1933 Act Registration No. 33-98164
1940 Act Registration No. 811-9112
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. ____ [ ]
Post-Effective Amendment No. 6 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 9 [X]
(Check appropriate box or boxes)
EAI SELECT MANAGERS EQUITY FUND
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(Exact Name of Registrant as Specified in Charter)
200 Connecticut Avenue, Suite 700
Norwalk, Connecticut 06854-1958
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(Address of Principal Executive Offices) (Zip Code)
(203) 855-2200
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(Registrant's Telephone Number, including Area Code)
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)
[X] on May 1, 2000 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(1)
[ ] 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.
Title of Securities Being Replaced: Shares of Beneficial Interest, of no
par value
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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 1 - PROSPECTUS
Item 1. Cover Page Cover Page
Item 2. Synopsis Fund Description; Fund Expenses
Item 3. Condensed Financial Financial Highlights;
Information Performance Advertisements
Item 4. General Description of The Fund in Detail, Investment,
Registrant Objectives and Policies; Principal
Risk and how the Fund handles them
Item 5. Management of the Fund Management of the Fund;
Shareholder Information
Item 6. Capital Stock and Description of Shares and Voting
Other Securities Rights; Dividends and
Distributions; Tax Matters
Item 7. Purchase of Securities Buying Shares; Valuation of
Being Offered Shares
Item 8. Redemption of Repurchases Selling (Redeeming) Shares
Item 9. Pending Legal Proceedings Not Applicable
-2-
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PART B - STATEMENT OF ADDITIONAL INFORMATION
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information Not Applicable
and History
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EAI SELECT MANAGERS EQUITY FUND
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PROSPECTUS MAY 1, 2000
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EAI Select Managers Equity Fund ("the Fund") is an open-end management
investment company with a diversified equity portfolio.
The Fund's objective is long-term capital appreciation.
The Fund invests primarily in common stocks.
The Fund's assets are managed by multiple Subadvisers.
The Fund is designed for investors who want the potential for long-term
capital gains historically provided by common stocks.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
[GRAPHIC]
EAI Select Managers Equity Fund
EAI Securities Inc.
200 Connecticut Avenue
Suite 700
Norwalk, CT 06854-1958
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EAI SECURITIES INC.
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TABLE OF CONTENTS
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I. THE EAI SELECT MANAGERS EQUITY FUND ................................... 2
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This section gives an overview of the Fund's objectives, its investment
advisory arrangements, its distributor, its price, and the principal risks
involved in investing in the Fund. It also includes charts and tables showing
the Fund's past performance and its expenses.
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II. THE FUND IN DETAIL .................................................... 5
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This section describes the Fund in detail. It includes its investment
objective and policies, its investment techniques and associated risks, its
management, the compensation arrangements for its managers, and a biography of
its Portfolio Manager.
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III. SHAREHOLDER INFORMATION ............................................... 8
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This section tells you how to buy or sell shares. It also includes
information about share valuation, Fund dividends and distributions, and about
tax matters.
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IV. FINANCIAL HIGHLIGHTS .................................................. 13
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The financial highlights table will help you understand the Fund's
financial performance since its inception three years ago.
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I. THE EAI SELECT MANAGERS
EQUITY FUND
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This section gives an overview of the Fund's objectives, its investment
advisory arrangements, its distributor, its price, and the principal risks
involved in investing in the Fund. It also includes a chart and tables showing
the Fund's past performance and its fees and expenses.
FUND DESCRIPTION
Objective: The Fund aims for long-term capital appreciation.
PRINCIPAL STRATEGIES
THE INVESTMENT ADVISER: The Fund is managed by Evaluation Associates
Capital Markets, Inc., (the "Manager"), a registered investment adviser. The
Manager selects, supervises, and allocates assets among the Fund's Subadvisers.
The Fund uses subadvisers who invest primarily in domestic common stocks
issued by companies of any size.
THE SUBADVISERS: The Fund has five Subadvisers:
o Iridian Asset Management LLC primarily invests according to a value
philosophy in securities of larger companies.
o Goldman Sachs Asset Management primarily invests for both growth and
value in securities of medium ($2 to $10 billion average market cap) to
large sized companies.
o Mastrapasqua & Associates, Inc. primarily invests for both growth and
value in securities of companies of all sizes.
o Siphron Capital Management primarily invests for growth in large
companies that have a valuable franchise or brand name.
o Peachtree Asset Management primarily invests according to a growth
philosophy in securities of companies of all sizes.
Growth strategy seeks stocks which have above average earnings growth
potential. A value strategy seeks stocks which trade at prices that are below
their worth in relation to their earnings.
PRINCIPAL RISKS: There can be no assurance that the Fund will achieve its
investment objective. Equity investments are subject to ordinary market
risks--prices move up and down and investors of the Fund may lose money. Some
additional risks arise from investing in small and medium-sized companies, which
may have limited markets and are subject to volatility and limited credit
availability. The Fund is relatively small in size; THEREFORE, its expenses may
amount to a disproportionate percentage of average net assets.
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The information stated below provides some indication of the risks of
investing in the Fund by showing changes in the Fund's performance from year to
year, and by showing how the Fund's average annual total returns for 1-year and
since inception compared with those of a broad measure of market performance.
The performance data represents past performance and is not indicative of future
results.
PERFORMANCE
EAI Select Managers Equity Fund
Annual Total Returns (%)
[The following table represents a bar chart in the printed piece.]
1996 14.30%
1997 28.84
1998 23.86
1999 30.71
Highest Quarterly Return: 22.39%% (9/30/99 to 12/31/99)
Lowest Quarterly Return: -11.74% (6/30/98 to 9/30/98)
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/99
1 YEAR SINCE INCEPTION (1/2/96)
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The Fund 30.71% 24.27%
S&P 500* 21.03% 26.39%
Peer Group** 19.47% 22.02%
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* The S&P 500 is an unmanaged, capitalization-weighted index of 500 commonly
traded stocks. Index performance reflects reinvestment of dividends.
** Morningstar Large Blend Equity contained 934 funds as of 12/31/99.
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FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund. The Fund is sold without sales or redemption charges.
EAI SELECT MANAGERS EQUITY FUND
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Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees+ 0.92%
Other Expenses 0.68%
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Total Annual Fund Operating Expenses+ 1.60%+
+ After fee waiver, Management fees are 0.47% and Total Annual Fund Operating
Expenses are 1.15%. The Manager has in the past waived a part of its fee
for the first four years of operation of the Fund. The Manager has also
committed to waive a similar portion of its fees for the current operating
year of the Fund. The current waiver period ends on January 2, 2001. This
waiver has varied to the extent necessary to limit overall Fund expenses to
1.15%. Total Annual Fund operating expenses assume a constant net asset
value for the Fund of $55 million.
This example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. The table below
shows the expenses you would pay on a hypothetical $10,000 investment. The
example assumes an annual return of 5% with redemption at the end of each
time period, assuming operation expenses remain the same. In a real
investment in the Fund, your actual costs may be higher or lower than those
shown.
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EXAMPLE
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1 year $ 163
3 years $ 505
5 years $ 871
10 years $1,900
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<PAGE>
II. THE FUND IN DETAIL
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This section describes the Fund in detail. It includes its investment
objective and policies, its investment techniques and associated risks, its
management, the compensation arrangements for its managers, and a biography of
its Portfolio Manager.
INVESTMENT OBJECTIVE AND POLICIES
OBJECTIVE: The Fund's objective is long-term capital appreciation. There
can be no assurance the Fund will achieve its objective. The Fund's objective is
a fundamental policy. That means it may not be changed without majority
shareholder approval.
KINDS OF SECURITIES IN THE FUND: The Fund's policy is to invest at least
65% of its assets in equity securities (primarily common stock). This is also a
fundamental policy that cannot be changed without approval of a majority of the
Fund's shareholders. For temporary defensive purposes, the Fund may place all or
a part of its assets in cash, short-term commercial paper, U.S. Government
securities, high quality debt securities, and obligations of banks. When the
Fund takes a defensive position, it may not meet its investment objective.
HOW THE FUND INVESTS: The Fund employs a diversified, manager-of-managers
investment approach. It selects multiple subadvisers of various equity styles
and allocates the Fund's assets among them. The Fund's Manager, EACM, recommends
the hiring, termination and replacement of the subadvisers. These subadvisers
invest in equity, mostly common stocks.
The Fund may also invest, to a limited extent, in fixed income securities
for current income and capital preservation. These securities will have a
maximum remaining maturity of 15 years. These securities include: Securities
issued by the U.S. Government and some of its agencies and instrumentalities;
corporate bonds or debentures rated not less than Aa2 by Moody's Investor's
Services, Inc. ("Moody's") or AA by Standard and Poor's Corporation ("S&P"); or
unrated debt securities determined by the appropriate Subadviser to be of
quality comparable to the Moody's or S&P ratings. Some convertibles may be rated
lower.
It is estimated that the Fund's portfolio turnover rate will not exceed
125% in any year. High portfolio turnover involves correspondingly greater
brokerage commissions for the Fund and other transaction costs that are borne
directly by the Fund. In addition, high portfolio turnover may also result in
increased short-term capital gains which, when distributed to shareholders, are
treated for Federal income tax purposes as ordinary income.
The Fund operates under investment limitations which may not be changed
without majority shareholder approval. You may read these rules in the SAI.
HOW THE FUND SELLS: A Subadviser will sell securities for one or more of
the following reasons: target price or valuation is met; company begins to
deteriorate; or a better investment opportunity becomes available.
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PRINCIPAL RISKS, AND HOW THE FUND HANDLES THEM: All investments and all
investing techniques involve risks. The Fund's characteristic risks are:
o Market risk is the risk associated with rising or falling prices
resulting from changing market conditions or from changing fortunes of
companies that issue securities. To handle market risk, the Fund invests
in a diversified portfolio. In addition, the Fund spreads risk by hiring
multiple Subadvisers, each of which manages its investments in different
ways. Diversification cannot eliminate all risk. You should expect your
Fund shares to rise and fall in price. You may lose money if you invest
in the Fund.
o Securities of small- and medium-sized companies may have more limited
markets than the securities of larger companies. This may make them
harder to sell if their prices drop. Securities of these companies may
also swing more widely in price than the securities of larger companies.
The subadvisers seek securities with a high relative value compared to
comparable companies (value strategy), and with above-average potential
for increases in profitability and share price (growth strategy).
o Its relatively smaller size (as of now) may make Fund expenses
disproportionately large until the Fund grows more in size, if at all.
MANAGEMENT OF THE FUND
THE BOARD OF TRUSTEES: The Board of Trustees of the Fund (the "Trustees")
supervises the overall operations of the Fund, in accordance with the 1940 Act
and Massachusetts General Laws. The Trustees appoint the officers of the Fund
every year and approve the selection and termination of the Subadvisers.
THE MANAGER: Evaluation Associates Capital Markets, Incorporated, 200
Connecticut Avenue, Suite 700, Norwalk, Connecticut 06854-1958 ("the Manager").
Under a Management Agreement, the Manager acts as investment adviser to the
Fund. The Manager, subject to the authority of the Trustees, manages the overall
business affairs of the Fund, selects and terminates the Subadvisers, and
allocates portfolio assets among the Subadvisers. The Manager is ultimately
responsible for the Fund's performance.
The Manager is a subsidiary of EAI Partners, L.P., also called the
"Parent." The Parent is owned by a total of 34 employee and non-employee
investors, none of whom holds more than 25% of the Parent's outstanding equity
interests.
The Parent, both directly and through the Manager, provides investment
advisory services to a number of institutional and high net worth individual
clients. The Parent, both directly and through the Manager, had approximately
$2.5 billion under management as of December 31, 1999.
Compensation and Other Expenses: As compensation for its services, the
Manager earns a fee, payable quarterly, at the annual rate of 0.92% of the
average daily net asset value of the Fund. In 1999, after fee waivers, the
manager earned 0.47% of the average net asset value of the Fund.
The Manager agreed to waive a part of its fees for the first four years of
Fund operation, and has similarly agreed to waive its fees for the current year.
This period expires on January 2, 2001. The waiver caps overall Fund expenses at
1.15% of the average daily net asset value of the Fund. The Manager may
terminate this waiver at any time, at its own discretion. Shareholders will be
notified of any waiver change at the time it becomes effective.
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THE SUBADVISERS: The Fund currently has five Subadvisers.
o Iridian Asset Management, 276 Post Road West, Westport, Connecticut
06880-4704, formed in March 1996, is owned by Harold Levy and David
Cohen. Iridian is the successor to Arnold and S. Bleichroeder Capital, a
division of Arnold and S. Bleichroeder, Inc. As of December 31, 1999,
assets under management totaled approximately $8.8 billion.
o Goldman Sachs Asset Management, 2502 Rocky Point Drive, Tampa, Florida
33607, formed in January 1976, is a separate operating division of
Goldman, Sachs, & Co. As of December 31, 1999, assets under management
totaled approximately $18.3 billion.
o Mastrapasqua & Associates, Inc., 814 Church Street, Nashville, Tennessee
37203, formed in 1993, is wholly owned by Frank Mastrapasqua. As of
December 31, 1999, assets under management totaled approximately $1.3
billion.
o Peachtree Asset Management, One Peachtree Center, Suite 4500, 303
Peachtree Street, Atlanta, Georgia 30308, formed in 1994, is a division
of Mutual Management Corp., an indirect subsidiary of Citigroup Inc. As
of December 31, 1999, assets under management totaled approximately $2.8
billion.
o Siphron Capital Management, 280 South Beverly Drive, Suite 412, Beverly
Hills, California 90212, formed in 1991, is wholly owned by David
Siphron. As of December 31, 1999, assets under management totaled
approximately $1.2 billion.
The Manager pays a part of its fees to the Subadvisers, who receive no
compensation directly from the fund.
SUBADVISER FEES PAID BY MANAGER FROM ITS MANAGEMENT FEES
Annual percentage rate
----------------------
Iridian Asset Management LLC .375%
Goldman Sachs Asset Management .375%
Mastrapasqua & Associates, Inc. .375%
Peachtree Asset Management .375%
Siphron Capital Management .375%
Subadviser fees are expressed as a per-year percentage of the average of
the monthly net asset value of the assets of the Fund managed by each
Subadviser. Subadvisers will not always be paid at the same rate. If the rates
differ, the Manager will retain a varying amount of the management fee.
THE PORTFOLIO MANAGER: Mr. Keith Stransky, Executive Vice President of the
Manager, serves as portfolio manager of the Fund. He has also been Director of
Traditional Funds Management and Research for the Manager for the past nine
years. In that position, he manages and researches the Manager's traditional
investment vehicles. He has been employed by the Parent since 1983 and has been
portfolio manager of the Fund since its inception. Mr. Stransky has 25 years of
investment experience. He is a Chartered Financial Analyst (CFA).
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<PAGE>
III. SHAREHOLDER INFORMATION
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This section tells you how to buy or sell shares. It also includes
information about share valuation, Fund dividends and distributions, and tax
matters.
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BUYING SHARES
You may buy Fund shares, which are offered on a continuous basis, at the
net asset value (NAV) per share next computed after the Transfer Agent receives
your order. Orders received by the Fund or the Transfer Agent before the close
of the market Eastern time on any business day will be filled at the NAV
computed for that day. Orders received after 4:00 p.m. will be filled at the NAV
computed on the next business day. The wire transfer deadline is 3:00 p.m.
Eastern time.
To buy shares directly from the Fund, send an account application and a
check (U.S. bank, U.S. dollars) payable to EAI Select Managers Equity Fund to:
EAI Select Managers Equity Fund
c/o DST Systems, Inc.
P.O. Box 219563
Kansas City, Missouri 64121-9563
Send overnight deliveries to:
EAI Select Managers Equity Fund
c/o DST Systems, Inc.
210 W. 10th St., 8th Flr.
Kansas City, Missouri 64105
For Fed Funds or wire purchase information, call the Transfer Agent at
(800) 798-8055.
Minimum purchase requirements:
Initial investment $50,000
Additional investment 1,000
The Fund or the Manager may waive these minimums in some
circumstances--e.g., for share purchases by employees of the Parent or its
affiliates.
If your check bounces, your order will be cancelled, and you will be
responsible for any loss the Fund incurs. The Fund may also bar you from buying
shares in the future. To make sure that checks are collected, the Fund does not
allow the sale of shares purchased by check until the original check clears.
That could take as long as 15 days.
The Fund does not issue share certificates.
You may also buy Fund shares by exchanging other securities for them
subject to the Manager's approval. This is called an "in-kind purchase." You
must submit a written description of the securities you propose to exchange.
Call the Manager at (203) 855-2200 for instructions about submitting this
description. The Manager will respond to your request within five business days.
If the Manager approves the exchange, the
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Manager will provide you with a transmittal form, which you must fill out and
return to the Manager.
The securities you propose to exchange are valued as described below under
"Valuation of Shares," in the same way as Fund shares. These values may change
between the time you first offer securities to the Fund and the time the
exchange is actually made.
You may have a gain or loss for Federal income tax purposes from an
in-kind exchange. See "Federal Income Tax Status" in the SAI.
All interest, dividends, and subscription or other rights which go "ex"
after the time of valuation in connection with the securities you tender to the
Fund become the property of the Fund, and you must deliver them forthwith to the
Fund as soon as you receive them from the issuer.
You may be required to represent and agree that all securities offered to
the Fund are not subject to any restriction upon their sale by the Fund under
Federal securities laws, or otherwise.
SELLING (REDEEMING) SHARES
You may sell (redeem) Fund shares at any time at their net asset value. If
the Fund receives your sell order before the close of trading on the NYSE on a
day when the Transfer Agent is open, you will receive the NAV determined on that
day. Orders received after that time will be sold at the NAV determined on the
next day. Do not send sell orders to the Fund at the address on the front of
this prospectus. Sell orders must be sent to the Transfer Agent at:
EAI Select Managers Equity Fund
DST Systems, Inc.
P.O. Box 219563
Kansas City, Missouri 64121-9563
Overnight delivery service address:
EAI Select Managers Equity Fund
DST Systems, Inc.
210 W. 10th Street, 8th Floor
Kansas City, Missouri 64105.
A written sale (redemption) order must include:
o The name of the Fund
o Your account name and number
o The number of shares or dollar amount to be sold
o Your signature
If you sell shares by phone, the Fund or Transfer Agent will confirm your
address and bank account information, record your instructions on tape, and
confirm your redemption in writing. 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 take reasonable precautions to make sure phone instructions
are genuine.
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If you sell more than $1,000 worth of shares, the amount will be wired to
a U.S. commercial bank account designated by you. If you sell less than $1,000,
the proceeds will be mailed to you at the address of record on the account.
The Fund may pay for share sales either in cash or in kind. However, the
Fund has chosen to pay all redemptions in cash, at a minimum equal to an amount
not to exceed the lesser of $250,000 or 1% of the net asset value of the Fund to
any single shareholder in any 90-day period. If you receive payment in kind,
Fund shares will be valued by the same method described under "Valuation of
Shares," below. You will incur brokerage costs when you sell securities received
as in-kind payment for Fund shares.
The Fund reserves the right to redeem accounts that fall below $5,000
because of share sales by the accountholder. The Fund will give you 60 days'
notice of such action.
The Fund may refuse a share sale order within seven days of receiving the
order: (1) for any time the NYSE is closed (other than customary weekends or
holidays); (2) when NYSE trading is restricted; (3) when an emergency exists
that makes it impracticable to sell or value Fund shares; or (4) for other
periods when the SEC permits such refusal for the protection of shareholders of
the Fund.
VALUATION OF SHARES
The price of Fund shares is based on the Fund's net asset value per share.
Fund shares will not be priced on the days on which the New York Stock Exchange
is closed for trading.
Net asset value (NAV) 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 by following generally accepted accounting
principles and applicable rules and regulations of the Securities and Exchange
Commission (SEC).
Shares traded on national exchanges are valued based on the last quoted
sale price on or recently before the valuation date. If the securities are
traded on more than one exchange, the Fund will use the share value on the
principal exchange that trades the shares.
Over-the-counter securities for which market quotations are readily
available are valued on the basis of the last quoted sale price or, lacking any
sales, at the last quoted bid price on or before the valuation date.
Other securities, where market quotes are not readily available, are
valued at fair value, determined in good faith according to procedures
established by the Trustees.
PURCHASES AND SALES THROUGH AUTHORIZED BROKER-DEALERS
Certain investors may purchase or sell shares at the net asset value next
determined after orders are entered through authorized broker-dealers, or
through other authorized processing organizations that may impose transaction
fees and charges in connection with providing this service, which fees and
charges the Fund believes will be disclosed to investors. Shares purchased in
this manner may be treated by the Fund as part of a single account for purposes
of minimum initial investment. Investors are not required to utilize the
services of a broker-dealer or other processing organization, and may purchase
shares directly from the Fund. Authorized broker-dealers may
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designate intermediaries to receive purchase and sale orders on behalf of the
Fund. In order to facilitate these arrangements, the Fund has appointed several
co-transfer agents.
DIVIDENDS AND DISTRIBUTIONS
The Fund normally makes distributions once a year in December.
Distributions of net investment income and capital gains will be in the form of
an income dividend. Distributions of long-term capital gains, if any, will be
distributed to shareholders as such--and will qualify for the capital gains tax
rate. See "Tax Matters."
TAX MATTERS
All income dividends, including distributions of short-term capital gains,
are generally taxable as ordinary income for Federal income tax purposes,
whether received in cash or reinvested in additional shares of the Fund.
If you redeem Fund shares, any gain on the transaction may be subject to
Federal income tax.
Income realized during the year is paid only to those investors who hold
Fund shares at the end of the year, not to investors who sold their shares in
the course of that year. End-of-year Fund shareholders may be taxed on a
disproportionate amount of the entire gains realized by the Fund during the
year.
The Fund has qualified as a regulated investment company. Regulated
investment companies distribute substantially all their net income to
shareholders, and the companies do not ordinarily pay Federal tax on that
income.
The Fund may, under certain circumstances, be considered a personal
holding company. The Fund was so treated for its 1999 tax year. Personal holding
company status occurs when on any single day of the last half of the year, 5 or
fewer shareholders own more than 50% of a Fund's outstanding shares. In such
years, the Fund must distribute 100% of its taxable income, or be taxed on its
undistributed income at the highest corporate tax rates plus a penalty of 39.6%
of the undistributed amount.
Please consult your tax adviser for more information about your tax status
in connection with buying, owning, or selling Fund shares.
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THE MANAGER'S AUTHORITY OVER THE SUBADVISERS: The Fund has received an
order from the SEC exempting the Fund from certain provisions of the Investment
Company Act of 1940 (the "1940 Act"). This order entitles the Manager, subject
to approval of the Trustees, to hire and fire Subadvisers, to change terms of
sub-advisory agreements, or to continue the engagement of particular Subadvisers
after events which would otherwise require their automatic termination under the
1940 Act. Shareholders still have the right to terminate a Subadviser agreement
on their own at any time by a vote of a majority of outstanding shares.
THE TRANSFER AGENT: DST Systems, Inc., 210 W. 10th Street, 8th Floor,
Kansas City, Missouri 64105, serves as the Fund's transfer, dividend disbursing,
and shareholder servicing agent.
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<PAGE>
THE DISTRIBUTOR: EAI Securities, Inc. (the "Distributor"), 200 Connecticut
Avenue, Norwalk, Connecticut 06854-1958, an affiliate of the Manager, serves as
distributor of the Fund's shares. The Manager may pay certain financial
institutions that are not affiliated with the Fund or the Distributor out of its
own funds in connection with some sales to shareholders.
SHARE PRICE FOR PURCHASE OR SALE: You buy Fund shares from the Distributor
at the net asset value (NAV) per share next computed after your order is
received by the Transfer Agent.
Minimum initial investment* $50,000
Minimum subsequent investment 1,000
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* The minimum investment requirement may be waived by the Fund or the Manager
when purchases are made through certain Broker-Dealers or in certain other
circumstances.
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IV. FINANCIAL HIGHLIGHTS
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The financial highlights table will help you understand the Fund's
financial performance since its inception. Some parts of the table show
financial results for a single Fund share. The "total return" line on the table
shows the rate an investor would have earned or lost on an investment in the
Fund, assuming reinvestment of all dividends and distributions. This information
has been audited by PricewaterhouseCoopers LLP, whose report, along with the
Fund's financial statements, is included in the annual report incorporated by
reference (available on request).
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period
<TABLE>
<CAPTION>
YEAR ENDED FOR THE PERIOD
DECEMBER 31, JANUARY 2, 1996(A)
-------------------------- TO
1999 1998 1997 DECEMBER 31, 1996
------ ------ ------ -----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.29 $ 9.43 $ 10.82 $ 10.00
------ ------ ------- -------
Income From Investment Operations:
Net Investment Income (Loss) (0.02) 0.01 0.08 0.08
Net Gain on Investments (both realized
and unrealized) 3.18 2.24 3.04 1.35
------ ------ ------- -------
Total From Investment Operations 3.16 2.25 3.12 1.43
------ ------ ------- -------
Less Distributions from:
Net Investment Income -- (0.02) (0.08) (0.08)
Net Realized Gain on Investments (2.32) (1.37) (4.43) (0.53)
------ ------ ------- -------
Total Distributions (2.32) (1.39) (4.51) (0.61)
------ ------ ------- -------
Net Asset Value, End of Period $ 11.13 $ 10.29 $ 9.43 $ 10.82
======= ======= ====== =======
Total Investment Return(b) 30.71% 23.86% 28.84% 14.30%
- ------------------------------------------------------------------------------------------
Ratios/Supplementary Data
Net Assets, End of Period (000) $65,545 $55,449 $52,344 $88,607
Ratio of Gross Expenses to
Average Net Assets 1.60% 1.66% 1.55% 1.50%(d)
Ratio of Net Expenses to Average Net Assets 1.15% 1.15% 1.15% 1.15%(d)
Ratio of Net Investment Income (Loss)
to Average Net Assets(c) (0.19%) 0.09% 0.37% 0.73%(d)
Portfolio Turnover Rate 82% 63% 78% 174%
</TABLE>
- ----------------------------
(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, reinvestment of distributions at
net asset value on the payable date and a redemption on the last day of the
period. Total return for the period less than one year is not annualized.
(c) Ratios would have been (0.64%), (0.42%), (0.03%) and 0.38%, respectively,
had the Manager not waived expenses.
(d) Annualized.
~
13
<PAGE>
[ This Page Left Intentionally Blank ]
<PAGE>
For more detailed information, see the statement of Additional Information
(SAI), which is incorporated by reference into this prospectus. You can get more
information about the Fund's investments in the Fund's annual and semi- annual
reports to shareholders. In the Fund's annual report, you will find a discussion
of the market conditions and investment strategies that significantly affected
the Fund's performance during it's last fiscal year.
For copies of SAIs, semi-annual or annual reports at no charge and for other
information and inquiries regarding the Fund... o Call the Fund at the number
below.
EAI Securities, Inc.
200 Connecticut Avenue, Suite 700
Norwalk, Connecticut 06854-1985
(203) 855-2200 (call collect)
For copies of SAIs, semi-annual or annual reports, investors may also...
o Go to the Public Reference Room of the
Securities and Exchange Commission.
o Call the SEC at (202) 942-8090, or write to
them at the Public Reference Section
Washington, D.C. 20549-0102, and ask them to
send you a copy. There is a fee for this service.
o Download documents from the SEC's web-
site at http:\\www.sec.gov. You may also make
an electronic request of the SEC for
documents at the following e-mail address:
[email protected].
SEC Registration Number #811-9112
<PAGE>
EAI SELECT MANAGERS EQUITY FUND
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 2000
200 CONNECTICUT AVENUE, SUITE 700, NORWALK, CONNECTICUT 06854-1958
(203) 855-2200
SHAREHOLDER SERVICES (800) 798-8055
This Statement of Additional Information is authorized for distribution to
prospective investors only if preceded or accompanied by an effective
prospectus.
TABLE OF CONTENTS
Investment Restrictions And Operating Policies .......................... 1
Risk Factors ............................................................ 2
Portfolio Turnover ...................................................... 4
Trustees And Officers ................................................... 4
Principal Shareholders Of The Fund ...................................... 6
Investment Advisory And Other Services .................................. 7
Transactions In Portfolio Securities .................................... 10
Shares Of The Fund ...................................................... 11
Purchase And Pricing .................................................... 11
Federal Income Tax Status ............................................... 12
Performance Data ........................................................ 14
Dividends And Distributions ............................................. 16
Description Of Shares And Voting Rights ................................. 16
Financial Statements .................................................... 16
This Statement of Additional Information relates to 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 May 1, 2000, 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.
<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 (subject to
the Board of Trustees' approval), invest in securities secured by real estate or
interests therein, or issued by companies which invest in real estate or
interests therein.
8. Purchase or sell physical commodities, except that the Fund may purchase
or sell options and futures contracts thereon (subject to Board of Trustees
approval).
9. Engage in the business of underwriting securities issued by others.
10. Participate on a joint or a joint-and-several basis in any trading
account in securities. The "bunching" of orders for the sale or purchase of
marketable portfolio securities with other accounts under the management of any
Subadviser in order to save brokerage costs or to average prices shall not be
considered a joint securities trading account.
11. Make loans to any person or firm; provided, however, that the making of
a loan shall not be construed to include (i) the acquisition for investment of
bonds, debentures, notes or other evidences of indebtedness of any corporation
or government entity which is 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
1
<PAGE>
be invested in any one such company, or (c) 10% of the Fund's total assets,
taken at market value, would be invested in all such securities (except for
mergers of investment companies).
13. Purchase from or sell portfolio securities to its officers, Trustees or
other "interested persons" (as defined in the 1940 Act) of the Fund, including
the Subadvisers and their affiliates, except as permitted by the 1940 Act and
except for the purchase of the Fund's initial assets from certain investors in
The EAI Small Managers Equity Fund Trust.
14. Purchase or retain the securities of an issuer if, to the Fund's
knowledge, one or more of the Trustees or officers of the Fund, or the Manager
or a Subadviser or their directors or officers, individually own beneficially
more than 1/2 of 1% of the securities of such issuer and together own
beneficially more than 5% of such securities.
15. Issue senior securities.
16. Invest more than 35% of its total assets in securities which are not
equity securities; provided, however, that the Fund may at times, for defensive
purposes, temporarily place all or a portion of its assets in cash, short-term
commercial paper, U.S. Government securities, high quality debt securities and
obligations of banks when, in the judgment of the Manager or a Subadviser, such
investments are appropriate in light of economic or market conditions.
In addition to the foregoing investment restrictions which may not be
changed without Shareholder approval, the Fund is subject to the following
operating policies which may be amended by the Fund's Board of Trustees (the
"Trustees"). Pursuant to these operating policies, the Fund may not:
1. Invest in real estate limited partnership interests.
2. Invest in oil, gas or mineral leases.
3. Invest more than 5% of its net assets in warrants or rights, valued at
the lower of cost or market, or invest more than 2% of its net assets in
warrants or rights (valued on the same basis) which are not listed on the New
York or American Stock Exchanges.
4. Purchase or sell a futures contract or an option thereon.
5. Purchase securities on margin, except for such short-term credits as are
necessary for clearance of portfolio transactions.
6. Effect short sales of securities.
7. Purchase or sell put or call options.
8. Purchase or sell mortgage-backed debt securities.
9. Borrow cash in amounts in excess of 5% of its total assets taken at cost
or at market value, whichever is lower, except for temporary purposes.
RISK FACTORS
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 securities, it may
invest to a limited extent in sponsored or unsponsored American Depositary
Receipts ("ADRs") or other investment companies that invest in foreign
securities, so the performance of these investments will depend upon the
performance of the underlying foreign securities. ADRs are dollar-denominated
receipts
2
<PAGE>
issued generally by U.S. banks and which represent a deposit with the bank of a
foreign company's securities. Unsponsored ADRs differ from sponsored ADRs in
that the establishment of unsponsored ADRs is not approved by the issuer of the
underlying foreign securities. Ownership of unsponsored ADRs may not entitle the
Fund to financial or other reports of the issuer, to which it would be entitled
as the owner of sponsored ADRs. Investments in foreign securities involve risks
that differ from investments in securities of domestic issuers.
Such risks may include political and economic developments, the possible
imposition of withholding taxes, possible seizure or nationalization of assets,
the possible establishment of exchange controls or the adoption of other foreign
governmental restrictions which might adversely affect the Fund's investments.
In addition, foreign countries may have less well-developed securities
markets as well as less regulation of stock exchanges and brokers and different
auditing and financial reporting standards. Not all foreign branches of United
States banks are supervised or examined by regulatory authorities as are United
States banks, and such branches may not be subject to reserve requirements.
Investing in the fixed-income markets of developing countries involves exposure
to economies that are generally less diverse and mature, and to political
systems which may be less stable, than those of developed countries. Foreign
securities often trade with less frequency and volume than domestic securities
and therefore may exhibit greater price volatility. Changes in foreign exchange
rates will affect the value of those securities which are denominated or quoted
in currencies other than the U.S. dollar.
ILLIQUID SECURITIES
The Fund may invest up to 15% of its net assets in securities that are not
readily marketable ("illiquid securities"). These securities, which may be
subject to legal or contractual restrictions on their resale, may involve a
greater risk of loss. Securities that are not registered for sale under the
Securities Act of 1933, as amended (the "1933 Act"), but are eligible for resale
pursuant to Rule 144A under the 1933 Act, will not be considered illiquid for
purposes of this restriction if the appropriate Subadviser, subject to the
review of the Trustees, determines that such securities have a readily available
market.
REPURCHASE AGREEMENTS
In a repurchase transaction, the Fund purchases a security 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 securities. 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
security 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 specific 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 described 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
3
<PAGE>
no more than 10% of its assets (in each case taken at market value and measured
immediately after giving effect to such investment) in all of the investment
companies whose securities it owns.
When the Fund invests in the securities of other registered investment
companies, certain expenses, such as management fees, will be duplicated.
PORTFOLIO TURNOVER
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 125% in any year. High portfolio turnover involves
correspondingly greater brokerage commissions for the Fund and other transaction
costs that are borne directly by the Fund. In addition, high portfolio turnover
may also result in increased short-term capital gains which when distributed to
shareholders, are treated for Federal income tax purposes as ordinary income.
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 addresses, positions with the Fund, ages and
principal occupations during the past five years are listed below.
<TABLE>
<CAPTION>
NAME, ADDRESS POSITION WITH PRINCIPAL OCCUPATION DURING
AND AGE FUND PAST FIVE YEARS
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Philip N. Maisano*+# Trustee, Chief Chief Executive Officer, President and
200 Connecticut Avenue, Executive Officer Director of Evaluation Associates Holding Corporation
Suite 700 and President ("Holding"), which is the general partner of EAI Partners,
Norwalk, CT 06854-1958 L.P., an investment consulting and management company
52 years of age and parent of the Manager, as defined below (the
"Parent"); 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 of the Fund.
- ---------------------------------------------------------------------------------------------------------------------------
Keith Stransky*# Trustee and Senior Vice Senior Vice President of Holding; Executive Vice President
200 Connecticut Avenue, President of the Manager.
Suite 700
Norwalk, CT 06854-1958
48 years of age
- ---------------------------------------------------------------------------------------------------------------------------
Charles E. Collard@^ Trustee Vice President, Airline Claim, Associated Aviation
106 Stoneridge Road Underwriters, an aviation insurance company.
New Providence, NJ 07974
66 years of age
- ---------------------------------------------------------------------------------------------------------------------------
Neal Jewell@^ Trustee Executive Vice President, AIGAM, a division of AIG
355 Thornridge Drive and a registered investment advisor (1991-1994);
Stamford, CT 06903 retired/part-time independent consultant; Trustee of
65 years of age Diversified Investment Portfolios.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
<TABLE>
<S> <C> <C>
James Schuppenhauer+^@ Trustee Vice President, Administration and Finance, Belmont Abbey
Belmont Abbey College College.
100 Belmont Mt. Holly Road
Belmont, NC 28012
56 years of age
- ---------------------------------------------------------------------------------------------------------------------------
William C. Crerend Vice President Senior Vice President and General Counsel of the Manager
200 Connecticut Avenue (1994-1997); Executive Vice President, Chief Operating
Suite 700 Officer and General Counsel of the Manager (1997-1999);
Norwalk, CT 06854-1958 President and General Counsel of the Manager; Senior
37 years of age Vice President and General Counsel of the Parent; Senior
Vice President and Agent for the Distributor.
- ---------------------------------------------------------------------------------------------------------------------------
Peter Gwiazdowski Treasurer Vice President and Treasurer of the Manager.
200 Connecticut Avenue
Suite 700
Norwalk, CT 06854-1958
46 years of age
- ---------------------------------------------------------------------------------------------------------------------------
Elke Bartel Secretary Secretary of the Manager and the Distributor; Senior Vice
200 Connecticut Avenue President, Secretary and Treasurer of the Parent.
Suite 700
Norwalk, CT 06854-1958
57 years of age
- ---------------------------------------------------------------------------------------------------------------------------
Thomas H. Elwood Assistant Former Associate Counsel of Jefferson Pilot Insurance
99 Park Avenue Secretary Company and officer of other investment companies
New York, New York 10016 distributed by Jefferson Pilot and its affiliates
52 years of age (1994-1998); Vice President and Secretary of funds advised
by Van Eck Associates Corporation and officer of funds
distributed and administered by Van Eck Associates
Corporation; Vice President and/or General Counsel of
Van Eck Associates Corporation and other affiliated
companies.
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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 for
interested Trustees.
^ Member of the Nominating Committee for non-interested Trustees.
@ Member of the Audit Committee--reviews fees, services, procedures, conclusions
and recommendations of independent auditors.
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
year ended December 31, 1999, 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.
5
<PAGE>
<TABLE>
<CAPTION>
PENSION OR RETIRE-
MENT BENEFITS ANNUAL COMPENSATION
AGGREGATE ACCRUED AS PART BENEFITS FROM THE FUND
NAME OF PERSON, COMPENSATION OF FUND EXPENSES UPON AND FUND
POSITION FROM THE FUND TO TRUSTEES RETIREMENT COMPLEX PAID
- -------------- -------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
P.N. Maisano $0 $0 $0 $0
Trustee and President
K. Stransky $0 $0 $0 $0
Trustee and Senior Vice President
Charles Collard $5,000 $0 $0 $5,000
Trustee
Neal Jewell $5,000 $0 $0 $5,000
Trustee
James Schuppenhauer $5,000 $0 $0 $5,000
Trustee
</TABLE>
PRINCIPAL SHAREHOLDERS OF THE FUND
As of December 31, 1999, the following persons or entities owned,
beneficially or of record, 5 percent or more of the Fund's outstanding shares:
PERCENTAGE FUND OWNED OF RECORD,
NAME & ADDRESS SHARES OWNED BENEFICIALLY OR BOTH
- --------------- --------------- --------------------
Retirement Plan for 29.8% Owned of Record and
Partners and Employees of Beneficially
Day, Berry & Howard LLP
CityPlace
Hartford, CT 06103
Evaluation Associates 19.9% Owned of Record and
401K Plan Beneficially
200 Connecticut Avenue
Norwalk, CT 06854-1940
Reliastar Life Insurance Company 10.5% Owned of Record
20 Washington Avenue South and Beneficially
Minneapolis, MN 55401
Marine Midland Bank Trustees
Genesee Corp. Profit Sharing 6.9% Owned of Record
P.O. Box 1329 and Beneficially
Buffalo, NY 14240
Carmen M. Nevares 7.3% Owned Beneficially
Green Valley K-3
Garden Hills, Guaynabo, PR 00966
All Trustees and officers as a group owned less than 1% of the outstanding
shares of the Fund as of December 31, 1999. Keith Stransky, a Trustee and
officer of the Fund, is Chairman of the Evaluation Associates, Inc. 401(k) Plan,
and Elke Bartel, an officer of the Fund, is a trustee of the Plan.
6
<PAGE>
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, Evaluation Associates Capital Markets, Incorporated, 200 Connecticut
Avenue, Suite 700, Norwalk, Connecticut 06854, 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, subject to the approval of the
Trustees, 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.
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 subadvisory agreement (the
"Subadvisory 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 Subadvisory Agreements, 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 Subadvisory 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 to 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.
Ownership information as to each of the Subadvisers is as follows:
Iridian Asset Management LLC is controlled by Harold Levy and David Cohen.
Goldman Sachs Asset Management is a separate operating division of Goldman,
Sachs & Co.
7
<PAGE>
Mastrapasqua & Associates, Inc. is wholly owned by Frank Mastrapasqua.
Peachtree Asset Management is a division of Mutual Management Corporation,
an indirect subsidiary of Citigroup, Inc.
Siphron Capital Management is wholly owned by David Siphron.
The Manager and each Subadviser to the Fund as well as the Fund's
distributor, EAI Securities, Inc., have adopted a code of ethics as required by
the rules of the securites and Exchange Commission. These codes of ethics permit
personnel to invest in securities, including securities that may be purchased or
held by the Fund, subject to specified review procedures.
THE MANAGEMENT AGREEMENT AND THE SUBADVISORY AGREEMENTS
The Fund has entered into a Management Agreement (the "Management
Agreement") with the Manager, and the Manager has entered into Subadvisory
Agreements with each of the Subadvisers.
Under the Management Agreement, the Manager (i) subject to the approval of
the Trustees 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):
Iridian Asset Management LLC--.375%
Goldman Sachs Asset Management--.375%
Mastrapasqua & Associates, Inc.--.375%
Peachtree Asset Management--.375%
Siphron Capital Management--.375%
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 is involved in the preparation of
shareholder reports. Organizational expenses have been capitalized by the Fund
and are being amortized over 60 months, beginning on January 2, 1996.
For the years ended December 31, 1999, December 31, 1998, and December 31,
1997, the Manager received management fees from the Fund totalling $274,990,
$223,557 and $400,402, respectively, net of $260,008, $273,980 and $309,371,
respectively, in management fees waived in connection with a self-imposed fee
waiver. (See "Voluntary Fee Waivers and Expenses Limitations" below.) Of the
amounts received by the Manager, the Manager paid the then-existing subadvisers
as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
SUBADVISER 1999 1998 1997
- ----------- ------------- ------------- ------------
<S> <C> <C> <C>
Bennett Lawrence -- $13,166 $19,462
Equinox Capital Mgmt., Inc. $10,980(1) $28,738 $45,989
Iridian Asset Mgmt. LLC $59,180 $53,889 $91,141
Goldman Sachs Asset Mgmt. $54,107 $46,990 $51,572
Mastrapasqua & Associates Inc. $28,471 $25,924 $25,558(2)
Siphron Capital Mgmt. $44,019 $34,400 $35,613(2)
Peachtree Associates $15,019(3) -- --
- -----------------------
1 For the period January 1 through February 28, 1999.
2 For the period March 1 through December 31, 1997.
3 For the period March 1 through December 31, 1999.
</TABLE>
8
<PAGE>
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 if the
Subadvisers are not paid the same fee.
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 Subadvisory 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
Subadvisory Agreements was so approved by the Trustees at a meeting held on May
20, 1999. The Management Agreement and each Subadvisory Agreement provide that
they shall continue in effect from year to year with respect to the Fund, as
long as it is approved at least annually both (i) by a vote of a majority of the
outstanding voting securities of the Fund (as defined in the 1940 Act) or by the
Trustees of the Fund, and (ii) in either event, by a vote of a majority of the
Trustees who are not "interested persons" of the Manager or the respective
Subadviser.
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 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 Subadvisory Agreement requires the approval of the
Manager and the Trustees. The Manager may terminate any Subadvisory Agreement
without penalty at any time, subject to the approval of the Trustees. Each
Subadvisory 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 fees 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 five years of operation of the Fund
which ends on January 2, 2001, 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
Pursuant to a portfolio accounting and administrative services agreement,
Van Eck Associates Corporation, 99 Park Avenue, New York, New York 10016, is
responsible for providing administrative and accounting functions to the Fund.
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 years ended December 31, 1999, December 31, 1998, and
December 31, 1997, Van Eck Associates Corporation received fees of $116,304,
$108,160, and $154,298, respectively.
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, (iii) collecting all dividends, distributions and other
payments due to the Fund, and (iv) making all payments due from the Fund. The
Custodian is authorized to deposit securities in
9
<PAGE>
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., 210 W. 10th Street, 8th Floor, Kansas City, Missouri
64105, serves as transfer, dividend disbursing and shareholder servicing agent
for the Fund.
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036, are the independent accountants for the Fund.
Day, Berry & Howard LLP, One Canterbury Green, Stamford, Connecticut 06901,
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, LLP 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 LLP, of which certain members of Day, Berry & Howard LLP are
beneficiaries, held over 5% of the Fund as of December 31, 1999. (See "Principal
Shareholders of the Fund.")
TRANSACTIONS IN PORTFOLIO SECURITIES
Each Subadvisory 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.
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 an execution and price
as would otherwise be available. No directed brokerage arrangement 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.
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.
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 years ended December 31, 1999,
December 31, 1998 and December 31, 1997, the Fund paid brokerage commissions
totalling $91,589, $69,169, and $176,563, respectively on purchases and sales of
portfolio securities, of which amount, $13,037 (14%), $9,712 (14%), and $52,901
(30.0%) was paid to broker-dealers providing research services.
From time to time, the Trustees 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.
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<PAGE>
The Subadvisers generally do not provide services to the Fund other than
investment management services. 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. For the year ended December 31, 1999,
the Fund paid $3,715 in commissions to Goldman Sachs & Co., a broker-dealer
affiliated with one of the Fund's Subadvisers, Goldman Sachs Asset Management.
This represented 4.01% of total commissions paid by the Fund and 0.00374% of the
aggregate dollar amount of commission transactions effected by the Fund for the
period. 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 (as defined
in Rule 10b-1 under the Act) or their parents. At December 31, 1999, the Fund
owned shares of Merrill Lynch and Co., Inc. having a value of $684,700.
SHARES OF THE FUND
The Fund offers one class of Common Shares. The Fund does not have any
securities other than its Common 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. 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. The 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 $50,000 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 regular trading on the
New York Stock Exchange, generally 4:00 p.m. Eastern time, on each business day.
Net asset value per share is equal to the net worth of the Fund (assets minus
liabilities) divided by the number of shares outstanding. Assets and liabilities
are determined in accordance with generally accepted accounting principles and
applicable rules and regulations of the Securities and Exchange Commission.
Securities held by the Fund which are traded on a national exchange are
valued based on the last quoted 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 principle 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 quoted sale price or, lacking any sales, at
the last quoted bid price on or before the valuation date. 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.
Certain investors may purchase or sell shares at the net asset value next
determined after orders are entered through authorized broker-dealers, or
through other authorized processing organizations that may impose transaction
fees and charges in con-
11
<PAGE>
nection with providing this service, which fees and charges the Fund believes
will be disclosed to investors. Shares purchased in this manner may be treated
by the Fund as part of a single account for purposes of minimum initial
investment. Investors are not required to utilize the services of a
broker-dealer or other processing organization, and may purchase shares directly
from the Fund. Authorized broker-dealers may designate intermediaries to receive
purchase and sale orders on behalf of the Fund. In order to facilitate these
arrangements, the Fund has appointed several co-transfer agents.
FEDERAL INCOME TAX STATUS
The Fund has elected and qualified, and intends to qualify each year, to be
treated as a regulated investment company ("RIC") under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). In order to qualify as a
RIC for any taxable year, the Code requires that, 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 or other income derived from the Fund's
business of investing in stock, securities and currencies; (ii) 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; (iii) 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 RICs 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 (iv) 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 on its
investment Company Taxable Income, but, for any year in which the Fund qualifies
as a RIC, it is allowed a deduction based on dividends paid to shareholders in
computing such amount. 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 entirely 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 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 liability for
Federal income tax, the amount of that liability will be computed 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 1999
taxable year, but it made sufficient distributions to avoid liability for
personal holding company tax. It may not, however, be possible for the Fund to
avoid this tax entirely 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. The Fund was a RIC for its 1999 taxable year, but it made sufficient
distributions to avoid liability for this excise tax. It may not, however, be
possible for the Fund to avoid this tax entirely in all years.
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)
paid 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
share-
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<PAGE>
holders subject to Federal income tax thereon will be taxable as long-term
capital gains, regardless of how long shareholders have held their shares. In
the case of a shareholder other than a corporation, any capital gain dividend
distributed by the Fund may qualify for Federal income taxation at a maximum
rate of 20%. These rules 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 shares sold or exchanged.
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.
Dividends declared in December of any year that are payable to shareholders
of record on a specified date in December will be deemed to have been paid by
the Fund and received by shareholders on December 31 of such year if such
dividends are actually paid during January of the following year.
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, including
capital gains, and gross proceeds from redemptions received by all shareholders
not exempt from that requirement. If a shareholder who is required to provide
the Fund with its correct taxpayer identification number or a 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 therefore, and the investor's basis
for the Fund's shares acquired in the exchange could be the investor's basis in
the securities exchanged therefore. 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.
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<PAGE>
PERFORMANCE DATA
PERFORMANCE INFORMATION
The following table presents the average annual total return of the Fund
for the periods shown, and compares that return to the average annual total
return of the Standards & Poor's 500 stock index (the "S&P 500") for those
periods.
1 YEAR SINCE INCEPTION (1/2/96)
-------- -------------------------
The Fund 30.71% 24.27%
S&P 500 (1) 21.03% 26.39%
- -------------------------
(1) The S&P 500 is an unmanaged capitalization-weighted index of 500 commonly
traded stocks designed to measure performance of the broad domestic economy
through changes in the aggregate market value of those stocks. The index
reflects reinvestment of dividends.
PERFORMANCE ADVERTISEMENTS
From time to time, the Fund may include performance data in advertisements,
sales literature or reports to current or prospective shareholders. Performance
data about the Fund is based on the Fund's past performance only, and is not an
indication of future performance. Performance data may be expressed in various
measures, including total return for the Fund's shares or as a statistical
reference to the Fund's volatility. Average annual total return figures as
prescribed by the Securities and Exchange Commission represent the average
annual percentage change in value of a $1,000 investment in the Fund for one-,
five, and ten-year periods, or any portion thereof, to the extent applicable,
through the end of the most recent fiscal quarter, assuming reinvestment of all
distributions. The Fund may also furnish total return quotations for other
periods, or based on investments of other amounts. For such purposes, total
return equals the total of all income and capital gains paid to holders of
shares of the Fund, assuming reinvestment of all distributions, plus (or minus)
the change in value of the original investment, expressed as a percentage of the
purchase price. Volatility will be measured as the standard deviation of the
Fund's past performance. The Fund may also include in advertisements, sales
literature or reports, a comparison of Fund performance to the performance of
other mutual funds, recognized services which monitor and/or rank mutual fund
performance or various unmanaged indices. Unmanaged indices may assume the
reinvestment of dividends, but generally do not reflect deductions for
administrative and management costs and expenses.
Advertisements, sales literature and communications may also contain
information about the Fund's, the Manager's or the Subadvisers' current
investment strategies and management style. Current strategies and style may
change to allow the Fund to respond quickly to a changing market and economic
environment. From time to time, the Fund may discuss specific portfolio holdings
or industries in such communications.
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
year ended December 31, 1999, 1998 and 1997, the Fund's average total return was
30.71%, 23.86%, and 28.84%, respectively.
14
<PAGE>
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 advertise performance in terms of a 30-day yield quotation. The
30-day yield quotation is computed by dividing the net investment income per
share earned during the period by the maximum offering price per share on the
last day of the period, according to the following formula:
YIELD = 2 [(A-B/CD + 1)6-1]
Where: A = dividends and interest earned during the period
B = expenses accrued for the period (net of
reimbursement)
C = the average daily number of shares outstanding
during the period that were entitled to
receive dividends
D = the maximum offering price per share on the
last day of the period after adjustment for
payment of dividends within 30 days thereafter
The Fund may also advertise performance in terms of aggregate total return.
Aggregate total return for a specified 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 year
ended December 31, 1999, the Fund's standard deviation was 17.94%. For the year
ended December 31, 1998, the Fund's standard deviation was 20.02%.
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.
15
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
Dividends and 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. 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 10 business days prior to the payment date.
The amount of the Fund's dividends and/or distributions will change from year to
year as a result of such factors as the investments made and sold for the Fund,
and the fluctuation of the number of the Fund shares outstanding. The fiscal
year of the Fund ends on December 31.
DESCRIPTION OF SHARES AND VOTING RIGHTS
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
shareholders, provided that any such increase may not decrease the net asset
value of the existing shares. Shares of the Fund are entitled to one vote per
share. Shareholders have the right to vote on the election of the Trustees and
on all other matters on which, by law or by the Fund's Declaration of Trust,
they may be entitled to vote.
The Fund is not required, and does not intend, to hold annual meetings of
shareholders under normal circumstances. The Trustees or the shareholder may
call special meetings of the shareholders for action by shareholder vote,
including the removal of any or all of the Trustees. Trustees will call a
special meeting of shareholders of the Fund upon written request of the holders
of at least 10% of the outstanding shares.
Under Massachusetts law, the shareholders and trustees of a business trust
like the Fund may, in certain circumstances, be personally liable for the
trust's obligations to third parties. However, the Fund's Declaration of Trust
provides, in substance, that no shareholder or Trustee shall be personally
liable for the Fund's obligations to third parties, and that every written
contract made by the Fund shall contain a provision to that effect. The Fund's
Declaration of Trust also requires the Fund to indemnify Trustees against such
liabilities and any related claims and expenses. The Fund will not indemnify a
Trustee when the loss is due to willful misconduct, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of the Trustee's
office.
The Fund may pay for share sales either in cash or in kind. However, the
Fund has chosen to pay all redemptions in cash, at a minimum equal to an amount
not to exceed the lesser of $250,000 or 1% of the net aset value of the Fund to
any single shareholder in any 90-day period.
FINANCIAL STATEMENTS
The financial statements for the Fund for the year ended December 31, 1999,
with related footnotes, are included in the Fund's 1999 Annual Report to
Shareholders, which was filed with the Securities and Exchange Commission and
are incorporated herein by reference.
16
<PAGE>
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, year ended December 31, 1997
(audited), and the years ended December 31, 1999
(audited)
Part B:
The following audited financial statements of the
Fund are included in the Fund's Annual Report to
Shareholders for the year ended December 31, 1999,
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, 1999;
2. Statement of Assets and Liabilities for the
Fund as of December 31, 1999 and related notes
thereto;
3. Statement of Operations for the Fund for the
year ended December 31, 1999, and related
notes thereto;
4. Statement of Changes in Net Assets for the
Fund for the year ended December 31, 1997,
1998 and 1999, and related notes thereto;
5. Financial Highlights for the period January 2,
1996 (commencement of operations) through
December 31, 1996 and for the year ended
December 31, 1997, 1998 and 1999;
6. Report of Independent Accountants.
(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).
-2-
<PAGE>
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 Post-Effective Amendment No.
1)
c. Form of Sub-Advisory Agreement among the
Fund, the Manager and Iridian Asset
Management LLC. (Incorporated 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 Mastrapasqua &
Associates, Inc. (Incorporated by
reference to Post-Effective Amendment No.
3)
f. Form of Sub-Advisory Agreement among the
Fund, the Manager and Siphron Capital
Management (Incorporated by reference to
Post-Effective Amendment No. 3).
6. Form of Distribution Agreement between the
Fund and EAI Securities, Inc., as Distributor
(Incorporated by reference to Registration
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
Post-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. Codes of Ethics for
(a) EAI Select Mutual Fund
(b) Iridian Asset Management LLC
(c) Mastrapasqua & Associates
(d) Goldman Sachs Asset Management
(e) SSB Citi Asset Management Group
(f) Siphron Capital Management
13. Not Applicable
14. Not Applicable
15. Not Applicable
-3-
<PAGE>
16. Computation of Performance Quotations
(incorporated by reference to Post-Effective
Amendment No. 4 to the Registration Statement)
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 December 31, 1999, 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 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.
-4-
<PAGE>
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
parents.
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
Goldman Sachs Asset Management-- File No. 801-47681
Iridian Asset Management LLC-- File No. 801-50661
Mastrapasqua & Associates, Inc.-- File No. 801-43315
Siphron Capital Management-- File No. 801-37786
Item 29: Principals Underwriters
(a) Not Applicable
(b) The following persons are directors, officers or
partners of the Fund's principal underwriters, EAI
Securities, Inc.:
Name and Principal Positions and Officers Positions and Officers
Business Address with Underwriter with Registrant
- ------------------ ---------------------- ----------------------
Robert A. Jaeger Director, President None
200 Connecticut Ave. Chief Executive Officer
Norwalk, CT 06854 and Treasurer
Joseph P. McGowan Director and Executive None
200 Connecticut Ave. Vice President
Norwalk, CT 06854
Phillip N. Maisano Director President and
200 Connecticut Ave. Trustee
Norwalk, CT 06854
Larry Zeilinski Executive Vice President None
200 Connecticut Ave.
Norwalk, CT 06854
Robert B. Mayerick Senior Vice President None
200 Connecticut Ave.
Norwalk, CT 06854
William C. Crerend Senior Vice President None
200 Connecticut Ave.
Norwalk, CT 06854
Patrick J. Moriarity Senior Vice President None
200 Connecticut Ave.
Norwalk, CT 06854
Elke Bartel Secretary Secretary
200 Connecticut Ave.
Norwalk, CT 06854
(c) 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 and 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 the at the principal offices of
the Custodian at One Beacon Place, Boston,
Massachusetts 02108.
(2) General and auxiliary ledgers are kept at the
principal offices of the Manager at 200
Connnecticut 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
-5-
<PAGE>
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 Subadvisors 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 Subadvisors 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
Subadvisors at the addresses listed for them in the
Prospectus.
(c) Not Applicable
(d) The Fund believes that the Distributor 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 Subadvisor
maintains the records required by Rule 31a-1(f) under the
Investment Company Act.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and 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 26th day of April, 2000.
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 April 26, 2000
- ---------------------------------- President
Phillip N. Maisano
* Trustee and Senior April 26, 2000
- ---------------------------------- Vice President
Keith Stransky
* Trustee April 26, 2000
- ----------------------------------
Neal Jewell
* Trustee April 26, 2000
- ----------------------------------
James Schuppenhauer
* Trustee April 26, 2000
- ----------------------------------
Charles Gollard
* Trustee April 26, 2000
- ----------------------------------
Peter Gwiazdowski
/s/ William C. Crerend Trustee April 26, 2000
- ----------------------------------
Power of Attorney
EAI SELECT MANAGERS EQUITY FUND
-------------------------------
CODE OF ETHICS
--------------
I. BACKGROUND
----------
This Code of Ethics is designed to satisfy the obligations of EAI Select
Managers Equity Fund (the "Fund"), Evaluation Associates Capital Markets,
Incorporated, as investment advisor to the Fund (the "Manager"), EAI Securities,
Inc., as principal underwriter for the Fund ("EAISI") and any investment
advisers who are appointed by the Fund from time to time as subadvisers to the
Fund and who elect to adopt this Code of Ethics (collectively, the
"Subdvisers"), to: (i) adopt a written code of ethics containing provisions
reasonably necessary to prevent certain "access persons" (defined below) of the
Manager and EAISI from engaging in practices prohibited by Rule 17j-1 under the
Investment Company Act of 1940, as amended (the "1940 Act"); and (ii) require
the reporting of certain securities transactions by those access persons.
Rule 17j-1 provides, INTER ALIA, that it is unlawful for (x) any affiliated
person of or principal underwriter for an investment company registered under
the 1940 Act or (y) any affiliated person of an investment adviser to or
principal underwriter for a registered investment company, in connection with
the purchase or sale, directly or indirectly, by such person of a security held
or to be acquired by such registered investment company:
i) to employ any device, scheme or artifice to defraud such investment
company;
ii) to make to such investment company any untrue statement of material
fact or omit to state to such investment company a material fact
necessary in order to make the statements made, in light of the
circumstances under which they are made, not misleading;
iii) to engage in any act, practice, or course of business which operates
or would operate as a fraud or deceit upon such investment company; or
iv) to engage in any manipulative practice with respect to such investment
company.
II. DEFINITIONS
-----------
For purposes of this Code of Ethics, the following definitions shall apply:
a. The term "access person" includes every director, trustee, officer,
general partner or advisory person of the Fund, EAISI, the Manager and
each Subadviser.
b. The term "advisory person" means: (i) any employee of the Fund, the
Manager or any Subadviser or of any company in a control relationship
to the Fund, the Manager or any Subadviser who, in connection with his
or her regular functions or duties, makes, participates in, or obtains
information regarding, the purchase or sale of a security by the Fund,
or whose functions relate to the making of any
1
<PAGE>
recommendations with respect to such purchases or sales; and (ii) any
natural person in a control relationship to the Fund, the Manager or
any Subadviser who obtains information concerning recommendations made
to the Fund with regard to the purchase or sale of a security.
c. The term "beneficial ownership" means, in general, having a pecuniary
interest in securities which is enjoyed, directly or indirectly,
through any relationship (for example, that of a spouse, child or
other close family member), agreement or other arrangement with the
owner of record, although such securities may not be registered or
standing on the books of the issuer in the name of such person. (See
Attachment C for additional information concerning beneficial
ownership of securities.)
d. The term "control" means the power to exercise a controlling influence
over the management or policies of the Fund, the Manager or any
Subadviser unless such power is solely the result of an official
position, all as determined in accordance with Section 2(a)(9) of the
1940 Act.
e. The term "initial public offering" means a public sale of an issue of
securities not previously offered to the public.
f. The term "private placement" has the meaning given that term in
Section 4(2) of Securities Exchange Act of 1934, as amended.
g. The term "purchase" includes, INTER ALIA, the writing of an option to
purchase.
h. The term "Review Officer" means that person selected by the Fund, the
Manager or the Subadviser, as appropriate, to monitor compliance with
and enforce this Code of Ethics.
i. The term "sale" includes, INTER ALIA, the writing of an option to
sell.
j. The term "security" has the meaning set forth in Section 2(a)(36) of
the 1940 Act, except that it does not include securities issued by the
Government of the United States, short-term debt securities which are
"government securities" within the meaning of Section 2(a)(16) of the
1940 Act, bankers' acceptances, bank certificates of deposit,
commercial paper, shares of registered open-end investment companies,
and such other money-market instruments as designated by the Board of
Trustees of the Fund.
k. A security is "being considered for purchase or sale" when a
recommendation to purchase or sell a security has been made and
communicated, either orally or in writing, and, with respect to the
person making the recommendation, when such person seriously considers
making a recommendation.
l. The term "short-term trading" means buying and then selling or selling
and then buying the same (or equivalent) securities within sixty (60)
calendar days.
2
<PAGE>
III. STATEMENT OF POLICY
-------------------
The fundamental position of the Fund is that all action which is
detrimental, or potentially detrimental, to the Fund and all action which
is designed to profit by the market effect of securities transactions of
the Fund must be avoided. Accordingly, private financial transactions by
access persons must be performed so as not to conflict with the interests
of the Fund or allow access persons to benefit inappropriately from the
transactions of the Fund. The following prohibitions are designed to ensure
the integrity of transactions by access persons by defining those which are
permissible under this Code and those which are not.
A. PROHIBITIONS
1. Each access person is prohibited by the terms of this section from
purchasing or selling, directly or indirectly, any security in which
he or she has, or by reason of such transaction acquires, any direct
or indirect beneficial ownership and which he or she knows or should
have known at the time of such purchase or sale is being purchased or
sold by the Fund or is being considered for purchase or sale by the
Fund.
2. Each access person is prohibited from recommending any securities
transaction by the Fund without disclosing his or her interest, if
any, in such securities or the issuer thereof, including without
limitation (i) his or her direct or indirect beneficial ownership of
any securities of such issuer; (ii) any contemplated transaction by
such person in such securities; (iii) any position with such issuer or
its affiliates; and (iv) any present or proposed business relationship
between such issuer or its affiliates, on the one hand, and such
person or any party in which such person has a significant interest,
on the other; PROVIDED, HOWEVER, that in the event the interest of
such access person in such securities or issuer is not material to his
or her personal net worth and any contemplated transaction by such
adverse effect on any such transaction by the Fund or on the market
for the securities generally, such access person shall not be required
to disclose his or her interest in the securities or issuer thereof in
connection with any such recommendation.
3. Each advisory person is prohibited from purchasing securities in an
initial public offering.
4. Each advisory person is prohibited from purchasing securities in a
private placement unless such purchase has been approved by the
President or a Vice President or the Review Officer of the Fund, the
Manager or its Subadviser, as appropriate. Any such approved purchase
must be disclosed to the Fund if the issuer's securities are being
considered for purchase or sale by the Fund. Such consideration for
purchase or sale shall be conducted by a person other than such
advisory person.
5. Each access person is prohibited from purchasing a security unless
such purchase has been precleared by the President or a Vice President
or the Review Officer of the
3
<PAGE>
Fund, EAISI, the Manager or its Subadviser, as appropriate.
6. Each access person is prohibited from purchasing or selling, directly
or indirectly, any security in which he has, or by reason of such
transaction acquires, any direct or indirect beneficial ownership when
the Fund has a pending "buy" or "sell" order for that security until
the Fund's order is executed or withdrawn; provided, however, the
prohibition in this paragraph 6 shall not apply to transactions by an
access person employed by the Manager unless, at the time of such
access person's transaction, such access person, or any advisory
person employed by the Manager, had actual knowledge of the Fund's
pending "buy" or "sell" order for such security. Any profits realized
on a personal trade in violation of this paragraph 6 must be
disgorged.
7. Each advisory person who personally makes "buy" and "sell" decisions
for the Fund is prohibited from purchasing or selling, directly or
indirectly, any security in which he or she has, or by reason of such
transaction acquires, any direct or indirect beneficial ownership
within seven (7) calendar days before or after the Fund trades in that
security; provided, however, the prohibition in this paragraph 7 shall
not apply to transactions in such security by an advisory person
employed by the Manager which occur on or prior to the day on which
the Fund trades in such security unless such advisory person (or
another advisory person employed by the Manager) had actual knowledge
that such security was being considered for purchase or sale by the
Fund. Any profits realized in violation of this paragraph 7 must be
disgorged.
8. Each advisory person is prohibited from engaging in short-term trading
for profit. Any profits realized on short-term trading must be
disgorged.
9. Each advisory person is prohibited from accepting any gift or other
item of more than DE MINIMIS value from any person or entity that does
business with the Fund.
10. Each advisory person is prohibited from serving on the board of
directors or similar body of a publicly traded company without the
prior written authorization by the President or a Vice President or
the Review Officer of the Fund, the Manager or its Subadviser, as
appropriate. If such service is authorized, such advisory person shall
have no role in making investment decisions for the Fund with respect
to such publicly traded company.
11. While the scope of inappropriate and therefore prohibited transactions
cannot be defined exactly, such scope would always include each of the
following situations:
a. knowingly purchasing or selling securities, directly or
indirectly, in such a way as to personally compete in the market
with the Fund, or otherwise personally acting to injure the
Fund's transactions;
b. using knowledge of securities transactions by the Fund to profit
personally, directly or indirectly, by the market effect of such
transactions; and
4
<PAGE>
c. giving to any person information not generally available to the
public of proposed or current purchases or sales by the Fund,
except to the extent necessary to effectuate such transactions.
12. The prohibitions of this Section would also include the purchase of an
underwritten issue if the broker or underwriter offers such issue to
an access person because of business the broker or underwriter has
received, or might expect to receive, from the Fund, the Manager,
EAISI or any Subadviser, or acceptance of any personal favor from any
such broker which might have the effect of obligating the Fund, EAISI,
the Manager or any Subadviser.
B. EXCEPTIONS
1. The prohibitions of this Section of this Code shall not apply to:
a. purchases or sales effected in any account over which the access
person has no direct or indirect influence or control;
b. purchases or sales of securities which are not eligible for
purchase or sale by the Fund;
c. purchases or sales which are non-volitional on the part of either
the access person or the Fund;
d. purchases which are part of an automatic dividend reinvestment
plan;
e. purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its securities, to
the extent that such rights acquired from such issuer, and sales
of such rights so acquired;
f. purchases or sales of S&P 500 Depositary Receipts ("SPIDERS"),
NASDAQ - 100 Trust shares ("QQQs") or other "derivative" or
index-based securities, the value of which is derived from a
universe of underlying securities that consists of not less than
one hundred (100) securities; or
g. purchases or sales which receive the prior approval of the Board
of Trustees of the Fund because they are only remotely
potentially harmful to the Fund, because they would be very
unlikely to affect a highly institutional market, or because they
clearly are not related economically to the securities to be
purchased, sold, or held by the Fund. Approval will be granted in
those instances where the Board of Trustees of the Fund is
convinced that the proposed transaction is not intended to
violate the spirit or provisions of this code. An access person
seeking approval of a proposed transaction must at that time
disclose to the Board of Trustees of the Fund all those factors
of which he or she is aware that might be potentially relevant to
an evaluation of the propriety of the transaction.
5
<PAGE>
2. It should be noted that the Fund, the Manager and the Subadvisers
consider it proper that purchases be made by their access persons in
the marketplace of securities owned by the Fund, provided that such
purchases are made in amounts consistent with the normal investment
practice of the person involved and with an investment rather than a
trading, outlook. Not only does this policy encourage investment
freedom and result in investment experience, but it also fosters a
continuing personal interest in such investments by those responsible
for the continuous supervision of the Fund. In making personal
investment decisions with respect to any security, however, extreme
care must be exercised by access persons to ensure that the
prohibitions of this Section are not violated, including, when
necessary, obtaining the prior approval of the Board of Trustees of
the Fund or of the appropriate officer of the Fund, the Manager or any
Subadviser, as prescribed above.
IV. REPORTING REQUIREMENT
---------------------
A. QUARTERLY REPORTS
Each access person shall submit to the Review Officer of the Fund, the
Manager, EAISI or the Subadviser for which it is an access person a
report in the form annexed hereto as Attachment A or in similar form
(such as a computer printout), within ten (10) days after each March
31, June 30, September 30 and December 31 of each year. This report
shall set forth, at a minimum, the following information as to all
securities transactions effected during the preceding quarter in which
such access person has, or by reason of such transaction acquires or
disposes of, any direct or indirect beneficial ownership:
a. the date of the transaction, the title, class, CUSIP member (if any)
and number of shares, and the principal amount of each security
involved;
b. the nature of the transaction (i.e., purchase, sale or any other type
or acquisition or disposition);
c. the price at which the transaction was effected;
d. the name of the broker, dealer or bank with or through whom the
transaction was effected; and
e. the date the transaction was precleared or approved and the person who
precleared or approved it.
Such report, however, need not include transactions effected for any
account over which such person does not have any direct or indirect
influence or control. In addition, no such report needs to be filed by a
Trustee of the Fund who is not an "interested person" of the Fund (within
the meaning of Section 2(a)(19) of the 1940 Act) and who would be required
to file such report solely by reason of being a Trustee of the Fund, unless
such Trustee knew or, in the ordinary course of fulfilling his official
duties as a Trustee of the Fund, should have known, that during the 15-day
period immediately proceeding or after the date of the transaction in a
security by that Trustee such security is or was purchased or sold by the
Fund or such purchase or sale by the Fund is or was considered by the Fund,
the Manager or a Subadviser.
6
<PAGE>
In the event that no transactions were effected during a certain
quarterly period, a report should be submitted indicating that no
transactions subject to the reporting requirements were effected during
that time period. This requirement is intended to facilitate the monitoring
of compliance with the reporting requirements by access persons.
B. INFORMATION FROM BROKERS
Each access person shall direct his or her brokers to supply a copy of
the confirmation for each personal securities trade and a copy of each periodic
account statement to the Review Officer of the Fund, EAISI, the Manager or its
Subadviser, as appropriate.
C. ANNUAL REPORTS
Each access person shall submit a report listing all personal
securities holdings to the Review Officer of the Fund, EAISI, the Manager or it
Subadviser, as appropriate, in the form of Attachment B hereto, within 10 days
following the commencement of employment and annually thereafter. This annual
report shall include a certification by the access person that he or she has
read and understood this Code of Ethics and has compiled with its requirements.
D. OTHER REPORTS
a. The Review Officers of the Fund, the Manager, EAISI and each
Subadviser shall each submit an annual report to the Fund's Board
of Trustees that summarizes the current Code of Ethics
procedures, describes the continuing educational programs
regarding the Code of Ethics, identifies any violations requiring
significant remedial action, discusses the sanctions imposed as a
result of such violations, and recommends appropriate changes to
the Code of Ethics, if any. Each such annual report shall also
contain a certification that the entity employing such Review
Officer has implemented such procedures as are reasonably
necessary to prevent that entity's access persons from violating
the Code of Ethics.
b. Each access person shall immediately report any potential
violation of this Code of Ethics of which he or she becomes aware
to the Fund's, EAISI's, the Manager's or its Subadviser's Review
Officer, as appropriate.
E. REPORTS NOT CONSTRUED AS ADMISSIONS
Any report submitted pursuant to this Section IV may contain a
statement that such report shall not be
construed as an admission by the person making such report that he or she has
any direct or indirect beneficial ownership in the security to which such report
relates.
F. REPORTS BY ACCESS PERSONS EMPLOYED BY MANAGERS AND SUBADVISERS
Notwithstanding the preceding provisions of the Section IV, an access
person employed by the Manager or Subadviser need not make a report when such
report would duplicate information recorded pursuant to rules 204-2(a)(12) or
204-2(a)(13) under the Investment Advisers Act of 1940, as amended.
7
<PAGE>
V. NOTICE TO ACCESS PERSONS
------------------------
Each of the Fund, EAISI, the Manager and each Subadviser
shall identify all access persons who must submit reports pursuant to
Section IV when such access persons first assume that role, whether
upon hiring or promotion. At that time, the Fund, EAISI, the Manager or
a Subadviser, as appropriate shall inform those persons of the
reporting requirement and provide them with copies of the Code of
Ethics, including Attachments A and B, the forms to be used for
reporting transactions and securities holdings.
VI. REVIEW OF REPORTS
-----------------
Each report submitted pursuant to Section IV shall be
reviewed with respect to its compliance with this Code of Ethics by the
Review Officer designated by the Fund, EAISI, the Manager or a
Subadviser, as appropriate.
VII. SANCTIONS
---------
Any violation of this Code of Ethics or of Rule 17j-1,
including inter alia, the filing of false, incomplete, or untimely
reports, shall result in the imposition of such sanctions as the Board
of Trustees of the Fund may deem appropriate under the circumstances.
These include, but are not limited to, suspension or removal from
office, suspension or termination of employment, a letter of censure,
and/or restitution to the Fund of an amount equal to the advantage the
offending person shall have gained by reason of such violation.
VIII. RECORDKEEPING REQUIREMENTS
--------------------------
The Fund, the Manager, EAISI and each Subadviser shall
maintain and preserve for five (5) years after the end of the relevant
fiscal year in an easily accessible place at its principal place of
business:
a. a copy of this Code of Ethics, and any amendments
hereto or replacements hereof;
b. record of any violations of this Code of Ethics and
actions taken as a result of such violations;
c. copies of all reports submitted under this Code of
Ethics;
d. a list of all persons required to submit reports
hereunder; and
e. the names of the persons reviewing the reports
submitted hereunder.
8
<PAGE>
ATTACHMENT A
REPORT OF SECURITIES TRANSACTIONS
DURING THE QUARTER ENDED_________________
Name of access person:_____________________
Name of Fund, Manager, Principal Underwriter or Subadviser:_____________________
<TABLE>
<CAPTION>
Title,
CUSIP
Number
(if any) Number of Person Person
and Shares or Through Preclearing or
Date of* Nature of Class of Principal Whom Approving
Transaction Transaction** Securities Amount Price Effected*** Transaction
----------- ------------- ---------- ------ ----- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
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- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* If you opened a brokerage account during the last quarter, include the date
the account was established.
** Purchases, sale or other type of acquisition or disposition (describe).
9
<PAGE>
*** Broker, dealer or bank with or through whom the transaction was effected,
including name of broker/dealer for new accounts opened.
10
<PAGE>
CONFIDENTIAL
ATTACHMENT B
ANNUAL REPORT OF PERSONAL SECURITIES HOLDINGS
This is to certify that, in accordance with Section IV of the Code of
Ethics for EAI Select Managers Equity Fund (the "Code"), the following is a
listing of the securities of which I am a direct or indirect beneficial
owner as of this date:
NAME OF # OF SHARES* PRINCIPAL CUSIP NUMBER
SECURITY AMOUNT* (IF ANY) BROKER/BANK
- --------------------------------------------------------------------------------
* If no securities are held, write "NONE".
Attached is a copy of my most recent broker statement(s). I
hereby certify that I have read and understood the Code and that
I have complied, and will comply, with its terms.
Signature: Date:
-------------------------------------- -------------------------
11
<PAGE>
ATTACHMENT C
Further Comment: Beneficial Ownership
Securities held for a person's benefit in the names of others, such as
nominees, trustees and other fiduciaries, securities held by any partnership of
which a person is a partner, and securities held by any corporation which is
controlled by a person (directly or through intermediaries), should be regarded
as owned beneficially by such person. Similarly, a person ordinarily obtains
benefits equivalent to ownership from, and thus is generally regarded as the
"beneficial owner" of, securities held in the name of his or her spouse, a minor
child or a relative of his or hers or of his or her spouse who shares the same
home with him or her, PROVIDED, HOWEVER, that the presumption of such beneficial
ownership may be rebutted. Other illustrations of benefits substantially
equivalent to those of ownership include application of the income derived from
securities to maintain a common home and application of the income derived from
securities to meet expenses which the person otherwise would meet from other
sources. A person is also deemed to be the beneficial owner of securities when
such person has the right to acquire beneficial ownership of such securities:
(i) through the exercise of an option, warrant or right (including options
traded on options exchanges); or (ii) through the conversion of securities which
are immediately convertible or will become convertible. Should you have any
questions as to whether you have beneficial ownership of a particular security,
please contact a Review Officer of the Fund.
12
IRIDIAN ASSET MANAGEMENT LLC
----------------------------
276 Post Road West
Westport, CT 06880-4704
- --------------------------------------------------------------------------------
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CODE OF ETHICS
--------------
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and
I. CODE OF CONDUCT
- --------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Effective as of January 15, 1997
Adopted July 1, 1996
Revised September 18, 1996
Revised January 15, 1997
13
<PAGE>
14
<PAGE>
GENERAL BACKGROUND
Iridian Asset Management LLC is registered as an investment adviser under
the Investment Advisers Act of 1940 (the "Act"). As such, it and its employees
are subject to the Act and the rules and regulations promulgated thereunder. In
compliance with the Act, Iridian has adopted certain policies which are embodied
in its Code of Ethics and Code of Conduct.
All Iridian Personnel must adhere to the general principles as well as
comply with the specific provisions of the Code of Ethics and Code of
Conduct. Technical compliance with the Code of Ethics and Code of
Conduct and its procedures will not automatically prevent scrutiny of
trades that show a pattern of abuse of an individual's fiduciary
duties to Clients.
FAILURE BY ANY IRIDIAN PERSONNEL TO ADHERE TO THE CODE OF ETHICS AND CODE
OF CONDUCT COULD RESULT IN SEVERE CONSEQUENCES FOR BOTH IRIDIAN AND
IRIDIAN PERSONNEL.
All Iridian Personnel are required to read these Codes carefully. Iridian
Personnel will be asked to sign an affidavit acknowledging compliance with these
Codes, and to make certain disclosures and to provide certain information to the
Adviser on a periodic basis. If Iridian Personnel have any questions about these
Codes and the policies and procedures contained herein, please see the Chief
Compliance Officer.
DEFINITIONS
The following definitions are used in the Code of Ethics and Code of Conduct.
"ACT" means the Investment Advisers Act of 1940.
"ADVISER" means Iridian Asset Management LLC.
"BENEFICIAL OWNERSHIP" means (i) the sole or shared power, directly or
indirectly, to vote or dispose of the subject Securities or (ii) the
opportunity, directly or indirectly, to profit or share in any profit derived
from the purchase or sale of the subject Securities. "Beneficial Ownership"
includes, but is not limited to, ownership of Securities held by members of the
immediate family sharing the same household and other interests identified in
Rule 16al(a)(2) promulgated under the Securities Exchange Act of 1934. For these
purposes, "immediate family" means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law or sister-in-law, and includes
adoptive relationships.
"CLIENT" means any current client of the Adviser.
"CHIEF COMPLIANCE OFFICER" shall be the person designated on Schedule A.
"CODE" or "CODES" shall refer to the Code of Ethics and Code of Conduct of the
Adviser.
"EXCLUDED SECURITIES" include the following securities: (i) securities issued by
the United States government, (ii) short term debt securities which are
government securities within the meaning of Section 2(a)(16) of the Investment
Company Act of 1940, (iii) bankers' acceptances, (iv) bank certificates of
deposit, and (v) commercial paper.
15
<PAGE>
"IRIDIAN PERSONNEL" means all employees, whether full-time or part-time, of the
Adviser. Any provisions of this Code that apply directly to Iridian Personnel
apply equally to accounts in the names of other persons in which Iridian
Personnel have Beneficial Ownership.
"INVESTMENT PERSONNEL" means (i) Portfolio Managers and (ii) other Iridian
Personnel (including securities analysts and traders), who provide information
and advice to Portfolio Managers regarding Client investment decisions. A list
of Investment Personnel is attached as Schedule A. Any provisions of this Code
that apply directly to Personal Securities Transactions by Investment Personnel
apply equally to transactions in accounts in the names of other persons in which
the Investment Personnel have Beneficial Ownership.
"MANAGEMENT COMMITTEE" shall be comprised of those persons designated on
Schedule A.
"PERSONAL SECURITIES TRANSACTION(S)" means transactions in Securities for the
account(s) in the names of Iridian Personnel, or for accounts in which Iridian
Personnel have Beneficial Ownership.
"PORTFOLIO MANAGERS" means those Iridian Personnel entrusted with the direct
responsibility and authority to make investment decisions affecting any Client.
A list of Portfolio Managers is attached as Schedule A. Any provisions of this
Code that apply directly to Personal Securities Transactions by a Portfolio
Manager apply equally to transactions in accounts in the names of other persons
in which the Portfolio Manager has Beneficial Ownership.
"PURCHASE OR SALE OF A SECURITY" includes, among other things, the writing of an
option to purchase or sell a Security.
"SECURITY" means any note, stock, treasury stock, bond, debenture, evidence of
indebtedness, certificate of interest or participation in any profit-sharing
agreement, collateral trust certificate, pre-organization certificate or
subscription, transferable share, investment contract, voting trust certificate,
certificate of deposit for a security, fractional undivided interest in oil, gas
or other mineral rights, or, in general, any interest or instrument commonly
known as a "security," or any certificate or interest or participation in
temporary or interim certificate for, receipt for, guarantee of, or warrant or
right to subscribe to or purchase (including options) any of the foregoing. The
term "Security" shall not include "Excluded Securities."
16
<PAGE>
CODE OF ETHICS
STATEMENT OF PRINCIPLES
The Adviser has adopted this Code of Ethics and the accompanying procedures
and forms to govern personal securities investment activities by all Iridian
Personnel. Although this Code contains a number of specific standards and
policies, there are three key principles embodied throughout the Code.
o THE INTERESTS OF CLIENTS MUST ALWAYS BE PARAMOUNT.
Iridian Personnel have a legal, fiduciary duty to place the interests of
the Clients first. Although in many instances Iridian Personnel may own
securities and engage in Personal Securities Transactions in securities in which
Clients also may have an ownership interest, Iridian Personnel, in any decision
relating to their personal investments, must scrupulously avoid serving their
own interests ahead of those of any Client.
o IRIDIAN PERSONNEL MAY NOT TAKE INAPPROPRIATE ADVANTAGE OF THEIR
RELATIONSHIP TO OUR CLIENTS.
Iridian Personnel should avoid any situation (unusual investment
opportunities, perquisites, accepting gifts of more than token value from
persons seeking to do business with the Adviser or its Clients, ETC.) that might
compromise, or call into question, the exercise of their fully independent
judgment in the interests of Clients.
o ALL PERSONAL SECURITIES TRANSACTIONS SHOULD AVOID ANY ACTUAL,
POTENTIAL OR APPARENT CONFLICTS OF INTEREST.
Although all personal securities transactions by Iridian Personnel must be
conducted in a manner consistent with this Code, the Code itself is based upon
the premise that Iridian Personnel owe a fiduciary duty to Clients, and should
avoid any activity that creates an actual, potential or apparent conflict of
interest. Before entering into a personal securities transaction, Iridian
Personnel should ask themselves what effect it would have on their reputation -
and Iridian's - if the transaction were described on the front page of THE NEW
YORK TIMES or THE WALL STREET JOURNAL.
17
<PAGE>
PROHIBITED PURCHASES AND SALES OF SECURITIES
IN A PERSONAL SECURITIES TRANSACTION, PORTFOLIO MANAGERS MAY NOT:
Purchase or Sell a Security within seven calendar days before and after the
execution of a trade in the same Security. If the Adviser is engaged in a
trading program extending over several trading days, the prohibition on
trading by Portfolio Managers begins seven trading days prior to the first
Client transaction in that program, and ends seven trading days after the
last transaction in that program.
IN A PERSONAL SECURITIES TRANSACTION, PORTFOLIO MANAGERS AND INVESTMENT
PERSONNEL MAY NOT:
Acquire any Security in an initial public offering.
Profit in a Personal Securities Transaction from the purchase and sale, or sale
and purchase of the same or equivalent Securities within 60 calendar days
(a "Short-Term Trade"). This restriction does not apply to:
A Short-Term Trade involving Excluded Securities;
A Short-Term Trade for which express prior written approval has been received
from the Chief Compliance Officer of the Adviser;
A Short-Term Trade that is non-volitional on the part of Iridian Personnel; or A
Short-Term Trade resulting from an automatic dividend reinvestment plan.
Serve on the board of directors of a publicly traded company without prior
authorization from the Advisor based upon a determination that such service
would be consistent with the interests of the Clients. Investment personnel
that serve on such boards of directors are not permitted to participate in
any investment decisions made by the Advisor involving securities of a
company on whose board they serve. See VI.A.
Acquire any Security in a private offering without the prior written consent of
the Chief Compliance Officer. Furthermore, should written consent be given,
Investment Personnel are required to disclose such investment when
participating in the Adviser's subsequent consideration of an investment in
such issuer. In such circumstances, the Adviser's decision to purchase
securities of the issuer should be subject to an independent review by
Investment Personnel with no personnel interest in the issuer.
PORTFOLIO MANAGERS, INVESTMENT PERSONNEL AND IRIDIAN PERSONNEL MAY NOT:
Execute a Personal Securities Transaction on a day during which the Adviser has
a pending "buy" or "sell" order in that Security, until the Adviser's order
is executed or withdrawn;
In any calendar year, receive a gift or anything else (for example, air fare,
hotel accommodations, etc.) with a value of more than $100 from any single
person or entity that does business with or on behalf of the Adviser (see
VI.B.) or
Execute a Personal Securities Transaction without the prior written
authorization of the Chief Compliance Officer of the Adviser.
III. EXEMPTED TRANSACTIONS
A. The provisions described above under Section II. A., B. and C.
captioned "Prohibited Purchases and Sales of Securities" do not apply
to:
1. Purchases or Sales of Excluded Securities;
2. Purchases or Sales of options contracts on a broad-based market
index;
18
<PAGE>
3. Purchases or Sales of Securities which are not eligible for
Purchase or Sale by the Adviser or not ordinarily Purchased or
Sold by the Adviser on behalf of its Clients, E.G., securities of
any investment company registered under the Investment Company
Act of 1940, Purchases or Sales of any Securities of an issuer
with a market capitalization (outstanding shares multiplied by
the current price per share) less than $500 million;
4. Purchases or Sales of any Securities in any transaction, or
series of transactions, involving 2000 shares or less in the
aggregate of an issuer with a market capitalization (outstanding
shares multiplied by the current price per share) greater than
$500 million if the Iridian Personnel had no prior knowledge of
transactions in such security by the Adviser, PROVIDED, HOWEVER,
THAT PRECLEARANCE IS STILL REQUIRED FOR THESE TRANSACTIONS;
5. Purchases or Sales of Securities effected in any account over
which Iridian Personnel has no direct or indirect influence or
control, or in any account of the Iridian Personnel which is
managed on a discretionary basis by a person other than such
Iridian Personnel and with respect to which such Iridian
Personnel does not in fact influence or control such
transactions;
6. Purchases or Sales of Securities which are non-volitional on the
part of Iridian Personnel (e.g., the receipt of stock dividends);
7. Purchases of Securities made as part of automatic dividend
reinvestment plans;
8. Purchases of Securities effected upon the exercise of rights
issued by an issuer pro rata to all holders of a class of its
securities, to the extent such rights were acquired from such
issuer, and sale of such rights so acquired; and
9. All other transactions contemplated by Iridian Personnel which
receive the prior approval of the Chief Compliance Officer in
accordance with the Adviser's preclearance procedures.
IV. PRECLEARANCE OF PERSONAL SECURITIES TRANSACTIONS
All Iridian Personnel wishing to engage in Personal Securities Transactions
which are not Exempted Transactions must obtain prior verbal authorization of
any such Personal Securities Transaction from the Chief Compliance Officer or
any Trader, or such other person or persons that the Chief Compliance Officer
may from time to time designate to make such authorizations. Personal Securities
Transactions which are not Exempted Transactions proposed to be engaged in by
the Chief Compliance Officer shall require prior verbal authorization of a
Trader or a member of the Management Committee.
If there are any questions about whether any Iridian Personnel may engage
in Personal Securities Transactions, such questions shall be resolved by the
Chief Compliance Officer. Any doubts shall be resolved in favor of refraining
from trading.
Any such verbal authorization of Personal Securities Transactions
which are not Exempted Transactions shall promptly be memorialized in
writing and submitted to the Chief Compliance Officer.
Any authorization so provided is effective until the close of business on
the third trading day after the authorization is granted. If an order for the
Personal Securities Transactions which are not Exempted Transactions is not
placed within that time period, a new authorization must be obtained. If the
order for the transaction is placed but not executed within that time period, no
new authorization is required unless the person placing the original order
amends the order in any manner.
V. TRANSACTION AND ACCOUNT POSITION REPORTING REQUIREMENTS
A. DISCLOSURE OF PERSONAL BROKERAGE ACCOUNTS. At the commencement of
employment, all Iridian Personnel are required to submit to the Chief
Compliance Officer the names and account numbers of all of their
personal brokerage accounts, brokerage accounts of members of their
19
<PAGE>
immediate families, and any brokerage accounts which they control or
in which they or an immediate family member has Beneficial Ownership.
Each of these accounts is required to furnish duplicate confirmations
and statements to the Adviser. The Chief Compliance Officer shall
review, or cause to be reviewed, each confirmation from such accounts
of Iridian Personnel.
B. ANNUAL REPORTING REQUIREMENTS. All Iridian Personnel are required to
disclose all personal Securities holdings upon commencement of
employment, and thereafter on a periodic basis. At the commencement of
employment and, thereafter, at the beginning of the first quarter of
each fiscal year, all Iridian Personnel are required to certify that
they have read and understand the Codes and that they have complied
with its requirements throughout the prior fiscal year.
C. QUARTERLY REPORTING REQUIREMENTS. All Iridian Personnel shall report
to the Adviser the following information with respect to transactions
in any Security in which such person has, or by reason of such
transaction acquires, any direct or indirect Beneficial Ownership in
the Security:
The date of the transaction, the title and the number of shares, and the
principal amount of each Security involved;
The nature of the transaction (I.E., purchase, sale or any other type of
acquisition or disposition);
The price at which the transaction was effected; and
The name of the broker, dealer or bank with or through whom the transaction was
effected.
Such reports shall be made no later than 10 days after the end of the
calendar quarter in which the transaction to which the report relates was
effected.
For Iridian Personnel, such reports will be deemed to be made if the
executing broker provides to the Chief Compliance Officer, on a timely basis,
duplicate copies of confirmations of all Personal Securities Transactions and
copies of periodic statements for all securities accounts.
Not later than 10 days after the end of each calendar quarter, all Iridian
Personnel are required to certify, in writing, that they have reported all
Personal Securities Transactions required to be disclosed or reported pursuant
to the requirements of this Code of Ethics. In addition, all Iridian Personnel
are required to certify, in writing, that they have reported all Outside
Interest and Outside Activities required to be disclosed or reported pursuant to
the requirements of the Code.
Any such report may contain a statement that the report shall not be
construed as an admission by the person making such report that he or she has
any direct or indirect Beneficial Ownership in the Security to which the report
relates.
Iridian Personnel need not make such a report with respect to transactions
effected for any account in which they may have Beneficial Ownership, but over
which they do not have any direct or indirect influence or control (for example,
a blind trust).
VI. OUTSIDE INTERESTS AND OUTSIDE ACTIVITIES.
A. OUTSIDE INTERESTS.
1. No Iridian Personnel shall accept employment outside the Adviser,
part-time or
20
<PAGE>
otherwise, without first obtaining the written approval of the
Management Committee. Furthermore, no Iridian Personnel may
accept a position as a director or officer of any corporation,
public or private, or as a general partner of any partnership, or
similar position with a similar entity (e.g., charitable
organization, trust, limited liability company or limited
partnership) without the prior approval of the Management
Committee.
B. OUTSIDE ACTIVITIES.
1. OUTSIDE PERSONS. The Adviser understands that Iridian Personnel, in
the course of performing their duties, will develop relationships in
the investment community with others, including, but not limited to,
corporate executives, securities analysts and research personnel,
brokers and traders (collectively, "Outside Persons").
2. DISCLOSURE. On a quarterly basis, all Iridian Personnel must disclose
to the Chief Compliance Officer any outside activity with any Outside
Person which is paid for or sponsored by the Outside Person, setting
forth the identity of the Outside Person and the relationship to the
Adviser and Iridian Personnel, and the activity conducted. From time
to time, the nature of any outside activity with an Outside Person
will be reviewed and more specific policies and guidelines may be
established.
3. PROHIBITED ACTIVITIES. While an occasional guest of an Outside Person
at a meal or sporting event may be acceptable in certain
circumstances, it would not be appropriate at any time to accept air
fare, hotel or other accommodations, etc. from any Outside Person, or
to accept personal gifts with a value of more than $100 in any
calendar year from any single person or entity that does business with
or on behalf of the Adviser. Usual or customary promotional items
received from Outside Persons or food items consumed on the premises
are not required to be reported.
VII. CONFIDENTIAL STATUS OF THE ADVISER'S PORTFOLIO
The current portfolio positions of the Adviser must be kept confidential.
If non-public information regarding the portfolio should become known to any
Iridian Personnel, whether in the line of duty or otherwise, he or she should
not reveal it to anyone unless it is properly part of his or her work to do so.
If anyone is asked about the Adviser's portfolio or whether a security has been
bought or sold, his or her reply should be that this is an improper question and
that this answer does not mean that the Adviser has bought, sold or retained the
particular security.
VIII. ENFORCEMENT AND PENALTIES
The Chief Compliance Officer shall review each confirmation and brokerage
statement describing Personal Securities Transactions by Iridian Personnel. The
confirmations and brokerage statements shall be compared to the transactions of
the Adviser. If a transaction appears to be in violation of the Code, the
transaction will be reported to the Management Committee.
If a Portfolio Manager executes a Personal Securities Transaction within
seven calendar days before or after the execution of a trade in the same
Security by the Adviser, and receives a price more favorable than that received
by any Client, the Portfolio Manager will be required to make a charitable
contribution to a charity selected by the Adviser in the amount of the aggregate
price difference of the Personal Securities Transaction.
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<PAGE>
Portfolio Managers or Investment Personnel who profit from a Short-Term
Trade will be required to make a charitable contribution to a charity selected
by the Adviser in the amount of the profit made.
The Adviser may take additional action, as described below.
IX. DUTIES AND POWERS OF THE ADVISER
The Management Committee of the Adviser shall determine the appropriate
response of the Adviser, taking into account all of the facts and circumstances
of the apparent violation. If a violation has, in fact, occurred, the Management
Committee shall, in its sole discretion, impose any one or more of the following
penalties:
1. Letter of censure to the person or persons involved;
2. Fines, in amounts to be determined by the Management Committee,
to be paid by the person or persons involved;
3. Suspension of employment of the person or persons involved; or
4. Termination of employment of the person or persons involved.
The Management Committee also may require such Iridian Personnel to
resign from any Outside Interests, and to return to an Outside Person the value
of the Outside Activity returned.
The Management Committee also may impose any penalty it deems
appropriate upon any person that has engaged in a course of conduct which,
although in technical compliance with the Code, shows a pattern of abuse by that
person of his or her fiduciary duties to Clients.
22
<PAGE>
CODE OF CONDUCT
I. INSIDER TRADING AND SECURITIES FRAUD ENFORCEMENT ACT PROCEDURES
As a registered investment adviser under the Act, the Adviser must
establish and implement procedures designed to prevent insider trading
and securities fraud.
As prescribed by the Code of Ethics, each Iridian Personnel is required to
notify the Chief Compliance Officer of where his or her personal brokerage
accounts are maintained. This is done when the Iridian Personnel is hired and
when there is a change in this information. It is the responsibility of all
Iridian Personnel to notify promptly the Chief Compliance Officer of any changes
in his or her personal accounts.
Personal accounts are any accounts in the name of Iridian Personnel and any
accounts of family members in which the Iridian Personnel has a financial
interest or for which the Iridian Personnel has a Beneficial Interest.
Each Iridian Personnel is required to obtain prior approval on any
transactions effected in his or her personal accounts as set forth in the
preclearance procedures adopted by the Adviser.
Trades effected in all personal accounts will be reviewed periodically. The
purpose of these reviews will be to ensure that no violations of securities laws
have occurred. In this regard, all Iridian Personnel should keep the following
in mind when making personal investment decisions:
o Trading on inside information is illegal.
o Trading based on knowledge that large orders will be executed for
Clients (frontrunning) is considered manipulative and is illegal.
If any Iridian Personnel believes that he or she is in possession of
material inside information, he or she must notify the Chief Compliance Officer
immediately.
23
<PAGE>
II. MEMORANDUM ON INSIDER TRADING
This memorandum explains procedures adopted by the Adviser to prevent
insider trading.
READ IT CAREFULLY. INSIDER TRADING IS ILLEGAL AND PUNISHABLE BY FINES AND
IMPRISONMENT.
THIS MEMORANDUM EXPLAINS THE CONDUCT PROHIBITED BY THE LAW OF INSIDER
TRADING. IT IS MEANT TO BE A GUIDELINE - AS THE LAW OF INSIDER TRADING DEVELOPS,
OTHER ACTIVITIES MAY FALL WITHIN THE SCOPE OF THE INSIDER TRADING LAWS.
READ THIS MEMORANDUM CAREFULLY. ALL IRIDIAN PERSONNEL WILL BE ASKED TO
SIGN A STATEMENT AFFIRMING THAT HE OR SHE HAS READ THIS CODE AND THAT HE OR SHE
UNDERSTANDS ITS CONTENTS AND WILL ABIDE BY THE PROCEDURES BEING ESTABLISHED.
NEW EMPLOYEES WILL BE ASKED TO SIGN SUCH A STATEMENT AT THE TIME THEY
JOIN THE ADVISER. BY SIGNING THIS STATEMENT, EACH IRIDIAN PERSONNEL ALSO AFFIRMS
THAT HE OR SHE WILL MAINTAIN THE CONFIDENTIALITY OF INFORMATION CONCERNING THE
ADVISER'S TRADING AND OTHER ACTIVITIES OF THE ADVISER AND ITS CLIENTS. IF
IRIDIAN PERSONNEL HAVE ANY QUESTIONS ABOUT WHAT CONDUCT IS PROHIBITED BY THE LAW
OF INSIDER TRADING, CONTACT THE CHIEF COMPLIANCE OFFICER IMMEDIATELY.
IGNORANCE OF THE LAW IS NO EXCUSE.
A. TRADING BY IRIDIAN PERSONNEL
-------------------------------
The Adviser has adopted procedures to ensure that Iridian Personnel do
not trade on inside information.
Iridian Personnel have been instructed to arrange for daily
confirmations and monthly statements for all securities accounts to be sent to
the Chief Compliance Officer. Whenever Iridian Personnel open new accounts,
Iridian Personnel must arrange for the daily confirmations and monthly
statements for these accounts to be sent to the Chief Compliance Officer.
Employment of any Iridian Personnel may be terminated if it is determined that
he or she has not complied with this procedure.
In addition, Iridian Personnel must arrange for the daily
confirmations and monthly statements for any account in which Iridian Personnel
own an interest to be sent to the Chief Compliance Officer. Iridian Personnel
may be deemed to own an interest in someone else's account if Iridian Personnel
share in the profits earned in the other account have discretion over the
account or have any other financial interest in the other account. Iridian
Personnel should contact the Chief Compliance Officer if he or she has any
questions about whether Iridian Personnel own an interest in someone else's
account. Iridian Personnel must also arrange for the daily confirmations and
monthly statements for the securities accounts of his or her spouse and children
and other persons who live with Iridian Personnel to be sent to the Chief
Compliance Officer.
B. WHAT TO DO IF YOU LEARN INSIDE INFORMATION
It is not illegal to learn inside information. It is only illegal to
trade on such information. If any Iridian Personnel thinks that he or she may
have learned inside information, he or she must contact immediately the Chief
Compliance Officer or, in his absence, any member of the Management Committee.
UNTIL YOU SPEAK WITH THE CHIEF COMPLIANCE OFFICER OR, IN HIS ABSENCE, ANY MEMBER
OF THE MANAGEMENT COMMITTEE, DO NOT
24
<PAGE>
TRADE ON THE INFORMATION OR DISCUSS THE POSSIBLE INSIDE INFORMATION WITH ANY
OTHER PERSON.
If the Chief Compliance Officer concludes that such Iridian Personnel
may in fact have learned inside information, procedures will be established so
that other Iridian Personnel do not learn the inside information.
C. INVESTIGATIONS OF SUSPICIOUS TRADING
It is possible that the Exchanges, the NASD and the SEC may request
information from the Adviser concerning suspicious trading. Iridian Personnel
may be asked to sign a sworn affidavit affirming that, at the time of such
trading, he or she did not have any inside information about the securities in
questions. Employment of such Iridian personnel may be terminated if he or she
refuses to sign such an affidavit or cooperate with any such investigation. The
Adviser may submit these affidavits to the SEC.
D. THE ADVISER'S TRADING ACTIVITIES ARE CONFIDENTIAL
It is the duty of each Iridian Personnel to maintain the
confidentiality of information concerning the Adviser's trading. This
confidential information includes the Adviser's and its Clients' securities
positions, the timing and magnitude of trades, its trading plans and any
internally prepared analysis of particular securities or of the markets. Iridian
Personnel should take every practicable step you can to preserve the
confidentiality of this confidential information. For example:
1. Don't discuss confidential matters in elevators, hallways,
restaurants, airplanes, taxicabs or any place where you can be
overheard.
2. Don't gossip.
3. Don't read confidential documents in public places or discard
them where they can be retrieved by others.
4. Don't carry confidential documents in elevators, hallways, ETC.,
in an exposed manner.
5. Beware of the carrying quality of conversations conducted on
speaker telephones, in offices, on car or airplane telephones, on
cellular phones, ETC.
Obviously, a list such as this can only be suggestive. It is
the responsibility of each Iridian Personnel to take
whatever practicable steps are appropriate to preserve the
confidentiality of confidential information.
The Adviser has a vital interest in the integrity of the securities
markets. Insider trading destroys that integrity. The Adviser is committed to
preventing insider trading and may terminate the employment of any Iridian
Personnel who engages in this illegal practice.
E. Conduct Prohibited by the Law of Insider Trading
---------------------------------------------------
This section is intended to provide information and guidance
concerning insider trading, which has become an enforcement priority of the
Securities and Exchange Commission and the Department of Justice. THIS SECTION
IS A GUIDELINE - AS THE LAW OF INSIDER TRADING DEVELOPS, OTHER ACTIVITIES MAY
FALL WITHIN THE SCOPE OF THE INSIDER TRADING LAWS. If any Iridian Personnel does
not understand the following summary or have any questions about the conduct
prohibited by the law of insider trading, please contact the Chief Compliance
Officer.
25
<PAGE>
1. THE BASIC PRINCIPLE: Disclose or Refrain.
Although insider trading law has become increasingly complex, the
prohibition against insider trading is simple: if you are in possession of
"inside" information you must either publicly disclose the information or
refrain from trading. The essence of the prohibition against insider trading is
this principle of "disclose refrain."
2. WHAT CONSTITUTES INSIDE INFORMATION.
Since the disclose or refrain obligation applies only to "inside"
information, it is important to recognize what constitutes "inside" information.
Simply, it is information which is (i) material, (ii) non-public, and (iii) the
use of which for trading purposes would create a breach of duty.
(a) MATERIAL INFORMATION. Information is material if there is a
substantial likelihood that a reasonable investor would consider
it important in deciding how to act. Several rules of thumb can
be helpful in assessing whether information is material. First,
information that, when disclosed, is likely to have a direct
effect on a stock's price should be treated as material. Examples
include information concerning impending tender offers,
significant earnings swings and other major corporate events.
Additionally, the decision to trade on non-public information can
itself be evidence of the information's materiality.
(b) NON-PUBLIC INFORMATION. INFORMATION IS NON-PUBLIC WHEN IT HAS NOT
BEEN DISSEMINATED IN A MANNER MAKING IT AVAILABLE TO INVESTORS
GENERALLY. INFORMATION IS PUBLIC ONCE IT HAS BEEN PUBLICLY
DISSEMINATED, SUCH AS WHEN IT IS REPORTED ON THE DOW JONES BROAD
TAPE, AND INVESTORS HAVE HAD A REASONABLE TIME TO REACT TO THE
INFORMATION. ONCE THE INFORMATION HAS BECOME PUBLIC, IT MAY BE
TRADED ON FREELY.
(c) DISCLOSURE BREACHING A DUTY. GENERALLY, A VIOLATION OF THE
INSIDER TRADING PROHIBITION OCCURS WHEN A PERSON VIOLATES A DUTY
OWED EITHER TO THE PERSON ON THE OTHER SIDE OF THE TRANSACTION OR
TO A THIRD PARTY BY TRADING ON THE INFORMATION. THIS DUTY MAY
TAKE ONE OF SEVERAL FORMS, WHICH INCLUDE BUT ARE NOT LIMITED TO
THE FOLLOWING. AS LAW OF INSIDER TRADING DEVELOPS OTHER
ACTIVITIES MAY FALL WITHIN THE SCOPE OF THE LAW.
(i) CORPORATE FIDUCIARIES. FIDUCIARIES, SUCH AS CORPORATE
DIRECTORS AND OFFICERS, OWE A DUTY NOT TO USE THEIR
POSITIONS TO TAKE ADVANTAGE OF THE HOLDERS OF THE
CORPORATION'S SECURITIES.
(ii) TEMPORARY INSIDERS. IN ADDITION TO TRADITIONAL INSIDERS
(DIRECTORS AND OFFICERS), UNDERWRITERS, ACCOUNTANTS, LAWYERS
AND CONSULTANTS, AS WELL AS OTHER PERSONS WHO HAVE ENTERED
INTO
26
<PAGE>
SPECIAL RELATIONSHIPS OF CONFIDENCE WITH A CORPORATION, ARE
ALSO CONSIDERED TO BE INSIDERS AND COME WITHIN THE DISCLOSE
OR REFRAIN PROHIBITION.
(iii) RELATIONSHIP WITH THE MARKET. CERTAIN PERSONS WHO ENTER
INTO SPECIAL OBLIGATIONS OF TRUST AND CONFIDENCE WITH
PURCHASERS AND SELLERS IN THE MARKET ARE ALSO CONSIDERED
INSIDERS. THESE INSIDERS INCLUDE INVESTMENT ADVISERS, MARKET
MAKERS AND SEC EMPLOYEES.
(iv) MISAPPROPRIATION: THEFT OF INFORMATION. VIRTUALLY ANYONE - A
FINANCIAL PRINTER, A NEWSPAPER REPORTER, OR A NON-ATTORNEY
EMPLOYED BY A LAW FIRM - CAN BECOME SUBJECT TO THE DISCLOSE
OR REFRAIN PROHIBITION MERELY BY OBTAINING MATERIAL
NON-PUBLIC INFORMATION BY UNLAWFUL MEANS OR BY LAWFULLY
OBTAINING SUCH INFORMATION AND ILLEGALLY CONVERTING IT. IN
ESSENCE, THE MISAPPROPRIATION THEORY PROHIBITS A THIEF FROM
PROFITING FROM STOLEN INFORMATION.
(v) TIPPEES. A TIPPEE IS A PERSON WHO RECEIVES A "TIP." HE IS
CONSIDERED AN INSIDER AND SUBJECT TO THE DISCLOSE OR REFRAIN
PROHIBITION IN TWO SETS OF CIRCUMSTANCES.
1. DERIVATIVE LIABILITY. UNDER DERIVATIVE LIABILITY, A
TIPPEE ESSENTIALLY STANDS IN THE SHOES OF THE INSIDER
FOR PURPOSES OF THE INSIDER TRADING PROHIBITION. TO BE
LIABLE AS A TIPPEE THERE MUST BE A BREACH OF DUTY BY
THE ORIGINAL INSIDER IN DISCLOSING THE INFORMATION TO
THE TIPPEE AND THE TIPPEE MUST KNOW, OR HAVE REASON TO
KNOW, OF THIS BREACH. THE CHAIN OF TIPPEE LIABILITY CAN
EXTEND FROM ONE TIPPEE TO ANOTHER SO LONG AS EACH
SUCCESSIVE TIPPEE IS AWARE OF THE ORIGINAL VIOLATOR'S
BREACH.
2. LIABILITY UNDER RULE 14e-3. There is a special SEC rule
relating to tippee liability for information relating
to tender offers. Rule 14e-3 imposes the disclose or
refrain prohibition upon any person, including a
tippee, who is in possession of material non-public
information relating to a tender offer if (i) the
bidder has taken a "substantial step" towards the
commencement of a tender offer, and (ii) the person in
possession of the information knows or has reason to
know the information was acquired from the bidder, the
target or their agents. Under this rule a duty does not
have to be breached by the person providing the
information for a tippee to be held liable. However, to
be liable for insider trading, the tippee must be aware
that the bidder, target or one of their agents is the
ultimate source of the information.
27
<PAGE>
F. LAWFUL USE OF PUBLIC INFORMATION
Although insider trading is illegal, the federal securities laws
permit a trader to make use of information that is publicly available. Also, the
prohibition against insider trading does not punish sound market analysis and
legitimate trading practices.
For example, it is legal to use your superior skills in analyzing
public information to make profitable trades. It also is legal to trade on
market rumors if the source of the information is unknown and you have no reason
to believe that the source is an insider.
The law does not require that all traders in the market have equal
access to all information. However, when a person breaches a duty by disclosing
material non-public information, the law prohibits and severely punishes (civil
and criminal remedies include disgorgement of profits, treble damages, fines and
imprisonment) trading on that information.
G. CONCLUSION
Insider trading is a serious matter and it is important to be able to
recognize what constitutes impermissible trading. Again, if you have any doubt
whether a particular practice is permissible consult with the Chief Compliance
Officer as soon as possible and before you act.
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<PAGE>
SCHEDULE A
As of 4/1/00
Portfolio Managers:
- ------------------
David L. Cohen
Harold J. Levy
Investment Personnel:
- --------------------
Security Analysts:
-----------------
Michele Drasher
Robert Thomas Zankel
Caryn Seidman Becker
Gregory Gigliotti
Traders:
-------
Caroline B. Keenan
Courtney McKenna
Robert B. Shapiro
Management Committee:
- --------------------
David L. Cohen
Harold J. Levy
Jeffrey M. Elliott
Alice B. Hicks
Chief Compliance Officer:
- ------------------------
Jeffrey M. Elliott
29
Mastrapasqua & Associates
CODE OF ETHICS
INTRODUCTION
------------
This Code of Ethics has been adopted by Mastrapasqua & Associates
("Mastrapasqua") for the purpose of instructing all employees, officers,
directors and trustees of the investment adviser in its ethical obligations and
to provide rules for its personal securities transactions. All such employees,
officers, directors and trustees owe a fiduciary duty to the Client Accounts
they manage and their shareholders. A fiduciary duty means a duty of loyalty,
fairness and good faith towards the Client Accounts and its shareholders, and
the obligation to adhere not only to the specific provisions of this Code but to
the general principles that guide the Code.
STATEMENT OF GENERAL PRINCIPLES
-------------------------------
(i) The duty at all times to place the interests of the Client Accounts
and their shareholders first;
(ii) The requirement that all personal securities transactions be
conducted in a manner consistent with the Code of Ethics and in such
a manner as to avoid any actual or potential conflict of interest or
any abuse of any individual's position of trust and responsibility;
and
(iii) The fundamental standard that such employees, officers, directors and
trustees should not take inappropriate advantage of their positions,
or of their relationship with the Client Accounts or their
shareholders.
It is imperative that the personal trading activities of the employees,
officers, directors and trustees of Mastrapasqua be conducted with the highest
regard for these general principles in order to avoid any possible conflict of
interest, any appearance of a conflict, or activities that could lead to
disciplinary action. This includes executing transactions through or for the
benefit of a third party when the transaction is not in keeping with the general
principles of this Code.
All personal securities transactions must also comply with Mastrapasqua's
Insider Trading Policy and Procedures and the Securities and Exchange
Commission's Rule 17J-1. Under this rule, no Employee may:
(i) employ any device, scheme or artifice to defraud the Client Accounts
or any of their shareholders;
(ii) make to the Client Accounts or any of its shareholders any untrue
statement of a material fact or omit to state to such client a
material fact necessary in order to make the statements made, in
light of the circumstances under which they are made, not misleading;
(iii) engage in any act, practice, or course of business which operates or
would operate as a fraud or deceit upon the Client Accounts or any of
their shareholders; or
(iv) engage in any manipulative practice with respect to the Client
Accounts or any of their shareholders.
DEFINITIONS
-----------
A. ADVISORY EMPLOYEES
Employees who participate in or make recommendations with respect to the
purchase or sale of securities including fund portfolio mangers and assistant
fund portfolio managers. The Compliance Officer, ________________, will maintain
a current list of all Advisory Employees.
B. BENEFICIAL INTEREST
Ownership or any benefits of ownership, including the opportunity to directly or
indirectly profit or otherwise obtain financial benefits form any interest in a
security.
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<PAGE>
C. CLIENT ACCOUNT
Any securities account or portfolio managed or directed by Mastrapasqua
including, without limitation, any investment company portfolio.
D. COMPLIANCE OFFICER
_______________ or, in his/her absence, the alternate Compliance Officer,
___________, or their successors in such positions.
E. EMPLOYEE ACCOUNT
Each account in which an Employee or a member of his or her family has any
direct or indirect Beneficial Interest or over which such person exercises
control or influence, including, but not limited to, any joint account,
partnership, corporation, trust or estate. An Employee's family members include
the Employee's spouse, minor children, any person living in the home of the
Employee, and any relative of the Employee (including in-laws) to whose support
an Employee directly or indirectly contributes.
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<PAGE>
F. EMPLOYEES
The employees, officers, and trustees of the Client Accounts and the employees,
officers and directors of Mastrapasqua, including Advisory Employees. The
Compliance Officer will maintain a current list of all Employees.
G. EXEMPT TRANSACTIONS
Transactions which are (1) effected in an amount or in a manner over which the
Employee has no direct or indirect influence or control; (2) pursuant to a
systematic dividend reinvestment plan, systematic cash purchase plan or
systematic withdrawal plan; (3) in connection with the exercise or sale of
rights to purchase additional securities from an issuer and granted by such
issuer pro-rata to all holders of a class of its securities; (4) in connection
with the call by the issuer of a preferred stock or bond; (5) pursuant to the
exercise by a second party of a put or call option; (6) closing transactions no
more than five business days prior to the expiration of a related put or call
option; or (7) with respect to any affiliated or unaffiliated registered
open-end investment company.
H. RECOMMENDED LIST
The list of those Securities which the Advisory Employees currently are
recommending for purchase or sale on behalf of the Client Accounts.
I. RELATED SECURITIES
Securities issued by the same issuer or issuer under common control, or when
either security gives the holder any contractual rights with respect to the
other security, including options, warrants or other convertible securities.
J. SECURITIES
Any note, stock, treasury stock, bond, debenture, evidence of indebtedness,
certificate of interest or participation in any profit-sharing agreement,
collateral-trust certificate, pre-organization certificate or subscription,
transferable share, investment contract, voting-trust certificate, certificate
of deposit for a security, fractional undivided interest in oil, gas, or other
mineral rights, or, in general, any interest or instrument commonly known as a
"security," or any certificate or interest or participation in temporary or
interim certificate for, receipt for, guarantee of, or warrant or right to
subscribe to or purchase (including options) any of the foregoing; except for
the following: (1) securities issued by the government of the United States; (2)
bankers' acceptances; (3) bank certificates of deposit; (4) commercial paper;
(5) debt securities, provided that (a) the security has a credit rating of Aa or
Aaa from Moody's Investor Services, AA or AAA from Standard & Poor's Ratings
Group, or an equivalent rating from another rating service, or is unrated but
comparably creditworthy, (b) the security matures within twelve months of
purchase, (c) the market is very broad so that a large volume of transactions on
a given day will have relatively little effect on yields, and (d) the market for
the instrument features highly efficient machinery permitting quick and
convenient trading in virtually any volume; and 6) shares of registered open-end
investment companies.
K. SECURITIES TRANSACTION
The purchase or sale, or any action to accomplish the purchase or sale, of a
Security for an Employee Account.
PERSONAL INVESTMENT GUIDELINES
------------------------------
PERSONAL ACCOUNTS AND PRE-CLEARANCE
-----------------------------------
1. Employees must obtain prior written permission from the Compliance Officer
to open or maintain a margin account, or a joint or partnership account
with persons other than the Employee's spouse, parent, or child (including
custodial accounts).
2. No Employee may execute a Securities Transaction without first obtaining
Pre-Clearance from the Compliance Officer. Prior to execution, the Employee
must submit the Pre-Clearance form to the Compliance Officer, or in the
case of a Pre-Clearance request by the Compliance Officer, to the alternate
Compliance Officer. An Employee may not submit a Pre-Clearance request if,
to the Employee's knowledge at the time of the request, the same Security
or a Related Security is being actively considered for purchase or sale, or
is being purchased or sold, by a Client Account.
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<PAGE>
Advisory Employees may not execute a Securities Transaction while at the same
time recommending contrary action to a Client Account.
Settlement of Securities Transactions must be made on or before settlement date.
Extensions and pre-payments are not permitted.
The Personal Investment Guidelines in this Section III do not apply to Exempt
Transactions. Employees must remember that regardless of the transaction's
status as exempt or not exempt, the Employee's fiduciary obligations remain
unchanged.
LIMITATIONS ON PRE-CLEARANCE
----------------------------
1. After receiving a Pre-Clearance request, the Compliance Officer
will promptly review the request and will deny the request if the Securities
Transaction will violate this Code.
2. Employees may not execute a Securities Transaction on a day
during which a purchase or sell order in that same Security or a Related
Security is pending for, or is being actively considered on behalf of, a Client
Account. In order to determine whether a Security is being actively considered
on behalf of a Client Account, the Compliance Officer will consult the current
Recommended List and, in the case of non-equity Securities, consult each
Advisory Employee responsible for investing in non-equity Securities for any
Client Account. Securities Transactions executed in violation of this
prohibition shall be unwound or, if not possible or practical, the Employee must
disgorge to the appropriate Client Account(s) the value received by the Employee
due to any favorable price differential received by the Employee. For example,
if the Employee buys 100 shares at $10 per share, and a Client Account buys 1000
shares at $11 per share, the Employee will pay $100 (100 shares x $1
differential) to the Client Account.
3. An Advisory Employee may not execute a Securities Transaction
within seven (7) calendar days after a transaction in the same Security or a
Related Security has been executed on behalf of a Client Account unless the
Client Account's entire position in the Security has been sold prior to the
Advisory Employee's Securities Transaction and the Advisory Employee is also
selling the Security. If the Compliance Officer determines that a transaction
has violated this prohibition, the transaction shall be unwound or, if not
possible or practical, the Advisory Employee must disgorge to the appropriate
Client Account(s) the value received by the Advisory Employee due to any
favorable price differential received by the Advisory Employee.
4. Pre-Clearance requests involving a Securities Transaction by an
Employee within fifteen calendar days after any Client Account has traded in the
same Security or a Related Security will be evaluated by the Compliance Officer
to ensure that the proposed transaction by the Employee is consistent with this
Code and that all contemplated Client Account activity in the Security has been
completed. It is wholly within the Compliance Officer's discretion to determine
when Pre-Clearance will or will not be given to an employee if the proposed
transaction falls within the fifteen-day period.
5. Employees are not permitted to purchase and sell, or sell and
purchase, the same Securities or Related Securities within sixty calendar days.
Profits made in violation of this prohibition must be disgorged by the Employee
to the appropriate Client Account, as determined by the Compliance Officer or,
if disgorgement to a Client Account is inappropriate, to a charity chosen by the
Compliance Officer.
6. Pre-Clearance procedures apply to any Securities Transactions in
a private placement. In connection with a private placement acquisition, the
Compliance Officer will take into account, among other factors, whether the
investment opportunity should be reserved for a Client Account, and whether the
opportunity is being offered to the Employee by virtue of the Employee's
position with Mastrapasqua. Employees who have been authorized to acquire
securities in a private placement will, in connection therewith, be required to
disclose that investment if and when the Employee takes part in any subsequent
investment in the same issuer. In such circumstances, the determination to
purchase Securities of that issuer on behalf of a Client Account will be subject
to an independent review by the Compliance Officer or someone else with no
personal interest in the issuer.
7. Employees are prohibited from acquiring any Securities in an
initial public offering. This restriction is imposed in order to preclude any
possibility of an Employee profiting improperly from the Employee's position
with Mastrapasqua, and applies only to the Securities offered for sale by the
issuer, either directly or
33
<PAGE>
through an underwriter, and not to Securities purchased on a securities exchange
or in connection with a secondary distribution.
8. Employees are prohibited from acquiring low priced
over-the-counter equity securities (or "penny stock") as defined in Section 3(a)
of the Securities Exchange Act of 1934.
OTHER RESTRICTIONS
------------------
1. If a Securities Transaction is executed on behalf of a Client
Account within seven (7) calendar days after an Advisory Employee executed a
transaction in the same Security or a Related Security, the Compliance Officer
will review the Advisory Employee's and the Client Account's transactions to
determine whether the Advisory Employee did not meet his or her fiduciary duties
to the Client Account and its shareholders in violation of this Code. If the
Compliance Officer determines that the Advisory Employee's transaction violated
this Code, the transaction shall be unwound or, if not possible or practical,
the Advisory Employee must disgorge to the appropriate Client Account(s) the
value received by the Advisory Employee due to any favorable price differential
received by the Advisory Employee.
2. Employees are prohibited from serving on the boards of directors
of publicly traded companies, absent prior authorization in accord with the
general procedures of this Code. The consideration of prior authorization will
be based upon a determination that the board service will be consistent with the
interests of the trust and its shareholders. In the event that board service is
authorized, Employees serving as directors will be isolated from other Employees
making investment decisions with respect to the securities of the company in
question.
3. No Employee may accept from a customer or vendor an amount in
excess of $100 per year in the form of gifts or gratuities, or as compensation
for services. If there is a question regarding receipt of a gift, gratuity or
compensation, it is to be reviewed by the Compliance Officer.
COMPLIANCE PROCEDURES
---------------------
A. EMPLOYEES DISCLOSURE AND CERTIFICATION
1. At the commencement of employment with Mastrapasqua, each
Employee must certify that he or she has read and understands this Code and
recognized that he or she is subject to it, and must disclose all personal
Securities holdings.
2. The above disclosure and certification is also required annually,
along with an additional certification that the Employee has complied with the
requirements of this Code and has disclosed or reported all personal Securities
Transactions required to be disclosed or reported pursuant to the requirements
of this Code.
B. PRE-CLEARANCE
1. Advisory Employees will maintain an accurate and current
Recommended List at all times, updating the list as necessary. The Advisory
Employees will submit all Recommended Lists to the Compliance Officer as they
are generated, and the Compliance Officer will retain the Recommended Lists for
use when reviewing Employee compliance with this Code. Upon receiving a
Pre-Clearance request, the Compliance Officer will contact the trading desk and
all Advisory Employees to determine whether the Security the Employee intends to
purchase or sell is or was owned within the past fifteen (15) days by a Client
Account, and whether there are any pending purchase or sell orders for the
Security. The Compliance Officer will determine whether the Employee's request
violates any prohibitions or restrictions set out in this Code.
2. If authorized, the Pre-Clearance is valid for orders placed by
the close of business on the second trading day after the authorization is
granted. If during the two-day period the Employee becomes aware that the trade
does not comply with this Code or that the statements made on the request form
are no longer true, the Employee must immediately notify the Compliance Officer
of that information and the Pre-Clearance may be terminated. If, during the
two-day period, the trading desk is notified that a purchase or sell order for
the same Security or Related Security is pending or is being considered on
behalf of a Client Account, the trading desk will not execute the Employee
Transaction and will notify the Employee and the Compliance Officer that the
Pre-Clearance is terminated.
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<PAGE>
C. COMPLIANCE
1. All Employees must direct their broker, dealer or bank to send
duplicate copies of all confirmations and periodic account statements directly
to the Compliance Officer. Each Employee must report, no later than ten (10)
days after the close of each calendar quarter, on the Securities Transaction
Report form provided by the Mastrapasqua, all transactions in which the Employee
acquired any direct or indirect Beneficial Interest in a Security, including
Exempt Transactions, and certify that he or she has reported all transactions
required to be disclosed pursuant to the requirements of this Code.
2. The Compliance Officer will spot check the trading confirmations
provided by brokers to verify that the Employee obtained any necessary
Pre-Clearance for the transaction. On a quarterly basis, the Compliance Officer
will compare all confirmations with the Pre-Clearance records, to determine,
among other things, whether any Client Account owned the Securities at the time
of the transaction or purchased or sold the security within fifteen (15) days of
the transaction. The Employee's annual disclosure of Securities holdings will be
reviewed by the Compliance Officer for compliance with this Code, including
transactions that reveal a pattern of trading inconsistent with this Code.
3. If an Employee violates this Code, the Compliance Officer will
report the violation to management personnel of Mastrapasqua for appropriate
remedial action which, in addition to the actions specifically delineated in
other sections of this Code, may include a reprimand of the Employee, or
suspension or termination of the Employee's relationship with Mastrapasqua.
4. The management personnel of Mastrapasqua will prepare an annual
report to the Bboard of Trustees for any Client Account that summarizes existing
procedures and any changes in the procedures made during the past year. The
report will identify any violations of this Code, any significant remedial
action during the past year and any instances when a Securities Transaction was
executed on behalf of any registered investment company portfolio within seven
(7) calendar days after an Advisory Employee executed a transaction but to
remedial action was taken. The report will also identify any recommended
procedural or substantive changes to this Code based on management's experience
under this Code, evolving industry practices, or legal developments.
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<PAGE>
Siphron Capital Management promotes and encourages the highest possible ethical
and professional conduct for its employees. Keeping in mind the framework of
these ethical guidelines, our ultimate responsibility is ALWAYS to the clients
whose assets have been entrusted to us. The following section outlines Siphron
Capital Management's Code of Ethics, which is derived in large part from the
standards dictated by the Association for Investment Management and Research.
II. CODE OF ETHICS (TAKEN DIRECTLY FROM AIMR'S CODE OF ETHICS)
- --------------------------------------------------------------
o Conduct yourself with integrity and dignity and act in an ethical manner in
your dealings with the public, clients, customers, employers, and
employees.
o Conduct yourself and encourage others to conduct themselves in a
professional and ethical manner that will reflect credit on yourself and
the [investment] profession as a whole.
o Act competently and strive to improve competence.
o Use proper care and exercise independent professional judgment.
III. STANDARDS OF PROFESSIONAL CONDUCT
- --------------------------------------
o "Know and comply with all applicable laws, rules or regulations set forth
by governmental agencies, regulatory bodies or AIMR." (AIMR Standard II-A)
Always conduct yourself with the highest professional standards and use
common sense when dealing with questionable issues, erring on the side of
conservatism.
o "Preserve the confidentiality of client information unless it concerns
illegal activities on the part of the client." (AIMR Standard VII-A) In
other words, treat all client data as confidential. Information pertaining
to any individual account may be used only as authorized by each client.
o "Do not act on, use or communicate material inside information until it is
publicly disseminated. Make a reasonable effort to achieve public
dissemination if such information becomes available to you (except if due
to a special or confidential relationship)." (AIMR Standard II-C) You may
not use any material information obtained from an inside (e.g. non-public)
source for personal gain. This also prohibits passing along favorable
inside information to any friends or colleagues.
o "Priority of transactions goes to customers, clients and employers over
those in which you have beneficial interest." (AIMR Standard IV) More
specifically, as stated on Schedule F of our Form ADV:
"Associated persons and employees may not maintain securities accounts without
full disclosure to [Siphron Capital] of the account and all transactions
therein; and associated persons and employees may not purchase or sell for
their own account any issues which are also being purchased or sold by or
for clients' accounts until after the execution of the transaction(s) for
the clients' accounts."
o Treat all clients fairly with regard to account trading, bank
reconciliation and regular correspondence. This rule pertains primarily to
investment actions taken on behalf of client accounts. In general, no one
client should ever be given preference over another in terms of trades or
publicly disseminated information. (AIMR Standard III-G)
o "Do not misrepresent the investment performance that has been or can be
reasonably expected to be achieved." (AIMR Standard III-F1) All performance
numbers presented
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to current and prospective clients should conform to the AIMR Performance
Presentation Standards. Our overriding goal is to ascertain that all
"performance information is fair, accurate, and complete." (Standard
III-F2)
o "Disclose to clients and your employer any material fact which could
reasonably impair your ability to render unbiased and objective advice and
comply with all laws and regulations regarding prohibitions on activities
if a conflict of interest exists." (AIMR Standard V)
o "Inform customers, clients and employers of compensation arrangements in
connection with services you perform which are in addition to the customary
and usual compensation for such services." (AIMR Standard VI-A)
o "Disclose to clients any consideration you have paid to others for
recommending your services to that client." (AIMR Standard VI-B)
o "Do not undertake independent practice which may result in some
compensation in competition with your employer unless you have written
consent from BOTH your employer and your other client to do so." (AIMR
Standard VI-C)
o "In your non-professional as well as in your professional activities, do
not engage in any conduct that would reflect adversely upon your honesty,
trustworthiness or fitness as an investment professional." (AIMR Standard
IX) Again, use common sense and hold yourself to the highest possible
ethical standards.
IV. SUMMARY
- ------------
The ethical guidelines listed above are required of any person working for
Siphron Capital Management. It should be noted that in addition to these rules,
anyone carrying the designation of Chartered Financial Analyst must also abide
by AIMR's Code of Ethics and Standards of Professional Conduct. The following
employees of Siphron Capital Management have such a designation:
DAVID C. SIPHRON, Chief Investment Officer
PETER D. SIPHRON, Director of Fundamental Research
*NOTE: THE OVERRIDING FACTOR IN ALL CASES IS THAT THE BEST INTERESTS OF THE PLAN
PARTICIPANTS AND BENEFICIARIES MUST BE HELD PARAMOUNT.
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GOLDMAN SACHS ASSET MANAGEMENT
GOLDMAN SACHS FUNDS MANAGEMENT, L.P.
GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
CODE OF ETHICS
Effective January 23, 1991
(as revised April 1, 2000)
I. DEFINITIONS
A. "Access Person" with respect to Goldman Sachs Asset Management
("GSAM") means (because GSAM is a unit within the Investment
Management Division, a separate operating division, of Goldman, Sachs
& Co., and Goldman, Sach & Co. is primarily engaged in a business
other than advising registered investment companies or other advisory
clients) only those officers, general partners or Advisory Persons
(as defined below) of GSAM who, with respect to any Investment
Company (as defined below), make recommendations or participate in
the determination of which recommendation shall be made to any
Investment Company, or whose principal function or duties relate to
the determination of which recommendation shall be made to any
Investment Company, or who, in connection with their duties, obtain
any information concerning such recommendations on Covered Securities
(as defined below) which are being made to the Investment Company.
"Access Person" with respect to Goldman Sachs Asset Management
International ("GSAMI") and Goldman Sachs Funds Management, L.P.
("GSFM") means any director, officer, general partner or Advisory
Person of GSAMI or GSFM, as the case may be.
B. "Adviser" means each of GSAM, GSAMI and GSFM.
C. "Advisory Person" means (i) any officer or employee of the Adviser or
any company in a control relationship to the Adviser who, in
connection with his or her regular functions or duties, makes,
participates in or obtains information regarding the purchase or sale
of a Covered Security by an Investment Company, or whose functions
relate to the making of any recommendations with respect to such
purchases or sales; and (ii) any natural person in a control
relationship to the Adviser who obtains information concerning the
recommendations made to an Investment Company with regard to the
purchase or sale of a Covered Security.
D. "Beneficial ownership" of a security shall be interpreted in the same
manner as it would be under Rule 16a-1 (a) (2) of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), in determining
whether a person is the beneficial owner of a security for purposes
of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
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E. "Board of Trustees" means the board of trustees or directors, including
a majority of the disinterested trustees/directors, of any Investment
Company for which an Adviser serves as an investment adviser,
sub-adviser or principal underwriter.
F. "Control" shall have the same meaning as that set forth in Section
2(a)(9) of the Investment Company Act of 1940, as amended (the
"Investment Company Act"). Section 2(a)(9) generally provides that
"control" means the power to exercise a controlling influence over
the management or policies of a company, unless such power is solely
the result of an official position with such company.
G. "Covered Security" means a security as defined in Section 2(a) (36) of
the Investment Company Act, except that it does not include: (i)
direct obligations of the Government of the United States; (ii)
banker's acceptances, bank certificates of deposit, commercial paper
and high quality short-term debt instruments (any instrument having a
maturity at issuance of less than 366 days and that is in one of the
two highest rating categories of a nationally recognized statistical
rating organization), including repurchase agreements; and (iii)
shares of registered open-end investment companies.
H. "Initial Public Offering" means an offering of securities registered
under the Securities Act of 1933, the issuer of which, immediately
before the registration, was not subject to the reporting
requirements of Sections 13 or 15(d) of the Exchange Act.
I. "Investment Company" means a company registered as such under the
Investment Company Act, or any series thereof, for which the Adviser
is the investment adviser, sub-adviser or principal underwriter.
J. "Investment Personnel" of the Adviser means (i) any employee of the
Adviser (or of any company in a control relationship to the Adviser)
who, in connection with his or her regular functions or duties, makes
or participates in making recommendations regarding the purchase or
sale of securities by an Investment Company or (ii) any natural
person who controls the Adviser and who obtains information
concerning recommendations made to an Investment Company regarding
the purchase or sale of securities by an Investment Company.
K. A "Limited Offering" means an offering that is exempt from registration
under the Securities Act of 1933 pursuant to Section 4(2) or Section
4(6) or pursuant to Rule 504, Rule 505 or Rule 506 under the
Securities Act of 1933.
L. "Purchase or sale of Covered Security" includes, among other things, the
writing of an option to purchase or sell a Covered Security or any
security that is exchangeable for or convertible into another
security.
M. "Review Officer" means the officer of the Adviser designated from time
to time by the Adviser to receive and review reports of purchases and
sales by Access Persons. The term "Alternative Review Officer" shall
mean the officer of the Adviser designated from time to time by the
Adviser to receive and review reports of purchases and sales by the
Review Officer, and who shall act in all respects in the manner
prescribed herein for the Review Officer. It is recognized that a
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different Review Officer and Alternative Review Officer may be
designated with respect to each Adviser.
N. A security is "being considered for purchase or sale" when a
recommendation to purchase or sell a security has been made and
communicated and, with respect to the person making the
recommendation, when such person seriously considers making such a
recommendation. With respect to an analyst of the Adviser, the
foregoing period shall commence on the day that he or she decides to
recommend the purchase or sale of the security to the Adviser for an
Investment Company.
O. A security is "held or to be acquired" if within the most recent 15 days
it (1) is or has been held by the Investment Company, or (2) is being
or has been considered by the Adviser for purchase by the Investment
Company.
II. LEGAL REQUIREMENTS
Section 17(j) of the Investment Company Act provides, among other things,
that it is unlawful for any affiliated person of the Adviser to engage in any
act, practice or course of business in connection with the purchase or sale,
directly or indirectly, by such affiliated person of any security held or to be
acquired by an Investment Company in contravention of such rules and regulations
as the Securities and Exchange Commission (the "Commission") may adopt to define
and prescribe means reasonably necessary to prevent such acts, practices or
courses of business as are fraudulent, deceptive or manipulative. Pursuant to
Section 17(j), the Commission has adopted Rule 17j-1 which provides, among other
things, that it is unlawful for any affiliated person of the Adviser in
connection with the purchase or sale, directly or indirectly, by such person of
a Covered Security held or to be acquired by an Investment Company:
(1) To employ any device, scheme or artifice to defraud such
Investment Company;
(2) To make any untrue statement of a material fact to such
Investment Company or omit to state a material fact necessary in order
to make the statements made to such Investment Company, in light of
the circumstances under which they are made, not misleading;
(3) To engage in any act, practice, or course of business that
operates or would operate as a fraud or deceit upon any such
Investment Company; or
(4) To engage in any manipulative practice with respect to such
Investment Company.
III. STATEMENT OF POLICY
It is the policy of the Adviser that no Access Person shall engage in any
act, practice or course of conduct that would violate the provisions of Rule
17j-1. The fundamental position of the Adviser is, and has been, that each
Access Person shall place at all times the interests of each Investment Company
and its shareholders first in conducting personal securities transactions.
Accordingly, private securities transactions by Access Persons of the Adviser
must be conducted in a manner consistent with this Code and so as to avoid any
actual or potential conflict of interest or any abuse of an Access Person's
position of trust and responsibility. Further, Access Persons should not take
inappropriate advantage of their positions with, or relationship to, any
Investment Company, the Adviser or any affiliated company.
Without limiting in any manner the fiduciary duty owed by Access Persons to
the Investment Companies or the provisions of this Code, it should be noted that
the Adviser and the Investment Companies consider it proper that purchases and
sales be made by Access Persons in the marketplace of securities owned by the
Investment Companies; provided, however, that such securities transactions
comply with the spirit of, and the specific restrictions and limitations set
forth in, this Code. Such personal securities transactions should also be made
in amounts consistent with the normal investment practice of the person involved
and with an investment, rather than a trading, outlook. Not only does this
policy encourage investment freedom and result in investment experience, but it
also fosters a continuing personal interest in such investments by those
responsible for the continuous supervision of the Investment Companies'
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portfolios. It is also evidence of confidence in the investments made. In making
personal investment decisions with respect to any security, however, extreme
care must be exercised by Access Persons to ensure that the prohibitions of this
Code are not violated. Further, personal investing by an Access Person should be
conducted in such a manner so as to eliminate the possibility that the Access
Person's time and attention is being devoted to his or her personal investments
at the expense of time and attention that should be devoted to management of an
Investment Company's portfolio. It bears emphasis that technical compliance with
the procedures, prohibitions and limitations of this Code will not automatically
insulate from scrutiny personal securities transactions which show a pattern of
abuse by an Access Person of his or her fiduciary duty to any Investment
Company.
IV. EXEMPTED TRANSACTIONS
The Statement of Policy set forth above shall be deemed not to be violated
by and the prohibitions of Section V of this Code shall not apply to:
A. Purchases or sales of securities effected for, or held in, any
account over which the Access Person has no direct or indirect
influence or control;
B. Purchases or sales of securities which are not eligible for
purchase or sale by an Investment Company;
C. Purchases or sales of securities which are non-volitional on the
part of either the Access Person or an Investment Company;
D. Purchases or sales of securities which are part of an automatic
dividend reinvestment, cash purchase or withdrawal plan provided that
no adjustment is made by the Access Person to the rate at which
securities are purchased or sold, as the case may be, under such a
plan during any period in which the security is being considered for
purchase or sale by an Investment Company;
E. Purchases of securities effected upon the exercise of rights
issued by an issuer PRO RATA to all holders of a class of its
securities, to the extent such rights were acquired from such issuer,
and sales of such rights so acquired;
F. Tenders of securities pursuant to tender offers which are
expressly conditioned on the tender offer's acquisition of all of the
securities of the same class;
G. Purchases or sales of publicly-traded shares of companies that
have a market capitalization in excess of $10 billion; and
H. Other purchases or sales which, due to factors determined by the
Adviser, only remotely potentially impact the interests of an
Investment Company because the securities transaction involves a small
number of shares of an issuer with a large market capitalization and
high average daily trading volume or would otherwise be very unlikely
to affect a highly institutional market.
V. PROHIBITED PURCHASES AND SALES
A. While the scope of actions which may violate the Statement of Policy
set forth above cannot be exactly defined, such actions would always
include at least the following prohibited activities:
(1) No Access Person shall purchase or sell, directly or indirectly,
any Covered Security in which he or she has, or by reason of such
transaction acquires, any direct or indirect beneficial ownership
and which to his or her actual knowledge at the time of such
purchase or sale the Covered Security:
(i) is being considered for purchase or sale by an Investment
Company; or
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(ii) is being purchased or sold by an Investment Company.
(2) No Access Person shall reveal to any other person (except in the
normal course of his or her duties on behalf of an Investment
Company) any information regarding securities transactions by an
Investment Company or consideration by an Investment Company or
the Adviser of any such securities transaction.
(3) No Access Person shall engage in, or permit anyone within his or
her control to engage in, any act, practice or course of conduct
which would operate as a fraud or deceit upon, or constitute a
manipulative practice with respect to, an Investment Company or
an issuer of a any security owned by an Investment Company.
(4) No Access Person shall enter an order for the purchase or sale of
a Covered Security which an Investment Company is purchasing or
selling or considering for purchase or sale until the later of
(1) the day after the Investment Company's transaction in that
Covered Security is completed or (2) after the Investment Company
is no longer considering the security for purchase or sale,
unless the Review Officer determines that it is clear that, in
view of the nature of the Covered Security and the market for
such Covered Security, the order of the Access Person will not
adversely affect the price paid or received by the Investment
Company. Any securities transactions by an Access Person in
violation of this Subsection D must be unwound, if possible, and
the profits, if any, will be subject to disgorgement based on the
assessment of the appropriate remedy as determined by the
Adviser.
(5) No Access Person shall, in the absence of prior approval by the
Review Officer, sell any Covered Security that was purchased, or
purchase a Covered Security that was sold, within the prior 30
calendar days (measured on a last-in first-out basis).
B. In addition to the foregoing, the following provision will apply to
Investment Personnel of the Adviser:
(1) Investment Personnel must, as a regulatory requirement and as a
requirement of this Code, obtain prior approval before directly
or indirectly acquiring beneficial ownership in any securities in
an Initial Public Offering or in a Limited Offering. In addition,
Investment Personnel must comply with any additional restrictions
or prohibitions that may be adopted by the Adviser from time to
time.
(2) No Investment Personnel shall accept any gift or personal benefit
valued in excess of such DE MINIMIS amount established by the
Adviser from time to time in its discretion (currently this
amount is $100 annually) from any single person or entity that
does business with or on behalf of an Investment Company. Gifts
of a DE MINIMIS value (currently these gifts are limited to gifts
whose reasonable value is no more than $100 annually from any
single person or entity), and customary business lunches, dinners
and entertainment at which both the Investment Personnel and the
giver are present, and promotional items of DE MINIMIS value may
be accepted. Any solicitation of gifts or gratuities is
unprofessional and is strictly prohibited.
(3) No Investment Personnel shall serve on the board of directors of
any publicly traded company, absent prior written authorization
and determination by the
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Review Officer that the board service would be consistent with
the interests of the Investment Companies and their shareholders.
Such interested Investment Personnel may not participate in the
decision for any Investment Company to purchase and sell
securities of such company.
VI. BROKERAGE ACCOUNTS
Access Persons are required to direct their brokers to supply for the
Review Officer on a timely basis duplicate copies of confirmations of all
securities transactions in which the Access Person has a beneficial ownership
interest and related periodic statements, whether or not one of the exemptions
listed in Section IV applies. If an Access Person is unable to arrange for
duplicate copies of confirmations and periodic account statements to be sent to
the Review Officer, he or she must immediately notify the Review Officer.
VII. PRECLEARANCE PROCEDURE
With such exceptions and conditions as the Adviser deems to be appropriate
from time to time and consistent with the purposes of this Code (for example,
exceptions based on an issuer's market capitalization, the amount of public
trading activity in a security, the size of a particular transaction or other
factors), prior to effecting any securities transactions in which an Access
Person has a beneficial ownership interest, the Access Person must receive
approval by the Adviser. Any approval is valid only for such number of day(s) as
may be determined from time to time by the Adviser. If an Access Person is
unable to effect the securities transaction during such period, he or she must
re-obtain approval prior to effecting the securities transaction.
The Adviser will decide whether to approve a personal securities
transaction for an Access Person after considering the specific restrictions and
limitations set forth in, and the spirit of, this Code of Ethics, including
whether the security at issue is being considered for purchase or sale for an
Investment Company. The Adviser is not required to give any explanation for
refusing to approve a securities transaction.
VIII. REPORTING
A. Every Access Person shall report to the Review Officer the information
(1) described in Section VIII-C of this Code with respect to
transactions in any Covered Security in which such Access Person has,
or by reason of such transaction acquires or disposes of, any direct
or indirect beneficial ownership in the Covered Security or (2)
described in Sections VIII-D or VIII-E of this Code with respect to
securities holdings beneficially owned by the Access Person.
B. Notwithstanding Section VIII-A of this Code, an Access Person need not
make a report where the report would duplicate information recorded
pursuant to Rules 204-2(a)(12) or 204-2(a)(13) under the Investment
Advisers Act of 1940 or if the report would duplicate information
contained in broker trade confirmations or account statements received
by the Review Officer and all of the information required by Section
VIII-C, D or E is contained in such confirmations or account
statements. The quarterly transaction reports required under Section
VIII-A(1) shall be deemed made with respect to (1) any account where
the Access Person has made provisions for transmittal of all daily
trading information regarding the account to be delivered to the
designated Review Officer for his or her review or (2) any account
maintained with the Adviser or an affiliate. With respect to
Investment Companies for which the Adviser does not act as investment
adviser or sub-adviser, reports required to be furnished by officers
and trustees of such Investment Companies who are Access Persons of
the Adviser must be made under Section VIII-C of this Code and
furnished to the designated review officer of the relevant investment
adviser.
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C. QUARTERLY TRANSACTION REPORTS. Unless quarterly transaction reports
are deemed to have been made under Section VIII-B of this Code, every
quarterly transaction report shall be made not later than 10 days
after the end of the calendar quarter in which the transaction to
which the report relates was effected, and shall contain the following
information:
(1) The date of the transaction, the title, the interest rate and
maturity date (if applicable), class and the number of shares,
and the principal amount of each Covered Security involved;
(2) The nature of the transaction (i.e., purchase, sale or any other
type of acquisition or disposition);
(3) The price of the Covered Security at which the transaction was
effected;
(4) The name of the broker, dealer or bank with or through whom the
transaction was effected;
(5) The date that the report was submitted by the Access Person; and
(6) With respect to any account established by an Access Person in
which any securities were held during the quarter for the direct
or indirect benefit of the Access Person:
(1) The name of the broker, dealer or bank with whom the Access
Person established the account;
(2) The date the account was established; and
(3) The date that the report was submitted by the Access Person.
D. INITIAL HOLDINGS REPORTS. No later than 10 days after becoming an
Access Person, each Access Person must submit a report containing the
following information:
(1) The title, number of shares and principal amount of each
Covered Security in which the Access Person had any direct
or indirect beneficial ownership when the person became an
Access Person;
(2) The name of any broker, dealer or bank with whom the Access
Person maintained an account in which any securities were
held for the direct or indirect benefit of the Access Person
as of the date the person became an Access Person; and
(3) The date that the report is submitted by the Access Person.
E. ANNUAL HOLDINGS REPORTS. Between January 1st and January 30th of each
calendar year, every Access Person shall submit the following
information (which information must be current as of a date no more
than 30 days before the report is submitted):
(1) The title, number of shares and principal amount of each
Covered Security in which the Access Person had any direct
or indirect beneficial ownership;
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(2) The name of any broker, dealer or bank with whom the Access
Person maintains an account in which any Covered Securities
are held for the direct or indirect benefit of the Access
Person; and
(3) The date that the report is submitted by the Access Person.
F. If no transactions in any securities required to be reported under
Section VIII-A(1) were effected during a quarterly period by an Access
Person, such Access Person shall report to the Review Officer not
later than 10 days after the end of such quarterly period stating that
no reportable securities transactions were effected.
G. These reporting requirements shall apply whether or not one of the
exemptions listed in Section IV applies except that an Access Person
shall not be required to make a report with respect to securities
transactions effected for, and any Covered Securities held in, any
account over which such Access Person does not have any direct or
indirect influence or control.
H. Any such report may contain a statement that the report shall not be
construed as an admission by the person making such report that (1) he
or she has or had any direct or indirect beneficial ownership in the
Covered Security to which the report relates (a "Subject Security") or
(2) he or she knew or should have known that the Subject Security was
being purchased or sold, or considered for purchase or sale, by an
Investment Company on the same day.
IX. APPROVAL OF CODE OF ETHICS AND AMENDMENTS TO THE CODE OF ETHICS
The Board of Trustees of each Investment Company shall approve this Code of
Ethics. Any material amendments to this Code of Ethics must be approved by the
Board of Trustees of each Investment Company no later than six months after the
adoption of the material change. Before their approval of this Code of Ethics
and any material amendments hereto, the Adviser shall provide a certification to
the Board of Trustees of each such Investment Company that the Adviser has
adopted procedures reasonably necessary to prevent Access Persons from violating
the Code of Ethics.
X. ANNUAL CERTIFICATION OF COMPLIANCE
Each Access Person shall certify to the Review Officer annually on the form
annexed hereto as Form A that he or she (A) has read and understands this Code
of Ethics and any procedures that are adopted by the Adviser relating to this
Code, and recognizes that he or she is subject thereto; (B) has complied with
the requirements of this Code of Ethics and such procedures; (C) has disclosed
or reported all personal securities transactions and beneficial holdings in
Covered Securities required to be disclosed or reported pursuant to the
requirements of this Code of Ethics and any related procedures.
XI. CONFIDENTIALITY
All reports of securities transactions, holding reports and any other
information filed with the Adviser pursuant to this Code shall be treated as
confidential, except that reports of securities transactions and holdings
reports hereunder will be made available to the Investment Companies and to the
Commission or any other regulatory or self-regulatory organization to the extent
required by law or regulation or to the extent the Adviser considers necessary
or advisable in cooperating with an investigation or inquiry by the Commission
or any other regulatory or self-regulatory organization.
XII. REVIEW OF REPORTS
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A. The Review Officer shall be responsible for the review of the
quarterly transaction reports required under VIII-C and VIII-F, and
the initial and annual holdings reports required under Sections VIII-D
and VIII-E, respectively, of this Code of Ethics. In connection with
the review of these reports, the Review Officer or the Alternative
Review Officer shall take appropriate measures to determine whether
each reporting person has complied with the provisions of this Code of
Ethics and any related procedures adopted by the Adviser.
B. On an annual basis, the Review Officer shall prepare for the Board of
Trustees of each Investment Company and the Board of Trustees of each
Investment Company shall consider:
(1) A report on the level of compliance during the previous year by
all Access Persons with this Code and any related procedures
adopted by the Adviser, including without limitation the
percentage of reports timely filed and the number and nature of
all material violations and sanctions imposed in response to
material violations. An Alternative Review Officer shall prepare
reports with respect to compliance by the Review Officer;
(2) A report identifying any recommended changes to existing
restrictions or procedures based upon the Adviser's experience
under this Code, evolving industry practices and developments in
applicable laws or regulations; and
(3) A report certifying to the Board of Trustees that the Adviser has
adopted procedures that are reasonably necessary to prevent
Access Persons from violating this Code of Ethics.
XIII. SANCTIONS
Upon discovering a violation of this Code, the Adviser may impose such
sanction(s) as it deems appropriate, including, among other things, a letter of
censure, suspension or termination of the employment of the violator and/or
restitution to the affected Investment Company of an amount equal to the
advantage that the offending person gained by reason of such violation. In
addition, as part of any sanction, the Adviser may require the Access Person or
other individual involved to reverse the trade(s) at issue and forfeit any
profit or absorb any loss from the trade. It is noted that violations of this
Code may also result in criminal prosecution or civil action. All material
violations of this Code and any sanctions imposed with respect thereto shall be
reported periodically to the Board of Trustees of the Investment Company with
respect to whose securities the violation occurred.
XIV. INTERPRETATION OF PROVISIONS
The Adviser may from time to time adopt such interpretations of this Code
as it deems appropriate.
XV. IDENTIFICATION OF ACCESS PERSONS AND INVESTMENT PERSONNEL
The Adviser shall identify all persons who are considered to be Access
Persons and Investment Personnel, and shall inform such persons of their
respective duties and provide them with copies of this Code and any related
procedures adopted by the Adviser.
XVI. EXCEPTIONS TO THE CODE
Although exceptions to the Code will rarely, if ever, be granted, a
designated Officer of the Adviser, after consultation with the Review Officer,
may make exceptions on a case by case basis, from any of the provisions of this
Code upon a determination that the conduct at issue involves a negligible
opportunity for abuse or otherwise merits an exception from the Code. All such
exceptions must be received in writing by the person requesting the exception
before becoming effective. The Review Officer shall report any exception to the
Board of Trustees of the Investment Company with respect to which the exception
applies at its next regularly scheduled Board meetings.
XVII. RECORDS
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The Adviser shall maintain records in the manner and to the extent set
forth below, which records may be maintained on microfilm under the conditions
described in Rule 31a-2(f)(1) and Rule 17j-1 under the Investment Company Act
and shall be available for examination by representatives of the Commission.
A. A copy of this Code and any other code which is, or at any time
within the past five years has been, in effect shall be preserved for
a period of not less than five years in an easily accessible place;
B. A record of any violation of this Code and of any action taken as
a result of such violation shall be preserved in an easily accessible
place for a period of not less than five years following the end of
the fiscal year in which the violation occurs;
C. A copy of each initial holdings report, annual holdings report
and quarterly transaction report made by an Access Person pursuant to
this Code (including any brokerage confirmation or account statements
provided in lieu of the reports) shall be preserved for a period of
not less than five years from the end of the fiscal year in which it
is made, the first two years in an easily accessible place;
D. A list of all persons who are, or within the past five years have
been, required to make initial holdings, annual holdings or quarterly
transaction reports pursuant to this Code shall be maintained in an
easily accessible place;
E. A list of all persons, currently or within the past five years
who are or were responsible for reviewing initial holdings, annual
holdings or quarterly transaction reports shall be maintained in an
easily accessible place;
F. A record of any decision and the reason supporting the decision
to approve the acquisition by Investment Personnel of Initial Public
Offerings and Limited Offerings shall be maintained for at least five
years after the end of the fiscal year in which the approval is
granted; and
G. A copy of each report required by Section XII-B of this Code must
be maintained for at least five years after the end of the fiscal year
in which it was made, the first two years in an easily accessible
plan.
XVIII. SUPPLEMENTAL COMPLIANCE AND REVIEW PROCEDURES
The Adviser may establish, in its discretion, supplemented compliance and
review procedures (the "Procedures") that are in addition to those set forth in
this Code in order to provide additional assurance that the purposes of this
Code are fulfilled and/or assist the Adviser in the administration of this Code.
The Procedures may be more, but shall not be less, restrictive than the
provisions of this Code. The Procedures, and any amendments thereto, do not
require the approval of the Board of Trustees of an Investment Company.
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PERSONAL INVESTMENT POLICY
FOR
SSB CITI ASSET MANAGEMENT GROUP - NORTH AMERICA
AND CERTAIN REGISTERED INVESTMENT COMPANIES
SSB Citi Asset Management Group ("SSB Citi")(1), and those U.S.-registered
investment companies advised or managed by SSB Citi that have adopted this
policy ("Funds"), have adopted this policy on securities transactions in order
to accomplish two goals: first, to minimize conflicts and potential conflicts of
interest between employees of SSB Citi and SSB Citi's clients (including the
Funds), and between Fund directors or trustees and their Funds, and second, to
provide policies and procedures consistent with applicable law, including Rule
17j-1 under the Investment Company Act of 1940, to prevent fraudulent or
manipulative practices with respect to purchases or sales of securities held or
to be acquired by client accounts. ALL U.S. EMPLOYEES OF SSB CITI, INCLUDING
EMPLOYEES WHO SERVE AS FUND OFFICERS OR DIRECTORS, AND ALL DIRECTORS OR TRUSTEES
("DIRECTORS") OF EACH FUND, ARE COVERED PERSONS UNDER THIS POLICY. OTHER COVERED
PERSONS ARE DESCRIBED IN SECTION II BELOW.
I. STATEMENT OF PRINCIPLES - All SSB Citi employees owe a fiduciary duty to
SSB Citi's clients when conducting their personal investment transactions.
Employees must place the interests of clients first and avoid activities,
interests and relationships that might interfere with the duty to make
decisions in the best interests of the clients. All Fund directors owe a
fiduciary duty to each Fund of which they are a director and to that Fund's
shareholders when conducting their personal investment transactions. At all
times and in all matters Fund directors shall place the interests of their
Funds before their personal interests. The fundamental standard to be
followed in personal securities transactions is that Covered Persons may
not take inappropriate advantage of their positions.
All personal securities transactions by Covered Persons shall adhere to the
requirements of this policy and shall be conducted in such a manner as to
avoid any actual or potential conflict of interest, the appearance of such
a conflict, or the abuse of the person's position of trust and
responsibility. While this policy is designed to address both identified
conflicts and potential conflicts, it cannot possibly be written broadly
enough to cover all potential situations. In this regard, Covered Persons
are expected to adhere not only to the letter, but also the spirit of the
policies contained herein.
Employees are reminded that they also are subject to other Citigroup policies,
including policies on insider trading, the purchase and sale of securities
listed on any applicable SSB Citi restricted list, the receipt of gifts and
service as a director of a publicly traded company. EMPLOYEES MUST NEVER
TRADE IN A SECURITY OR COMMODITY WHILE IN POSSESSION OF MATERIAL,
NON-PUBLIC INFORMATION ABOUT THE ISSUER OR THE MARKET FOR THOSE SECURITIES
OR COMMODITIES, EVEN IF THE EMPLOYEE HAS SATISFIED ALL OTHER REQUIREMENTS
OF THIS POLICY.
The reputation of SSB Citi and its employees for straightforward practices and
integrity is a priceless asset, and all employees have the duty and
obligation to support and maintain it when conducting their personal
securities transactions.
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(1) The investment advisory entities of SSB Citi covered by this policy
include: Salomon Brothers Asset Management Inc.; SSB Citi Fund Management
LLC; Smith Barney Asset Management Division of Salomon Smith Barney Inc.;
Travelers Investment Management Company; and the Citibank Global Asset
Management Division of Citibank, N.A. and Citicorp Trust, N.A.-California.
<PAGE>
II. APPLICABILITY - SSB CITI EMPLOYEES - This policy applies to all U.S.
employees of SSB Citi, including part-time employees. Each employee,
including employees who serve as Fund officers or directors, must comply
with all of the provisions of the policy applicable to SSB Citi employees
unless otherwise indicated. Certain employees are considered to be
"investment personnel" (i.e., portfolio managers, traders and research
analysts (and each of their assistants)), and as such, are subject to
certain additional restrictions outlined in the policy. All other employees
of SSB Citi are considered to be "advisory personnel."
Generally, temporary personnel and consultants working in any SSB Citi business
are subject to the same provisions of the policy as full-time employees,
and their adherence to specific requirements will be addressed on a
case-by-case basis.
The personal investment policies, procedures and restrictions referred to
herein also apply to an employee's spouse and minor children. The policies
also apply to any other account over which the employee is deemed to have
BENEFICIAL OWNERSHIP. This includes: accounts of any immediate family
members sharing the same household as the employee; accounts of persons or
other third parties for whom the employee exercises investment discretion
or gives investment advice; a legal vehicle in which the employee has a
direct or indirect beneficial interest and has power over investment
decisions; accounts for the benefit of a third party (e.g., a charity)
which may be directed by the employee (other than in the capacity of an
employee); and any account over which the employee may be deemed to have
control. For a more detailed description of beneficial ownership, see
Exhibit A attached hereto.
These policies place certain restrictions on the ability of an employee to
purchase or sell securities that are being or have been purchased or sold
by an SSB Citi managed fund or client account. The restrictions also apply
to securities that are "related" to a security being purchased or sold by
an SSB Citi managed fund or client account. A "related security" is one
whose value is derived from the value of another security (e.g., a warrant,
option or an indexed instrument).
FUND DIRECTORS - This policy applies to all directors of Funds that have adopted
this policy. The personal investment policies, procedures and restrictions
that specifically apply to Fund directors apply to all accounts and
securities in which the director has direct or indirect beneficial
ownership. See Exhibit A attached hereto for a more detailed description of
beneficial ownership.
SECURITIES are defined as stocks, notes, bonds, closed-end mutual funds,
debentures, and other evidences of indebtedness, including senior debt,
subordinated debt, investment contracts, commodity contracts, futures and
all derivative instruments such as options, warrants and indexed
instruments, or, in general, any interest or instrument commonly known as a
"security."
III. ENFORCEMENT - It is the responsibility of each Covered Person to act in
accordance with a high standard of conduct and to comply with the policies
and procedures set forth in this document. SSB Citi takes seriously its
obligation to monitor the personal investment activities of its employees.
Any violation of this policy by employees will be considered serious, and
may result in disciplinary action, which may include the unwinding of
trades, disgorgement of profits, monetary fine or
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censure, and suspension or termination of employment. Any violation of this
policy by a Fund director will be reported to the Board of Directors of the
applicable Fund, which may impose such sanctions as it deems appropriate.
IV. OPENING AND MAINTAINING EMPLOYEE ACCOUNTS - All employee brokerage
accounts, including spouse accounts, accounts for which the employee is
deemed to have beneficial ownership, and any other accounts over which the
employee and/or spouse exercise control, must be maintained either at
Salomon Smith Barney ("SSB") or at Citicorp Investment Services ("CIS").(2)
For spouses or other persons who, by reason of their employment, are
required to conduct their securities, commodities or other financial
transactions in a manner inconsistent with this policy, or in other
exceptional circumstances, employees may submit a written request for an
exemption to the Compliance Department. If approval is granted, copies of
trade confirmations and monthly statements must be sent to the Compliance
Department. In addition, all other provisions of this policy will apply.
V. EXCLUDED ACCOUNTS AND TRANSACTIONS - The following types of
accounts/transactions need not be maintained at SSB or CIS, nor are they
subject to the other restrictions of this policy:
1. Accounts at outside mutual funds that hold only shares of
open-end funds purchased directly from that fund company. NOTE:
TRANSACTIONS RELATING TO CLOSED-END FUNDS ARE SUBJECT TO THE
PRE-CLEARANCE, BLACKOUT PERIOD AND OTHER RESTRICTIONS OF THIS
POLICY;
2. Estate or trust accounts in which an employee or related person
has a beneficial interest, but no power to affect investment
decisions. There must be no communication between the account(s)
and the employee with regard to investment decisions prior to
execution. THE EMPLOYEE MUST DIRECT THE TRUSTEE/BANK TO FURNISH
COPIES OF CONFIRMATIONS AND STATEMENTS TO THE COMPLIANCE
DEPARTMENT;
3. Fully discretionary accounts managed by either an internal or
external registered investment adviser are permitted and may be
custodied away from SSB and CIS if (i) the employee receives
permission from the Regional Director of Compliance and the
unit's Chief Investment Officer, and (ii) there is no
communication between the manager and the employee with regard to
investment decisions prior to execution. The employee must
designate that copies of trade confirmations and monthly
statements be sent to the Compliance Department;
4. Employees may participate in direct investment programs which
allow the purchase of securities directly from the issuer without
the intermediation of a broker/dealer provided that the timing
and size of the purchases are established by a pre-arranged,
regularized schedule (e.g., dividend reinvestment plans).
Employees must pre-clear the transaction at the time that the
dividend reinvestment plan is being set
- ----------
(2) This requirement will become effective as to all employees on a date to be
determined by the Compliance Department and may be subject to a phase-in
implementation process.
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up. Employees also must provide documentation of these
arrangements and direct periodic (monthly or quarterly)
statements to the Compliance Department; and
5. In addition to the foregoing, the following types of securities
are exempted from pre-clearance, blackout periods, reporting and
short-term trading requirements: open-ended mutual funds;
open-end unit investment trusts; U.S. Treasury bills, bonds and
notes; mortgage pass-throughs (e.g. Ginnie Maes) that are direct
obligations of the U.S. government; bankers acceptances; bank
certificates of deposit; commercial paper; and high quality
short-term debt instruments (meaning any instrument that has a
maturity at issuance of less than 366 days and that is rated in
one of the two highest rating categories by a nationally
recognized statistical rating organization, such as S&P or
Moody's), including repurchase agreements.
VI. SECURITIES HOLDING PERIOD/SHORT-TERM TRADING - Securities transactions must
be for investment purposes rather than for speculation. Consequently,
employees may not profit from the purchase and sale, or sale and purchase,
of the same or equivalent securities within sixty (60) calendar days,
calculated on a First In, First Out (FIFO) basis (i.e., the security may be
sold on the 61st day). Citigroup securities received as part of an
employee's compensation are not subject to the 60-day holding period. All
profits from short-term trades are subject to disgorgement. However, with
the prior written approval of both a Chief Investment Officer and the
Regional Director of Compliance, and only in rare and/or unusual
circumstances, an employee may execute a short-term trade that results in a
significant loss or in break-even status.
VII. PRE-CLEARANCE - All SSB Citi employees must pre-clear all personal
securities transactions (see Section V for a listing of accounts,
transactions and securities that do not require pre-clearance). A copy of
the pre-clearance form is attached as Exhibit B. IN ADDITION, EMPLOYEES ARE
PROHIBITED FROM ENGAGING IN MORE THAN TWENTY (20) TRANSACTIONS IN ANY
CALENDAR MONTH, EXCEPT WITH PRIOR WRITTEN APPROVAL FROM THEIR CHIEF
INVESTMENT OFFICER, OR DESIGNEE. A transaction must not be executed until
the employee has received the necessary approval. Pre-clearance is valid
only on the day it is given. If a transaction is not executed on the day
pre-clearance is granted, it is required that pre-clearance be sought again
on a subsequent day (i.e., open orders, such as limit orders, good until
cancelled orders and stop-loss orders, must be pre-cleared each day until
the transaction is effected). In connection with obtaining approval for any
personal securities transaction, employees must describe in detail any
factors which might be relevant to an analysis of the possibility of a
conflict of interest. Any trade that violates the pre-clearance process may
be unwound at the employee's expense, and the employee will be required to
absorb any resulting loss and to disgorge any resulting profit.
In addition to the foregoing, the CGAM NA Director of Global Equity
Research, or his designate, must approve all personal securities
transactions for members of the CGAM Research Department prior to
pre-clearance from the Compliance Department as set forth in this section.
Pre-approval by the Director of Research,
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or his designate, is in addition to and does not replace the requirement
for the pre-clearance of all personal securities transactions.
VIII. BLACKOUT PERIODS - No Covered Person shall purchase or sell, directly or
indirectly, any security in which he/she has, or by reason of the
transaction acquires, any direct or indirect beneficial ownership if he/she
has knowledge at the time of such transaction that the security is being
purchased or sold, or is being considered for purchase or sale, by a
managed fund or client account or in the case of a Fund director, by the
director's Fund. In addition, the following Blackout Periods apply to the
categories of SSB Citi employees listed below:
1. PORTFOLIO MANAGERS AND PORTFOLIO MANAGER ASSISTANTS - may not buy or
sell any securities for personal accounts seven (7) calendar days
before or after managed funds or client accounts he/she manages trade
in that security.
2. TRADERS AND TRADER ASSISTANTS - may not buy or sell any securities for
personal accounts three (3) calendar days before or seven (7) calendar
days after managed funds or client accounts he/she executes trades for
trade in that security.
3. RESEARCH ANALYSTS AND RESEARCH ASSISTANTS - may not buy or sell any
securities for personal accounts: seven (7) calendar days before or
after the issuance of or a change in any recommendation; or seven (7)
calendar days before or after any managed fund or client account about
which the employee is likely to have trading or portfolio information
(as determined by the Compliance Department) trades in that security.
4. ADVISORY PERSONNEL (see Section II for details) - may not buy or sell
any securities for personal accounts on the same day that a managed
fund or client account about which the employee is likely to have
trading or portfolio information (as determined by the Compliance
Department) trades in that security.
5. UNIT TRUST PERSONNEL - all employees assigned to the Unit Trust
Department are prohibited from transacting in any security when a SSB
Citi-sponsored Unit Trust portfolio is buying the same (or a related)
security, until seven business days after the later of the completion
of the accumulation period or the public announcement of the trust
portfolio. Similarly, all UIT employees are prohibited from
transacting in any security held in a UIT (or a related security)
seven business days prior to the liquidation period of the trust.
Employees in the above categories may also be considered Advisory Personnel
for other accounts about which the employee is likely to have trading
or portfolio information (as determined by the Compliance Department).
Any violation of the foregoing provisions will require the employee's
trade to be unwound, with the employee absorbing any resulting loss
and disgorging any resulting profit. Advisory personnel are subject to
the unwinding of the trade provision; however, they may not be
required to absorb any resulting loss (at the discretion of the
Compliance Department and the employee's supervisor). Please be
reminded that, regardless of the provisions set forth above, all
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employees are always prohibited from effecting personal securities
transactions based on material, non-public information.
Blackoutperiod requirements shall not apply to any purchase or sale, or
series of related transactions involving the same or related
securities, involving 500 or fewer shares in the aggregate if the
issuer has a market capitalization (outstanding shares multiplied by
the current price per share) greater than $10 billion and is listed on
a U.S. Stock Exchange or NASDAQ. NOTE: PRE-CLEARANCE IS STILL
REQUIRED. Under certain circumstances, the Compliance Department may
determine that an employee may not rely upon this "Large Cap/De
Minimis" exemption. In such a case, the employee will be notified
prior to or at the time the pre-clearance request is made.
IX. PROHIBITED TRANSACTIONS - The following transactions by SSB Citi employees
are prohibited without the prior written approval from the Chief Investment
Officer, or designee, and the Regional Compliance Director:
1. The purchase of private placements; and
2. The acquisition of any securities in an initial public offering
(new issues of municipal debt securities may be acquired subject
to the other requirements of this policy (e.g., pre-clearance).)
X. TRANSACTIONS IN OPTIONS AND FUTURES - SSB Citi employees may buy or sell
derivative instruments such as individual stock options, options and
futures on indexes and options and futures on fixed-income securities, and
may buy or sell physical commodities and futures and forwards on such
commodities. These transactions must comply with all of the policies and
restrictions described in this policy, including pre-clearance, blackout
periods, transactions in Citigroup securities and the 60-day holding
period. However, the 60-day holding period does not apply to individual
stock options that are part of a hedged position where the underlying stock
has been held for more than 60 days and the entire position (including the
underlying security) is closed out.
XI. PROHIBITED RECOMMENDATIONS - No Covered Person shall recommend or execute
any securities transaction by any managed fund or client account, or, in
the case of a Fund director, by the director's Fund, without having
disclosed, in writing, to the Chief Investment Officer, or designee, any
direct or indirect interest in such securities or issuers, except for those
securities purchased pursuant to the "Large Cap/De Minimis" exemption
described in Section VIII above. Prior written approval of such
recommendation or execution also must be received from the Chief Investment
Officer, or designee. The interest in personal accounts could be in the
form of:
1. Any direct or indirect beneficial ownership of any securities of
such issuer;
2. Any contemplated transaction by the person in such securities;
3. Any position with such issuer or its affiliates; or
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4. Any present or proposed business relationship between such issuer
or its affiliates and the person or any party in which such
person has a significant interest.
XII. TRANSACTIONS IN CITIGROUP SECURITIES - Unless an SSB Citi employee is a
member of a designated group subject to more restrictive provisions, or is
otherwise notified to the contrary, the employee may trade in Citigroup
securities without restriction (other than the pre-clearance and other
requirements of this policy), subject to the limitations set forth below.
Employees whose jobs are such that they know about Citigroup's quarterly
earnings prior to release may not engage in any transactions in
Citigroup securities during the "blackout periods" beginning on the
first day of a calendar quarter and ending on the second business day
following the release of earnings for the prior quarter. Members of
the SSB Citi Executive Committee and certain other senior SSB Citi
employees are subject to these blackout periods.
Stock option exercises are permitted during a blackout period (but the
simultaneous exercise of an option and sale of the underlying stock is
prohibited). With regard to exchange traded options, no transactions
in Citigroup options are permitted except to close or roll an option
position that expires during a blackout period. Charitable
contributions of Citigroup securities may be made during the blackout
period, but an individual's private foundation may not sell donated
Citigroup common stock during the blackout period. "Good `til
cancelled" orders on Citigroup stock must be cancelled before entering
a blackout period and no such orders may be entered during a blackout
period.
No employee may engage at any time in any personal transactions in
Citigroup securities while in possession of material non-public
information. Investments in Citigroup securities must be made with a
long-term orientation rather than for speculation or for the
generation of short-term trading profits. In addition, please note
that employees may not engage in the following transactions:
o Short sales of Citigroup securities;
o Purchases or sales of options ("puts" or "calls") on Citigroup
securities, except writing a covered call at a time when the
securities could have been sold under this policy;
o Purchases or sales of futures on Citigroup securities; or
o Any transactions relating to Citigroup securities that might
reasonably appear speculative.
The number of Citigroup shares an employee is entitled to in the Citigroup
Stock Purchase Plan is not treated as a long stock position until such
time as the employee has given instructions to purchase the shares of
Citigroup. Thus, employees are not permitted to use options to hedge
their financial interest in the Citigroup Stock Purchase Plan.
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Contributions into the firm's 401(k) Plan are not subject to the
restrictions and prohibitions described in this policy.
XIII. ACKNOWLEDGEMENT AND REPORTING REQUIREMENTS - SSB CITI EMPLOYEES - All new
SSB Citi employees must certify that they have received a copy of this
policy, and have read and understood its provisions. In addition, all SSB
Citi employees must:
1. Acknowledge receipt of the policy and any modifications thereof,
in writing (see Exhibit C for the form of Acknowledgement);
2. Within 10 days of becoming an SSB Citi employee, disclose in
writing all information with respect to all securities
beneficially owned and any existing personal brokerage
relationships (employees must also disclose any new brokerage
relationships whenever established). Such information should be
provided on the form attached as Exhibit D;
3. Direct their brokers to supply, on a timely basis, duplicate
copies of confirmations of all personal securities transactions
(NOTE: THIS REQUIREMENT MAY BE SATISFIED THROUGH THE TRANSMISSION
OF AUTOMATED FEEDS);
4. Within 10 days after the end of each calendar quarter, provide
information relating to securities transactions executed during
the previous quarter for all securities accounts (NOTE: THIS
REQUIREMENT MAY BE SATISFIED THROUGH THE TRANSMISSION OF
AUTOMATED FEEDS);
5. Submit an annual holdings report containing similar information
that must be current as of a date no more than 30 days before the
report is submitted, and confirm at least annually all brokerage
relationships and any and all outside business affiliations
(NOTE: THIS REQUIREMENT MAY BE SATISFIED THROUGH THE TRANSMISSION
OF AUTOMATED FEEDS OR THE REGULAR RECEIPT OF MONTHLY BROKERAGE
STATEMENTS); and
6. Certify on an annual basis that he/she has read and understood
the policy, complied with the requirements of the policy and that
he/she has pre-cleared and disclosed or reported all personal
securities transactions and securities accounts required to be
disclosed or reported pursuant to the requirements of the policy.
FUND DIRECTORS - Fund Directors shall deliver the information required by
Items 1 through 6 of the immediately preceding paragraph, except that a
Fund director who is not an "interested person" of the Fund within the
meaning of Section 2(a)(19) of the Investment Company Act of 1940, and who
would be required to make reports solely by reason of being a Fund
Director, is not required to make the initial and annual holdings reports
required by Items 2 and 5. Also, a "non-interested" Fund Director need not
supply duplicate copies of confirmations of personal securities
transactions required by Item 3, and need only make the quarterly
transactions reports required by Item 4 as to any security if at the time
of a transaction by the Director in that security, he/she knew or in the
ordinary course of fulfilling his/her official duties as a Fund Director
should have known that, during the 15-day period immediately preceding or
following the date of that
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transaction, that security is or was purchased or sold by that Director's
Fund or was being considered for purchase or sale by that Director's Fund.
DISCLAIMER OF BENEFICIAL OWNERSHIP - The reports described in Items 4 and 5
above may contain a statement that the reports shall not be construed as an
admission by the person making the reports that he/she has any direct or
indirect beneficial ownership in the securities to which the reports
relate.
XIV. HANDLING OF DISGORGED PROFITS - Any amounts that are paid/disgorged by an
employee under this policy shall be donated by SSB Citi to one or more
charities. Amounts donated may be aggregated by SSB Citi and paid to such
charity or charities at the end of each year.
XV. CONFIDENTIALITY - All information obtained from any Covered Person pursuant
to this policy shall be kept in strict confidence, except that such
information will be made available to the Securities and Exchange
Commission or any other regulatory or self-regulatory organization or to
the Fund Boards of Directors to the extent required by law, regulation or
this policy.
XVI. OTHER LAWS, RULES AND STATEMENTS OF POLICY - Nothing contained in this
policy shall be interpreted as relieving any person subject to the policy
from acting in accordance with the provision of any applicable law, rule or
regulation or, in the case of SSB Citi employees, any statement of policy
or procedure governing the conduct of such person adopted by Citigroup, its
affiliates and subsidiaries.
XVII. RETENTION OF RECORDS - All records relating to personal securities
transactions hereunder and other records meeting the requirements of
applicable law, including a copy of this policy and any other policies
covering the subject matter hereof, shall be maintained in the manner and
to the extent required by applicable law, including Rule 17j-1 under the
1940 Act. The Compliance Department shall have the responsibility for
maintaining records created under this policy.
XVIII. MONITORING - SSB Citi takes seriously its obligation to monitor the
personal investment activities of its employees and to review the periodic
reports of all Covered Persons. Employee personal investment transaction
activity will be monitored by the Compliance Department. All noted
deviations from the policy requirements will be referred back to the
employee for follow-up and resolution (with a copy to be supplied to the
employee's supervisor). Any noted deviations by Fund directors will be
reported to the Board of Directors of the applicable Fund for consideration
and follow-up as contemplated by Section III hereof.
XIX. EXCEPTIONS TO THE POLICY - Any exceptions to this policy must have the
prior written approval of both the Chief Investment Officer and the
Regional Director of Compliance. Any questions about this policy should be
directed to the Compliance Department.
XX. BOARD REVIEW - Fund management and SSB Citi shall provide to the Board of
Directors of each Fund, on a quarterly basis, a written report of all
material violations of this policy, and at least annually, a written report
and certification meeting the requirements of Rule 17j-1 under the 1940
Act.
XXI. OTHER CODES OF ETHICS - To the extent that any officer of any Fund is not a
Covered Person hereunder, or an investment subadviser of or principal
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underwriter for any Fund and their respective access persons (as defined in
Rule 17j-1) are not Covered Persons hereunder, those persons must be
covered by separate codes of ethics which are approved in accordance with
applicable law.
XXII. AMENDMENTS - SSB CITI EMPLOYEES - Unless otherwise noted herein, this
policy shall become effective as to all SSB Citi employees on March 30,
2000. This policy may be amended as to SSB Citi employees from time to time
by the Compliance Department. Any material amendment of this policy shall
be submitted to the Board of Directors of each Fund for approval in
accordance with Rule 17j-1 under the 1940 Act.
FUND DIRECTORS - This policy shall become effective as to a Fund upon the
approval and adoption of this policy by the Board of Directors of that Fund
in accordance with Rule 17j-1 under the 1940 Act or at such earlier date as
determined by the Secretary of the Fund. Any material amendment of this
policy that applies to the directors of a Fund shall become effective as to
the directors of that Fund only when the Board of Directors of that Fund
has approved the amendment in accordance with Rule 17j-1 or at such earlier
date as determined by the Secretary of the Fund.
March 15, 2000
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EXHIBIT A
EXPLANATION OF BENEFICIAL OWNERSHIP
YOU ARE CONSIDERED TO HAVE "BENEFICIAL OWNERSHIP" OF SECURITIES IF YOU HAVE OR
SHARE A DIRECT OR INDIRECT "Pecuniary Interest" IN THE SECURITIES.
You have a "Pecuniary Interest" in Securities if you have the opportunity,
directly or indirectly, to profit or share in any profit derived from a
transaction in the Securities.
The following are examples of an indirect Pecuniary Interest in Securities:
1. Securities held by members of your IMMEDIATE FAMILY sharing the same
household; however, this presumption may be rebutted by convincing
evidence that profits derived from transactions in these Securities
will not provide you with any economic benefit.
"Immediate family" means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, sibling, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, and includes any adoptive relationship.
2. Your interest as a general partner in Securities held by a general or
limited partnership.
3. Your interest as a manager-member in the Securities held by a limited
liability company.
YOU DO not HAVE AN INDIRECT PECUNIARY INTEREST IN SECURITIES HELD BY A
CORPORATION, PARTNERSHIP, LIMITED LIABILITY COMPANY OR OTHER ENTITY IN WHICH YOU
HOLD AN EQUITY INTEREST, unless YOU ARE A CONTROLLING EQUITYHOLDER OR YOU HAVE
OR SHARE INVESTMENT CONTROL OVER THE SECURITIES HELD BY THE ENTITY.
The following circumstances constitute Beneficial Ownership by you of Securities
held by a trust:
1. Your ownership of Securities as a trustee where either you or members
of your immediate family have a vested interest in the principal or
income of the trust.
2. Your ownership of a vested interest in a trust.
3. Your status as a settlor of a trust, unless the consent of all of the
beneficiaries is required in order for you to revoke the trust.
THE FOREGOING IS A SUMMARY OF THE MEANING OF "BENEFICIAL OWNERSHIP". FOR
PURPOSES OF THE ATTACHED POLICY, "BENEFICIAL OWNERSHIP" SHALL BE INTERPRETED IN
THE SAME MANNER AS
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IT WOULD BE IN DETERMINING WHETHER A PERSON IS SUBJECT TO THE PROVISIONS OF
SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934 AND THE RULES AND REGULATIONS
THEREUNDER
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ETHICAL AND PROFESSIONAL STANDARDS
SIPHRON CAPITAL MANAGEMENT
Siphron Capital Management promotes and encourages the highest possible ethical
and professional conduct for its employees. Keeping in mind the framework of
these ethical guidelines, our ultimate responsibility is ALWAYS to the clients
whose assets have been entrusted to us. The following section outlines Siphron
Capital Management's Code of Ethics, which is derived in large part from the
standards dictated by the Association for Investment Management and Research.
CODE OF ETHICS (taken directly from AIMR's Code of Ethics)
o Conduct yourself with integrity and dignity and act in an ethical
manner in your dealings with the public, clients, customers, employers,
and employees.
o Conduct yourself and encourage others to conduct themselves in a
professional and ethical manner that will reflect credit on yourself
and the [investment] profession as a whole.
o Act competently and strive to improve competence.
o Use proper care and exercise independent professional judgment.
STANDARDS OF PROFESSIONAL CONDUCT
o "Know and comply with all applicable laws, rules or regulations set
forth by governmental agencies, regulatory bodies or AIMR." (AIMR
Standard II-A) Always conduct yourself with the highest professional
standards and use common sense when dealing with questionable issues,
erring on the side of conservatism.
o "Preserve the confidentiality of client information unless it concerns
illegal activities on the part of the client." (AIMR Standard VII-A) In
other words, treat all client data as confidential. Information
pertaining to any individual account may be used only as authorized by
each client.
o "Do not act on, use or communicate material inside information until it
is publicly disseminated. Make a reasonable effort to achieve public
dissemination if such information becomes available to you (except if
due to a special or confidential relationship)." (AIMR Standard II-C)
You may not use any material information obtained from an inside (e.g.
non-public) source for personal gain. This also prohibits passing along
favorable inside information to any friends or colleagues.
o "Priority of transactions goes to customers, clients and employers over
those in which you have beneficial interest." (AIMR Standard IV) More
specifically, as stated on Schedule F of our Form ADV:
"Associated persons and employees may not maintain securities accounts
without full disclosure to [Siphron Capital] of the account and all
transactions therein; and associated persons and employees may not
purchase or sell for their own account any
<PAGE>
ETHICAL AND PROFESSIONAL STANDARDS
SIPHRON CAPITAL MANAGEMENT
issues which are also being purchased or sold by or for clients'
accounts until after the execution of the transaction(s) for the
clients' accounts."
o Treat all clients fairly with regard to account trading, bank
reconciliation and regular correspondence. This rule pertains primarily
to investment actions taken on behalf of client accounts. In general,
no one client should ever be given preference over another in terms of
trades or publicly disseminated information. (AIMR Standard III-G)
o "Do not misrepresent the investment performance that has been or can be
reasonably expected to be achieved." (AIMR Standard III-F1) All
performance numbers presented to current and prospective clients should
conform to the AIMR Performance Presentation Standards. Our overriding
goal is to ascertain that all "performance information is fair,
accurate, and complete." (Standard III-F2)
o "Disclose to clients and your employer any material fact which could
reasonably impair your ability to render unbiased and objective advice
and comply with all laws and regulations regarding prohibitions on
activities if a conflict of interest exists." (AIMR Standard V)
o "Inform customers, clients and employers of compensation arrangements
in connection with services you perform which are in addition to the
customary and usual compensation for such services." (AIMR Standard
VI-A)
o "Disclose to clients any consideration you have paid to others for
recommending your services to that client." (AIMR Standard VI-B)
o "Do not undertake independent practice which may result in some
compensation in competition with your employer unless you have written
consent from both your employer and your other client to do so." (AIMR
Standard VI-C)
o "In your non-professional as well as in your professional activities,
do not engage in any conduct that would reflect adversely upon your
honesty, trustworthiness or fitness as an investment professional."
(AIMR Standard IX) Again, use common sense and hold yourself to the
highest possible ethical standards.
SUMMARY
The ethical guidelines listed above are required of any person working for
Siphron Capital Management. It should be noted that in addition to these rules,
anyone carrying the designation of Chartered Financial Analyst must also abide
by AIMR's Code of Ethics and Standards of Professional Conduct. The following
employees of Siphron Capital Management have such a designation:
DAVID C. SIPHRON, Chief Investment Officer
PETER D. SIPHRON, Director of Fundamental Research
<PAGE>
ETHICAL AND PROFESSIONAL STANDARDS
SIPHRON CAPITAL MANAGEMENT
*NOTE: THE OVERRIDING FACTOR IN ALL CASES IS THAT THE BEST INTERESTS OF THE
PLAN PARTICIPANTS AND BENEFICIARIES MUST BE HELD PARAMOUNT.
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
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<INVESTMENTS-AT-VALUE> 66,440,712
<RECEIVABLES> 222,731
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<OTHER-ITEMS-LIABILITIES> 1,160,432
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<EXPENSES-NET> 668,747
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<REALIZED-GAINS-CURRENT> 11,500,400
<APPREC-INCREASE-CURRENT> 4,732,799
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<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 11,467,181
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<NUMBER-OF-SHARES-SOLD> 5,170,246
<NUMBER-OF-SHARES-REDEEMED> 10,189,848
<SHARES-REINVESTED> 10,461,268
<NET-CHANGE-IN-ASSETS> 10,095,781
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> (112,704)
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<GROSS-ADVISORY-FEES> 534,998
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<GROSS-EXPENSE> 928,755
<AVERAGE-NET-ASSETS> 58,151,957
<PER-SHARE-NAV-BEGIN> 10.29
<PER-SHARE-NII> (0.02)
<PER-SHARE-GAIN-APPREC> 3.18
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