THE CFI IN THE RIGHT SEAT WAS GIVING DUAL TO THE LEFT SEAT CFI, WHO HAD NO EXPERIENCE IN TYPE. DURING THE INITIAL CLIMB, AT ABOUT 400-500 FT AGL, WITNESSES HEARD THE ENGINE LOSE POWER OR SURGE. THE AIRPLANE WAS SEEN TO ROLL TO ONE SIDE AND DESCEND STEEPLY TO IMPACT. THE AIRPLANE HAD BEEN EXTENSIVELY MODIFIED WITH AN UNAPPROVED WING TIP FUEL TANK SYSTEM ADDITION. THE FUEL SELECTOR VALVE FOR THE TIP TANKS DID NOT HAVE ANY PLACARDS SHOWING POSITION OR OPERATION. BOTH CFI'S HAD BEEN GIVEN INCORRECT INSTRUCTIONS ON HOW TO POSITION THE FUEL SYSTEM SELECTOR VALVES BY THE OWNER AND A MECHANIC WHO SIGNED OFF THE ANNUAL INSPECTION. POST-CRASH EXAMINATION REVEALED THAT THE STANDARD FACTORY FUEL SELECTOR WAS IN THE AUX POSITION, AND THE TIP TANKS FUEL SELECTOR VALVE WAS IN A HALF-ON/HALF-OFF POSITION. THE AIRPLANE ALSO HAD A POWERPLANT MODIFICATION FOR INCREASED HORSEPOWER AND OTHER AIRFRAME MODIFICATIONS, NOT ALL OF WHICH WERE DOCUMENTED OR APPROVED. THIS WAS THE FIRST FLIGHT SINCE THE ANNUAL INSPECTION.