<PAGE>
EAI Select Managers Equity Fund
Review of 1998
- --------------------------------------------------------------------------------
Dear Fellow Shareholder:
We are very pleased to present the third 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 1998.
EAI Select Managers Equity Fund
For the three year period ending 12/31/98, EAI Select earned 4(star)'s
(Morningstar Rating(TM)).*
The EAI Select Managers Equity Fund returned 23.9% in 1998. For the second year
in a row, its return compared favorably to the average Morningstar growth fund
(+19.3%)**, the average equity mutual fund (+13.4%) and the DJIA (+18.1%).
Technology (+57.3%), was by a wide margin, the best performer in 1998; it
comprised 11% to 15% of the Fund over the year. EMC Corp. (+209.8%), a maker of
computer storage systems, IBM (+77.5%), and Microsoft Corp. (+114.6%), led the
advance. Strong demand and continued earnings growth helped propel these
issues.
Another positive was consumer cyclical (+37.4%), which included a substantial
media and retail position. The three largest Fund holdings, Time Warner
(+101.1%), Tele-Comm. Inc. (+98.0%) and Liberty Media (+90.6%), all media-
related, were standouts. Wal-Mart Stores (+107.5%) also excelled.
A major laggard throughout the year was industrials (+3.8%). Aerospace
companies Lockheed Martin Corp. (-12.6%) and Raytheon Co. (+6.3%) continued to
disappoint.
Individual issues (from various sectors) such as Allstate Corp. (-13.9%), AES
Corp. (+1.6%), an independent power supplier, McDermott Int'l
(-32.1%) and Gillette Co. (-3.9%) also detracted from results. Earnings
disappointments and/or a clouded outlook depressed these issues.
Economic Review
The past year will be remembered as an emotional roller coaster. Rapid shifts
from optimism to pessimism created high levels of volatility, particularly in
world wide equity prices.
Turmoil in the emerging markets, first in Asia, then Russia and Latin America
and its impact on domestic economic growth and Federal Reserve policy dominated
investors' attention early in the year and in the summer/early fall. When these
overseas events quieted down, the focus shifted to the U.S. economy and
political environment.
The year 1998 began with the U.S. markets influenced more by Asian rather than
domestic events. By mid-February, however, investors became more balanced in
assessing the two factors. Economic growth, and how it might influence Federal
Reserve monetary policy and corporate earnings, shared center stage with Asian
developments.
From late in the first quarter, until mid-July, the markets treated overseas
events as back-burner
items. The Fed remained on the sidelines (no-action meetings occurred in mid-
May and early July).
The calm ended abruptly. For the next three months, panic gripped the markets.
Domestic and overseas events shared the news equally.
On the international front, Russia devalued the ruble and defaulted on its
debt, which led to speculation that their banks may fail.
Add to this, President Clinton's disclosure of an "inappropriate relationship"
and concerns about the impact of the latest crisis on the developed countries'
economies, and it is easy to understand why volatility and equity losses
increased.
By the time the Fed met again on August 18, they still did not see sufficient
cause to ease rates. Finally, on September 29, rates were lowered 0.25% to
5.25%, the first cut since January 1996. The market was disappointed it was not
more.
<PAGE>
EAI Select Managers Equity Fund
- --------------------------------------------------------------------------------
By early October, pessimism reached a fever pitch. Talk of recession and
deflation became pervasive. Changing sentiment instantaneously, however, was a
surprise move by the Federal Reserve on October 15, just two weeks after their
last move on September 29. Not only did they act between meetings (the first
time this has happened in 4 years), they cut both the Federal Funds and
Discount rates by 0.25% to 5.0% and 4.75%, respectively; the latter rate had
not changed since January 1996.
Reinforcing the positive mood was the Fed's November 17 decision to cut the
Funds and Discount rates by an additional 0.25% to 4.75% and 4.50%,
respectively.
The Stock Market Review
<TABLE>
<CAPTION>
Quarterly Returns
------------------------ Year
March June Sept. Dec. 1998
- ---------------------------------------------
<S> <C> <C> <C> <C> <C>
S&P 500 13.9% 3.3% -10.0% 21.3% 28.6%
Russell 2000 10.1 -4.7 -20.1 16.3 -2.5
- ---------------------------------------------
</TABLE>
In 1998, the S&P 500 rose 28.6%, marking the sixteenth calendar year advance in
seventeen years. Taken with 1995's (37.6%), 1996's (23.0%) and 1997's (33.4%)
advances, the four year return was the best ever recorded.
Unlike the 1992-1994 period, when volatility was at record lows (9% to 10%),
1998'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 Index was 33.9%,
triple those years but similar to the 1995-1997 period; unlike the latter,
however, the volatility in 1998 was not just of the upward variety (see
following table).
Small stocks (Russell 2000) underperformed for the fifth year in a row; this
year's lag was the worst ever, at 3110 basis points. For the most part, they
underperformed during both the upside and downside periods (see following
table). Investors have been flocking to mostly larger, more liquid securities
with earnings consistency in these times of economic uncertainty.
<TABLE>
<CAPTION>
Period S&P 500 Russell 2000
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
12/31--7/17 23.3% 6.5%
7/17--8/31 -19.2 -26.8
8/31--9/23 11.5 11.3
9/23--10/8 -9.9 -17.4
10/8--12/31 28.5 36.4
- ---------------------------------------------------------------------------------------------------
</TABLE>
Company characteristics played a major role in results in 1998. The clear
determinants of performance were size and EPS growth. Examples: the highest
quintile by market capitalization in the S&P 500 rose, on average, 37.7% in
1998, while the highest by growth rose 45.2%.
There was also a huge variation of returns among the sectors.
The clear winner was technology, which was led by the larger companies.
Microsoft Corp. (1998: +114.6%), Cisco Systems (+149.7%), IBM (+77.5%), and
Lucent Technology (+175.9%) all surged as it became clear that demand would
remain strong despite uncertainties abroad.
Consumer cyclical (+38.4%) also performed well. Continued consumer confidence
and economic prosperity helped the retailers (specialty: +85.5%; and general
merchandise: +68.4%). Of particular note were Wal-Mart Stores (+107.5%) and
Home Depot (+108.4%).
By a wide margin, the laggards were the commodity-based energy (+3.5%) and
basic industry (-4.5%) sectors. Lack of pricing power due to low inflation,
intense competition and slackening demand hurt energy exploration (-28.8%),
energy service (-9.9%), metal/mining (-13.1%) and chemical (-4.6%) companies.
The attached report provides you with a listing of the investment portfolio,
performance results, and the financial statements as of December 31, 1998. 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 the EAI Select Managers Equity
Fund.
Sincerely,
/s/ Phillip Maisano
Phillip Maisano
President
February 1999
* Morningstar proprietary ratings reflect historical risk-adjusted performance
as of 12/31/98. The ratings are subject to change every month. Past performance
is no guarantee of future results. Morningstar ratings are calculated from the
fund's three-, five-, and 10-year average annual returns (if applicable) in
excess of 90-day Treasury bill returns with appropriate fee adjustments, and a
risk factor that reflects fund performance below 90-day Treasury bill returns.
EAI Select received 4 stars for the three-year period. The top 10% of the funds
in an investment class receive 5 stars, the next 22.5% receive 4 stars, the
next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10%
receive 1 star. The Fund was rated among 2802 domestic equity funds for the
three-year period.
** Morningstar Growth Universe contained 1472 funds as of 12/31/98.
- -------------------------------------------------------------------------------
EAI Select Managers Equity Fund vs. S&P 500
EAI Select S&P 500
12/95 50,000 50,000
12/96 57,175 61,480
12/97 73,662 81,990
12/98 91,237 105,414
- -------------------------------------------------------------------------------
Average Annual Total Returns as of 12/31/98
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Since
1 Inception
Year (1/2/96)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
The Fund 23.86% 22.20%
- ----------------------------------------------------------------------------------------------------
Peer Group* 13.41% 17.91%
</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.
* Morningstar Domestic Equity Universe contained 4739 funds as of 12/31/98.
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, 1998
<TABLE>
<CAPTION>
No. of
Common
Shares Securities Value (Note 1)
- ---------------------------------------------------------------------------------------
<C> <S> <C>
Aerospace: 1.8%
5,500 General Dynamics
Corporation................ $ 322,438
1,200 General Motors Corp. Class
H.......................... 47,625
3,900 Lockheed Martin Corp. ...... 330,525
2,900 United Technologies
Corp. ..................... 315,375
----------
1,015,963
----------
Airlines: 0.6%
3,600 AMR Corp. (DE).............. 213,750
2,200 Delta Air Lines Inc. ....... 114,400
----------
328,150
----------
Autos: 1.1%
2,700 Ford Motor Company.......... 158,456
6,500 General Motors Co. ......... 465,156
----------
623,612
----------
Banks: 6.7%
6,044 BankAmerica Corp. .......... 363,396
12,600 BankBoston Corp. ........... 490,613
11,800 Bank of New York Co.
Inc. ...................... 474,950
2,776 Chase Manhattan Corp. ...... 188,942
7,000 Citigroup Inc. ............. 346,500
4,600 Fleet Financial............. 205,563
5,600 Mellon Bank Corp. .......... 385,000
8,400 State Street Corp. ......... 584,325
2,688 Washington Mutual, Inc. .... 102,648
14,000 Wells Fargo & Company....... 559,125
----------
3,701,062
----------
Beverages: 1.6%
8,000 Coca-Cola Company........... 536,000
8,000 Pepsico Inc. ............... 327,500
----------
863,500
----------
Building/Heavy Construction: 0.1%
2,300 Foster Wheeler Corp. ....... 30,331
600 Ingersol-Rand Co. .......... 28,163
----------
58,494
----------
Chemicals: 0.5%
5,600 Du Pont (E.I.) De Nemours... 297,150
----------
Computer Services/Office Equipment: 10.1%
12,700 Compaq Computers Corp. ..... 532,606
2,000 Compuware Corp.+............ 156,250
9,840 Electronic Data Systems
Corp. ..................... 494,460
6,000 EMC Corp.+.................. 510,000
22,800 First Data Corp. ........... 722,475
</TABLE>
<TABLE>
<CAPTION>
No. of
Common
Shares Securities Value (Note 1)
- -------------------------------------------------------------------------------------
<S> <C> <C>
Computer Services/Office Equipment: (continued)
2,650 Gateway 2000, Inc.+............... $ 135,647
5,000 Hewlett-Packard Co. .............. 341,563
3,400 International Business Machines
Corp. ........................... 628,150
2,000 Lexmark Interantional Group,
Inc. ............................ 201,000
3,700 Microsoft Corp.+.................. 513,144
20,000 Novell Inc.+...................... 362,500
8,000 Oracle Corp.+..................... 345,000
5,000 Sabre Group Holdings Inc. ........ 222,500
3,000 Sun Microsystems, Inc. ........... 256,875
1,700 Xerox Corp. ...................... 200,600
----------
5,622,770
----------
Electric Utilities: 2.3%
10,200 AES Corp. ........................ 483,225
1,900 Consolidated Edison Inc. ......... 100,463
1,100 FPL Group, Inc. .................. 67,788
3,500 Montana Power Co. ................ 197,969
5,200 PacificCorp. ..................... 109,525
1,900 PECO Energy Co. .................. 79,088
4,346 PG&E Corporation.................. 136,899
2,700 Unicom Corp. ..................... 104,119
----------
1,279,076
----------
Electrical Equipment: 0.4%
4,800 Cooper Industries Inc. ........... 228,900
----------
Electronics: 3.4%
4,000 Applied Materials Inc.+........... 170,750
6,500 Intel Corp. ...................... 770,656
8,876 Raytheon Company.................. 458,778
4,000 SCI Systems Inc.+................. 231,000
10,000 Smart Modular Technologies Inc. .. 277,500
----------
1,908,684
----------
Energy--Oil & Gas: 0.1%
2,000 Coastal Corp. .................... 69,875
----------
Financial Services: 7.9%
7,000 American Express Company.......... 715,750
10,286 Associates First Capital Corp.
Class A.......................... 435,869
12,000 Charles Schwab Co. ............... 674,250
6,500 Concord EFS, Inc.+................ 275,438
10,200 Federal Home Loan Mortgage
Corp. ........................... 657,263
10,000 Federal National Mortgage
Assoc. .......................... 740,000
7,700 Household International, Inc. .... 305,113
16,125 MBNA Corp. ....................... 402,117
2,900 Morgan Stanley, Dean Witter,
Discover and Co. ................ 205,900
----------
4,411,700
----------
</TABLE>
See Notes to Financial Statements
<PAGE>
EAI Select Managers Equity Fund
Schedule of Investments December 31, 1998 (continued)
<TABLE>
<CAPTION>
No. of
Common
Shares Securities Value (Note 1)
- ------------------------------------------------------------------------------------------
<C> <S> <C>
Footwear: 0.6%
8,000 Nike Inc. Class B........... $ 324,500
----------
Hospital Supply: 1.1%
1,900 Baxter International,
Inc. ...................... 122,194
11,200 Becton Dickinson & Company.. 478,100
----------
600,294
----------
Insurance: 5.3%
11,000 Allstate Corp. ............. 424,875
4,700 Ambac Inc. ................. 282,881
3,000 American International
Group, Inc. ............... 289,875
7,100 CIGNA Corp. ................ 548,919
2,600 Conseco, Inc. .............. 79,463
7,900 Hartford Finl. Services
Group Inc. ................ 433,513
6,500 Nationwide Finl. Services
Group Inc. ................ 335,969
4,500 TransAmerica Corp. ......... 519,750
----------
2,915,245
----------
Leisure: 0.7%
2,000 Carnival Corp. ............. 96,000
6,400 Galileo International
Inc. ...................... 278,400
----------
374,400
----------
Machinery--Auto/Construction: 0.4%
1,100 Deere & Co. ................ 36,438
7,000 McDermott Int'l Inc. ....... 172,813
----------
209,251
----------
Media: 17.9%
10,000 Belo (A.H.) Corp. Series A.. 199,375
5,600 Cablevision Systems,
Corp. ..................... 281,050
9,600 CBS Corp. .................. 314,400
6,600 Central Newspapers, Inc.
Class A.................... 471,488
11,100 Comcast Corp. Class A....... 651,431
5,500 Gannett Company Inc. ....... 364,031
11,000 Jacor Communications Inc.+.. 708,125
6,400 Infinity Broadcasting
Corp. ..................... 175,200
12,900 MediaOne Group Inc. ........ 606,300
15,200 News Corp. Ltd. (ADR)......... 375,250
20,000 New York Times-Class Class
A.......................... 693,750
16,924 Tele-Communications Inc.
Class A+................... 936,109
36,425 Tele-Comm. Liberty Media
Group...................... 1,677,827
21,400 Time Warner Inc. ........... 1,328,138
6,200 Tribune Company............. 409,200
9,900 Valassis Communications,
Inc.+...................... 511,088
7,300 Westwood One Inc.+.......... 222,650
----------
9,925,412
----------
</TABLE>
<TABLE>
<CAPTION>
No. of
Common
Shares Securities Value (Note 1)
- -------------------------------------------------------------------------------------------
<C> <S> <C>
Medical Services: 0.4%
6,000 PSS World Medical, Inc. .... $ 138,000
3,700 Tenet Healthcare Corp. ..... 97,125
----------
235,125
----------
Metals: 0.2%
2,100 Reynolds Metals Co. ........ 110,644
----------
Multi-Industry: 1.4%
5,500 Minnesota Mining and
Manufacturing Co. ......... 391,188
5,325 Tyco Interational Ltd. ..... 401,705
----------
792,893
----------
Oil International: 1.6%
2,500 Amerada Hess Corp. ......... 124,375
900 Atlantic Richfield Company.. 58,725
5,200 Conoco Inc. Class A+........ 108,550
1,900 Exxon Corp. ................ 138,938
1,000 Mobil Corp. ................ 87,125
6,700 Texaco Inc. ................ 354,263
----------
871,976
----------
Packaged Food: 3.8%
4,000 Campbell Soup Company....... 220,000
3,400 ConAgra, Inc. .............. 107,100
7,000 Hershey Foods Corp. ........ 435,313
6,000 Quaker Oats Company......... 357,000
6,400 Ralston-Ralston Purina
Group...................... 207,200
8,900 Wrigley (Wm.) Jr. Company... 797,106
----------
2,123,719
----------
Paper: 1.8%
9,300 Fort James Corp. ........... 372,000
2,300 International Paper
Company.................... 103,069
9,500 Kimberly-Clark Corp. ....... 517,750
----------
992,819
----------
Personal Services: 1.5%
14,800 Service Corp. .............. 563,325
5,000 Sunrise Assisted Living,
Inc.+...................... 259,375
----------
822,700
----------
Pharmaceutical: 11.6%
9,000 Abbott Laboratories......... 441,000
4,000 Allegiance Corp. ........... 186,500
5,200 American Home Products
Corp. ..................... 292,825
2,000 Amgen Inc.+................. 209,125
7,300 Bristol-Myers Squibb Co. ... 976,831
7,000 Johnson & Johnson........... 587,125
</TABLE>
See Notes to Financial Statements
<PAGE>
EAI Select Managers Equity Fund
Schedule of Investments December 31, 1998 (continued)
<TABLE>
<CAPTION>
No. of
Common
Shares Securities Value (Note 1)
- -------------------------------------------------------------------------------------------
<C> <S> <C>
Pharmaceutical (continued)
5,000 Eli Lilly and Co. .......... $ 444,375
4,800 Merck & Co. ................ 708,900
8,100 Pfizer Inc. ................ 1,016,044
5,500 Pharmacia & Upjohn. Inc. ... 311,438
18,000 Schering-Plough Corp. ...... 994,500
3,500 Warner-Lambert Co. ......... 263,156
----------
6,431,819
----------
Photo Equipment/Supplies: 0.7%
5,397 Eastman Kodak Company....... 388,584
----------
Restaurants: 1.1%
8,000 McDonald's Corp. ........... 613,000
----------
Retail--General Merchandise: 1.2%
1,500 J.C. Penney Co. ............ 70,313
4,100 Sears Roebuck & Company..... 174,250
5,000 Wal-Mart Stores Inc. ....... 407,188
----------
651,751
----------
Retail--Specialty: 1.8%
4,000 CVS Corp. .................. 220,000
4,700 Tandy Corp. ................ 193,581
8,600 Walgreen Co. ............... 503,638
2,000 Whirlpool Corp. ............ 110,750
----------
1,027,969
----------
Soap and Cosmetics: 2.5%
8,000 Avon Products Inc. ......... 354,000
4,500 Clorox Co. ................. 525,656
10,500 Gillette Co. ............... 507,281
----------
1,386,937
----------
Telephone/Communications: 4.4%
8,300 Airtouch Communications
Inc. ...................... 598,638
3,100 AT&T Corp. ................. 233,275
3,586 Bell Atlantic Corp. ........ 203,730
1,102 GTE Corp. .................. 74,316
8,724 MCI WorldCom, Inc. ......... 625,947
3,000 SBC Communications Inc. .... 160,875
5,800 Sprint Corp. ............... 487,925
1,500 Telephone and Data Systems,
Inc. ...................... 67,406
----------
2,452,112
----------
Tobacco: 0.6%
5,900 Philip Morris Companies
Inc. ...................... 315,650
----------
</TABLE>
<TABLE>
<CAPTION>
No. of
Common
Shares Securities Value (Note 1)
- -------------------------------------------------------------------------------------------
<C> <S> <C>
Toys: 0.4%
5,400 Hasbro Inc. ................ $ 195,075
------------
Transportation: 0.2%
3,000 MotivePower Indus. Inc. .... 96,549
------------
Total Common Stocks: 97.8%
(cost: $38,362,278)............................. 54,267,360
------------
</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 4): Purchased
on 12/31/98; maturity
value--$1,637,000
(with Boston Safe
Deposit and Trust
Co., collateralized
by $1,720,000 U.S.
Treasury Bill due
3/04/99 with a yield
of 4.46% valued at
$1,707,681) 1/04/99 4.2 %
Total Short-Term Obligations: 3.0% (cost:
$1,637,000) 1,637,000
-----------
Total Investments: 100.8%
(cost: $39,999,278) 55,904,360
Other assets less liabilities: (0.8%) (455,176)
-----------
Net Assets: 100% $55,449,184
===========
</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, 1998
<TABLE>
<S> <C>
Assets:
Investments at value (cost, $39,999,278)(Note 1) $55,904,360
Receivables:
Securities sold 159,902
Dividends and interest 47,345
Capital shares sold 4,572
Deferred organization costs (Note 1) 82,657
-----------
Total assets 56,198,836
-----------
Liabilities:
Payables:
Due to custodian 262,159
Securities purchased 190,427
Dividends and distributions 147,638
Management fee 41,680
Accounts payable 107,748
-----------
Total liabilities 749,652
-----------
Net Assets $55,449,184
===========
Net asset value, maximum offering price and redemption price per
share ($55,449,184/5,387,357 shares of beneficial interest
outstanding with an unlimited number of no par value shares
authorized) $ 10.29
===========
Composition of net assets:
Aggregate paid in capital $39,656,806
Net unrealized appreciation of investments 15,905,082
Accumulated net realized loss (112,704)
-----------
$55,449,184
===========
</TABLE>
- --------------------------------------------------------------------------------
Statement of Operations
For the Year Ended December 31, 1998
<TABLE>
<S> <C> <C>
Income:
Dividends $ 573,811
Interest 98,611
-----------
Total income 672,422
Expenses:
Management (Note 2) $497,537
Administrative (Note 2) 108,160
Professional 69,592
Custodian 63,495
Amortization of deferred organization costs (Note 1) 43,022
Transfer agent 24,917
Shareholder reports 18,536
Trustees 15,000
Registration 6,668
Other 48,974
--------
895,901
Fees waived by the Manager (Note 2) (273,980)
--------
Total expenses 621,921
-----------
Net investment income 50,501
-----------
Net Realized and Unrealized Gain on Investments: (Note
3)
Net realized gain from investments 6,560,106
Net change in unrealized appreciation of investments 4,537,618
-----------
Net gain on investments 11,097,724
-----------
Net Increase in Net Assets Resulting from Operations $11,148,225
===========
</TABLE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Net investment income $ 50,501 $ 281,662
Net realized gain from investments 6,560,106 16,811,492
Net change in unrealized appreciation of
investments 4,537,618 4,160,496
------------ ------------
Net increase in net assets resulting from
operations 11,148,225 21,253,650
------------ ------------
Dividends and distributions to
shareholders from: (Note 1)
Net investment income (95,169) (303,171)
Net realized gain from investments (6,519,108) (16,788,108)
------------ ------------
(6,614,277) (17,091,279)
------------ ------------
Capital share transactions*:
Net proceeds from sales of Shares 4,079,264 7,740,702
Reinvestment of dividends 6,466,639 16,614,680
------------ ------------
10,545,903 24,355,382
Cost of shares redeemed (11,975,132) (64,780,647)
------------ ------------
Decrease in net assets resulting from
capital share transactions (1,429,229) (40,425,265)
------------ ------------
Total increase (decrease) in net assets 3,104,719 (36,262,893)
Net Assets:
Beginning of year 52,344,465 88,607,358
------------ ------------
End of year $ 55,449,184 $ 52,344,465
============ ============
*Shares of Beneficial Interest Issued and
Redeemed:
Shares sold 395,252 642,486
Reinvestment of dividends 628,439 1,761,896
------------ ------------
1,023,691 2,404,382
Shares redeemed (1,188,023) (5,043,314)
------------ ------------
Net decrease (164,332) (2,638,932)
============ ============
</TABLE>
See Notes to Financial Statements
<PAGE>
EAI Select Managers Equity Fund
- -------------------------------------------------------------------------------
Financial Highlights
For a share outstanding throughout each period
<TABLE>
<CAPTION>
Year Ended For the Period
December 31, January 2, 1996(a)
---------------- to
1998 1997 December 31,1996
------- ------- ------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period...... $ 9.43 $ 10.82 $ 10.00
------- ------- -------
Income From Investment Operations:
Net Investment Income.................... 0.01 0.08 0.08
Net Gain on Investments (both realized
and unrealized)......................... 2.24 3.04 1.35
---- ---- ----
Total From Investment Operations.......... 2.25 3.12 1.43
---- ---- ----
Less Distributions from:
Net Investment Income.................... (0.02) (0.08) (0.08)
Net Realized Gain on Investments......... (1.37) (4.43) (0.53)
----- ----- -----
Total Distributions....................... (1.39) (4.51) (0.61)
----- ----- -----
Net Asset Value, End of Period............ $ 10.29 $ 9.43 $ 10.82
======= ======= =======
Total Investment Return(b)................ 23.86% 28.84% 14.30%
- --------------------------------------------------------------------------------
Ratios/Supplementary Data
Net Assets, End of Period (000)........... $55,449 $52,344 $88,607
Ratio of Gross Expenses to Average Net As-
sets..................................... 1.66% 1.55% 1.50%(d)
Ratio of Net Expenses to Average Net As-
sets..................................... 1.15% 1.15% 1.15%(d)
Ratio of Net Investment Income to Average
Net Assets(c)............................ 0.09% 0.37% 0.73%(d)
Portfolio Turnover Rate................... 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 periods less than one year are not
annualized.
(c) Ratios would have been (0.42%), (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 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 management to make
estimates and make assumptions that affect reported amounts in the financial
statements. Actual results could differ from these estimates.
A. Security Valuation--Securities traded on national exchanges or 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-
<PAGE>
EAI Select Managers Equity Fund
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
dividend date. Income distributions and capital gain distributions are
determined in accordance with income tax regulations which may differ from
such amounts reported in accordance with generally accepted accounting
principles. These "book/tax" differences are either considered temporary or
permanent in nature. To the extent these differences are permanent in nature,
such amounts are reclassified within the capital accounts based on their
Federal tax basis treatment; temporary differences do not require
reclassification.
During the period ended December 31, 1998, the Fund made capital account
reclassifications due to permanent book/tax differences. The Fund
reclassified $44,668 from accumulated net investment loss and $32,491 from
accumulated net realized loss to paid in capital primarily due to
organization expenses and distributions in excess of net realized gain.
Temporary book/tax differences are primarily related to wash sale loss
deferrals.
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--Evaluation Associates
Capital Markets, Inc. (the "Manager"), a wholly owned subsidiary of EAI
Partners, L.P. (the "Parent"), earned fees of $497,537 for the year ended
December 31, 1998 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,
1998, the Manager agreed to waive management fees in the amount of $273,980
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, 1999.
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 1,513,178
shares (28.1%) and 1,504,462 shares (27.9%), respectively, of the outstanding
shares of the Fund. Additionally, 1,064,135 shares are owned by three other
shareholders, each of whom own more than 5% but less than 8% 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. At December 31, 1998, the Subadvisers are Liberty Investment
Management, 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 $108,160 for the
year ended December 31, 1998. The annual fee is graduated, beginning at 0.20 of
1% of monthly average net assets of less than $100 million to 0.12 of 1% of
monthly average net assets in excess of $260 million.
The Fund accrued $44,550 in legal fees payable to Day, Berry and Howard,
counsel to the Fund, for the year ended December 31, 1998 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 $32,885,892 and $40,816,926, respectively,
for the year ended December 31, 1998. For federal income tax purposes the cost
of investments owned at December 31, 1998 was $40,111,983.
As of December 31, 1998, net unrealized appreciation for federal income tax
purposes aggregated $15,792,377 of which $16,376,415 related to appreciated
securities and $584,038 related to depreciated securities.
<PAGE>
EAI Select Managers Equity Fund
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
Note 4--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.
To the Board of Trustees and Shareholders of the 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 the EAI Select Managers Equity
Fund (hereafter referred to as the "Fund") at December 31, 1998, and the
results of its operations, the changes in its net assets and the financial
highlights for each of the periods presented, 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 confirmation of securities at December 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 17, 1999
<PAGE>
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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
PricewaterhouseCoopers LLP
1177 Avenue of 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
================================================================================
. . .
================================================================================
EAI SELECT
----------------
MANAGERS
----------------
EQUITY FUND
----------------
ANNUAL
----------------
REPORT
----------------
December 31, 1998
================================================================================
[LOGO] EAI SELECT
