<PAGE>
EAI Select Managers Equity Fund
Review of 1997
- --------------------------------------------------------------------------------
Dear Fellow Shareholder:
We are very pleased to present the second annual report on the 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 1997.
EAI SELECT MANAGERS EQUITY FUND
The EAI Select Managers Equity Fund returned an impressive 28.8% in 1997. This
return compares favorably to the average Morningstar growth fund (24.6%), the
average equity mutual fund (+24.4%) and the DJIA (+24.9%).
During the year we added two new managers, Mastrapasqua & Associates and
Siphron Capital Management. Both were beneficial to the overall performance of
the Fund. This combination outperformed the manager they replaced and provides
us with an array of managers in whom we are quite confident going forward.
For the year, financial (+48.7%), consumer cyclical (+45.4%) and noncyclical
(+34.5%), the three largest sectors, averaging 22%, 19% and 21%, were primarily
responsible for the excellent results.
These sectors included some of the Fund's largest and best performing issues.
Travelers Group (+79.9%), Tele-Comm.-Liberty Media (+90.4%) and Schering-Plough
(+94.2%) were standouts. All have had upside earnings surprises.
The only major laggards were technology (+15.4%), hurt by Intel Corp. (+7.4%)
and industrials (+14.0%), which included Boeing (-7.1%) and Lockheed Martin
(+9.5%). Both sectors were negatively impacted by the turmoil in Southeast Asia
since sales growth in this region is an important component of future earnings.
ECONOMIC REVIEW
The year began with the spotlight on the Federal Reserve and ended with a focus
on the turmoil occurring in Southeast Asia.
In late 1996, Fed Chairman Greenspan questioned the staying power of the strong
stock market advance, particularly if investors became "irrationally
exuberant".
In a move that surprised few, the much anticipated and long debated need by the
Federal Reserve to raise short-term interest rates finally occurred on March
25. In an attempt to slow the economy, and as a pre-emptive move against
inflation, the federal funds rate was raised 0.25% to 5.50%. It was the first
change since a 0.25% cut on January 31, 1996 and the first increase since a
0.50% boost on February 1, 1995. Money center banks promptly raised their prime
lending rate to 8.5% from 8.25%.
What was a surprise to everyone in 1997, including the Fed, was the absence of
inflation despite robust economic growth. The four "no action" meetings from
May through September calmed the markets and contributed to robust rallies in
stocks and bonds. Due to the economic, financial market and currency upheaval
in Asia, the Fed refrained from raising rates in the fourth quarter, despite
above trend growth in the U.S. economy; this helped keep the U.S. markets from
suffering a similar fate.
THE STOCK MARKET REVIEW
<TABLE>
<CAPTION>
QUARTERLY RETURNS
------------------------ YEAR
MARCH JUNE SEPT. DEC. 1997
- ---------------------------------------------
<S> <C> <C> <C> <C> <C>
S&P 500 2.7% 17.5% 7.5% 2.9% 33.4%
Russell 2000 -5.2 16.2 14.9 -3.3 22.4
- ---------------------------------------------
</TABLE>
In 1997, the S&P 500 rose 33.4%, marking the fifteenth calendar year advance in
sixteen years. Taken with 1995's (37.6%) and 1996's (23.0%)
<PAGE>
EAI Select Managers Equity Fund
- --------------------------------------------------------------------------------
advances, the three year return was the best ever recorded. All four quarters
had positive returns and since the elections of 1994, 30 of the past 37 months
have seen higher stock prices.
Small stocks underperformed for the fourth year in a row; this year's lag was
significant, at 1100 basis points. Investors have been flocking to mostly
larger, more liquid securities with earnings consistency in these times of
economic uncertainty. There were three distinct cycles of leadership, which for
the year, clearly favored larger companies. See below:
<TABLE>
<CAPTION>
PERIOD (LEADERSHIP)
-------------------------------
12/31-4/30 4/30-9/30 9/30-12/31
- ---------------------------------------------
<S> <C> <C> <C>
S&P 500 8.8% 19.1% -2.9%
Russell 2000 -4.9 33.1 -3.3
Large/Small Large Small Large
- ---------------------------------------------
</TABLE>
Company characteristics played a major role in results in 1997. The clear
determinant of performance was size. An example: the highest quintile by market
capitalization in the S&P 500 rose, on average, 35.3% in 1997.
Financial (1997: +47.4%), the star of 1995 and 1996, was once again the winner
in 1997, outperforming the next best sector, consumer noncyclical (+39.1%) by
830 basis points. Over those three years, the sector amassed an annualized
return of 45.2%. The continued fall in interest rates, combined with
consolidation, helped propel financial services (+58.9%) and insurance
(+49.5%).
Consumer noncyclicals came on strong in the fourth quarter after lackluster
results in 1996 and the first nine months of 1997. Defensive, consistent
growers such as drug (+56.2%), food (+43.8%) and soap/cosmetics (+44.2%) issues
led the market late in the year as flight-to-quality buying accelerated.
The major laggards in 1997 were commodity-based basic industry (+6.8%) and
energy (+24.5%). Low inflation, slack demand and ample supply significantly
depressed the metals/mining (-35.9%), aluminum(-4.0%), steel (+3.7%) and energy
exploration (+7.0%) issues.
Two other sectors worth noting, based on their fourth quarter results, were
technology (1997: +29.6%; 4th Qtr. -9.1%) and utility (+34.3%; +18.9%), the
worst and best performer; through the first nine months of the year, their
roles as leaders/laggards were reversed.
Technology was hard hit late in the year on fears of softer earnings caused by
the Southeast Asian turmoil. Many companies confirmed this fear and warned of
earnings shortfalls.
Utilities came to life after being in the cellar for nearly two years. A
restructuring and new management at AT&T Corp. (+45.9%; +39.3%), and
consolidation helped spark the telephones (+39.0%; +20.0%), which comprise two-
thirds of the sector.
The attached report provides you with a listing of the investment portfolio,
performance results, and the financial statements as of December 31, 1997. As
always, should you have any questions, please feel free to contact us.
We thank you for your continued confidence in the EAI Select Managers Equity
Fund.
Sincerely,
/s/ Phillip Maisano
Phillip Maisano
President
February 1998
<PAGE>
EAI Select Managers Equity Fund
- --------------------------------------------------------------------------------
LINE GRAPH
EAI SELECT MANAGERS EQUITY FUND VS. S&P 500
<TABLE>
<CAPTION>
EAI Select S&P 500
<S> <C> <C>
12/95 500000 500000
3/96 517842 526817
6/96 529724 550437
9/96 535170 567454
12/96 566096 614780
3/97 561387 631243
6/97 657132 741459
9/97 715206 797062
12/97 729357 819976
</TABLE>
PERFORMANCE RECORD AS OF 12/31/97
- --------------------------------------------------------------------------------
Average Annual Total Returns
<TABLE>
- ----------------------------------
<S> <C>
1 Year 28.84%
- ----------------------------------
Since Inception (1/2/96) 21.38
</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, 1997
<TABLE>
<CAPTION>
NO. OF
COMMON
SHARES SECURITIES VALUE (NOTE 1)
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C>
AEROSPACE: 4.4%
4,620 Boeing Co. $ 226,091
5,300 General Dynamics
Corporation 458,119
5,900 General Motors Corp. "H" 357,688
5,600 Lockheed Martin Corp. 551,600
4,200 Textron Inc. 262,500
5,800 United Technologies Corp. 422,313
-----------
2,278,311
-----------
AIRLINES: 0.5%
1,200 AMR Corp. (DE)+ 154,200
1,100 Detal Air Lines Inc. 130,900
-----------
285,100
-----------
AUTOS: 0.4%
4,600 Ford Motor Company 223,963
-----------
BANKS: 7.2%
1,490 Banc One Corp. 80,926
7,100 BankAmerica Corp. 518,300
6,200 Bank of Boston Corp. 582,413
7,900 Bank of New York Co. Inc. 456,719
600 Bankers Trust Co. 67,463
900 Barnett Banks Inc. 64,688
2,000 Centura Banks Inc. 138,000
3,388 Chase Manhattan Corp. 370,986
6,900 First Chicago NBD Corp. 576,150
2,100 Fleet Financial 157,369
12,150 MBNA Corp. 331,847
1,700 NationsBank Corp. 103,381
1,000 Wells Fargo & Company 339,438
-----------
3,787,680
-----------
BEVERAGES: 2.6%
2,700 Anheuser-Busch Companies,
Inc. 118,800
6,000 Coca-Cola Company 400,125
23,400 Pepsico Inc. 852,638
-----------
1,371,563
-----------
BUILDING/HEAVY CONSTRUCTION: 0.6%
2,700 Foster Wheeler Corp. 73,069
7,612 Halter Marine Group Inc.+ 219,797
-----------
292,866
-----------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
COMMON
SHARES SECURITIES VALUE (NOTE 1)
- -------------------------------------------------------------------------------------------
<C> <S> <C>
CHEMICALS: 1.2%
5,800 Du Pont (E.I.) De Nemours $ 348,363
3,600 PPG Industries, Inc. 205,650
700 FMC Corp.+ 47,119
-----------
601,132
-----------
COMPUTER SERVICES/OFFICE EQUIPMENT: 5.9%
3,050 CBT Group Plc. (ADR)+
(Ireland) 250,481
2,540 Electronic Data Systems
Corp. 111,601
6,000 EMC Corp.+ 164,625
7,000 First Data Corp. 204,750
5,200 Hewlett-Packard Co. 325,000
8,900 International Business
Machines Corp. 930,585
2,000 Microsoft Corp.+ 258,500
10,000 Novell Inc.+ 75,000
8,000 Oracle Corp.+ 178,500
8,000 Saville Systems Ireland
Plc. (ADR)+ (Ireland) 332,000
3,800 Xerox Corp. 280,488
-----------
3,111,530
-----------
DRUGS: 9.2%
6,000 Abbott Laboratories 393,375
2,300 American Home Products
Corp. 175,950
5,300 Bristol-Myers Squibb Co. 501,513
7,000 Johnson & Johnson 461,125
4,000 Lilly (Eli) & Co. 278,500
4,000 Merck & Co. 425,000
11,500 Pfizer Inc. 857,469
14,900 Schering-Plough Corp. 925,663
6,200 Warner-Lambert Co. 768,800
-----------
4,787,395
-----------
ELECTRIC UTILITIES: 1.4%
6,600 AES Corp.+ 307,725
2,000 Consolidated Edison Inc. 82,000
3,900 Edison International 106,031
3,300 Entergy Corporation 98,794
5,046 PG&E Corporation 153,588
-----------
748,138
-----------
</TABLE>
See Notes to Financial Statements.
<PAGE>
EAI Select Managers Equity Fund Schedule of Investments December 31, 1997
(continued)
<TABLE>
<CAPTION>
NO. OF
COMMON
SHARES SECURITIES VALUE (NOTE 1)
- -------------------------------------------------------------------------------------------
<C> <S> <C>
ELECTRICAL EQUIPMENT: 0.9%
9,300 Cooper Industries Inc. $ 455,700
-----------
ELECTRONICS: 2.4%
5,000 Applied Materials Inc.+ 150,625
2,000 Hadco Corp.+ 90,500
4,000 Intel Corp. 281,000
1,600 Motorola Inc. 91,300
7,500 Qlogic Corp.+ 221,250
376 Raytheon Company 18,553
5,000 Semtech Corp.+ 195,625
10,000 Smart Modular Technologies
Inc.+ 230,000
-----------
1,278,853
-----------
ENERGY--OIL & GAS: 0.6%
1,700 Ashland Inc. 91,269
3,000 Tuboscope Inc.+ 72,188
6,000 Williams Co. Inc. 170,250
-----------
333,707
-----------
FABRICATING COMPONENTS: 0.5%
6,300 Libbey Inc. 238,613
-----------
FINANCIAL SERVICES: 5.0%
2,500 Ahmanson (H.F.) & Company 167,344
7,000 American Express Company 624,750
3,700 Capital One Financial Corp. 200,494
7,000 Charles Schwab Co. 293,563
11,300 Federal Home Loan Mortgage
Corp. 473,894
11,400 Federal National Mortgage
Assoc. 650,513
3,600 Morgan Stanley, Dean
Witter, Discover and Co. 212,850
-----------
2,623,408
-----------
FOOTWEAR: 0.5%
6,000 Nike Inc. 235,500
-----------
HEALTH SERVICES: 0.4%
7,000 Total Renal Care Holdings,
Inc.+ 192,500
-----------
HOSPITAL SUPPLY: 1.8%
2,100 Baxter International, Inc. 105,919
16,700 Becton Dickinson & Company 835,000
-----------
940,919
-----------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
COMMON
SHARES SECURITIES VALUE (NOTE 1)
- -----------------------------------------------------------------------------------------
<C> <S> <C>
HOTELS AND RESTAURANTS: 2.0%
7,400 Host Marriott Corp.+ $ 145,225
10,100 Marriott International Inc. 699,425
5,319 Promus Hotel Corp.+ 223,388
-----------
1,068,038
-----------
INSURANCE: 8.0%
1,900 Aetna Inc. 134,069
8,400 Allstate Corp. 763,350
5,100 AMBAC Inc. 234,600
5,500 Chubb Corp. 415,938
2,500 General Re Corporation 530,000
5,200 Hartford Finl. Svcs. Group
Inc. 486,525
4,000 Healthcare Comp. Corp.+ 204,500
7,200 Nationwide Finl. Svcs. Group
Inc. 260,100
3,000 SunAmerica Corp. 128,250
3,200 TransAmerica Corp. 340,800
13,381 Travelers Group Inc. 720,901
-----------
4,219,033
-----------
LEISURE: 0.9%
3,200 Carnival Corp. "A" 177,200
10,500 Galileo International Inc. 290,063
-----------
467,263
-----------
MACHINERY--AUTO/CONSTRUCTION: 0.6%
1,600 Caterpillar Inc. 77,700
7,000 McDermott Int'l Inc. 256,375
-----------
334,075
-----------
MEDIA: 10.6%
3,800 Belo (A.H.) Corp. Series A 213,275
7,000 CBS Corp. 206,063
2,300 Cox Communication Inc. Cl.A+ 92,144
7,000 Gannett Company Inc. 432,688
15,450 Jacor Communications Inc.+ 820,781
10,900 New York Times-Class "A" 720,763
8,324 Tele-Communications
TCI Group "A"+ 232,552
21,350 Tele-Comm. Liberty Media
Group+ 773,938
6,500 Time Warner Inc. 403,000
7,700 Tribune Company 479,325
24,900 U.S. West Media Group 718,988
12,300 Valassis Communications,
Inc.+ 455,100
-----------
5,548,617
-----------
</TABLE>
See Notes to Financial Statements.
<PAGE>
EAI Select Managers Equity Fund Schedule of Investments December 31, 1997
(continued)
<TABLE>
<CAPTION>
NO. OF
COMMON
SHARES SECURITIES VALUE (NOTE 1)
- -------------------------------------------------------------------------------------------
<C> <S> <C>
MEDICAL SERVICES: 2.4%
11,000 Beverly Enterprises Inc.+ $ 143,000
5,000 Columbia/HCA Healthcare
Corp. 148,125
8,500 Health Management
Associates, Inc.+ 214,625
5,000 HealthSouth Corp.+ 138,750
5,000 Manor Care Inc. 175,000
5,006 Pharmerica Inc. 51,938
6,000 Quorum Health Group Inc.+ 156,750
5,000 Sybron International Corp.+ 234,688
-----------
1,262,876
-----------
METALS: 0.3%
1,500 Reynolds Metals Co. 90,000
2,000 USX US Steel Group, Inc. 62,500
-----------
152,500
-----------
MULTI-INDUSTRY: 1.0%
9,600 Allied-Signal Inc. 373,800
2,300 General Electric Co. 168,763
-----------
542,563
-----------
OIL INTERNATIONAL: 3.8%
2,200 Amerada Hess Corp. 120,725
8,500 AMP Inc. 357,000
1,700 Atlantic Richfield Company 136,213
4,400 Baker Hughes Inc. 191,950
1,200 British Petroleum Plc.
(ADR) (United Kingdom) 95,625
1,700 Exxon Corp. 104,019
1,300 Mobil Corp. 93,844
4,000 Nuevo Energy Co.+ 163,000
9,000 Pride International Inc.+ 227,250
4,000 St. Mary Land & Explor. Co. 140,000
7,300 Stone Energy Corp.+ 244,550
2,200 Texaco Inc. 119,625
-----------
1,993,801
-----------
PACKAGED FOOD: 3.4%
5,500 Campbell Soup Company 319,688
7,000 Hershey Foods Corp. 433,563
4,000 Quaker Oats Company 211,000
2,100 Sara Lee Corp. 118,256
8,900 Wrigley (Wm.) Jr. Company 708,106
-----------
1,790,613
-----------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
COMMON
SHARES SECURITIES VALUE (NOTE 1)
- -------------------------------------------------------------------------------------------
<C> <S> <C>
PAPER: 1.4%
3,300 Fort James Corp. $ 126,225
2,100 International Paper Company 90,563
9,400 Kimberly-Clark Corp. 463,538
2,000 Mead Corp. 56,000
-----------
736,326
-----------
PERSONAL SERVICES: 3.8%
4,600 Apollo Group Inc. Class A+ 217,350
17,783 Cendant Corporation+ 611,289
3,000 Hertz Corp. Class A 120,750
5,600 H&R Block Inc. 250,950
5,000 Robert Half International,
Inc.+ 200,000
10,300 Service Corp. 380,456
5,000 Sunrise Assisted Living,
Inc.+ 215,625
-----------
1,996,420
-----------
PHOTO EQUIPMENT/SUPPLIES: 0.5%
4,000 Eastman Kodak Company 243,250
-----------
REAL ESTATE: 0.2%
3,700 Manufactured Home
Communities, Inc. 99,900
-----------
RESTAURANTS 0.5%
3,000 CKE Restaurants, Inc. 126,375
4,000 Tricon Global Restaurants,
Inc.+ 116,250
-----------
242,625
-----------
RETAIL--GENERAL MERCHANDISE: 1.7%
3,500 Costco Companies+ 156,188
4,000 Kohl's Corp.+ 272,500
1,800 Penney J.C. Co. 108,563
1,300 Sears Roebuck & Company 58,825
7,700 Wal-Mart Stores Inc. 303,669
-----------
899,745
-----------
RETAIL--SPECIALTY: 2.3%
7,000 Bed Bath & Beyond, Inc.+ 269,500
4,650 Borders Group Inc.+ 145,603
3,600 Consolidated Stores Corp.+ 158,175
9,000 Walgreen Co. 282,375
2,400 Whirlpool Corp. 132,000
5,200 Tandy Corp. 200,525
-----------
1,188,178
-----------
</TABLE>
See Notes to Financial Statements.
<PAGE>
EAI Select Managers Equity Fund Schedule of Investments December 31, 1997
(continued)
<TABLE>
<CAPTION>
NO. OF
COMMON
SHARES SECURITIES VALUE (NOTE 1)
- -------------------------------------------------------------------------------------------
<C> <S> <C>
SOAP AND COSMETICS: 2.8%
4,300 Avon Products Inc. $ 263,913
5,000 Clorox Co. 395,313
8,000 Gillette Co. 803,500
-----------
1,462,726
-----------
TELEPHONE/COMMUNICATIONS: 3.5%
3,200 Advanced Fibre Comm. Inc.+ 93,200
2,900 Airtouch Communications
Inc.+ 120,531
2,900 AT&T Corp. 177,625
2,193 Bell Atlantic Corp. 199,563
3,000 Ciena Corp.+ 183,375
2,102 GTE Corp. 109,830
2,200 Newbridge Networks Corp.+ 76,725
2,700 SBC Communications Inc. 197,775
5,800 Sprint Corp. 340,025
4,400 Telephone and Data Systems,
Inc. 204,875
3,900 WorldCom Inc.+ 117,975
-----------
1,821,499
-----------
TOBACCO: 0.8%
9,600 Philip Morris Companies,
Inc. 435,000
-----------
TOYS: 0.3%
4,900 Hasbro Inc. 154,350
-----------
TRANSPORTATION: 1.3%
1,100 Federal Express
Corporation+ 67,169
7,400 Heartland Express Inc.+ 198,875
3,000 MotivePower Indus. Inc.+ 69,750
2,400 Ryder Systems Inc. 78,600
10,000 Simon Transport Services
Inc.+ 240,000
-----------
654,394
-----------
TOTAL COMMON STOCKS: 97.6%
(cost: $39,733,206) $51,100,670
-----------
</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 12/31/97; MATURITY VALUE--
$1,654,450 (WITH BOSTON SAFE DEPOSIT AND
TRUST CO., COLLATERALIZED $1,740,000
U.S. TREASURY BILL DUE 4/02/98 WITH A
YIELD OF 5.31% VALUED AT $1,717,261) 1/02/98 4.90% $ 1,654,000
-----------
TOTAL SHORT-TERM OBLIGATIONS: 3.2%
(cost: $1,654,000) 1,654,000
-----------
TOTAL INVESTMENTS: 100.8%
(cost: $41,387,206) $52,754,670
-----------
LIABILITIES IN EXCESS OF
OTHER ASSETS: (0.8%) (410,205)
-----------
NET ASSETS: 100% $52,344,465
===========
</TABLE>
- -------
Glossary:
ADR--American Depositary Receipt
+--Non-income producing.
See Notes to Financial Statements.
<PAGE>
EAI Select Managers Equity Fund Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Investments at value (cost $41,387,206)(Note 1) $52,754,670
Cash 488
Receivables:
Securities sold 42,486
Dividends and interest 53,897
Capital shares sold 13,820
Deferred organization costs (Note 1) 125,679
-----------
Total assets 52,991,040
-----------
LIABILITIES:
Payables:
Dividends and distributions 476,599
Management fee 28,017
Securities purchased 15,432
Capital shares redeemed 8,627
Accounts payable 117,900
-----------
Total liabilities 646,575
-----------
NET ASSETS $52,344,465
===========
Net asset value, maximum offering price and redemption price
per share ($52,344,465/5,551,689 shares of beneficial
interest outstanding with an unlimited number of no par value
shares authorized) $ 9.43
===========
Composition of net assets:
Aggregate paid in capital 41,163,194
Net unrealized appreciation of investments 11,367,464
Accumulated net realized loss (186,193)
-----------
$52,344,465
===========
- -----------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
INCOME:
Dividends $ 998,269
Interest 170,622
-----------
Total income 1,168,891
EXPENSES:
Management (Note 2) 709,773
Administrative (Note 2) 154,298
Professional 78,058
Custodian 63,385
Transfer agent 40,112
Amortization of deferred organization costs (Note 1) 36,679
Registration 33,083
Trustees 14,789
Shareholder reports 18,947
Other 47,476
---------
1,196,600
Fees waived by the Manager (Note 2) (309,371)
---------
Total expenses 887,229
-----------
Net investment income 281,662
-----------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS: (NOTE 3)
Net realized gain from investments 16,811,492
Net change in unrealized appreciation of
investments 4,160,496
-----------
Net gain on investments 20,971,988
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $21,253,650
===========
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE JANUARY 2, 1996+
YEAR ENDED THROUGH
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
Operations:
Net investment income $ 281,662 $ 636,451
Net realized gain from
investments 16,811,492 3,873,251
Net change in unrealized appreciation of
investments 4,160,496 7,206,968
----------- -----------
Net increase in net assets
resulting from operations 21,253,650 11,716,670
----------- -----------
Dividends to shareholders from:
Net investment income (303,171) (636,451)
Net realized gain from investments (Note
1) (16,788,108) (4,140,898)
----------- -----------
(17,091,279) (4,777,349)
----------- -----------
Capital share transactions*:
Net proceeds from sales of shares 7,740,702 17,868,048
Net asset value of shares issued in ex-
change for
assets (Note 4) -- 86,821,580
Reinvestment of dividends 16,614,680 4,485,469
----------- -----------
24,355,382 109,175,097
Cost of shares redeemed (64,780,647) (27,607,060)
----------- -----------
Increase (decrease) in net assets
resulting from capital share transactions (40,425,265) 81,568,037
----------- -----------
Total (decrease) increase in net assets (36,262,893) 88,507,358
NET ASSETS:
Beginning of period 88,607,358 100,000
----------- -----------
End of period $52,344,465 $88,607,358
=========== ===========
*SHARES OF BENEFICIAL INTEREST ISSUED
AND REDEEMED:
Shares sold 642,486 1,736,140
Shares issued in connection with an ex-
change of assets (Note 4) -- 8,588,497
Reinvestment of dividends 1,761,896 414,553
----------- -----------
2,404,382 10,739,190
Shares redeemed (5,043,314) (2,558,569)
----------- -----------
Net increase (decrease) (2,638,932) 8,180,621
=========== ===========
</TABLE>
+ Commencement of Operations.
See Notes to Financial Statements.
<PAGE>
EAI Select Managers Equity Fund
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period
<TABLE>
<CAPTION>
FOR THE FOR THE PERIOD
YEAR JANUARY 2, 1996(A)
ENDED TO
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- ------------------
<S> <C> <C>
Net Asset Value, Beginning of Period...... $10.82 $10.00
------ ------
Income From Investment Operations:
Net Investment Income.................... 0.08 0.08
Net Gain on Investments (both realized 3.04 1.35
and unrealized)......................... ------ ------
Total From Investment Operations.......... 3.12 1.43
------ ------
Less Distributions from:
Net Investment Income.................... (0.08) (0.08)
Net Realized Gain on Investments......... (4.43) (0.53)
------ ------
Total Distributions....................... (4.51) (0.61)
------ ------
Net Asset Value, End of Period............ $ 9.43 $10.82
====== ======
Total Investment Return(b)................ 28.84% 14.30%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA
Net Assets, End of Period (000)........... $52,344 $88,607
Ratio of Gross Expenses to Average Net As-
sets .................................... 1.55% 1.50%(d)
Ratio of Net Expenses to Average Net As-
sets..................................... 1.15% 1.15%(d)
Ratio of Net Investment Income to Average
Net Assets(c)............................ 0.37% 0.73%(d)
Portfolio Turnover Rate................... 78% 174%
Average Commission Rate Paid.............. $0.0539 $0.0508
</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 dividends and
distributions at net asset value on the payable date 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 (0.03%) and 0.38%, respectively, had the Manager
not waived expenses.
(d) Annualized.
See Notes to Financial Statements.
- -----------------------------------------------------------------------------
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 year. 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, 1997, net realized gain on investments
for book purposes was more than those for tax purposes, primarily due to
the net reversal of $58,677 in realized losses due to wash sales.
<PAGE>
EAI Select Managers Equity Fund
- --------------------------------------------------------------------------------
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 $209,315 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 $709,773
for the year ended December 31, 1997 for management of the Fund. The fee is
based on an annual rate of 0.92% of average daily net assets. For the year
ended December 31, 1997, the Manager agreed to waive management fees in the
amount of $309,371 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, 1998.
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 1,665,176
shares (30.0%) and 1,267,998 shares (22.8%), respectively, of the outstanding
shares of the Fund. Additionally 1,450,223 shares are owned by four other
shareholders, each of whom own more than 5% but less than 9% of the outstanding
shares of the Fund.
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, 1997, the Subadvisers are Liberty Investment
Management, Bennett Lawrence Management LLC, Iridian Asset Management LLC,
Inc., Equinox Capital Management, Inc., Mastrapasgua & Associates, Inc. and
Siphron Capital Management.
In accordance with a Portfolio Accounting and Administration Agreement with Van
Eck Associates Corporation ("Van Eck"), the Fund paid Van Eck $154,298 for the
year ended December 31, 1997. 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.
The Fund accrued $52,557 in legal fees payable to Day, Berry and Howard,
counsel to the Fund, for the year ended December 31, 1997 for legal services in
conjunction with the Fund's ongoing operations.
DISTRIBUTION AGREEMENT--Under the terms of a Distribution Agreement with the
Fund, EAI Securities Inc., a wholly owned subsidiary of the Parent, serves as
the Distributor of the Fund's Shares. EAI Securities Inc., does not receive any
fees for services provided pursuant to this agreement.
NOTE 3--PURCHASES AND SALES--Purchases and sales of securities, other than
short-term obligations, aggregated $56,851,274 and $111,163,118, respectively,
for the year ended December 31, 1997. For federal income tax purposes the cost
of investments owned at December 31, 1997 was $41,542,810.
As of December 31, 1997, net unrealized appreciation for federal income tax
purposes aggregated $11,211,860 of which $11,875,756 related to appreciated
securities and $663,896 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
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
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, 1997, the results of its operations for the year
then ended and the changes in its net assets and the financial highlights for
the year then ended and 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 audits. We conducted our audits 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 audits, which included
the confirmation of securities at December 31, 1997 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
January 27, 1998
TAX INFORMATION (UNAUDITED)
By now shareholders to whom year-end tax reporting is required by the IRS
should have received their 1997 Form 1099 DIV from the Fund.
During the year ended December 31, 1997, the Fund paid a dividend in the amount
of $4.51 per share. This dividend was comprised of net investment income and
short term capital gain of $2.31 per share and long term capital gain of $2.20
per share.
The Taxpayer Relief Act of 1997 (the Act) affects the manner in which long term
capital gains are reported on income tax returns. As a result of the Act, the
Fund's long term capital gain distribution is allocated 59.055% to the 28
Percent Rate Gain and the remainder 40.945% to the 20 Percent Rate Gain
category.
For the year ended December 31, 1997, 100% of the income paid qualified for the
dividends received deduction available to corporations.
Shareholders are advised to consult with their own tax advisors as to the
Federal, state and local tax status of the income received.
<PAGE>
EAI Select
- -----------------
Managers
- -----------------
Equity Fund
- -----------------
Annual
- -----------------
Report
- -----------------
December 31, 1997
LOGO EAI SELECT
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
- ----------------------------------------------------------------------------
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. -- Distributor
200 Connecticut Avenue
Suite 700
Norwalk, CT 06854-1958
(203) 855-2200
FR1998-0216-0007
