 2,000 2,407 San Jose, Liberty Parks and Public Safety Projects GO Callable 9/1/12 @ 100 5.000%, 09/01/17 1,000 1,082 State Economic Recovery, Ser A, GO, Callable 04/01/14 @ 100 5.000%, 07/01/17 2,000 2,130 Stockton Housing Facility RB, O'Connor Woods Project, Ser A, ETM, GNMA Callable 11/08/04 @ 101 5.200%, 09/20/09 675 684 University of California RB, Multi-Purpose Projects, Ser F, FGIC Callable 09/01/06 @ 101 5.000%, 09/01/12 1,000 1,068 ------- 11,531 ------- - -------------------------------------------------------------------------------- COLORADO (0.9%) - -------------------------------------------------------------------------------- South Suburban Park & Recreation District GO, AMBAC, Callable 09/15/10 @ 100 5.375%, 09/15/18 1,000 1,087 ------- Face Amount Value (000) (000) - -------------------------------------------------------------------------------- DELAWARE (1.0%) - -------------------------------------------------------------------------------- Delaware State, Economic Development Authority, Pollution Control RB, Delmarva Power, AMBAC, Callable 05/01/11 @ 100 4.900%, 05/01/26 $ 1,000 $ 1,089 ------- - -------------------------------------------------------------------------------- DISTRICT OF COLUMBIA (1.2%) - -------------------------------------------------------------------------------- District of Columbia RB, Howard University Project RB, MBIA 5.500%, 10/01/16 1,000 1,155 Washington D.C., Convention Center Authority RB, Dedicated Tax Revenue, Senior Lien, AMBAC, Callable 10/01/08 @ 101 5.250%, 10/01/09 200 224 ------- 1,379 ------- - -------------------------------------------------------------------------------- FLORIDA (1.3%) - -------------------------------------------------------------------------------- Tampa Water & Sewer Revenue RB, Pre-refunded 10/01/09 @ 101 5.500%, 10/01/29 1,300 1,486 ------- - -------------------------------------------------------------------------------- GEORGIA (2.2%) - -------------------------------------------------------------------------------- Henry County, Water & Sewer Authority RB, AMBAC 6.150%, 02/01/20 2,000 2,476 ------- - -------------------------------------------------------------------------------- HAWAII (4.2%) - -------------------------------------------------------------------------------- Honolulu, City & County GO, Ser B, ETM 8.000%, 10/01/10 1,680 2,142 University of Hawaii RB, Ser A, FGIC, Callable 07/15/12 @ 100 5.500%, 07/15/21 2,385 2,639 ------- 4,781 ------- Constellation Funds 2004 Annual Report | 81 FINANCIAL STATEMENTS Statement of Net Assets Constellation Pitcairn Tax-Exempt Bond Fund Face Amount Value (000) (000) - -------------------------------------------------------------------------------- ILLINOIS (10.2%) - -------------------------------------------------------------------------------- Chicago GO, FGIC, Callable 01/01/08 @ 102 5.500%, 01/01/21 $ 1,500 $ 1,627 Chicago, O'Hare International Airport RB, 2nd Lien, Ser C, MBIA, Callable 11/08/04 @ 102 4.900%, 01/01/07 1,000 1,019 Chicago, Park District GO, Aquarium & Museum Project, FGIC, Callable 01/01/08 @ 100 5.500%, 01/01/10 1,000 1,090 Health Facilities Authority RB, Hospital Sisters Services Project, Ser A, MBIA, Callable 06/01/08 @ 101 5.250%, 06/01/12 1,000 1,090 Metropolitan Pier & Exposition Authority RB, Illinois Dedicated State Tax Revenue, AMBAC, Callable 06/01/07 @ 101 5.125%, 06/01/13 1,200 1,286 Metropolitan Pier & Exposition Authority RB, Illinois Dedicated State Tax Revenue, FGIC, ETM 5.500%, 12/15/23 500 578 Metropolitan Pier & Exposition Authority RB, Illinois Dedicated State Tax Revenue, Ser A, FGIC 5.500%, 12/15/23 500 575 Regional Transportation Authority GO, FSA 5.750%, 06/01/23 1,500 1,769 Southern Illinois University RB, Medical Facilities System Project, MBIA, Callable 04/01/07 @ 102 5.875%, 04/01/23 1,000 1,100 Will County, Community School District GO, FSA (A) 5.230%, 11/01/12 2,000 1,450 ------- 11,584 ------- Face Amount Value (000) (000) - -------------------------------------------------------------------------------- INDIANA (2.1%) - -------------------------------------------------------------------------------- Indianapolis, Public Improvement Authority RB, Ser A, Callable 01/01/10 @ 101 6.000%, 01/01/25 $ 1,000 $ 1,114 Transportation Finance Authority RB, Ser A, MBIA 6.800%, 12/01/16 1,000 1,231 ------- 2,345 ------- - -------------------------------------------------------------------------------- KENTUCKY (1.1%) - -------------------------------------------------------------------------------- State Property & Buildings Commission RB, Project Number 67, Pre-refunded 09/01/10 @ 100 5.625%, 09/01/13 1,050 1,204 ------- - -------------------------------------------------------------------------------- LOUISIANA (3.1%) - -------------------------------------------------------------------------------- New Orleans GO, FGIC 5.500%, 12/01/17 1,000 1,167 Public Facilities Authority RB, Franciscan Missionaries Project, Ser A, FSA 5.500%, 07/01/11 2,115 2,387 ------- 3,554 ------- - -------------------------------------------------------------------------------- MASSACHUSETTS (3.0%) - -------------------------------------------------------------------------------- State Housing Finance Agency RB, Ser B, MBIA, Callable 06/01/08 @ 101 5.300%, 12/01/17 1,000 1,035 State Special Obligation RB, Consolidated Loan, Ser A, Callable 06/01/08 @ 101 5.000%, 06/01/15 70 74 State Special Obligation RB, Consolidated Loan, Ser A, Pre-refunded 06/01/08 @ 101 5.000%, 06/01/15 930 1,007 State Water Resources Authority RB, Ser D, MBIA, GOA 6.000%, 08/01/14 1,060 1,268 ------- 3,384 ------- 82 | Constellation Funds 2004 Annual Report FINANCIAL STATEMENTS Statement of Net Assets Constellation Pitcairn Tax-Exempt Bond Fund Face Amount Value (000) (000) - -------------------------------------------------------------------------------- MICHIGAN (2.0%) - -------------------------------------------------------------------------------- State Building Authority RB, Facilities Program, Ser II, MBIA, Callable 10/15/13 @ 100 5.000%, 10/15/23 $ 1,000 $ 1,046 State Hospital Finance Authority RB, Genesys Health System Project, Ser A, Pre-refunded 10/01/05 @ 102 8.100%, 10/01/13 1,175 1,272 ------- 2,318 ------- - -------------------------------------------------------------------------------- MISSISSIPPI (0.9%) - -------------------------------------------------------------------------------- Developing Bank RB, Capital Project & Equipment Acquisition, Ser A2, AMBAC 5.000%, 07/01/24 1,000 1,073 ------- - -------------------------------------------------------------------------------- NEVADA (4.3%) - -------------------------------------------------------------------------------- Clark County, Industrial Development Nevada Power RB, AMBAC, Callable 11/08/04 @ 100 7.200%, 10/01/22 2,000 2,007 Las Vegas, New Convention & Visitors Center RB, AMBAC, Callable 07/01/09 @ 101 6.000%, 07/01/13 2,500 2,862 ------- 4,869 ------- - -------------------------------------------------------------------------------- NEW JERSEY (2.4%) - -------------------------------------------------------------------------------- Cape May County, Municipal Utilities Authority RB, FSA 5.750%, 01/01/12 2,000 2,323 State GO, Ser D 6.000%, 02/15/11 150 174 State, Transportation System RB, Ser A 5.625%, 06/15/14 250 288 ------- 2,785 ------- - -------------------------------------------------------------------------------- NEW MEXICO (1.6%) - -------------------------------------------------------------------------------- Santa Fe County RB, Correctional Facilities Project, FSA 6.000%, 02/01/27 1,500 1,784 ------- Face Amount Value (000) (000) - -------------------------------------------------------------------------------- NEW YORK (8.0%) - -------------------------------------------------------------------------------- Nassau County, Comb Sewer Districts GO, Ser F, MBIA 5.300%, 07/01/06 $ 250 $ 265 New York City, Municipal Assistance Authority RB, Ser G 6.000%, 07/01/07 1,800 1,986 New York City, Municipal Water & Sewer Authority RB, Ser A, Pre-refunded 06/15/05 @ 101 6.000%, 06/15/25 190 198 New York City, Transitional Finance Authority RB, Ser A, Callable 11/01/11 @ 100 (B) 5.500%, 11/01/26 2,000 2,270 New York City, Transportation Authority RB, Livingston Plaza Project, ETM, FSA 5.400%, 01/01/18 1,000 1,127 New York State Thruway Authority RB, Highway and Bridge Project, Callable 04/01/12 @ 100 5.500%, 04/01/15 2,000 2,228 New York State, Mortgage Agency RB, Homeowner Mortgage, Ser 80, Callable 03/01/09 @ 101 5.100%, 10/01/17 1,000 1,028 ------- 9,102 ------- Constellation Funds 2004 Annual Report | 83 FINANCIAL STATEMENTS Statement of Net Assets Constellation Pitcairn Tax-Exempt Bond Fund Face Amount Value (000) (000) - -------------------------------------------------------------------------------- NORTH CAROLINA (5.1%) - -------------------------------------------------------------------------------- Charlotte, Water & Sewer Authority RB, Callable 06/01/10 @101 5.125%, 06/01/13 $ 1,000 $ 1,098 North Carolina State, Eastern Municipal Power Authority RB, Ser B, AMBAC, Callable 01/01/06 @ 102 5.125%, 01/01/12 2,000 2,122 North Carolina State, Eastern Municipal Power Authority RB, Ser B, MBIA, Callable 01/01/07 @ 102 5.800%, 01/01/16 1,000 1,094 University of North Carolina Wilmington, RB, AMBAC, Callable 01/01/13 @ 100 5.250%, 01/01/21 1,380 1,499 ------- 5,813 ------- - -------------------------------------------------------------------------------- OHIO (1.1%) - -------------------------------------------------------------------------------- State, Building Authority RB, Sports Building Project, Ser A, Callable 04/01/11 @ 100 5.500%, 04/01/12 1,095 1,235 ------- - -------------------------------------------------------------------------------- OKLAHOMA (4.5%) - -------------------------------------------------------------------------------- Oklahoma City, Water Utilities Authority RB, Ser A, Callable 07/01/09 @ 100 5.000%, 07/01/24 3,000 3,063 Oklahoma State, Health Systems Industries Authority RB, Integris Baptist Project, Ser D, AMBAC, Callable 08/15/06 @ 102 5.000%, 08/15/14 2,000 2,101 ------- 5,164 ------- - -------------------------------------------------------------------------------- PENNSYLVANIA (12.5%) - -------------------------------------------------------------------------------- Allegheny County, Pittsburgh International Airport RB, Ser B, MBIA, Callable 01/01/08 @ 101 5.000%, 01/01/17 2,000 2,088 Face Amount Value (000) (000) - -------------------------------------------------------------------------------- Derry Township, Industrial & Commercial Development RB, Arena Project, Ser A (LOC: PNC Bank) 5.375%, 11/01/30 $ 1,700 $ 1,749 Pennsbury Penn School District GO, FSA, Callable 08/01/14 @ 100 5.000%, 08/01/25 2,000 2,075 Pennsylvania State, Higher Educational Facilities Authority RB, Saint Joseph's University, Callable 05/ 01/06 @ 100 (LOC: Allied Irish Bank PLC) 5.000%, 05/01/11 1,500 1,556 Pennsylvania State, Third Series GO 5.000%, 09/01/13 1,000 1,116 Philadelphia, Authority for Industrial Development Lease Revenue RB, Ser B, FSA, Callable 10/01/11 @ 101 5.500%, 10/01/12 1,500 1,717 Philadelphia, Hospital & Higher Education Authority RB, Presbyterian Medical Center Project, ETM 6.500%, 12/01/11 1,300 1,491 Philadelphia, Water & Waste Water RB, FGIC 10.000%, 06/15/05 700 740 Philadelphia, Water & Waste Water RB, MBIA 6.250%, 08/01/09 525 606 State Public School Building Authority RB, Harrisburg Area Community College Project, AMBAC, Callable 04/01/14 @ 100 5.250%, 04/01/24 1,000 1,070 ------- 14,208 ------- 84 | Constellation Funds 2004 Annual Report FINANCIAL STATEMENTS Statement of Net Assets Constellation Pitcairn Tax-Exempt Bond Fund Face Amount Value (000) (000) - -------------------------------------------------------------------------------- RHODE ISLAND (1.1%) - -------------------------------------------------------------------------------- Rhode Island State, Depositors Economic Protection Authority RB, Special Obligation, Ser A, ETM 6.375%, 08/01/22 $ 1,000 $ 1,266 ------- - -------------------------------------------------------------------------------- SOUTH CAROLINA (1.0%) - -------------------------------------------------------------------------------- Piedmont, Municipal Power Agency Authority RB, South Carolina Electric Project, MBIA, ETM 6.250%, 01/01/09 1,000 1,149 ------- - -------------------------------------------------------------------------------- TEXAS (8.0%) - -------------------------------------------------------------------------------- Duncanville Independent School District, GO, PSF-GTD, Callable 02/15/13 @ 100 5.650%, 02/15/28 1,350 1,452 Fort Worth Water & Sewer RB, Callable 02/15/12 @ 100 5.625%, 02/15/15 1,000 1,129 Fort Worth Water & Sewer RB, Callable 08/15/10 @ 100 5.750%, 02/15/14 2,000 2,265 Harris County, Healthcare Facilities Development Authority RB, Christus Health Project, Ser A, MBIA, Callable 07/01/09 @ 101 5.375%, 07/01/24 1,850 1,935 Houston, Water & Sewer Systems Authority RB, Junior Lien, Ser C, FGIC, Pre-refunded 12/01/07 @ 101 5.375%, 12/01/27 1,140 1,263 San Antonio GO 5.000%, 08/01/07 985 1,061 San Antonio GO, ETM 5.000%, 08/01/07 15 16 ------- 9,121 ------- Face Amount Value (000)/Shares (000) - -------------------------------------------------------------------------------- WASHINGTON (2.9%) - -------------------------------------------------------------------------------- Central Puget Sound, Regional Transportation Authority RB, Sales Tax & Motor Project, FGIC 5.250%, 02/01/21 $ 1,000 $ 1,123 Clark County, School District No. 177 GO, AMBAC 5.250%, 12/01/14 1,000 1,139 Washington State GO, Ser A, FSA 5.000%, 07/01/20 1,000 1,065 ------- 3,327 ------- - -------------------------------------------------------------------------------- WISCONSIN (1.0%) - -------------------------------------------------------------------------------- Milwaukee County GO, Ser A, MBIA, Pre-refunded 10/01/07 @ 100 5.250%, 10/01/08 1,000 1,092 ------- - -------------------------------------------------------------------------------- TOTAL MUNICIPAL BONDS (COST $103,059) 111,280 ------- ================================================================================ CASH EQUIVALENT (1.1%) - -------------------------------------------------------------------------------- ABN Amro Tax Exempt Money Market Fund 1,244,473 1,244 - -------------------------------------------------------------------------------- TOTAL CASH EQUIVALENT (COST $1,244) 1,244 ================================================================================ TOTAL INVESTMENTS (98.8%) (COST $104,303) 112,524 ================================================================================ OTHER ASSETS AND LIABILITIES, NET (1.2%) - -------------------------------------------------------------------------------- Payable due to Shareholder Servicing Agent (23) Payable due to Investment Adviser (20) Payable due to Administrator (14) Other assets and liabilities, net 1,413 - -------------------------------------------------------------------------------- TOTAL OTHER ASSETS AND LIABILITIES, NET 1,356 ================================================================================ NET ASSETS (100%) $113,880 ================================================================================ Constellation Funds 2004 Annual Report | 85 FINANCIAL STATEMENTS Statement of Net Assets Constellation Pitcairn Tax-Exempt Bond Fund Value (000) - -------------------------------------------------------------------------------- NET ASSETS CONSISTS OF: - -------------------------------------------------------------------------------- Portfolio capital of Class II Shares (unlimited authorization - no par value) based on 10,560,695 outstanding shares of beneficial interest $104,814 Undistributed net investment income 129 Accumulated net realized gain on investments 716 Net unrealized appreciation on investments 8,221 - -------------------------------------------------------------------------------- NET ASSETS $113,880 ================================================================================ NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-CLASS II SHARES $ 10.78 ================================================================================ (A) Zero coupon security. The rate reported on the Statement of Net Assets is the effective yield at time of purchase. (B) Delayed Interest (Step Bonds) -- The interest rate disclosed represents the effective yield at time of purchase. AMBAC -- American Municipal Bond Assurance Corporation ETM -- Escrowed to Maturity FGIC -- Financial Guaranty Insurance Corporation FSA -- Financial Security Assurance GNMA -- Government National Mortgage Association GO -- General Obligation GOA -- General Obligation of Authority LOC -- Letter of Credit MBIA -- Municipal Bond Insurance Association PSF-GTD -- Permanent School Fund - Guaranteed RB -- Revenue Bond Ser -- Series The accompanying notes are an integral part of the financial statements 86 | Constellation Funds 2004 Annual Report FINANCIAL STATEMENTS STATEMENT OF NET ASSETS Constellation Sands Capital Select Growth Fund September 30, 2004 Value Shares (000) - ----------------------------------------------------------------------------- COMMON STOCK (95.0%) - ----------------------------------------------------------------------------- CONSUMER DISCRETIONARY (32.4%) - ----------------------------------------------------------------------------- Bed Bath & Beyond* 77,500 $ 2,876 eBay* 106,700 9,810 Harley-Davidson 73,800 4,387 Kohl's* 54,400 2,621 Lowe's 90,400 4,913 Starbucks* 133,800 6,083 Tiffany 44,000 1,353 Weight Watchers International* 31,000 1,203 ------- 33,246 ------- - ----------------------------------------------------------------------------- CONSUMER STAPLES (4.4%) - ----------------------------------------------------------------------------- Wal-Mart Stores 39,700 2,112 Walgreen 66,400 2,379 ------- 4,491 ------- - ----------------------------------------------------------------------------- FINANCIALS (8.1%) - ----------------------------------------------------------------------------- Capital One Financial 76,500 5,653 Moody's 35,900 2,630 ------- 8,283 ------- - ----------------------------------------------------------------------------- HEALTH CARE (26.5%) - ----------------------------------------------------------------------------- Allergan 40,300 2,924 Amgen* 54,600 3,095 Genentech* 115,800 6,070 Genzyme* 59,000 3,210 Medtronic 80,000 4,152 Patterson* 22,000 1,684 Stryker 53,700 2,582 Teva Pharmaceutical Industries ADR 135,700 3,521 ------- 27,238 ------- - ----------------------------------------------------------------------------- INDUSTRIALS (5.3%) - ----------------------------------------------------------------------------- Apollo Group, Cl A* 74,300 5,451 ------- - ----------------------------------------------------------------------------- INFORMATION TECHNOLOGY (18.3%) - ----------------------------------------------------------------------------- Cisco Systems* 216,000 3,910 Dell* 151,100 5,379 Microsoft 117,500 3,249 Qualcomm 124,100 4,845 Red Hat* 113,900 1,394 ------- 18,777 ------- - ----------------------------------------------------------------------------- TOTAL COMMON STOCK (COST $88,177) 97,486 ============================================================================= Value Shares (000) - ----------------------------------------------------------------------------- CASH EQUIVALENT (2.4%) ----------------------------------------------------------------------------- PNC Bank Money Market Fund 2,463,665 $ 2,464 - ----------------------------------------------------------------------------- TOTAL CASH EQUIVALENT (COST $2,464) 2,464 ============================================================================= TOTAL INVESTMENTS (97.4%) (COST $90,641) 99,950 ============================================================================= - ----------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES, NET (2.6%) - ----------------------------------------------------------------------------- Payable due to Investment Adviser (71) Payable due to Shareholder Servicing Agent (25) Payable due to Administrator (12) Other assets and liabilities, net 2,776 - ----------------------------------------------------------------------------- TOTAL OTHER ASSETS AND LIABILITIES, NET 2,668 - ----------------------------------------------------------------------------- NET ASSETS (100%) $102,618 ============================================================================= - ----------------------------------------------------------------------------- NET ASSETS CONSIST OF: - ----------------------------------------------------------------------------- Portfolio capital of Class I Shares (unlimited authorization - no par value) based on 4,791,799 outstanding shares of beneficial interest $ 32,429 Portfolio capital of Class II Shares (unlimited authorization - no par value) based on 10,293,254 outstanding shares of beneficial interest 87,817 Accumulated net realized loss on investments (26,937) Net unrealized appreciation on investments 9,309 - ----------------------------------------------------------------------------- NET ASSETS $102,618 ============================================================================= NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-CLASS I SHARES ($32,590,749 / 4,791,799 SHARES) $ 6.80 ============================================================================= - ----------------------------------------------------------------------------- NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-CLASS II SHARES ($70,027,656 / 10,293,254 SHARES) $ 6.80 ============================================================================= * Non-income producing security. ADR -- American Depositary Receipt Cl -- Class The accompanying notes are an integral part of the financial statements Constellation Funds 2004 Annual Report | 87 FINANCIAL STATEMENTS SCHEDULE OF INVESTMENTS Constellation TIP Small Cap Value Opportunities Fund September 30, 2004 Value Shares (000) - -------------------------------------------------------------------------------- COMMON STOCK (96.0%) - -------------------------------------------------------------------------------- CONSUMER DISCRETIONARY (7.1%) - -------------------------------------------------------------------------------- 4Kids Entertainment (A)* 5,680 $ 115 Blockbuster, Cl A (A) 8,420 64 Childrens Place* 3,340 80 Dick's Sporting Goods (A)* 4,170 149 Genesco (A)* 6,390 151 Goodyear Tire & Rubber (A)* 16,060 172 Rush Enterprises, Cl B (A)* 6,160 72 Warnaco Group* 5,990 133 Zale* 3,500 98 ------ 1,034 ------ - -------------------------------------------------------------------------------- CONSUMER STAPLES (2.2%) - -------------------------------------------------------------------------------- BJ's Wholesale Club* 3,980 109 Ralcorp Holdings* 5,950 215 ------ 324 ------ - -------------------------------------------------------------------------------- ENERGY (6.1%) - -------------------------------------------------------------------------------- Cal Dive International* 3,550 126 Consol Energy 5,470 191 Key Energy Services* 18,750 207 Lone Star Technologies* 5,860 222 Western Gas Resources 5,010 143 ------ 889 ------ - -------------------------------------------------------------------------------- FINANCIALS (27.7%) - -------------------------------------------------------------------------------- Accredited Home Lenders Holding* 3,800 146 Advanta, Cl B (A) 7,330 177 Alexandria Real Estate Equities (A) 2,630 173 American Financial Group 6,050 181 BankAtlantic Bancorp, Cl A 7,830 144 Capital Automotive REIT (A) 8,460 265 Commercial Capital Bancorp* 8,600 195 First Republic Bank (A) 3,130 144 Heritage Commerce* 9,400 155 Maguire Properties 2,870 70 Mi Developments, Cl A 5,820 147 New Century Financial 1,880 113 Pan Pacific Retail Properties 3,390 183 People's Bank (A) 5,260 188 Provident Bancorp (A) 15,140 178 Reckson Associates Realty 7,010 202 SL Green Realty 3,360 174 South Financial Group 6,000 169 Southwest Bancorp of Texas 5,270 106 Sterling Financial* 6,736 237 Umpqua Holdings (A) 7,360 166 Value Shares (000) - -------------------------------------------------------------------------------- Ventas 7,160 $ 186 Virginia Commerce Bancorp (A)* 5,290 143 Webster Financial 3,870 191 ------ 4,033 ------ - -------------------------------------------------------------------------------- HEALTH CARE (6.0%) - -------------------------------------------------------------------------------- Analogic 4,270 178 Digene* 3,990 104 Endo Pharmaceuticals Holdings* 7,830 144 Genesis HealthCare (A)* 4,810 146 Magellan Health Services* 4,200 153 PolyMedica 4,620 142 ------ 867 ------ - -------------------------------------------------------------------------------- INDUSTRIALS (25.3%) - -------------------------------------------------------------------------------- Albany International, Cl A 4,030 120 Amerco* 6,400 243 Beazer Homes USA (A) 1,620 173 Brink's 6,405 193 Bucyrus International, Cl A* 4,360 146 General Maritime (A)* 4,770 166 GrafTech International* 10,240 143 Laidlaw International* 16,570 273 McDermott International* 13,960 165 Measurement Specialties* 8,720 217 OMI 21,310 341 Roper Industries 3,640 209 School Specialty* 3,050 120 SCS Transportation* 7,770 147 Terex* 5,730 249 Timken 6,140 151 USG (A)* 7,980 145 Washington Group International* 6,030 209 Waste Connections* 2,390 76 Watts Water Technologies, Cl A (A) 7,000 188 ------ 3,674 ------ - -------------------------------------------------------------------------------- INFORMATION TECHNOLOGY (5.5%) - -------------------------------------------------------------------------------- Exar* 8,060 114 Imation 5,130 183 Intergraph (A)* 5,415 147 Lipman Electronic Engineering 7,050 166 NAM TAI Electronics (A) 9,050 193 ------ 803 ------ 88 | Constellation Funds 2004 Annual Report FINANCIAL STATEMENTS Schedule of Investments Constellation TIP Small Cap Value Opportunities Fund Value Shares (000) - -------------------------------------------------------------------------------- MATERIALS (8.2%) - -------------------------------------------------------------------------------- Agrium 9,620 $ 171 Apex Silver Mines (A)* 8,850 192 Arch Coal 5,000 178 Carpenter Technology 2,110 101 FMC* 4,200 204 Georgia Gulf 1,410 63 Metals USA (A)* 8,800 156 RPM International 6,880 121 ------- 1,186 ------- - -------------------------------------------------------------------------------- TELECOMMUNICATION SERVICES (5.6%) - -------------------------------------------------------------------------------- Alamosa Holdings (A)* 26,350 201 SBA Communications, Cl A* 27,410 192 Spectrasite* 4,420 205 US Unwired (A)* 77,820 209 ------- 807 ------- - -------------------------------------------------------------------------------- UTILITIES (2.3%) - -------------------------------------------------------------------------------- AGL Resources 4,780 147 Southern Union* 8,883 182 ------- 329 ------- - -------------------------------------------------------------------------------- TOTAL COMMON STOCK (COST $12,098) 13,946 - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENT HELD AS COLLATERAL FOR LOANED SECURITIES (23.5%) - -------------------------------------------------------------------------------- Boston Global Investment Trust -- Quality Portfolio 3,421,700 3,422 - -------------------------------------------------------------------------------- TOTAL SHORT-TERM INVESTMENT HELD AS COLLATERAL FOR LOANED SECURITIES (COST $3,422) 3,422 ================================================================================ - -------------------------------------------------------------------------------- CASH EQUIVALENT (1.0%) - -------------------------------------------------------------------------------- BlackRock TempCash Fund, Institutional Shares 150,095 150 - -------------------------------------------------------------------------------- TOTAL CASH EQUIVALENT (COST $150) 150 ================================================================================ - -------------------------------------------------------------------------------- TOTAL INVESTMENTS (120.5%) (COST $15,670) $17,518 ================================================================================ Percentages are based on net assets of $14,533,421. * Non-income producing security. (A) The security or a portion of this security is on loan at September 30, 2004 (See Note 9 in the Notes to Financial Statements). The total value of securities on loan at September 30, 2004 was $3,309,691. Cl -- Class REIT -- Real Estate Investment Trusts The accompanying notes are an integral part of the financial statements Constellation Funds 2004 Annual Report | 89 FINANCIAL STATEMENTS STATEMENT OF NET ASSETS Constellation TIP Financial Services Fund September 30, 2004 Value Shares (000) - -------------------------------------------------------------------------------- COMMON STOCK (99.2%) - -------------------------------------------------------------------------------- FINANCIALS (88.8%) - -------------------------------------------------------------------------------- Affiliated Managers Group (A)* 10,530 $ 564 Allstate 9,700 466 American Express 13,200 679 American International Group 10,534 716 Aspen Insurance Holdings (A)* 15,350 353 CapitalSource (A)* 14,370 321 Charles Schwab 34,020 313 CIT Group 13,220 494 Citigroup 16,940 747 City National 4,770 310 CoBiz (A) 11,860 196 East-West Bancorp 9,160 308 Fidelity National Financial 8,600 328 Genworth Financial, Cl A* 13,500 315 Golden West Financial 4,840 537 Goldman Sachs Group 7,430 693 Investors Financial Services (A) 7,470 337 Jackson Hewitt Tax Service* 13,790 279 Lehman Brothers Holdings 6,050 482 MBNA 18,130 457 Merrill Lynch 9,290 462 MGIC Investment 2,980 198 Morgan Stanley 13,530 667 Northern Trust 14,570 594 Silicon Valley Bancshares (A)* 14,720 547 Sovereign Bancorp 23,410 511 T. Rowe Price Group 4,620 235 Texas Regional Bancshares, Cl A 5,430 169 UCBH Holdings 10,610 415 Wells Fargo 9,325 556 Zions Bancorporation 5,130 313 ------- 13,562 ------- - -------------------------------------------------------------------------------- INFORMATION TECHNOLOGY (10.4%) - -------------------------------------------------------------------------------- Checkfree* 11,820 328 First Data 8,890 387 Global Payments (A) 9,850 527 Paychex 11,480 346 ------- 1,588 ------- - -------------------------------------------------------------------------------- TOTAL COMMON STOCK (COST $13,202) 15,150 ================================================================================ Value Shares (000) - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENT HELD AS COLLATERAL FOR LOANED SECURITIES (14.4%) - -------------------------------------------------------------------------------- Boston Global Investment Trust -- Quality Portfolio 2,190,300 $ 2,190 - -------------------------------------------------------------------------------- TOTAL SHORT-TERM INVESTMENT HELD AS COLLATERAL FOR LOANED SECURITIES (COST $2,190) 2,190 ================================================================================ - -------------------------------------------------------------------------------- CASH EQUIVALENT (3.1%) - -------------------------------------------------------------------------------- BlackRock TempCash Fund, Institutional Shares 479,316 479 - -------------------------------------------------------------------------------- TOTAL CASH EQUIVALENT (COST $479) 479 ================================================================================ TOTAL INVESTMENTS (116.7%) (COST $15,871) 17,819 ================================================================================ - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES, NET (-16.7%) - -------------------------------------------------------------------------------- Obligation to return securities lending collateral (2,190) Payable due to Investment Adviser (11) Payable due to Administrator (2) Other assets and liabilities, net (347) - -------------------------------------------------------------------------------- TOTAL OTHER ASSETS AND LIABILITIES, NET (2,550) - -------------------------------------------------------------------------------- NET ASSETS (100%) $15,269 ================================================================================ - -------------------------------------------------------------------------------- NET ASSETS CONSIST OF: - -------------------------------------------------------------------------------- Portfolio capital of Class I Shares (unlimited authorization - no par value) based on 1,100,352 outstanding shares of beneficial interest $12,332 Accumulated net realized gain on investments 989 Net unrealized appreciation on investments 1,948 - -------------------------------------------------------------------------------- NET ASSETS $15,269 ================================================================================ - -------------------------------------------------------------------------------- NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-CLASS I SHARES $ 13.88 ================================================================================ * Non-income producing security. (A) The security or a portion of this security is on loan at September 30, 2004 (See Note 9 in the Notes to Financial Statements). The total value of securities on loan at September 30, 2004 was $2,116,049. Cl -- Class The accompanying notes are an integral part of the financial statements 90 | Constellation Funds 2004 Annual Report FINANCIAL STATEMENTS STATEMENT OF NET ASSETS Constellation TIP Healthcare & Biotechnology Fund September 30, 2004 Value Shares (000) - -------------------------------------------------------------------------------- COMMON STOCK (98.1%) - -------------------------------------------------------------------------------- HEALTH CARE (98.1%) - -------------------------------------------------------------------------------- Aetna 12,350 $1,234 Amedisys* 12,000 359 Amgen* 15,720 891 Anika Therapeutics* 17,930 247 Anthem* 17,650 1,540 Biogen Idec* 14,270 873 Biosite (A)* 9,220 451 Boston Scientific* 38,700 1,538 C.R. Bard 14,780 837 Caremark Rx* 40,950 1,313 Charles River Laboratories International* 24,980 1,144 Community Health Systems* 15,440 412 Cooper 15,300 1,049 Dade Behring Holdings* 7,110 396 Digene (A)* 20,170 524 Elan ADR* 41,060 961 Endo Pharmaceuticals Holdings (A)* 41,910 770 Fisher Scientific International* 17,890 1,044 Genesis HealthCare (A)* 14,570 443 Gilead Sciences* 30,240 1,130 Impax Laboratories* 33,370 513 Inamed* 16,850 803 IVAX* 33,637 644 Kindred Healthcare (A)* 16,360 399 Magellan Health Services* 15,780 577 Manor Care 9,590 287 Martek Biosciences* 5,300 258 MGI Pharma (A)* 31,080 830 NeighborCare (A)* 14,900 378 Nektar Therapeutics (A)* 18,260 264 Neurocrine Biosciences (A)* 6,430 303 OSI Pharmaceuticals* 9,970 613 PacifiCare Health Systems* 16,430 603 Patterson (A)* 6,080 466 Pfizer 55,040 1,684 Pharmion (A)* 17,740 917 Salix Pharmaceuticals (A)* 9,895 213 Select Medical 56,830 763 Sepracor (A)* 9,970 486 Sierra Health Services* 5,450 261 Teva Pharmaceutical Industries ADR 24,480 635 Value Shares (000) - ----------------------------------------------------------------------------- UnitedHealth Group 16,979 $ 1,252 Varian* 10,220 387 Waters* 16,590 732 WellCare Health Plans (A)* 30,000 569 Wyeth 31,710 1,186 Xenogen* 23,740 146 Zimmer Holdings* 17,140 1,355 ------- 34,680 ------- - ----------------------------------------------------------------------------- TOTAL COMMON STOCK (COST $33,496) 34,680 ------- - ----------------------------------------------------------------------------- SHORT-TERM INVESTMENT HELD AS COLLATERAL FOR LOANED SECURITIES (12.0%) - ----------------------------------------------------------------------------- Boston Global Investment Trust -- Quality Portfolio 4,252,500 4,253 ------- - ----------------------------------------------------------------------------- TOTAL SHORT-TERM INVESTMENT HELD AS COLLATERAL FOR LOANED SECURITIES (COST $4,253) 4,253 ------- ============================================================================= CASH EQUIVALENTS (6.7%) - ----------------------------------------------------------------------------- BlackRock TempCash Fund, Institutional Shares 1,752,720 1,753 BlackRock TempFund, Institutional Shares 633,533 633 - ----------------------------------------------------------------------------- TOTAL CASH EQUIVALENTS (COST $2,386) 2,386 ------- ============================================================================= TOTAL INVESTMENTS (116.8%) (COST $40,135) 41,319 ============================================================================= OTHER ASSETS AND LIABILITIES, NET (-16.8)% - ----------------------------------------------------------------------------- Obligation to return securities lending collateral (4,253) Payable for investment securities purchased (1,790) Payable due to Investment Adviser (21) Payable due to Shareholder Servicing Agent (6) Payable due to Administrator (4) Other assets and liabilities, net 126 - ----------------------------------------------------------------------------- TOTAL OTHER ASSETS AND LIABILITIES, NET (5,948) - ----------------------------------------------------------------------------- NET ASSETS (100%) $35,371 ============================================================================= Constellation Funds 2004 Annual Report | 91 FINANCIAL STATEMENTS Statement of Net Assets Constellation TIP Healthcare & Biotechnology Fund Value (000) - -------------------------------------------------------------------------------- NET ASSETS CONSIST OF: - -------------------------------------------------------------------------------- Portfolio capital of Class II Shares (unlimited authorization - no par value) based on 2,565,402 outstanding shares of beneficial interest $33,148 Accumulated net realized gain on investments 1,039 Net unrealized appreciation on investments 1,184 - -------------------------------------------------------------------------------- NET ASSETS $35,371 ================================================================================ - -------------------------------------------------------------------------------- NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE- CLASS II SHARES $ 13.79 ================================================================================ * Non-income producing security. (A) The security or a portion of this security is on loan at September 30, 2004 (See Note 9 in the Notes to Financial Statements). The total value of securities on loan at September 30, 2004 was $4,141,963. ADR -- American Depositary Receipt The accompanying notes are an integral part of the financial statements. 92 | Constellation Funds 2004 Annual Report FINANCIAL STATEMENTS STATEMENT OF NET ASSETS Constellation TIP Tax Managed U.S. Equity Fund September 30, 2004 Value Shares (000) - -------------------------------------------------------------------------------- COMMON STOCK--100.3% - -------------------------------------------------------------------------------- CONSUMER DISCRETIONARY--10.3% - -------------------------------------------------------------------------------- Autoliv 700 $ 28 Best Buy 800 43 Coach* 800 34 Comcast, Cl A* 1,400 40 eBay* 780 72 Marriott International, Cl A 700 36 News Corp ADR 900 30 Nike, Cl B 500 40 Starbucks* 990 45 Starwood Hotels & Resorts Worldwide 500 23 Target 1,900 86 Time Warner* 2,870 46 ------ 523 ------ - -------------------------------------------------------------------------------- CONSUMER STAPLES (9.6%) - -------------------------------------------------------------------------------- Archer-Daniels-Midland 2,630 45 Avon Products 800 35 Clorox 1,110 59 PepsiCo 1,810 88 Procter & Gamble 2,280 123 Wal-Mart Stores 770 41 Walgreen 1,600 57 Whole Foods Market (A) 440 38 ------ 486 ------ - -------------------------------------------------------------------------------- ENERGY (8.0%) - -------------------------------------------------------------------------------- Apache 1,424 71 ConocoPhillips 400 33 Kinder Morgan 440 28 Murphy Oil 280 24 Pioneer Natural Resources (A) 1,500 52 Smith International* 1,260 77 Western Gas Resources 1,520 43 XTO Energy 2,375 77 ------ 405 ------ - -------------------------------------------------------------------------------- FINANCIALS (17.9%) - -------------------------------------------------------------------------------- Allstate 1,550 74 American Express 2,150 111 American International Group 2,100 143 Charles Schwab 4,000 37 CIT Group 1,150 43 Citigroup 1,360 60 Goldman Sachs Group 1,190 111 MGIC Investment 440 29 Morgan Stanley 1,960 97 Value Shares (000) - -------------------------------------------------------------------------------- T. Rowe Price Group 2,170 $ 110 Wells Fargo 1,580 94 ------ 909 ------ - -------------------------------------------------------------------------------- HEALTH CARE (15.0%) - -------------------------------------------------------------------------------- Amgen* 1,570 89 Anthem* 700 61 Biogen Idec* 1,060 65 Boston Scientific* 1,200 48 Caremark Rx* 2,400 77 Fisher Scientific International* 480 28 Forest Laboratories* 800 36 Genentech* 940 49 Gilead Sciences* 1,400 52 Medtronic 800 42 Pfizer 4,190 128 St. Jude Medical* 690 52 Zimmer Holdings* 420 33 ------ 760 ------ - -------------------------------------------------------------------------------- INDUSTRIALS (10.3%) - -------------------------------------------------------------------------------- 3M 380 30 Caterpillar 650 52 Danaher 800 41 General Electric 6,000 202 Monster Worldwide* 1,200 30 Southwest Airlines 2,350 32 Tyco International 3,060 94 United Parcel Service, Cl B 590 45 ------ 526 ------ - -------------------------------------------------------------------------------- INFORMATION TECHNOLOGY (21.2%) - -------------------------------------------------------------------------------- Alliance Data Systems* 1,400 57 Apple Computer* 800 31 Applied Materials* 3,420 56 CDW 610 35 Cisco Systems* 5,770 104 Dell* 2,470 88 EMC* 2,800 32 First Data 2,440 106 Fiserv* 750 26 Google, Cl A (A)* 200 26 Intel 1,920 39 Juniper Networks* 2,600 61 Microsoft 2,750 76 Constellation Funds 2004 Annual Report | 93 FINANCIAL STATEMENTS Statement of Net Assets Constellation TIP Tax Managed U.S. Equity Fund Value Shares (000) - -------------------------------------------------------------------------------- Polycom* 1,750 $ 35 Research In Motion* 350 27 Sanmina-SCI* 4,200 30 SAP ADR* 1,700 66 Silicon Laboratories* 400 13 Sun Microsystems* 8,800 36 Symantec* 840 46 Texas Instruments 700 15 VeriSign* 1,300 26 Yahoo!* 1,360 46 ------ 1,077 ------ - -------------------------------------------------------------------------------- MATERIALS (3.9%) - -------------------------------------------------------------------------------- Alcoa 2,220 75 Ecolab (A) 950 30 Monsanto 950 35 Peabody Energy 1,000 59 ------ 199 ------ - -------------------------------------------------------------------------------- TELECOMMUNICATION SERVICES (2.3%) - -------------------------------------------------------------------------------- America Movil ADR* 2,200 86 Western Wireless, Cl A* 1,300 33 ------ 119 ------ - -------------------------------------------------------------------------------- UTILITIES (1.8%) - -------------------------------------------------------------------------------- AES* 4,860 49 Questar 900 41 ------ 90 ------ - -------------------------------------------------------------------------------- TOTAL COMMON STOCK (COST $4,379) 5,094 ================================================================================ Value Shares (000) - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENT HELD AS COLLATERAL FOR LOANED SECURITIES (1.0%) - -------------------------------------------------------------------------------- Boston Global Investment Trust-- Quality Portfolio 51,200 $ 51 ------- - -------------------------------------------------------------------------------- TOTAL SHORT-TERM INVESTMENT HELD AS COLLATERAL FOR LOANED SECURITIES (COST $51) 51 ================================================================================ - -------------------------------------------------------------------------------- CASH EQUIVALENT (0.2%) - -------------------------------------------------------------------------------- BlackRock TempCash Fund, Institutional Shares 10,121 10 - -------------------------------------------------------------------------------- TOTAL CASH EQUIVALENT (COST $10) 10 ================================================================================ TOTAL INVESTMENTS (101.5%) (COST $4,440) 5,155 ================================================================================ OTHER ASSETS AND LIABILITIES, NET (-1.5%) - -------------------------------------------------------------------------------- Obligation to return securities lending collateral (51) Payable due to Investment Adviser (1) Payable due to Administrator (1) Payable due to Shareholder Servicing Agent (1) Other assets and liabilities, net (21) - -------------------------------------------------------------------------------- TOTAL OTHER ASSETS AND LIABILITIES, NET (75) - -------------------------------------------------------------------------------- NET ASSETS (100%) $ 5,080 ================================================================================ NET ASSETS CONSIST OF: - -------------------------------------------------------------------------------- Portfolio capital of Class II Shares (unlimited authorization -- no par value) based on 574,753 outstanding shares of beneficial interest $ 6,377 Accumulated net realized loss on investments (2,012) Net unrealized appreciation on investments 715 - -------------------------------------------------------------------------------- NET ASSETS $ 5,080 ================================================================================ - -------------------------------------------------------------------------------- NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE -- CLASS II SHARES $8.84 ================================================================================ * Non-income producing security. (A) The security or a portion of this security is on loan at September 30, 2004 (See Note 9 in the Notes to Financial Statements). The total value of securities on loan at September 30, 2004 was $50,139. ADR -- American Depositary Receipt Cl -- Class The accompanying notes are an integral part of the financial statements. 94 | Constellation Funds 2004 Annual Report FINANCIAL STATEMENTS STATEMENT OF NET ASSETS Constellation International Equity Fund September 30, 2004 Value Shares (000) - -------------------------------------------------------------------------------- COMMON STOCK (96.3%) - -------------------------------------------------------------------------------- AUSTRALIA (0.7%) - -------------------------------------------------------------------------------- Amcor 25,442 $ 133 National Australia Bank 11,486 226 Rio Tinto 13,900 384 Santos 10,000 53 ------ 796 ------ - -------------------------------------------------------------------------------- BELGIUM (0.3%) - -------------------------------------------------------------------------------- Fortis* 14,700 350 ------ - -------------------------------------------------------------------------------- BERMUDA (0.3%) - -------------------------------------------------------------------------------- Axis Capital Holdings 13,800 359 ------ - -------------------------------------------------------------------------------- BRAZIL (1.4%) - -------------------------------------------------------------------------------- Banco Bradesco ADR* 7,400 390 Banco Itau Holding Financeira ADR* 3,600 200 Petroleo Brasileiro ADR* 18,117 638 Tele Celular Sul Participacoes ADR* 676 10 Telecomunicacoes Brasileiras ADR* 7,300 201 ------ 1,439 ------ - -------------------------------------------------------------------------------- CANADA (1.1%) - -------------------------------------------------------------------------------- Canadian Pacific Railway 14,800 383 Quebecor World 15,600 349 Sobeys 16,500 414 ------ 1,146 ------ - -------------------------------------------------------------------------------- CHINA (0.5%) - -------------------------------------------------------------------------------- China Telecom, Cl H 119,000 38 Huadian Power International, Cl H 569,400 186 People's Food Holdings 438,000 302 ------ 526 ------ - -------------------------------------------------------------------------------- CROATIA (0.1%) - -------------------------------------------------------------------------------- Pliva GDR* 4,000 60 ------ - -------------------------------------------------------------------------------- DENMARK (0.2%) - -------------------------------------------------------------------------------- Danske Bank 6,700 176 ------ - -------------------------------------------------------------------------------- Value Shares (000) - -------------------------------------------------------------------------------- FINLAND (0.7%) - -------------------------------------------------------------------------------- M-Real, Cl V* 19,300 $ 112 Nokia* 1,800 25 Nokia ADR* 12,500 171 Sampo, Cl A 17,600 195 UPM-Kymmene* 11,600 221 ------- 724 ------- - -------------------------------------------------------------------------------- FRANCE (10.0%) - -------------------------------------------------------------------------------- Accor 8,106 316 AXA 24,500 496 BNP Paribas 4,350 281 Carrefour* 14,953 704 Club Mediterranee* 11,000 521 Credit Agricole 1,000 27 France Telecom* 55,796 1,392 Lafarge* 8,050 705 Lagardere* 5,396 335 Pernod-Ricard 1,792 238 Pinault-Printemps-Redoute* 5,631 518 Sanofi-Aventis* 17,874 1,317 Schneider Electric 3,204 207 SNECMA* 9,600 196 Technip* 5,700 922 Thomson 19,200 403 Total 6,489 1,324 Valeo 4,600 169 Veolia Environnement 11,443 330 Vivendi Universal* 11,978 307 ------- 10,708 ------- Constellation Funds 2004 Annual Report | 95 FINANCIAL STATEMENTS Statement of Net Assets Constellation International Equity Fund Value Shares (000) - -------------------------------------------------------------------------------- GERMANY (5.7%) - -------------------------------------------------------------------------------- Adidas-Salomon 3,165 $ 442 Altana* 11,600 676 Bayerische Hypo-und Vereinsbank* 25,700 494 Deutsche Bank* 3,620 261 Deutsche Boerse* 13,630 690 Deutsche Lufthansa* 19,800 231 Deutsche Post* 16,830 327 Deutsche Postbank* 3,900 152 E.ON* 3,730 276 Fresenius Medical Care* 14,500 1,112 Heidelberger Druckmaschinen* 3,500 104 KarstadtQuelle* 11,700 183 Medion* 3,850 77 Rhoen Klinikum* 4,000 199 Schering* 5,607 355 Siemens* 2,600 191 Volkswagen* 8,048 310 ------ 6,080 ------ - -------------------------------------------------------------------------------- GREECE (0.2%) - -------------------------------------------------------------------------------- Hellenic Telecommunications Organization* 13,240 178 ------ - -------------------------------------------------------------------------------- GUERNSEY (0.9%) - -------------------------------------------------------------------------------- Amdocs* 42,600 930 ------ - -------------------------------------------------------------------------------- HONG KONG (3.1%) - -------------------------------------------------------------------------------- Bank of East Asia 34,138 96 Cafe de Coral Holdings 192,000 208 China Mobile Hong Kong 77,592 236 Citic Pacific 8,800 23 Denway Motors 416,000 139 Glorious Sun Enterprises 810,000 265 Hung Hing Printing Group 398,000 306 MTR 9,218 14 PCCW* 462,000 305 Sun Hung Kai Properties 77,000 726 Swire Pacific, Cl A 71,500 497 TPV Technology 172,000 109 Yue Yuen Industrial Holdings 170,000 439 ------ 3,363 ------ Value Shares (000) - -------------------------------------------------------------------------------- HUNGARY (0.1%) - -------------------------------------------------------------------------------- Matav Magyar Tavkozlesi* 19,700 $ 83 Matav Magyar Tavkozlesi ADR* 3,200 65 ------ 148 ------ - -------------------------------------------------------------------------------- INDIA (0.6%) - -------------------------------------------------------------------------------- Hindalco Industries GDR* 6,700 195 Mahanagar Telephone Nigam ADR* 22,200 157 Reliance Industries GDR* 10,500 245 ------ 597 ------ - -------------------------------------------------------------------------------- INDONESIA (0.1%) - -------------------------------------------------------------------------------- Gudang Garam* 78,500 112 ------ - -------------------------------------------------------------------------------- IRELAND (0.9%) - -------------------------------------------------------------------------------- Bank of Ireland 35,000 472 Ryanair Holdings ADR* 16,400 479 ------ 951 ------ - -------------------------------------------------------------------------------- ITALY (4.1%) - -------------------------------------------------------------------------------- Banca Intesa* 170,892 650 Banche Popolari Unite 5,950 99 Benetton Group* 10,600 128 ENI 63,379 1,422 Finmeccanica* 422,500 298 Mediaset 58,693 667 Sanpaolo IMI 7,400 84 Telecom Italia* 286,530 657 UniCredito Italiano* 80,700 408 ------ 4,413 ------ - -------------------------------------------------------------------------------- JAPAN (21.3%) - -------------------------------------------------------------------------------- 77 Bank 37,900 213 Aiful 2,700 265 Alps Electric 15,700 187 Bridgestone 31,000 576 Canon 12,000 565 Coca-Cola West Japan 14,600 356 Credit Saison 11,100 342 Daiwa House Industry 31,000 304 Daiwa Securities Group 47,000 298 Denso 24,000 568 Dentsu 57 153 96 | Constellation Funds 2004 Annual Report FINANCIAL STATEMENTS Statement of Net Assets Constellation International Equity Fund Value Shares (000) - -------------------------------------------------------------------------------- Electric Power Development (A)* 1,000 $ 27 Fuji Heavy Industries 108,000 547 Fuji Machine Manufacturing 3,400 32 Fuji Photo Film 18,600 612 Fujirebio 51,000 700 Funai Electric 1,150 155 Honda Motor 8,727 424 Kao 10,500 232 KDDI 29 141 Kuraray 20,800 156 Lawson 6,000 208 Mabuchi Motor 3,900 280 Matsumotokiyoshi 7,700 195 Matsushita Electric Industrial 36,000 481 Meitec 10,100 364 Millea Holdings 82 1,059 Minebea 55,000 225 Misawa Homes Holdings* 9,000 27 Mitsubishi Estate 93,000 972 Mitsubishi Tokyo Financial Group 51 426 Murata Manufacturing 4,000 193 Nippon Express 68,000 330 Nippon Shinpan* 135,000 399 Nippon Telegraph & Telephone 36 144 Nipponkoa Insurance 174,000 976 Nissan Motor 36,600 399 Nomura Holdings 20,000 257 Olympus 5,300 102 ORIX 4,648 478 Ricoh 17,000 321 Rinnai 8,900 272 Rohm 2,500 252 Secom 14,000 487 Sekisui House 20,000 191 Seven-Eleven Japan 11,000 315 SFCG 1,250 246 Shin-Etsu Chemical 9,178 330 Shiseido 14,000 172 Skylark 12,300 204 Sohgo Security Services 8,500 112 Sumitomo Bakelite 27,200 164 Sumitomo Chemical 50,500 240 Sumitomo Mitsui Financial Group 20 115 T&D Holdings* 10,350 454 Taisho Pharmaceutical 9,000 167 Value Shares (000) - -------------------------------------------------------------------------------- Takeda Pharmaceutical 25,200 $ 1,145 TDK 15,300 1,021 Tokyo Electron 6,300 308 Toyota Motor 4,800 184 Yamada Denki 19,200 663 Yamaguchi Bank 42,000 419 Yamaha Motor 17,400 264 Yamanouchi Pharmaceutical 11,200 363 ------- 22,777 ------- - -------------------------------------------------------------------------------- MALAYSIA (0.2%) - -------------------------------------------------------------------------------- Malayan Banking 28,300 82 Sime Darby 116,000 175 ------- 257 ------- - -------------------------------------------------------------------------------- MEXICO (2.0%) - -------------------------------------------------------------------------------- Cemex ADR* 22,211 625 Cifra* 44,746 152 Coca-Cola Femsa ADR* 25,100 489 Grupo Televisa ADR* 3,662 193 Kimberly-Clark de Mexico, Cl A* 38,900 114 Telefonos de Mexico ADR* 18,800 607 ------- 2,180 ------- - -------------------------------------------------------------------------------- NETHERLANDS (5.4%) - -------------------------------------------------------------------------------- ABN AMRO Holding* 7,994 182 Aegon* 24,469 264 Akzo Nobel* 30,460 1,077 DSM* 12,350 645 Fortis Bank Nederland* 3,125 -- Heineken* 30,565 921 Heineken Holding, Cl A* 2,125 57 ING Groep* 16,082 406 Koninklijke Ahold* 66,200 423 Koninklijke Philips Electronics* 25,280 580 Koninklijke Philips Electronics, NY Shares* 6,800 156 Royal Dutch Petroleum* 5,100 263 VNU* 20,508 528 Wolters Kluwer* 15,163 256 ------- 5,758 ------- Constellation Funds 2004 Annual Report | 97 FINANCIAL STATEMENTS Statement of Net Assets Constellation International Equity Fund Value Shares (000) - -------------------------------------------------------------------------------- NEW ZEALAND (0.0%) - -------------------------------------------------------------------------------- Carter Holt Harvey 30,900 $ 47 ------ - -------------------------------------------------------------------------------- NORWAY (0.1%) - -------------------------------------------------------------------------------- Norsk Hydro 1,150 84 ------ - -------------------------------------------------------------------------------- PORTUGAL (0.9%) - -------------------------------------------------------------------------------- Banco Comercial Portugues* 67,121 146 Electricidade de Portugal* 57,225 167 Portugal Telecom SGPS* 62,599 691 ------ 1,004 ------ - -------------------------------------------------------------------------------- SINGAPORE (0.7%) - -------------------------------------------------------------------------------- DBS Group Holdings 69,400 659 MobileOne 11,200 11 Singapore Technologies Engineering 68,000 85 ------ 755 ------ - -------------------------------------------------------------------------------- SOUTH AFRICA (0.4%) - -------------------------------------------------------------------------------- Nampak 89,300 196 Nedcor 24,072 223 ------ 419 ------ - -------------------------------------------------------------------------------- SOUTH KOREA (3.6%) - -------------------------------------------------------------------------------- Hyundai Motor 6,720 310 Kookmin Bank ADR* 39,797 1,267 Korea Electric Power 13,200 250 KT ADR* 13,300 240 POSCO ADR* 3,400 129 Samsung Electronics 1,566 623 Shinsegae 820 218 SK Telecom ADR* 39,274 764 ------ 3,801 ------ - -------------------------------------------------------------------------------- SPAIN (3.1%) - -------------------------------------------------------------------------------- Acerinox 11,680 161 Banco Sabadell* 5,700 121 Endesa* 19,600 374 Iberdrola* 24,032 499 Repsol YPF* 56,514 1,243 Telefonica* 62,719 940 ------ 3,338 ------ Value Shares (000) - -------------------------------------------------------------------------------- SWEDEN (1.1%) - -------------------------------------------------------------------------------- Autoliv* 4,811 $ 192 Electrolux, Cl B 13,990 256 Skandia Forsakrings 88,213 349 Volvo, Cl B 10,224 361 ------ 1,158 ------ - -------------------------------------------------------------------------------- SWITZERLAND (5.3%) - -------------------------------------------------------------------------------- Clariant* 13,650 164 Compagnie Financiere Richemont, Cl A* 12,582 349 Credit Suisse Group* 22,413 718 Forbo Holding* 700 155 Julius Baer Holding, Cl B* 590 162 Lonza Group 12,800 581 Nestle 8,024 1,843 Novartis* 11,100 519 Roche Holding* 4,626 479 Swiss Reinsurance* 4,800 277 UBS* 3,800 268 Zurich Financial Services* 1,410 202 ------ 5,717 ------ - -------------------------------------------------------------------------------- TAIWAN (1.0%) - -------------------------------------------------------------------------------- Chunghwa Telecom ADR* 26,900 474 Compal Electronics GDR* 51,900 259 Taiwan Semiconductor Manufacturing ADR* 18,245 130 United Microelectronics ADR* 75,047 254 ------ 1,117 ------ - -------------------------------------------------------------------------------- THAILAND (0.2%) - -------------------------------------------------------------------------------- PTT* 44,900 184 ------ - -------------------------------------------------------------------------------- UNITED KINGDOM (19.5%) - -------------------------------------------------------------------------------- Aegis Group 307,500 539 Anglo American 23,996 576 AstraZeneca 17,608 723 BAA 16,100 161 BAE Systems 65,500 267 Barclays 33,044 317 BOC Group 11,000 176 BP 92,589 885 98 | Constellation Funds 2004 Annual Report FINANCIAL STATEMENTS Statement of Net Assets Constellation International Equity Fund Value Shares (000) - -------------------------------------------------------------------------------- British Sky Broadcasting 27,245 $ 237 BT Group 79,300 258 Bunzl 35,205 265 Cadbury Schweppes 33,600 259 Capita Group 23,816 142 Centrica 45,300 206 Compass Group 84,817 339 Diageo 119,740 1,497 easyJet* 43,100 99 GKN 88,900 346 GlaxoSmithKline 70,567 1,523 HBOS 52,577 711 Imperial Tobacco Group 28,362 619 International Power* 385,844 1,012 J. Sainsbury 43,548 201 Kingfisher 108,170 604 Lloyds TSB Group 25,300 198 Marks & Spencer Group 16,800 104 Michael Page International 101,400 340 Next 19,395 574 Old Mutual 87,500 181 Pearson 104,027 1,114 Reed Elsevier 38,300 337 Rexam 102,572 787 Rio Tinto 16,100 433 Rolls-Royce Group* 76,815 352 Royal Bank of Scotland Group 33,375 965 SABMiller 41,086 543 Scottish & Southern Energy 14,441 204 Shell Transport & Trading 69,009 507 Shire Pharmaceuticals* 78,200 741 Smith & Nephew 55,225 508 Unilever* 25,800 210 Vodafone Group 49,600 119 WPP Group 73,100 681 -------- 20,860 -------- - -------------------------------------------------------------------------------- UNITED STATES (0.5%) - -------------------------------------------------------------------------------- Royal Caribbean Cruises* 11,200 493 -------- - -------------------------------------------------------------------------------- TOTAL COMMON STOCK (COST $89,610) 103,005 ================================================================================ Value Shares (000) - -------------------------------------------------------------------------------- PREFERRED STOCK (0.2%) - -------------------------------------------------------------------------------- GERMANY (0.2%) - -------------------------------------------------------------------------------- Rhoen Klinikum* 4,800 $ 237 -------- - -------------------------------------------------------------------------------- TOTAL PREFERRED STOCK (COST $230) 237 - -------------------------------------------------------------------------------- TOTAL INVESTMENT (96.5%) (COST $89,840) 103,242 ================================================================================ - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES, NET (3.5%) - -------------------------------------------------------------------------------- Payable due to Investment Adviser (56) Payable due to Administrator (13) Payable due to Shareholder Servicing Agent (22) Other assets and liabilities, net 3,850 - -------------------------------------------------------------------------------- TOTAL OTHER ASSETS AND LIABILITIES, NET 3,759 - -------------------------------------------------------------------------------- NET ASSETS (100%) $107,001 ================================================================================ - -------------------------------------------------------------------------------- NET ASSETS CONSIST OF: - -------------------------------------------------------------------------------- Portfolio capital of Class II Shares (unlimited authorization - no par value) based on 15,149,388 outstanding shares of beneficial interest $132,473 Distributions in excess of net investment income (491) Accumulated net realized loss on investments (38,410) Net unrealized appreciation on investments 13,402 Net unrealized appreciation on foreign currency and translation of other assets and liabilities in foreign currency investments 27 - -------------------------------------------------------------------------------- NET ASSETS $107,001 ================================================================================ - -------------------------------------------------------------------------------- NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-CLASS II SHARES $ 7.06 ================================================================================ * Non-income producing security. (A) Security fair valued using methods determined in good faith by the Valuation Committee of the Board of Trustees. The total value of such securities as of September 30, 2004 was $26,557. ADR -- American Depositary Receipt Cl -- Class GDR -- Global Depositary Receipt Amounts designated as "--" are either $0 or have been rounded to $0. The accompanying notes are an integral part of the financial statements Constellation Funds 2004 Annual Report | 99 FINANCIAL STATEMENTS STATEMENT OF NET ASSETS Constellation Strategic Value and High Income Fund September 30, 2004 Value Shares (000) - -------------------------------------------------------------------------------- EQUITY FUNDS (59.8%) - -------------------------------------------------------------------------------- Constellation HLAM Large Cap Value Fund, Class II Shares 14,039 $ 138 Constellation TIP Small Cap Value Opportunities Fund, Class II Shares 17,512 284 ------ 422 - -------------------------------------------------------------------------------- TOTAL EQUITY FUNDS (COST $348) 422 ================================================================================ - -------------------------------------------------------------------------------- FIXED INCOME FUND (40.5%) - -------------------------------------------------------------------------------- Constellation Chartwell High Yield Fund, Class I Shares 55,936 286 - -------------------------------------------------------------------------------- TOTAL FIXED INCOME FUND (COST $274) 286 ================================================================================ - -------------------------------------------------------------------------------- TOTAL INVESTMENTS (100.3%) (COST $622) 708 ================================================================================ - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES, NET (-0.3%) - -------------------------------------------------------------------------------- Receivable due from Investment Adviser 2 Other assets and liabilities, net (4) - -------------------------------------------------------------------------------- TOTAL OTHER ASSETS AND LIABILITIES, NET (2) ================================================================================ - -------------------------------------------------------------------------------- NET ASSETS (100%) $ 706 ================================================================================ - -------------------------------------------------------------------------------- NET ASSETS CONSIST OF: - -------------------------------------------------------------------------------- Portfolio capital of Class I Shares (unlimited authorization - no par value) based on 50,408 outstanding shares of beneficial interest $ 400 Accumulated net realized gain on investments 220 Net unrealized appreciation on investments 86 - -------------------------------------------------------------------------------- NET ASSETS $ 706 ================================================================================ - -------------------------------------------------------------------------------- NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE- CLASS I SHARES $14.01 ================================================================================ The accompanying notes are an integral part of the financial statements 100 | Constellation Funds 2004 Annual Report FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (000)
Constellation TIP Small Cap Value Opportunities Fund ------------------- 09/30/04 - --------------------------------------------------------------------------------------------------- Assets: =================================================================================================== Investment securities at cost $ 15,670 - --------------------------------------------------------------------------------------------------- Investment securities at value(1) $ 17,518 Receivable for investment securities sold 1,051 Receivable for capital shares sold 15 Receivable for dividend and interest income 10 - --------------------------------------------------------------------------------------------------- Total assets 18,594 =================================================================================================== Liabilities: Obligation to return securities lending collateral 3,422 Payable for investment securities purchased 589 Payable for capital shares redeemed 25 Payable due to Investment Adviser 8 Payable due to Shareholder Servicing Agent(2) 3 Payable due to Administrator 2 Accrued expenses 12 - --------------------------------------------------------------------------------------------------- Total liabilities 4,061 - --------------------------------------------------------------------------------------------------- Net assets $ 14,533 =================================================================================================== Net assets consist of: Portfolio capital, Class II Shares $ 10,823 Undistributed net investment income 2 Accumulated net realized gain on investments 1,860 Net unrealized appreciation on investments 1,848 - --------------------------------------------------------------------------------------------------- Net assets $ 14,533 =================================================================================================== Outstanding shares of beneficial interest:(3) Class II Shares(4) 896,376 =================================================================================================== Net asset value, offering and redemption price per share, Class II Shares $ 16.21 ===================================================================================================
(1) The total value of securities on loan at September 30, 2004 was $3,309,691. (2) Attributable to Class II Shares only. (3) Unlimited authorization - no par value. (4) Shares have not been rounded. The accompanying notes are an integral part of the financial statements. Constellation Funds 2004 Annual Report | 101 FINANCIAL STATEMENTS STATEMENTS OF OPERATIONS (000)(1)
Constellation Constellation Clover Large Constellation Constellation Clover Core Cap Value Clover Core Clover Small Fixed Income Fund Value Fund Cap Value Fund Fund ---------------------------------------------------------------- year ended year ended year ended year ended 9/30/04 9/30/04 9/30/04 9/30/04 - ------------------------------------------------------------------------------------------------------------------ Investment Income: Dividend $117 $ 829 $ 5,244 $ 7 Interest -- 1 17 1,721 Securities lending 1 8 378 4 Foreign taxes withheld (1) (9) -- -- - ------------------------------------------------------------------------------------------------------------------ Total Investment Income 117 829 5,639 1,732 - ------------------------------------------------------------------------------------------------------------------ Expenses: Investment advisory fees 44 418 4,223 165 Administrator fees 9 81 715 52 Shareholder servicing fees(3) -- -- -- -- Trustees' fees -- 4 39 3 Transfer agent fees 26 57 664 51 Custodian fees 7 10 76 7 Professional fees 2 18 163 11 Printing fees 1 9 81 5 Registration fees 1 9 78 7 Insurance and other fees 1 3 23 10 - ------------------------------------------------------------------------------------------------------------------ Total expenses 91 609 6,062 311 Less: Investment advisory fees waived (16) -- -- (20) Reimbursement from adviser -- -- -- -- - ------------------------------------------------------------------------------------------------------------------ Net expenses 75 609 6,062 291 - ------------------------------------------------------------------------------------------------------------------ Net investment income (loss) 42 220 (423) 1,441 - ------------------------------------------------------------------------------------------------------------------ Net realized gain (loss) from securities sold 422 4,878 54,685 859 Net change in unrealized appreciation (depreciation) of investment securities 212 4,420 40,856 (1,401) - ------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments 634 9,298 95,541 (542) - ------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets resulting from operations $676 $9,518 $95,118 $ 899 ==================================================================================================================
- -------------- (1) On May 10, 2004 and August 2, 2004 the Constellation Funds acquired the assets of certain Turner Funds and the Pitcairn Funds, respectively, in a tax-free reorganization. See Note 1 in Notes to Financial Statements for additional information. (2) Commencement of operations. (3) Attributable to Class II Shares only. Amounts designated as "-" are either $0 or have been rounded to $0 The accompanying notes are an integral part of the financial statements. 102 | Constellation Funds 2004 Annual Report FINANCIAL STATEMENTS
Constellation Chartwell Ultra Constellation Short Duration Chartwell Short Constellation Constellation Fixed Income Duration Fixed Chartwell High HLAM Large Cap Constellation Pitcairn Fund Income Fund Yield Fund Value Fund Diversified Value Fund - --------------------------------------------------------------------------------------------------------------- year ended year ended year ended 4/30/04(2) thru 11/1/03 thru 11/1/02 thru 9/30/04 9/30/04 9/30/04 9/30/04 9/30/04 10/31/03 - --------------------------------------------------------------------------------------------------------------- $ 67 $ 25 $ 4 $ 8 $ 2,820 $ 2,912 10,520 6,128 835 -- -- 2 8 1 9 -- 5 12 -- -- -- -- -- -- - --------------------------------------------------------------------------------------------------------------- 10,595 6,154 848 8 2,825 2,926 - --------------------------------------------------------------------------------------------------------------- 1,043 522 59 4 951 878 599 300 15 1 126 100 17 7 -- 1 340 314 32 16 1 -- 16 12 451 245 26 11 20 20 52 32 9 3 7 10 119 51 3 -- 55 67 56 26 2 -- 12 9 91 47 2 -- 10 5 24 13 6 -- 16 18 - --------------------------------------------------------------------------------------------------------------- 2,484 1,259 123 20 1,553 1,433 (544) (293) (29) (4) (164) (166) -- -- -- (10) -- -- - --------------------------------------------------------------------------------------------------------------- 1,940 966 94 6 1,389 1,267 - --------------------------------------------------------------------------------------------------------------- 8,655 5,188 754 2 1,436 1,659 - --------------------------------------------------------------------------------------------------------------- (90) 489 650 -- 7,037 (4,189) (1,750) (2,013) (479) (3) 6,166 29,045 - --------------------------------------------------------------------------------------------------------------- (1,840) (1,524) 171 (3) 13,203 24,856 - --------------------------------------------------------------------------------------------------------------- $ 6,815 $ 3,664 $ 925 $ (1) $14,639 $26,515 ===============================================================================================================
Constellation Funds 2004 Annual Report | 103 FINANCIAL STATEMENTS STATEMENTS OF OPERATIONS (000)(1)
Constellation Pitcairn Constellation Pitcairn Select Value Fund Diversified Growth Fund ----------------------------------------------------------- 11/1/03 thru 11/1/02 thru 11/1/03 thru 11/1/02 thru 9/30/04 10/31/03 9/30/04 10/31/03 - --------------------------------------------------------------------------------------------------------------- Investment Income: Dividend $ 1,029 $ 908 $ 947 $ 881 Interest -- 1 -- 2 Securities lending 2 8 2 8 Foreign taxes withheld -- -- -- -- - --------------------------------------------------------------------------------------------------------------- Total Investment Income 1,031 917 949 891 - --------------------------------------------------------------------------------------------------------------- Expenses: Investment advisory fees 386 341 651 587 Administrator fees 67 70 86 71 Shareholder servicing fees(2) 138 122 233 210 Trustees' fees 6 5 11 8 Transfer agent fees 19 19 19 19 Custodian fees 4 6 6 11 Professional fees 22 26 38 44 Printing fees 5 3 8 6 Registration fees 4 2 7 4 Insurance and other fees 6 7 10 12 - --------------------------------------------------------------------------------------------------------------- Total expenses 657 601 1,069 972 Less: Investment advisory fees waived (89) (106) (120) (125) Custody offsets -- -- -- -- - --------------------------------------------------------------------------------------------------------------- Net operating expenses 568 495 949 847 Interest expense -- -- -- -- - --------------------------------------------------------------------------------------------------------------- Net expenses 568 495 949 847 - --------------------------------------------------------------------------------------------------------------- Net investment income (loss) 463 422 -- 44 - --------------------------------------------------------------------------------------------------------------- Net realized gain (loss) from securities sold 5,939 (1,877) 644 (11,325) Net realized gain from securities sold short -- -- -- -- Net change in unrealized appreciation (depreciation) of investment securities (2,360) 13,361 1,228 26,682 - --------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain on investments 3,579 11,484 1,872 15,357 - --------------------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations $ 4,042 $11,906 $1,872 $ 15,401 ===============================================================================================================
- --------------- (1) On May 10, 2004 and August 2, 2004 the Constellation Funds acquired the assets of certain Turner Funds and the Pitcairn Funds, respectively, in a tax-free reorganization. See Note 1 in Notes to Financial Statements for additional information. (2) Attributable to Class II Shares only. Amounts designated as "-" are either $0 or have been rounded to $0 The accompanying notes are an integral part of the financial statements. 104 | Constellation Funds 2004 Annual Report FINANCIAL STATEMENTS
Constellation Pitcairn Constellation Pitcairn Constellation Pitcairn Small Cap Fund Family Heritage(R) Fund Taxable Bond Fund - ------------------------------------------------------------------------------------------------------------ 11/1/03 thru 11/1/02 thru 11/1/03 thru 11/1/02 thru 11/1/03 thru 11/1/02 thru 9/30/04 10/31/03 9/30/04 10/31/03 9/30/04 10/31/03 - ------------------------------------------------------------------------------------------------------------ $ 641 $ 636 $ 858 $ 830 $ -- $ -- 1 82 -- 1 2,032 2,133 46 70 6 20 5 10 (1) (3) -- -- -- -- - ------------------------------------------------------------------------------------------------------------ 687 785 864 851 2,037 2,143 - ------------------------------------------------------------------------------------------------------------ 588 513 630 595 159 157 78 70 71 70 63 70 210 183 175 165 100 98 10 7 8 6 5 4 20 20 19 19 19 19 7 12 5 6 2 4 34 31 29 35 16 20 7 5 6 4 4 2 6 3 5 3 2 2 10 11 9 10 6 5 - ------------------------------------------------------------------------------------------------------------ 970 855 957 913 376 381 (63) (52) (97) (101) (74) (97) (4) -- -- -- (4) -- - ------------------------------------------------------------------------------------------------------------ 903 803 860 812 298 284 -- 76 -- -- -- -- - ------------------------------------------------------------------------------------------------------------ 903 879 860 812 298 284 - ------------------------------------------------------------------------------------------------------------ (216) (94) 4 39 1,739 1,859 - ------------------------------------------------------------------------------------------------------------ 13,756 8,217 (6,033) (4,941) 658 234 -- 2,894 -- -- -- -- (4,005) 14,082 13,076 18,782 (473) 852 - ------------------------------------------------------------------------------------------------------------ 9,751 25,193 7,043 13,841 185 1,086 - ------------------------------------------------------------------------------------------------------------ $ 9,535 $25,099 $ 7,047 $13,880 $1,924 $2,945 ============================================================================================================
Constellation Funds 2004 Annual Report | 105 FINANCIAL STATEMENTS STATEMENTS OF OPERATIONS (000)(1)
Constellation Pitcairn Constellation Sands Capital Tax-Exempt Bond Fund Select Growth Fund ----------------------------------------------------------- 11/1/03 thru 11/1/02 thru 11/1/03 thru 11/1/02 thru 9/30/04 10/31/03 9/30/04 10/31/03 - ----------------------------------------------------------------------------------------------------------------- Investment Income: Dividend $ -- $ -- $ 159 $ 120 Interest 4,696 5,343 3 3 Securities lending -- -- 2 6 Foreign taxes withheld -- -- (1) -- - ----------------------------------------------------------------------------------------------------------------- Total Investment Income 4,696 5,343 163 129 - ----------------------------------------------------------------------------------------------------------------- Expenses: Investment advisory fees 307 344 569 308 Administrator fees 95 92 77 70 Shareholder servicing fees(2) 256 286 165 91 Distribution fees(2) -- -- -- -- Trustees' fees 12 11 7 4 Transfer agent fees 19 19 23 19 Custodian fees 7 10 7 6 Professional fees 42 58 29 20 Printing fees 8 7 7 3 Registration fees 8 5 4 1 Interest expense -- -- -- -- Insurance and other fees 14 16 13 4 - ----------------------------------------------------------------------------------------------------------------- Total expenses 768 848 901 526 Less: Investment advisory fees waived (135) (160) (87) (103) Reimbursement from adviser -- -- -- -- Custody offset -- -- (13) -- - ----------------------------------------------------------------------------------------------------------------- Net expenses 633 688 801 423 - ----------------------------------------------------------------------------------------------------------------- Net investment income (loss) 4,063 4,655 (638) (294) - ----------------------------------------------------------------------------------------------------------------- Net realized gain (loss) from securities sold 716 432 730 (6,078) Net realized loss from foreign currency transactions -- -- -- -- Net change in unrealized appreciation (depreciation) of investment securities (314) 273 4,953 15,475 Net change in unrealized appreciation (depreciation) on translation of foreign currency and other assets and liabilities denominated in foreign currency -- -- -- -- - ----------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain on investments 402 705 5,683 9,397 - ----------------------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations $4,465 $5,360 $5,045 $ 9,103 =================================================================================================================
- --------------- * Dividend income, net realized gain from securities sold and net change in unrealized appreciation of investment securities are attributable to the underlying investments in affiliated investment companies. (1) On May 10, 2004 and August 2, 2004 the Constellation Funds acquired the assets of certain Turner Funds and the Pitcairn Funds, respectively, in a tax-free reorganization. See Note 1 in Notes to Financial Statements for additional information. (2) Attributable to Class II Shares only. Amounts designated as "-" are either $0 or have been rounded to $0 The accompanying notes are an integral part of the financial statements. 106 | Constellation Funds 2004 Annual Report FINANCIAL STATEMENTS
Constellation Constellation Constellation Constellation TIP Small Cap TIP TIP Tax Strategic Value Constellation Healthcare & Managed U.S. Value and Opportunities TIP Financial Biotechnology Equity Constellation International High Income Fund Services Fund Fund Fund Equity Fund Fund - ----------------------------------------------------------------------------------------------------------------------------------- year ended year ended year ended year ended 11/1/03 thru 11/1/02 thru year ended 9/30/04 9/30/04 9/30/04 9/30/04 9/30/04 10/31/03 9/30/04 - ----------------------------------------------------------------------------------------------------------------------------------- $ 213 $ 198 $ 118 $ 54 $ 2,338 $ 2,125 $124* 1 1 2 -- 11 43 -- 1 1 1 1 43 38 -- (1) -- (1) -- (239) (176) -- - ----------------------------------------------------------------------------------------------------------------------------------- 214 200 120 55 2,153 2,030 124 - ----------------------------------------------------------------------------------------------------------------------------------- 166 184 251 42 911 787 4 25 24 34 8 89 80 5 17 -- 58 14 240 207 -- 27 -- -- -- -- -- -- 1 1 2 -- 11 8 -- 49 27 60 36 22 19 38 24 5 7 6 151 148 1 4 4 8 1 40 45 -- 3 3 5 1 11 6 -- 1 3 3 1 16 4 -- -- -- -- -- 14 -- -- 1 1 2 1 29 24 -- - ----------------------------------------------------------------------------------------------------------------------------------- 318 252 430 110 1,534 1,328 48 (65) (12) (54) (40) (222) (254) (4) -- -- -- -- -- -- (36) -- -- -- -- (20) -- -- - ----------------------------------------------------------------------------------------------------------------------------------- 253 240 376 70 1,292 1,074 8 - ----------------------------------------------------------------------------------------------------------------------------------- (39) (40) (256) (15) 861 956 116 - ----------------------------------------------------------------------------------------------------------------------------------- 2,070 1,782 1,403 709 12,637 (9,048) 524* -- -- -- -- (62) (116) -- 1,494 256 (540) (162) (2,756) 27,564 64* -- -- -- -- (15) 29 -- - ----------------------------------------------------------------------------------------------------------------------------------- 3,564 2,038 863 547 9,804 18,429 588 - ----------------------------------------------------------------------------------------------------------------------------------- $3,525 $1,998 $ 607 $ 532 $10,665 $19,385 $704 ===================================================================================================================================
Constellation Funds 2004 Annual Report | 107 FINANCIAL STATEMENTS STATEMENTS OF CHANGES IN NET ASSETS (000)(1)
Constellation Clover Constellation Clover Large Cap Value Fund Core Value Fund --------------------------------------------------- year ended year ended year ended year ended 9/30/04 9/30/03 9/30/04 9/30/03 - ----------------------------------------------------------------------------------------------------------------------------------- Investment activities: Net investment income (loss) $ 42 $ 39 $ 220 $ 189 Net realized gain (loss) from securities sold 422 (265) 4,878 2,570 Net change in unrealized appreciation (depreciation) of investments 212 1,138 4,420 6,105 - ----------------------------------------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations 676 912 9,518 8,864 - ----------------------------------------------------------------------------------------------------------------------------------- Dividends and distributions to shareholders: Net investment income Class I Shares (42) (39) (213) (189) Class II Shares -- -- -- -- Realized capital gains Class I Shares -- -- (1,697) -- Class II Shares -- -- -- -- Return of capital Class I Shares -- -- -- -- Class II Shares -- -- -- -- - ----------------------------------------------------------------------------------------------------------------------------------- Total dividends and distributions (42) (39) (1,910) (189) - ----------------------------------------------------------------------------------------------------------------------------------- Capital share transactions: Class I Shares Proceeds from shares issued 2,944 642 23,355 15,143 Proceeds from shares issued in lieu of cash distributions 41 37 1,838 178 Cost of shares redeemed (2,160) (1,015) (19,760) (20,894) - ----------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets from Class I Shares transactions 825 (336) 5,433 (5,573) - ----------------------------------------------------------------------------------------------------------------------------------- Class II Shares Proceeds from shares issued -- -- -- -- Proceeds from shares issued in lieu of cash distributions -- -- -- -- Cost of shares redeemed -- -- -- -- - ----------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets from Class II Shares transactions -- -- -- -- - ----------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets from capital share transactions 825 (336) 5,433 (5,573) - ----------------------------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets 1,459 537 13,041 3,102 - ----------------------------------------------------------------------------------------------------------------------------------- Net assets: Beginning of year 4,792 4,255 46,673 43,571 - ----------------------------------------------------------------------------------------------------------------------------------- End of year $ 6,251 $ 4,792 $ 59,714 $ 46,673 =================================================================================================================================== Undistributed net investment income (Distributions in excess of net investment income) $ -- $ -- $ 6 $ -- =================================================================================================================================== Shares issued and redeemed: Class I Shares Issued 272 71 1,446 1,199 Issued in lieu of cash distributions 4 4 120 14 Redeemed (200) (116) (1,240) (1,643) - ----------------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in Class I Shares 76 (41) 326 (430) - ----------------------------------------------------------------------------------------------------------------------------------- Class II Shares Issued -- -- -- -- Issued in lieu of cash distributions -- -- -- -- Redeemed -- -- -- -- - ----------------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in Class II Shares -- -- -- -- - ----------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in share transactions 76 (41) 326 (430) ===================================================================================================================================
(1) On May 10, 2004 and August 2, 2004 the Constellation Funds acquired the assets of certain Turner Funds and the Pitcairn Funds, respectively, in a tax-free reorganization. See Note 1 in Notes to Financial Statements for additional information. Amounts designated as "-" are either $0 or have been rounded to $0 The accompanying notes are an integral part of the financial statements. 108 | Constellation Funds 2004 Annual Report FINANCIAL STATEMENTS
Constellation Chartwell Constellation Clover Constellation Clover Ultra Short Duration Small Cap Value Fund Core Fixed Income Fund Fixed Income Fund - ---------------------------------------------------------------------------------------------- year ended year ended year ended year ended year ended year ended 9/30/04 9/30/03 9/30/04 9/30/03 9/30/04 9/30/03 - ---------------------------------------------------------------------------------------------- $ (423) $ 352 $ 1,441 $ 1,820 $ 8,655 $ 4,318 54,685 (43,910) 859 (236) (90) (232) 40,856 126,137 (1,401) (114) (1,750) 2,667 - ---------------------------------------------------------------------------------------------- 95,118 82,579 899 1,470 6,815 6,753 - ---------------------------------------------------------------------------------------------- (652) (315) (1,530) (1,934) (8,654) (10,253) -- -- -- -- (125) (172) -- -- -- (108) -- (630) -- -- -- -- -- (12) -- (109) -- -- -- -- -- -- -- -- -- -- - ---------------------------------------------------------------------------------------------- (652) (424) (1,530) (2,042) (8,779) (11,067) - ---------------------------------------------------------------------------------------------- 230,219 144,143 12,793 28,705 169,703 432,951 593 389 1,389 1,908 8,365 10,488 (179,946) (296,317) (24,608) (29,574) (246,769) (446,668) - ---------------------------------------------------------------------------------------------- 50,866 (151,785) (10,426) 1,039 (68,701) (3,229) - ---------------------------------------------------------------------------------------------- -- -- -- -- 6,182 19,631 -- -- -- -- 101 149 -- -- -- -- (3,320) (22,615) - ---------------------------------------------------------------------------------------------- -- -- -- -- 2,963 (2,835) - ---------------------------------------------------------------------------------------------- 50,866 (151,785) (10,426) 1,039 (65,738) (6,064) - ---------------------------------------------------------------------------------------------- 145,332 (69,630) (11,057) 467 (67,702) (10,378) - ---------------------------------------------------------------------------------------------- 394,946 464,576 43,391 42,924 468,531 478,909 - ---------------------------------------------------------------------------------------------- $ 540,278 $ 394,946 $ 32,334 $ 43,391 $ 400,829 $ 468,531 ============================================================================================== $ 46 $ -- $ -- $ (2) $ (2) $ (185) ============================================================================================== 10,042 8,838 1,247 2,758 16,728 42,479 26 26 136 183 825 1,031 (7,868) (18,889) (2,407) (2,836) (24,310) (43,959) - ---------------------------------------------------------------------------------------------- 2,200 (10,025) (1,024) 105 (6,757) (449) - ---------------------------------------------------------------------------------------------- -- -- -- -- 607 1,914 -- -- -- -- 10 15 -- -- -- -- (325) (2,210) - ---------------------------------------------------------------------------------------------- -- -- -- -- 292 (281) - ---------------------------------------------------------------------------------------------- 2,200 (10,025) (1,024) 105 (6,465) (730) ==============================================================================================
Constellation Funds 2004 Annual Report | 109 FINANCIAL STATEMENTS STATEMENTS OF CHANGES IN NET ASSETS (000)(1)
Constellation Chartwell Short Duration Constellation Chartwell Fixed Income Fund High Yield Fund --------------------------------------------------- year ended year ended year ended year ended 9/30/04 9/30/03 9/30/04 9/30/03 - ----------------------------------------------------------------------------------------------------------------------------------- Investment activities: Net investment income $ 5,188 $ 4,748 $ 754 $ 725 Net realized gain (loss) from securities sold 489 1,172 650 231 Net change in unrealized appreciation (depreciation) of investments (2,013) (128) (479) 889 - ----------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 3,664 5,792 925 1,845 - ----------------------------------------------------------------------------------------------------------------------------------- Dividends and distributions to shareholders: Net investment income Class I Shares (5,741) (6,947) (753) (709) Class II Shares (69) (139) -- -- Realized capital gains Class I Shares -- (1,892) -- -- Class II Shares -- (60) -- -- - ----------------------------------------------------------------------------------------------------------------------------------- Total dividends and distributions (5,810) (9,038) (753) (709) - ----------------------------------------------------------------------------------------------------------------------------------- Capital share transactions: Class I Shares Proceeds from shares issued 30,025 148,936 10,285 4,524 Proceeds from shares issued in lieu of cash distributions 5,666 8,702 171 99 Cost of shares redeemed (114,133) (165,718) (9,865) (5,783) - ----------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets from Class I Shares transactions (78,442) (8,080) 591 (1,160) - ----------------------------------------------------------------------------------------------------------------------------------- Class II Shares Proceeds from shares issued 5,502 5,134 -- -- Proceeds from shares issued in lieu of cash distributions 66 194 -- -- Cost of shares redeemed (4,882) (11,350) -- -- - ----------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets from Class II Shares transactions 686 (6,022) -- -- - ----------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets from capital share transactions (77,756) (14,102) 591 (1,160) - ----------------------------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (79,902) (17,348) 763 (24) - ----------------------------------------------------------------------------------------------------------------------------------- Net assets: Beginning of period 255,018 272,366 9,408 9,432 - ----------------------------------------------------------------------------------------------------------------------------------- End of period $ 175,116 $ 255,018 $10,171 $ 9,408 =================================================================================================================================== Undistributed net investment income (Distributions in excess of net investment income) $ (1) $ (22) $ 2 $ 1 =================================================================================================================================== Shares issued and redeemed: Class I Shares Issued 2,975 14,645 2,010 960 Issued in lieu of cash distributions 562 857 33 21 Redeemed (11,321) (16,343) (1,930) (1,226) - ----------------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in Class I Shares (7,784) (841) 113 (245) - ----------------------------------------------------------------------------------------------------------------------------------- Class II Shares Issued 547 508 -- -- Issued in lieu of cash distributions 6 19 -- -- Redeemed (485) (1,124) -- -- - ----------------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in Class II Shares 68 (597) -- -- - ----------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in share transactions (7,716) (1,438) 113 (245) ===================================================================================================================================
(1) On May 10, 2004 and August 2, 2004 the Constellation Funds acquired the assets of certain Turner Funds and the Pitcairn Funds, respectively, in a tax-free reorganization. See Note 1 in Notes to Financial Statements for additional information. (2) Commencement of operations. Amounts designated as "-" are either $0 or have been rounded to $0 The accompanying notes are an integral part of the financial statements. 110 | Constellation Funds 2004 Annual Report FINANCIAL STATEMENTS
Constellation HLAM Large Cap Value Fund Constellation Pitcairn Diversified Value Fund Constellation Pitcairn Select Value Fund - ----------------------------------------------------------------------------------------------------------------------------------- 4/30/04(2)thru 11/1/03 thru 11/1/02 thru 11/1/01 thru 11/1/03 thru 11/1/02 thru 11/1/01 thru 9/30/04 9/30/04 10/31/03 10/31/02 9/30/04 10/31/03 10/31/02 - ----------------------------------------------------------------------------------------------------------------------------------- $ 2 $ 1,436 $ 1,659 $ 1,612 $ 463 $ 422 $ 546 -- 7,037 (4,189) (2,869) 5,939 (1,877) (2,697) (3) 6,166 29,045 (6,801) (2,360) 13,361 (6,939) - ----------------------------------------------------------------------------------------------------------------------------------- (1) 14,639 26,515 (8,058) 4,042 11,906 (9,090) - ----------------------------------------------------------------------------------------------------------------------------------- -- -- -- -- -- -- -- (2) (1,559) (1,782) (1,613) (492) (509) (516) -- -- -- -- -- -- -- -- -- -- -- (902) -- -- - ----------------------------------------------------------------------------------------------------------------------------------- (2) (1,559) (1,782) (1,613) (1,394) (509) (516) - ----------------------------------------------------------------------------------------------------------------------------------- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - ----------------------------------------------------------------------------------------------------------------------------------- -- -- -- -- -- -- -- - ----------------------------------------------------------------------------------------------------------------------------------- 1,517 7,361 6,443 7,317 5,616 6,080 6,016 1 134 168 154 529 90 92 (78) (12,014) (10,094) (15,176) (5,109) (7,889) (9,033) - ----------------------------------------------------------------------------------------------------------------------------------- 1,440 (4,519) (3,483) (7,705) 1,036 (1,719) (2,925) - ----------------------------------------------------------------------------------------------------------------------------------- 1,440 (4,519) (3,483) (7,705) 1,036 (1,719) (2,925) - ----------------------------------------------------------------------------------------------------------------------------------- 1,437 8,561 21,250 (17,376) 3,684 9,678 (12,531) - ----------------------------------------------------------------------------------------------------------------------------------- -- 143,641 122,391 139,767 58,133 48,455 60,986 - ----------------------------------------------------------------------------------------------------------------------------------- $1,437 $152,202 $143,641 $122,391 $61,817 $58,133 $ 48,455 =================================================================================================================================== $ -- $ -- $ 154 $ 277 $ - $ 29 $ 116 =================================================================================================================================== -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- - ----------------------------------------------------------------------------------------------------------------------------------- -- -- -- -- -- -- -- - ----------------------------------------------------------------------------------------------------------------------------------- 154 679 720 793 519 685 594 -- 12 19 17 50 10 9 (8) (1,117) (1,148) (1,621) (478) (895) (899) - ----------------------------------------------------------------------------------------------------------------------------------- 146 (426) (409) (811) 91 (200) (296) - ----------------------------------------------------------------------------------------------------------------------------------- 146 (426) (409) (811) 91 (200) (296) ===================================================================================================================================
Constellation Funds 2004 Annual Report | 111 FINANCIAL STATEMENTS STATEMENTS OF CHANGES IN NET ASSETS (000)(1)
Constellation Pitcairn Diversified Growth Fund - ------------------------------------------------------------------------------------------------------------------------------------ 11/1/03 thru 11/1/02 thru 11/1/01 thru 9/30/04 10/31/03 10/31/02 - ------------------------------------------------------------------------------------------------------------------------------------ Investment activities: Net investment income (loss) $ -- $ 44 $ (149) Net realized gain (loss) from securities sold and securities sold short 644 (11,325) (35,541) Net change in unrealized appreciation (depreciation) of investments 1,228 26,682 12,098 - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets resulting from operations 1,872 15,401 (23,592) - ------------------------------------------------------------------------------------------------------------------------------------ Dividends and distributions to shareholders: Net investment income Class II Shares (46) -- -- Realized capital gains Class II Shares -- -- -- Return of capital Class II Shares -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Total dividends and distributions (46) -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Capital share transactions: Class II Shares Proceeds from shares issued 13,230 17,450 7,978 Proceeds from shares issued in lieu of cash distributions 5 -- -- Proceeds from shares issued in connection with Fund Reorganization(2) -- -- -- Cost of shares redeemed (6,257) (19,495) (9,159) - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets from Class II Shares transactions 6,978 (2,045) (1,181) - ------------------------------------------------------------------------------------------------------------------------------------ Total increase (decrease) in net assets 8,804 13,356 (24,773) - ------------------------------------------------------------------------------------------------------------------------------------ Net assets: Beginning of period 95,724 82,368 107,141 - ------------------------------------------------------------------------------------------------------------------------------------ End of period $104,528 $ 95,724 $ 82,368 ==================================================================================================================================== Undistributed net investment income $ -- $ 44 $ -- ==================================================================================================================================== Class II Shares Issued 2,434 3,773 1,530 Issued in lieu of cash distributions 1 -- -- Issued in connection with Fund Reorganization(2) -- -- -- Redeemed (1,168) (4,232) (1,750) - ------------------------------------------------------------------------------------------------------------------------------------ Increase (decrease) in Class II Shares 1,267 (459) (220) ====================================================================================================================================
(1) On May 10, 2004 and August 2, 2004 the Constellation Funds acquired the assets of certain Turner Funds and the Pitcairn Funds, respectively, in a tax-free reorganization. See Note 1 in Notes to Financial Statements for additional information. (2) See Note 10 in Notes to Financial Statements for additional information. Amounts designated as "-" are either $0 or have been rounded to $0 The accompanying notes are an integral part of the financial statements. 112 | Constellation Funds 2004 Annual Report FINANCIAL STATEMENTS
Constellation Pitcairn Small Cap Fund Constellation Pitcairn Family Heritage(R) Fund - ---------------------------------------------------------------------------------------------------------- 11/1/03 thru 11/1/02 thru 11/1/01 thru 11/1/03 thru 11/1/02 thru 11/1/01 thru 9/30/04 10/31/03 10/31/02 9/30/04 10/31/03 10/31/02 - ---------------------------------------------------------------------------------------------------------- $ (216) $ (94) $ 358 $ 4 $ 39 $ (137) 13,756 11,111 (956) (6,033) (4,941) (2,721) (4,005) 14,082 (2,239) 13,076 18,782 (5,068) - ---------------------------------------------------------------------------------------------------------- 9,535 25,099 (2,837) 7,047 13,880 (7,926) - ---------------------------------------------------------------------------------------------------------- (3) (17) (494) (38) -- -- -- -- -- -- -- -- -- -- -- (2) -- -- - ---------------------------------------------------------------------------------------------------------- (3) (17) (494) (40) -- -- - ---------------------------------------------------------------------------------------------------------- 3,348 3,024 1,381 4,564 3,668 4,396 -- 2 -- 5 -- -- -- 25,687 48 -- -- -- (7,552) (16,371) (10,229) (6,963) (10,184) (7,639) - ---------------------------------------------------------------------------------------------------------- (4,204) 12,342 (8,800) (2,394) (6,516) (3,243) - ---------------------------------------------------------------------------------------------------------- 5,328 37,424 (12,131) 4,613 7,364 (11,169) - ---------------------------------------------------------------------------------------------------------- 87,520 50,096 62,227 73,490 66,126 77,295 - ---------------------------------------------------------------------------------------------------------- $92,848 $ 87,520 $ 50,096 $78,103 $ 73,490 $ 66,126 ========================================================================================================== $ -- $ -- $ 17 $ -- $ 39 $ -- ========================================================================================================== 226 280 119 501 490 553 -- -- 4 1 -- -- -- 2,603 -- -- -- -- (509) (1,610) (877) (769) (1,388) (948) - ---------------------------------------------------------------------------------------------------------- (283) 1,273 (754) (267) (898) (395) ==========================================================================================================
Constellation Funds 2004 Annual Report | 113 FINANCIAL STATEMENTS STATEMENTS OF CHANGES IN NET ASSETS (000)(1)
Constellation Pitcairn Taxable Bond Fund - ----------------------------------------------------------------------------------------------------------------------------------- 11/1/03 thru 11/1/02 thru 11/1/01 thru 9/30/04 10/31/03 10/31/02 - ----------------------------------------------------------------------------------------------------------------------------------- Investment activities: Net investment income (loss) $ 1,739 $ 1,859 $ 1,984 Net realized gain (loss) from securities sold 658 234 (1,404) Net change in unrealized appreciation (depreciation) of investments (473) 852 82 - ----------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 1,924 2,945 662 - ----------------------------------------------------------------------------------------------------------------------------------- Dividends and distributions to shareholders: Net investment income Class II Shares (1,725) (1,858) (1,990) Realized capital gains Class II Shares -- -- (285) - ----------------------------------------------------------------------------------------------------------------------------------- Total dividends and distributions (1,725) (1,858) (2,275) - ----------------------------------------------------------------------------------------------------------------------------------- Capital share transactions: Class I Shares (2) Proceeds from shares issued -- -- -- Proceeds from shares issued in lieu of cash distributions -- -- -- Cost of shares redeemed -- -- -- - ----------------------------------------------------------------------------------------------------------------------------------- Net increase in net assets from Class I Shares transactions -- -- -- - ----------------------------------------------------------------------------------------------------------------------------------- Class II Shares Proceeds from shares issued 4,881 10,661 11,993 Proceeds from shares issued in lieu of cash distributions 301 384 548 Cost of shares redeemed (5,574) (8,758) (6,432) - ----------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets from Class II Shares transactions (392) 2,287 6,109 - ----------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets from capital share transactions (392) 2,287 6,109 - ----------------------------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (193) 3,374 4,496 - ----------------------------------------------------------------------------------------------------------------------------------- Net assets: Beginning of period 43,432 40,058 35,562 - ----------------------------------------------------------------------------------------------------------------------------------- End of period $43,239 $43,432 $40,058 =================================================================================================================================== Undistributed net investment income $ -- $ -- $ -- =================================================================================================================================== Shares issued and redeemed: Class I Shares Issued -- -- -- Issued in lieu of cash distributions -- -- -- Redeemed -- -- -- - ----------------------------------------------------------------------------------------------------------------------------------- Increase in Class I Shares -- -- -- - ----------------------------------------------------------------------------------------------------------------------------------- Class II Shares Issued 458 1,003 1,150 Issued in lieu of cash distributions 28 36 53 Redeemed (520) (818) (616) - ----------------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in Class II Shares (34) 221 587 - ----------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in share transactions (34) 221 587 ===================================================================================================================================
(1) On May 10, 2004 and August 2, 2004 the Constellation Funds acquired the assets of certain Turner Funds and the Pitcairn Funds, respectively, in a tax-free reorganization. See Note 1 in Notes to Financial Statements for additional information. (2) Class I Shares were offered beginning on August 27, 2004 for the Constellation Sands Capital Select Growth Fund. Amounts designated as "-" are either $0 or have been rounded to $0 The accompanying notes are an integral part of the financial statements. 114 | Constellation Funds 2004 Annual Report FINANCIAL STATEMENTS
Constellation Pitcairn Tax-Exempt Bond Fund Constellation Sands Capital Select Growth Fund - ------------------------------------------------------------------------------------------------------------------ 11/1/03 thru 11/1/02 thru 11/1/01 thru 11/1/03 thru 11/1/02 thru 11/1/01 thru 9/30/04 10/31/03 10/31/02 9/30/04 10/31/03 10/31/02 - ------------------------------------------------------------------------------------------------------------------ $ 4,063 $ 4,655 $ 4,695 $ (638) $ (294) $ (272) 716 432 295 730 (6,078) (11,995) (314) 273 1,012 4,953 15,475 7,148 - ------------------------------------------------------------------------------------------------------------------ 4,465 5,360 6,002 5,045 9,103 (5,119) - ------------------------------------------------------------------------------------------------------------------ (4,075) (4,623) (4,690) -- -- -- (432) (294) (61) -- -- -- - ------------------------------------------------------------------------------------------------------------------ (4,507) (4,917) (4,751) -- -- -- - ------------------------------------------------------------------------------------------------------------------ -- -- -- 32,632 -- -- -- -- -- -- -- -- -- -- -- -- -- -- - ------------------------------------------------------------------------------------------------------------------ -- -- -- 32,632 -- -- - ------------------------------------------------------------------------------------------------------------------ 14,164 11,201 10,287 54,888 6,476 7,021 222 174 79 -- -- -- (11,934) (16,253) (8,783) (33,825) (4,519) (8,410) - ------------------------------------------------------------------------------------------------------------------ 2,452 (4,878) 1,583 21,063 1,957 (1,389) - ------------------------------------------------------------------------------------------------------------------ 2,452 (4,878) 1,583 53,695 1,957 (1,389) - ------------------------------------------------------------------------------------------------------------------ 2,410 (4,435) 2,834 58,740 11,060 (6,508) - ------------------------------------------------------------------------------------------------------------------ 111,470 115,905 113,071 43,878 32,818 39,326 - ------------------------------------------------------------------------------------------------------------------ $113,880 $111,470 $115,905 $102,618 $43,878 $ 32,818 ================================================================================================================== $ 129 $ 141 $ 109 $ -- $ -- $ -- ================================================================================================================== -- -- -- 4,792 -- -- -- -- -- -- -- -- -- -- -- -- -- -- - ------------------------------------------------------------------------------------------------------------------ -- -- -- 4,792 -- -- - ------------------------------------------------------------------------------------------------------------------ 1,309 1,034 979 8,136 1,225 1,201 21 15 7 -- -- -- (1,121) (1,516) (837) (5,007) (882) (1,468) - ------------------------------------------------------------------------------------------------------------------ 209 (467) 149 3,129 343 (267) - ------------------------------------------------------------------------------------------------------------------ 209 (467) 149 7,921 343 (267) ==================================================================================================================
Constellation Funds 2004 Annual Report | 115 FINANCIAL STATEMENTS STATEMENTS OF CHANGES IN NET ASSETS (000)(1)
Constellation TIP Small Cap Value Opportunities Fund --------------------------- year ended year ended 9/30/04 9/30/03 - ---------------------------------------------------------------------------------- Investment activities: Net investment loss $ (39) $ (4) Net realized gain from securities sold 2,070 129 Net change in unrealized appreciation (depreciation) of investments 1,494 420 - ---------------------------------------------------------------------------------- Net increase in net assets resulting from operations 3,525 545 - ---------------------------------------------------------------------------------- Dividends and distributions to shareholders: Net investment income Class I Shares -- -- Class II Shares -- (1) Realized capital gains Class I Shares -- -- Class II Shares (223) -- - ---------------------------------------------------------------------------------- Total dividends and distributions (223) (1) - ---------------------------------------------------------------------------------- Capital share transactions: Class I Shares Proceeds from shares issued -- -- Proceeds from shares issued in lieu of cash distributions -- -- Cost of shares redeemed -- -- - ---------------------------------------------------------------------------------- Net increase (decrease) in net assets from Class I Shares transactions -- -- - ---------------------------------------------------------------------------------- Class II Shares Proceeds from shares issued 29,439 5,909 Proceeds from shares issued in lieu of cash distributions 221 1 Cost of shares redeemed (24,169) (1,627) - ---------------------------------------------------------------------------------- Net increase (decrease) in net assets from Class II Shares transactions 5,491 4,283 - ---------------------------------------------------------------------------------- Net increase (decrease) in net assets from capital share transactions 5,491 4,283 - ---------------------------------------------------------------------------------- Total increase (decrease) in net assets 8,793 4,827 - ---------------------------------------------------------------------------------- Net assets: Beginning of year 5,740 913 - ---------------------------------------------------------------------------------- End of year $ 14,533 $ 5,740 ================================================================================== Undistributed net investment income $ 2 $ -- ================================================================================== Shares issued and redeemed: Class I Shares Issued -- -- Issued in lieu of cash distributions -- -- Redeemed -- -- - ---------------------------------------------------------------------------------- Increase (decrease) in Class I Shares -- -- - ---------------------------------------------------------------------------------- Class II Shares Issued 1,999 500 Issued in lieu of cash distributions 15 -- Redeemed (1,569) (147) - ---------------------------------------------------------------------------------- Increase (decrease) in Class II Shares 445 353 - ---------------------------------------------------------------------------------- Net increase (decrease) in share transactions 445 353 ==================================================================================
(1) On May 10, 2004 and August 2, 2004 the Constellation Funds acquired the assets of certain Turner Funds and the Pitcairn Funds, respectively, in a tax-free reorganization. See Note 1 in Notes to Financial Statements for additional information. Amounts designated as "-" are either $0 or have been rounded to $0 The accompanying notes are an integral part of the financial statements. 116 | Constellation Funds 2004 Annual Report FINANCIAL STATEMENTS
Constellation TIP Constellation TIP Healthcare & Constellation TIP Tax Financial Services Fund Biotechnology Fund Managed U.S. Equity Fund - ----------------------------------------------------------------------------------------------------------------------------- year ended year ended year ended year ended year ended year ended 9/30/04 9/30/03 9/30/04 9/30/03 9/30/04 9/30/03 - ----------------------------------------------------------------------------------------------------------------------------- $ (40) $ (29) $ (256) $ (136) $ (15) $ (18) 1,782 1,106 1,403 1,068 709 91 256 3,052 (540) 1,770 (162) 1,212 - ----------------------------------------------------------------------------------------------------------------------------- 1,998 4,129 607 2,702 532 1,285 - ----------------------------------------------------------------------------------------------------------------------------- -- -- -- -- -- -- -- -- -- -- -- -- (1,753) (136) -- -- -- -- (14) -- -- -- - ----------------------------------------------------------------------------------------------------------------------------- (1,753) (136) (14) -- -- -- - ----------------------------------------------------------------------------------------------------------------------------- 1,131 3,947 -- -- -- -- 1,671 129 -- -- -- -- (5,087) (2,909) -- -- -- -- - ----------------------------------------------------------------------------------------------------------------------------- (2,285) 1,167 -- -- -- -- - ----------------------------------------------------------------------------------------------------------------------------- -- -- 32,296 6,326 341 1,071 -- -- 13 -- -- -- -- -- (12,384) (3,463) (1,321) (1,575) - ----------------------------------------------------------------------------------------------------------------------------- -- -- 19,925 2,863 (980) (504) - ----------------------------------------------------------------------------------------------------------------------------- (2,285) 1,167 19,925 2,863 (980) (504) - ----------------------------------------------------------------------------------------------------------------------------- (2,040) 5,160 20,518 5,565 (448) 781 - ----------------------------------------------------------------------------------------------------------------------------- 17,309 12,149 14,853 9,288 5,528 4,747 - ----------------------------------------------------------------------------------------------------------------------------- $15,269 $17,309 $ 35,371 $14,853 $ 5,080 $ 5,528 ============================================================================================================================= $ -- $ -- $ -- $ -- $ -- $ -- ============================================================================================================================= 78 305 -- -- -- -- 122 12 -- -- -- -- (373) (246) -- -- -- -- - ----------------------------------------------------------------------------------------------------------------------------- (173) 71 -- -- -- -- - ----------------------------------------------------------------------------------------------------------------------------- -- -- 2,265 592 39 157 -- -- 1 -- -- -- -- -- (907) (331) (152) (223) - ----------------------------------------------------------------------------------------------------------------------------- -- -- 1,359 261 (113) (66) - ----------------------------------------------------------------------------------------------------------------------------- (173) 71 1,359 261 (113) (66) =============================================================================================================================
Constellation Funds 2004 Annual Report | 117 FINANCIAL STATEMENTS STATEMENTS OF CHANGES IN NET ASSETS (000)(1)
Constellation International Equity Fund - ----------------------------------------------------------------------------------------------------------------------------------- 11/1/03 thru 11/1/02 thru 11/1/01 thru 9/30/04 10/31/03 10/31/02 - ----------------------------------------------------------------------------------------------------------------------------------- Investment activities: Net investment income $ 861 $ 956 $ 631 Net realized gain (loss) from securities sold 12,637 (9,048) (24,989) Net realized loss from foreign currency transactions (62) (116) (64) Net change in unrealized appreciation (depreciation) of investments (2,756) 27,564 10,252 Net change in unrealized appreciation (depreciation) on translation of foreign currency and other assets and liabilities denominated in foreign currency (15) 29 17 - ----------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 10,665 19,385 (14,153) - ----------------------------------------------------------------------------------------------------------------------------------- Dividends and distributions to shareholders: Net investment income Class I Shares -- -- -- Class II Shares (2,621) (459) (1,095) Realized capital gains Class I Shares -- -- -- Class II Shares -- -- -- - ----------------------------------------------------------------------------------------------------------------------------------- Total dividends and distributions (2,621) (459) (1,095) - ----------------------------------------------------------------------------------------------------------------------------------- Capital share transactions: Class I Shares Proceeds from shares issued -- -- -- Proceeds from shares issued in lieu of cash distributions -- -- -- Cost of shares redeemed -- -- -- - ----------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets from Class I Shares transactions -- -- -- - ----------------------------------------------------------------------------------------------------------------------------------- Class II Shares Proceeds from shares issued 29,752 10,740 11,630 Proceeds from shares issued in lieu of cash distributions 340 62 112 Cost of shares redeemed (28,952) (15,424) (21,758) - ----------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets from Class II Shares transactions 1,140 (4,622) (10,016) - ----------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets from capital share transactions 1,140 (4,622) (10,016) - ----------------------------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets 9,184 14,304 (25,264) - ----------------------------------------------------------------------------------------------------------------------------------- Net assets: Beginning of period 97,817 83,513 108,777 - ----------------------------------------------------------------------------------------------------------------------------------- End of period $107,001 $ 97,817 $ 83,513 =================================================================================================================================== Undistributed net investment income (Distributions in excess of net investment income) $ (491) $ 898 $ 455 =================================================================================================================================== Shares issued and redeemed: Class I Shares Issued -- -- -- Issued in lieu of cash distributions -- -- -- Redeemed -- -- -- - ----------------------------------------------------------------------------------------------------------------------------------- Increase in Class I Shares -- -- -- - ----------------------------------------------------------------------------------------------------------------------------------- Class II Shares Issued 4,201 2,016 1,925 Issued in lieu of cash distributions 51 12 18 Redeemed (4,219) (2,869) (3,561) - ----------------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in Class II Shares 33 (841) (1,618) - ----------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in share transactions 33 (841) (1,618) ===================================================================================================================================
* Dividend income, net realized gain (loss) from securities sold and net change in unrealized appreciation of investment securities are attributable to the underlying investments in affiliated investment companies. (1) On May 10, 2004 and August 2, 2004 the Constellation Funds acquired the assets of certain Turner Funds and the Pitcairn Funds, respectively, in a tax-free reorganization. See Note 1 in Notes to Financial Statements for additional information. (2) Commencement of operations. Amounts designated as "-" are either $0 or have been rounded to $0 The accompanying notes are an integral part of the financial statements. 118 | Constellation Funds 2004 Annual Report FINANCIAL STATEMENTS
Constellation Strategic Value and High Income Fund - ------------------------------------------------------------------- year ended 10/31/02(2) 9/30/04 thru 9/30/03 - ------------------------------------------------------------------- $ 116* $ 4* 524* (1)* -- -- 64* 22* -- -- - ------------------------------------------------------------------- 704 25 - ------------------------------------------------------------------- (116) (4) -- -- (9) -- -- -- - ------------------------------------------------------------------- (125) (4) - ------------------------------------------------------------------- 13,524 912 123 4 (13,963) (494) - ------------------------------------------------------------------- (316) 422 - ------------------------------------------------------------------- -- -- -- -- -- -- - ------------------------------------------------------------------- -- -- - ------------------------------------------------------------------- (316) 422 - ------------------------------------------------------------------- 263 443 - ------------------------------------------------------------------- 443 -- - ------------------------------------------------------------------- $ 706 $ 443 =================================================================== $ -- $ -- =================================================================== 985 75 9 -- (979) (40) - ------------------------------------------------------------------- 15 35 - ------------------------------------------------------------------- -- -- -- -- -- -- - ------------------------------------------------------------------- -- -- - ------------------------------------------------------------------- 15 35 ===================================================================
Constellation Funds 2004 Annual Report | 119 FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS For a share outstanding throughout each period
Realized and Net asset Net unrealized Dividends Distributions Net asset value, investment gains from net from value, beginning income (losses) on investment capital end of period (loss) investments income gains of period - ------------------------------------------------------------------------------------------------------------------------------- Constellation Clover Large Cap Value Fund(1) --Class I Shares - ------------------------------------------------------------- 2004 $ 9.56 0.08 1.27 (0.08) -- $10.83 2003 $ 7.86 0.08 1.70 (0.08) -- $ 9.56 2002 $ 9.89 0.10 (2.03) (0.10) -- $ 7.86 2001(2) $12.44 0.11 (1.93) (0.11) (0.62) $ 9.89 2000 $11.43 0.08 2.06 (0.09) (1.04) $12.44 - --------------------------------------------------------- Constellation Clover Core Value Fund(1) -- Class I Shares - --------------------------------------------------------- 2004 $14.18 0.06 2.84 (0.06) (0.51) $16.51 2003(3) $11.71 0.05 2.47 (0.05) -- $14.18 2002 $14.85 0.08 (0.61) (0.08) (2.53) $11.71 2001(4) $14.23 0.05 0.59 (0.02) -- $14.85 2000 $15.92 0.05 1.79 (0.07) (3.46) $14.23 - -------------------------------------------------------------- Constellation Clover Small Cap Value Fund(1) -- Class I Shares - -------------------------------------------------------------- 2004 $19.23 (0.01) 4.57 (0.03) -- $23.76 2003 $15.20 0.01 4.04 (0.02)(5) -- $19.23 2002 $16.69 0.06 (1.50) (0.05) -- $15.20 2001(6) $16.36 0.10 1.67 (0.05) (1.39) $16.69 2000 $13.71 (0.02) 3.91 -- (1.24) $16.36 - ---------------------------------------------------------------- Constellation Clover Core Fixed Income Fund(1) -- Class I Shares - ---------------------------------------------------------------- 2004 $10.40 0.43 (0.13) (0.43) -- $10.27 2003 $10.55 0.45 (0.10) (0.47) (0.03) $10.40 2002 $10.20 0.52 0.35 (0.52) -- $10.55 2001(7) $ 9.62 0.54 0.58 (0.54) -- $10.20 2000 $ 9.50 0.54 0.12 (0.54) -- $ 9.62 - ----------------------------------------------------------------------------------- Constellation Chartwell Ultra Short Duration Fixed Income Fund(1) -- Class I Shares - ----------------------------------------------------------------------------------- 2004 $10.17 0.21 (0.05) (0.21) -- $10.12 2003 $10.23 0.08(8) 0.06 (0.19) (0.01) $10.17 2002 $10.22 0.25 0.05 (0.29) -- $10.23 2001 $10.05 0.54 0.15 (0.52) -- $10.22 2000 $10.05 0.61 0.01 (0.62) -- $10.05 - ------------------------------------------------------------------------------------ Constellation Chartwell Ultra Short Duration Fixed Income Fund(1) -- Class II Shares - ------------------------------------------------------------------------------------ 2004 $10.21 0.20 (0.06) (0.19) -- $10.16 2003 $10.27 0.05(8) 0.07 (0.17) (0.01) $10.21 2002 $10.26 0.25 0.02 (0.26) -- $10.27 2001 $10.09 0.50 0.17 (0.50) -- $10.26 2000 $10.10 0.57 0.02 (0.60) -- $10.09 - ----------------------------------------------------------------------------- Constellation Chartwell Short Duration Fixed Income Fund(1) -- Class I Shares - ----------------------------------------------------------------------------- 2004 $10.14 0.28 (0.10) (0.28) -- $10.04 2003 $10.24 0.17(8) 0.05 (0.25) (0.07) $10.14 2002 $10.16 0.35 0.12 (0.39) -- $10.24 2001 $ 9.82 0.57 0.32 (0.55) -- $10.16 2000 $ 9.84 0.58 (0.01) (0.59) -- $ 9.82
+ Inclusive of directed brokerage arrangements, waivers and reimbursements. ++ Excludes effect of in-kind transfers and mergers. (1) Effective May 10, 2004 and August 2, 2004, the Constellation Funds acquired the assets of certain Turner Funds and the Pitcairn Funds, respectively, in a tax-free reorganization. In connection with the reorganization, CIMCO became the investment adviser to the Funds. See Note 1 in Notes to Financial Statements for additional information. (2) On April 30, 2001, shareholders of the Clover Max Cap Value Fund approved a change in the adviser from Clover Capital Management, Inc. to Turner Investment Partners, Inc., with Clover Capital becoming the Fund's sub-adviser. In connection with the change in adviser, the Fund changed its name to the Turner Large Cap Value Fund effective May 1, 2001. (3) Effective April 15, 2003, the Board of Trustees of Turner Fund approved a resolution to change the name of the Turner Midcap Value Fund to the Turner Core Value Fund and to change its principal investment strategy to a "core" approach. (4) On April 30, 2001, shareholders of the Clover Equity Value Fund approved a change in the adviser from Clover Capital Management, Inc. to Turner Investment Partners, Inc., with Clover Capital becoming the Fund's sub-adviser. In connection with the change in adviser, the Fund changed its name to the Turner Midcap Value Fund effective May 1, 2001. 120 | Constellation Funds 2004 Annual Report FINANCIAL STATEMENTS
Ratio of net Net Ratio of Ratio of total investment assets end net expenses expenses income (loss) Portfolio Total of period to average to average to average turnover return (000) net assets+ net assets net assets+ rate++ - ---------------------------------------------------------------------------------------------------------- 14.07% $ 6,251 1.25% 1.52% 0.72% 78% 22.72% $ 4,792 1.15% 1.70% 0.89% 59% (19.66)% $ 4,255 0.95% 1.54% 1.06% 70% (15.47)% $ 5,152 0.95% 3.56% 1.00% 121% 19.84% $ 5,163 0.95% 3.98% 0.75% 154% 20.75% $ 59,714 1.08% 1.08% 0.39% 55% 21.61% $ 46,673 1.13% 1.13% 0.43% 67% (6.37)% $ 43,571 1.10% 1.13% 0.56% 103% 4.50% $ 41,715 1.10% 1.16% 0.30% 128% 13.67% $ 45,657 1.10% 1.11% 0.34% 90% 23.72% $540,278 1.22% 1.22% (0.09)% 61% 26.66% $394,946 1.27% 1.27% 0.08% 52% (8.69)% $464,576 1.26% 1.26% 0.31% 38% 12.15% $178,164 1.28% 1.28% 0.37% 120% 29.59% $ 36,254 1.40% 1.47% (0.11)% 86% 2.97% $ 32,334 0.80% 0.85% 3.94% 45% 3.37% $ 43,391 0.78% 0.87% 4.25% 46% 8.85% $ 42,924 0.75% 0.87% 5.03% 49% 11.99% $ 34,074 0.75% 1.01% 5.50% 34% 7.21% $ 31,486 0.75% 1.02% 5.72% 42% 1.63% $391,934 0.46% 0.58% 2.08% 44% 1.40% $462,567 0.41% 0.62% 0.78% 222% 2.95% $470,021 0.36% 0.60% 2.27% 71% 7.09% $ 93,531 0.36% 0.87% 5.09% 119% 6.34% $ 30,365 0.36% 1.25% 6.15% 141% 1.38% $ 8,895 0.71% 0.83% 1.83% 44% 1.15% $ 5,964 0.66% 0.87% 0.51% 222% 2.69% $ 8,888 0.61% 0.85% 2.11% 71% 6.82% $ 6,106 0.61% 1.10% 5.19% 119% 6.00% $ 8,934 0.61% 1.48% 5.72% 141% 1.84% $172,213 0.46% 0.60% 2.49% 84% 2.15% $252,772 0.41% 0.62% 1.65% 200% 4.69% $264,010 0.36% 0.60% 3.27% 178% 9.35% $ 68,405 0.36% 0.72% 5.65% 104% 6.00% $ 42,092 0.36% 0.74% 5.94% 136%
(5) Includes return of capital of $0.004. (6) On April 30, 2001, shareholder of the Clover Small Cap Value Fund approved a change in the adviser from Clover Capital Management, Inc. to Turner Investment Partners, Inc., with Clover Capital becoming the Fund's sub-adviser. In connection with the change in adviser, the Fund changed its name to the Turner Small Cap Value Fund effective May 1, 2001. (7) On April 30, 2001, shareholder of the Clover Fixed Income Fund approved a change in the adviser from Clover Capital Management, Inc. to Turner Investment Partners, Inc., with Clover Capital Management, Inc. becoming the Fund's sub-adviser. In connection with the change in adviser, the Fund changed its name to the Turner Core Fixed Income Fund effective May 1, 2001. (8) Based on average shares outstanding. Amounts designated as "-" are either $0 or have been rounded to $0 The accompanying notes are an integral part of the financial statements. Constellation Funds 2004 Annual Report | 121 FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS For a share outstanding throughout each period
Realized and Net asset Net unrealized Dividends Distributions Net asset value, investment gains from net from value, beginning income (losses) on investment capital end of period (loss) investments income gains of period - ------------------------------------------------------------------------------------------------------------------------------- Constellation Chartwell Short Duration Fixed Income Fund(1) -- Class II Shares - ------------------------------------------------------------------------------ 2004 $10.10 0.25 (0.08) (0.26) -- $10.01 2003 $10.21 0.14(2) 0.04 (0.22) (0.07) $10.10 2002 $10.12 0.32 0.13 (0.36) -- $10.21 2001 $ 9.78 0.54 0.33 (0.53) -- $10.12 2000 $ 9.80 0.58 (0.02) (0.58) -- $ 9.78 - ------------------------------------------------------------ Constellation Chartwell High Yield Fund(1) -- Class I Shares - ------------------------------------------------------------ 2004 $ 5.02 0.35 0.10 (0.35) -- $ 5.12 2003 $ 4.45 0.37 0.56 (0.36) -- $ 5.02 2002(3) $ 5.49 0.64 (1.04) (0.64) -- $ 4.45 2001 $ 8.10 0.78 (2.61) (0.78) -- $ 5.49 2000 $ 8.82 0.79 (0.72) (0.79) -- $ 8.10 - ---------------------------------------------------------- Constellation HLAM Large Cap Value Fund -- Class II Shares - ---------------------------------------------------------- 2004(4) $10.00 0.01 (0.17) (0.01) -- $ 9.83 - ------------------------------------------------------------------- Constellation Pitcairn Diversified Value Fund(1) -- Class II Shares - ------------------------------------------------------------------- 2004(5) $10.26 0.10 0.97 (0.11) -- $11.22 2003 $ 8.50 0.12 1.77 (0.13) -- $10.26 2002 $ 9.19 0.10 (0.69) (0.10) -- $ 8.50 2001 $10.52 0.09 (1.33) (0.09) -- $ 9.19 2000(6) $10.00 0.01(2) 0.51 -- -- $10.52 - -------------------------------------------------------------- Constellation Pitcairn Select Value Fund(1) -- Class II Shares - -------------------------------------------------------------- 2004(5) $10.38 0.08 0.66 (0.09) (0.16) $10.87 2003 $ 8.36 0.08 2.03 (0.09) -- $10.38 2002 $10.01 0.09 (1.65) (0.09) -- $ 8.36 2001 $10.96 0.09 (0.95) (0.09) -- $10.01 2000(7) $10.00 0.02 0.95 (0.01) -- $10.96 - -------------------------------------------------------------------- Constellation Pitcairn Diversified Growth Fund(1) -- Class II Shares - -------------------------------------------------------------------- 2004(5) $ 5.25 -- 0.11 --(8) -- $ 5.36 2003 $ 4.40 -- 0.85 -- -- $ 5.25 2002 $ 5.66 (0.01) (1.25) -- -- $ 4.40 2001 $ 9.18 (0.03) (3.49) -- -- $ 5.66 2000(6) $10.00 (0.01) (0.81) -- -- $ 9.18 - ----------------------------------------------------------- Constellation Pitcairn Small Cap Fund(1) -- Class II Shares - ----------------------------------------------------------- 2004(5) $13.78 (0.04) 1.56 --(8) -- $15.30 2003 $ 9.87 -- (2) 3.91 --(8) -- $13.78 2002 $10.67 0.07 (0.78) (0.09) -- $ 9.87 2001 $10.18 0.10 0.49 (0.10) -- $10.67 2000(9) $10.00 0.02 0.16 -- -- $10.18
+ Returns are for the period indicated and have not been annualized. ++ Inclusive of directed brokerage arrangements, waivers and reimbursements. (1) Effective May 10, 2004 and August 2, 2004, the Constellation Funds acquired the assets of certain Turner Funds and the Pitcairn Funds, respectively, in a tax-free reorganization. In connection with the reorganization, CIMCO became the investment adviser to the Funds. See Note 1 in Notes to Financial Statements for additional information. (2) Based on average shares outstanding. (3) The information set forth in this table for the periods prior to May 1, 2002, is the financial data of the Penn Capital Strategic High Yield Bond Fund. Effective May 1, 2002, Turner Investment Partners, Inc. became the Fund's adviser. (4) Commenced operations on April 30, 2004. All ratios for the period have been annualized. (5) For the eleven-month period ended September 30, 2004. All ratios for the period have been annualized. The Fund changed its fiscal year end from October 31 to September 30. (6) Commenced operations on August 4, 2000. All ratios for the period have been annualized. 122 | Constellation Funds 2004 Annual Report FINANCIAL STATEMENTS
Ratio of net Net Ratio of Ratio of total investment assets end net expenses expenses income (loss) Portfolio Total of period to average to average to average turnover return (000) net assets++ net assets net assets++ rate - ----------------------------------------------------------------------------------------------------------- 1.68% $ 2,903 0.71% 0.85% 2.29% 84% 1.79% $ 2,246 0.66% 0.87% 1.41% 200% 4.53% $ 8,356 0.61% 0.85% 3.21% 178% 9.10% $ 8,130 0.61% 0.96% 5.40% 104% 5.92% $ 6,479 0.61% 0.95% 5.90% 136% 9.34% $ 10,171 0.86% 1.14% 6.98% 199% 21.61% $ 9,408 0.76% 1.16% 7.71% 241% (8.05)% $ 9,432 0.68% 1.47% 12.78% 171% (23.66)% $ 13,977 0.68% 1.38% 11.18% 86% 0.56% $ 32,560 0.68% 1.04% 8.94% 76% (1.58)%+ $ 1,437 1.20% 3.91% 0.33% 4% 10.50%+ $152,202 1.02% 1.14% 1.06% 75% 22.43% $143,641 1.01% 1.14% 1.32% 59% (6.43)% $122,391 1.02% 1.13% 1.17% 26% (11.87)% $139,767 1.00% 1.16% 0.92% 48% 5.24%+ $165,823 1.00% 1.22% 0.73% 12% 7.16%+ $ 61,817 1.03% 1.19% 0.84% 111% 25.48% $ 58,133 1.02% 1.23% 0.86% 104% (15.77)% $ 48,455 1.02% 1.19% 0.92% 110% (7.90)% $ 60,986 1.00% 1.19% 0.85% 104% 9.70%+ $ 62,392 1.00% 1.33% 0.95% 27% 2.14%+ $104,528 1.02% 1.15% --% 53% 19.32% $ 95,724 1.01% 1.16% 0.05% 70% (22.26)% $ 82,368 1.01% 1.14% (0.15)% 35% (38.34)% $107,141 1.00% 1.17% (0.44)% 37% (8.20)%+ $174,960 1.00% 1.22% (0.68)% 6% 11.03%+ $ 92,848 1.08% 1.15% (0.26)% 72% 39.65% $ 87,520 1.20%(10) 1.17% (0.04)% 149% (6.78)% $ 50,096 1.28%(10) 1.38% 0.58% 93% 5.80% $ 62,227 1.16%(10) 1.19% 0.93% 96% 1.80%+ $ 67,651 1.22%(10) 1.33% 1.11% 10%
(7) Commenced operations on August 11, 2000. All ratios for the period have been annualized. (8) Amount represents less than $0.01 per share. (9) Commenced operations on August 25, 2000. All ratios for the period have been annualized. (10) The ratio of expenses excluding interest expense to average net assets for the periods ended October 31, 2003, October 31, 2002, October 31, 2001 and October 31, 2000 were 1.10%, 1.19%, 1.00% and 1.00%, respectively. Amounts designated as "-" are either $0 or have been rounded to $0 The accompanying notes are an integral part of the financial statements. Constellation Funds 2004 Annual Report | 123 FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS For a share outstanding throughout each period
Realized and Net asset Net unrealized Dividends Distributions Net asset value, investment gains from net from value, beginning income (losses) on investment capital end of period (loss) investments income gains of period - ------------------------------------------------------------------------------------------------------------------------------- Constellation Pitcairn Family Heritage(R) Fund(1) -- Class II Shares - -------------------------------------------------------------------- 2004(2) $ 8.55 -- 0.83 --(3)* -- $ 9.38 2003 $ 6.97 -- 1.58 -- -- $ 8.55 2002 $ 7.82 (0.01) (0.84) -- -- $ 6.97 2001 $ 9.87 (0.02) (2.03) -- -- $ 7.82 2000(4) $10.00 (0.01) (0.12) -- -- $ 9.87 - -------------------------------------------------------------- Constellation Pitcairn Taxable Bond Fund(1) -- Class II Shares - -------------------------------------------------------------- 2004(2) $10.73 0.43 0.04 (0.43) -- $10.77 2003 $10.47 0.51 0.26 (0.51) -- $10.73 2002 $10.98 0.56 (0.42) (0.56) (0.09) $10.47 2001 $10.09 0.59 0.90 (0.60) -- $10.98 2000(4) $10.00 0.15 0.09 (0.15) -- $10.09 - ----------------------------------------------------------------- Constellation Pitcairn Tax-Exempt Bond Fund(1) -- Class II Shares - ----------------------------------------------------------------- 2004(2) $10.77 0.39 0.05 (0.39) (0.04) $10.78 2003 $10.71 0.44 0.09 (0.44) (0.03) $10.77 2002 $10.60 0.44 0.12 (0.44) (0.01) $10.71 2001 $10.04 0.45 0.57 (0.46) -- $10.60 2000(5) $10.00 0.10 0.04 (0.10) -- $10.04 - ------------------------------------------------------------------- Constellation Sands Capital Select Growth Fund(1) -- Class I Shares - ------------------------------------------------------------------- 2004(6) $ 6.74 -- 0.06 -- -- $ 6.80 - -------------------------------------------------------------------- Constellation Sands Capital Select Growth Fund(1) -- Class II Shares - -------------------------------------------------------------------- 2004(2) $ 6.13 (0.06) 0.73 -- -- $ 6.80 2003 $ 4.81 (0.04)(7) 1.36 -- -- $ 6.13 2002 $ 5.55 (0.04) (0.70) -- -- $ 4.81 2001 $ 9.02 (0.04) (3.43) -- -- $ 5.55 2000(5) $10.00 (0.01) (0.97) -- -- $ 9.02 - -------------------------------------------------------------------------- Constellation TIP Small Cap Value Opportunities Fund(1) -- Class II Shares - -------------------------------------------------------------------------- 2004 $12.72 (0.04) 3.75 -- (0.22) $16.21 2003 $ 9.27 (0.01) 3.47 (0.01) -- $12.72 2002(8) $10.00 -- (0.73) -- -- $ 9.27 - ----------------------------------------------------------------- Constellation TIP Financial Services Fund(1)(9) -- Class I Shares - ----------------------------------------------------------------- 2004 $13.60 (0.04) 1.69 -- (1.37) $13.88 2003 $10.11 (0.02) 3.62 -- (0.11) $13.60 2002 $16.67 (0.02) (1.12) -- (5.42) $10.11 2001(10) $19.76 (0.13) (2.96) -- -- $16.67 2001 $17.19 (0.14) 3.30 -- (0.59) $19.76 2000 $18.01 (0.17) (0.65) -- -- $17.19
* Includes return of capital of $0.0003. + Returns are for the period indicated and have not been annualized. ++ Inclusive of directed brokerage arrangements, waivers and reimbursements. +++ Excludes effect of in-kind transfers and mergers. (1) Effective May 10, 2004 and August 2, 2004, the Constellation Funds acquired the assets of certain Turner Funds and the Pitcairn Funds, respectively, in a tax-free reorganization. In connection with the reorganization, CIMCO became the investment adviser to the Funds. See Note 1 in Notes to Financial Statements for additional information. (2) For the eleven-month period ended September 30, 2004. All ratios for the period have been annualized. The Fund changed its fiscal year end from October 31 to September 30. (3) Amount represents less than $0.01 per share. (4) Commenced operations on August 4, 2000. All ratios for the period have been annualized. (5) Commenced operations on August 11, 2000. All ratios for the period have been annualized. (6) Commenced operations on August 27, 2004. All ratios for the period have been annualized. (7) Based on average shares outstanding. (8) Commenced operations on March 4, 2002. All ratios for the period have been annualized. 124 | Constellation Funds 2004 Annual Report FINANCIAL STATEMENTS
Ratio of net Net Ratio of Ratio of total investment assets end net expenses expenses income (loss) Portfolio Total of period to average to average to average turnover return (000) net assets++ net assets net assets++ rate+++ - ---------------------------------------------------------------------------------------------------------- 9.77%+ $ 78,103 1.23% 1.37% 0.01% 19% 22.67% $ 73,490 1.23% 1.38% 0.06% 12% (10.87)% $ 66,126 1.27% 1.36% (0.18)% 24% (20.77)% $ 77,295 1.20% 1.37% (0.19)% 37% (1.30)%+ $ 98,420 1.20% 1.44% (0.29)% 1% 4.42%+ $ 43,239 0.75% 0.94% 4.36% 26% 7.44% $ 43,432 0.73% 0.97% 4.74% 24% 1.46% $ 40,058 0.78% 0.98% 5.35% 58% 15.19% $ 35,562 0.70% 0.99% 5.63% 54% 2.36%+ $ 37,212 0.70% 1.10% 6.51% 7% 4.20%+ $113,880 0.62% 0.75% 3.97% 25% 4.96% $111,470 0.60% 0.74% 4.06% 14% 5.41% $115,905 0.60% 0.74% 4.19% 14% 10.30% $113,071 0.60% 0.77% 4.35% 23% 1.43%+ $ 99,187 0.60% 0.86% 4.88% 10% 0.89%+ $ 32,591 1.10% 1.10% (0.79)% 11% 10.93%+ $ 70,027 1.20% 1.35% (0.95)% 11% 27.44% $ 43,878 1.17% 1.45% (0.81)% 28% (13.33)% $ 32,818 1.16% 1.43% (0.69)% 24% (38.44)% $ 39,326 1.15% 1.43% (0.63)% 37% (9.80)%+ $ 54,794 1.15% 1.50% (0.61)% 13% 29.36% $ 14,533 1.45% 1.82% (0.23)% 272% 37.29% $ 5,740 1.40% 3.64% (0.26)% 245% (7.30)%+ $ 913 1.45% 6.18% 0.08% 142% 12.31% $ 15,269 1.45% 1.52% (0.24)% 103% 35.95% $ 17,309 1.50% 1.82% (0.22)% 139% (12.48)% $ 12,149 1.40% 2.16% (0.40)% 171% (15.64)%+ $ 15,554 2.29% 2.33% (1.19)% 52% 18.20% $ 23,341 2.11% 2.11% (0.59)% 110% (4.55)% $ 25,892 2.14% 2.14% (0.91)% 180%
(9) On November 12, 2001, the Titan Financial Services Fund (the "Titan Fund") exchanged all of its assets and liabilities for shares of the Turner Financial Services Fund. The Titan Fund is the accounting survivor in this transaction, and as a result, the accounting history and operating results for the periods prior to November 12, 2001 have been carried forward in these financial highlights. 10) For the six month period ended October 31, 2001. All ratios for the period have been annualized. The Titan Fund changed its fiscal year end from April 30 to October 31. Amounts designated as "-" are either $0 or have been rounded to $0 The accompanying notes are an integral part of the financial statements. Constellation Funds 2004 Annual Report | 125 FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS For a share outstanding throughout each period
Realized and Net asset Net unrealized Dividends Distributions Net asset value, investment gains from net from value, beginning income (losses) on investment capital end of period (loss) investments income gains of period - ------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------- Constellation TIP Healthcare & Biotechnology Fund(1) -- Class II Shares - ----------------------------------------------------------------------- 2004 $12.31 (0.06) 1.55 -- (0.01) $13.79 2003 $ 9.83 (0.11) 2.59 -- -- $12.31 2002 $11.15 (0.10) (1.20) -- (0.02) $ 9.83 2001(2) $10.00 (0.03) 1.18 -- -- $11.15 - -------------------------------------------------------------------- Constellation TIP Tax Managed U.S. Equity Fund(1) -- Class II Shares - -------------------------------------------------------------------- 2004 $ 8.04 (0.03) 0.83 -- -- $ 8.84 2003 $ 6.29 (0.03) 1.78 -- -- $ 8.04 2002 $ 8.18 (0.03) (1.86) -- -- $ 6.29 2001(2) $10.00 -- (1.82) -- -- $ 8.18 - ------------------------------------------------------------- Constellation International Equity Fund(1) -- Class II Shares - ------------------------------------------------------------- 2004(3) $ 6.47 0.05 0.71 (0.17) -- $ 7.06 2003 $ 5.23 0.06 1.21 (0.03) -- $ 6.47 2002 $ 6.19 0.04 (0.94) (0.06) -- $ 5.23 2001 $ 9.28 0.01 (3.05) (0.02) (0.03) $ 6.19 2000(4) $10.00 (0.01) (0.71) -- -- $ 9.28 - -------------------------------------------------------------------------- Constellation Strategic Value and High Income Fund(1)(5) -- Class I Shares - -------------------------------------------------------------------------- 2004 $12.58 0.47 1.53 (0.47) (0.10) $14.01 2003(6) $10.00 0.25 2.58 (0.25) -- $12.58
+ Returns are for the period indicated and have not been annualized. ++ Inclusive of directed brokerage arrangements, waivers and reimbursements. +++ Excludes effect of in-kind transfers and mergers. (1) Effective May 10, 2004 and August 2, 2004, the Constellation Funds acquired the assets of certain Turner Funds and the Pitcairn Funds, respectively, in a tax-free reorganization. In connection with the reorganization, CIMCO became the investment adviser to the Funds. See Note 1 in Notes to Financial Statements for additional information. (2) Commenced operations on February 28, 2001. All ratios for the period have been annualized. (3) For the eleven-month period ended September 30, 2004. All ratios for the period have been annualized. The Fund changed its fiscal year end from October 31 to September 30. (4) Commenced operations on August 4, 2000. All ratios for the period have been annualized. (5) The Constellation Strategic Value and High Income Fund and its shareholders indirectly bear a pro rata share of the expenses of the underlying Constellation Funds. The expense ratios do not include such expenses. Recognition of net investment income is affected by the timing of the declaration of dividends by the Constellation Funds in which the Constellation Strategic Value and High Income Fund invests. (6) Commenced operations on October 31, 2002. All ratios for the period have been annualized. Amounts designated as "-" are either $0 or have been rounded to $0 The accompanying notes are an integral part of the financial statements. 126 | Constellation Funds 2004 Annual Report FINANCIAL STATEMENTS
Ratio of net Net Ratio of Ratio of total investment assets end net expenses expenses income (loss) Portfolio Total of period to average to average to average turnover return (000) net assets++ net assets net assets++ rate+++ - ---------------------------------------------------------------------------------------------------------- 12.12% $ 35,371 1.61% 1.84% (1.10)% 163% 25.23% $ 14,853 1.47% 1.63% (1.16)% 274% (11.66)% $ 9,288 1.87% 2.33% (1.44)% 202% 11.50%+ $ 1,192 1.50% 13.70% (0.79)% 95% 9.95% $ 5,080 1.25% 1.97% (0.27)% 104% 27.82% $ 5,528 1.25% 2.14% (0.34)% 187% (23.11)% $ 4,747 1.25% 1.91% (0.33)% 313% (18.20)%+ $ 6,949 1.25% 5.35% (0.20)% 91% 11.97%+ $107,001 1.35% 1.60% 0.90% 62% 24.40% $ 97,817 1.30% 1.60% 1.15% 128% (14.68)% $ 83,513 1.32% 1.48% 0.63% 69% (32.91)% $108,777 1.25% 1.45% 0.16% 44% (7.20)%+ $175,029 1.25% 1.53% (0.37)% 10% 16.04% $ 706 0.25% 1.36% 3.23% 411% 28.57%+ $ 443 0.25% 21.93% 3.27% 397%
Constellation Funds 2004 Annual Report | 127 NOTES TO FINANCIAL STATEMENTS NOTES TO FINANCIAL STATEMENTS September 30, 2004 1. ORGANIZATION: The 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 23 active portfolios. The financial statements included herein are those of the Constellation Clover Large Cap Value Fund (formerly the Turner Large Cap Value Fund), the Constellation Clover Core Value Fund (formerly the Turner Core Value Fund), the Constellation Clover Small Cap Value Fund (formerly the Turner Small Cap Value Fund), the Constellation Clover Core Fixed Income Fund (formerly the Turner Core Fixed Income Fund), the Constellation Chartwell Ultra Short Duration Fixed Income Fund (formerly the Turner Ultra Short Duration Fixed Income Fund), the Constellation Chartwell Short Duration Fixed Income Fund (formerly the Turner Short Duration Fixed Income Fund), the Constellation Chartwell High Yield Fund (formerly the Turner High Yield Fund), the Constellation HLAM Large Cap Value Fund, the Constellation Pitcairn Diversified Value Fund (formerly the Pitcairn Diversified Value Fund), the Constellation Pitcairn Select Value Fund (formerly the Pitcairn Select Value Fund), the Constellation Pitcairn Diversified Growth Fund (formerly the Pitcairn Diversified Growth Fund), the Constellation Pitcairn Small Cap Fund (formerly the Pitcairn Small Cap Fund), the Constellation Pitcairn Family Heritage(R) Fund (formerly the Pitcairn Family Heritage(R) Fund), the Constellation Pitcairn Taxable Bond Fund (formerly the Pitcairn Taxable Bond Fund), the Constellation Pitcairn Tax-Exempt Bond Fund (formerly the Pitcairn Tax-Exempt Bond Fund), the Constellation Sands Capital Select Growth Fund (formerly the Pitcairn Select Growth Fund), the Constellation TIP Small Cap Value Opportunities Fund (formerly the Turner Small Cap Value Opportunities Fund), the Constellation TIP Financial Services Fund (formerly the Turner Financial Services Fund), the Constellation TIP Healthcare & Biotechnology Fund (formerly the Turner Healthcare & Biotechnology Fund), the Constellation TIP Tax Managed U.S. Equity Fund (formerly the Turner Tax Managed U.S. Equity Fund), the Constellation International Equity Fund (formerly the Pitcairn International Equity Fund) and the Constellation Strategic Value and High Income Fund (formerly the Turner Strategic Value and High Income Fund), each a "Fund" and collectively the "Funds". The financial statements of the remaining fund are presented separately. Each Fund is registered as a diversified portfolio of the Trust with the exception of the Constellation Pitcairn Select Value Fund, the Constellation Pitcairn Family Heritage(R) Fund, the Constellation Pitcairn Taxable Bond Fund, the Constellation Sands Capital Select Growth Fund, the Constellation TIP Financial Services Fund, the Constellation TIP Healthcare & Biotechnology Fund and the Constellation TIP Tax Managed U.S. Equity Fund, each of which are non-diversified. The Funds are registered to offer different classes of shares: Class I Shares, Class II Shares, or both. The assets of each Fund are segregated, and a shareholder's interest is limited to the Fund in which shares are held. The Funds' prospectus provides a description of each Fund's investment objectives, policies, and strategies along with information on the classes of shares currently being offered. The shareholders of the Turner Large Cap Value Fund, Turner Core Value Fund, Turner Small Cap Value Fund, Turner Core Fixed Income Fund, Turner Ultra Short Duration Fixed Income Fund, Turner Short Duration Fixed Income Fund, Turner High Yield Fund, Turner Small Cap Value Opportunities Fund, Turner Financial Services Fund, Turner Healthcare & Biotechnology Fund, Turner Tax Managed U.S. Equity Fund and Turner Strategic Value and High Income Fund, (each a "Turner Fund" and collectively the "Turner Funds") voted to reorganize each Turner Fund into a substantially similar series (each a "Constellation Fund" and collectively the "Constellation Funds") of Constellation Funds (the "Constellation Trust") in a tax-free reorganization effective May 10, 2004. Each shareholder received a number of shares of a Constellation Fund equal in dollar value and in the number of shares of each Turner Fund as of May 7, 2004. Each Constellation Fund has the same investment objectives and policies, and substantially the same risks, policies, restrictions and limitations, as a Turner Fund. The shareholders of the Pitcairn Diversified Value Fund, Pitcairn Select Value Fund, Pitcairn Diversified Growth Fund, Pitcairn Small Cap Fund, Pitcairn Family Heritage(R) Fund, Pitcairn Taxable Bond Fund, Pitcairn Tax-Exempt Bond Fund, Pitcairn Select Growth Fund and Pitcairn International Equity Fund, (each a "Pitcairn Fund" and collectively the "Pitcairn Funds") voted to reorganize each Pitcairn Fund into a substantially similar series of Constellation Funds in a tax-free reorganization effective August 2, 2004. Each shareholder received a number of shares of a Constellation Fund equal in dollar value and in the number of shares of each Pitcairn Fund as of July 30, 2004. Each Constellation Fund has the same investment objectives and policies, and substantially the same risks, policies, restrictions and limitations, as a Pitcairn Fund. 128 | Constellation Funds 2004 Annual Report NOTES TO FINANCIAL STATEMENTS Accordingly, following completion of the reorganizations, shareholders of each Turner Fund and each Pitcairn Fund owned shares of the Corresponding Acquiring Fund as set forth in the chart below:
TURNER/PITCAIRN FUND CORRESPONDING ACQUIRING FUND - ---------------------------------------------- -------------------------------------------------------------- Turner Large Cap Value Fund Constellation Clover Large Cap Value Fund Turner Core Value Fund Constellation Clover Core Value Fund Turner Small Cap Value Fund Constellation Clover Small Cap Value Fund Turner Core Fixed Income Fund Constellation Clover Core Fixed Income Fund Turner Ultra Short Duration Fixed Income Fund Constellation Chartwell Ultra Short Duration Fixed Income Fund Turner Short Duration Fixed Income Fund Constellation Chartwell Short Duration Fixed Income Fund Turner High Yield Fund Constellation Chartwell High Yield Fund Pitcairn Diversified Value Fund Constellation Pitcairn Diversified Value Fund Pitcairn Select Value Fund Constellation Pitcairn Select Value Fund Pitcairn Diversified Growth Fund Constellation Pitcairn Diversified Growth Fund Pitcairn Small Cap Fund Constellation Pitcairn Small Cap Fund Pitcairn Family Heritage(R) Fund Constellation Pitcairn Family Heritage(R) Fund Pitcairn Taxable Bond Fund Constellation Pitcairn Taxable Bond Fund Pitcairn Tax-Exempt Bond Fund Constellation Pitcairn Tax-Exempt Bond Fund Pitcairn Select Growth Fund Constellation Sands Capital Select Growth Fund Turner Small Cap Value Opportunities Fund Constellation TIP Small Cap Value Opportunities Fund Turner Financial Services Fund Constellation TIP Financial Services Fund Turner Healthcare & Biotechnology Fund Constellation TIP Healthcare & Biotechnology Fund Turner Tax Managed U.S. Equity Fund Constellation TIP Tax Managed U.S. Equity Fund Pitcairn International Equity Fund Constellation International Equity Fund Turner Strategic Value and High Income Fund Constellation Strategic Value and High Income Fund
2. SIGNIFICANT ACCOUNTING POLICIES: The following is a summary of the significant accounting policies followed by the Funds. Use of Estimates--The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of 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. If available, debt securities are priced based upon valuations provided by independent, third-party pricing agents. Such values generally reflect the last reported sales price if the security is actively traded. The third-party pricing agents may also value debt securities at an evaluated bid price by employing methodologies that utilize actual market transactions, broker-supplied valuations, or other methodologies designed to identify the market value for such securities. Debt obligations with remaining maturities of sixty days or less may be valued at their amortized cost, which approximates market value. 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. For securities that principally trade on a foreign market or exchange, a significant gap in time can exist between the time of a particular security's last trade and the time at which a Fund calculates its net asset value. The closing prices of such securities may no longer reflect their market value at the time the Fund calculates net asset value if an event that could materially affect the value of those securities (a "Significant Event") has occurred between the time of the security's last close and the time that the Fund calculates net asset value. A Significant Event may relate to a single issuer or to an entire market sector. If the Adviser or Sub-Adviser of a Fund becomes aware of a Significant Event that has Constellation Funds 2004 Annual Report | 129 NOTES TO FINANCIAL STATEMENTS occurred with respect to a security or group of securities after the closing of the exchange or market on which the security or securities principally trade, but before the time at which the Fund calculates net asset value, it may request that a Fair Value Committee Meeting be called. In addition, the Funds' Administrator or Sub-Administrator monitors price movements among certain selected indices, securities and/or baskets of securities that may be an indicator that the closing prices received earlier from foreign exchanges or markets may not reflect market value at the time the Fund calculates net asset value. If price movements in a monitored index or security exceed levels established by the Administrator, the Administrator or Sub-Administrator notifies the Adviser or Sub-Adviser for any Fund holding the relevant securities that such limits have been exceeded. In such event, the Adviser or Sub-Adviser makes the determination whether a fair value committee meeting should be called based on the information provided. The assets of the Constellation Strategic Value and High Income Fund consist of investments in underlying affiliated investment companies, which are valued at their respective net asset value per share. 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 subject to the recognition of certain gains and losses on mortgage- and asset-backed securities. 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. Purchase discounts and premiums on securities held by the Funds are accreted and amortized to maturity using the effective interest method. 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 Funds may be delayed or limited. Securities sold short--A Fund may sell a security short that is identical to a security held in the respective Fund's investment portfolio by borrowing and selling the identical security in the secondary market. While a security is sold short, the Fund recognizes rebate income, incurs interest expense on certain amounts related to the securities sold short and reflects changes in the value of the securities sold short as unrealized gains or losses in the Statement of Operations of the Fund. The Constellation Pitcairn Small Cap Fund had outstanding short sales positions which were closed prior to October 31, 2003. Margin loans with brokers--During the year ended October 31, 2003, the Pitcairn Small Cap Fund had outstanding borrowings under margin loans with brokers. The interest expense incurred, outstanding borrowings and interest rate were as follows:
MAXIMUM AVERAGE OUTSTANDING AVERAGE INTEREST OUTSTANDING AT ANY INTEREST EXPENSE BORROWINGS MONTH END RATE -------- ----------- ----------- -------- Pitcairn Small Cap Fund $76,301 $2,104,701 $3,601,455 3.63%
Foreign currency translation--The books and records of the Constellation International Equity Fund are maintained in U.S. dollars and translated into U.S. dollars on the following basis: (1)market value of investment securities, assets and liabilities at the current rate of exchange on the valuation date: and (2)purchases and sales of investment securities, income and expenses at the relevant rates of exchange prevailing on the respective dates of such transactions. The Constellation International Equity Fund does not isolate that portion of gains and losses on investments in equity securities that is due to changes in the foreign exchange rates from that which is due to changes in market prices of equity securities. Forward foreign currency contracts--The Constellation International Equity Fund may enter into forward foreign currency contracts as hedges against specific transactions. All commitments are "marked-to-market" daily at the applicable foreign exchange rate, and any resulting unrealized gains or losses are recorded currently. The Constellation International Equity Fund realizes gains or losses at the time forward contracts are extinguished. Unrealized gains or losses on outstanding positions in forward foreign currency contracts held at the close of the year are recognized as ordinary income or loss for deferral tax purposes. As of September 30, 2004, the Constellation International Equity Fund had the following foreign currency contracts outstanding:
IN UNREALIZED SETTLEMENT CONTRACTS TO EXCHANGE APPRECIATION DATE RECEIVE (DELIVER) FOR (DEPRECIATION) ----------------------- ----------------- --------- -------------- FOREIGN CURRENCY PURCHASES: 10/1/2004 JP 13,541,593 $(121,547) $ 1,558 10/4/2004 JP 16,747,941 (151,155) 1,131 10/5/2004 JP 12,973,530 (117,429) 543 10/6/2004 JP 2,700,000 (24,278) 275 ------- 3,507 ------- FOREIGN CURRENCY SALES: 10/1/2004 AU (15,257) $ 10,955 $ (153) 10/1/2004 EU (176,385) 217,059 (2,292) 10/1/2004 HK (21,870) 2,802 (3) 10/1/2004 JP (1,060,555) 9,570 (71) 10/1/2004 MX (150,533) 13,201 (29) 10/1/2004 NO (297,730) 43,958 (435) 10/4/2004 DK (62,244) 10,371 (34) 10/4/2004 EU (20) 24 -- 10/4/2004 JP (353,398) 3,198 (15) 10/4/2004 NO (9,947) 1,483 (20) ------- (3,052) ------- $ 455 =======
CURRENCY LEGEND AU - Australian Dollar JP - Japanese Yen DK - Danish Krone MX - Mexican Peso EU - Euro NO - Norwegian Krone HK - Hong Kong Dollar 130 | Constellation Funds 2004 Annual Report NOTES TO FINANCIAL STATEMENTS Foreign withholding taxes--A Fund may be subject to taxes imposed by countries in which it invests with respect to its investment in issuers existing or operating in such countries. Such taxes are generally based on income earned. A Fund accrues such taxes when the related income is earned. 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. In addition to the Funds' direct expenses, shareholders of the Strategic Value and High Income Fund also bear a proportionate share of the underlying funds' expenses. Classes--Class specific expenses are borne by that class. Income, non-class specific expenses and realized/unrealized gains and losses are allocated to the respective classes on the basis of the relative daily net assets. Dividends and distributions--The Constellation TIP Small Cap Value Opportunities, Constellation TIP Financial Services, Constellation TIP Healthcare & Biotechnology and Constellation TIP Tax Managed U.S. Equity Funds declare and distribute net investment income, if any, annually, as a dividend to shareholders. The Constellation Clover Large Cap Value, Constellation Clover Core Value, Constellation Clover Small Cap Value, Constellation HLAM Large Cap Value Fund, Constellation Pitcairn Diversified Value, Constellation Pitcairn Diversified Growth, Constellation Pitcairn Select Value, Constellation Pitcairn Small Cap Fund, Constellation Pitcairn Family Heritage(R), Constellation Sands Capital Select, Constellation International Equity and Constellation Strategic Value and High Income Funds declare and distribute net investment income, if any, quarterly, as a dividend to shareholders. The Constellation Clover Core Fixed Income, Constellation Chartwell Ultra Short Duration Fixed Income, Constellation Chartwell Short Duration Fixed Income, Chartwell High Yield, Constellation Pitcairn Taxable Bond and Constellation Pitcairn Tax-Exempt Bond Funds declare net investment income daily and distribute it monthly, as a dividend to shareholders. Any net realized capital gains on sales of securities for all Funds are distributed to shareholders at least annually. Redemption fees--Each Fund, except for 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 and Constellation Chartwell Short Duration Fixed Income Fund, may charge a redemption fee up to 2% of redemption proceeds, which will automatically be paid to the Fund. Currently only the Constellation TIP Tax Managed U.S. Equity Fund has implemented the redemption fees. There were no redemption fees collected during the year or period ended September 30, 2004. Expense offset arrangement--Prior to August 2, 2004 the Former Pitcairn Funds had an arrangement with their custodian bank whereby the Funds received earnings credits from their custodian when positive cash balances were maintained, which were to offset custody fees. Conversely, the Funds were charged a fee (i.e. "earnings debits") by their custodian when negative cash balances were maintained. For financial reporting purposes, the Funds included net earnings debits in custody fees and net earnings credits as an expense offset in the Statement of Operations. 3. TRANSACTIONS WITH AFFILIATES: Certain officers of the Trust are also officers of Constellation Investment Management Company, LP ("CIMCO") and SEI Investments Global Funds Services ("SEI") and/or SEI Investments Distribution Co. Such officers are paid no fees by the Trust for serving as officers and trustees of the Trust. Certain Funds did effect trades through Constellation Investment Distribution Company, Inc., ("CIDCO") the distributor for the Funds, when CIDCO was acting as Turner Investment Distributors, Inc., for security purchases and sales transactions. Commissions paid on those trades from the Trust for the year or period ended September 30, 2004 were $87,549. Pursuant to an exemptive order issued by the Securities and Exchange Commission, the Funds engage in a "Manager-of-Managers" platform. 4. ADMINISTRATION, SHAREHOLDER SERVICING, AND DISTRIBUTION AGREEMENTS: Effective March 1, 2004, CIMCO began providing administrative services for the Funds. 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% of the aggregate average daily net assets of the Trust over $2 billion. The fee is then allocated among the Funds on the basis of relative daily net assets. Prior to May 10, 2004, Turner Investment Partners, Inc. ("Turner") provided administrative services to the Constellation Clover Large Cap Value, Constellation Clover Core Value, Constellation Clover Small Cap Value, Constellation Clover Core Fixed Income, Constellation Chartwell Ultra Short Duration Fixed Income, Constellation Chartwell Short Duration Fixed Income, Constellation Chartwell High Yield, Constellation TIP Small Cap Value Opportunities, Constellation TIP Financial Services, Constellation TIP Healthcare & Biotechnology, Constellation TIP Tax Managed U.S. Equity and Constellation Strategic Value and High Income Funds (the "Former Turner Funds") under an administration agreement with the Trust. For its services, Turner received an annual fee of 0.15% of the aggregate average daily net assets of the Turner Trust up to $2 billion, 0.12% of the aggregate average daily net assets of the Trust over $2 billion. Prior to August 2, 2004, SEI Investments Global Funds Services ("SEI") provided administrative services to the Constellation Pitcairn Diversified Value, Constellation Pitcairn Select Value, Constellation Pitcairn Diversified Growth, Constellation Pitcairn Small Cap, Constellation Pitcairn Family Heritage(R), Constellation Pitcairn Taxable Bond, Constellation Pitcairn Tax-Exempt Bond, Constellation Sands Capital Select Growth and Constellation International Equity Funds (the "Former Pitcairn Funds") under an administrative agreement with the Trust. For its services, SEI received a fee calculated daily and paid monthly at an annual rate of 0.08% of the Constellation Funds 2004 Annual Report | 131 NOTES TO FINANCIAL STATEMENTS average daily net assets of each fund, subject to certain minimum fees. Under a separate Sub-Administration Agreement between CIMCO and SEI, SEI provides sub-administrative services to the Trust. For the year or period ended September 30, 2004, SEI was paid $840,157 for its services. Constellation Investment Distribution Company, Inc., (the "Distributor") provides distribution services to the Funds under a Distribution Agreement. The Distributor also provides shareholder servicing services to the Funds under a Shareholder Servicing Plan and Agreement. Prior to March 22, 2004, Turner Investment Distributors, Inc., provided distribution services to the Former Turner Funds. Prior to August 2, 2004, SEI Investments Distribution Co., provided distribution services to the Former Pitcairn Funds. The Constellation Chartwell Ultra Short Duration Fixed Income, Constellation Chartwell Short Duration Fixed Income, HLAM Large Cap Value, Constellation Pitcairn Diversified Value, Constellation Pitcairn Select Value, Constellation Pitcairn Diversified Growth, Constellation Pitcairn Small Cap, Constellation Pitcairn Family Heritage(R), Constellation Pitcairn Taxable Bond, Constellation Pitcairn Tax-Exempt Bond, Constellation Sands Capital Select Growth, Constellation TIP Small Cap Value Opportunities, Constellation TIP Healthcare & Biotechnology, Constellation TIP Tax Managed U.S. Equity, Constellation International Equity and Constellation Strategic Value and High Income Funds have adopted a Distribution and Shareholder Service Plan for their Class II Shares (the "Class II Plan"). Under the Class II Plan, a Plan adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended, the Distributor is entitled to receive aggregate fees not exceeding 0.75% of each Fund's Class II Shares' average daily net assets in return for providing a broad range of distribution services. Prior to May 10, the Distributor received aggregate fees of 0.25% of the Constellation TIP Small Cap Value Opportunities Fund's Class II Shares' average daily net assets. Subsequently no distribution fees have been charged. In addition, under the Class II Plan, the Distributor receives aggregate fees of 0.25% of each Fund's Class II Shares' average daily net assets in return for providing a broad range of shareholder services. Prior to August 2, 2004, the Former Pitcairn Funds had a separate Shareholder Services Plan, whereby the Funds paid a shareholder service fee of 0.25% on an annual basis of the average daily net assets to Pitcairn Trust Company, the parent company of Pitcairn Investment Management. DST Systems, Inc. serves as the transfer agent and dividend disbursing agent for the Funds under a transfer agency agreement with the Trust. The Former Turner Funds reimburse CIMCO for amounts paid to third parties that provide sub-transfer agency and other administrative services to the Funds. Prior to August 2, 2004, Boston Financial Data Services, Inc. served as the transfer agent and dividend disbursing agent for the Former Pitcairn Funds. 5. INVESTMENT ADVISORY AGREEMENT: The Trust and CIMCO are parties to an Investment Advisory Agreement dated March 4, 2004 under which CIMCO receives a fee, that is calculated daily and paid monthly. CIMCO has agreed to waive all or a portion of their fees and to reimburse expenses in order to limit other expenses to a specified percentage of the average daily net assets of certain Funds on an annualized basis. For its services, CIMCO is entitled to receive base investment advisory fees at an annualized rate, based on the average daily net assets of each Fund as follows:
"OTHER TOTAL ADVISORY EXPENSE" EXPENSE FEES CAP CAP -------- -------- ------- Constellation Clover Large Cap Value Fund 0.74% 0.50%(1) 1.24%(2) Constellation Clover Core Value Fund 0.74 0.50(1) 1.24(2) Constellation Clover Small Cap Value Fund 0.85 0.50(1) 1.35(3) Constellation Clover Core Fixed Income Fund 0.45 0.35(1) 0.80 Constellation Chartwell Ultra Short Duration Fixed Income Fund -- Class I Shares 0.25 0.24(4) 0.49(5) Constellation Chartwell Ultra Short Duration Fixed Income Fund -- Class II Shares 0.25 0.49(4) 0.74(6) Constellation Chartwell Short Duration Fixed Income Fund -- Class I Shares 0.25 0.24(4) 0.49(5) Constellation Chartwell Short Duration Fixed Income Fund -- Class II Shares 0.25 0.49(4) 0.74(6) Constellation Chartwell High Yield Fund 0.55 0.35(4) 0.90(7) Constellation HLAM Large Cap Value Fund 0.70 0.50(4) 1.20 Constellation Pitcairn Diversified Value Fund 0.70 0.40(8) 1.10(9) Constellation Pitcairn Select Value Fund 0.70 0.45(8) 1.15(10) Constellation Pitcairn Diversified Growth Fund 0.70 0.40(8) 1.10(9) Constellation Pitcairn Small Cap Fund 0.70 0.40(8)(11) 1.10(9) Constellation Pitcairn Family Heritage(R) Fund 0.90 0.40(8) 1.30(12) Constellation Pitcairn Taxable Bond Fund 0.40 0.50(8) 0.90(13) Constellation Pitcairn Tax-Exempt Bond Fund 0.30 0.40(8) 0.70(14) Constellation Sands Capital Select Growth Fund -- Class I Shares 0.85 0.25(8) 1.10 Constellation Sands Capital Select Growth Fund -- Class II Shares 0.85 0.50(8) 1.35(15) Constellation TIP Small Cap Value Opportunities Fund 0.95 0.50(4) 1.45 Constellation TIP Tax Managed U.S. Equity Fund 0.75 0.50(4) 1.25 Constellation International Equity Fund 0.95 0.50(8)(11) 1.45(16) Constellation Strategic Value and High Income Fund 0.10 0.15(4) 0.25
(1) Represents a voluntary cap. (2) Effective May 10, 2004, the Board agreed to decrease the total expense cap from 1.25% to 1.24%. (3) Effective May 10, 2004, the Board agreed to decrease the total expense cap from 1.40% to 1.35%. (4) Represents a contractual cap effective through January 31, 2006. (5) Effective February 1, 2004, the Board agreed to increase the total expense cap from 0.41% to 0.49%. (6) Effective February 1, 2004, the Board agreed to increase the total expense cap from 0.66% to 0.74%. (7) Effective May 10, 2004, the Board agreed to increase the total expense cap from 0.80% to 0.90%. (8) Represents a contractual cap effective through July 31, 2007. (9) Effective August 2, 2004, the Board agreed to increase the total expense cap from 1.00% to 1.10%. (10) Effective August 2, 2004, the Board agreed to increase the total expense cap from 1.00% to 1.15%. (11) This fee waiver obligation will be reduced by up to 0.01% to the extent that the Fund earns revenues from securities lending activities. See the Funds' Prospectus for additional information. (12) Effective August 2, 2004, the Board agreed to increase the total expense cap from 1.20% to 1.30%. (13) Effective August 2, 2004, the Board agreed to increase the total expense cap from 0.70% to 0.90%. (14) Effective August 2, 2004, the Board agreed to increase the total expense cap from 0.60% to 0.70%. (15) Effective August 2, 2004, the Board agreed to increase the total expense cap from 1.15% to 1.35%. (16) Effective August 2, 2004, the Board agreed to increase the total expense cap from 1.25% to 1.45%. 132 | Constellation Funds 2004 Annual Report NOTES TO FINANCIAL STATEMENTS Prior to August 2, 2004, the Former Pitcairn Funds were parties to an expense limitation agreement with Pitcairn Investment Management. Pursuant to the agreement, Pitcairn Investment Management agreed to waive or limit its fees and assume other expenses so that the total annual operating expenses of the Funds were limited to a specified percentage of the average daily net assets of each Fund, throughout its fiscal year ended October 31. The limitation was net of securities lending revenue, if any, and exclusive of interest, taxes, brokerage fees and commissions, and extraordinary expenses. For the Constellation TIP Financial Services and Constellation TIP Healthcare & Biotechnology Funds, the advisory fees are 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 was 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 over the 12-month performance 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. In cases where the advisory fee is comprised of a base fee and a performance adjustment, CIMCO has voluntarily agreed to waive all or a portion of its fee and to reimburse expenses in order to keep such Fund's "other expenses" from exceeding a specified percentage of the average daily net assets of the Fund on an annualized basis. Accordingly, the base advisory fee, annual adjustment rate, benchmark, over/under performance relative to the benchmark threshold, and other expense cap are as follows:
BASE ANNUAL OTHER ADVISORY ADJUSTMENT BENCHMARK EXPENSES FEE RATE BENCHMARK THRESHOLD(1) CAP -------- ---------- ---------- --------- -------- Constellation TIP Financial S&P Services Financials Fund 1.00% +/-0.25% Index +/-3.01% 0.40% Constellation TIP Healthcare & S&P Biotechnology Healthcare Fund 1.00 +/-0.25 Index +/-3.01 0.75
(1) See the Funds' Prospectus and Statement of Additional Information for more information regarding the Funds' benchmark performance. During the year ended September 30, 2004, the Funds' advisory fees were adjusted in accordance with the policy described above: BASE NET ADVISER ADVISER PERFORMANCE FEE BEFORE FEE ADJUSTMENT WAIVERS -------- ----------- ----------- Constellation TIP Financial Services Fund $172,587 $11,565 $184,152 Constellation TIP Healthcare & Biotechnology Fund 212,703 37,948 250,651 Beginning May 1, 2005 for the remaining Former Turner Funds and the Constellation HLAM Large Cap Value Fund and August 1, 2005 for the Former Pitcairn Funds, the Funds' advisory fees will be subject to adjustment, up or down, based on the Funds' performance relative to the performance of the Funds' benchmark. See the Funds' Prospectus and Statement of Additional Information for more information regarding the Funds' benchmark performance. Prior to May 10, 2004, Turner Investment Partners, Inc. served as investment adviser to the Former Turner Funds under the same adviser fee structure listed above, except for the Constellation TIP Small Cap Value Opportunities Fund. Prior to May 10, 2004, Turner Investment Management, LLC served as investment adviser to the Constellation TIP Small Cap Value Opportunities Fund under the same adviser fee structure listed above. Prior to August 2, 2004, Pitcairn Investment Management served as investment adviser to the Former Pitcairn Funds under the same adviser fee structure listed above. CIMCO has entered into investment sub-advisory agreements with the following parties: Clover Capital Management, Inc. - ------------------------------- Constellation Clover Large Cap Value Fund Constellation Clover Core Value Fund Constellation Clover Small Cap Value Fund Constellation Clover Core Fixed Income Fund Chartwell Investment Partners - ----------------------------- Constellation Chartwell Ultra Short Duration Fixed Income Fund Constellation Chartwell Short Duration Fixed Income Fund Constellation Chartwell High Yield Fund Hilliard Lyons Asset Management - ------------------------------- Constellation HLAM Large Cap Value Fund Pitcairn Investment Management - ------------------------------ 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 Funds 2004 Annual Report | 133 NOTES TO FINANCIAL STATEMENTS Sands Capital Management, Inc. - ------------------------------ Constellation Sands Capital Select Growth Fund Turner Investment Partners, Inc. - -------------------------------- 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 Constellation Strategic Value and High Income Fund Oechsle International Advisors, LLC - ----------------------------------- Constellation International Equity Fund The Boston Company Asset Management, LLC - ---------------------------------------- Constellation International Equity Fund Brandywine Asset Management, LLC - -------------------------------- Constellation International Equity Fund CIMCO pays sub-advisory fees to each Sub-Adviser from its advisory fee, if any. Similar to the advisory fee paid to CIMCO, the sub-advisory fee paid to Clover Capital Management, Inc., Chartwell Investment Partners, Pitcairn Investment Management, Sands Capital Management, Inc., Brandywine Asset Management, LLC and Turner Investment Partners, Inc. can increase or decrease depending on a Fund's performance relative to its benchmark. The sub-advisory fees paid to Oechsle International Advisors, LLC and The Boston Company Asset Management, LLC are not subject to a performance adjustment. 6. INVESTMENT TRANSACTIONS: The cost of security purchases and the proceeds from security sales and maturities, other than short-term investments, for the period ended September 30, 2004, were as follows: SALES AND PURCHASES MATURITIES (000) (000) --------- ---------- Constellation Clover Large Cap Value Fund $ 5,144 $ 4,526 Constellation Clover Core Value Fund 32,269 30,039 Constellation Clover Small Cap Value Fund 335,851 293,214 Constellation Chartwell High Yield Fund 20,522 19,904 Constellation HLAM Large Cap Value Fund 1,495 60 Constellation Pitcairn Diversified Value Fund 111,444 115,782 Constellation Pitcairn Select Value Fund 66,945 66,761 Constellation Pitcairn Diversified Growth Fund 60,509 53,474 Constellation Pitcairn Small Cap Fund 66,033 72,243 Constellation Pitcairn Family Heritage(R) Fund 14,374 17,036 Constellation Pitcairn Tax-Exempt Bond Fund 29,584 26,685 Constellation Sands Capital Select Growth Fund 55,853 7,783 Constellation TIP Small Cap Value Opportunities Fund 47,927 42,822 Constellation TIP Financial Services Fund 16,570 20,584 Constellation TIP Healthcare & Biotechnology Fund 56,298 36,717 Constellation TIP Tax Managed U.S. Equity Fund 5,776 6,658 Constellation International Equity Fund 63,016 63,891 Constellation Strategic Value and High Income Fund 14,017 14,341
SALES AND MATURITIES PURCHASES (000) (000) GOV'T OTHER GOV'T OTHER -------- ------ -------- ------- Constellation Clover Core Fixed Income Fund $ 9,672 $5,919 $ 17,525 $ 7,788 Constellation Chartwell Ultra Short Duration Fixed Income Fund 107,280 3,770 236,075 13,378 Constellation Chartwell Short Duration Fixed Income Fund 145,189 8,709 204,311 30,036 Constellation Pitcairn Taxable Bond Fund 1,494 9,501 1,876 9,325
7. FEDERAL TAX POLICIES AND INFORMATION: Each of the Funds is classified as a separate taxable entity for Federal income tax purposes. Each of the Funds 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 accounting principles generally accepted in the United States of America. These book/tax differences are either temporary or permanent in nature. These differences are primarily due to wash sales, net operating losses, adjustments due to investments in Passive Foreign Investment Companies, REITs, paydowns, equalization and return of capital. 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. 134 | Constellation Funds 2004 Annual Report NOTES TO FINANCIAL STATEMENTS Accordingly, the following permanent differences have been reclassified to/ from the following accounts (000):
UNDISTRIBUTED ACCUMULATED FUND NET INVESTMENT INCOME NET REALIZED GAIN PAID-IN-CAPITAL - ---- --------------------- ----------------- --------------- Constellation Clover Core Value Fund $ (1) $ 1 $ - Constellation Clover Small Cap Value Fund 1,121 33 (1,154) Constellation Clover Core Fixed Income Fund 91 (91) - Constellation Chartwell Ultra Short Duration Fixed Income Fund 307 (307) - Constellation Chartwell Short Duration Fixed Income Fund 643 (643) - Constellation Pitcairn Diversified Value Fund (31) 31 - Constellation Pitcairn Diversified Growth Fund 2 - (2) Constellation Pitcairn Small Cap Fund 219 14 (233) Constellation Pitcairn Family Heritage(R) Fund (3) 8 (5) Constellation Pitcairn Taxable Bond Fund (14) 14 - Constellation Sands Capital Select Growth Fund 638 - (638) Constellation TIP Small Cap Value Opportunities Fund 41 (41) - Constellation TIP Financial Services Fund 40 (40) - Constellation TIP Healthcare & Biotechnology Fund 256 (256) - Constellation TIP Tax Managed U.S. Equity Fund 15 - (15) Constellation International Equity Fund 371 (371) - Constellation Strategic Value and High Income Fund - (294) 294
Constellation Funds 2004 Annual Report | 135 NOTES TO FINANCIAL STATEMENTS The tax character of dividends and distributions declared during the periods ended September 30, 2004 and September 30, 2003 (unless otherwise noted) were as follows (000):
ORDINARY LONG-TERM TAX EXEMPT RETURN OF INCOME CAPITAL GAIN INCOME CAPITAL TOTAL -------- ------------ ---------- --------- ------- Constellation Clover Large Cap Value Fund 2004 $ 42 $ - $ - $ - $ 42 2003 39 - - - 39 Constellation Clover Core Value Fund 2004 468 1,442 - - 1,910 2003 189 - - - 189 Constellation Clover Small Cap Value Fund 2004 652 - - - 652 2003 315 - - 109 424 Constellation Clover Core Fixed Income Fund 2004 1,530 - - - 1,530 2003 1,934 108 - - 2,042 Constellation Chartwell Ultra Short Duration Fixed Income Fund 2004 8,779 - - - 8,779 2003 10,584 483 - - 11,067 Constellation Chartwell Short Duration Fixed Income Fund 2004 5,810 - - - 5,810 2003 8,475 563 - - 9,038 Constellation Chartwell High Yield Fund 2004 753 - - - 753 2003 709 - - - 709 Constellation HLAM Large Cap Value Fund 2004(1) 2 - - - 2 Constellation Pitcairn Diversified Value Fund 2004(2) 1,559 - - - 1,559 2003 1,782 - - - 1,782 2002 1,613 - - - 1,613 Constellation Pitcairn Select Value Fund 2004(2) 492 902 - - 1,394 2003 509 - - - 509 2002 516 - - - 516 Constellation Pitcairn Diversified Growth Fund 2004(2) 46 - - - 46 2003 - - - - - 2002 - - - - - Constellation Pitcairn Small Cap Fund 2004(2) - 3 - - 3 2003 17 - - - 17 2002 494 - - - 494 Constellation Pitcairn Family Heritage(R) Fund 2004(2) 38 - - 2 40 2003 - - - - - 2002 - - - - - Constellation Pitcairn Taxable Bond Fund 2004(2) 1,725 - - - 1,725 2003 1,858 - - - 1,858 2002 2,275 - - - 2,275 Constellation Pitcairn Tax-Exempt Bond Fund 2004(2) 41 432 4,034 - 4,507 2003 12 294 4,611 - 4,917 2002 50 11 4,690 - 4,751 Constellation TIP Small Cap Value Opportunities Fund 2004 223 - - - 223 2003 1 - - - 1 Constellation TIP Financial Services Fund 2004 1,642 111 - - 1,753 2003 - 136 - - 136 Constellation TIP Healthcare & Biotechnology Fund 2004 5 9 - - 14 2003 - - - - - Constellation International Equity Fund 2004(2) 2,621 - - - 2,621 2003 459 - - - 459 2002 1,095 - - - 1,095 Constellation Strategic Value and High Income Fund 2004 125 - - - 125 2003(3) 4 - - - 4
(1) Commenced operations April 30, 2004. (2) From the period November 1, 2003 through September 30, 2004. The Fund changed its fiscal year end from October 31 to September 30. (3) Commenced operations October 31, 2002. 136 | Constellation Funds 2004 Annual Report NOTES TO FINANCIAL STATEMENTS As of September 30, 2004, the components of distributable earnings (accumulated losses) on a tax basis were as follows (000):
TOTAL DISTRIBUTABLE CAPITAL POST- UNREALIZED OTHER EARNINGS ORDINARY LONG-TERM TAX-EXEMPT LOSS OCTOBER APPRECIATION TEMPORARY (ACCUMULATED INCOME CAPITAL GAIN INCOME CARRYFORWARD LOSSES (DEPRECIATION) DIFFERENCES LOSSES) -------- ------------ ---------- ------------ ------- -------------- ----------- ------------- Constellation Clover Large Cap Value Fund $ 13 $ - $ - $ (484) $ - $ 272 $ (13) $ (212) Constellation Clover Core Value Fund 51 4,076 - - - 10,671 (45) 14,753 Constellation Clover Small Cap Value Fund - - - (11,559) - 64,985 - 53,426 Constellation Clover Core Fixed Income Fund 110 394 - - - 1,024 (108) 1,420 Constellation Chartwell Ultra Short Duration Fixed Income Fund 754 - - (6,719) (229) 2,107 (757) (4,844) Constellation Chartwell Short Duration Fixed Income Fund 453 - - (1,994) (112) 505 (454) (1,602) Constellation Chartwell High Yield Fund 54 - - (15,154) - 85 (53) (15,068) Constellation HLAM Large Cap Value Fund 1 - - - - (3) (1) (3) Constellation Pitcairn Diversified Value Fund 330 - - (172) - 17,457 (330) 17,285 Constellation Pitcairn Select Value Fund 103 306 - - - 8,058 (103) 8,364 Constellation Pitcairn Diversified Growth Fund - - - (70,034) (2,107) (8,858) - (80,999) Constellation Pitcairn Small Cap Fund - 731 - - - 15,451 - 16,182 Constellation Pitcairn Family Heritage(R) Fund - - - (13,032) (6,010) 13,908 - (5,134) Constellation Pitcairn Taxable Bond Fund 145 - - (491) - 2,409 (145) 1,918 Constellation Pitcairn Tax-Exempt Bond Fund - 716 367 - - 8,333 (350) 9,066 Constellation Sands Capital Select Growth Fund - - - (26,265) - 8,637 - (17,628) Constellation TIP Small Cap Value Opportunities Fund 1,597 279 - - - 1,834 - 3,710 Constellation TIP Financial Services Fund 726 330 - - - 1,881 - 2,937
Constellation TIP Healthcare & Biotechnology Fund 163 932 - - - 1,128 - 2,223 Constellation TIP Tax Managed U.S. Equity Fund - - - (1,996) - 699 - (1,297) Constellation International Equity Fund 211 - - (37,045) (61) 11,424 (1) (25,472) Constellation Strategic Value and High Income Fund 223 2 - - - 86 (5) 306
Post-October losses represent losses realized on investment transactions from November 1, 2003 through September 30, 2004 that, in accordance with Federal income tax regulations, a Fund may elect to defer and treat as having arisen in the following year. For Federal income tax purposes, capital loss carryforwards may be carried forward and applied against future capital gains. Constellation Funds 2004 Annual Report | 137 NOTES TO FINANCIAL STATEMENTS At September 30, 2004, the Funds had capital loss carryforwards available to offset future realized capital gains through the indicated expiration dates (000):
EXPIRING SEPTEMBER 30, ----------------------------------------------------------------- 2007 2008 2009 2010 2011 2012 TOTAL ---- ------ ------- ------- ------- ------ ------- Constellation Clover Large Cap Value Fund $ - $ - $ - $ 196 $ 288 $ - $ 484 Constellation Clover Small Cap Value Fund - - - - 11,559 - 11,559 Constellation Chartwell Ultra Short Duration Fixed Income Fund - - - - - 6,719 6,719 Constellation Chartwell Short Duration Fixed Income Fund - - - - - 1,994 1,994 Constellation Chartwell High Yield Fund 565 2,916 2,590 4,590 4,493 - 15,154 Constellation Pitcairn Diversified Value Fund - - - - 172 - 172 Constellation Pitcairn Diversified Growth Fund - - 23,304 35,399 11,331 - 70,034 Constellation Pitcairn Family Heritage(R) Fund - 1,614 3,678 2,799 4,941 - 13,032 Constellation Pitcairn Taxable Bond Fund - - - 491 - - 491 Constellation Sands Capital Select Growth Fund - - 8,179 12,366 5,720 - 26,265 Constellation TIP Tax Managed U.S. Equity Fund - - - 179 1,817 - 1,996 Constellation International Equity Fund - - 4,428 24,091 8,526 - 37,045
During the year ended September 30, 2004, the following Funds utilized capital loss carryforwards to offset capital gains:
FUND AMOUNT - ---- ----------- Constellation Clover Large Cap Value Fund $ 188,939 Constellation Clover Small Cap Value Fund 42,082,156 Constellation Clover Core Fixed Income Fund 5,536 Constellation Chartwell High Yield Fund 576,132 Constellation Pitcairn Diversified Value Fund 7,072,106 Constellation Pitcairn Select Value Fund 4,731,191 Constellation Pitcairn Diversified Growth Fund 2,785,056 Constellation Pitcairn Small Cap Fund 12,891,786 Constellation Pitcairn Taxable Bond Fund 672,266 Constellation Sands Capital Select Growth Fund 1,024,064 Constellation TIP Healthcare & Biotechnology Fund 94,064 Constellation TIP Tax Managed U.S. Equity Fund 691,319 Constellation International Equity Fund 11,912,492
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 Funds were as follows (000):
NET FEDERAL UNREALIZED TAX UNREALIZED UNREALIZED APPRECIATION FUND COST APPRECIATION DEPRECIATION (DEPRECIATION) - ---- -------- ------------ ------------ -------------- Constellation Clover Large Cap Value Fund $ 6,184 $ 606 $ (334) $ 272 Constellation Clover Core Value Fund 57,673 11,611 (940) 10,671 Constellation Clover Small Cap Value Fund 663,808 90,425 (25,440) 64,985 Constellation Clover Core Fixed Income Fund 30,920 1,083 (59) 1,024 Constellation Chartwell Ultra Short Duration Fixed Income Fund 398,293 2,347 (240) 2,107 Constellation Chartwell Short Duration Fixed Income Fund 174,197 1,022 (517) 505 Constellation Chartwell High Yield Fund 9,973 193 (108) 85 Constellation HLAM Large Cap Value Fund 1,444 47 (50) (3) Constellation Pitcairn Diversified Value Fund 134,725 20,440 (2,983) 17,457 Constellation Pitcairn Select Value Fund 53,869 8,616 (558) 8,058 Constellation Pitcairn Diversified Growth Fund 113,485 9,155 (18,013) (8,858) Constellation Pitcairn Small Cap Fund 76,273 19,576 (4,125) 15,451 Constellation Pitcairn Family Heritage(R) Fund 64,254 21,086 (7,178) 13,908 Constellation Pitcairn Taxable Bond Fund 40,340 2,473 (64) 2,409 Constellation Pitcairn Tax-Exempt Bond Fund 104,191 8,387 (54) 8,333 Constellation Sands Capital Select Growth Fund 91,313 16,568 (7,931) 8,637 Constellation TIP Small Cap Value Opportunities Fund 15,684 1,941 (107) 1,834 Constellation TIP Financial Services Fund 15,938 2,047 (166) 1,881 Constellation TIP Healthcare & Biotechnology Fund 40,191 2,754 (1,626) 1,128 Constellation TIP Tax Managed U.S. Equity Fund 4,456 768 (69) 699 Constellation International Equity Fund 91,845 14,089 (2,692) 11,397 Constellation Strategic Value and High Income Fund 622 86 -- 86
138 | Constellation Funds 2004 Annual Report NOTES TO FINANCIAL STATEMENTS 8. CONCENTRATIONS/RISKS: Certain Funds invest a high percentage of their assets in specific sectors of the market in order to achieve a potentially greater investment return. As a result, the Funds may be more susceptible to economic, political, and regulatory developments in a particular sector of the market, positive or negative, and may experience increased volatility on the Fund's net asset value and magnified effect on the total return. The Constellation International Equity Fund invests in securities of foreign issuers in various countries. These investments may involve certain considerations and risks not typically associated with investments in the United States of America, as a result of, among other factors, the possibility of future political and economic developments and the level of governmental supervision and regulation of securities markets in the respective countries. The Funds enter into contracts that contain a variety of indemnifications. The Funds' maximum exposure under these arrangements is unknown. However, the Funds have not had prior claims or losses pursuant to these contracts and expect the risk of loss to be remote. 9. LOANS OF PORTFOLIO SECURITIES: The Funds may lend securities in their 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 Funds and, as such, the Funds are liable for investment losses. The Funds are receiving an annual fee for their 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 Funds bear the risk of incurring a loss from the investment of cash collateral due to either credit or market factors. Prior to August 2, 2004, the Former Pitcairn Funds were parties to a separate securities lending agreement. The borrower paid the lending Fund income accrued thereon, and the Fund invested cash collateral in permissible securities, thereby earning additional income. 10. FUND REORGANIZATION: The Trustees of the Pitcairn Small Cap Fund unanimously approved a Plan of Reorganization which resulted in the transfer of all the assets and liabilities of the Pitcairn Small Cap Fund to the Pitcairn Small Cap Core Fund in exchange for shares of the Pitcairn Small Cap Core Fund after the close of business of October 31, 2002. The shareholders of the Pitcairn Small Cap Fund exchanged 5,536,781 shares and received 2,602,903 shares of the Pitcairn Small Cap Core Fund with an aggregate value of $25,687,425. The value of the Pitcairn Small Cap Fund on October 31, 2002 was $25,687,425 which included $4,381,612 in unrealized depreciation and $23,046,960 in accumulated net realized losses. Upon the business combination of the Funds after the close of business on October 31, 2002, the value of the Pitcairn Small Cap Core Fund was $75,783,828. The Pitcairn Small Cap Core Fund changed its name to the Pitcairn Small Cap Fund. 11. LINE OF CREDIT: Prior to August 2, 2004, the Former Pitcairn Funds were parties to a revolving line of credit facility to be used by the Funds for temporary and emergency purposes. Borrowings under the line of credit bore interest at the Federal Funds Rate plus 0.50% per annum. During the period ended September 30, 2004, the following fund borrowed under the agreement:
WEIGHTED WEIGHTED MAXIMUM AVERAGE LOAN INTEREST AVERAGE BORROWING BALANCE DATE PAID RATE ----------- ------------ --------- -------- -------- 12/18/03- International Equity Fund $10,000,000 $8,543,902 01/27/04 $14,256 1.70%
12. SUBSEQUENT EVENT: On November 8, 2004, the shareholders of the Constellation Funds approved the reorganization of the Hilliard Lyons Growth Fund with and into the Constellation HLAM Large Cap Quality Growth Fund, a newly formed series of the Constellation Funds. The Constellation HLAM Large Cap Quality Growth Fund will be substantially similar to the Hilliard Lyons Growth Fund. Each shareholder will receive a number of shares of the Constellation HLAM Large Cap Quality Growth Fund equal in dollar value to the shares of the Hilliard Lyons Growth Fund owned at the time of reorganization. 13. CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (UNAUDITED): On June 14, 2004, Ernst & Young LLP (E&Y) was dismissed as independent registered public accounting firm for the Funds. KPMG LLP (KPMG) was selected as the Funds' independent registered public accounting firm. The Funds' selection of KPMG as its independent registered public accounting firm was recommended by the Funds' audit committee and was approved by the Funds' Board of Trustees. The reports of the financial statements audited by E&Y for the Funds and their 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 Funds 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. Constellation Funds 2004 Annual Report | 139 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF CONSTELLATION FUNDS: We have audited the accompanying statements of net assets 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 Financial Services Fund, Constellation TIP Healthcare & Biotechnology Fund, Constellation TIP Tax Managed U.S. Equity Fund and Constellation Strategic Value and High Income Fund (collectively the "Former Turner Funds"), 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 Fund, Constellation Pitcairn Taxable Bond Fund, Constellation Pitcairn Tax-Exempt Bond Fund, Constellation Sands Capital Select Growth Fund and Constellation International Equity Fund (collectively the "Former Pitcairn Funds") and Constellation HLAM Large Cap Value Fund and the statement of assets and liabilities, including the schedule of investments, of Constellation TIP Small Cap Value Opportunities Fund, (a Former Turner Fund), twenty-two of the funds constituting Constellation Funds (collectively, the "Constellation Funds"), as of September 30, 2004 and the related statements of operations, statements of changes in net assets and financial highlights for the year or period 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 audits. The financial statements and financial highlights of the Former Turner Funds 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 reports dated November 13, 2003. The financial statements and financial highlights of the Former Pitcairn Funds 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 December 12, 2003. We conducted our audits 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 audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Constellation Funds as of September 30, 2004 and the results of their operations, the changes in their net assets and their financial highlights for the year or period ended September 30, 2004 in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Philadelphia, Pennsylvania November 19, 2004 140 | Constellation Funds 2004 Annual Report 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 year end, please consult you tax advisor as to the pertinance of this notice. For the fiscal year ended September 30, 2004, each Fund is designating the following items with regard to distributions paid during the year.
LONG- LONG- TERM TERM (20% RATE) (15% RATE) QUALIFIED CAPITAL CAPITAL 5 YEAR ORDINARY TAX- GAIN GAIN GAIN INCOME EXEMPT DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS INTEREST ------------- ------------- ------------- ------------- -------- Constellation Clover Large Cap Value Fund ........... 0.00% 0.00% 0.00% 100.00% 0.00% Constellation Clover Core Value Fund ................ 18.29% 58.41% 0.00% 23.30% 0.00% Constellation Clover Small Cap Value Fund ........... 0.00% 0.00% 0.00% 100.00% 0.00% Constellation Clover Core Fixed Income Fund ......... 0.00% 0.00% 0.00% 100.00% 0.00% Constellation Chartwell Ultra Short Duration Fixed Income Fund ................................. 0.00% 0.00% 0.00% 100.00% 0.00% Constellation Chartwell Short Duration Fixed Income Fund ....................................... 0.00% 0.00% 0.00% 100.00% 0.00% Constellation Chartwell High Yield Fund ............. 0.00% 0.00% 0.00% 100.00% 0.00% Constellation HLAM Large Cap Value Fund ............. 0.00% 0.00% 0.00% 100.00% 0.00% Constellation Pitcairn Diversified Value Fund ....... 0.00% 0.00% 0.00% 100.00% 0.00% Constellation Pitcairn Select Value Fund ............ 0.00% 69.86% 0.00% 30.14% 0.00% Constellation Pitcairn Diversified Growth Fund ...... 0.00% 0.00% 0.00% 100.00% 0.00% Constellation Pitcairn Small Cap Fund ............... 0.00% 100.00% 0.00% 0.00% 0.00% Constellation Pitcairn Family Heritage(R) Fund ...... 0.00% 0.00% 0.00% 94.40% 0.00% Constellation Pitcairn Taxable Bond Fund ............ 0.00% 0.00% 0.00% 100.00% 0.00% Constellation Pitcairn Tax-Exempt Bond Fund ......... 4.39% 5.12% 0.00% 0.89% 89.60% Constellation Sands Capital Select Growth Fund ...... 0.00% 0.00% 0.00% 0.00% 0.00% Constellation TIP Small Cap Value Opportunities Fund .............................................. 0.00% 0.00% 0.00% 100.00% 0.00% Constellation TIP Financial Services Fund ........... 0.00% 6.34% 0.00% 93.66% 0.00% Constellation TIP Healthcare & Biotechnology Fund ... 0.00% 61.26% 0.00% 38.74% 0.00% Constellation TIP Tax Managed U.S. Equity Fund ...... 0.00% 0.00% 0.00% 0.00% 0.00% Constellation International Equity Fund(3) .......... 0.00% 0.00% 0.00% 100.00% 0.00% Constellation Strategic Value and High Income Fund .. 0.00% 0.58% 0.00% 99.42% 0.00%
DIVIDENDS QUALIFYING FOR CORPORATE RETURN DIVIDENDS QUALIFYING OF CAPITAL TOTAL RECEIVABLE DIVIDENDS DISTRIBUTION DISTRIBUTIONS DEDUCTION(1) INCOME(2) ------------ ------------- ------------ --------- Constellation Clover Large Cap Value Fund ........... 0.00% 100.00% 100.00% 100.00% Constellation Clover Core Value Fund ................ 0.00% 100.00% 100.00% 99.99% Constellation Clover Small Cap Value Fund ........... 0.00% 100.00% 0.00% 0.00% Constellation Clover Core Fixed Income Fund ......... 0.00% 100.00% 0.00% 0.00% Constellation Chartwell Ultra Short Duration Fixed Income Fund ................................. 0.00% 100.00% 0.00% 0.00% Constellation Chartwell Short Duration Fixed Income Fund ....................................... 0.00% 100.00% 0.00% 0.00% Constellation Chartwell High Yield Fund ............. 0.00% 100.00% 0.00% 0.00% Constellation HLAM Large Cap Value Fund ............. 0.00% 100.00% 100.00% 100.00% Constellation Pitcairn Diversified Value Fund ....... 0.00% 100.00% 100.00% 100.00% Constellation Pitcairn Select Value Fund ............ 0.00% 100.00% 100.00% 100.00% Constellation Pitcairn Diversified Growth Fund ...... 0.00% 100.00% 100.00% 100.00% Constellation Pitcairn Small Cap Fund ............... 0.00% 100.00% 0.00% 0.00% Constellation Pitcairn Family Heritage(R) Fund ...... 5.60% 100.00% 100.00% 100.00% Constellation Pitcairn Taxable Bond Fund ............ 0.00% 100.00% 0.00% 0.00% Constellation Pitcairn Tax-Exempt Bond Fund ......... 0.00% 100.00% 0.00% 0.00% Constellation Sands Capital Select Growth Fund ...... 0.00% 0.00% 0.00% 0.00% Constellation TIP Small Cap Value Opportunities Fund .............................................. 0.00% 100.00% 12.97% 7.02% Constellation TIP Financial Services Fund ........... 0.00% 100.00% 15.29% 11.05% Constellation TIP Healthcare & Biotechnology Fund ... 0.00% 100.00% 62.87% 62.72% Constellation TIP Tax Managed U.S. Equity Fund ...... 0.00% 0.00% 0.00% 0.00% Constellation International Equity Fund(3) .......... 0.00% 100.00% 0.00% 100.00% Constellation Strategic Value and High Income Fund .. 0.00% 100.00% 12.56% 12.49%
(1) Qualifying dividends represent dividends which qualify for the corporate dividends received deduction and is reflected 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 each of the aforementioned Funds to designate the maximum amount permitted by law. (3) The Fund intends to pass through a foreign tax credit to shareholders. For the fiscal year ended September 30, 2004, the total amount of foreign source income is $1,884,026. The total amount of foreign taxes paid is $239,075. Your allocable share of the foreign tax credit will be reported on Form 1099 DIV. 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. Constellation Funds 2004 Annual Report | 141 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). NUMBER OF PORTFOLIOS IN COMPLEX OVERSEEN BY TRUSTEE 23 * Mr. Grady is deemed to be an "Interested Trustee" by virtue of his relationship with Constellation Investment Management Company, LP. 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. NUMBER OF PORTFOLIOS IN COMPLEX OVERSEEN BY TRUSTEE 23 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. NUMBER OF PORTFOLIOS IN COMPLEX OVERSEEN BY TRUSTEE 23 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). NUMBER OF PORTFOLIOS IN COMPLEX OVERSEEN BY TRUSTEE 23 142 | Constellation Funds 2004 Annual Report 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). 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). Constellation Funds 2004 Annual Report | 143 TRUSTEES AND OFFICERS OF THE TRUST (UNAUDITED) 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). 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 POSITIONS HELD WITH FUND Vice President since 2004 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Employed by CIMCO as Vice President, Fund Administration; previously, Performance Analyst, 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. 144 | Constellation Funds 2004 Annual Report SHAREHOLDER VOTING RESULTS (UNAUDITED) There was a special meeting of shareholders held on April 23, 2004, at which the shareholders of each Former Turner Fund were asked to approve the reorganization of the Funds with and into the corresponding series of the Constellation Funds.
Turner Large Cap Value Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 391,458 99.1% 64.5% Against 3,407 0.9% 0.6% Abstain - 0.0% 0.0% ------------ ----------- ----------- 394,865 100.0% 65.1% Turner Small Cap Value Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 11,941,437 96.6% 55.5% Against 298,489 2.4% 1.4% Abstain 128,501 1.0% 0.6% ------------ ----------- ----------- 12,368,427 100.0% 57.5% Turner Ultra Short Duration Fixed Income Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 21,495,639 94.4% 53.3% Against 703,570 3.1% 1.7% Abstain 565,043 2.5% 1.4% ------------ ----------- ----------- 22,764,252 100.0% 56.4% Turner High Yield Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 1,579,741 99.8% 51.3% Against - 0.0% 0.0% Abstain 3,568 0.2% 0.1% ------------ ----------- ----------- 1,583,309 100.0% 51.4% Turner Financial Services Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 658,385 96.6% 56.6% Against 19,805 2.9% 1.7% Abstain 3,432 0.5% 0.3% ------------ ----------- ----------- 681,622 100.0% 58.6% Turner Tax Managed U.S. Equity Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 625,087 99.9% 97.5% Against 476 0.1% 0.1% Abstain - 0.0% 0.0% ------------ ----------- ----------- 625,563 100.0% 97.6%
Turner Core Value Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 1,965,291 95.6% 57.8% Against 59,154 2.9% 1.7% Abstain 30,303 1.5% 0.9% ------------ ----------- ----------- 2,054,748 100.0% 60.4% Turner Core Fixed Income Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 1,986,707 96.0% 52.9% Against 27,405 1.3% 0.7% Abstain 55,656 2.7% 1.5% ------------ ----------- ----------- 2,069,768 100.0% 55.1% Turner Short Duration Fixed Income Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 10,924,917 94.1% 52.3% Against 435,982 3.8% 2.1% Abstain 237,914 2.1% 1.1% ------------ ----------- ----------- 11,598,813 100.0% 55.5% Turner Small Cap Value Opportunities Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 1,060,796 97.9% 61.9% Against 17,231 1.6% 1.0% Abstain 6,056 0.5% 0.4% ------------ ----------- ----------- 1,084,083 100.0% 63.3% Turner Healthcare & Biotechnology Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 652,491 96.8% 51.1% Against 14,131 2.1% 1.1% Abstain 7,517 1.1% 0.6% ------------ ----------- ----------- 674,139 100.0% 52.8% Turner Strategic Value and High Income Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 347,200 97.7% 76.3% Against 8,155 2.3% 1.8% Abstain - 0.0% 0.0% ------------ ----------- ----------- 355,355 100.0% 78.1%
Constellation Funds 2004 Annual Report | 145 SHAREHOLDER VOTING RESULTS (UNAUDITED) There was a special meeting of shareholders held on May 20, 2004, at which the shareholders of each Former Pitcairn Fund were asked to consider several proposals: 1. To approve a proposal to reorganize the Funds with and into the corresponding series of the Constellation Funds.
Pitcairn Diversified Value Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 12,757,302 100.0% 94.0% Against - 0.0% 0.0% Abstain - 0.0% 0.0% ------------ ----------- ----------- 12,757,302 100.0% 94.0% Pitcairn Diversified Growth Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 17,896,803 100.0% 94.2% Against - 0.0% 0.0% Abstain - 0.0% 0.0% ------------ ----------- ----------- 17,896,803 100.0% 94.2% Pitcairn Family Heritage(R) Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 7,758,520 100.0% 93.7% Against - 0.0% 0.0% Abstain - 0.0% 0.0% ------------ ----------- ----------- 7,758,520 100.0% 93.7% Pitcairn Tax-Exempt Bond Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 7,995,625 100.0% 77.0% Against - 0.0% 0.0% Abstain - 0.0% 0.0% ------------ ----------- ----------- 7,995,625 100.0% 77.0% Pitcairn International Equity Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 12,357,649 100.0% 82.2% Against - 0.0% 0.0% Abstain - 0.0% 0.0% ------------ ----------- ----------- 12,357,649 100.0% 82.2%
Pitcairn Select Value Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 5,359,505 100.0% 96.6% Against - 0.0% 0.0% Abstain - 0.0% 0.0% ------------ ----------- ----------- 5,359,505 100.0% 96.6% Pitcairn Small Cap Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 5,775,433 100.0% 94.4% Against - 0.0% 0.0% Abstain - 0.0% 0.0% ------------ ----------- ----------- 5,775,433 100.0% 94.4% Pitcairn Taxable Bond Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 2,564,253 100.0% 64.0% Against - 0.0% 0.0% Abstain - 0.0% 0.0% ------------ ----------- ----------- 2,564,253 100.0% 64.0% Pitcairn Select Growth Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 7,917,107 99.1% 64.5% Against 9,461 0.1% 0.1% Abstain 61,954 0.8% 0.5% ------------ ----------- ----------- 7,988,522 100.0% 65.1%
2. To approve a new investment advisory agreement with Constellation Investment Management Company, LP ("CIMCO").
Pitcairn Diversified Value Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 12,757,302 100.0% 94.0% Against - 0.0% 0.0% Abstain - 0.0% 0.0% ------------ ----------- ----------- 12,757,302 100.0% 94.0% Pitcairn Select Value Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 5,359,505 100.0% 96.6% Against - 0.0% 0.0% Abstain - 0.0% 0.0% ------------ ----------- ----------- 5,359,505 100.0% 96.6%
146 | Constellation Funds 2004 Annual Report SHAREHOLDER VOTING RESULTS (UNAUDITED)
Pitcairn Diversified Growth Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 17,896,803 100.0% 94.2% Against - 0.0% 0.0% Abstain - 0.0% 0.0% ------------ ----------- ----------- 17,896,803 100.0% 94.2% Pitcairn Family Heritage(R) Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 7,758,520 100.0% 93.7% Against - 0.0% 0.0% Abstain - 0.0% 0.0% ------------ ----------- ----------- 7,758,520 100.0% 93.7% Pitcairn Tax-Exempt Bond Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 7,995,625 100.0% 77.0% Against - 0.0% 0.0% Abstain - 0.0% 0.0% ------------ ----------- ----------- 7,995,625 100.0% 77.0% Pitcairn International Equity Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 12,357,649 100.0% 82.2% Against - 0.0% 0.0% Abstain - 0.0% 0.0% ------------ ----------- ----------- 12,357,649 100.0% 82.2%
Pitcairn Small Cap Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 5,775,433 100.0% 94.4% Against - 0.0% 0.0% Abstain - 0.0% 0.0% ------------ ----------- ----------- 5,775,433 100.0% 94.4% Pitairn Taxable Bond Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 2,564,253 100.0% 64.0% Against - 0.0% 0.0% Abstain - 0.0% 0.0% ------------ ----------- ----------- 2,564,253 100.0% 64.0% Pitcairn Select Growth Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 7,906,007 99.0% 64.4% Against 9,461 0.1% 0.1% Abstain 72,984 0.9% 0.6% ------------ ----------- ----------- 7,988,452 100.0% 65.1%
3. To approve a new investment sub-advisory agreement between CIMCO and Pitcairn Investment Management.
Pitcairn Diversified Value Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 12,757,302 100.0% 94.0% Against - 0.0% 0.0% Abstain - 0.0% 0.0% ------------ ----------- ----------- 12,757,302 100.0% 94.0% Pitcairn Diversified Growth Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 17,896,803 100.0% 94.2% Against - 0.0% 0.0% Abstain - 0.0% 0.0% ------------ ----------- ----------- 17,896,803 100.0% 94.2% Pitcairn Family Heritage(R) Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 7,758,520 100.0% 93.7% Against - 0.0% 0.0% Abstain - 0.0% 0.0% ------------ ----------- ----------- 7,758,520 100.0% 93.7%
Pitcairn Select Value Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 5,359,505 100.0% 96.6% Against - 0.0% 0.0% Abstain - 0.0% 0.0% ------------ ----------- ----------- 5,359,505 100.0% 96.6% Pitcairn Small Cap Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 5,775,433 100.0% 94.4% Against - 0.0% 0.0% Abstain - 0.0% 0.0% ------------ ----------- ----------- 5,775,433 100.0% 94.4% Pitairn Taxable Bond Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 2,564,253 100.0% 64.0% Against - 0.0% 0.0% Abstain - 0.0% 0.0% ------------ ----------- ----------- 2,564,253 100.0% 64.0%
Constellation Funds 2004 Annual Report | 147 SHAREHOLDER VOTING RESULTS (UNAUDITED)
Pitcairn Tax-Exempt Bond Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 7,995,625 100.0% 77.0% Against - 0.0% 0.0% Abstain - 0.0% 0.0% ------------ ----------- ----------- 7,995,625 100.0% 77.0% Pitcairn International Equity Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 12,357,649 100.0% 82.2% Against - 0.0% 0.0% Abstain - 0.0% 0.0% ------------ ----------- ----------- 12,357,649 100.0% 82.2% Pitcairn Select Growth Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 7,906,077 99.0% 64.4% Against 9,461 0.1% 0.1% Abstain 72,984 0.9% 0.6% ------------ ----------- ----------- 7,988,522 100.0% 65.1%
4. To approve a distribution and shareholder services plan with Constellation Investment Distribution Company, Inc.
Pitcairn Diversified Value Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 12,757,302 100.0% 94.0% Against - 0.0% 0.0% Abstain - 0.0% 0.0% ------------ ----------- ----------- 12,757,302 100.0% 94.0% Pitcairn Diversified Growth Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 17,896,803 100.0% 94.2% Against - 0.0% 0.0% Abstain - 0.0% 0.0% ------------ ----------- ----------- 17,896,803 100.0% 94.2% Pitcairn Family Heritage(R) Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 7,758,520 100.0% 93.7% Against - 0.0% 0.0% Abstain - 0.0% 0.0% ------------ ----------- ----------- 7,758,520 100.0% 93.7% Pitcairn Tax-Exempt Bond Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 7,995,625 100.0% 77.0% Against - 0.0% 0.0% Abstain - 0.0% 0.0% ------------ ----------- ----------- 7,995,625 100.0% 77.0% Pitcairn International Equity Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 12,357,649 100.0% 82.2% Against - 0.0% 0.0% Abstain - 0.0% 0.0% ------------ ----------- ----------- 12,357,649 100.0% 82.2%
Pitcairn Select Value Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 5,359,505 100.0% 96.6% Against - 0.0% 0.0% Abstain - 0.0% 0.0% ------------ ----------- ----------- 5,359,505 100.0% 96.6% Pitcairn Small Cap Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 5,775,433 100.0% 94.4% Against - 0.0% 0.0% Abstain - 0.0% 0.0% ------------ ----------- ----------- 5,775,433 100.0% 94.4% Pitairn Taxable Bond Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 2,564,253 100.0% 64.0% Against - 0.0% 0.0% Abstain - 0.0% 0.0% ------------ ----------- ----------- 2,564,253 100.0% 64.0% Pitcairn Select Growth Fund % of Shares % of Shares Shares Voted Voted Outstanding ------------ ----------- ----------- For 7,917,107 99.1% 64.5% Against 9,461 0.1% 0.1% Abstain 61,954 0.8% 0.5% ------------ ----------- ----------- 7,988,522 100.0% 65.1%
148 | Constellation Funds 2004 Annual Report INVESTMENT ADVISER Constellation Investment Management Company, LP Berwyn, Pennsylvania DISTRIBUTOR Constellation Investment Distribution Company Inc. Berwyn, Pennsylvania ADMINISTRATOR Constellation Investment Management Company, LP Berwyn, Pennsylvania LEGAL COUNSEL Morgan, Lewis & Bockius LLP Philadelphia, Pennsylvania INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM KPMG LLP Philadelphia, Pennsylvania This report was prepared for sharholders of the Constellation Funds. It may be distributed to others only if preceded or accompanied by a Constellation Funds' prospectus, which contains detailed information. All Constellation Funds are offered by prospectus only. Beginning on the fiscal quarter ended December 31, 2004, the Trust will file each Funds' 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 website 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. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities, as well as information relating to how a Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, is available (i) without charge, upon request, (i) via the Fund's website, www.constellationfundsgroup.com; and (ii) on the Commission's website at http://www.sec.gov. CONSTELLATION FUNDS P.O. Box 219520 Kansas City, Missouri 64105-9520 1 (866) 242 5742 www.constellationfundsgroup.com 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 EX-31 2 ex31-1.txt EXHIBIT 31.1 CERTIFICATION Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, John H. Grady, Jr., certify that: 1. I have reviewed this report on Form N-CSR of the Constellation Funds; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) [intentionally left blank]; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 26, 2004 /s/ John H. Grady, Jr. - ---------------------- John H. Grady, Jr. President & CEO EX-31 3 ex31-2.txt EXHIBIT 31.2 CERTIFICATION Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Peter J. Golden, certify that: 1. I have reviewed this report on Form N-CSR of the Constellation Funds; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) [intentionally left blank]; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 26, 2004 /s/ Peter J. Golden - ---------------------- Peter J. Golden Controller & CFO EX-32 4 ex32-1.txt EXHIBIT 32.1 CERTIFICATION Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 The undersigned, the PRESIDENT & CEO of THE CONSTELLATION FUNDS (the "Fund"), with respect to the Form N-CSR for the period ended SEPTEMBER 30, 2004 as filed with the Securities and Exchange Commission, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certifies that, to the best of my knowledge: 1. such Form N-CSR fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. the information contained in such Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Fund. Dated: November 26, 2004 /s/ John H. Grady, Jr. ----------------------------------- John H. Grady, Jr., President & CEO EX-32 5 ex32-2.txt EXHIBIT 32.2 CERTIFICATION Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 The undersigned, the CONTROLLER & CFO of THE CONSTELLATION FUNDS (the "Fund"), with respect to the Form N-CSR for the period ended SEPTEMBER 30, 2004 as filed with the Securities and Exchange Commission, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certifies that, to the best of my knowledge: 1. such Form N-CSR fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. the information contained in such Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Fund. Dated: November 26, 2004 /s/ Peter J. Golden --------------------------------- Peter J. Golden, Controller & CFO -----END PRIVACY-ENHANCED MESSAGE-----