<PAGE>
EAI Select Managers Equity Fund
Review of 1996
- --------------------------------------------------------------------------------
Dear Fellow Shareholder:
We are very pleased to present the first annual report on EAI Select Managers
Equity Fund. The first part of this review details the performance of the Fund
and the factors that influenced it, while the second part summarizes the
economy and domestic equity market in 1996.
EAI SELECT MANAGERS EQUITY FUND
1996 was a good year for equity mutual fund investing and EAI Select was no
exception. The Fund's annual return of 14.3%, while lagging the S&P 500 Index,
was well above the historic average for domestic equities and above the vast
majority of other asset classes.
EAI Select return in 1996 was very much influenced by the performance of the
broad market. After performing in line with the market in the first five
months, results suffered on a relative basis for the balance of the year. The
combination of smaller cap ($14 billion vs. $39 billion for the S&P 500),
industry concentration (heavy emphasis in media/cable TV) and lack of holdings
in the very largest S&P 500 companies (4% vs. 19%) were primarily responsible
for the lag over the last seven months of the year. Interestingly, on average,
when the S&P 500 experienced a decline, EAI Select outperformed.
The consumer cyclical sector (1996: +12.7%; 4th Qtr: 1.7%) was a major source
of underperformance. Media/cable TV issues continued to disappoint investors.
Stock selection within technology (+8.6%; 3.0%) also depressed results. The
only major bright spot was financial (+31.8%; 14.6%), the second largest
sector, averaging 17% of the Fund over the year.
Manager specific issues included the retirement of Howard Shawn of Hudson, our
termination of Stonehill and the acquisition of Liberty by Goldman Sachs. The
arrangements with both Hudson and Stonehill were terminated on July 31 and
these managers were replaced by Iridian and Bennett Lawrence (we advised you of
the details of this change in July). We are encouraged by the results since the
manager changes (EAI Select up 14.7% for the period August 1--December 31 vs.
15.2% for the average Morningstar growth fund). We believe that 1997 will be a
much better year relative to the S&P 500, particularly if the market's return
is flat or negative.
Please keep in mind that this summary covers only a one year period. We
encourage all of our shareholders to maintain a longer term view.
ECONOMIC REVIEW
Investors began the year expecting the slow economic growth of late 1995 to
continue into the first half of 1996, followed by more rapid growth as the
Presidential election neared.
The Federal Reserve agreed with this assessment. Despite the lack of fresh
economic data (the first report was not released until mid-January after a five
week absence due to the government shutdown), on January 31 the Federal Reserve
lowered the Fed Funds and Discount rates by 0.25% to 5.25% and 5%,
respectively; major banks lowered the prime rate to 8.25% from 8.50%. Although
investors spent an exorbitant amount of time trying to determine if or when the
Fed would move again, these rates remained unchanged during the balance of the
year.
A surprisingly strong set of economic reports beginning in mid-February spooked
the bond market. Concerns mounted that this easing (the third in seven months)
would revive an already improving economy and risk an increase in inflation.
Adding fuel to the fire were strong employment growth, hints of wage pressure
and an unexpectedly robust first (2.0%) and second (4.7%) quarter GDP.
<PAGE>
EAI Select Managers Equity Fund
- --------------------------------------------------------------------------------
By August, but particularly by September, a Federal Reserve move to raise
interest rates was already discounted by the markets; surprisingly, it did not
happen. That, along with weak payroll employment, housing starts, industrial
production and manufacturing activity and a decline in consumer confidence
relieved concerns that the Federal Reserve would have to increase short term
interest rates anytime soon. In fact, an easing was being discussed on the
Street.
THE STOCK MARKET REVIEW
<TABLE>
<CAPTION>
QUARTERLY RETURNS
---------------------- YEAR
MARCH JUNE SEPT. DEC. 1996
- -------------------------------------------
<S> <C> <C> <C> <C> <C>
S&P 500 5.4% 4.5% 3.1% 8.3% 22.9%
Russell 2000 5.1 5.0 0.3 5.2 16.5
- -------------------------------------------
</TABLE>
In 1996, the S&P 500 rose 22.9%, marking the fourteenth calendar year advance
in fifteen years. Taken with 1995's 37.6% advance, the two year return was the
best since 1975/1976. All four quarters had positive returns and since the
elections of 1994, 22 of the past 25 months have seen higher stock prices.
Unlike the 1992-1994 period, when volatility was at record lows (9% to 10%),
1996's volatility (measured as the percentage change from the year's lowest
daily close to the year's highest daily close) of the S&P 500 Index was 26.5%,
nearly triple those years but less than last year's 35.4%; fortunately, as in
1995, it was virtually all to the upside.
Small stocks underperformed for the third year in a row; this year's lag was
significant, at 640 basis points. Investors, anxious not to miss the rally,
have been flocking to mostly larger, more liquid securities. There were three
distinct cycles of leadership, which for the year clearly favored larger
companies. See below:
<TABLE>
<CAPTION>
PERIOD (LEADERSHIP)
---------------------------------
12/31-5/31 5/31-11/30 11/30-12/31
- -----------------------------------------------
<S> <C> <C> <C>
S&P 500 9.6% 14.4% -2.0%
Russell 2000 15.1 -1.4 2.6
Large/Small Small Large Small
- -----------------------------------------------
</TABLE>
Company characteristics played a major role in results in 1996 and in the
fourth quarter. The clear deter-minant of performance was market
capitalization. An example: the ten largest S&P 500 companies advanced, on
average, 48.8% in 1996 and 16.3% in the fourth quarter.
Technology (1996: +40.6%) and financial (+35.1%), outperformed all other
sectors by a minimum of 930 basis points in 1996; they also led in the fourth
quarter.
For the second year in a row, technology had a return exceeding 40%; last
year's +41.1% ranked third among the eight sectors measured. In addition, 1996
marks the fourth year in a row of significant outperformance.
After a subpar 1994, financial has been the best performer in the two years
since, racking up an amazing 107.6% unannualized return. For the year, the
banks (+43.1%) were the leaders.
Utilities (+2.4%) far underperformed all other sectors in 1996.
Telephone/communication and electric utilities had lackluster results. The new
Telecom Bill signed early in 1996 opened up the former to competition and
created uncertainties, while the latter continued to be plagued by regulation
and a clouded outlook for earnings.
For the third year in a row, consumer cyclical (+14.1%) lagged: media (+8.5%),
hotels/restaurants (+10.9%) and retailers (+15.6%) performed poorly. An
uncertain economic environment, shaky consumer confidence and fierce
competition caused investors to avoid this sector.
The attached report provides you with a listing of the investment portfolio,
performance results, and the financial statements of the Fund as of December
31, 1996. As always, should you have any questions, please feel free to contact
us.
<PAGE>
EAI Select Managers Equity Fund
- --------------------------------------------------------------------------------
We thank you for your continued confidence in EAI Select Managers Equity Fund.
Sincerely,
/s/ Phillip Maisano
Phillip Maisano
President
February 1997
[GRAPH APPEARS HERE]
EAI Select Managers Equity Fund vs. S&P 500
12/95 10000 10000
1/96 10140 10340
2/96 10370 10436
3/96 10460 10537
4/96 10700 10692
5/96 10940 10968
6/96 10700 11010
7/96 9960 10523
8/96 10260 10745
9/96 10810 11350
10/96 10900 11663
11/96 11610 12544
12/96 11428 12296
PERFORMANCE RECORD AS OF 12/31/96
- --------------------------------------------------------------------------------
Total Return
<TABLE>
- ---------------
<S> <C>
1 Year 14.3%
</TABLE>
The performance data represents past performance and is not indicative of
future results. Investment return and principal value of an investment in the
Fund will vary so that shares, when redeemed, may be worth more or less than
their original cost.
The Manager is currently waiving certain or all expenses on the Fund. Had the
Fund incurred all expenses, investment returns would have been reduced.
<PAGE>
EAI Select Managers Equity Fund Schedule of Investments December 31, 1996
See Notes to Financial Statements.
<TABLE>
<CAPTION>
NO. OF
COMMON
SHARES SECURITIES VALUE (NOTE 1)
- -------------------------------------------------------------------------------------------
<C> <S> <C>
AEROSPACE: 5.6%
3,700 Boeing Co. $ 393,588
7,900 General Dynamics
Corporation 556,950
7,700 General Motors Corp. "H" 433,125
13,823 Lockheed Martin Corp. 1,264,896
17,400 McDonnell Douglas
Corporation 1,113,600
8,600 Rockwell Intl. Corp. 523,525
7,300 Textron Inc. 688,025
-----------
4,973,709
-----------
AIRLINES: 1.0%
3,400 AMR Corp. (DE)+ 299,625
9,700 UAL Corporation+ 606,250
-----------
905,875
-----------
AUTO SUPPLIERS: 0.5%
13,500 Lear Corp. 460,688
-----------
AUTOS: 1.0%
10,100 Ford Motor Company 321,938
9,400 General Motors Corp. 524,050
-----------
845,988
-----------
BANKS: 9.0%
8,290 Banc One Corp. 356,470
14,800 Bank of Boston Corp. 950,900
21,700 Bank of New York Co. Inc. 732,375
9,900 BankAmerica Corp. 987,525
4,400 Barnett Banks Inc. 180,950
15,000 Boatmen's Bancshares Inc. 967,500
12,588 Chase Manhattan Corp. 1,123,479
6,600 Citicorp 679,800
3,200 First Chicago NBD Corp. 172,000
9,300 MBNA Corp. 385,950
7,400 NationsBank Corp. 723,350
2,600 Wells Fargo & Company 701,350
-----------
7,961,649
-----------
BEVERAGES: 0.8%
3,900 Anheuser-Busch Companies,
Inc. 156,000
13,500 Seagrams Co. Ltd. 523,125
-----------
679,125
-----------
BUILDING MATERIALS: 0.9%
3,300 Ferro Corporation 93,638
12,132 Martin Marietta Materials
Inc. 282,069
13,600 USG Corporation 460,700
-----------
836,407
-----------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
COMMON
SHARES SECURITIES VALUE (NOTE 1)
- -------------------------------------------------------------------------------------------
<C> <S> <C>
CHEMICALS: 4.3%
9,500 Du Pont (E.I.) De Nemours $ 896,563
5,200 Goodrich (B.F.) Company 210,600
1,600 Great Lakes Chemical Corp. 74,800
11,500 Hercules Inc. 497,375
7,100 Minerals Technologies Inc. 291,100
12,400 Morton International, Inc. 505,300
9,800 PPG Industries, Inc. 550,025
11,500 Schulman (A) Inc. 281,750
12,100 Union Carbide Corporation
Hldg. Co. 494,588
-----------
3,802,101
-----------
COMPUTER SERVICES/OFFICE EQUIPMENT: 6.8%
3,700 Aspen Technology Inc.+ 296,925
7,000 Autodesk Inc. 196,000
6,050 CBT Group Plc (ADR) 328,213
2,750 Computer Associates Int'l.,
Inc. 136,813
4,500 Computer Sciences Corp.+ 369,563
19,300 First Data Corp. 704,450
3,400 Hewlett-Packard Co. 170,850
10,000 International Business
Machines Corp. 1,510,000
6,000 Intuit Inc.+ 189,000
2,800 Motorola Inc. 171,850
5,400 Sabre Group Holdings Inc.
Class A+ 150,525
7,500 Saville Systems Ireland
Plc. (ADR) 304,688
4,800 Seagate Technologies Inc.+ 189,600
6,000 Security Dynamics
Technologies, Inc.+ 189,000
7,000 Synopsys Inc. 323,750
14,500 Xerox Corp. 763,063
-----------
5,994,290
-----------
DRUGS: 3.2%
6,000 Biogen Inc. 232,500
4,100 Bristol-Myers Squibb 445,875
7,300 Johnson & Johnson 363,175
3,000 Pfizer Inc. 248,625
18,100 Pharmacia & Upjohn, Inc. 717,213
9,100 Schering-Plough 589,225
3,900 Smithkline Beecham Plc.
(ADR) 265,200
-----------
2,861,813
-----------
ELECTRIC UTILITIES: 1.9%
10,000 AES Corp. 465,000
9,100 Entergy Corporation 252,525
11,000 Potomac Electric Power
Company 283,250
6,300 Texas Utilities Company 256,720
9,000 Unicom Corp. 244,125
11,000 Wheelabrator Technologies,
Inc. 178,750
-----------
1,680,370
-----------
</TABLE>
<PAGE>
EAI Select Managers Equity Fund Schedule of Investments December 31, 1996
(Continued)
See Notes to Financial Statements.
<TABLE>
<CAPTION>
NO. OF
COMMON
SHARES SECURITIES VALUE (NOTE 1)
- -------------------------------------------------------------------------------------------
<C> <S> <C>
ELECTRICAL EQUIPMENT: 2.3%
21,800 Cooper Industries Inc. $ 918,325
10,500 Duracell International,
Inc. 733,688
8,060 Thomas & Betts Corp. 357,663
-----------
2,009,676
-----------
ELECTRONICS: 2.7%
25,277 Allegheny Teledyne Inc. 581,371
6,800 Honeywell Inc. 447,100
3,300 Intel Corp. 432,094
3,010 Lucent Technologies Inc. 139,213
8,000 Microchip Technology Inc.+ 407,000
4,000 Newbridge Networks Corp. 113,000
8,000 Pairgain Technologies Inc.+ 243,500
-----------
2,363,278
-----------
ENERGY EXPLORATION/PRODUCTION: 1.9%
7,400 Burlington Resources Inc. 372,775
4,200 Halliburton Co. 253,050
2,850 Transocean Offshore, Inc. 178,481
8,400 Triton Energy Ltd. "A"+ 407,400
21,600 Union Texas Petroleum
Holdings, Inc. 483,300
-----------
1,695,006
-----------
ENERGY SERVICES: 0.6%
9,700 Enron Corporation 418,313
2,100 Foster Wheeler Corporation 77,963
-----------
496,276
-----------
FABRICATING COMPONENTS: 0.5%
14,300 Libbey Inc. 398,613
-----------
FINANCIAL SERVICES: 5.0%
8,900 Advanta Corp. 363,788
14,100 American Express Company 796,650
12,200 Countrywide Credit
Industries, Inc. 349,225
14,500 Dean Witter Discover and
Company 960,625
5,000 Federal Home Loan Mortgage
Corp. 550,625
22,200 Federal National Mortgage
Assoc. 826,950
9,000 H.F. Ahmanson & Co. 292,500
5,500 Salomon, Inc 259,188
-----------
4,399,551
-----------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
COMMON
SHARES SECURITIES VALUE (NOTE 1)
- -------------------------------------------------------------------------------------------
<C> <S> <C>
HOSPITAL SUPPLY: 2.9%
16,300 Bausch & Lomb Inc. $ 570,500
24,200 Baxter International, Inc. 992,200
17,200 Becton Dickinson & Company 746,050
6,500 St. Jude Medical Inc. + 277,063
-----------
2,585,813
-----------
HOTELS AND RESTAURANTS: 1.4%
10,100 Brinker International, Inc. 161,600
9,700 ITT Corp.+ 420,738
8,000 Marriot International Inc. 442,000
7,500 Promus Hotel Corp.+ 222,188
-----------
1,246,526
-----------
INSURANCE: 6.9%
5,259 Aetna Inc. 420,720
11,400 AFLAC Inc. 487,350
18,600 Allstate Corp. 1,076,475
8,700 AMBAC Inc. 577,463
6,300 Chubb Corp. 338,625
16,100 Equitable Companies Inc. 396,463
3,300 General Re Corporation 520,575
22,533 Travelers Group Inc. 1,022,435
14,100 Travelers/Aetna Property
Casualty "A" 498,788
9,002 Wellpoint Health Networks
"A" 309,444
21,700 Western National Corp. 417,725
-----------
6,066,063
-----------
IRON AND STEEL: 0.2%
3,900 Texas Industries, Inc. 197,438
-----------
LEISURE: 2.1%
19,500 Brunswick Corp. 468,000
19,000 Carnival Corp. "A" 627,000
12,500 Circus Circus Enterprises,
Inc.+ 429,688
5,500 Hasbro Inc. 213,813
6,500 Mirage Resorts Inc.+ 140,563
-----------
1,879,064
-----------
MACHINERY--AUTO/CONSTRUCTION: 0.8%
33,400 Anixter International Inc. 538,575
2,100 Caterpillar Inc. 158,025
-----------
696,600
-----------
</TABLE>
<PAGE>
EAI Select Managers Equity Fund Schedule of Investments December 31, 1996
(Continued)
See Notes to Financial Statements.
<TABLE>
<CAPTION>
NO. OF
COMMON
SHARES SECURITIES VALUE (NOTE 1)
- -------------------------------------------------------------------------------------------
<C> <S> <C>
MEDIA: 6.6%
6,500 Belo (A.H.) Corp. Series A $ 226,688
3,800 Disney (Walt) Co. 264,575
6,800 Gannett Company Inc. 509,150
22,575 Gaylord Entertainment
Company "A" 516,403
12,000 Golden Books Family
Entertainment Inc.+ 133,500
9,825 Infinity Broadcasting
Corp.+ 330,366
9,200 New York Times-Class "A" 349,600
4,200 Reuters Holdings Plc. "B"
(ADR) 321,300
26,550 Tele-Comm. Liberty Media
Group 758,334
25,000 Tele-Communications TCI
Group "A" 326,563
18,100 Time Warner Inc. 678,750
8,700 Tribune Company 686,213
24,000 U.S. West Media Group 444,000
16,000 Valassis Communications,
Inc.+ 338,000
-----------
5,883,442
-----------
MEDICAL SERVICES: 1.3%
20,900 Columbia/HCA Healthcare
Corp. 851,675
15,000 Health Management
Associates, Inc.+ 337,500
-----------
1,189,175
-----------
MULTI-INDUSTRY: 3.0%
9,200 Allied-Signal Inc. 616,400
3,400 General Electric Co. 336,175
6,600 Mark IV Industries Inc. 149,325
13,200 Metromedia Intl. Group
Inc.+ 130,350
3,600 Tenneco Inc. 162,450
6,300 Transamerica Corporation 497,700
13,100 Union Pacific Corp. 787,638
-----------
2,680,038
-----------
OIL INTERNATIONAL: 3.2%
6,000 Amerada Hess Corp. 347,250
3,600 Amoco Corp. 289,800
1,500 Atlantic Richfield Company 198,750
2,000 British Petroleum Plc.
(ADR) 282,750
3,300 Exxon Corp. 323,400
6,900 Mapco, Inc. 234,600
1,900 Mobil Corp. 232,275
19,100 Petro-Canada 267,400
3,100 Texaco Inc. 304,188
9,793 Total S.A. (ADR) 394,168
-----------
2,874,581
-----------
PACKAGED FOOD: 0.4%
6,000 Sara Lee Corp. 223,500
3,000 Wrigley (Wm.) Jr. Company 168,750
-----------
392,250
-----------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
COMMON
SHARES SECURITIES VALUE (NOTE 1)
- -------------------------------------------------------------------------------------------
<C> <S> <C>
PAPER: 1.7%
1,700 Georgia Pacific Corp. $ 122,400
23,500 James River Corp. of
Virginia 778,438
6,500 Kimberly-Clark Corp. 619,125
500 Mead Corp. 29,063
-----------
1,549,026
-----------
PERSONAL SERVICES: 1.9%
8,600 Apollo Group Inc. "A" 287,563
9,050 Corrections Corp. of
America+ 277,156
16,400 CUC International+ 389,500
8,000 Robert Half International,
Inc. 275,000
16,000 Service Corp. 448,000
-----------
1,677,219
-----------
PHOTO EQUIPMENT/SUPPLIES: 0.6%
6,400 Eastman Kodak Company 513,600
-----------
POLLUTION CONTROL: 1.5%
39,600 WMX Technologies Inc. 1,291,950
-----------
PRINTING/PAPER PRODUCTS: 0.5%
5,600 Avery Dennison Corp. 198,100
6,800 R.R. Donnelley & Sons
Company 213,350
-----------
411,450
-----------
REAL ESTATE: 0.2%
5,900 Manufactured Home
Communities, Inc. 137,175
-----------
RETAIL--GENERAL MERCHANDISE: 1.6%
14,625 Consolidated Stores Corp.+ 469,828
7,400 Dayton Hudson Corp. 290,450
7,000 Federated Dept. Stores,
Inc.+ 238,875
6,000 Harcourt General, Inc. 276,750
3,800 Sears Roebuck & Company 175,275
-----------
1,451,178
-----------
RETAIL--SPECIALTY: 3.7%
14,485 Archer-Daniels Midland Co. 318,670
14,000 Bed Bath & Beyond, Inc.+ 339,500
8,100 Lowe's Companies 287,550
2,100 Micro Warehouse Inc.+ 24,675
2,000 Office Depot Inc. 35,500
15,400 Pep Boys-Manny Moe & Jack 473,550
3,900 Rite Aid Corp. 155,025
</TABLE>
<PAGE>
EAI Select Managers Equity Fund Schedule of Investments December 31, 1996
(Continued)
See Notes to Financial Statements.
<TABLE>
<CAPTION>
NO. OF
COMMON
SHARES SECURITIES VALUE (NOTE 1)
- -------------------------------------------------------------------------------------------
<C> <S> <C>
RETAIL--SPECIALTY: 3.7% (CONTINUED)
13,555 Staples Inc.+ $ 244,837
6,000 Tiffany & Company 219,750
4,800 Toys "R" Us Inc.+ 144,000
17,500 Warnaco Group Inc. A 518,438
6,300 Whirlpool Corp. 293,738
10,300 Zale Corporation+ 196,988
-----------
3,252,221
-----------
SOAP AND COSMETICS: 0.5%
7,400 Avon Products Inc. 422,725
-----------
TELEPHONE/COMMUNICATIONS: 3.7%
14,600 Airtouch Communications
Inc.+ 368,650
5,000 Aspect Telecommunications
Corp. 317,500
31,500 A T & T Corp. 1,370,250
3,000 Deutsche Telekom (ADR)+ 61,125
6,300 Ericsson (ADR) 190,181
10,300 MCI Communications 336,681
8,400 Paging Network Inc.+ 128,100
2,700 SBC Communications Inc. 139,725
1,000 Sprint Corp. 39,875
9,000 Telephone & Data Systems,
Inc. 326,250
-----------
3,278,337
-----------
TOBACCO: 0.5%
4,200 Philip Morris Companies,
Inc. 473,025
-----------
TRANSPORTATION: 2.2%
7,500 Burlington Northern Santa
Fe 647,813
920 Conrail Inc. 91,655
13,600 Federal Express Corp.+ 605,200
6,000 Kirby Corp.+ 118,480
16,500 Ryder Systems Inc. 464,068
-----------
1,927,216
-----------
TOTAL COMMON STOCKS: 95.4%
(cost: $77,233,559) 84,440,527
-----------
</TABLE>
<TABLE>
<CAPTION>
ANNUALIZED
YIELD AT
DATE OF TIME OF VALUE
SHORT-TERM OBLIGATIONS MATURITY PURCHASE (NOTE 1)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
REPURCHASE AGREEMENT (NOTE 5):
PURCHASED ON 12/31/96; MATURITY VALUE--
$4,077,076 (WITH BOSTON SAFE DEPOSIT AND TRUST
CO., COLLATERALIZED BY $4,280,000 STUDENT LOAN
MARKETING ASSOCIATION DUE 2/08/99 WITH AN IN-
TEREST RATE OF 4.75% VALUED AT $4,359,762) 1/02/97 4.50% $ 4,076,000
-----------
TOTAL SHORT-TERM OBLIGATIONS: 4.6%
(cost: $4,076,000) 4,076,000
-----------
TOTAL INVESTMENTS: 100%
(cost: $81,309,559) $88,516,527
===========
</TABLE>
- -------
+ Non-income producing.
Glossary:
ADR--American Depositary Receipt
<PAGE>
EAI Select Managers Equity Fund Financial Statements
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C> <C>
ASSETS:
Investments at value (cost $81,309,559)(Note 1) $88,516,527
Receivables:
Securities sold 295,552
Capital shares sold 204,509
Dividends and interest 124,619
Deferred organization costs (Note 1) 176,077
-----------
Total assets 89,317,284
-----------
LIABILITIES:
Payables:
Dividends payable 291,881
Securities purchased 159,240
Management fee 112,772
Capital shares redeemed 52,947
Accounts payable 93,086
-----------
Total liabilities 709,926
-----------
NET ASSETS $88,607,358
===========
Net asset value, maximum offering price and redemption price per
share ($88,607,358/8,190,621 shares of beneficial interest
outstanding with an unlimited number of no par value shares
authorized) $10.82
===========
Composition of net assets:
Aggregate paid in capital $81,624,079
Net unrealized appreciation of investments 7,206,968
Distributions in excess of net realized gains (223,689)
-----------
$88,607,358
===========
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Period from January 2, 1996 (commencement of operations) through
December 31, 1996
INCOME:
Dividends $ 1,262,733
Interest 384,924
-----------
Total income 1,647,657
EXPENSES:
Management (Note 2) $ 807,450
Administrative (Note 2) 175,533
Professional 96,847
Custodian 79,294
Amortization of deferred organization costs (Note 1) 43,958
Transfer agent 23,449
Trustees 15,000
Other 72,797
----------
1,314,328
Fees waived by the Manager (Note 2) (303,122)
----------
Total expenses 1,011,206
-----------
Net investment income 636,451
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS: (NOTE
3)
Net realized gain from investments 3,873,251
Net unrealized appreciation of investments 7,206,968
-----------
Net gain on investments 11,080,219
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $11,716,670
===========
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
For the Period from January 2, 1996 (commencement of operations) through
December 31, 1996
<TABLE>
<S> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income $ 636,451
Net realized gain from investments 3,873,251
Net unrealized appreciation of investments 7,206,968
-----------
Net increase in net assets resulting from
operations 11,716,670
-----------
Dividends to shareholders from:
Net investment income (636,451)
Net realized gain from investments (Note 1) (4,140,898)
-----------
(4,777,349)
-----------
Capital share transactions*:
Net proceeds from sales of shares 17,868,048
Net asset value of shares issued in exchange for assets (Note 4) 86,821,580
Reinvestment of dividends 4,485,469
-----------
109,175,097
Cost of shares redeemed (27,607,060)
-----------
Increase in net assets resulting from capital share transactions 81,568,037
-----------
Total increase in net assets 88,507,358
NET ASSETS:
Beginning of period 100,000
-----------
End of period $88,607,358
===========
*SHARES OF BENEFICIAL INTEREST ISSUED AND REDEEMED:
Shares sold 1,736,140
Shares issued in connection with an exchange of assets (Note 4) 8,588,497
Reinvestment of dividends 414,553
-----------
10,739,190
Shares redeemed (2,558,569)
-----------
Net increase 8,180,621
===========
</TABLE>
<PAGE>
EAI Select Managers Equity Fund
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FINANCIAL HIGHLIGHTS
For a share outstanding throughout the period
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 2, 1996(A)
TO
DECEMBER 31, 1996
------------------
<S> <C>
Net Asset Value, Beginning of Period....................... $10.00
------
Income From Investment Operations:
Net Investment Income..................................... 0.08
Net Gain on Investments (both realized and unrealized).... 1.35
------
Total From Investment Operations........................... 1.43
------
Less Distributions from:
Net Investment Income..................................... (0.08)
Net Realized Gain on Investments.......................... (0.53)
-----
Total Distributions........................................ (0.61)
-----
Net Asset Value, End of Period............................. $10.82
======
Total Investment Return.................................... 14.30%(b)
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RATIOS/SUPPLEMENTARY DATA
Net Assets, End of Period (000)............................ $88,607
Ratio of Expenses to Average Net Assets.................... 1.15%(c)(d)
Ratio of Net Investment Income to Average Net Assets....... 0.73%(c)(d)
Portfolio Turnover Rate.................................... 174%
Average Commission Rate Paid............................... $0.0508
</TABLE>
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(a) Commencement of operations.
(b) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period and a redemption on the last
day of the period. Total return for the period ended December 31, 1996 was
not annualized.
(c) Ratios would have been 1.50% and 0.38%, respectively, had the Manager not
waived expenses.
(d) Annualized.
See Notes to Financial Statements.
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NOTES TO FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
EAI Select Managers Equity Fund (the "Fund"), organized as a Massachusetts
business trust on September 27, 1995, is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment company.
The primary investment objective of the Fund is to achieve long-term capital
appreciation. The Fund had no operations prior to January 2, 1996 except for
the sale to Evaluation Associates Capital Markets, Inc. (the "Manager") of
10,000 shares for $100,000.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
financial statements are presented in conformity with generally accepted
accounting principles. The preparation of financial statements in conformity
with generally accepted accounting principles requires the use of management's
estimates and the actual results could differ.
A. SECURITY VALUATION--Securities traded on national exchanges and traded in
the NASDAQ National Market System are valued at the last sales prices
reported at the close of business on the principal markets for such
securities on the last business day of the period. Over-the-counter
securities not included in the NASDAQ National Market System and listed
securities for which no sale was reported are valued at the last bid price.
Short-term obligations purchased with more than sixty days remaining to
maturity are valued at market. Short-term obligations purchased with sixty
days or less to maturity are valued at cost, which, with accrued interest,
approximates value. Securities for which quotations are not readily
available are stated at fair value as determined by the Board of Trustees.
B. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the provisions
of Subchapter M of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Therefore, no federal income tax provision is required.
C. DIVIDENDS AND DISTRIBUTIONS--Dividend income and distributions to
shareholders are recorded on the ex-dividend date. Income distributions and
capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
For the period ended December 31, 1996, net realized gain on investments
for book purposes was less than those for tax purposes, primarily due to
the deferral of $214,281 in realized losses due to wash sales.
<PAGE>
EAI Select Managers Equity Fund
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
D. OTHER--Interest income is accrued as earned. Security transactions are
accounted for on the date the securities are purchased or sold. Realized
gains and losses on securities are determined on the specific identified
cost method.
E. ORGANIZATION COSTS--Deferred organization costs of $220,035 will be
amortized over a period not to exceed five years from the commencement of
operations. In the event that, at any time during the five year period
beginning with the date of commencement of operations, the initial shares
acquired by the Manager prior to such date are redeemed by any holder
thereof, the redemption proceeds payable in respect of such shares will be
reduced by the pro rata share (based on the proportionate share of the
initial shares redeemed to the total number of original shares outstanding
at the time of redemption) of the then unamortized deferred organization
costs as of the date of such redemption. In the event that the Fund
liquidates before the deferred organization costs are fully amortized, the
Manager shall bear such unamortized deferred organization costs.
NOTE 2--AGREEMENTS AND TRANSACTIONS OF RELATED PARTIES--The Manager, a wholly
owned subsidiary of EAI Partners, L.P. (the "Parent"), earned fees of $807,450
for the period ended December 31, 1996 for management of the Fund. The fee is
based on an annual rate of 0.92% of average daily net assets. For the period
ended December 31, 1996, the Manager agreed to waive management fees in the
amount of $303,122 which represents the amount exceeding a self imposed expense
limitation of 1.15% of average daily net assets. Such limitation will be in
effect until December 31, 1997.
Certain of the officers and trustees of the Fund are officers, directors, or
partners of the Manager or Parent.
Affiliates of the Manager or Parent and counsel to the Fund hold 1,157,397
shares (14.1%) and 820,042 shares (10.0%), respectively, of the outstanding
shares of the Fund. Additionally, 4,250,201 outstanding shares are held by 3
shareholders.
The Manager pays from its management fees each Subadviser a fee at the annual
rate of .375 of 1% of the average monthly assets of the Fund managed by that
Subadviser. As of December 31, 1996, the Subadvisers are Dietche & Field
Advisers, Inc., Liberty Investment Management, Bennett Lawrence Management LLC,
Iridian Asset Management LLC, Inc. and Equinox Capital Management, Inc. On July
25, 1996, the Board of Trustees met and terminated the subadvisory agreements
of Stonehill Capital Management, Inc. and Hudson Capital Advisors and approved
the subadvisory agreements of Bennett Lawrence Management LLC and Iridian Asset
Management LLC effective July 31, 1996.
In accordance with a Portfolio Accounting and Administration Agreement with Van
Eck Associates Corporation ("Van Eck"), the Fund paid Van Eck $175,533 for the
period ended December 31, 1996. The annual fee is graduated, beginning at .20
of 1% of monthly average net assets of less than $100 million to .12 of 1% of
monthly average net assets in excess of $260 million.
DISTRIBUTION AGREEMENT--Under the terms of a Distribution Agreement with the
Fund, EAI Securities Inc. serves as the Distributor of the Fund Shares. EAI
Securities Inc. does not receive any additional fees for services provided
pursuant to this agreement.
NOTE 3--PURCHASES AND SALES--Purchases and sales of securities, other than
short-term obligations, aggregated $214,450,354 and $141,135,863, respectively,
for the period ended December 31, 1996. For federal income tax purposes the
cost of investments owned at December 31, 1996 was $81,521,464.
As of December 31, 1996, net unrealized appreciation for federal income tax
purposes aggregated $6,992,687 of which $8,870,690 related to appreciated
securities and $1,878,003 related to depreciated securities.
NOTE 4--CAPITAL SHARES--Capital shares of the Fund were issued in connection
with exchanges of capital shares for assets as follows:
<TABLE>
<CAPTION>
WR
THE EAI INVESTMENT
SMALL PARTNERS
MANAGERS LONG EQUITY
EQUITY FUND FUND L.P. TOTAL
------------ ------------ -----------
<S> <C> <C> <C>
Fund Issued:
Date...................................... 1/02/96 5/01/96
Shares.................................... 7,250,470 1,338,027 8,588,497
Net Asset Value........................... $ 10.00 $ 10.70
Fund Received as Payment:
Securities at value....................... $66,925,766 $13,594,809 $80,520,575
Cash...................................... 5,578,930 722,075 6,301,005
----------- ----------- -----------
Total Value............................... $72,504,696 $14,316,884 $86,821,580
=========== =========== ===========
</TABLE>
The aggregate net assets of the Fund immediately before the exchanges were
$100,000 on January 2, 1996 and $81,893,509 on May 1, 1996.
NOTE 5--COLLATERAL--Collateral for repurchase agreements is held by the Fund's
custodian, the value of which must be at least 102% of the underlying debt
obligation. In the remote chance the counterparty should fail to complete the
repurchase agreement, realization and retention of the collateral may be
subject to legal proceedings and the Fund would become exposed to market
fluctuation on the collateral.
<PAGE>
EAI Select Managers Equity Fund
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REPORT OF INDEPENDENT ACCOUNTANTS
February 7, 1997
To the Board of Trustees
and Shareholders of
EAI Select Managers Equity Fund
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of EAI Select Managers Equity Fund
(the "Fund") at December 31, 1996, and the results of its operations, the
changes in its net assets, and the financial highlights for the period January
2, 1996 (commencement of operations) through December 31, 1996, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our
audit of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit, which included the confirmation of securities at December 31, 1996
by correspondence with the custodian and brokers, provides a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
<PAGE>
Investment Manager
Evaluation Associates Capital Markets, Inc.
200 Connecticut Avenue
Suite 700
Norwalk, CT 06854-1958
Administrator
Van Eck Associates Corporation
99 Park Avenue
New York, NY 10016
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Day, Berry & Howard
CityPlace
Hartford, CT 06103
Transfer Agent
DST Systems, Inc.
1004 Baltimore
Kansas City, MO 64105-1802
Custodian
Boston Safe Deposit and Trust Company
One Boston Place
Boston, MA 02108
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This report must be accompanied or preceded by an effective prospectus which
includes more complete information such as charges and expenses. For a
prospectus and additional information about EAI Select Managers Equity Fund,
please call the number listed below.
[Logo]EAI Select
EAI Select Managers Equity Fund
EAI Securities Inc. N Distributor
200 Connecticut Avenue
Suite 700
Norwalk, CT 06854-1958
(203) 855-2200
EAI Select
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Managers
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Equity Fund
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Annual
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Report
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December 31, 1996
[Logo]EAI SELECT
