Rule 497(e)
File No. 33-98164
EAI SELECT MANAGERS EQUITY FUND
PROSPECTUS DECEMBER 21, 1995
The EAI Select Managers Equity Fund (the "Fund") is a diversified,
open-end management investment company with a diversified equity portfolio.
The primary investment objective of the Fund is to achieve long-term capital
appreciation. The assets of the Fund are invested primarily in common stocks,
but may also be invested in convertible securities and fixed income securities.
Fund assets are managed by multiple subadvisers, which provides for a
diversified approach to the management of those assets. There can be no
assurance that the Fund can achieve its investment objective.
The Fund is authorized to offer its common shares (the "Shares") which
may be purchased at a price equal to their net asset value per share on a
continuous basis. Each Share represents an identical interest in the
investment portfolio of the Fund and has the same rights.
This prospectus sets forth concisely the information concerning the
Fund that a prospective investor ought to know before investing. It should be
read and retained for future reference. The Fund has filed with the Securities
and Exchange Commission a Statement of Additional Information, dated December
21, 1995, which contains more detailed information about the Fund and is
incorporated into this Prospectus by reference. A copy of the Statement
of Additional Information may be obtained without charge by contacting EAI
Securities Inc. at 200 Connecticut Avenue, Suite 700, Norwalk, Connecticut
06854-1958, (203) 855-2200.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
EAI SECURITIES INC. (203) 855-2200
[The text of this front cover, other than the heading and the
line at the bottom, is set forth on the right hand side of the
page. On the left hand side of the page there is a picture of a
compass sitting on top of a group of stock certificates. No
issuer is disclosed on any of the stock certificates.]
<PAGE>
SUPPLEMENT
DATED AS OF FEBRUARY 29, 1996
TO
PROSPECTUS DATED AS OF DECEMBER 21, 1995
The table under the heading "Performance Information" on pages 12 and
13 of the Prospectus is revised to read as follows:
<TABLE>
<CAPTION>
Time Period EAI Funds(1) S&P 500(2)
<S> <C> <C>
10 years 1986-1995 15.96% 14.86%
5 years 1991-1995 18.74% 16.56%
3 years 1993-1995 14.70% 15.31%
1 year 1995 30.25% 37.56%
</TABLE>
(1) The EAI Funds each had a net asset value of more than $67,000,000 as of
December 31, 1995. The combined net asset value of the EAI Funds on
December 31, 1995 was approximately $284,000,000. The composite does
not reflect all of the assets under the management of the Manager, the
Parent and their affiliates and may not accurately reflect the
performance of all accounts managed by them.
(2) The S&P 500 is an unmanaged capitalization-weighted index of 500
commonly traded stocks designed to measure performance of the broad
domestic economy through changes in the aggregate market value of those
stocks. The index reflects the reinvestment of dividends.
<PAGE>
SUPPLEMENT
DATED AS OF AUGUST 1, 1996
TO
PROSPECTUS
DATED AS OF DECEMBER 21, 1995
The following sentence is added after the first sentence of text under
the heading "The Subadvisers" on page 2 of the Prospectus:
The Manager has ultimate responsibility for the investment performance
of the Fund due to its responsibility to oversee the Subadvisers and to
recommend their hiring, termination and replacement.
The sixth and seventh sentences of text under the heading "The
Subadvisers" on page 2 of the Prospectus, which presently describe Hudson
Capital Advisors and Stonehill Capital Management, Inc., respectively, are
replaced with the following:
Iridian Asset Management LLC invests primarily in securities issued by
large-sized companies and focuses on value. Bennett Lawrence
Management, LLC invests primarily in securities issued by medium-sized
companies and focuses on growth.
The last paragraph under the heading "The Subadvisers" on pages 2 and 3
of the Prospectus is revised to read as follows:
Currently, the Investment Company Act of 1940, as amended (the
"1940 Act"), requires that the Shareholders of the Fund approve the
sub-advisory agreements between the Manager and the Subadvisers. The
Fund has received an exemptive order from the Securities and Exchange
Commission exempting it from the requirements that each sub-advisory
agreement be approved by a majority vote of the Shareholders of the
Fund. As a result of that exemptive order, the Manager is able,
subject to the approval of the Trustees, to engage and to terminate
Subadvisers, to change the terms of specific sub-advisory agreements,
or to continue the engagement of particular Subadvisers after events
which would otherwise require their automatic termination under the
1940 Act. While Shareholder approval is not required for the Manager
to terminate a sub-advisory agreement, the Shareholders still have the
ability to terminate such an agreement on their own at any time by a
vote of a majority of the outstanding Shares.
The following is added prior to "Performance Advertisements" on page 5
of the Prospectus:
FINANCIAL HIGHLIGHTS
The following table sets forth certain financial information for
the Fund, including total net assets of the Fund and net asset value
per Share of the Fund at the beginning and end of the period, per share
investment income and capital gains (losses), and distributions
thereof, distributions from capital, total return performance,
expenses and income ratios and portfolio turnover. The Fund does not
yet have audited financial statements for the periods listed below, so
the data set forth below is unaudited.
Financial statements and notes thereto are incorporated in the
Statement of Additional Information, which is available at no cost by
calling (203) 855-2200.
Financial Highlights
For a share outstanding throughout the period.
<TABLE>
<CAPTION>
For the Period
January 2, 1996 (a)
to June 30, 1996
(unaudited)
<S> <C>
Net Asset Value, Beginning of Period $10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.04*
Net Gains (Losses) on Securities
(both realized and unrealized) 0.66
Total from Investment Operations 0.70
Net Asset Value, End of Period $10.70
TOTAL RETURN (B) 7.00 %
Ratios/Supplementary Data:
Net Assets, End of Period (000) $93,454
Ratio of Expenses to Average Net Assets 1.15% (c) (d)
Ratio of Net Income to Average Net Assets 0.79% (d)
Portfolio Turnover Rate 88%
Average Commission Rate Paid $0.0524
___________________________________________
(a) Commencement of operations.
(b) Total return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, and a
redemption on the last day of the period. Total return for the
period ended June 30, 1996 was not annualized.
(c) Ratio would have been 1.46%, had the Manager not waived
expenses.
(d) Annualized.
*Based on average shares outstanding.
See Notes to Financial Statements.
</TABLE>
The sixth and seventh sentences of the second paragraph under the
heading "Investment Objectives and Policies" on pages 6 and 7 of the
Prospectus, which presently describe Hudson Capital Advisors and Stonehill
Capital Management, Inc., respectively, are replaced with the following:
Iridian Asset Management LLC invests primarily in securities issued by
large-sized companies and focuses on value. Bennett Lawrence
Management, LLC invests primarily in securities issued by medium-sized
companies and focuses on growth.
The following is added at the end of the first paragraph under the
heading "The Manager" on page 10 of the Prospectus:
The Manager has ultimate responsibility for the investment performance
of the Fund due to its responsibility to oversee the Subadvisers and to
recommend their hiring, termination and replacement.
The third and fourth paragraphs under the heading "The Subadvisers" on
page 10 of the Prospectus, which presently describe Hudson Capital Advisors and
Stonehill Capital Management, Inc., respectively, are replaced with the
following:
Iridian Asset Management LLC was formed in March, 1996 and is currently
owned by Harold Levy and David Cohen. Iridian Asset Management LLC is
the successor to Arnhold and S. Bleichroeder Capital, a division of
Arnhold and S. Bleichroeder, Inc. As of March 31, 1996, assets under
management totaled approximately $2.07 billion. Its address is 276
Post Road West, Westport, Connecticut 06880-4704.
Bennett Lawrence Management, LLC was formed in September, 1995 by
former employees of Deutsche Morgan Grenfell/C. J. Lawrence, Inc. The
firm is owned by its employees and is controlled by S. Van Zandt
Schreiber, its majority owner. As of December 31, 1995, assets under
management totaled $317 million. Its address is 757 Third Avenue, New
York, New York 10017.
The references to Hudson Capital Advisors and Stonehill Capital
Management, Inc. on page 11 of the Prospectus are replaced with the following:
Iridian Asset Management Inc. -- .375%
Bennett Lawrence Management, LLC-- .375%
<PAGE>
TABLE OF CONTENTS
INTRODUCTION ..............................................2
FUND EXPENSES .............................................4
PERFORMANCE ADVERTISEMENTS ................................5
ORGANIZATION OF FUND ......................................6
INVESTMENT OBJECTIVES
AND POLICIES ..............................................6
INVESTMENT TECHNIQUES AND
ASSOCIATED RISKS ..........................................7
MANAGEMENT OF THE FUND ....................................9
DISTRIBUTION OF THE
FUND'S SHARES ............................................12
PORTFOLIO TRANSACTIONS AND
BROKERAGE ................................................12
PERFORMANCE INFORMATION ..................................12
DESCRIPTION OF SHARES, VOTING
RIGHTS AND LIABILITIES ...................................13
DIVIDENDS AND DISTRIBUTIONS ..............................14
TAX INFORMATION ..........................................14
PURCHASE OF SHARES .......................................15
VALUATION OF SHARES ......................................17
REDEMPTION OF SHARES .....................................17
PENDING LITIGATION .......................................18
OTHER INFORMATION ........................................18
<PAGE>
INTRODUCTION
This Prospectus describes the shares offered by and operations of the
Fund. The Fund is a diversified, open-end management investment company which
was established in 1995. This Prospectus offers Shares of the Fund. See
"Description of Shares, Voting Rights and Liabilities" on page 13.
Investment Objective
The primary investment objective of the Fund is to achieve long-term
capital appreciation. The Fund attempts to achieve this objective by utilizing
subadvisers (the "Subadvisers") which have investment philosophies consistent
with this basic objective. The Subadvisers invest the assets of the Fund
primarily in a variety of equity securities, including common stocks, but may
also invest in convertible securities and fixed income securities with
a maximum remaining maturity of 15 years. The principal risks associated with
an investment in the Fund relate to the risks associated generally with equity
securities. See "Investment Objectives and Policies" on page 6 and "Investment
Techniques and Associated Risks" on page 7.
The Investment Adviser
The Fund is managed by Evaluation Associates Capital Markets,
Incorporated (the "Manager"), a registered investment adviser, commodity pool
operator and commodity trading adviser located in Norwalk, Connecticut. For
its services to the Fund, the Manager is entitled to a fee, payable quarterly,
at the rate of 0.92% per annum of the average daily net asset values of the
Fund. See "Management of the Fund" on page 9 for a description of the
Management Agreement.
The Subadvisers
The Manager is responsible, subject to the oversight of the Fund's
Board of Trustees, for the selection and supervision of the Subadvisers. When
originally selected by the Manager, the Subadvisers are generally small (less
than $750 million in total assets under management) and have only one or two
key investment professionals, although the Subadvisers may grow beyond these
parameters after their selection by the Manager (as several of the current
Subadvisers already have). The Fund presently has five Subadvisers, which are
listed in the remainder of this paragraph. Dietche & Field Advisers, Inc.
invests primarily in securities issued by medium to large-sized companies and
focuses on value and an "eclectic" mix (i.e., a selection of securities that
appear to be superior using various methods). Liberty Investment Management
invests primarily in securities issued by medium-sized companies and
focuses on growth and value. Hudson Capital Advisors invests primarily in
securities issued by medium to large-sized companies and focuses on growth and
an eclectic mix. Stonehill Capital Management, Inc. invests primarily in
securities issued by medium to large-sized companies and focuses on growth and
an eclectic mix. Equinox Capital Management, Inc. invests primarily in
securities issued by large-sized companies and focuses on value.
The Subadvisers are each entitled to a fee, payable quarterly by the
Manager. See "Management of the Fund" on page 9 and the Statement of
Additional Information for a description of the Manager and the Subadvisers.
Currently, the Investment Company Act of 1940, as amended (the "1940
Act"), requires that the Shareholders of the Fund approve the sub-advisory
agreements between the Manager and the Subadvisers. The Fund is seeking an
exemptive order from the Securities and Exchange Commission exempting it from
the requirements that each sub-advisory agreement be approved by a majority
vote of the Shareholders of the Fund. There can be no assurance that the
Fund's request for such an exemptive order will be granted. If the Securities
and Exchange Commission grants the Fund's application, the Manager will be
able, subject to the approval of the Trustees, to engage and to terminate
Subadvisers, to change the terms of specific sub-advisory agreements, or to
continue the engagement of particular Subadvisers after events which would
otherwise require their automatic termination under the 1940 Act. While
Shareholder approval would not be required for the Manager to terminate a
sub-advisory agreement, the Shareholders would still have the ability to
terminate such an agreement on their own at any time by a vote of a majority of
the outstanding Shares.
The Distributor
EAI Securities Inc. (the "Distributor"), an affiliate of the Manager,
serves as distributor of the Fund's shares. See "Distribution of the Fund's
Shares" on page 12 and the Statement of Additional Information.
Offering and Redemption Price
Shares of the Fund may be purchased through the Distributor, which
offers the Fund's shares on a continuous basis. The Shares are sold at the net
asset value per share next computed after the purchase order is received by DST
Systems, Inc. (the "Transfer Agent"). The minimum initial investment is
$500,000, and the minimum subsequent investment is $1,000, which minimums may
be waived by the Fund. See "Purchase of Shares" on page 15 and "Valuation of
Shares" on page 17.
Shares of the Fund may be redeemed at any time at the net asset value
per share next computed after receipt of a redemption request in proper form by
the Transfer Agent. See "Redemption of Shares" on page 17.
Risk Factors
There can be no assurance that the Fund will achieve its investment
objective. The Fund will invest primarily in a variety of equity securities,
and there are risks generally associated with such investments. These risks
include (i) ordinary market risks as a result of changing economic and market
conditions, (ii) the risks that result from investing in small to medium sized
companies, the securities of which (or the financial instruments related to
such securities) have a limited market, and (iii) the risk that during the
start-up phase of the Fund's operations, the Fund's expenses may constitute a
disproportionate percentage of the Fund's average net assets due to a
relatively low level of net assets. In addition, the specific types of
securities in which the Fund will invest also present risks that are peculiar
to those securities. For example, investments in foreign securities are
exposed to political and economic risks not associated with domestic
securities, as well as the possibility of the imposition of withholding
taxes and government restrictions on the sales of such securities. Investments
in illiquid securities are subject to greater risk of loss because they are not
readily marketable. Repurchase agreements involve certain risks in the event
of a default or insolvency by the other party. Warrants are generally
considered more speculative investments and are therefore subject to a greater
risk of loss. Investments in other investment companies investing in the
securities described above are subject to the same risks as a direct investment
in those securities. See "Investment Techniques and Associated Risks" on page
7 for a more detailed discussion of these risk factors.
FUND EXPENSES
The following table provides the investor with information concerning
annual operating expenses of the Fund. The expenses and fees set forth in the
table are projected for the Fund's initial fiscal year, on a pro forma basis.
The Fund has no operating history on which to base a historical disclosure of
fees:
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Load on Purchases None
(as a percentage of offering price)
Maximum Sales Load Imposed on Reinvested Dividends None
(as a percentage of offering price)
Deferred Sales Load None
(as a percentage of either original purchase
price or redemption proceeds)
Redemption Fee None
(as a percentage of amount received)
ANNUAL FUND OPERATING EXPENSES
Management Fees* 0.67%
Other Expenses 0.48%
Total Fund Operating Expenses+ 1.15%
_____________________
</TABLE>
*The Management Fees reflect the aggregate fees paid to the Manager and
each Subadviser. For a description of such fees, see "Management of the Fund"
on page 9 and the Statement of Additional Information.
+The Manager has committed to waive a portion of its fee for the first
year of operation of the Fund to the extent necessary to cap overall Fund
expenses at 1.15%. Thereafter, the Manager's fee may not be capped, and, if
not, the Manager's fee will be 0.92% per annum of the average daily net asset
value of the Fund and the total Fund operating expenses are expected to be
approximately 1.40%, assuming a net asset value for the Fund of at least $75
million. The table above reflects projected fees after giving effect to the
Manager's fee cap in the first year of the Fund's operation.
<TABLE>
<CAPTION>
Example 1 year 3 years
<S> <C> <C>
Assuming a hypothetical $1,000 investment and assuming (1) a
5% annual rate of return and (2) redemption at the end of each
time period, an investor would pay the following expenses:
$12 $44
An investor would pay the following expenses on the same
$1,000 investment assuming no redemption at the end of each
time period:
$12 $44
</TABLE>
The purpose of the table above is to help the investor understand the
various costs and expenses that the investor will bear directly or indirectly.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The
expenses set forth in this table are based on total Fund operating expenses of
1.15% in the Fund's first year (as a result of the Manager's fee cap
described above) and total Fund operating expenses of 1.40% each year
thereafter, assuming a net asset value for the Fund of at least $75 million.
For more complete descriptions of the various costs and expenses, see
"Management of the Fund" on page 9.
Payments of fees are stated as a percentage of net assets of the Fund.
"Other Expenses" is based on projected amounts for the initial fiscal year.
In certain instances, the Fund may enter into directed brokerage
arrangements in which it will direct the brokerage for certain securities
transactions to be entered into by its Subadvisers to a certain broker-dealer
in exchange for that broker-dealer's agreement to pay a portion of the
custodian, transfer agent or other administrative fees incurred by the Fund.
Such arrangements are discussed further herein. In addition, the Manager may
from time to time, but is not required to, waive all or a portion of the
management fee due to it under the Management Agreement. Any voluntary fee
waiver by the Manager may be terminated or reduced at any time in the sole
discretion of the Manager. Shareholders will be notified of any changes in
such fee waivers at the time they become effective. Directed brokerage
arrangements will not be effected at any time that the Manager has waived all
or a portion of the management fee due to it under the Management Agreement, in
accordance with the requirements of the 1940 Act and the rules thereunder.
The Manager has committed to waive a portion of its fee for the first
year of operation of the Fund to the extent necessary to cap overall Fund
expenses at 1.15% of the average of the daily net asset value of the Fund.
PERFORMANCE ADVERTISEMENTS
From time to time, the Fund may include performance data in
advertisements, sales literature or reports to current or prospective
shareholders. Performance data about the Fund is based on the Fund's past
performance only and is not an indication of future performance. Performance
data may be expressed in various measures, including total return for the
Fund's Shares or as a statistical reference to the Fund's volatility. Average
annual total return figures as prescribed by the Securities and Exchange
Commission represent the average annual percentage change in value of a $1,000
investment in the Fund for one-, five-, and ten-year periods, or any portion
thereof, to the extent applicable, through the end of the most recent
fiscal quarter, assuming reinvestment of all distributions. The Fund may also
furnish total return quotations for other periods, or based on investments of
other amounts. For such purposes, total return equals the total of all income
and capital gains paid to holders of Shares of the Fund, assuming reinvestment
of all distributions, plus (or minus) the change in value of the original
investment, expressed as a percentage of the purchase price. Volatility will
be measured as the standard deviation of the Fund's past performance. The Fund
may also include in advertisements, sales literature or reports a comparison of
Fund performance to the performance of other mutual funds or various unmanaged
indices. Unmanaged indices may assume the reinvestment of dividends, but
generally do not reflect deductions for administrative and management costs and
expenses.
Advertisements, sales literature and communications may also contain
information about the Fund's, the Manager's or the Subadvisers' current
investment strategies and management style. Current strategies and style may
change to allow the Fund to respond quickly to a changing market and economic
environment. From time to time, the Fund may discuss specific portfolio
holdings or industries in such communications.
Performance information for the Fund reflects only the performance of a
hypothetical investment in the shares of the Fund during the particular time
period on which the calculations are based. Performance information should be
considered in light of the Fund's investment objectives and policies,
characteristics and qualities of the Fund's portfolio, and the market
conditions during the given time period, and should not be considered as a
representation of what may be achieved in the future. For a description of the
methods used to determine total return and volatility, see the Statement of
Additional Information.
ORGANIZATION OF THE FUND
The Fund was organized on September 27, 1995 as a Massachusetts
business trust. The Fund is categorized as an open-end management company
under Sections 4 and 5 of the 1940 Act.
INVESTMENT OBJECTIVES AND POLICIES
The primary investment objective of the Fund is to achieve long-term
capital appreciation. There can be no assurance that the Fund will achieve its
objective. The Fund's investment objective is a fundamental policy and may not
be changed without majority shareholder approval. In addition, the Fund's
policy is to invest at least 65% of its total assets in equity securities, and
this is also a fundamental policy that may not be changed without majority
shareholder approval; provided however that the Fund may at times for defensive
purposes temporarily place all or a portion of its assets in cash, short-term
commercial paper, U.S. government securities, high quality debt securities and
obligations of banks when, in the judgment of the Manager or a Subadviser, such
investments are appropriate in light of economic or market conditions.
The Fund attempts to achieve its investment objective by utilizing
Subadvisers which have investment philosophies consistent with this basic
objective. The Subadvisers invest the assets of the Fund primarily in a
variety of equity securities, including common stocks, but may also invest in
convertible securities and fixed income securities with a maximum remaining
maturity of fifteen years. The Fund presently has five Subadvisers. Dietche &
Field Advisers, Inc. invests primarily in securities issued by medium to large-
sized companies and focuses on value and an "eclectic" mix (i.e., a selection
of securities that appear to be superior using various methods). Liberty
Investment Management invests primarily in securities issued by medium-sized
companies and focuses on growth and value. Hudson Capital Advisors invests
primarily in securities issued by medium to large-sized companies and
focuses on growth and an eclectic mix. Stonehill Capital Management, Inc.
invests primarily in securities issued by medium to large-sized companies and
focuses on growth and an eclectic mix. Equinox Capital Management, Inc.
invests primarily in securities issued by large-sized companies and focuses on
value.
The Fund does not propose to concentrate 25% or more of its total
assets in a particular industry or group of industries.
The Fund is subject to certain investment restrictions which may not be
changed without majority shareholder approval.
The Fund pursues its investment objectives primarily by investing in
equity or equity-related securities, which consist primarily of common stock,
American Depositary Receipts and convertible securities (including bonds).
To the extent consistent with its investment objectives and policies,
the Fund may also invest in fixed income securities for current income and
capital preservation. Such fixed income securities will have a maximum
remaining maturity of 15 years. The Fund will invest in fixed income
securities issued by the U.S. government and certain of its agencies and
instrumentalities, or corporate bonds or debentures that are rated not less
than Aa by Moody's or AA by Standard and Poor's or, in the case of debt
securities not rated by Moody's or Standard and Poor's, of comparable quality
as determined by the appropriate Subadviser (provided that the rating of
certain convertible fixed income securities may be lower). The Fund may also
invest in fixed income securities for capital appreciation. Fixed income
securities may have fixed or variable rates. The Fund may at times for
defensive purposes temporarily place all or a portion of its assets in cash,
short-term commercial paper, U.S. government securities, high quality debt
securities and obligations of banks when, in the judgment of the Manager or a
Subadviser, such investments are appropriate in light of economic or market
conditions.
INVESTMENT TECHNIQUES AND ASSOCIATED RISKS
The following are descriptions of certain types of securities invested
in by the Fund, certain investment techniques employed by the Fund, and risks
associated with using either those securities or those investment techniques.
General Risks Associated with the Fund
The Fund is subject to ordinary market risks as a result of changing
economic and market conditions which might affect the profitability and
financial condition of the companies in whose securities the Fund assets are
invested. In an attempt to mitigate the risk of loss of principal due to
market fluctuation for individual securities, the Fund invests primarily in a
diversified portfolio of equity securities. Moreover, the use of several
Subadvisers provides further diversification in the investments of the Fund.
Such diversification does not eliminate all risks and investors should expect
the net asset value of their shares in the Fund to fluctuate based on market
conditions or a variety of other factors, as discussed herein.
The securities of small to medium-sized (by market capitalization)
companies, or financial instruments related to such securities, may have a more
limited market than the securities of larger companies. Accordingly, it may be
more difficult to effect sales of such securities at an advantageous time or
without a substantial drop in price than it would be with securities of a
company with a larger market capitalization and broader trading market. In
addition, securities of a small to medium-sized company may have greater price
volatility as they are generally more vulnerable to adverse market factors such
as unfavorable economic reports.
The Fund is a newly organized investment company. During the start-up
phase of the Fund, Fund expenses may constitute a disproportionate percentage
of average Fund net assets due to a relatively low level of net assets.
Other Securities
In addition to the general risks associated with the Fund, certain
types of securities in which the Fund will invest present more specific risks.
Foreign Securities. While the Fund will not directly invest in foreign
securities, it may invest to a limited extent in sponsored or unsponsored
American Depository Receipts ("ADRs") or other investment companies that invest
in foreign securities, so the performance of these investments will depend upon
the performance of the underlying foreign securities. ADRs are dollar-
denominated receipts issued generally by U.S. banks and which represent a
deposit with the bank of a foreign company's securities. Unsponsored ADRs
differ from sponsored ADRs in that the establishment of unsponsored ADRs is not
approved by the issuer of the underlying foreign securities. Ownership of
unsponsored ADRs may not entitle the Fund to financial or other reports of the
issuer, to which it would be entitled as the owner of sponsored ADRs.
Investments in foreign securities involve risks that differ from investments
in securities of domestic issuers. Such risks may include political and
economic developments, the possible imposition of withholding taxes, possible
seizure or nationalization of assets, the possible establishment of exchange
controls or the adoption of other foreign governmental restrictions which might
adversely affect the Fund's investments. In addition, foreign countries may
have less well-developed securities markets as well as less regulation of
stock exchanges and brokers and different auditing and financial reporting
standards. Not all foreign branches of United States banks are supervised or
examined by regulatory authorities as are United States banks, and such
branches may not be subject to reserve requirements. Investing in the fixed-
income markets of developing countries involves exposure to economies
that are generally less diverse and mature, and to political systems which may
be less stable, than those of developed countries. Foreign securities often
trade with less frequency and volume than domestic securities and therefore may
exhibit greater price volatility. Changes in foreign exchange rates will
affect the value of those securities which are denominated or quoted in
currencies other than the U.S. dollar.
Illiquid Securities. The Fund may invest up to 15% of its net assets
in securities that are not readily marketable ("illiquid securities"). These
securities, which may be subject to legal or contractual restrictions on their
resale, may involve a greater risk of loss. Securities that are not registered
for sale under the Securities Act of 1933, as amended (the "1933 Act"),
but are eligible for resale pursuant to Rule 144A under the 1933 Act, will not
be considered illiquid for purposes of this restriction if the appropriate
Subadviser determines, subject to the review of the Trustees, that such
securities have a readily available market.
Repurchase Agreements. In a repurchase transaction, the Fund purchases
a security from a bank or a broker-dealer and simultaneously agrees to resell
that security to the bank or broker-dealer at an agreed upon price on an
agreed-upon date. The resale price reflects the purchase price plus an agreed
upon rate of interest. In effect, the obligation of the seller to repay the
agreed-upon price is secured by the value of the underlying security.
Repurchase agreements could involve certain risks in the event of default or
insolvency of the other party, including possible delays or restrictions upon
the Fund's ability to dispose of the underlying securities, and the value
received upon disposal being less than the amounts due the Fund. The Fund may
not invest in repurchase agreements with a maturity of more than seven days if
the aggregate of such investments, along with other illiquid securities,
exceeds 15% of the value of the Fund's net assets.
Warrants. The holder of a warrant has the right to purchase a given
number of shares of a particular issuer at a specified price until expiration
of the warrant. Such investments can provide a greater potential for profit or
loss than an equivalent investment in the underlying security, and are
considered speculative investments. For example, if a warrant were not
exercised by the date of its expiration, the Fund would lose its entire
investment. The Fund's investments in warrants will not exceed 5% of the value
of its net assets (calculated at market value at the time of each investment),
and not more than 2% of its net assets will be invested in warrants or rights
not listed on the New York Stock Exchange.
Investment Companies. The Fund may invest in other registered
investment companies which in turn invest in the types of securities discussed
in the preceding paragraphs. As such, the performance of the Funds's
investments in those other investment companies will be subject to the sorts of
risks described in the preceding paragraphs. Pursuant to the 1940 Act,
the Fund may acquire no more than 3% of the outstanding voting stock of any
single investment company, and it may invest no more than 5% of its assets in
any one investment company and no more than 10% of its assets (in each case
taken at market value and measured immediately after giving effect to such
investment) in all of the investment companies whose securities it owns. When
the Fund invests in the securities of other registered investment companies,
certain expenses, such as management fees, will be duplicated.
Portfolio Turnover
In carrying out the investment policies described in this Prospectus,
the Fund expects to engage in a substantial number of securities portfolio
transactions, and the rate of portfolio turnover will not be a limiting factor
when a Subadviser deems it appropriate to purchase or sell securities for the
Fund. The Fund estimates that its annual turnover rate will not exceed
200%. High portfolio turnover involves correspondingly greater brokerage
commissions for the Fund and other transaction costs that are borne directly by
the Fund. In addition, high portfolio turnover may also result in increased
short-term capital gains which, when distributed to shareholders, are treated
for federal income tax purposes as ordinary income. See "Portfolio
Transactions and Brokerage" on page 12 and "Tax Information" on page 14.
MANAGEMENT OF THE FUND
Board of Trustees
The Board of Trustees of the Fund (the "Trustees") is responsible for
the overall supervision of the operations of the Fund. The Trustees perform
the duties imposed on them by the 1940 Act and the Massachusetts General Laws.
In addition to their other duties, the Trustees appoint the officers of the
Fund annually and approve the selection and termination of the Subadvisers.
More information on the Trustees is set forth in the Statement of Additional
Information.
The Manager
Pursuant to a Management Agreement (the "Management Agreement"), the
Manager acts as investment adviser for the Fund. In this capacity, the
Manager, subject to the authority of the Trustees, is responsible for the
overall management of the Fund's business affairs. This responsibility
includes the selection and termination of the Subadvisers and the allocation of
portfolio assets among the Subadvisers, subject in each case to the oversight
of the Trustees.
EAI Partners, L.P., the Manager's direct parent (the "Parent"), and its
predecessors together have more than 19 years of experience in the investment
consulting business. The Parent is presently owned by certain employees and
certain non-employee investors. Equity interests in the Parent are owned by a
total of 29 entities, and no single equity holder holds more than 25% of the
outstanding equity interests of the Parent. The Parent and its subsidiaries
together currently have more than 100 employees, approximately 55 of which are
professional staff. The Parent, directly and through the Manager, offers
services which are generally divided between investment consulting services,
including manager evaluation and performance evaluation services, and the
management of multi-adviser funds for a number of institutional and high net
worth individual clients. The Manager's address is 200 Connecticut Avenue,
Suite 700, Norwalk, Connecticut 06854-1958.
The Subadvisers
Dietche & Field Advisers, Inc. was formed in November, 1984 and is
currently owned by its employees. As of December 31, 1994, it had $3.2 billion
of assets under management. Its address is 437 Madison Avenue, New York, New
York 10022.
Liberty Investment Management (formerly Eagle Asset Management) was
originally formed in January, 1976 and is currently wholly owned by Herbert E.
Ehlers. As of December 31, 1994, it had $4.4 billion of assets under
management. Its address is 2502 Rocky Point Drive, Tampa, Florida 33607.
Hudson Capital Advisors was formed in January, 1987. The firm is a
division of Fahnestock & Co., Inc., which is a wholly owned subsidiary of
Fahnestock Viner Holdings Inc., a publicly held Canadian company. As of
December 31, 1994, assets under management totalled $788 million. Its address
is 805 Third Avenue, New York, New York 10022.
Stonehill Capital Management was formed in April, 1989. The firm is
owned by Robert Emerson. As of December 31, 1994, assets under management
totalled $163 million. Its address is 277 Park Avenue, New York, New York
10052.
Equinox Capital Management, Inc. was formed in May, 1989. The firm is
owned by its employees. As of December 31, 1994, assets under management
totalled $3.3 billion. Its address is 399 Park Avenue, New York, New York
10022.
Compensation
As compensation for its services, the Manager is entitled to a fee,
payable quarterly, at the annual rate of 0.92% of the average of the daily net
asset value of the Fund. This fee is higher than the management fee paid by
most investment companies. The Management Agreement also provides that the
Fund will reimburse the Manager on a cost basis in the event that the Manager
provides any services involved in maintaining registrations of the Fund and
its shares with the Securities and Exchange Commission or involved in the
preparation of shareholder reports and further provides that the Manager will
reimburse the Fund for the amount, if any, of the expenses of the Fund
(including the Manager's compensation but excluding interest, brokerage costs,
taxes and extraordinary expenses) for any fiscal year which exceeds the level
of expenses which the Fund is permitted to bear under the most restrictive
expense limitation imposed (and not waived) on the Fund by any state in which
the shares of the Fund are then qualified for sale. The Manager has committed
to waive a portion of its fees for the first year of operation of the Fund to
the extent necessary to cap overall Fund expenses at 1.15%.
The Manager pays a portion of its management fees to the Subadvisers
pursuant to the Sub-advisory Agreements between the Manager and each
Subadviser. The following are the amounts paid to each Subadviser (expressed
as a per annum percentage of the average of the monthly net asset value of the
assets of the Fund managed by such Subadvisor):
Dietche & Field Advisers, Inc. - .375%
Liberty Investment Management - .375%
Hudson Capital Advisors - .375%
Stonehill Capital Management, Inc. - .375%
Equinox Capital Management, Inc. - .375%
The amount of the management fee that will be retained by the Manager
may vary according to the allocation of Fund assets among the Subadvisers. It
is presently estimated that, in the first fiscal year of the Fund, the Manager
will pay approximately 41% of the management fee it receives under the
Management Agreement to the Subadvisers and will retain approximately 59% of
that fee for itself, assuming the Manager's cap on its management fees in the
first year of the Fund's operation does not impact these percentages.
The Portfolio Manager
Mr. Keith Stransky will serve as portfolio manager of the Fund. Mr.
Stransky is Senior Vice President and Director of Traditional Funds Management
and Research for the Manager. Mr. Stransky joined the Parent in 1983, and
prior to that he was the Technical Director for Hamilton, Johnston & Co., Inc.
Mr. Stransky has 20 years of consulting-related investment experience. Mr.
Stransky is a Chartered Financial Analyst.
The Fund will retain Van Eck Associates Corporation to perform
administrative and accounting functions for it. These functions will include
legal, accounting, regulatory and compliance services, state registration
services, corporate secretary and board of trustees administration, tax
compliance services and reporting. Van Eck Associates Corporation receives an
annual fee, payable monthly, at a per annum percentage of the average daily net
asset value of the assets of the Fund. The annual fee is graduated, beginning
at .20% of the average daily net assets of the Fund if such assets during the
month the fee is calculated are less than $100 million and ending at .12% of
the average daily net assets of the Fund if such assets during the month the
fee is calculated are equal to or more than $260 million. There is a minimum
annual fee of $100,000 payable to Van Eck Associates Corporation.
The Manager may compensate certain financial institutions that are not
affiliated with the Fund or the Distributor out of its own funds in connection
with certain sales to Shareholders. Those financial institutions will be
compensated for providing assistance in marketing the Shares of the Fund.
The Custodian and the Transfer Agent
Boston Safe Deposit and Trust Company will serve as the Fund's
Custodian pursuant to a Custody Agreement. Its address is One Boston Place,
Boston, Massachusetts 02108.
DST Systems, Inc. will serve as the Fund's transfer, dividend
disbursing and shareholder servicing agent pursuant to an Agency Agreement.
Its address is 1004 Baltimore, Kansas City, Missouri 64105-1802.
DISTRIBUTION OF THE FUND'S SHARES
The Distributor
The Distributor will serve as the distributor of the shares of the
Fund. Its address is 200 Connecticut Avenue, Norwalk, Connecticut 06854-1958.
The Distributor will distribute the shares of the Fund solely on a subscription
basis.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Each Subadviser is responsible for decisions to buy and sell securities
using the Fund assets allocated to it, as well as for broker-dealer selection
in connection with the portfolio managed by such Subadviser. Each Subadviser
will adhere to the Fund's policy of seeking the best execution and price (which
in some instances may include paying higher brokerage commissions for brokerage
and research services provided to the Fund and may include the directed
brokerage arrangements described in the next paragraph).
In certain instances, the Fund may enter into directed brokerage
arrangements in which it will direct the brokerage for certain securities
transactions to be entered into by its Subadvisers to a certain broker-dealer
in exchange for that broker-dealer's agreement to pay a portion of the
custodian, transfer agent or other administrative fees incurred by the Fund.
Directed brokerage transactions will only be executed if, in light of the
offsetting reduction in administrative fees to be incurred by the Fund, they
represent the best execution and price for that transaction or as good
execution and price as would otherwise be available to the Fund. As stated
above, directed brokerage arrangements will not be effected at any time that
the Manager has waived all or a portion of its management fee.
The Manager and/or one or more of the Subadvisers may use an affiliated
broker/dealer to execute transactions on behalf of the Fund. In addition, the
Manager may participate in the directed brokerage arrangement described above
with an affiliated broker/dealer.
PERFORMANCE INFORMATION
As stated above, the Manager, the Parent and their predecessors
together have more than 19 years of experience in the investment consulting and
management business. Among the assets under the management of the Parent and
the Manager are, respectively, The EAI Small Managers Equity Fund Trust (the
"SMEF Trust") and the W.R. Investment Partners Long Equity Fund, L.P. (the
"Long Fund" and, collectively with the SMEF Trust, the "EAI Funds"), two
collective investment funds with investment objectives, policies and strategies
that are substantially identical to those of the Fund. The following table
presents the average annual total return of the EAI Funds for the periods shown
and compares that return to the average annual total return of the Standard &
Poor's 500 Stock Index (the "S&P 500") for those periods. The figures for the
EAI Funds represent the average annual total return of the two funds as if
their assets were combined, and include the impact of capital appreciation as
well as the reinvestment of interest and dividends. The Long Fund became
operative on March 1, 1993, and the figures set forth below include its
performance since that time. THE FOLLOWING TABLE REPRESENTS ONLY THE HISTORIC
PERFORMANCE OF THE TWO FUNDS MENTIONED ABOVE, AND SHOULD NOT BE CONSIDERED AS
AN INDICATION OF THE FUTURE PERFORMANCE OF THE FUND.
<TABLE>
<CAPTION>
Time Period EAI Funds(1) S&P 500(2)
<S> <C> <C>
10 years 1985-1994 16.40% 14.36%
5 years 1990-1994 11.19 8.67
3 years 1992-1994 10.09 6.25
1 year 1994 -1.90 1.28
</TABLE>
(1) The EAI Funds each had a net asset value of more than $48,000,000 as of
December 31, 1994. The combined net asset value of the EAI Funds on
December 31, 1994 was approximately $265,000,000. The composite does
not reflect all of the assets under the management of the Manager, the
Parent and their affiliates and may not accurately reflect the
performance of all accounts managed by them.
(2) The S&P 500 is a market weighted index composed of 500 companies with
market capitalizations over $5,000,000,000. The index is unmanaged and
reflects the reinvestment of dividends.
The performance figures set forth above for the EAI Funds include fees
and expenses paid by the EAI Funds which, on a weighted net basis, were
approximately 1.03% to 1.20% per year, which is less than the estimated fees to
be incurred by the Fund when the cap on the management fee to be paid to the
Manager is no longer in effect. Those figures also reflect a rebate of
management fees paid to certain investors that are affiliated with the Parent
and the Manager.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Fund offers one class of Shares. The Shares have no par value, and
the Fund may increase the number of Shares without the approval of the existing
Shareholders, provided that any such increase may not decrease the net asset
value of the existing Shares. Shares of the Fund are entitled to one vote per
share. Shareholders have the right to vote on the election of the Trustees and
on all other matters on which, by law or by the Fund's Declaration of Trust,
they may be entitled to vote.
The Fund is not required, and does not intend, to hold annual meetings
of Shareholders under normal circumstances. The Trustees or the Shareholders
may call special meetings of the Shareholders for action by Shareholder vote,
including the removal of any or all of the Trustees. Trustees will call a
special meeting of Shareholders of the Fund upon written request of the holders
of at least 10% of the outstanding Shares.
Under Massachusetts law, the shareholders and trustees of a business
trust like the Fund may, in certain circumstances, be personally liable for the
trust's obligations to third parties. However, the Fund's Declaration of Trust
provides, in substance, that no Shareholder or Trustee shall be personally
liable for the Fund's obligations to third parties and that every written
contract made by the Fund shall contain a provision to that effect. The Fund's
Declaration of Trust also requires the Fund to indemnify Trustees against such
liabilities and any related claims and expenses. The Fund will not indemnify a
Trustee when the loss is due to willful misconduct, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of the Trustee's
office.
The Fund is presently wholly owned by the Manager as a result of the
Manager's initial capital investment of $100,000 in the Fund. The Manager will
sell its interest in the Fund when the organization costs of the Fund are fully
amortized.
Organization expenses will be capitalized by the Fund and amortized
over 60 months.
Shareholder inquiries should be made to the Fund at 200 Connecticut
Avenue, Suite 700, Norwalk, Connecticut 06854-1958, (203) 855-2200.
DIVIDENDS AND DISTRIBUTIONS
Income dividends will normally be paid by the Fund on at least an
annual basis. Income dividends will normally be declared on the fourth business
day prior to the end of the dividend period, payable on the following business
day, to Shareholders of record on the day prior to the declaration date.
Distributions of any capital gains will normally be paid at least annually.
Unless a Shareholder has elected to receive dividends and distributions in
cash, all dividends and distributions will be reinvested in additional shares
of the Fund (at net asset value at the time of reinvestment). Any election may
be changed at any time by delivering written notice to the Fund at least ten
business days prior to the payment date.
TAX INFORMATION
The Fund intends to qualify as a regulated investment company under the
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), that
relieve such investment companies which distribute substantially all of their
net income (both net investment income and net capital gains) from Federal
income tax on the amounts distributed.
All income dividends and distributions designated as capital gains are
generally taxable to Shareholders for Federal income tax purposes whether
received in cash or additional shares. Shareholders exempt from or otherwise
not required to pay Federal income tax will not be required to pay that tax on
such amounts distributed to them except to the extent that the Shares with
respect to which such amounts were distributed were acquired with outstanding
debt. The Fund will inform Shareholders of the amount and nature of dividends,
distributions and capital gains.
In addition, depending upon whether certain participant directed
account plans (within the meaning of Section 404(c) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) that currently invest in the
SMEF Trust choose to invest in the Fund and depending upon their level of
investment, it is possible that the Fund will be a personal holding company
under the Code. This would result in the Fund being subject to Federal
income tax at the maximum rate applicable to corporations for the tax year
involved on any amount by which the Fund failed or was unable to make
distributions to Shareholders sufficient in amount to avoid that tax entirely.
In addition, it would result in the Fund being subject to personal holding
company tax, at the rate of 39.6%, on any amount by which the Fund failed or
was unable to make distributions to Shareholders sufficient in amount to avoid
personal holding company tax entirely.
Shareholders should consult with their own tax advisers for more
information regarding the Federal, foreign, state and local tax rules
applicable to ownership and disposition of Shares of the Fund by them. See
"Federal Income Tax Status" in the Statement of Additional Information.
PURCHASE OF SHARES
The Shares are offered on a continuous basis and are sold at the net
asset value per share next computed after the purchase order is received by the
Fund's Transfer Agent. The Shares are sold without any sales loads or charges.
There is a minimum purchase requirement of $500,000 for initial purchases of
the Shares and of $1,000 for additional purchases of the Shares, which minimums
may be waived by the Fund. It is contemplated that employees of the Parent and
its affiliates may purchase Shares, and such minimums may be waived for such
purchases.
Purchases of Shares directly from the Trust may be made by check by
sending an account application and a check (payable to EAI Select Managers
Equity Fund) to EAI Select Managers Equity Fund, c/o DST Systems, Inc., P.O.
Box 419563, Kansas City, Missouri 64141-9563. Overnight deliveries may be sent
to 1004 Baltimore, Kansas City, Missouri 64105-1802. Purchases may also be
made directly by Federal Funds or bank wire; please call the Transfer Agent at
800-798-8055 to obtain an account number and bank wire instructions in
advance of purchase.
Certain states may require registered investment advisers that purchase
Shares for customers in those states to register as broker-dealers. From time
to time the Distributor may supply material to registered investment advisers
and other investment professionals to assist them in formulating an investment
program using the Fund for their clients. Such materials are designed to be
used and evaluated by investment professionals, do not contain investment
advice and are not available for distribution to the general public.
Certain investors may purchase or sell Shares through broker-dealers or
through other processing organizations that may impose transaction fees or
other charges in connection with providing this service, which fees and charges
the Fund believes will be disclosed to such investors. Shares purchased in
this manner may be treated by the Fund as a single account for purposes of the
minimum initial investment. Investors are not required to utilize the services
of a broker-dealer or other processing organization and may purchase Shares
directly from the Fund.
Shares are offered and orders accepted on each business day (i.e. a day
on which the New York Stock Exchange ("NYSE") is open for trading). The Fund
may limit or suspend the offering of Shares at any time and may refuse, in
whole or in part, any order for the purchase of Shares. Orders received by the
Fund or the Transfer Agent prior to 4:00 p.m. New York time on any business day
will receive the offering price computed for that day. Orders received after
4:00 p.m. New York time shall receive the offering price for the next
business day.
Wire transfers of funds used to pay for purchases of Shares must be
received by 3:00 p.m. New York time on the business day following the purchase.
Purchases paid for by check are effected when the check is received but are
subject to collection at full face value in U.S. funds and must be drawn in
U.S. dollars on a bank chartered by the United States or a state thereof. If a
check used to purchase Shares does not clear, the transaction will be canceled
and the investor will be responsible for any loss the Fund incurs. In
addition, the Fund may prohibit the future purchase of Shares by any investor
that fails to pay for a purchase of Shares. To ensure that checks are
collected by the Trust, redemptions of Shares purchased by check will not be
effected until the check clears, which could take as long as 15 days after the
date of purchase.
Shares of the Fund may also be purchased in exchange for securities
held by an investor which are acceptable to the Fund. Investors interested in
exchanging securities must first telephone the Manager at (203) 855-2200 for
instructions regarding submission of a written description of the securities
the investor wishes to exchange. Within five business days of the receipt of
the written description, the Manager will advise the investor by telephone
whether the securities to be exchanged are acceptable to the Fund and will
instruct the investor regarding delivery of the securities. There is no charge
for this review by the Manager.
Securities accepted by the Fund are valued in the manner and on the
days described in the section entitled "Valuation of Shares" as of the close of
business on the NYSE, generally 4:00 p.m. New York time. Acceptance may occur
on any day during the five-day period afforded the Manager to review the
acceptability of the securities. Securities which have been accepted by the
Fund must be delivered within five days following acceptance. Delivery
instructions will be provided at the time of acceptance.
The value of the securities to be exchanged and of the Shares of the
Fund may be higher or lower on the day Fund Shares are offered than on the date
of receipt by the Manager of the written description of the securities to be
exchanged. The number of Shares of the Fund received in exchange for such
securities will depend on the value of the securities and the net asset value
of Fund Shares next determined following acceptance on the day Fund Shares are
offered. Securities to be exchanged must be accompanied by a transmittal form
which is available from the Manager.
A gain or loss for federal income tax purposes may be realized by the
investor upon the securities exchange, computed by reference to the tax basis
of the securities tendered, depending upon various factors relating to the
timing of other such in-kind purchases of the Fund's Shares and the make-up of
the securities exchanged therefor. (See "Federal Income Tax Status" in the
Statement of Additional Information.) All interest, dividends, and
subscription or other rights with respect to accepted securities which go "ex"
after the time of valuation become the property of the Fund and must be
delivered to the Fund by the investor forthwith upon receipt from the issuer.
Further, the investor may be required to represent and agree that all
securities offered to the Fund are not subject to any restrictions upon their
sale by the Fund under the 1933 Act, or otherwise.
In order to avoid unnecessary expenses and administrative
complications, certificates for the Shares will not be issued. All share
purchases will be confirmed to the record holder and credited to such holder's
account on the Fund's books maintained by the Transfer Agent.
It is presently expected that, in order to comply with a recent release
by the staff of the Securities and Exchange Commission regarding the treatment
of investment vehicles used by certain employee pension and benefit plans for
purposes of the 1940 Act, certain participant directed account plans with the
meaning of Section 404(c) of ERISA investing in the SMEF Trust will be asked to
withdraw their investments from that Trust. Those plans will be offered,
through this Prospectus, the opportunity to invest in the Fund the securities
that they receive from that Trust upon their withdrawal. If those plans choose
to invest in the Fund, it is anticipated that much of the Fund's initial
portfolio of assets will be comprised of securities obtained from those plans.
VALUATION OF SHARES
As stated above, the Shares are sold at net asset value per share for
the date of determination. Net asset value per share is determined as of the
close of business on the NYSE, generally 4:00 p.m. New York time, on each
business day. Net asset value per share is equal to the net worth of the Fund
(assets minus liabilities) divided by the number of shares outstanding. Assets
and liabilities are determined in accordance with generally accepted
accounting principles and applicable rules and regulations of the Securities
and Exchange Commission.
Securities held by the Fund which are traded on a national exchange are
valued based on the last quoted sales price on such exchange on or recently
before the valuation date (or if the securities are traded on more than one
exchange on or recently before the valuation date, the principal exchange that
such securities are traded on, as determined by the appropriate Subadviser) or,
if there has been no recent sale of securities, at the last bid price. Over-
the-counter securities for which market quotations are readily available are
valued on the basis of the last sale price or, lacking any sales, at the last
quoted bid price. Securities and other investments for which market quotations
are not readily available are valued at fair value, as determined in good faith
and pursuant to procedures established by the Trustees.
REDEMPTION OF SHARES
Any Shareholder may require the Fund to redeem its Shares at any time
at their net asset value next computed after receipt of the redemption order by
the Transfer Agent. The Fund may, however, refuse to effect such a redemption
within seven days after receipt of the redemption order (i) for any period
during which (a) the NYSE is closed other than customary weekend and holiday
closings, (b) trading on the NYSE is restricted, or (c) an emergency
exists as a result of which disposal by the Fund of securities is not
reasonably practicable or it is not reasonably practicable for the Fund to
determine fairly the value of its net assets, or (ii) for such other periods as
the Securities and Exchange Commission may by order permit for the protection
of Shareholders of the Fund. In addition, redemption of purchases made by
check are restricted as described above.
Any redemption orders received as indicated below before the close of
trading on the NYSE (generally 4:00 p.m. New York time) on a day when the
Transfer Agent is open for business will receive the net asset value determined
on that date. Any redemption orders received after such time will receive the
net asset value determined on the following business day. The Fund cannot
accept redemption orders transmitted to it at the address indicated on
the cover page of the Prospectus, but will use its best efforts to promptly
forward such orders to the Transfer Agent for receipt by the next business day.
An investor's investment professional is responsible for promptly transmitting
orders. There is no redemption charge.
Due to the relatively high cost of maintaining small accounts, the Fund
reserves the right to redeem a Shareholder account (after 60 days' notice) when
the value of the Shares in that account falls below $500,000 due to
redemptions. Whether the Fund will exercise its right to redeem a specific
Shareholder account in these circumstances will be determined by the Fund on a
case-by-case basis.
Redemption orders should be mailed or telephoned to the Transfer Agent.
The Transfer Agent's mailing address is P.O. Box 419563, Kansas City, Missouri
64141-9563. Overnight deliveries may be sent to 1004 Baltimore, Kansas City,
Missouri 64105-1802. The Transfer Agent's telephone number is 800-798-8055. A
redemption order should include the name of the Fund, the Shareholder's account
name and number, and the number of Shares to be redeemed. In addition,
redemption orders which are submitted in writing must be signed by the
Shareholder. For telephone redemption orders, address and bank account
information will be verified, telephone redemption instructions will be
recorded on tape, and all redemptions will be confirmed in writing to the
Shareholder. If there has been a change of address in the past 60 days, a
telephone redemption will not be authorized. The Fund and the Transfer Agent
will employ reasonable procedures to confirm that redemption orders placed
by telephone are genuine, and failure to do so or to follow such procedures
could result in the Fund and/or the Transfer Agent being held liable for losses
resulting from unauthorized or fraudulent instructions. Telephone redemption
orders must be received by the close of trading on the New York Stock Exchange
on a day when the Transfer Agent is open for business.
If the amount of a redemption is greater than $1,000, the proceeds will
be wired to a designated U.S. commercial bank account. If the amount of the
redemption is less than $1,000, the proceeds will be sent via U.S. Mail to the
address of record on the Shareholder's account. As stated above, any
redemption of Shares purchased by check will not be effected until 15 days
after the date of purchase.
To the extent consistent with state and Federal law, the Fund may make
payment of the redemption price either in cash or in kind. However, the Fund
has elected, pursuant to Rule 18f-1 under the 1940 Act, to pay in cash all
redemptions requested by any Shareholder of record, limited in amount with
respect to each Shareholder during any 90-day period to the lesser of (i)
$250,000 or (ii) 1% of the net asset value of the Fund at the beginning of such
period. This election is irrevocable while Rule 18f-1 is in effect unless the
Securities and Exchange Commission, by order, permits the withdrawal thereof.
In the case of a redemption in kind, securities delivered in payment for Shares
would be valued at the same value assigned to them in computing the net asset
value of the Fund. A Shareholder receiving such securities would incur
brokerage costs when he sold the securities.
A complete description of redemption procedures is included in the
Statement of Additional Information.
PENDING LITIGATION
On October 11, 1995, the Parent brought a declaratory judgment action
against First Commercial Trust Company, N.A., in United States District Court
for the District of Connecticut. On October 26, 1995, First Commercial Trust
Company, N.A., brought an action against The Managers Funds, The Managers
Funds, L.P., Piper Jaffray Companies, Inc., TCW Funds Management Inc.,
Standish, Ayer & Wood, Inc., the Parent, and certain affiliates of the above
parties. Both actions relate primarily to the 1994 performance of and
investment techniques employed in certain fixed income mutual funds offered by
The Managers Funds. The Parent serves as a consultant to The Managers Funds,
L.P., the investment adviser to The Managers Funds.
OTHER INFORMATION
Inquiries and requests for the Statement of Additional Information
should be directed to EAI Securities Inc., 200 Connecticut Avenue, Suite 700,
Norwalk, Connecticut 06854-1958 or (203) 855-2200.
<PAGE>
[Back Cover of Prospectus]
[compass graphic] EAI SELECT
EAI Select Managers Equity Fund
EAI Securities Inc.
200 Connecticut Avenue
Suite 700
Norwalk, CT 06854-1958
[The text of this back cover is set forth in the bottom left hand
corner of the page. On the right hand side of the page there is a
picture of a compass sitting on a group of stock certificates. No
issuer is disclosed on any of the stock certificates.]
<PAGE>
EAI SELECT MANAGERS EQUITY FUND
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 21, 1995
200 Connecticut Avenue, Suite 700, Norwalk, Connecticut 06854-1958
(203) 855-2200
Shareholder Services (800) 798-8055
This Statement of Additional Information relates to the EAI Select
Managers Equity Fund (the "Fund"). This Statement of Additional Information is
not a prospectus; it should be read in conjunction with the Prospectus of the
Fund dated December 21, 1995, copies of which may be obtained without charge by
contacting EAI Securities Inc. at 200 Connecticut Avenue, Suite 700, Norwalk,
Connecticut 06854-1958, (203) 855-2200.
This Statement of Additional Information is authorized for distribution
to prospective investors only if preceded or accompanied by an effective
prospectus.
<PAGE>
SUPPLEMENT
DATED AS OF AUGUST 1, 1996
TO
STATEMENT OF ADDITIONAL INFORMATION
DATED AS OF DECEMBER 21, 1995
The fourth and fifth paragraphs under the heading "The Manager and the
Subadvisers" on pages 9 and 10 of the Statement of Additional Information,
which presently describe Hudson Capital Advisors and Stonehill Capital
Management, Inc., respectively, are replaced with the following:
Iridian Asset Management LLC is controlled by Harold Levy and David
Cohen.
Bennett Lawrence Management, LLC is controlled by S. Van Zandt
Schreiber, the majority owner of that firm.
The references to Hudson Capital Advisors and Stonehill Capital
Management, Inc. under the heading "The Management Agreement" on page 10 of the
Statement of Additional Information are replaced with the following:
Iridian Asset Management LLC -- .375%
Bennett Lawrence Management, LLC-- .375%
<PAGE>
TABLE OF CONTENTS
INVESTMENT RESTRICTIONS AND OPERATING POLICIES ........................1
PORTFOLIO TURNOVER ....................................................3
TRUSTEES AND OFFICERS .................................................3
CONTROL OF THE FUND ...................................................6
INVESTMENT ADVISORY AND OTHER SERVICES ................................6
TRANSACTIONS IN PORTFOLIO SECURITIES .................................10
SHARES OF THE FUND ...................................................11
PURCHASE AND PRICING .................................................12
FEDERAL INCOME TAX STATUS ............................................12
PERFORMANCE DATA .....................................................14
FINANCIAL STATEMENTS .................................................15
<PAGE>
INVESTMENT RESTRICTIONS AND OPERATING POLICIES
Except as described below, the following investment restrictions are
fundamental and may not be changed without the approval of a majority of the
outstanding voting securities of the Fund, as such terms are defined in the
Investment Company Act of 1940, as amended (the "1940 Act"). The Fund may not:
1. Invest in securities of any one issuer (other than securities
issued by the U.S. Government, its agencies and instrumentalities), if
immediately after and as a result of such investment the current market value
of the holdings of its securities of such issuer exceeds 5% of its total
assets.
2. Invest more than 25% of the value of its total assets in the
securities of companies primarily engaged in any one industry (other than the
United States Government, its agencies and instrumentalities). Such
concentration may occur incidentally as a result of changes in the market value
of portfolio securities, but such concentration may not result from investment.
Neither finance companies as a group nor utility companies as a group are
considered a single industry for purposes of this restriction. (Unless
otherwise provided, for purposes of this restriction, the term "industry" shall
be defined by reference to the Securities and Exchange Commission ("SEC")
Industry Codes set forth in the Directory of Companies Required to File
Annual Reports with the Securities and Exchange Commission.)
3. Acquire more than 10% of the outstanding voting securities of any
one issuer.
4. Borrow amounts in excess of 33 1/3% of its total assets taken at
cost or at market value, whichever is lower. It may borrow only from banks as
a temporary measure for extraordinary or emergency purposes. It will not
mortgage, pledge or in any other manner transfer any of its assets as security
for any indebtedness.
5. Invest more than 15% of the value of its net assets in illiquid
instruments including, but not limited to, securities for which there are no
readily available market quotations, dealer (OTC) options, assets used to cover
dealer options written by it, repurchase agreements which mature in more than 7
days, variable rate industrial development bonds which are not redeemable on 7
days demand and investments in time deposits which are non-negotiable and/or
which impose a penalty for early withdrawal.
6. Invest in companies for the purpose of exercising control or
management.
7. Purchase or sell real estate; provided, however, that it may invest
in securities secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein.
8. Purchase or sell physical commodities, except that the Fund may
purchase or sell options and futures contracts thereon (subject to Board of
Trustees approval).
9. Engage in the business of underwriting securities issued by others.
10. Participate on a joint or a joint and several basis in any trading
account in securities. The "bunching" of orders for the sale or purchase of
marketable portfolio securities with other accounts under the management of any
Subadviser in order to save brokerage costs or to average prices shall not be
considered a joint securities trading account.
11. Make loans to any person or firm; provided, however, that the
making of a loan shall not be construed to include (i) the acquisition for
investment of bonds, debentures, notes or other evidences or indebtedness of
any corporation or government entity which are publicly distributed or of a
type customarily purchased by institutional investors (which are debt
securities, generally rated not less than Baa by Moody's or BBB by Standard and
Poor's (although convertible securities may have lower ratings), privately
issued and purchased by such entities as banks, insurance companies and
investment companies), or (ii) the entry into "repurchase agreements."
12. Purchase the securities of other investment companies except where
no underwriter or dealer's commission or profit, other than customary broker's
commission, is involved and only if immediately thereafter not more than (a) 3%
of such company's total outstanding voting stock is owned by the Fund, (b) 5%
of the Fund's total assets, taken at market value, would be invested in any one
such company or (c) 10% of the Fund's total assets, taken at market value,
would be invested in all such securities (except for mergers of investment
companies).
13. Purchase from or sell portfolio securities to its officers,
Trustees or other "interested persons" (as defined in the 1940 Act) of the
Fund, including the Subadvisers and their affiliates, except as permitted by
the 1940 Act and except for the purchase of the Fund's initial assets from
certain investors in The EAI Small Managers Equity Fund Trust.
14. Purchase or retain the securities of an issuer if, to the Fund's
knowledge, one or more of the Trustees or officers of the Fund, or the Manager
or a Subadviser or their directors or officers, individually own beneficially
more than 1/2 of 1% of the securities of such issuer and together own
beneficially more than 5% of such securities.
15. Issue senior securities.
16. Invest more than 35% of its total assets in securities which are
not equity securities; provided, however, that the Fund may at times for
defensive purposes temporarily place all or a portion of its assets in cash,
short-term commercial paper, U.S. government securities, high quality debt
securities and obligations of banks when, in the judgment of the Manager or a
Subadviser, such investments are appropriate in light of economic or market
conditions.
In addition to the foregoing investment restrictions which may not be
changed without Shareholder approval, the Fund is subject to the following
operating policies which may be amended by the Fund's Board of Trustees (the
"Trustees"). Pursuant to these operating policies, the Fund may not:
1. Invest in real estate limited partnership interests.
2. Invest in oil, gas or mineral leases.
3. Invest more than 5% of its net assets in warrants or rights, valued
at the lower of cost or market, or invest more than 2% of its net assets in
warrants or rights (valued on the same basis) which are not listed on the New
York or American Stock Exchanges.
4. Purchase or sell a futures contract or an option thereon.
5. Purchase securities on margin, except for such short-term credits
as are necessary for clearance of portfolio transactions.
6. Effect short sales of securities.
7. Purchase or sell put or call options.
8. Purchase or sell mortgage-backed debt securities.
9. Borrow cash in amounts in excess of 5% of its total assets taken at
cost or at market value, whichever is lower, except for temporary purposes.
PORTFOLIO TURNOVER
Generally, the Fund will purchase securities for investment purposes
and not for short-term trading profits. However, the Fund expects to engage in
a substantial number of portfolio transactions and may dispose of securities
without regard to the timing of such a disposition if, for defensive or other
purposes, such a disposition is, in the opinion of the Subadvisers, in the best
interest of the Fund. It is estimated that the Fund's portfolio turnover
rate will not exceed 200% in any year.
TRUSTEES AND OFFICERS
The Fund is governed by the Trustees, who make broad policy decisions
and exercise general supervision over the operation of the Fund. The Trustees
and officers of the Fund are listed below, together with any family
relationships between such Trustees and officers (Trustees and officers who are
"interested" persons of the Fund are indicated by an asterisk (*)):
<TABLE>
<CAPTION>
(1) (2) (3)
Name, Address Position with Principal Occupation During
and Age Fund Past Five Years
<S> <C> <C>
Phillip N. Maisano* Trustee and Chief Executive Officer and President,
200 Connecticut Avenue, President Evaluation Associates, Inc., an investment
Suite 700 consulting and management company (1990-
Norwalk, CT 06854-1958 1991); Chief Executive Officer,
48 years of age President and Director of Evaluation
Associates Holding Corporation
("Holding"), which is the general partner of
EAI Partners, L.P., an investment consulting
and management company and
parent of the Manager, as defined below (the
"Parent"); Vice Chairman, Chief
Executive Officer and Director of Evaluation
Associates Capital Markets,
Incorporated (the "Manager"), an investment
management and consulting
company and investment adviser to the Fund;
Chairman and Director of EAI
Securities Inc. (the "Distributor"), a
registered broker/dealer and the distributor
for the Fund.
Keith Stransky* Trustee and Senior Vice President, Evaluation Associates,
200 Connecticut Avenue, Senior Vice Inc. (1990-1991); Senior Vice
Suite 700 President President of Holding; Senior Vice President
Norwalk, CT 06854-1958 of the Manager.
44 years of age
Neal Jewell Trustee Director of Overseas Pensions, AIG, a global
355 Thornridge Drive financial services company (1990-1991);
Stamford, CT 06903 Executive Vice President, AIGAM, a division
60 years of age of AIG and a registered
investment advisor (1991-1994);
retired/part-time independent consultant.
James Schuppenhauer Trustee Associate Vice President Auxiliary Services,
Belmont Abbey College Old Dominion University (1978-
100 Belmont Mt. Holly Road 1992); Vice President Administration and
Belmont, NC 28012 Finance, Belmont Abbey College.
52 years of age
Charles Collard Trustee Vice President, Associated Aviation
51 JFK Parkway Underwriters, an aviation insurance company.
Short Hills, NJ 07078
62 years of age
Peter Gwiazdowski* Treasurer Employed in Corporate Treasury and Corporate
200 Connecticut Avenue Accounting by FKI Industries,
Suite 700 Inc. (1978-1993); Self-employed as Certified
Norwalk, CT 06854-1958 Public Accountant (1993-1994);
42 years of age Employed in Corporate Treasury by Dunhill
Temporary Systems (1994); Vice
President and Treasurer of the Manager.
William C. Crerend* Vice President Lawyer with Hughes Hubbard & Reed (1988-
200 Connecticut Avenue 1993); Self-employed as Consultant (1993-
Suite 700 1994); Consultant for the Manager (1994);
Norwalk, CT 06854-1958 Senior Vice President and General Counsel of
33 years of age the Manager; Vice President
and General Counsel of the Parent; Senior
Vice President and General Counsel of and
Agent for the Distributor.
Elke Bartel* Secretary Secretary of the Manager and the Distributor;
200 Connecticut Avenue Senior Vice President,
Suite 700 Secretary and Treasurer of the Parent.
Norwalk, CT 06854-1958
53 years of age
Thaddeus M. Leszcynski Assistant Vice President and Secretary of investment
99 Park Avenue Secretary companies advised by Van Eck Associates
New York, NY 10016 Corporation and Vice President and General
48 years of age Counsel of Van Eck Associates
Corporation and Van Eck Securities
Corporation.
</TABLE>
As indicated above, certain of the Trustees and officers of the Fund hold
positions with the Distributor, the Manager and the Parent, the direct parent
of the Manager. All Trustees and officers as a group own less than 1% of the
outstanding shares of the Fund on the date of this Statement of Additional
Information.
The Trustees of the Fund who are not "interested" persons of the Fund
(as defined in the 1940 Act) each receive an annual retainer of $5,000. No
Trustee or executive officer of the Fund or any affiliated person of the Fund
will receive annual compensation from the Fund in excess of $60,000.
The following table sets forth the compensation received from the Fund
by each Trustee in his role as Trustee:
<PAGE>
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Name of Aggregate Pension or Estimated Annual Total Compensation
Person, Compensation Retirement Benefits Benefits Upon From the Fund and
Position From the Accrued as Part Retirement Fund Complex Paid
Fund of Fund Expenses to Trustees
<S> <C> <C> <C> <C>
P.N. Maisano $0 $0 $0 $0
Trustee and
President
K. Stransky $0 $0 $0 $0
Trustee and
Senior Vice
President
Neal Jewell $5,000 $0 $0 $5,000
Trustee
James $5,000 $0 $0 $5,000
Schuppenhauer
Trustee
Charles Collard $5,000 $0 $0 $5,000
Trustee
</TABLE>
The information set forth in the above table is estimated for the
Fund's first year of operation.
CONTROL OF THE FUND
As of the date of this Statement of Additional Information, all of the
Fund's outstanding Shares (as hereinafter defined) were owned by the Manager,
200 Connecticut Avenue, Suite 700, Norwalk, Connecticut 06854-1958, as a result
of the Manager's investment of $100,000 of "seed capital" in the Fund.
All Trustees and officers as a group owned less than 1% of the
outstanding Shares of the Fund on the date of this Statement of Additional
Information.
INVESTMENT ADVISORY AND OTHER SERVICES
Background
The Fund is governed by the Trustees, who are generally responsible for
the broad supervision and overall direction of the Fund. The Fund has engaged
the Manager, as the investment adviser and administrative manager of the Fund.
The assets of the Fund are managed by asset managers (the "Subadvisers"), who
are selected by the Manager, subject to the oversight of the Trustees. The
Manager also handles the day-to-day administration of the Fund, which function
will, in part, be contracted out to a third party administrator, as discussed
herein.
The Manager selects the Subadvisers and allocates assets of the Fund to
the Subadvisers based on its continuing qualitative and quantitative assessment
of the Subadvisers' skills in managing assets. Unlike many other mutual funds,
the Fund does not depend upon the talents of one investment advisor. Rather,
the Manager selects multiple portfolio managers to manage the assets of the
Fund and allocates the assets among those managers, thereby achieving a
diversity in expertise and investment style that would not be possible if the
Fund had only one investment manager.
The Parent and its predecessors together have more than nineteen years
of experience in evaluating investment advisers for individual and
institutional investors.
The Manager allocates the assets of the Fund to the specific
Subadvisers. Each Subadviser has discretion, subject to oversight by the Board
of Trustees and the Manager, to purchase and sell portfolio assets consistent
with the objectives and policies set forth in its particular sub-advisory
agreement and established for it by the Manager. The Manager is paid
a management fee by the Fund for its services, and a certain portion of that
management fee (as set forth below) is forwarded to the Subadvisers as
compensation for their services.
While the Subadvisers are required to make investment decisions for the
Fund independent of any decisions being made for their other clients, those
Subadvisers are likely at times to make similar investment decisions for both
the Fund and their other clients. When a Subadviser makes simultaneous
purchases or sales of securities for both the Fund and one or more of its other
clients, the transactions are, to the extent practicable, averaged as to price
and allocated as to amount between the Fund and the other clients. In some
cases, this averaging and allocation could have a detrimental effect on the
price or volume of a security in a particular transaction as far as the Fund is
concerned, but the Trustees believe that, over time, the ability of the Fund to
participate in large volume transactions should be advantageous to the Fund.
None of the Subadvisers provide any services to the Fund other than
pursuant to their sub-advisory agreements and except that a Subadviser or its
affiliated broker-dealer may execute transactions for the Fund and receive a
brokerage commission in connection therewith. In addition, a Subadviser may
serve as a discretionary or non-discretionary investment adviser to one or more
clients of the Manager and its affiliates and to accounts that are not related
to the Manager or its affiliates. Each sub-advisory agreement requires the
Subadviser to act fairly and equitably in selecting investments and allocating
investment opportunities, but no Subadviser is required to provide the Fund
with preferential treatment.
The Manager and the Subadvisers
The Manager is a wholly owned subsidiary of the Parent, which in turn
is owned by its employees and certain non-employee investors. Holding is the
general partner of the Parent. No entity owns more than 25% of the equity in
the Parent. As a whole, the employees of the Parent and its subsidiaries own
in excess of 25% of the equity in the Parent. The following persons are
affiliated with both the Manager and the Fund: Messrs. Maisano, Stransky,
Crerend and Gwiazdowski and Ms. Bartel.
Dietche & Field Advisers, Inc. is currently owned by its employees,
none of whom exercises control over that firm.
Liberty Investment Management (formerly Eagle Asset Management) is
currently controlled by Herbert E. Ehlers, the owner of that firm.
Hudson Capital Advisors is a division of Fahnestock & Co., Inc., which
is a wholly owned subsidiary of Fahnestock Viner Holdings Inc., a publicly held
Canadian company, and is controlled by that company.
Stonehill Asset Management is controlled by Robert Emerson, its owner.
Equinox Capital Management, Inc. is controlled by Ronald J. Ulrich, the
majority owner of that firm.
The Management Agreement
The Fund has entered into a Management Agreement (the "Management
Agreement") with the Manager, and the Manager has entered into Sub-advisory
Agreements with each of the Subadvisers. Under the Management Agreement, the
Manager (i) selects, evaluates and terminates the Subadvisers and allocates the
assets of the Fund among the Subadvisers, (ii) supervises the general
investment of Fund assets, (iii) establishes the broad investment strategies
for the Fund and (iv) provides the Fund with certain financial, accounting and
statistical information for the Fund's prospectuses and registration
statements.
Under the Management Agreement, the Manager receives 0.92% per annum of
the average of the daily net asset value of the Fund. From this amount, the
Manager pays the following amounts to each of the Subadvisers (expressed as a
per annum percentage of the average of the monthly net asset value of the
assets of the Fund managed by such Subadvisor):
Dietche & Field Advisers, Inc. - .375%
Liberty Investment Management - .375%
Hudson Capital Advisors - .375%
Stonehill Capital Management, Inc. - .375%
Equinox Capital Management, Inc. - .375%
The amount of the management fee that will be retained by the Manager
may vary according to the allocation of Fund assets among the Subadvisers. It
is presently estimated that, in the first fiscal year of the Fund, the Manager
will pay approximately 41% of the management fee it receives under the
Management Agreement to the Subadvisers and will retain approximately 59% of
that fee for itself, assuming the Manager's cap on its management fee in the
first year of the Fund's operations does not impact these percentages.
The Management Agreement has a one-year term, with successive one-year
extensions if approved by the Trustees or the holders of a majority of the
outstanding Shares and by a majority of the Trustees who are not "interested
persons" of the Manager under the 1940 Act. Any amendment to the Management
Agreement requires the approval of the holders of a majority of the outstanding
Shares and of the Trustees. The Management Agreement may be terminated at any
time, without penalty, by the Trustees or the holders of a majority of the
outstanding Shares upon not more than 60 days written notice to the Manager.
The Management Agreement will terminate automatically if it is assigned by the
Manager.
Each Sub-advisory Agreement also has a one-year term, with successive
one-year extensions if approved by the Manager, the Trustees, and a majority of
the Trustees who are not "interested persons" of the appropriate Subadviser.
Any amendment to a Sub-advisory Agreement requires the approval of the Manager
and the Trustees. The Manager may terminate any Sub-advisory Agreement without
penalty at any time, subject to the approval of the Trustees. Each Sub-
advisory Agreement will also terminate automatically if it is assigned
unless the Manager and the Trustees agree to continue such agreement. These
arrangements are subject to the receipt of the exemptive relief described in
the Introduction in the Prospectus, and if such relief is not received
acquiring new Subadvisers would require shareholder approval. There can be no
assurance that that relief will be received.
Voluntary Fee Waivers and Expense Limitations
The Manager may from time to time, but is not required to, waive all or
a portion of the management fee due to it under the Management Agreement. Any
voluntary fee waiver by the Manager may be terminated or reduced at any time in
the sole discretion of the Manager. Shareholders will be notified of any
changes in such fee waivers at the time they become effective. The Manager has
committed to waive a portion of its fee for the first year of operation of the
Fund to the extent necessary to cap overall annual Fund expenses at 1.15% of
the average of the daily net asset value of the Fund.
Administrative Services and Distribution Arrangements
The Fund will retain Van Eck Associates Corporation to perform
administrative and accounting functions for it. These functions will include
legal, accounting, regulatory and compliance services, state registration
services, corporate secretary and board of trustees administration, tax
compliance services and reporting. Van Eck Associates Corporation receives an
annual fee, payable monthly, at a per annum percentage of the average daily net
asset value of the assets of the Fund. The annual fee is graduated, beginning
at .20% of the average daily net assets of the Fund if such assets during the
month the fee is calculated are less than $100 million and ending at .12% of
the average daily net assets of the Fund if such assets during the month the
fee is calculated are equal to or more than $260 million. There is a minimum
annual fee of $100,000 payable to Van Eck Associates Corporation.
The Distributor, a wholly owned subsidiary of the Parent, serves as
distributor in connection with the offering of the Shares and acts as agent in
arranging the sale of the Shares. The Distributor or its affiliates (other than
the Fund) bear the expenses associated with the distribution of the Shares,
including all advertising and promotion expenses.
Custodian, Transfer Agent, Independent Accountants and Counsel.
Boston Safe Deposit and Trust Company, One Boston Place, Boston,
Massachusetts 02108, (the "Custodian") acts as custodian for the Fund and is
responsible for (i) holding all cash assets and portfolio securities of the
Fund, (ii) releasing and delivering the Fund's securities as directed by the
Fund or the Subadvisers, (ii) collecting all dividends, distributions
and other payments due to the Fund, and (iv) making all payments due from the
Fund. The Custodian is authorized to deposit securities in securities
depositories or to use the services of sub-custodians to the extent permitted
by and subject to the regulations of the Securities and Exchange Commission.
DST Systems, Inc., 1004 Baltimore, Kansas City, Missouri 64105-1802,
serves as transfer, dividend disbursing and shareholder servicing agent for the
Fund.
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York
10036, are the independent accountants for the Fund.
Day, Berry & Howard, as counsel to the Fund, has rendered an opinion on
the validity of the Shares which was filed with the Securities and Exchange
Commission as an exhibit to the Fund's registration statement. Day, Berry &
Howard represents the Parent, the Manager and certain of their affiliates in
matters not related to the Fund. In addition, the Retirement Plan for Partners
and Employees of Day, Berry & Howard, of which certain members of Day,
Berry & Howard are beneficiaries, had invested approximately $7.7 million in
The EAI Small Managers Equity Fund Trust (the "SMEF Trust") as of June 30,
1995, which investment shall be withdrawn from the SMEF Trust and may be
invested in the Fund.
As stated in the Prospectus, the Fund may from time to time enter into
directed brokerage arrangements in which it will direct the brokerage for
certain securities transactions to be entered into by its Subadvisers to a
certain broker-dealer in exchange for that broker-dealer's agreement to pay a
portion of the custodian, transfer agent or other administrative fees
incurred by the Fund. Such directed brokerage arrangements shall not be
effected at any time that the Manager has waived all or a portion of its
management fee under the Management Agreement, in accordance with the
requirements of the 1940 Act and the rules thereunder.
TRANSACTIONS IN PORTFOLIO SECURITIES
Each Sub-advisory Agreement provides that the principal objective of
each Subadviser in executing portfolio transactions is to achieve the best
price and execution available. Most portfolio transactions are expected to be
effected in the primary markets, and in assessing best price and execution, the
Subadvisers are expected to evaluate a number of considerations, including the
breadth of the market in the security, the price of the security, the financial
condition and execution capability of the broker or dealer selected to execute
the transaction and the reasonableness of any commission paid to that broker or
dealer.
As stated in the Prospectus accompanying this Statement of Additional
Information, in certain instances, the Fund may enter into directed brokerage
arrangements in which it will direct the brokerage for certain securities
transactions to be entered into by its Subadvisers to a certain broker-dealer
in exchange for that broker-dealer's agreement to pay a portion of the
custodian, transfer agent or other administrative fees incurred by the Fund.
Directed brokerage transactions will only be executed if, in light of the
offsetting reduction in administrative fees to be incurred by the Fund, they
represent the best execution and price for that transaction or as good
execution and price as would otherwise be available. As stated above, no
directed brokerage arrangement will be effected at any time that the Manager
has waived all or a portion of its management fee.
In addition to the directed brokerage arrangements described above, the
Subadvisers, in assessing best price and execution, are authorized to consider
the "brokerage and research services" (as defined in Section 28(e) of the
Securities Exchange Act of 1934, as amended), statistical quotations
(particularly the quotations necessary to calculate the Fund's net asset
value) and other information provided to the Fund, the Manager or a Subadviser
by a specific broker-dealer. Moreover, the Subadvisers are authorized to
direct the Fund to pay a commission to a broker-dealer that is greater than the
commission which would be paid to another dealer executing the same portfolio
transaction if the Trustees, the Manager or such Subadviser determines in good
faith that the higher commission is reasonable in light of the brokerage and
research services provided by that broker-dealer. Assuming a net asset value
of $50,000,000 in the Fund's first year of operations, it is estimated that in
that first year of operations, 80% to 85% of portfolio transactions for the
Fund (with an aggregate value of $75,000,000) will be directed to broker-
dealers providing brokerage and research services and that $140,000 in
brokerage commissions shall be paid as a result of those transactions.
Approximately 15% to 20% of portfolio transactions for the Fund in its first
year are expected to be directed to brokers who do not provide brokerage and
research services.
The Trustees will from time to time review the brokerage commissions
paid by the Fund to determine whether such commissions are reasonable in light
of the directed brokerage arrangements described above or in light of the
brokerage and research services provided to the Fund by the applicable broker-
dealers.
The Subadvisers may receive brokerage and research services from
broker-dealers executing Fund portfolio transactions which primarily benefit
one or more other accounts for which the Subadviser exercises investment
discretion. The fees of the Subadvisers are not reduced by reason of their
receipt of those services.
The Subadvisers generally will not provide services other than
investment management services to the Fund. However, a Subadviser or its
affiliated broker-dealer may execute portfolio transactions for the Fund
(either for transactions managed by it or for transactions managed by another
Subadviser) and may receive a brokerage commission for such transactions in
accordance with Section 17(e) of the 1940 Act and procedures adopted for such
transactions by the Trustees pursuant to rules thereunder. Neither a
Subadviser nor its affiliated broker-dealer may act as a principal in a
transaction involving the Fund.
In allocating portfolio transactions among broker-dealers, a Subadviser
may, but is not required to, consider any sales of Shares of the Fund by a
particular broker-dealer or its affiliate.
Assuming a net asset value of $50,000,000 in the Fund's first year of
operations, it is estimated that brokerage commissions will be approximately
$170,000 in that first year of operation. It is estimated that of that amount,
some amount may be paid to EAI Securities Inc. ("EAISI"), an affiliate of the
Manager.
The Fund may purchase securities of its regular broker-dealers or their
parents.
SHARES OF THE FUND
The Fund offers one class of shares of Common Shares (the "Shares").
The Fund does not have any securities other than its Common Shares.
Income dividends will normally be paid on the Shares on an annual basis
in each December. Income dividends will normally be declared on the fourth
business day prior to the end of the dividend period, payable on the following
business day, to Shareholders of record on the day prior to the declaration
date. Distributions of any capital gains will normally be paid annually in
December. Unless a Shareholder has elected to receive dividends and
distributions in cash, all dividends and distributions will be reinvested in
additional shares of the Fund (at net asset value at the time of reinvestment).
Any election may be changed at any time by delivering written notice to the
Fund at least ten business days prior to the payment date.
Shares of the Fund are entitled to one vote per share. Shareholders
have the right to vote on the election of the Trustees and on all other matters
on which, by law or by the Fund's Declaration of Trust, they may be entitled to
vote. There are no cumulative voting rights; accordingly, the holders of more
than 50% of the outstanding Shares could elect all of the Trustees. The Fund
is not required, and does not intend, to hold annual meetings of Shareholders
under normal circumstances. The Trustees or the Shareholders may call special
meetings of the Shareholders for action by Shareholder vote, including the
removal of any or all of the Trustees. Trustees will call a special meeting of
Shareholders of the Fund upon written request of the holders of at least 10% of
the outstanding Shares.
The Shares do not have liquidation rights, preemptive rights or the
right to convert to another security. The Shares are not subject to further
calls or to assessments by the Fund.
PURCHASE AND PRICING
Shares in the Fund are offered through the Distributor on a continuous
basis with a minimum initial investment in the Fund of $500,000 and a minimum
additional investment of $1,000, which minimums may be waived by the Fund. The
Shares in the Fund are sold at the net asset value per share next computed
after the purchase order is received in proper form by the Transfer Agent.
As stated above, the Shares are sold at net asset value per Share for
the date of determination. Net asset value per share is determined as of the
close of business on the New York Stock Exchange, generally 4:00 p.m. New York
time, on each business day. Net asset value per share is equal to the net
worth of the Fund (assets minus liabilities) divided by the number of shares
outstanding. Assets and liabilities are determined in accordance with
generally accepted accounting principles and applicable rules and regulations
of the Securities and Exchange Commission.
Securities held by the Fund which are traded on a national exchange are
valued based on the last quoted sales price on such exchange on or recently
before the valuation date (or if the securities are traded on more than one
exchange on or recently before the valuation date, the principal exchange that
such securities are traded on, as determined by the appropriate Subadviser) or,
if there has been no recent sale of securities, at the last bid price. Over-
the-counter securities for which market quotations are readily available are
valued on the basis of the last sale price or, lacking any sales, at the last
quoted bid price. Securities and other investments for which market quotations
are not readily available are valued at fair value, as determined in good faith
by the appropriate Subadviser and pursuant to procedures established
by the Trustees.
FEDERAL INCOME TAX STATUS
The Fund intends to elect and to qualify each year to be treated as a
regulated investment company ("RIC") under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"). In order to qualify as a RIC for any
taxable year, the Code requires that: (i) at least 90% of the Fund's gross
income be derived from dividends, interest, payments with respect to securities
loans, gains from the disposition of stock, securities and foreign currencies
and other income derived from the Fund's business of investing in stock,
securities and currencies; (ii) less than 30% of the Fund's gross income be
derived from gains from the disposition of stock, securities, options, futures,
forward contracts and certain investments in foreign currencies held for less
than three months; (iii) the Fund distribute at least 90% of its dividend,
interest and certain other taxable income ("Investment Company Taxable Income")
and 90% of its net tax-exempt interest income; (iv) at the end of each fiscal
quarter, at least 50% of the value of the Fund's total assets be maintained in
cash, Government securities, securities of other regulated investment companies
and stock or other securities that represent, with respect to any one issuer,
no more than 5% of the value of the Fund's total assets or 10% of the
outstanding voting securities of such issuer; and (v) at the end of each
fiscal quarter, no more than 25% of the value of the Fund's total assets be
invested in the securities (other than those of the Government or other RICs)
of any one issuer, or of two or more issuers which the Fund controls and which
are engaged in the same, similar or related trades and businesses.
The Fund will be subject to federal income tax as a corporation, but
for any year in which the Fund qualifies as a RIC, it will be allowed a
deduction based on dividends paid to Shareholders (other than capital gain
dividends and exempt-interest dividends). If for any year the Fund does not
qualify as a RIC, all of its taxable income (including its net capital gain)
for the year will be subject to federal income tax without a deduction for
dividends paid to Shareholders, and such distributions will be includable in
gross income by the Shareholders entitled to payment thereof to the extent of
the Fund's current and accumulated earnings and profits. The Fund intends to
pay sufficient dividends to avoid liability for federal income tax and
accordingly does not expect to incur federal income tax. It may not, however,
be possible for the Fund to avoid this tax in all instances.
Depending upon whether certain participant directed account plans
(within the meaning of Section 404(c) of the Employee Retirement Income
Security Act of 1974, as amended) that presently invest in The EAI Small
Managers Equity Fund Trust choose to invest in the Fund and depending upon
their level of investment, it is possible that, at least initially, the Fund
may also be a personal holding company ("PHC") under Subchapter G of the Code
because more than 50 percent of the Shares of the Fund may be owned by or for
five or fewer individuals, defined to include qualified pension or profit-
sharing plans. For any year that the Fund is a PHC and incurs federal income
tax, the Fund will be liable for federal income tax at the highest rate
applicable to corporations. If the Fund does not make sufficient
distributions, the Fund will also be subject to a 39.6% tax (in addition to any
other taxes to which it may be subject) on any undistributed personal holding
company income. The Fund intends to make sufficient distributions to avoid
liability for personal holding company tax and accordingly does not expect to
incur this tax. It may not, however, be possible for the Fund to avoid this
tax in all instances.
If the Fund qualifies as a RIC but does not meet certain distribution
requirements, the Fund will be liable for a 4% non-deductible excise tax on
certain undistributed amounts. The Fund intends to comply with those
distribution requirements and accordingly does not expect to incur this excise
tax. It may not, however, be possible for the Fund to avoid this tax in all
instances.
The Fund may invest in obligations (such as zero coupon bonds) that are
issued with original issue discount ("OID"). OID income is accrued and
included in Investment Company Taxable Income even if the Fund does not receive
any cash from such obligations. Accordingly, the Fund may need to sell some of
its assets in order to satisfy the distribution requirements applicable to
RICs. The Fund may also invest in other investment vehicles, including RICs,
that in turn invest in stock and other securities issued by foreign issuers.
Dividends and other income derived from such foreign issuers may be subject to
withholding of foreign taxes, which would reduce the amount ultimately received
by the Fund.
Dividends (other than capital gain dividends and tax-exempt dividends)
and distributions by the Fund of net short-term capital gains to Shareholders
subject to federal income tax thereon will be taxable as ordinary dividend
income. Distributions of net long-term capital gains to Shareholders subject
to federal income tax thereon will be taxable as long-term capital gains
regardless of how long such Shareholders have held their Shares. These
provisions apply regardless of whether dividends are distributed in cash or
Shares. Any loss realized upon the redemption of Shares within six months from
the date of purchase will be treated as a long-term capital loss to the extent
of any distribution of net long-term capital gains during such six-month
period. No loss will be allowed on the sale of Shares of the Fund to the
extent the Shareholder acquires, or enters into a contract or option to
acquire, other Shares or substantially identical stock or securities within 30
days before or after the sale of the loss Shares.
If for any taxable year the Fund complies with certain requirements,
corporate Shareholders may be entitled to a dividends-received deduction for
all, or a portion of, dividends paid by the Fund (other than capital gain
dividends) that are attributable to dividends received by the Fund from
domestic corporations.
Within 60 days of the end of the Fund's taxable year, the Fund will
notify Shareholders of the amounts and tax status of dividends and
distributions from the Fund. Under federal income tax laws, the Fund must
report to the Internal Revenue Service (the "IRS") all distributions of taxable
income, capital gains and gross proceeds from redemptions received by
all shareholders not exempt from that requirement. If a Shareholder required
to provide the Fund with its correct taxpayer identification number or required
certification does not do so, or if the IRS notifies the Fund that a
Shareholder may not be in compliance with the backup withholding rules, the
Fund will be required to withhold from such Shareholder's distributions
and redemption proceeds federal income tax at a rate of 31%, and amounts paid
to the Shareholder will be reduced accordingly.
Dividends and other distributions from the Fund may also be subject to
state and local taxes. Shareholders should consult with their tax advisers
concerning the state and local tax consequences of investing in the Fund.
As stated in the Prospectus, Shares of the Fund may be acquired in
exchange for securities held by an investor which are acceptable to the Fund.
If such an in-kind purchase of Shares were to occur in connection with the
initial distribution of the Fund's Shares or if one or more investors were
later to effect such an in-kind purchase in exchange for 80% or more
of the Fund's Shares, the Fund's basis for the securities it accepts from an
investor could be that investor's basis therefor, and the investor's basis for
the Fund's Shares acquired in the exchange could be the investor's basis in the
securities exchanged therefor. If that basis is less than the fair market
value of such securities at the time of the exchange, the potential tax
liability of the investor with respect to the sale or other disposition of the
Fund's Shares acquired in the exchange would be increased as would the
potential tax liability of the Fund or its Shareholders with respect to capital
gains realized by the Fund in connection with such securities.
The foregoing is a general and abbreviated discussion of U.S. federal
income tax consequences of investing in the Fund. Non-U.S. investors should
consult with their tax advisers concerning the tax consequences of owning
shares of the Fund, including the possibility that distributions may be subject
to withholding of federal income tax at a rate of 30% (or a reduced rate if
provided by treaty). All investors, including any subject to special
income tax treatment applicable to entities of their type, are encouraged to
consult with their tax advisers for more information concerning the federal,
foreign, state and local tax rules applicable to ownership and disposition of
Shares of the Fund by them.
PERFORMANCE DATA
Total Return Computations
The Fund may include in advertisements or sales literature certain
total return information. For such purposes, total return equals the total of
all income and capital gains paid to holders of Shares of the Fund, assuming
reinvestment of all distributions, plus (or minus) the change in value of the
original investment, expressed as a percentage of the purchase price.
Volatility Computations
As stated in the Prospectus, the Fund may include in advertisements and
sales literature certain quantifications of the historical volatility of the
performance of the Fund as the standard deviation of such performance.
Standard deviation is calculated using a typical standard deviation formula.
Performance Comparisons
As described in the Prospectus, the Fund may include in advertisements
or sales literature comparisons of Fund performance to the performance of other
mutual funds having similar structures and/or objectives. Such comparisons may
be expressed as a ranking prepared by independent services or publications. In
addition, the Fund's performance may be compared to that of various unmanaged
indices, including the S&P 500 and the NASDAQ Composite.
FINANCIAL STATEMENTS
An audited Statement of Assets and Liabilities and footnotes thereto
for the Fund, reflecting the $100,000 contribution by the Manager, is filed
herewith.
<PAGE>
EAI SELECT MANAGERS EQUITY FUND
REGISTRATION STATEMENT
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 481(A))
Form N-1A Item Location
Part A - Prospectus
Item 1. Cover Page Cover Page
Item 2. Synopsis Introduction; Fund Expenses
Item 3. Condensed Financial Financial Highlights;
Information Performance Advertisements
Item 4. General Description of Organization of the Fund, Investment
Registrant Objectives and Policies;
Investment Techniques and
Associated Risks
Item 5. Management of the Fund Management of the Fund; Distribution of
the Fund's Shares; Portfolio Transactions
and Brokerage
Item 5A.Management's Discussion Performance Information
of Fund Performance
Item 6. Capital Stock and Description of Shares, Voting Rights
Other Securities and Liabilities; Dividends and
Distributions; Tax Information
Item 7. Purchase of Securities Purchase of Shares; Valuation of Shares
Being Offered
Item 8. Redemption or Repurchase Redemption of Shares
Item 9. Pending Legal Proceedings Pending Litigation
<PAGE>
Part B - Statement of Additional Information
Item 10.Cover Page Cover Page
Item 11.Table of Contents Table of Contents
Item 12.General Information Not Applicable
and History
Item 13.Investment Objectives Investment Restrictions and Operating
and Policies Policies; Portfolio Turnover
Item 14.Management of the Fund Trustees and Officers
Item 15.Control Persons and Trustees and Officers; Control of the
Principal Holders of Fund
Securities
Item 16.Investment Advisory and Investment Advisory and Other Services
Other Services
Item 17.Brokerage Allocation and Transactions in Portfolio Securities
Other Practices
Item 18.Capital Stock and Shares of the Fund
Other Securities
Item 19.Purchase, Redemption and Purchase and Pricing
Pricing of Securities
Being Offered
Item 20.Tax Status Federal Income Tax Status
Item 21.Underwriters Not Applicable
Item 22.Calculation of Performance Data
Performance Data
Item 23.Financial Statements Financial Statements
<PAGE>
Part C - Other Information
Item 24.Financial Statements Financial Statements and Exhibits
and Exhibits
Item 25.Persons Controlled by Persons Controlled by or Under Common
or Under Common Control Control with the Fund
with Registrant
Item 26.Number of Holders of Number of Holders of Securities
Securities
Item 27.Indemnification Indemnification
Item 28.Business and Other Business and Other Connections of
Connections of Investment Investment Advisers
Adviser
Item 29.Principal Underwriters Not Applicable
Item 30.Location of Accounts Location of Accounts and Records
and Records
Item 31.Management Services Management Services
Item 32.Undertakings Undertakings
