<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. _____ [ ]
Post-Effective Amendment No. 3 [X]
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 6 [X]
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(Check appropriate box or boxes)
EAI SELECT MANAGERS EQUITY FUND
(Exact Name of Registrant as Specified in Charter)
200 Connecticut Avenue, Suite 700
Norwalk, Connecticut 06854-1958
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (203) 855-2200
William C. Crerend copy to:
Senior Vice President and General Counsel Martin L. Budd
Evaluation Associates Capital Markets,
Incorporated Day Berry & Howard
200 Connecticut Avenue, Suite 700 One Canterbury Green
Norwalk, Connecticut 06854-1958 Stamford, Connecticut 06901-2047
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
[_] immediately upon filing pursuant to paragraph (b)
[_] on (date) pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[X] on April 30, 1997 pursuant to paragraph (a)(1)
-
[_] 75 days after filing pursuant to paragraph (a)(2)
[_] on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box
[_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the
Registrant has previously elected to register an indefinite amount of shares of
beneficial interest. The Registrant filed a Rule 24f-2 Notice for the fiscal
year ended December 31, 1996 on February 26, 1997.
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EAI SELECT MANAGERS EQUITY FUND
REGISTRATION STATEMENT
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 481(A))
Form N-1A Item Location
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Part A - Prospectus
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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 Objective 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
Being Offered Shares
Item 8. Redemption or Repurchase Redemption of Shares
Item 9. Pending Legal Proceedings Pending Litigation
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-2-
Part B - Statement of Additional Information
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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
and Policies Operating Policies; Portfolio
Turnover
Item 14. Management of the Fund Trustees and Officers
Item 15. Control Persons and Trustees and Officers; Control of
Principal Holders of the Fund and Principal Shareholders
Securities
Item 16. Investment Advisory and Investment Advisory and Other
Other Services 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
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EAI SELECT MANAGERS EQUITY FUND
PROSPECTUS APRIL 30, 1997
EAI SECURITIES INC. (203) 855-2200
(ART)
The EAI Select Managers Equity Fund (the "Fund") is a diversified, open-end
management investment company with a diversified equity portfolio. The invest-
ment 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 in-
vested in other securities such as convertible securities and fixed income se-
curities. Fund assets are managed by multiple subadvisers, which provides for a
diversified approach to the management of those assets. There can be no assur-
ance that the Fund will achieve its investment objective.
The Fund's shares may be purchased at a price equal to their net asset value
per share on a continuous basis.
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 Ex-
change Commission a Statement of Additional Information, dated April 30, 1997,
which contains more detailed information about the Fund and is incorporated
into this Prospectus by reference. A copy of the Statement of Additional Infor-
mation 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.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION................................................................ 2
FUND EXPENSES............................................................... 4
FINANCIAL HIGHLIGHTS........................................................ 5
PERFORMANCE ADVERTISEMENTS.................................................. 6
ORGANIZATION OF THE FUND.................................................... 7
INVESTMENT OBJECTIVE AND POLICIES........................................... 7
INVESTMENT TECHNIQUES AND ASSOCIATED RISKS.................................. 8
MANAGEMENT OF THE FUND...................................................... 11
DISTRIBUTION OF THE FUND'S SHARES........................................... 13
PORTFOLIO TRANSACTIONS AND BROKERAGE........................................ 13
PERFORMANCE INFORMATION..................................................... 14
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES........................ 15
DIVIDENDS AND DISTRIBUTIONS................................................. 16
TAX INFORMATION............................................................. 16
PURCHASE OF SHARES.......................................................... 17
VALUATION OF SHARES......................................................... 19
REDEMPTION OF SHARES........................................................ 19
PENDING LITIGATION.......................................................... 20
OTHER INFORMATION........................................................... 21
</TABLE>
1
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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. See "Description of Shares, Voting Rights and Liabili-
ties" page 14.
INVESTMENT OBJECTIVE
The investment objective of the Fund is to achieve long-term capital appre-
ciation. 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
other securities such as 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 Objective and Policies" on page 7 and "In-
vestment Techniques and Associated Risks" on page 8.
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 annual
rate of 0.92% of the average daily net asset values of the Fund. See "Manage-
ment of the Fund" on page 10.
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. 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. 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 pres-
ently has six Subadvisers. Mastrapasqua & Associates, Inc. invests primarily
in domestic equity-oriented securities issued by smaller companies and focuses
on growth and value. Siphron Capital Management invests primarily in large
capitalization issues that have a valuable franchise or brand name and focuses
on growth and equity. Liberty Investment Management invests primarily in secu-
rities issued by medium-sized companies and focuses on growth and value.
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. Equinox Capital Management, Inc. invests primarily in securities is-
sued by large-sized companies and focuses on value.
The Subadvisers are each entitled to a fee, payable quarterly by the Manag-
er. See "Management of the Fund" on page 10 and the Statement of Additional
Information.
2
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While the Investment Company Act of 1940, as amended (the "1940 Act"), re-
quires that the shareholders of the Fund approve the sub-advisory agreements
between the Manager and the Subadvisers, the Fund has received and exemptive
order from the Securities and Exchange Commission exempting it from this re-
quirement although 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. 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 en-
gagement of particular Subadvisers after events which would otherwise require
their automatic termination under the 1940 Act. However, within 60 days of
hiring a new Subadviser or implementing a material change in a sub-advisory
agreement, the Manager must furnish the Fund's shareholders with an informa-
tion statement including all of the information about the new Subadviser or
the sub-advisory agreement that would be included in a proxy statement. In ad-
dition, that exemptive order requires that the Fund hold itself out to the
public as employing a multi-manager structure and that the Fund's sales liter-
ature prominently disclose that 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 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 13 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 Sys-
tems, Inc. (the "Transfer Agent"). The minimum initial investment is $500,000,
and the minimum subsequent investment is $1,000. These minimums may be waived
by the Fund or the Manager in certain circumstances. See "Purchase of Shares"
on page 16 and "Valuation of Shares" on page 18.
Shares of the Fund may be redeemed at any time at their 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 18.
RISK FACTORS
There can be no assurance that the Fund can achieve its investment objec-
tive. The Fund invests 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 securi-
ties) 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 disproportion-
ate 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
invests also presents risks that are peculiar to those securities. For exam-
ple, investments in foreign securities are exposed to political and economic
risks not
3
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associated with domestic securities, as well as the possibility of the imposi-
tion of withholding taxes and government restrictions on the sales of such se-
curities. 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. War-
rants 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 Associ-
ated Risks" on page 8.
FUND EXPENSES
The following table is intended to provide the investor with information con-
cerning annual operating expenses of the Fund and to understand the various
other direct and indirect costs and expenses borne by an investor in the Fund.
<TABLE>
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SHAREHOLDER TRANSACTION EXPENSES
Sales Load on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fee None
ANNUAL FUND OPERATING EXPENSES+
Management Fees (after fee waiver)* 0.57%
Other Expenses 0.58%
Total Fund Operating Expenses (after fee waiver)+ 1.15%
</TABLE>
+ Expenses are stated as a percentage of net assets of the Fund.
* 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 10 and the Statement of Additional Information.
+ The Manager has committed to waive a portion of its fee for the two
years of operation of the Fund (which expires on January 2, 1998) to
the extent necessary to cap overall Fund expenses at 1.15%. Thereaf-
ter, 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 ap-
proximately 1.46%, assuming a constant net asset value for the Fund
of at least $75 million. The table above reflects projected fees af-
ter giving effect to the Manager's fee cap in the first two years of
the Fund's operation. For more complete descriptions of the various
costs and expenses, see "Management of the Fund" on page ten.
<TABLE>
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<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
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<S> <C> <C>
Assuming a hypothetical $1,000 investment made at the
commencement of the Fund's operations 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 $42
----------------------------------------------------------------------------
An investor would pay the following expenses on the same
$1,000 investment assuming no redemption at the end of each
time period: $12 $42
</TABLE>
4
<PAGE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EX-
PENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
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
in "Portfolio Transactions and Brokerage." 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 ef-
fected at any time that the Manager has waived all or a portion of the manage-
ment fee due to it under the Management Agreement, in accordance with the re-
quirements of the 1940 Act and the rules thereunder.
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 Financial Highlights presented have been audited by Price Waterhouse LLP,
independent accountants, whose report thereon appears in the Fund's 1996 Annual
Report, which is incorporated by reference into the Statement of Additional In-
formation. This information should be read in conjunction with the financial
statements and related notes that also appear in the Fund's Annual Report.
Further information about the Fund's performance is contained in the Annual
Report to Shareholders. The Annual Report and the Statement of Additional In-
formation are available at no cost by calling (203) 855-2200.
5
<PAGE>
FINANCIAL HIGHLIGHTS
For a share outstanding throughout the period.
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 2, 1996 (A)
TO DECEMBER 31,
1996
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<S> <C>
Net Asset Value, Beginning of Period $ 10.00
-------
Income from Investment Operations
Net Investment Income 0.08
Net Gains on Investments (both realized and
unrealized) 1.35
-------
Total from Investment Operations 1.43
-------
Less Distribution from:
Net Investment Income (0.08)
Net Realized Gain on Investments (0.53)
-------
Total Distributions (0.61)
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Net Asset Value, End of Period $ 10.82
=======
Total Investment Return 14.30%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) $88,607
Ratio of Expenses to Average Net Assets 1.15%(c)(d)
Ratio of Net Investment Income to Average Net Assets 0.73%(c)(d)
Portfolio Turnover Rate 174%
Average Commission Rate Paid $0.0508
</TABLE>
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(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 December 31,
1996 was not annualized.
(c) Ratios would have been 1.50% and 0.38% respectively, had the Manager
not waived expenses.
(d) Annualized.
*Based on average shares outstanding.
See Notes to Financial Statements.
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 ref-
erence to the Fund's volatility. Average annual total return figures as pre-
scribed by the Securities and
6
<PAGE>
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 in-
vestment, 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 gener-
ally do not reflect deductions for administrative and management costs and ex-
penses.
Advertisements, sales literature and communications may also contain informa-
tion about the Fund's, the Manager's or the Subadvisers' current investment
strategies and management style. Current strategies and style may change to al-
low the Fund to respond quickly to a changing market and economic environment.
From time to time, the Fund may discuss specific portfolio holdings or indus-
tries in such communications.
Performance information for the Fund reflects only the performance of a hypo-
thetical investment in the shares of the Fund during the particular time period
on which the calculations are based. Performance information should be consid-
ered 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 the 1940
Act.
INVESTMENT OBJECTIVEAND POLICIES
The investment objective of the Fund is to achieve long-term capital appreci-
ation. 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 in-
vest 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 approv-
al; provided however that the Fund may at times, for defensive purposes, tempo-
rarily place all or a portion of its assets in cash, short-term commercial pa-
per, 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.
7
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The Fund attempts to achieve its investment objective by utilizing
Subadvisers which have investment philosophies consistent with this basic ob-
jective. The Subadvisers invest the assets of the Fund primarily in a variety
of equity securities, including common stocks, but may also invest in convert-
ible securities and fixed income securities with a maximum remaining maturity
of fifteen years. The Fund presently has six Subadvisers. Liberty Investment
Management invests primarily in securities issued by medium-sized companies
and focuses on growth and value. Iridian Asset Management LLC invests primar-
ily in securities issued by large-sized companies and focuses on value.
Bennett Lawrence Management, LLC invests primarily in securities issued by me-
dium-sized companies and focuses on growth. Equinox Capital Management, Inc.
invests primarily in securities issued by large-sized companies and focuses on
value. Mastrapasqua & Associates, Inc. invests primarily in domestic equity-
oriented securities issued by smaller companies and focuses on growth and val-
ue. Siphron Capital Management invests primarily in large capitalization is-
sues that have a valuable franchise or brand name and focuses on growth and
equity.
The Fund pursues its investment objective primarily by investing in equity
or equity-related securities, which consist primarily of common stock, Ameri-
can Depositary Receipts and convertible securities (including bonds).
To the extent consistent with its investment objective 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 matu-
rity 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 cor-
porate bonds or debentures that are rated not less than Aa by Moody's Investor
Services, Inc. ("Moody's") or AA by Standard and Poor's Corporation ("S&P")
or, in the case of debt securities not rated by Moody's or S&P, 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 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. These investment restrictions
are set forth in the Statement of Additional Information.
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 asso-
ciated 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 eco-
nomic and market conditions which might affect the profitability and financial
condition of the companies in whose securities the Fund's assets are
8
<PAGE>
invested. In an attempt to mitigate the risk of loss of principal due to mar-
ket fluctuation for individual securities, the Fund invests primarily in a di-
versified 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) compa-
nies, 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 com-
pany with a larger market capitalization and broader trading market. In addi-
tion, 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 still in its start-up phase, and during this start-up phase Fund
expenses may constitute a disproportionate percentage of average Fund net as-
sets 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 invests from time to time present more specific
risks.
Foreign Securities. While the Fund does not directly invest in foreign secu-
rities, it may invest to a limited extent in sponsored or unsponsored American
Depositary Receipts ("ADRs") or other investment companies that invest in for-
eign 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 is-
suer 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 secu-
rities involve risks that differ from investments in securities of domestic
issuers. Such risks may include political and economic developments, the pos-
sible 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-devel-
oped securities markets as well as less regulation of stock exchanges and bro-
kers and different auditing and financial reporting standards. Not all foreign
branches of United States banks are supervised or examined by regulatory au-
thorities 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 de-
veloped countries. Foreign securities often trade with less frequency and vol-
ume than domestic securities and therefore may exhibit greater price volatili-
ty. Changes in foreign exchange rates will affect the value of those securi-
ties which are denominated or quoted in currencies other than the U.S. dollar.
9
<PAGE>
Illiquid Securities. The Fund may invest up to 15% of its net assets in se-
curities that are not readily marketable ("illiquid securities"). These secu-
rities, which may be subject to legal or contractual restrictions on their re-
sale, 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 secu-
rities have a readily available market.
Repurchase Agreements. In a repurchase transaction, the Fund purchases a se-
curity from a bank or 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 Fund's investments in
those other investment companies will be subject to the sorts of risks de-
scribed above. 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 imme-
diately after giving effect to such investment) in all of the investment com-
panies 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 portfolio securities trans-
actions, 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 corre -
10
<PAGE>
spondingly greater brokerage commissions for the Fund and other transaction
costs that are borne directly by the Fund. In addition, high portfolio turn-
over may also result in increased short-term capital gains which when distrib-
uted to shareholders, are treated for federal income tax purposes as ordinary
income. See "Portfolio Transactions and Brokerage" on page 13 and "Tax Infor-
mation" on page 15.
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 Infor-
mation.
THE MANAGER
Pursuant to a management agreement (the "Management Agreement"), the Manager
acts as investment adviser for the Fund. In this capacity, the Manager, sub-
ject to the authority of the Trustees, is responsible for the overall manage-
ment of the Fund's business affairs. This responsibility includes the selec-
tion and termination of the Subadvisers and the allocation of portfolio assets
among the Subadvisers, subject in each case to the oversight of the Trustees.
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.
EAI Partners, L.P., the Manager's direct parent (the "Parent"), and its
predecessors together have more than 20 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 serv-
ices which are generally divided between investment consulting services, in-
cluding manager evaluation and performance evaluation services, and the man-
agement of multi-adviser funds for a number of institutional and high net
worth individual clients. The Parent, directly and through the Manager, had
approximately $ million in assets under management as of March 31, 1997. The
Manager's address is 200 Connecticut Avenue, Suite 700, Norwalk, Connecticut
06854-1958.
THE SUBADVISERS
Bennett Lawrence Management, LLC was formed in September, 1995 by former em-
ployees 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 March 31, 1997, assets under management totaled approximately $ mil-
lion. Its address is 757 Third Avenue, New York, New York 10017.
Equinox Capital Management, Inc. was formed in May, 1989. The firm is owned
by its employees and is controlled by Ronald J. Ulrich, its majority owner. As
of March 31, 1997, assets under management totaled approximately
11
<PAGE>
$ billion. Its address is 399 Park Avenue, New York, New York 10022.
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 Arnold and S. Bleichroeder Capital, a division of Arnold and S.
Bleichroeder, Inc. As of March 31, 1997, assets under management totaled ap-
proximately $ billion. Its address is 276 Post Road West, Westport, Connecti-
cut 06880-4704.
Liberty Investment Management (formerly Eagle Asset Management) was origi-
nally formed in January, 1976 and is a division of Goldman Sachs Asset Manage-
ment, a subsidiary of Goldman Sachs & Co. As of March 31, 1997, assets under
management totaled approximately $ billion.
Mastrapasqua & Associates, Inc. was formed in 1993 and is currently wholly
owned by Frank Mastrapasqua. As of March 31, 1997, assets under management to-
taled approximately $ million. His address is 814 Church Street, Nashville,
Tennessee 37203.
Siphron Capital Management was formed in 1991 and is currently wholly owned
by David Siphron. As of March 31, 1997, assets under management totaled approx-
imately $ million. His address is 280 South Beverly Drive, Suite 412, Beverly
Hills, California 90212.
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 in-
vestment 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. The Manager has committed to waive a portion of its fees
for the first two years of operation of the Fund (which expires on January 2,
1998) to the extent necessary to cap overall Fund expenses at 1.15% of the av-
erage of the daily net asset value of the Fund.
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 Subadviser):
<TABLE>
<S> <C>
Bennett Lawrence Management, LLC-- .375%
Equinox Capital Management, Inc.-- .375%
Iridian Asset Management LLC-- .375%
Liberty Investment Management-- .375%
Mastrapasqua & Associates, Inc.-- .375%
Siphron Capital Management-- .375%
</TABLE>
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 Manage-
ment 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 2
years of the Fund's operation does not impact these percentages.
THE PORTFOLIO MANAGER
Mr. Keith Stransky serves as portfolio manager of the Fund. Mr. Stransky
12
<PAGE>
is Executive Vice President and Director of Traditional Funds Management and
Research for the Manager, and he has held that position for the past six years.
In that position, Mr. Stransky manages and does research for the Manager's tra-
ditional investment vehicles. Mr. Stransky joined the Parent in 1983, and prior
to that he was the Technical Director for Hamilton, Johnston & Co., Inc. Mr.
Stransky has 21 years of consulting-related investment experience. Mr. Stransky
is a Chartered Financial Analyst.
THE ADMINISTRATOR
The Fund has retained Van Eck Associates Corporation to perform administra-
tive and accounting functions for it. These functions include certain legal,
accounting, regulatory and compliance services, state registration services,
corporate secretary and board of trustees administration, tax compliance serv-
ices and reporting. Van Eck Associates Corporation receives an annual fee, pay-
able monthly, which 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 affil-
iated with the Fund or the Distributor out of its own funds in connection with
certain sales to shareholders.
THE CUSTODIAN AND THE TRANSFER AGENT
Boston Safe Deposit and Trust Company serves as the Fund's Custodian pursuant
to a Custody Agreement. Its address is One Boston Place, Boston, Massachusetts
02108.
DST Systems, Inc. serves 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 serves as the distributor of the shares of the Fund. Its ad-
dress is 200 Connecticut Avenue, Norwalk, Connecticut 06854-1958. The Distribu-
tor distributes 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 con-
nection with the portfolio managed by that Subadviser. Each Subadviser must ad-
here 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 broker-
age 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 a
particular broker-dealer in exchange for that broker-dealer's agreement to
13
<PAGE>
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.
Directed brokerage arrangements will not be effected at any time that the Man-
ager 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 20 years of experience in the investment consulting and manage-
ment business. Among the assets under the management of the Parent and the
Manager at the end of 1995 were, 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 substantially identical to those of the Fund. In addition, sev-
eral former investors in the EAI Funds presently invest in the Fund, and much
of the Fund's assets are attributable to the investments made by those invest-
ors. The former investors in the SMEF Trust were required to withdraw their
investments in the SMEF Trust in order to comply with a release by the staff
of the Securities and Exchange Commission regarding the treatment of invest-
ment vehicles used by certain employee pension and benefit plans for purposes
of the 1940 Act. The Long Fund was terminated by the Manager on May 1, 1996.
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 to-
tal 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 re-
turn 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 be-
low include its performance since that time. The EAI Funds are private ac-
counts not subject to the investment limitations, diversification requirements
and other restrictions imposed upon mutual funds by the 1940 Act and the In-
ternal Revenue Code and those restrictions could adversely impact their per-
formance. 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>
EAI
TIME PERIOD 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 Decem-
ber 31, 1995 was approximately $284,000,000. The
14
<PAGE>
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 econ-
omy through changes in the aggregate market value of those stocks. The in-
dex 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 approxi-
mately 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 Man-
ager 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 existing share-
holders, 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 shareholder may
call special meetings of the shareholders for action by shareholder vote, in-
cluding the removal of any or all of the Trustees. Trustees will call a spe-
cial 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 li-
able for the Fund's obligations to third parties and that every written con-
tract 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 negli-
gence or reckless disregard of the duties involved in the conduct of the
Trustee's office.
As of March 31, 1997, the following persons or entities beneficially owned,
directly or indirectly or through one or more controlled companies, more than
25 percent of the Fund's outstanding shares or otherwise controlled the Fund:
[ ].
Organizational expenses have been capitalized by the Fund and are being am-
ortized over 60 months, beginning on January 2, 1996.
Shareholder inquiries should be made to the Fund at 200 Connecticut
15
<PAGE>
Avenue, Suite 700, Norwalk, Connecticut 06854-1958, (203) 855-2200.
DIVIDENDS AND DISTRIBUTIONS
The fiscal year of the Fund ends on December 31. Distributions to sharehold-
ers of net investment income and short-term capital gain, if any, will be in
the form of an income dividend. Long-term capital gain, if any, will retain its
character upon distribution to shareholders. Such dividends or distributions
will normally be made by the Fund on at least an annual basis, usually in De-
cember. Dividends or distributions declared in December but paid in January
will be includible in a shareholder's income as of the record date (usually in
December) of such dividends and distributions. Short-term capital gains, if
any, are treated the same as dividend income. The fiscal year of the Fund is
December 31.
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
All income dividends, including distributions designated as capital gain div-
idends, are generally taxable to shareholders for Federal income tax purposes
whether received in cash or in additional shares. Shareholders exempt from or
otherwise not required to pay Federal income tax will not ordinarily be re-
quired 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 ac-
quired with outstanding debt. The Fund will inform shareholders of the amount
and nature of all dividend distributions.
The Fund has qualified as a regulated investment company ("RIC") under the
provisions of Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"), that relieve such investment companies which distribute substan-
tially all of their net income (both net investment income and net capital
gains) from Federal income tax on the amounts distributed. If the Fund should
fail to qualify as a RIC for any taxable year, it would be subject to Federal
income tax as a corporation computed without benefit of such a deduction for
dividend.
In addition, if any time during the last half (July 1 through December 31) of
a taxable year of the Fund more than 50 percent of the Fund's outstanding
shares are owned, directly or indirectly, by or for not more than five individ-
uals (which, for this purpose, includes employee pension and benefit plans un-
der the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and certain other entities), the Fund will be a personal holding company under
Subachapter M of the Code for that taxable year. For any taxable year in which
the Fund is a personal holding company and qualifies as a RIC, the Fund would
be subject to the maximum Federal income tax rate applicable to corporations on
any amount distributed to shareholders. In addition, it would result in the
Fund being subject to personal holding company tax, at the rate of 39.6%, on
any amount required to be but not distributed to shareholders. Based on the
holdings of the Shares of the Fund
16
<PAGE>
from July 1 through December 31, 1996, the Fund will be treated as a personal
holding company for its 1996 taxable year. The Fund believes it has distributed
the amounts required to avoid the taxation described above.
Shareholders should consult with their own tax advisors for more information
regarding the Federal, foreign, state and local tax rules applicable to their
ownership and disposition of shares of the Fund. See "Federal Income Tax Sta-
tus" in the Statement of Additional Information.
PURCHASE OF SHARES
Shares of the Fund 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. These minimums
may be waived by the Fund or the Manager in certain circumstances. It is con-
templated that employees of the Parent and its affiliates may purchase shares,
and the minimums may be waived for such purchases.
Purchases of shares directly from the Fund 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 Fed-
eral Funds or bank wire; please call the Transfer Agent at 800-798-8055 to ob-
tain an account number and bank wire instructions in advance of purchase.
Certain states may require registered investment advisers that purchase
shares of the Fund for customers in those states to register as broker-dealers.
From time to time, the Distributor may supply material to registered investment
advisers, other investment professionals or other parties to assist them in
formulating an investment program using the Fund for their clients. Such mate-
rials 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 mini-
mum initial investment. Investors are not required to utilize the services of a
broker-dealer or other processing organization and any 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 will receive the offering price for the next business day.
17
<PAGE>
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. Pur-
chases paid for by check are effected when the check is received but are sub-
ject 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 addi-
tion, 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 Fund, 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 pur-
chase.
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 exchang-
ing securities must first telephone the Manager at (203) 855-2200 for instruc-
tions regarding submission of a written description of the securities the in-
vestor 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 de-
scribed in the section entitled "Valuation of Shares" as of the close of busi-
ness 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 accept-
ability of the securities. Securities which have been accepted by the Fund
must be delivered within five days follow ing acceptance. Delivery instruc-
tions 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 ex-
changed. The number of shares of the Fund received in exchange for such secu-
rities 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 in-
vestor 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 State-
ment 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 Fund 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.
18
<PAGE>
VALUATION OF
SHARES
As stated above, Fund shares are sold at net asset value per share. Net as-
set 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 val-
ued based on the last quoted sale 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 se-
curities 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 val-
ued 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 practi-
cable 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 in "Purchase of Shares," above.
Any redemption orders received as indicated below before the close of trad-
ing 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 as-
set value determined on the following business day. The Fund cannot accept re-
demption 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 or-
ders 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 re-
serves the right to redeem a shareholder account (after 60 days written no-
tice) when the value of the shares in that account falls below $500,000 due to
redemptions. Whether the Fund will
19
<PAGE>
exercise its right to redeem a specific shareholder account in these circum-
stances 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 ac-
count name and number, and the number of shares or the amount 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 re-
corded on tape, and all redemptions will be confirmed in writing to the share-
holder. 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 NYSE 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 re-
demption is less than $1,000, the proceeds will be sent via U.S. mail to the
address or record on the shareholder's account. As stated above, any redemp-
tion of shares purchased by check will not be effected until as long as 15
days after the date of purchase.
To the extent consistent with state and Federal law, the Fund may make pay-
ment 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 redemp-
tions 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 Securi-
ties and Exchange Commission, by order, permits the withdrawal thereof. In the
case of a redemption in kind, securities delivered in payment for Fund 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 broker-
age costs when selling 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 judgement 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., Stand-
ish, Ayer & Wood, Inc., the
20
<PAGE>
Parent, and certain affiliates of the above parties. Both actions relate pri-
marily to the 1994 performance of, and investment techniques employed in, cer-
tain fixed income mutual funds offered by The Managers Funds. The Parent served
as a consultant to The Managers Funds, L.P., the investment adviser to The Man-
agers 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.
21
<PAGE>
(LOGO)
EAI Select Managers Equity Fund
EAI Securities Inc.
200 Connecticut Avenue
Suite 700
Norwalk, CT 06854-1958
(ART)
<PAGE>
EAI SELECT MANAGERS EQUITY FUND
STATEMENT OF ADDITIONAL INFORMATION
APRIL 30, 1997
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 April 30, 1997, 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>
TABLE OF CONTENTS
INVESTMENT RESTRICTIONS AND OPERATING POLICIES..................
PORTFOLIO TURNOVER..............................................
TRUSTEES AND OFFICERS...........................................
CONTROL OF THE FUND AND PRINCIPAL SHAREHOLDERS..................
INVESTMENT ADVISORY AND OTHER SERVICES..........................
TRANSACTIONS IN PORTFOLIO SECURITIES............................
SHARES OF THE FUND..............................................
PURCHASE AND PRICING............................................
FEDERAL INCOME TAX STATUS.......................................
PERFORMANCE DATA................................................
FINANCIAL STATEMENTS............................................
<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.
<PAGE>
-2-
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.
<PAGE>
-3-
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 purchases 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, their address, position with the Fund, age and principal
occupations during the past five years are listed below.
<PAGE>
-4-
(1) (2) (3)
Name, Address Position with Principal Occupation During
and Age Fund Past Five Years
- ------- ---- ---------------
Phillip N. Maisano*+# Trustee and Chief Executive Officer and
200 Connecticut Avenue, President President, Evaluation Associates,
Suite 700 Inc., an investment consulting and
Norwalk, CT 06854-1958 management company (1990-1991);
49 years of age Chief Executive Officer, 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
200 Connecticut Avenue, Senior Vice Associates, Inc. (1990-1991);
Suite 700 President Senior Vice President of Holding;
Norwalk, CT 06854-1958 Senior Vice President of the
45 years of age Manager.
Charles Collard@ Trustee Vice President, Associated Aviation
51 JFK Parkway Underwriters, an aviation insurance
Short Hills, NJ 07078 company.
63 years of age
Neal Jewell Trustee Director of Overseas Pensions, AIG,
355 Thornridge Drive a global financial services company
Stamford, CT 06903 (1990-1991); Executive Vice
62 years of age President, AIGAM,a division of AIG
and a registered investment advisor
(1991-1994); retired/part-time
independent consultant.
<PAGE>
-5-
James Schuppenhauer+@ Trustee Associate Vice President Auxiliary
Belmont Abbey College Services, Old Dominion University
100 Belmont Mt. Holly (1978-1992); Vice President
Road Administration andFinance, Belmont
Belmont, NC 28012 Abbey College.
53 years of age
William C. Crerend* Vice President Lawyer with Hughes Hubbard & Reed
200 Connecticut Avenue (1988-1993); Self-employed as
Suite 700 Consultant (1993-1994); Consultant
Norwalk, CT 06854-1958 for the Manager (1994); Senior
34 years of age Counsel of the Manager; Vice
Vice President and General
President and General Counsel of the
Parent; Senior Vice President and
General Counsel of and Agent for the
Distributor.
Peter Gwiazdowski Treasurer Employed in Corporate Treasury and
200 Connecticut Avenue Corporate Accounting by FKI
Suite 700 Industries, Inc. (1978-1993);
Norwalk, CT 06854-1958 Self-employed as Certified Public
42 years of age Accountant (1993-1994); Employed
in Corporate Treasury by Dunhill
Temporary Systems (1994); Vice
President and Treasurer of the
Manager.
Elke Bartel Secretary Secretary of the Manager and the
200 Connecticut Avenue Distributor; Senior Vice President,
Suite 700 Secretary and Treasurer of the
Norwalk, CT 06854-1958 Parent.
53 years of age
Thaddeus M. Leszcynski Assistant Vice President and Secretary of
99 Park Avenue Secretary investment companies advised by
New York, NY 10016 Van Eck Associates Corporation and
50 years of age Vice President and General Counsel
of Van Eck Associates Corporation
and Van Eck Securities Corporation.
- ----------
* An "interested person" as defined in the 1940 Act.
+ Member of the Executive Committee - under the Fund's By-laws, has the
authority to conduct the current and ordinary business of the Fund while the
Board of Trustees is not in session.
# Member of the Nominating Committee.
@ Member of the Audit Committee - reviews fees, services, procedures,
conclusions and recommendations of independent auditors.
<PAGE>
-6-
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. During the
period from January 2, 1996 (commencement of operations) through December 31,
1996, no Trustee or executive officer of the Fund or any affiliated person of
the Fund received annual compensation from the Fund in excess of $60,000.
(1) (2) (3) (4) (5)
Name of Person, Aggregate Pension or Estimated Total
Position Compensation Retirement Annual Compensation
From the Fund Benefits Accrued Benefits Upon From the Fund
as Part of Fund Retirement and Fund
Expenses Complex Paid
to Trustees
P.N. Maisano $0 $0 $0 $0
Trustee and
President
K. Stransky $0 $0 $0 $0
Trustee and
Senior Vice
President
Charles Collard $5,000 $0 $0 $5,000
Trustee
Neal Jewell $5,000 $0 $0 $5,000
Trustee
James $5,000 $0 $0 $5,000
Schuppenhauer
Trustee
<PAGE>
-7-
CONTROL OF THE FUND
As of January 31, 1997, the following persons or entities beneficially
owned, directly or indirectly, or through one or more controlled companies, more
than 25 percent of the Fund's outstanding shares or otherwise controlled the
Fund:
Percentage of
Name and Fund's Shares State of Parent of
Address Owned Organization Entity
- -------------------------------- -------------- ------------ ---------
Covington & Burling Retirement 36% DC N/A
Savings Plan
1201 Pennsylvania Avenue NW
P.O. Box 7566
Washington, DC 20044-7566
As a result of their ownership of the Fund's shares, the shareholder
listed above could effectively control the outcome of a shareholder vote for the
Fund. The impact of this control is significantly lessened, however, because
the Fund does not expect to hold annual shareholders' meetings and because the
Manager, subject to the oversight of the Trustees, and not the shareholders, is
responsible for the selection and supervision of the Fund's Subadvisers (as
defined below). As noted in the Prospectus, however, the Trustees of the Fund
are required to call a special meeting of the shareholders of the Fund upon
written request of the holders of at least 10% of the outstanding shares of the
Fund, and the shareholders may terminate the Manager or any Subadviser at such a
meeting.
As of January 31, 1997, the following persons or entities owned,
beneficially or of record, 5 percent or more the Fund's outstanding shares:
PERCENTAGE
FUND'S OWNED OF RECORD,
SHARES OWNED BENEFICIALLY OR BOTH
NAME & ADDRESS ------------- ---------------------
--------------
Covington & Burling Retirement Savings Plan 36% Owned of Record and
1201 Pennsylvania Avenue NW Beneficially
P.O. Box 7566
Washington, DC 20044-7566
Retirement Plan for Partners and Employees of 10% Owned of Record and
Day, Berry & Howard Beneficially
CityPlace
Hartford, CT 06103
<PAGE>
-8-
Marine Midland Bank, Trustee for 7% Owned of Record
Genesee Corp Profit Sharing Plan (MMB) and
P.O. Box 1329 Beneficially (GCPSP)
Buffalo, NY 14240-1329
Friendly Ice Cream Corp Employee Savings & 8% Owned of Record and
Investment Plan Beneficially
1855 Boston Rd.
Wilbraham, MA 01095-1002
Evaluation Associates 401K Plan 7% Owned of Record and
200 Connecticut Avenue Beneficially
Norwalk, CT 06854-1940
Harding Service Corporation et al Profit 6% Owned of Record and
Sharing Plan & Trust Beneficially
330 South Street
P.O. Box 1975
Morristown, NJ 07962-1975
All Trustees and officers as a group owned less than 1% of the outstanding
shares of the Fund as of January 31, 1997.
INVESTMENT ADVISORY AND OTHER SERVICES
General
- -------
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 has, in
part, been 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 adviser. 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.
<PAGE>
-9-
The Manager, the Parent and their predecessors together have more than
twenty 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 (the
"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, the
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.
Liberty Investment Management (formerly Eagle Asset Management) is a
division of Goldman Sachs Asset Management, which in turn is a subsidiary of
Goldman Sachs & Co.
Iridian Asset Management LLC is controlled by Harold Levy and David
Cohen.
<PAGE>
-10-
Bennett Lawrence Management, LLC is controlled by S. Van Zandt Schreiber,
the majority owner of that firm.
Equinox Capital Management, Inc. is controlled by Ronald J. Ulrich, the
majority owner of that firm.
Mastrapasqua & Associates, Inc. is wholly owned by Frank Mastrapasqua.
Siphron Capital Management is wholly owned by David Siphron.
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 Subadviser):
Bennett Lawrence Management, LLC - .375%
Equinox Capital Management, Inc. - .375%
Iridian Asset Management LLC - .375%
Liberty Investment Management - .375%
Mastrapasqua & Associates, Inc. - .375%
Siphron Capital Management - .375%
For the period from January 2, 1996 (commencement of operations) through
December 31, 1996, the Manager received management fees from the Fund totalling
$504,328, net of $303,122 in management fees waived in connection with a
self-imposed expense limitation. (See "Voluntary Fee Waivers and Expense
Limitations" below.) Of that amount, the Manager paid the then-existing
sub-advisers as follows: Bennett Lawrence Management LLC (for the period August
1 to December 31, 1996): $___; Dietche & Field Advisers, Inc.: $___; Equinox
Capital Management, Inc. (for the period August 1 to December 31, 1996): $___;
Hudson Capital Advisors (for the period January 2 to July 31, 1996): $___;
Liberty Investment Management (for the period August 1 to December 31, 1996):
$___; and Stonehill Capital Management, Inc. (for the period January 2 to July
31, 1996): $___.
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 with the Manager has been approved by the
Trustees, including the Trustees who are not "interested persons" of the Manager
under the 1940 Act. The Sub-advisory Agreements with the Subadvisers have been
approved by the Trustees, including the Trustees who are not "interested
persons" of the appropriate Subadviser. The Management Agreement and each of the
Sub-advisory Agreements (except those with Mastrapasqua & Associates, Inc. and
Siphron Capital Management) have been so approved for a period to end on June
30, 1997. They will expire unless, prior to June 30, they are extended by the
Trustees or by the holders of a majority of the Fund's outstanding shares. The
Board of Trustees, at its meeting schedule for May 22, 1997, is expectd to
consider extending these Agreements through December 31, 1997. (If the
Agreements are approved by the Trustees prior to June 30, no supplement to this
Statement of Additional Information will be added.) The Sub-advisory Agreements
with Mastrapasqua & Associates, Inc. and Siphron Capital Management were
approved by the Trustees at their February 27, 1997 meeting for a period to end
on December 31, 1997. Thereafter, it is expected that the Management Agreement
and each of the Sub-advisory Agreements with the current Subadvisers will be
voted upon by the Trustees on an annual basis.
Any amendment to the Management Agreement requires the approval of the
holders of a majority of the Fund's 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 Fund's outstanding shares
<PAGE>
-11-
upon not more than 60 days written notice to the Manager. The Management
Agreement will terminate automatically if it is assigned by the Manager.
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.
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 two years of
operation of the Fund (which ends on January 2, 1998) 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 has retained Van Eck Associates Corporation to perform
administrative and accounting functions for it. These functions include
certain 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. For
the period from Janaury 2, 1996 (commencement of operations) through December
31, 1996, Van Eck Associates Corporation received fees of $175,533.
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 promotional 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
<PAGE>
-12-
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 opinions on the
validity of the Shares which were 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 $8.9 million in the
Fund as of December 31, 1996.
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. No directed brokerage arrangement
<PAGE>
-13-
will 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.
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. For the period from January 2, 1996
(commencement of operations) through December 31, 1996, the Fund paid brokerage
commissions totalling $383,941 on purchases and sales of portfolio securities.
Of that amount, $57,826, or 15.1%, was paid to broker-dealers providing research
services, representing $___ in portfolio securities purchased and sold.
The Trustees 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 do 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. No such affiliated brokerage
transactions were effected during the period from January 2 through December 31,
1996. 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.
The Fund may purchase securities of its regular broker-dealers or their
parents. No such purchases were effected during the period from Janaury 2
through December 31, 1996.
<PAGE>
SHARES OF THE FUND
The Fund offers one class of shares of Common 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 are normally 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 Fund's 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. These minimums may be waived by the Fund or the
Manager in certain circumstances. 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. 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.
<PAGE>
-15-
Securities held by the Fund which are traded on a national exchange are
valued based on the last quoted sale 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 has qualified and intends to qualify and elect 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, for that taxable year: (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 by the Fund 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, U.S. 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 U.S. 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 is subject to Federal income tax as a corporation, but for any
year in which the Fund qualifies as a RIC, it is allowed a deduction based on
dividends paid to shareholders (other than exempt-interest dividends). If for
any year the Fund does not qualify as a RIC, all of its taxable income 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 for all taxable years.
If at any time during the last half (July 1 through December 31) of a
taxable year of the Fund, more than 50 percent of the Fund's outstanding shares
are owned, directly or indirectly, by or for not more than five individuals
(which for purposes of this analysis includes employee
<PAGE>
-16-
pension and benefit plans like those presently investing in the Fund and certain
other entities), the Fund would be a personal holding company ("PHC") under
Subchapter G of the Code for such taxable year. 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. For any year that the Fund
is a PHC, it will also be subject to a 39.6% personal holding company tax (in
addition to any Federal income tax or other taxes to which it may be subject) on
any undistributed personal holding company income. The Fund was a PHC for its
1996 taxable year, but to made 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 for all taxable
years in which it may be a PHC.
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 other 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 exempt-interest dividends)
by the Fund, including those distributing any net short-term capital gains, to
shareholders subject to Federal income tax thereon will be taxable as ordinary
dividend income. Capital gain dividends (distributed from a year's excess of
net long-term capital gains over net short-term capital losses) to shareholders
subject to Federal income tax thereon will be taxable as long-term capital gains
regardless of how long 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 not more than six
months from the date of acquisition will be treated as a long-term capital loss
to the extent of any capital gain dividends during that six-month period. No
loss will be allowed on the sale or exchange of shares of the Fund to the extent
the shareholder acquires (including through an automatic reinvestment of
dividends), or enters into a contract or option to acquire, other shares or
substantially identical stock or securities within the 61-day period starting 30
days before the sale or exchange of the sold or exchanged 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.
<PAGE>
-17-
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 one or
more investors were 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 the 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. For the
period beginning with the commencement of the Fund's operations on January 2,
1996 and ended on December 31, 1996, the Fund's average total return was 14.3%.
<PAGE>
-18-
Average annual total return is computed by finding the average annual compounded
rates of return over the periods that would equate the initial amount invested
to the ending redeemable value, according to the following formula:
P(1+T)/to the nth power/=ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1, 5, or 10 year periods at
the end of the year or perio;
The calculation assumes all dividends and distributions by the Fund are
reinvested at the price stated in the prospectus on the reinvestment dates
during the period, and includes all recurring fees that are charged to all
shareholder accounts.
The Fund may also advertise performance in terms of aggregate total return.
Aggregate total return for a specifed period of time is determined by
ascertaining the percentage change in the net asset value of shares of the Fund
initially acquired assuming reinvestment of dividends and distributions and
without giving effect to the length of time of the investment according to the
following formula:
[(B-A)/A](100)=ATR
Where: A = initial investment
B = value at end of period
ATR = aggregate total return
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. For the
period beginning with the commencement of the Fund's operations on January 2,
1996 and ending on December 31, 1996, the Fund's standard deviation was [ ].
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
The financial statements for the Fund for the period ended on December
31, 1996, with related footnotes, are included in the Fund's Annual Report to
Shareholders for the period ended December 31, 1996, filed with the Securities
and Exchange Commission, and are incorporated herein by reference.
<PAGE>
-18-
Average annual total return is computed by finding the average annual compounded
rates of return over the periods that would equate the initial amount invested
to the ending redeemable value, according to the following formula:
P(1+T)/to the nth power/=ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1, 5, or 10 year periods at
the end of the year or period;
The calculation assumes all dividends and distributions by the Fund are
reinvested at the price stated in the prospectus on the reinvestment dates
during the period, and includes all recurring fees that are charged to all
shareholder accounts.
The Fund may also advertise performance in terms of aggregate total return.
Aggregate total return for a specifed period of time is determined by
ascertaining the percentage change in the net asset value of shares of the Fund
initially acquired assuming reinvestment of dividends and distributions and
without giving effect to the length of time of the investment according to the
following formula:
[(B-A)/A](100)=ATR
Where: A = initial investment
B = value at end of period
ATR = aggregate total return
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. For the
period beginning with the commencement of the Fund's operations on January 2,
1996 and ended on December 31, 1996, the Fund's standard deviation was [ ].
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
The financial statements for the Fund for the period ended on from January
2, 1996 (commencement of operations), through the period December 31, 1996, with
related footnotes, are included in the Fund's Annual Report to Shareholders for
the period from January 2, 1996 (commencement of operations), through the period
ended December 31, 1996, filed with the Securities and Exchange Commission, and
are incorporated herein by reference.
<PAGE>
EAI SELECT MANAGERS EQUITY FUND
PART C
OTHER INFORMATION
Item 24 Financial Statements and Exhibits
- ------- ---------------------------------
(a) Financial Statements
Part A:
Financial Highlights Table for the period from January 2,
1996 (commencement of operations) to December 31, 1996
(audited)
Part B:
The following audited financial statements of the Fund are
included in the Fund's Annual Report to Shareholders for
the period from January 2, 1996 (commencement of operations
through December 31, 1996, filed with the Securities and
Exchange Commission under Section 30(b)(1) of the
Investment Company Act of 1940, and have been incorporated
in Part B by reference:
1. Schedule of Investments at December 31, 1996;
2. Statement of Assets and Liabilities for the Fund as of
December 31, 1996 and related notes thereto;
3. Statement of Operations for the Fund for the period from
January 2, 1996 (commencement of operations through
December 31, 1996, and related notes thereto;
4. Statement of Changes in Net Assets for the Fund for the
period from January 2, 1996 (commencement of operations
through December 31, 1996, and related notes thereto;
5. Financial Highlights for the period January 2, 1996 No.
1 to the commencement of operations) through December
31, 1996.
6. Report of Independent Accounts.
(b) Exhibits
1. Declaration of Trust of the Fund dated September 27,
1995 (incorporated by reference to the Registration
Statement No. 33-98164)
a. First Amendment to Declaration of Trust dated
December 11, 1995 (incorporated by reference to
Post-Effective Amendment No. 1 to the Registration
Statement.
<PAGE>
-2-
2. By-Laws of the Fund (incorporated by reference to the
Registration Statement No. 33-98164)
3. Not Applicable
4. Not Applicable
5. a. Form of Management Agreement between the Fund and
Evaluation Associates Capital Markets, Incorporated,
as Manager (the "Manager") (incorporated by reference
to Pre-Effective Amendment No. 1)
b. Form of Sub-Advisory Agreement among the Fund, the
Manager and each of Liberty Investment Management and
Equinox Capital Management, Inc. (incorporated by
reference to Pre-Effective Amendment No. 1)
c. Form of Sub-Advisory Agreement among the Fund, the
Manager and Iridian Asset Management LLC.
(Incorproated by reference to Post-Effective
Amendment No. 1)
d. Form of Sub-advisory Agreement among the Fund, the
Manager and Bennett Lawrence Management, LLC.
(Incorporated by reference to Post-Effective
Amendment No. 1)
e. Form of Sub-Advisory Agreement among the Fund, the
Manager and Mastraposqua & Associates, Inc. (to be
filed herewith).
f. Form of Sub-Advisory Agreement among the fund, the
Manager and Siphon Capital Management (to be filed
herewith).
6. Form of Distribution Agreement between the Fund and EAI
Securities Inc., as Distributor (Incorporated by
reference to Registation Statement No. 33-98164)
7. Not Applicable.
8. Form of Custody Agreement between the Fund and Boston
Safe Deposit and Trust Company, as Custodian
(Incorporated by reference to Pre-Effective Amendment
No. 1)
9. a. Form of Transfer Agency Agreement between the Fund
and DST Systems, Inc., as Transfer Agent
(Incorporated by reference to Pre-Effective Amendment
No. 1)
b. Form of Portfolio Accounting and Administrative
Services Agreement between the Fund and Van Eck
Associates Corporation. (Incorporated by reference to
Pre-Effective Amendment No. 1)
10. Opinion and Consent of Day, Berry & Howard (Incorporated
by reference to Pre-Effective Amendment No. 1)
11. Consent of Price Waterhouse LLP (to be filed herewith)
12. Not Applicable
13. Not Applicable
14. Not Applicable
15. Not Applicable
<PAGE>
-3-
16. Computation of Performance Quotations (to be filed
herewith)
17. Financial Data Schedule (to be filed herewith)
18. Powers of Attorney for:
Phillip N. Maisano
Keith Stransky
Neal Jewell
James Schuppenhauer
Charles Collard
Peter Gwiazdowski
(see signature page)
Item 25: Persons Controlled by or Under Common Control with the Fund
- -------- -----------------------------------------------------------
None
Item 26: Number of Holders of Securities
- -------- -------------------------------
As of January 31, 1997, the shares of the Fund were held of record
by the number of holders indicated below:
(1)
Title of Class
--------------
EAI Select Managers Equity Fund Common Shares
(2)
Number of Record Holders
------------------------
37
Item 27: Indemnification
- -------- ---------------
Under Section 4.3 of the Fund's Declaration of Trust, the Fund will
indemnify its Trustees and officers against and hold them harmless
from all liability and expenses reasonably incurred in connection
with any claim, action, suit or proceeding in which they became
involved by virtue of having been a Trustee or officer and all
amounts paid or incurred in settlement thereof. The Fund will not
indemnify a Trustee or officer when the loss is due to willful
misconduct, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Trustee's or officer's
office.
(a) Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to Trustees, officers
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Investment Company Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Trustee, officer
or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
Trustee, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Investment Company
Act and will be governed by the final adjudication of such
issue. In addition, no indemnification shall occur as a result
of actions which constitute willful misfeasance, bad faith,
gross negligence or reckless disregard of duty.
<PAGE>
-4-
Under Section 4.3 of the Fund's Declaration of Trust, the Fund has
the power to purchase liability insurance for shareholders,
Trustees, officers, employees, agents, investment advisers,
distributors, selected dealers or independent contractors of the
Fund. The Fund and/or the Manager has purchased such liability
insurance for such persons.
Section 4.1 of 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.
Item 28: Business and Other Connections of Investment Advisers
- -------- -----------------------------------------------------
The business and other connections of the officers and directors of
Evaluation Associates Capital Markets, Incorporated (the Fund's
Manager) and each of the Subadvisers are listed in Schedules A and D
of their respective Forms ADV as currently on file with the
Commission, the texts of which schedules are incorporated herein by
reference. The file numbers of the Manager and the Subadvisers are
as follows:
Evaluation Associates Capital Markets, Incorporated -- File No. 801-
41771
Liberty Investment Management -- File No. 801-47681
Iridian Asset Management LLC -- File No. 801-50661
Bennett Lawrence Management, LLC -- File No. 801-49805
Equinox Capital Management, Inc. -- File No. 801-34524
Mastrapasqua & Associates, Inc. -- File No. 801-43315
Siphron Capital Management -- File No. 801-37788
Item 29: Principal Underwriters
- -------- ----------------------
Not Applicable
Item 30: Location of Accounts and Records
- -------- --------------------------------
All accounts and records required to be maintained under Section
31(a) of the Investment Company Act of 1940 and Rules 31a-1 to 31a-3
promulgated thereunder are maintained in the following
locations;
(a) Records forming the basis for financial statements of the Fund
are kept at the principal offices of the Manager at 200
Connecticut Avenue, Suite 700, Norwalk, Connecticut 06854-1958.
(b) (1) Journals containing an itemized daily record of all
securities transactions, receipts and disbursements of
cash and all other debits and credits are kept at the
principal offices of the Manager at 200 Connecticut
Avenue, Suite 700, Norwalk, Connecticut 06854-1958, the
Sub-Advisers at their respective addresses listed for them
in the Prospectus, and at the principal offices of the
Custodian at One Boston Place, Boston, Massachusetts
02108.
(2) General and auxiliary ledgers are kept at the principal
offices of the Manager at 200 Connecticut Avenue, Suite
700, Norwalk, Connecticut 06854-1958 or the Administrator
at 99 Park Avenue, 8th floor, New York, New York 10016.
(3) A securities record or ledger reflecting separately for
each portfolio security as of trade date all "long" and
"short" positions carried by the Fund for its own account
and showing the location of all securities long and the
off-setting
<PAGE>
-5-
position to all securities short is kept at the principal
offices of the Manager at 200 Connecticut Avenue, Suite
700, Norwalk, Connecticut 06854-1958 or at the principal
offices of the Custodian at One Boston Place, Boston,
Massachusetts 02108.
(4) The Fund's Declaration of Trust, By-laws, and minute books
are kept at the principal offices of the Manager at 200
Connecticut Avenue, Suite 700, Norwalk, Connecticut 06854-
1958 and at the Administrator at 99 Park Avenue, 8th
floor, New York, New York 10016.
(5) The records of brokerage orders are kept at the principal
offices of the Subadvisers at the addresses listed for
them in the Prospectus and at the Administrator at 99 Park
Avenue, 8th floor, New York, New York 10016.
(6) A record of all other portfolio purchases and sales is
kept at the principal offices of the Manager at 200
Connecticut Avenue, Suite 700, Norwalk, Connecticut 06854-
1958, at the Administrator at 99 Park Avenue, 8th
floor, New York, New York 10016, or at the principal
offices of the Custodian at One Boston Place, Boston,
Massachusetts 02108.
(7) A record of the proof of money balances is kept at the
principal offices of the Manager at 200 Connecticut
Avenue, Suite 700, Norwalk, Connecticut 06854-1958 and at
the Administrator at 99 Park Avenue, 8th floor, New York,
New York 10016.
(8) A record of the basis for the allocation of brokerage
transactions and brokerage commissions is kept at the
principal offices of the Manager at 200 Connecticut
Avenue, Suite 700, Norwalk, Connecticut 06854-1958 or at
the offices of the Subadvisers at the addresses listed for
them in the Prospectus.
(9) A record of the persons authorizing the purchase or sale
of portfolio securities is kept at the principal offices
of the Subadvisers at the addresses listed for them in the
Prospectus.
(10) Copies of all advisory materials from the Manager and the
Subadvisers are kept at the principal offices of the
Manager at 200 Connecticut Avenue, Suite 700, Norwalk,
Connecticut 06854-1958, at the Administrator at 99 Park
Avenue, 8th floor, New York, New York 10016 or at the
offices of the Subadvisers at the addresses listed for
them in the Prospectus.
(c) Not applicable
(d) The Fund believes that each depositor of the Fund maintains the
records required by Rule 31a-1(d) under the Investment Company
Act.
(e) Not applicable
(f) The Fund believes that the Manager and each Subadviser
maintains the records required by Rule 31a-1(f) under the
Investment Company Act.
<PAGE>
Item 31: Management Services
- -------- -------------------
All management related service contracts entered into by or for
the Fund are described in Parts A and B of this Registration
Statement.
Item 32: Undertakings
- -------- ------------
(a) The Fund will call a meeting of Shareholders, if requested to
do so by holders of at least 10% of the Fund's outstanding
Shares, for the purpose of voting upon the question of removal
of a Trustee or Trustees and to assist in communications with
other Shareholders as required by Section 16(c) of the Act.
(b) The Fund will furnish each person to whom a prospectus is
delivered with a copy of the Fund's latest Annual Report to
Shareholders upon request and without charge.
<PAGE>
-7-
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Norwalk and State of Connecticut on the 27th day of
February, 1997.
EAI SELECT MANAGERS EQUITY FUND
By: /s/ William C. Crerend
------------------------------------------
William C. Crerend
Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature appears
below hereby constitutes William C. Crerend such person's true and lawful
attorney, with full power to him to sign for such person and in such person's
name and capacity indicated below, and any and all amendments to this
Registration Statement, hereby ratifying and confirming such person's signature
as it may be signed by said attorney to any and all amendments.
* Trustee and February 27, 1997
- ---------------------
Phillip N. Maisano President
* Trustee and Senior February 27, 1997
- --------------------- Vice President
Keith Stransky
* Trustee February 27, 1997
- ---------------------
Neal Jewell
* Trustee February 27, 1997
- ---------------------
James Schuppenhauer
* Trustee February 27, 1997
- ---------------------
Charles Collard
* Treasurer February 27, 1997
- ---------------------
Peter Gwiazdowski
*By /s/ William C. Crerend
--------------------------------
Name: William C. Crerend
Title: Attorney-in-Fact
<PAGE>
SUB-ADVISORY AGREEMENT
----------------------
Attention: MASTRAPASQUA & ASSOCIATES
RE: Sub-Advisory Agreement
Ladies and Gentlemen:
EAI Select Managers Equity Fund (the "Fund") is a diversified open-end
management investment company registered as an investment company under the
Investment Company Act of 1940, as amended (the "Act"), and subject to the rules
and regulations promulgated thereunder.
Evaluation Associates Capital Markets, Incorporated (the "Manager") acts as the
fund manager and administrator of the Fund pursuant to the terms of a Management
Agreement dated December 14, 1995 with the Fund. Manager is responsible for
certain aspects of the day-to-day management and administration of the Fund and
the coordination of investment of the Fund's assets in portfolio securities.
However, specific portfolio purchases and sales for the Fund's investment
portfolio, or a portion thereof, are to be made by the advisory organizations
recommended by Manager and approved by the Trustees of the Fund.
1. Appointment as Subadvisor. The Manager being duly authorized hereby
--------------------------
appoints and employs Mastrapasqua & Associates (the "Subadvisor") as a
discretionary portfolio manager, on the terms and conditions set forth herein,
of those assets of the Fund which the Manager determines to allocate to the
Subadvisor (those assets being referred to as the "Fund Account"). The Manager
may, from time to time, with the consent of the Subadvisor, make additions to
the Fund Account and may, from time to time, make withdrawals from the Fund
Account.
2. Acceptance of Appointment; Standard of Performance. The Subadvisor accepts
---------------------------------------------------
the appointment as a discretionary portfolio manager and agrees to use its best
professional judgment to make timely investment decisions for the Fund with
respect to the investments of the Fund Account in accordance with the provisions
of this Agreement.
3. Portfolio Management Services of Subadvisor. The Subadvisor is hereby
--------------------------------------------
employed and authorized to select portfolio securities for investment by the
Fund Account, to purchase and sell securities of the Fund Account, and upon
making any purchase or sale decision, to place orders for the execution of such
portfolio transactions in accordance with paragraph 5 and 6 hereof and Schedule
A hereto (as amended from time to time). In providing portfolio management
services to the Fund Account, the Subadvisor shall be subject to such investment
restrictions as are set forth in the Act and the Rules thereunder, the
supervision and control of the Trustees of the Fund, such specific instructions
as the Trustees may adopt and communicate to the Subadvisor, the investment
objectives, policies and restrictions of the Fund furnished pursuant to
paragraph 4, and instructions from the Manager. The Subadvisor shall maintain
on behalf of the Fund the records listed in Schedule B hereto (as amended from
time to time). At the Fund's request, the Subadvisor will consult with the Fund
or with the Manager with respect to any decisions made by it with respect to the
investments of the Fund Account. The Subadvisor will give the Manager prompt
notice of any and all changes in its investment policies and strategies which
may affect its investment decisions with respect to the Fund Account.
<PAGE>
-2-
4. Investment Objectives, Policies, and Restrictions. The Fund shall provide
--------------------------------------------------
the Subadvisor with a statement of the investment objectives and policies of the
Fund and any specific investment restrictions applicable thereto as established
by the Fund and as set forth in the Fund's then-current Prospectus and Statement
of Additional Information, and the Subadvisor shall conduct its activities
hereunder in accordance with such objectives, policies and restrictions. The
Fund has the right, on written notice to the Manager, which notice the Manager
will pass on to the Subadvisor, to modify any such objectives, policies or
restrictions in any manner at any time provided any such amendment is consistent
with the Fund's Declaration of Trust, By-Laws and the Act and the Rules
promulgated thereunder.
5. Transaction Procedures. All transactions will be consummated by payment to
-----------------------
or delivery by Boston Safe Deposit and Trust Company (the "Custodian"), or such
depositories or agents as may be designated by the Custodian, as custodian for
the Fund, of all cash and/or securities due to or from the Fund Account, and the
Subadvisor shall not have possession or custody thereof. The Subadvisor shall
advise the Custodian and Van Eck Associates Corporation and confirm in writing
to the Fund all investment orders for the Fund Account placed by it with brokers
and dealers at the time and in the manner as set forth in Schedule A hereto (as
amended from time to time). The Fund shall issue to the Custodian such
instructions as may be appropriate in connection with the settlement of any
transaction initiated by the Subadvisor. The Fund shall be responsible for all
custodial arrangements and the payment of all custodial charges and fees, and,
upon giving proper instructions to the Custodian, the Subadvisor shall have no
responsibility or liability with respect to custodial arrangements or the acts,
omissions or other conduct of the Custodian which are not undertaken at the
direction of the Subadvisor.
6. Allocation of Brokerage. The Subadvisor shall have authority and discretion
------------------------
to select brokers and dealers to execute portfolio transactions initiated by the
Subadvisor, and for the selection of the markets on or in which the transaction
will be executed.
A. In doing so, the Subadvisor's primary responsibility shall be to obtain
the best net price and execution for the Fund. However, this responsibility
shall not be deemed to obligate the Subadvisor to solicit competitive bids for
each transaction, and the Subadvisor shall have no obligation to seek the lowest
available commission cost to the Fund, so long as the Subadvisor determines that
the broker or dealer is able to obtain the best price on a particular
transaction or as good a price on that transaction as is otherwise available and
that the commission cost is reasonable in relation to the total quality and
reliability of the brokerage and research services made available by the broker
to the Subadvisor viewed in terms of either that particular transaction or of
the Subadvisor's overall responsibilities with respect to its clients, including
the Fund, as to which the Subadvisor exercises investment discretion,
notwithstanding that the Fund may not be the direct or exclusive beneficiary of
any such services or that another broker may be willing to charge the Fund a
lower commission on the particular transaction.
B. The Manager shall have the right to request that specified transactions
giving rise to brokerage commissions, in an amount to be agreed upon by the
Manager and the Subadvisor, shall be executed (x) by brokers and dealers that
provide brokerage or research services to the Fund or the Manager, (y) by
brokers and dealers that agree to pay a portion of the custodian, transfer agent
or other administrative fees incurred by the Fund, or (z) by brokers and dealers
as to which an on-going relationship will be of value to the Fund in the
management of its assets, which services and relationship may, but need not, be
of
<PAGE>
-3-
direct benefit to the Fund Account, so long as (i) the Fund and the Manager
determine that the broker or dealer is able to obtain the best price on a
particular transaction or as good a price on that transaction as is otherwise
available and (ii) the Fund and the Manager determine that the commission cost
is reasonable in relation to (a) the total quality and reliability of the
brokerage and research services made available to the Fund or to the Manager for
the benefit of its clients for which it exercises investment discretion,
notwithstanding that the Fund Account may not be the direct or exclusive
beneficiary of any such service or that another broker may be willing to charge
the Fund a lower commission on the particular transaction or (b) the total
amount of custodian, transfer agent or other administrative fees paid by that
broker for the Fund.
C. The Subadvisor agrees that it will not knowingly execute any portfolio
transactions with a broker or dealer which is an "affiliated person" (as defined
in the Act) of the Fund or of the Manager or of any other subadvisor for the
Fund without the prior written approval of the Fund. The Fund agrees that it
will provide the Subadvisor with a list of brokers and dealers which are
"affiliated persons" of the Fund, the Manager or the Fund's subadvisors. The
Subadvisor agrees that it will provide the Fund and the Manager with a list of
brokers and dealers which are "affiliated persons" of the Subadvisor.
D. As used in this paragraph 6, "brokerage and research services" shall
have the meaning set forth in Section 28(e)(3) of the Securities Exchange Act of
1934.
7. Proxies. The Fund shall have sole voting power of all proxies solicited by
--------
or with respect to the issuers of securities in which assets of the Fund Account
may be invested from time to time. At the request of the Fund, the Subadvisor
shall provide the Fund with its recommendations as to the voting of such
proxies. Except with the agreement or on the specific instructions of the Fund
and except as permitted by applicable law and the rules of any self-regulating
organization to which the Subadvisor belongs, the Subadvisor shall not exercise
any voting rights attaching to the investments of the Fund.
8. Reports to Subadvisor. The Fund shall provide the Subadvisor with such
----------------------
periodic reports concerning the status of the Fund Account as the Subadvisor may
reasonably request.
9. Fees for Services. The compensation of the Subadvisor for its services
------------------
under this Agreement shall be calculated and paid by the Manager in accordance
with the attached Schedule C. Pursuant to the provisions of the Management
Agreement between the Fund and the Manager, the Manager is solely responsible
for the payment of fees to the Subadvisor, and the Subadvisor agrees to seek
payment of the Subadvisor's fees solely from the Manager.
10. Other Investment Activities of Subadvisor. The Fund acknowledges that the
------------------------------------------
Subadvisor or one or more of its affiliates may have investment responsibilities
or render investment advice to or perform other investment advisory services for
other individuals or entities ("Other Accounts"). Subject to the provisions of
paragraph 2 hereof, the Fund agrees that the Subadvisor or its affiliates may
give advice or exercise investment responsibility and take such other action
with respect to Other Accounts which may differ from the advice given or the
timing or nature of action taken with respect to the Fund Account, provided that
the Subadvisor acts in good faith and provided further that it is the
Subadvisor's policy to allocate, within its reasonable discretion, investment
opportunities to the Fund Account over a period of
<PAGE>
-4-
time on a fair and equitable basis relative to the Other Accounts, taking into
account the investment objectives and policies of the Fund and any specific
investment restrictions applicable thereto. The Fund acknowledges that one or
more of the Other Accounts may at any time hold, acquire, increase, decrease,
dispose of or otherwise deal with positions in investments in which the Fund
Account may have an interest from time to time, whether in transactions which
involve the Fund Account or otherwise; provided, however, that all such
-------
transactions shall comply with the requirements of the Act and the rules
thereunder. The Subadvisor will exercise the discretion granted by the Fund to
make investment decisions in the interests of the Fund alone and will have
regard to the interests of its other clients only so far as may be required to
comply with the requirements of applicable law.
11. Certificate of Authority. The Fund, the Manager and the Subadvisor shall
-------------------------
furnish to each other from time to time certified copies of the resolutions of
their Trustees or Boards of Directors or executive committees, as the case may
be, evidencing the authority of officers and employees who are authorized to act
on behalf of the Fund, a Fund Account, the Manager and/or the Subadvisor.
12. Limitation of Liability. (a) The Subadvisor shall not be liable for any
------------------------
action taken, omitted or suffered to be taken by it in its reasonable judgement,
in good faith and believed by it to be authorized or within the discretion or
rights or powers conferred upon it by this Agreement, or in accordance with (or
in the absence of) specific directions or instructions from the Fund; provided,
however, that such acts or omissions shall not have resulted from the
Subadvisor's willful misfeasance, bad faith or gross negligence, a violation of
the standard of care established by and applicable to the Subadvisor in its
actions under this Agreement or breach of its duty or of its obligations
hereunder. The Subadvisor shall not be liable for any act or failure to act by
any broker or other person with whom the Subadvisor, the Fund or the Manager may
deal in connection with this Agreement.
(b) No shareholder, Trustee, officer, employee or agent of the Fund
shall be subject to any personal liability whatsoever to the Manager or the
Subadvisor or any officer, employee or agent thereof solely in connection
with the provisions of this Agreement, and the Manager, the Subadvisor and
each officer, employee and agent thereof shall look solely to the Fund and
its property for satisfaction of claims of any nature against the Fund
arising in connection herewith.
13. Confidentiality. Subject to the duty of the Subadvisor and the Fund to
----------------
comply with applicable law, including any demand of any regulatory or taxing
authority having jurisdiction, the Subadvisor shall treat as confidential all
information pertaining to the Fund Account and the actions of the Subadvisor and
the Fund in respect thereof.
14. Assignment. No assignment, as that term is defined in Section 2(a)(4) of
-----------
the Act, of this Agreement shall be made by the Subadvisor, and this Agreement
shall terminate automatically in the event of such assignment unless the
Trustees of the Fund and the Manager agree to continue this Agreement. The
Subadvisor shall notify the Fund in writing sufficiently in advance of any
proposed change of control, as defined in Section 2(a)(9) of the Act, as will
enable the Fund to consider whether an assignment as defined in Section 2(a)(4)
of the Act will occur.
<PAGE>
-5-
15. Representations, Warranties, and Agreements of the Fund. The Fund
--------------------------------------------------------
represents, warrants, and agrees that:
A. The Subadvisor has been duly appointed by the Trustees of the Fund to
provide investment advice to the Fund Account as contemplated hereby.
B. The Fund will deliver to the Subadvisor a true and complete copy of its
then current prospectus as effective from time to time and such other documents
or instruments governing the investment of the Fund Account and such other
information as is necessary for the Subadvisor to carry out its obligations
under this Agreement.
C. The Fund is currently in material compliance and shall at all times
materially comply with the requirements imposed upon the Fund by applicable law
and regulation.
16. Representations, Warranties, and Agreements of the Subadvisor. The
--------------------------------------------------------------
Subadvisor represents, warrants, and agrees that:
A. The Subadvisor is registered as an "Investment Adviser" under the
Investment Advisers Act of 1940, as amended ("Advisers Act"); is a "bank" or a
"bank holding company" as defined in Section 202(a) of the Advisers Act; or is
otherwise permitted to act as an "investment adviser" as defined in Section
2(a)(20) of the Act.
B. The Subadvisor will maintain, keep current and preserve, on behalf of
the Fund, in the manner required or permitted by the Act, the records identified
in Schedule B. The Subadvisor agrees that such records (other than those
required by No. 4 of Schedule B) are the property of the Fund, and will be
surrendered to the Fund promptly upon request.
C. The Subadvisor will adopt a written code of ethics complying with the
requirements of Rule 17j-1 under the Act, will provide the Fund with a copy of
the code of ethics and evidence of its adoption, will comply with such code of
ethics, and will make such reports to the Fund as are required to be made to the
Fund by Rule 17j-1 under the Act or are otherwise reasonably required by the
Fund or the Manager.
D. The Subadvisor will comply in all material respects with the Act and the
Advisers Act and all regulations promulgated thereunder.
E. The Subadvisor will make and maintain all state securities registrations
as are necessary or appropriate to perform its obligations hereunder.
F. The Subadvisor shall furnish the Fund and the Manager with copies of its
current ADV forms, which forms shall be complete and correct in all material
respects.
17. Amendment. This Agreement may be amended at any time, but only by written
----------
agreement among the Subadvisor, the Manager and the Fund, which amendment, other
than amendments to Schedules
<PAGE>
-6-
A and B, is subject to the approval of the Trustees of the Fund in the manner
required by the Act and the Rules and orders issued thereunder.
18. Effective Date; Term. This Agreement shall become effective on March 3,
---------------------
1997 and shall continue in effect for successive annual periods only so long as
its continuance has been specifically approved at least annually by the Manager
and the Trustees of the Fund, including a majority of the Trustees who are not
"interested parties" of the Subadvisor under the Act, in the manner required by
the Act. The aforesaid requirement that continuance of this Agreement be
"specifically approved at least annually" shall be construed in a manner
consistent with the Act and the Rules and Regulations thereunder.
19. Termination. This Agreement may be terminated by any party hereto, without
------------
the payment of any penalty, immediately upon written notice to the other parties
hereto in the event of a breach of any provision hereof by a party so notified,
or otherwise by the Subadvisor upon sixty (60) days' written notice to the Fund
and the Manager, or by the Fund or the Manager immediately upon written notice
to the Subadvisor, but any such termination shall not affect the status,
obligations, or liabilities of any party hereto to any other party hereto.
20. Severability. If any provision of this Agreement shall be held or made
-------------
invalid by a court decision, statute, rule, or otherwise, the remainder of this
Agreement shall not be affected thereby but shall continue in full force and
effect.
21. Applicable Law. To the extent that state law is not preempted by the
---------------
provisions of any law of the United States heretofore or hereafter enacted, as
the same may be amended from time to time, this Agreement shall be administered,
construed, and enforced according to the laws of the State of Connecticut.
EAI SELECT MANAGERS EQUITY FUND
BY:
-------------------------------------------
Its:
-----------------------------------------
DATE:
-----------------------------------------
ACCEPTED: EVALUATION ASSOCIATES CAPITAL MARKETS,
INCORPORATED
MASTRAPASQUA & ASSOCIATES
<PAGE>
-7-
BY: BY:
----------------------------- ------------------------------
Its: Its:
--------------------------- ----------------------------
DATE: DATE:
--------------------------- ----------------------------
<PAGE>
SCHEDULES: A. Operational Procedures.
B. Record Keeping Requirements.
C. Fee Schedule.
<PAGE>
SCHEDULE A
----------
The Subadvisor must abide by certain rules and procedures in order to minimize
operational problems. The Subadvisor must maintain various records and files
(as required by regulatory agencies) at its office (see Schedule B). In
addition, it will be necessary for a flow of information to be supplied to
Boston Safe Deposit and Trust Company, the Custodian for the Fund.
The Subadvisor must furnish Boston Safe Deposit and Trust Company with daily
information as to executed trades no later than 10 a.m. on the morning following
the day of the trade. The necessary information must be transmitted via
facsimile machine to Boston Safe Deposit and Trust Company (the direct line to
the machine is 617-382-2698 or 617-382-2695). The information must also be
transmitted via facsimile machine to Van Eck Associates Corporation at 212-293-
2163, Attention: Portfolio Administration. The faxed notifications must be
signed by authorized signatories. Upon receipt of brokers' confirmations, the
Subadvisor or Boston Safe Deposit and Trust Company must notify the other party
if any differences exist. The reporting of trades by the Subadvisor to Boston
Safe Deposit and Trust Company and Van Eck Associates Corporation shall include
the following information:
1 - Purchase or sale;
2 - Security name and description;
3 - CUSIP # or security symbol;
4 - Number of shares;
5 - Commission rate per share or if a net trade;
6 - Executing broker;
7 - Trade date;
8 - Settlement date, if other than normal;
9 - If security is not eligible for DTC; and
10 - Total amount payable/receivable.
The trades from the Subadvisor must be numbered consecutively and there must be
a summary of the number of trades done on the day. If there are no transactions
on a particular day, that must be reported.
Trade modifications and cancellations must be communicated immediately by
telephone, with a follow up by an amended facsimile transmittal.
When opening accounts with brokers for the Fund, the account must be a cash
account. No margin accounts in the name of the Fund are to be maintained. The
broker should be advised to use Boston Safe Deposit and Trust Company's ID
system number (no. 20954) to facilitate the receipt of information by Boston
Safe Deposit and Trust Company. In addition, the Subadvisor should arrange to
have copies of all account documentation and duplicate confirmations sent as
follows:
EAI Select Managers Equity Fund
c/o Evaluation Associates Capital Markets, Incorporated
200 Connecticut Avenue, Suite 700
Norwalk, Connecticut 06854-1958
<PAGE>
-2-
Boston Safe Deposit and Trust Company
One Boston Place
Boston, Massachusetts 02108
Delivery Instructions are as follows:
All DTC eligible securities;
Depository Trust Company (DTC)
Participant No. 954
All Commercial Paper and ineligible DTC securities:
c/o Mellon Securities
120 Broadway, 13th Floor
Suite 1350
New York, New York 10271
"vs payment" (Federal Funds on commercial paper only)
Account: EAI Select Managers Equity Fund
Delivery through area Federal Reserve Bank to:
Boston Safe Deposit and Trust Company
EAI Select Managers Equity Fund
or account number
"vs payment" Federal Funds
Wire Instructions:
Into Boston Safe Deposit and Trust Company (use Federal Reserve wires)
ABA # 011001234
A/C # 11572
Mutual Funds # 6630
Attention: EAI Select Managers Equity Fund
Amount: $_________________________
All securities shall be registered in the name of BOST & CO.
<PAGE>
-3-
The Subadvisor must submit to Boston Safe Deposit and Trust Company a trade
authorization form signed by two authorized individuals prior to settlement
date. The list of authorized persons with specimen signatures must be kept
current at Boston Safe Deposit and Trust Company.
The Subadvisor shall make available for Boston Safe Deposit and Trust Company
appropriate names of individuals at executing brokers with whom Boston Safe
Deposit and Trust Company may discuss and resolve problems that may occur.
Boston Safe Deposit and Trust Company will supply the Subadvisor daily with a
cash availability report. This will normally be done by telephone so that the
Subadvisor may know the amount available for investment purposes.
<PAGE>
SCHEDULE B
----------
RECORDS TO BE MAINTAINED BY SUBADVISOR:
- ---------------------------------------
1. A record of each brokerage order, and all other portfolio purchases
and sales, given by the Subadvisor on behalf of the Fund for, or in
connection with, the purchase or sale of securities, whether executed
or unexecuted. Such records shall include:
A. The name of the broker;
B. The terms and conditions of the order and of any modifications or
cancellation thereof;
C. The time of entry or cancellation;
D. The price at which executed;
E. Quantity of securities bought or sold;
F. The time of receipt of execution; and
G. The name of the person who placed the order on behalf of the
Fund.
2.* A RECORD FOR EACH FISCAL QUARTER, COMPLETED WITHIN TEN (10) DAYS AFTER
THE END OF THE QUARTER, SHOWING SPECIFICALLY THE BASIS OR BASES UPON
WHICH THE ALLOCATION OF ORDERS FOR THE PURCHASE AND SALE OF PORTFOLIO
SECURITIES TO BROKERS OR DEALERS WAS EFFECTED, AND THE DIVISION OF
BROKERAGE COMMISSIONS OR OTHER COMPENSATION ON SUCH PURCHASE AND SALE
ORDERS.
Such record:
A. Shall include the consideration given to:
(i) the sale of shares of the Fund
(ii) the supplying of services or benefits by brokers or
dealers to:
(a) The Fund
(b) The Manager (Evaluation Associates Capital Markets,
Incorporated)
(c) The Subadvisor and
(d) Any person other than the foregoing.
(iii) Any other consideration other than the technical
qualifications of the brokers and dealers.
<PAGE>
-2-
B. Shall show the nature of the services or benefits made available.
C. Shall describe in detail the application of any general or
specific formula or other determinant used in arriving at such
allocation of purchase and sale orders and such division of
brokerage commissions or other compensation.
D. The name of the person responsible for making the determination
of such allocation and such division of brokerage commissions or
other compensation.
3. A record in the form of an appropriate memorandum identifying the
person or persons, committees or groups authorizing the purchase or
sale of portfolio securities. Where an authorization is made by a
committee or group, a record shall be kept of the names of its members
who participate in the authorization.
There shall be retained as part of this record: any memorandum,
recommendation or instruction supporting or authorizing the purchase
or sale of portfolio securities and such other information as is
appropriate to support the authorization.**
4. Such accounts, books and other documents as are required to be
maintained by registered investment advisors by rule adopted under
Section 204 of the Investment Advisors Act of 1940, as amended, to the
extent such records are necessary or appropriate to record the
Subadvisor's transactions with the Fund.
* Maintained as property of the fund pursuant to 1940 Act, Rule 31a-3(a).
** Such information might include: the current Form 10-k, annual and
quarterly reports, press releases, reports by analysts and from brokerage
firms (including their recommendation; i.e., buy, sell, hold) or any
internal reports or Subadvisor reviews.
<PAGE>
SCHEDULE C
----------
SUBADVISOR FEE
--------------
For services provided to the Fund Account, Evaluation Associates Capital
Markets, Incorporated will pay a base quarterly fee at the end of each calendar
quarter at an annual rate of 0.375% of average monthly net assets in the Fund
Account during the quarter. Average monthly net assets shall be determined
using net assets in the Fund Account on the last business day of each month
during the calendar quarter. The fee shall be pro-rated for any calendar
quarter during which the contract is in effect for only a portion of the
quarter.
The Subadvisor may waive all or a portion of the fee due to it hereunder at
any time. Any voluntary fee waiver by the Subadvisor may be terminated or
reduced at any time in the sole discretion of the Subadvisor, unless
contractually committed to for a specified period.
<PAGE>
SUB-ADVISORY AGREEMENT
----------------------
Attention: SIPHRON CAPITAL MANAGEMENT
RE: Sub-Advisory Agreement
Ladies and Gentlemen:
EAI Select Managers Equity Fund (the "Fund") is a diversified open-end
management investment company registered as an investment company under the
Investment Company Act of 1940, as amended (the "Act"), and subject to the rules
and regulations promulgated thereunder.
Evaluation Associates Capital Markets, Incorporated (the "Manager") acts as the
fund manager and administrator of the Fund pursuant to the terms of a Management
Agreement dated December 14, 1995 with the Fund. Manager is responsible for
certain aspects of the day-to-day management and administration of the Fund and
the coordination of investment of the Fund's assets in portfolio securities.
However, specific portfolio purchases and sales for the Fund's investment
portfolio, or a portion thereof, are to be made by the advisory organizations
recommended by Manager and approved by the Trustees of the Fund.
1. Appointment as Subadvisor. The Manager being duly authorized hereby
--------------------------
appoints and employs Siphron Capital Management (the "Subadvisor") as a
discretionary portfolio manager, on the terms and conditions set forth herein,
of those assets of the Fund which the Manager determines to allocate to the
Subadvisor (those assets being referred to as the "Fund Account"). The Manager
may, from time to time, with the consent of the Subadvisor, make additions to
the Fund Account and may, from time to time, make withdrawals from the Fund
Account.
2. Acceptance of Appointment; Standard of Performance. The Subadvisor accepts
---------------------------------------------------
the appointment as a discretionary portfolio manager and agrees to use its best
professional judgment to make timely investment decisions for the Fund with
respect to the investments of the Fund Account in accordance with the provisions
of this Agreement.
3. Portfolio Management Services of Subadvisor. The Subadvisor is hereby
--------------------------------------------
employed and authorized to select portfolio securities for investment by the
Fund Account, to purchase and sell securities of the Fund Account, and upon
making any purchase or sale decision, to place orders for the execution of such
portfolio transactions in accordance with paragraph 5 and 6 hereof and Schedule
A hereto (as amended from time to time). In providing portfolio management
services to the Fund Account, the Subadvisor shall be subject to such investment
restrictions as are set forth in the Act and the Rules thereunder, the
supervision and control of the Trustees of the Fund, such specific instructions
as the Trustees may adopt and communicate to the Subadvisor, the investment
objectives, policies and restrictions of the Fund furnished pursuant to
paragraph 4, and instructions from the Manager. The Subadvisor shall maintain
on behalf of the Fund the records listed in Schedule B hereto (as amended from
time to time). At the Fund's request, the Subadvisor will consult with the Fund
or with the Manager with respect to any decisions made by it with respect to the
investments of the Fund Account. The Subadvisor will give the Manager prompt
notice of any and all changes in its investment policies and strategies which
may affect its investment decisions with respect to the Fund Account.
<PAGE>
-2-
4. Investment Objectives, Policies, and Restrictions. The Fund shall provide
--------------------------------------------------
the Subadvisor with a statement of the investment objectives and policies of the
Fund and any specific investment restrictions applicable thereto as established
by the Fund and as set forth in the Fund's then-current Prospectus and Statement
of Additional Information, and the Subadvisor shall conduct its activities
hereunder in accordance with such objectives, policies and restrictions. The
Fund has the right, on written notice to the Manager, which notice the Manager
will pass on to the Subadvisor, to modify any such objectives, policies or
restrictions in any manner at any time provided any such amendment is consistent
with the Fund's Declaration of Trust, By-Laws and the Act and the Rules
promulgated thereunder.
5. Transaction Procedures. All transactions will be consummated by payment to
-----------------------
or delivery by Boston Safe Deposit and Trust Company (the "Custodian"), or such
depositories or agents as may be designated by the Custodian, as custodian for
the Fund, of all cash and/or securities due to or from the Fund Account, and the
Subadvisor shall not have possession or custody thereof. The Subadvisor shall
advise the Custodian and Van Eck Associates Corporation and confirm in writing
to the Fund all investment orders for the Fund Account placed by it with brokers
and dealers at the time and in the manner as set forth in Schedule A hereto (as
amended from time to time). The Fund shall issue to the Custodian such
instructions as may be appropriate in connection with the settlement of any
transaction initiated by the Subadvisor. The Fund shall be responsible for all
custodial arrangements and the payment of all custodial charges and fees, and,
upon giving proper instructions to the Custodian, the Subadvisor shall have no
responsibility or liability with respect to custodial arrangements or the acts,
omissions or other conduct of the Custodian which are not undertaken at the
direction of the Subadvisor.
6. Allocation of Brokerage. The Subadvisor shall have authority and discretion
------------------------
to select brokers and dealers to execute portfolio transactions initiated by the
Subadvisor, and for the selection of the markets on or in which the transaction
will be executed.
A. In doing so, the Subadvisor's primary responsibility shall be to obtain
the best net price and execution for the Fund. However, this responsibility
shall not be deemed to obligate the Subadvisor to solicit competitive bids for
each transaction, and the Subadvisor shall have no obligation to seek the lowest
available commission cost to the Fund, so long as the Subadvisor determines that
the broker or dealer is able to obtain the best price on a particular
transaction or as good a price on that transaction as is otherwise available and
that the commission cost is reasonable in relation to the total quality and
reliability of the brokerage and research services made available by the broker
to the Subadvisor viewed in terms of either that particular transaction or of
the Subadvisor's overall responsibilities with respect to its clients, including
the Fund, as to which the Subadvisor exercises investment discretion,
notwithstanding that the Fund may not be the direct or exclusive beneficiary of
any such services or that another broker may be willing to charge the Fund a
lower commission on the particular transaction.
B. The Manager shall have the right to request that specified transactions
giving rise to brokerage commissions, in an amount to be agreed upon by the
Manager and the Subadvisor, shall be executed (x) by brokers and dealers that
provide brokerage or research services to the Fund or the Manager, (y) by
brokers and dealers that agree to pay a portion of the custodian, transfer agent
or other administrative fees incurred by the Fund, or (z) by brokers and dealers
as to which an on-going relationship will be of value to the Fund in the
management of its assets, which services and relationship may, but need not, be
of
<PAGE>
-3-
direct benefit to the Fund Account, so long as (i) the Fund and the Manager
determine that the broker or dealer is able to obtain the best price on a
particular transaction or as good a price on that transaction as is otherwise
available and (ii) the Fund and the Manager determine that the commission cost
is reasonable in relation to (a) the total quality and reliability of the
brokerage and research services made available to the Fund or to the Manager for
the benefit of its clients for which it exercises investment discretion,
notwithstanding that the Fund Account may not be the direct or exclusive
beneficiary of any such service or that another broker may be willing to charge
the Fund a lower commission on the particular transaction or (b) the total
amount of custodian, transfer agent or other administrative fees paid by that
broker for the Fund.
C. The Subadvisor agrees that it will not knowingly execute any portfolio
transactions with a broker or dealer which is an "affiliated person" (as defined
in the Act) of the Fund or of the Manager or of any other subadvisor for the
Fund without the prior written approval of the Fund. The Fund agrees that it
will provide the Subadvisor with a list of brokers and dealers which are
"affiliated persons" of the Fund, the Manager or the Fund's subadvisors. The
Subadvisor agrees that it will provide the Fund and the Manager with a list of
brokers and dealers which are "affiliated persons" of the Subadvisor.
D. As used in this paragraph 6, "brokerage and research services" shall
have the meaning set forth in Section 28(e)(3) of the Securities Exchange Act of
1934.
7. Proxies. The Fund shall have sole voting power of all proxies solicited by
--------
or with respect to the issuers of securities in which assets of the Fund Account
may be invested from time to time. At the request of the Fund, the Subadvisor
shall provide the Fund with its recommendations as to the voting of such
proxies. Except with the agreement or on the specific instructions of the Fund
and except as permitted by applicable law and the rules of any self-regulating
organization to which the Subadvisor belongs, the Subadvisor shall not exercise
any voting rights attaching to the investments of the Fund.
8. Reports to Subadvisor. The Fund shall provide the Subadvisor with such
----------------------
periodic reports concerning the status of the Fund Account as the Subadvisor may
reasonably request.
9. Fees for Services. The compensation of the Subadvisor for its services
------------------
under this Agreement shall be calculated and paid by the Manager in accordance
with the attached Schedule C. Pursuant to the provisions of the Management
Agreement between the Fund and the Manager, the Manager is solely responsible
for the payment of fees to the Subadvisor, and the Subadvisor agrees to seek
payment of the Subadvisor's fees solely from the Manager.
10. Other Investment Activities of Subadvisor. The Fund acknowledges that the
------------------------------------------
Subadvisor or one or more of its affiliates may have investment responsibilities
or render investment advice to or perform other investment advisory services for
other individuals or entities ("Other Accounts"). Subject to the provisions of
paragraph 2 hereof, the Fund agrees that the Subadvisor or its affiliates may
give advice or exercise investment responsibility and take such other action
with respect to Other Accounts which may differ from the advice given or the
timing or nature of action taken with respect to the Fund Account, provided that
the Subadvisor acts in good faith and provided further that it is the
Subadvisor's policy to allocate, within its reasonable discretion, investment
opportunities to the Fund Account over a period of
<PAGE>
-4-
time on a fair and equitable basis relative to the Other Accounts, taking into
account the investment objectives and policies of the Fund and any specific
investment restrictions applicable thereto. The Fund acknowledges that one or
more of the Other Accounts may at any time hold, acquire, increase, decrease,
dispose of or otherwise deal with positions in investments in which the Fund
Account may have an interest from time to time, whether in transactions which
involve the Fund Account or otherwise; provided, however, that all such
transactions shall comply with the requirements of the Act and the rules
thereunder. The Subadvisor will exercise the discretion granted by the Fund to
make investment decisions in the interests of the Fund alone and will have
regard to the interests of its other clients only so far as may be required to
comply with the requirements of applicable law.
11. Certificate of Authority. The Fund, the Manager and the Subadvisor shall
-------------------------
furnish to each other from time to time certified copies of the resolutions of
their Trustees or Boards of Directors or executive committees, as the case may
be, evidencing the authority of officers and employees who are authorized to act
on behalf of the Fund, a Fund Account, the Manager and/or the Subadvisor.
12. Limitation of Liability. (a) The Subadvisor shall not be liable for any
------------------------
action taken, omitted or suffered to be taken by it in its reasonable judgement,
in good faith and believed by it to be authorized or within the discretion or
rights or powers conferred upon it by this Agreement, or in accordance with (or
in the absence of) specific directions or instructions from the Fund; provided,
however, that such acts or omissions shall not have resulted from the
Subadvisor's willful misfeasance, bad faith or gross negligence, a violation of
the standard of care established by and applicable to the Subadvisor in its
actions under this Agreement or breach of its duty or of its obligations
hereunder. The Subadvisor shall not be liable for any act or failure to act by
any broker or other person with whom the Subadvisor, the Fund or the Manager may
deal in connection with this Agreement.
(b) No shareholder, Trustee, officer, employee or agent of the Fund
shall be subject to any personal liability whatsoever to the Manager or the
Subadvisor or any officer, employee or agent thereof solely in connection
with the provisions of this Agreement, and the Manager, the Subadvisor and
each officer, employee and agent thereof shall look solely to the Fund and
its property for satisfaction of claims of any nature against the Fund
arising in connection herewith.
13. Confidentiality. Subject to the duty of the Subadvisor and the Fund to
----------------
comply with applicable law, including any demand of any regulatory or taxing
authority having jurisdiction, the Subadvisor shall treat as confidential all
information pertaining to the Fund Account and the actions of the Subadvisor and
the Fund in respect thereof.
14. Assignment. No assignment, as that term is defined in Section 2(a)(4) of
-----------
the Act, of this Agreement shall be made by the Subadvisor, and this Agreement
shall terminate automatically in the event of such assignment unless the
Trustees of the Fund and the Manager agree to continue this Agreement. The
Subadvisor shall notify the Fund in writing sufficiently in advance of any
proposed change of control, as defined in Section 2(a)(9) of the Act, as will
enable the Fund to consider whether an assignment as defined in Section 2(a)(4)
of the Act will occur.
<PAGE>
-5-
15. Representations, Warranties, and Agreements of the Fund. The Fund and the
--------------------------------------------------------
Manager represent, warrant, and agree that:
A. The Subadvisor has been duly appointed by the Trustees of the Fund to
provide investment advice to the Fund Account as contemplated hereby.
B. The Fund will deliver to the Subadvisor a true and complete copy of its
then current prospectus as effective from time to time and such other documents
or instruments governing the investment of the Fund Account and such other
information as is necessary for the Subadvisor to carry out its obligations
under this Agreement.
C. The Fund and the Manager are currently in material compliance and shall
at all times materially comply with the requirements imposed upon the Fund by
applicable law and regulation.
16. Representations, Warranties, and Agreements of the Subadvisor. The
--------------------------------------------------------------
Subadvisor represents, warrants, and agrees that:
A. The Subadvisor is registered as an "Investment Adviser" under the
Investment Advisers Act of 1940, as amended ("Advisers Act"); is a "bank" or a
"bank holding company" as defined in Section 202(a) of the Advisers Act; or is
otherwise permitted to act as an "investment adviser" as defined in Section
2(a)(20) of the Act.
B. The Subadvisor will maintain, keep current and preserve, on behalf of
the Fund, in the manner required or permitted by the Act, the records identified
in Schedule B. The Subadvisor agrees that such records (other than those
required by No. 4 of Schedule B) are the property of the Fund, and will be
surrendered to the Fund promptly upon request.
C. The Subadvisor will adopt a written code of ethics complying with the
requirements of Rule 17j-1 under the Act, will provide the Fund with a copy of
the code of ethics and evidence of its adoption, will comply with such code of
ethics, and will make such reports to the Fund as are required to be made to the
Fund by Rule 17j-1 under the Act or are otherwise reasonably required by the
Fund or the Manager.
D. The Subadvisor will comply in all material respects with the Act and the
Advisers Act and all regulations promulgated thereunder.
E. The Subadvisor will make and maintain all state securities registrations
as are necessary or appropriate to perform its obligations hereunder.
F. The Subadvisor shall furnish the Fund and the Manager with copies of its
current ADV forms, which forms shall be complete and correct in all material
respects.
17. Amendment. This Agreement may be amended at any time, but only by written
----------
agreement among the Subadvisor, the Manager and the Fund, which amendment, other
than amendments to Schedules
<PAGE>
-6-
A and B, is subject to the approval of the Trustees of the Fund in the manner
required by the Act and the Rules and orders issued thereunder.
18. Effective Date; Term. This Agreement shall become effective on March 3,
---------------------
1997 and shall continue in effect for successive annual periods only so long as
its continuance has been specifically approved at least annually by the Manager
and the Trustees of the Fund, including a majority of the Trustees who are not
"interested parties" of the Subadvisor under the Act, in the manner required by
the Act. The aforesaid requirement that continuance of this Agreement be
"specifically approved at least annually" shall be construed in a manner
consistent with the Act and the Rules and Regulations thereunder.
19. Termination. This Agreement may be terminated by any party hereto, without
------------
the payment of any penalty, immediately upon written notice to the other parties
hereto in the event of a breach of any provision hereof by a party so notified,
or otherwise by the Subadvisor upon sixty (60) days' written notice to the Fund
and the Manager, or by the Fund or the Manager immediately upon written notice
to the Subadvisor, but any such termination shall not affect the status,
obligations, or liabilities of any party hereto to any other party hereto.
20. Severability. If any provision of this Agreement shall be held or made
-------------
invalid by a court decision, statute, rule, or otherwise, the remainder of this
Agreement shall not be affected thereby but shall continue in full force and
effect.
21. Applicable Law. To the extent that state law is not preempted by the
---------------
provisions of any law of the United States heretofore or hereafter enacted, as
the same may be amended from time to time, this Agreement shall be administered,
construed, and enforced according to the laws of the State of Connecticut.
EAI SELECT MANAGERS EQUITY FUND
BY:
--------------------------------------------
Its:
-------------------------------------------
DATE:
-----------------------------------------
ACCEPTED: EVALUATION ASSOCIATES CAPITAL MARKETS,
INCORPORATED
SIPHRON CAPITAL MANAGEMENT
<PAGE>
-7-
BY: BY:
----------------------------- ----------------------------------
Its: Its:
---------------------------- ---------------------------------
DATE: DATE:
-------------------------- -------------------------------
<PAGE>
SCHEDULES: A. Operational Procedures.
B. Record Keeping Requirements.
C. Fee Schedule.
<PAGE>
SCHEDULE A
----------
The Subadvisor must abide by certain rules and procedures in order to minimize
operational problems. The Subadvisor must maintain various records and files
(as required by regulatory agencies) at its office (see Schedule B). In
addition, it will be necessary for a flow of information to be supplied to
Boston Safe Deposit and Trust Company, the Custodian for the Fund.
The Subadvisor must furnish Boston Safe Deposit and Trust Company with daily
information as to executed trades no later than 10 a.m. on the morning following
the day of the trade. The necessary information must be transmitted via
facsimile machine to Boston Safe Deposit and Trust Company (the direct line to
the machine is 617-382-2698 or 617-382-2695). The information must also be
transmitted via facsimile machine to Van Eck Associates Corporation at 212-293-
2163, Attention: Portfolio Administration. The faxed notifications must be
signed by authorized signatories. Upon receipt of brokers' confirmations, the
Subadvisor or Boston Safe Deposit and Trust Company must notify the other party
if any differences exist. The reporting of trades by the Subadvisor to Boston
Safe Deposit and Trust Company and Van Eck Associates Corporation shall include
the following information:
1 - Purchase or sale;
2 - Security name and description;
3 - CUSIP # or security symbol;
4 - Number of shares;
5 - Commission rate per share or if a net trade;
6 - Executing broker;
7 - Trade date;
8 - Settlement date, if other than normal;
9 - If security is not eligible for DTC; and
10 - Total amount payable/receivable.
The trades from the Subadvisor must be numbered consecutively and there must be
a summary of the number of trades done on the day. If there are no transactions
on a particular day, that must be reported.
Trade modifications and cancellations must be communicated immediately by
telephone, with a follow up by an amended facsimile transmittal.
When opening accounts with brokers for the Fund, the account must be a cash
account. No margin accounts in the name of the Fund are to be maintained. The
broker should be advised to use Boston Safe Deposit and Trust Company's ID
system number (no. 20954) to facilitate the receipt of information by Boston
Safe Deposit and Trust Company. In addition, the Subadvisor should arrange to
have copies of all account documentation and duplicate confirmations sent as
follows:
EAI Select Managers Equity Fund
c/o Evaluation Associates Capital Markets, Incorporated
200 Connecticut Avenue, Suite 700
Norwalk, Connecticut 06854-1958
<PAGE>
-2-
Boston Safe Deposit and Trust Company
One Boston Place
Boston, Massachusetts 02108
Delivery Instructions are as follows:
All DTC eligible securities;
Depository Trust Company (DTC)
Participant No. 954
All Commercial Paper and ineligible DTC securities:
c/o Mellon Securities
120 Broadway, 13th Floor
Suite 1350
New York, New York 10271
"vs payment" (Federal Funds on commercial paper only)
Account: EAI Select Managers Equity Fund
Delivery through area Federal Reserve Bank to:
Boston Safe Deposit and Trust Company
EAI Select Managers Equity Fund
or account number
"vs payment" Federal Funds
Wire Instructions:
Into Boston Safe Deposit and Trust Company (use Federal Reserve wires)
ABA # 011001234
A/C # 11572
Mutual Funds # 6630
Attention: EAI Select Managers Equity Fund
Amount: $_________________________
All securities shall be registered in the name of BOST & CO.
<PAGE>
-3-
The Subadvisor must submit to Boston Safe Deposit and Trust Company a trade
authorization form signed by two authorized individuals prior to settlement
date. The list of authorized persons with specimen signatures must be kept
current at Boston Safe Deposit and Trust Company.
The Subadvisor shall make available for Boston Safe Deposit and Trust Company
appropriate names of individuals at executing brokers with whom Boston Safe
Deposit and Trust Company may discuss and resolve problems that may occur.
Boston Safe Deposit and Trust Company will supply the Subadvisor daily with a
cash availability report. This will normally be done by telephone so that the
Subadvisor may know the amount available for investment purposes.
<PAGE>
SCHEDULE B
----------
RECORDS TO BE MAINTAINED BY SUBADVISOR:
- ---------------------------------------
1. A record of each brokerage order, and all other portfolio purchases
and sales, given by the Subadvisor on behalf of the Fund for, or in
connection with, the purchase or sale of securities, whether executed
or unexecuted. Such records shall include:
A. The name of the broker;
B. The terms and conditions of the order and of any modifications or
cancellation thereof;
C. The time of entry or cancellation;
D. The price at which executed;
E. Quantity of securities bought or sold;
F. The time of receipt of execution; and
G. The name of the person who placed the order on behalf of the
Fund.
2.* A RECORD FOR EACH FISCAL QUARTER, COMPLETED WITHIN TEN (10) DAYS AFTER
THE END OF THE QUARTER, SHOWING SPECIFICALLY THE BASIS OR BASES UPON
WHICH THE ALLOCATION OF ORDERS FOR THE PURCHASE AND SALE OF PORTFOLIO
SECURITIES TO BROKERS OR DEALERS WAS EFFECTED, AND THE DIVISION OF
BROKERAGE COMMISSIONS OR OTHER COMPENSATION ON SUCH PURCHASE AND SALE
ORDERS.
Such record:
A. Shall include the consideration given to:
(i) the sale of shares of the Fund
(ii) the supplying of services or benefits by brokers or
dealers to:
(a) The Fund
(b) The Manager (Evaluation Associates Capital Markets,
Incorporated)
(c) The Subadvisor and
(d) Any person other than the foregoing.
(iii) Any other consideration other than the technical
qualifications of the brokers and dealers.
<PAGE>
-2-
B. Shall show the nature of the services or benefits made available.
C. Shall describe in detail the application of any general or
specific formula or other determinant used in arriving at such
allocation of purchase and sale orders and such division of
brokerage commissions or other compensation.
D. The name of the person responsible for making the determination
of such allocation and such division of brokerage commissions or
other compensation.
3. A record in the form of an appropriate memorandum identifying the
person or persons, committees or groups authorizing the purchase or
sale of portfolio securities. Where an authorization is made by a
committee or group, a record shall be kept of the names of its members
who participate in the authorization.
There shall be retained as part of this record: any memorandum,
recommendation or instruction supporting or authorizing the purchase
or sale of portfolio securities and such other information as is
appropriate to support the authorization.**
4. Such accounts, books and other documents as are required to be
maintained by registered investment advisors by rule adopted under
Section 204 of the Investment Advisors Act of 1940, as amended, to the
extent such records are necessary or appropriate to record the
Subadvisor's transactions with the Fund.
* Maintained as property of the fund pursuant to 1940 Act, Rule 31a-3(a).
** Such information might include: the current Form 10-k, annual and
quarterly reports, press releases, reports by analysts and from brokerage
firms (including their recommendation; i.e., buy, sell, hold) or any
internal reports or Subadvisor reviews.
<PAGE>
SCHEDULE C
----------
SUBADVISOR FEE
--------------
For services provided to the Fund Account, Evaluation Associates Capital
Markets, Incorporated will pay a base quarterly fee at the end of each calendar
quarter at an annual rate of 0.375% of average monthly net assets in the Fund
Account during the quarter. Average monthly net assets shall be determined
using net assets in the Fund Account on the last business day of each month
during the calendar quarter. The fee shall be pro-rated for any calendar
quarter during which the contract is in effect for only a portion of the
quarter.
The Subadvisor may waive all or a portion of the fee due to it hereunder at
any time. Any voluntary fee waiver by the Subadvisor may be terminated or
reduced at any time in the sole discretion of the Subadvisor, unless
contractually committed to for a specified period.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-2-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 81,309,559
<INVESTMENTS-AT-VALUE> 88,516,527
<RECEIVABLES> 624,680
<ASSETS-OTHER> 176,077
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 89,317,284
<PAYABLE-FOR-SECURITIES> 159,240
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 550,686
<TOTAL-LIABILITIES> 709,926
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 81,624,079
<SHARES-COMMON-STOCK> 8,190,621
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (223,689)
<ACCUM-APPREC-OR-DEPREC> 7,206,968
<NET-ASSETS> 88,607,358
<DIVIDEND-INCOME> 1,262,733
<INTEREST-INCOME> 384,924
<OTHER-INCOME> 0
<EXPENSES-NET> 1,011,206
<NET-INVESTMENT-INCOME> 636,451
<REALIZED-GAINS-CURRENT> 3,873,251
<APPREC-INCREASE-CURRENT> 7,206,968
<NET-CHANGE-FROM-OPS> 11,716,670
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,324,637
<NUMBER-OF-SHARES-REDEEMED> (2,558,569)
<SHARES-REINVESTED> 414,553
<NET-CHANGE-IN-ASSETS> 8,180,621
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 807,450
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 1,314,093
<PER-SHARE-NAV-BEGIN> 88,414,093
<PER-SHARE-NII> 10,000
<PER-SHARE-GAIN-APPREC> .08
<PER-SHARE-DIVIDEND> 1.35
<PER-SHARE-DISTRIBUTIONS> 0.08
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.82
<EXPENSE-RATIO> 1.15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
EXHIBIT 99.11
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 3 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated February 7, 1997, relating to the financial
statements and financial highlights appearing in the December 31, 1996 Annual
Report to Shareholders of EAI Select Managers Equity Fund, which is also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the heading "Financial Highlights" in the Prospectus
and under the heading "Independent Accountants" in the Statement of Additional
Information.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
February 27, 1997
<PAGE>
1996 EXHIBIT 16
EAI
----------------------------------------------
NAV DIV CAP GAIN SHARES VALUE
--- ---- -------- ------ -----
12/31/95 10.02 100 $1,002
12/31/96 10.82 0.08 0.53 105.6377 $1,143
12/31/96 10.82
14.07%
