<PAGE>
EAI Select Managers Equity Fund
Review of 1999
- --------------------------------------------------------------------------------
Dear Fellow Shareholder:
We are very pleased to present the fourth annual report on the EAI Select
Managers Equity Fund (the "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 1999.
Eai Select Managers Equity Fund
The EAI Select Managers Equity Fund returned 30.7% in 1999, its best absolute
and relative calendar year performance since inception. Compared to the S&P 500
(+21.0%), it outperformed by 970 basis points for the year; each quarterly
return surpassed the benchmark as well. The comparison to peers (the average
Morningstar Large Blend Equity Fund: 19.5%*) was also impressive.
Technology (+108.3%), whose weighting increased to 32% from 15% last year, was
the primary driver in 1999. The surge in demand for communication/networking
services gave a huge boost to such companies as Oracle Corp. (+289.8%), Sun
Microsystems Inc. (+261.8%), an April 1999 purchase of Qualcomm Inc. (+533.1%)
and a May 1999 purchase of JDS Uniphase Corp. (+405.8%).
Another positive was consumer cyclical (+51.6%). Media/Telephone/Communications
companies dominated the solid performers. AT&T-Liberty Media (+146.7%), the
Fund's largest holding, at 4.3%, and an April 1999 purchase of Satellite T.V.
broadcaster Echostar Comm. Corp. (+290.7%) were standout performers.
The only major drag was consumer noncyclical (-18.0%), which was reduced to 16%
from 22%. Pharmaceutical companies such as Pfizer Inc. (-21.5%), Pharmacia &
Upjohn Inc. (-19.0%) and American Home Products (-29.2%) were hurt by sluggish
growth, lack of significant new drugs in the pipeline and competitive pricing.
Economic Review
Unlike 1998, when events overseas, particularly in Asia and Eastern Europe, had
the most impact on domestic markets, 1999 saw a return to a focus on U.S.
economic growth and inflation trends and their influence on Federal Reserve
policy.
Chairman Greenspan's testimony to the House Ways and Means Committee in mid-
January suggested, "stock prices may be too high relative to future profit
growth" and the economic expansion shows "scant signs" of an appreciable
slowdown. Again in late February, speaking to the Senate Banking Committee, the
Fed Chairman questioned whether the three rate cuts made last year remained
"appropriate" now that global markets have "calmed".
The Fed took a "wait and see" approach, deciding to leave interest rates
unchanged at their February 3, March 30 and May 18 meetings but signaled at the
latter that they were prepared to raise rates if the U.S. economy continued to
accelerate and inflation heated up.
The much anticipated move by the Federal Reserve to raise short-term interest
rates finally occurred on June 30. In an attempt to slow the economy, and as a
pre-emptive move against inflation, the federal funds rate was raised by 0.25%
to 5.00%. It was the first change since a 0.25% cut on November 17, 1998 and
the first increase since a 0.25% boost on March 25, 1997. Money center banks
promptly raised their prime lending rate to 8.0% from 7.75%.
For the next seven weeks, economic reports were scrutinized for signs of the
long awaited slowdown in growth. For the most part, indications of a cooling
were still hard to find.
By the time the Fed met on August 24, and raised rates for the second time in
eight weeks, it did not come as a surprise; the federal funds rate was raised
another 0.25% to 5.25%. For the first time since early 1995, the discount rate,
which the Fed charges on
<PAGE>
EAI Select Managers Equity Fund
- --------------------------------------------------------------------------------
loans to banks, was also raised 0.25% to 4.75%. Money center banks promptly
raised their prime-lending rate to 8.25% from 8.00%.
After a no-action meeting in early October, the Fed meeting on November 16
produced another increase of 0.25% in each of the three key interest rates.
The Stock Market Review
<TABLE>
<CAPTION>
Quarterly Returns
------------------------ Year
March June Sept. Dec. 1999
----- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C>
S&P 500......... 5.0% 7.1% -6.3% 14.9% 21.0%
Russell 2000.... -5.4 15.5 -6.3 18.4 21.3
NASDAQ.......... 12.4 9.3 2.4 48.4 86.8
</TABLE>
In 1999, the S&P 500 rose 21.0%, marking the seventeenth calendar year advance
in eighteen years. Taken with 1995's (37.6%), 1996's (23.0%), 1997's (33.4%)
and 1998's (28.6%) advances, the five year return was the best ever recorded.
The headline story, however, was the technology-heavy NASDAQ Index, which
soared 86.8%; the largest yearly gain ever for any major U.S. stock market
index.
Small stocks (Russell 2000) performed in line with the S&P 500 after lagging
for five years in a row. Within the Russell Index, however, the Growth
component outperformed Value by 4458 basis points (+43.1% vs. -1.5%), the
largest spread ever. Investors seem more willing to buy companies with little
or no earnings but with growing top-line revenues.
The U.S. markets had three distinct phases during 1999. See below:
<TABLE>
<CAPTION>
Period S&P 500 Russell 2000 NASDAQ
- ------------ ------- ------------ ------
<S> <C> <C> <C>
12/31-- 7/16 16.2% 11.1% 30.9%
7/16--10/15 -11.8 -10.6 -4.6
10/15--12/31 18.1 22.2 49.0
</TABLE>
The rally in the first half of the year was fueled by growing optimism that the
worst was over as far as the Asian/Eastern European crisis was concerned.
Earnings growth accelerated, merger activity was robust and inflation remained
in check.
The Fed's move on June 30 caused shockwaves in the markets. Uncertainty as to
the number of rate increases it will take to slow the U.S. economy took its
toll. Interest-rate sensitive issues (i.e., financial) led stocks lower; this
three-month period contained the only major correction all year.
As was true in 1998, 1999 ended on a high note. Although leadership was quite
narrow (growth, with a technology emphasis), the markets more than made up the
mid-year losses.
There was a huge variation of returns among the sectors.
As was true in 1998, technology (+72.6%) was the clear leader in 1999.
Interestingly, the addition of a number of relatively large companies (ex.
Yahoo Inc. and Qualcomm Inc.), combined with its relative outperformance, have
caused this sector weighting in the index to rise to 31% from 20% last year.
The rapid growth of the internet led to spectacular gains in companies that
will benefit from that growth. Oracle Corp. (+289.8%), Sun Microsystems Inc.
(+261.8%) and Cisco Systems Inc. (+130.8%), which comprised 16% of the sector,
were particularly strong.
In a reversal of the solid results over the past few years, consumer
noncyclical (-12.5%) was a significant laggard in 1999. Consistent growers such
as food (-21.0%) and pharmaceuticals (-11.9%) were particularly weak as
investors preferred faster growing companies. Competition and lack of exciting
new product offerings also contributed to their lag.
The following report provides you with the performance results, schedule of
investments and the financial statements as of December 31, 1999. 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 7, 2000
EAI Select S&P 500
12/31/95 50,000 50,000
12/31/96 57,175 61,480
12/31/97 73,662 81,990
12/31/98 91,237 105,414
12/31/99 119,256 127,583
<TABLE>
<CAPTION>
Average Annual Total Returns as of 12/31/99
-------------------------------------------
Since
Inception
1 Year 3 Years (1/2/96)
- --------------------------------------------
<S> <C> <C> <C>
The Fund......... 30.71% 27.77% 24.27%
- --------------------------------------------
Peer Group*...... 19.47% 22.62% 22.02%
</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 Large Blend Equity Universe contained 934 funds as of 12/31/99.
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, 1999
<TABLE>
<CAPTION>
No. of
Common
Shares Securities Value (Note 1)
- -------------------------------------------------------------------------------------------
<C> <S> <C>
Aerospace: 0.8%
5,200 General Motors Corp. (Class
H)......................... $ 499,200
-----------
Autos: 0.5%
4,300 General Motors Co........... 312,556
-----------
Banks: 3.7%
3,450 AmSouth Bancorporation...... 66,628
9,500 Chase Manhattan Corp. ...... 738,031
4,500 Citigroup, Inc.............. 250,031
3,780 Commerce Bancshares, Inc.... 128,048
8,900 Mellon Financial Corp....... 303,156
7,700 State Street Corp........... 562,581
2,500 SunTrust Bank, Inc.......... 172,031
5,200 Wells Fargo & Co............ 210,275
-----------
2,430,781
-----------
Beverages: 1.5%
9,500 Coca-Cola Co. .............. 553,375
12,000 PepsiCo, Inc................ 423,000
-----------
976,375
-----------
Chemicals: 0.1%
2,700 Monsanto Co. ............... 96,188
-----------
Computer Services/Office Equipment: 18.0%
2,400 America Online, Inc.+....... 181,050
2,200 Analog Devices, Inc.+....... 204,600
7,700 Apple Computer, Inc.+....... 791,656
1,200 Broadcom Corp. (Class A)+... 326,850
2,800 Checkfree Holdings Corp.+... 292,600
2,800 Cisco Systems, Inc.......... 299,950
10,600 Compuware Corp.+............ 394,850
13,000 Dell Computer Corp.+........ 663,000
2,100 Earthlink Network, Inc...... 89,250
13,900 Electronic Data Systems
Corp....................... 930,431
6,000 EMC Corp.+.................. 655,500
17,300 First Data Corp.+........... 853,106
3,800 Hewlett-Packard Co.......... 432,963
4,200 International Business
Machines Corp.............. 453,600
3,100 Lexmark International
Group, Inc. (Class A)+..... 280,550
7,600 Microsoft Corp.+............ 887,300
3,400 MindSpring Enterprises,
Inc.+...................... 89,781
1,600 Network Solutions, Inc.+.... 348,100
</TABLE>
<TABLE>
<CAPTION>
No. of
Common
Shares Securities Value (Note 1)
- -------------------------------------------------------------------------------------------
<C> <S> <C>
Computer Services/Office Equipment: (continued)
20,000 Novell, Inc.+............... $ 798,750
7,200 Oracle Corp.+............... 806,850
11,800 Sun Microsystems, Inc.+..... 913,763
13,700 Unisys Corp.+............... 437,544
3,000 Verities Software Corp.+.... 429,375
9,800 Xerox Corp.................. 222,338
-----------
11,783,757
-----------
Electric Utilities: 1.8%
11,400 AES Corp.+.................. 852,150
7,000 Montana Power Co............ 252,438
4,000 PP & L Resources, Inc....... 91,500
-----------
1,196,088
-----------
Electronics: 5.6%
5,400 Applied Materials, Inc.+.... 684,113
11,100 Intel Corp.................. 913,669
4,300 KLA-Tenor Corp.+............ 478,913
4,200 LSI Logic Corp.+............ 283,500
2,600 PE Corp. - PE Biosystems
Group...................... 312,813
5,100 Solectron Corp.+............ 485,138
5,000 Teradyne, Inc.+............. 330,000
2,000 Texas Instruments, Inc. .... 193,750
-----------
3,681,896
-----------
Energy: 2.0%
2,000 Apache Corp................. 73,875
2,400 Columbia Energy Group....... 151,800
4,900 ENI S.p.A. (ADR)............ 270,113
1,900 Phillips Petroleum Co....... 89,300
1,300 Royal Dutch Petroleum Co.
(NY Reg. Shares)........... 78,569
2,300 Texaco, Inc................. 124,919
6,422 Total Fina S.A. (ADR)....... 444,724
2,500 Unocal Corp.+............... 83,906
-----------
1,317,206
-----------
Financial Services: 6.7%
4,000 American Express Co......... 665,000
5,700 Associates First Capital
Corp. (Class A)............ 156,394
14,000 Charles Schwab Co........... 537,250
9,750 Concord EFS, Inc.+.......... 251,063
11,700 Equifax, Inc................ 275,681
</TABLE>
See Notes to Financial Statements
<PAGE>
EAI Select Managers Equity Fund
Schedule of Investments December 31, 1999 (continued)
<TABLE>
<CAPTION>
No. of
Common
Shares Securities Value (Note 1)
- -------------------------------------------------------------------------------------------
<C> <S> <C>
Financial Services: (continued)
9,500 Federal Home Loan Mortgage
Corp....................... $ 447,094
6,800 Federal National Mortgage
Association................ 424,575
5,500 Household International,
Inc........................ 204,875
10,925 MBNA Corp. ................. 297,706
8,200 Merrill Lynch and Co.,
Inc........................ 684,700
800 Providian Financial Corp.... 72,850
4,700 S1 Corp..................... 367,188
-----------
4,384,376
-----------
Footwear: 0.6%
8,000 Nike, Inc. (Class B)........ 396,500
-----------
Healthcare: 0.2%
4,200 Medtronic, Inc.............. 153,038
-----------
Hospital Supply: 1.1%
4,800 Baxter International, Inc... 301,500
15,300 Becton, Dickinson & Co...... 409,275
-----------
710,775
-----------
Hotels: 0.6%
2,400 Marriott International,
Inc. (Class A)............. 75,750
12,700 Starwood Hotels and Resorts
Worldwide, Inc............. 298,450
-----------
374,200
-----------
Insurance: 2.8%
2,100 AFLAC, Inc.................. 99,094
4,400 Ambac Financial Group,
Inc........................ 229,625
12,900 AXA Financial, Inc. ........ 436,988
6,000 CIGNA Corp.................. 483,375
8,800 Hartford Financial Services
Group, Inc................. 416,900
6,100 Nationwide Financial
Services
Group, Inc................. 170,419
-----------
1,836,401
-----------
Leisure: 0.6%
2,000 Carnival Corp............... 95,625
6,900 Harrah's Entertainment,
Inc.+...................... 182,419
1,900 Preview Travel, Inc.+....... 99,038
-----------
377,082
-----------
</TABLE>
<TABLE>
<CAPTION>
No. of
Common
Shares Securities Value (Note 1)
- -------------------------------------------------------------------------------------------
<C> <S> <C>
Media: 17.2%
6,300 AMFM, Inc.+................. $ 492,975
49,750 AT&T Corp. - Liberty Media
Group...................... 2,823,313
9,300 Belo (A.H.) Corp. (Series
A)......................... 177,281
11,300 Cablevision Systems Corp.
(Class A).................. 853,150
8,300 CBS Corp.................... 530,681
12,300 Central Newspapers, Inc.
(Class A).................. 484,313
11,920 Clear Channel
Communications, Inc........ 1,063,860
2,500 Comcast Corp. (Class A)..... 125,625
2,400 Cox Communications, Inc.
(Class A).................. 123,600
5,600 Gemstar International Group
Ltd........................ 399,000
7,500 Infinity Broadcasting
Corp. ..................... 271,406
1,000 Knight-Ridder, Inc.......... 59,500
9,000 MediaOne Group, Inc. ....... 691,313
11,700 New York Times Co. (Class
A)......................... 574,763
19,500 News Corp. Ltd. (ADR)....... 652,031
15,100 Time Warner, Inc. .......... 1,093,806
10,600 Valassis Communications,
Inc.+...................... 447,850
5,400 Westwood One, Inc.+......... 410,400
-----------
11,274,867
-----------
Multi-Industry: 3.4%
13,700 Cendant Corp................ 363,906
2,500 General Electric Co......... 386,875
3,700 Honeywell International
Inc........................ 213,444
5,500 Minnesota Mining and
Manufacturing Co........... 538,313
8,000 Seagrams Co. Ltd............ 359,500
9,550 Tyco International Ltd...... 371,256
-----------
2,233,294
-----------
Packaged Food: 2.5%
8,000 Campbell Soup Co. .......... 309,500
7,000 Hershey Foods Corp.......... 332,500
2,200 Quaker Oats Co.............. 144,375
2,500 Nabisco Holdings Corp.
(Class A).................. 79,063
2,000 Ralston Purina Co........... 55,750
8,600 Wrigley (Wm.) Jr. Co........ 713,263
-----------
1,634,451
-----------
Paper: 1.5%
2,200 Champion International
Corp....................... 136,263
8,600 Kimberly-Clark Corp......... 561,150
4,300 Weyerhaeuser Co............. 308,794
-----------
1,006,207
-----------
</TABLE>
See Notes to Financial Statements
<PAGE>
EAI Select Managers Equity Fund
Schedule of Investments December 31, 1999 (continued)
<TABLE>
<CAPTION>
No. of
Common
Shares Securities Value (Note 1)
- -------------------------------------------------------------------------------------------
<C> <S> <C>
Pharmaceutical: 9.6%
9,000 Abbott Laboratories......... $ 326,813
11,200 American Home Products
Corp. ..................... 441,700
11,600 Amgen, Inc.+................ 696,725
2,300 Biogen, Inc................. 194,350
11,000 Bristol-Myers Squibb Co. ... 706,063
4,000 Eli Lilly and Co. .......... 266,000
2,800 Genentech, Inc. ............ 376,600
3,400 IDEC Pharmaceuticals Corp... 334,050
6,400 Johnson & Johnson........... 596,000
1,400 MedImmune, Inc. ............ 232,225
9,000 Merck & Co. ................ 603,563
10,200 Pfizer, Inc. ............... 330,863
7,800 Pharmacia & Upjohn, Inc..... 351,000
8,700 Schering-Plough Corp. ...... 367,031
5,700 Warner-Lambert Co. ......... 467,044
-----------
6,290,027
-----------
Photo Equipment/Supplies: 0.2%
2,500 Eastman Kodak Co............ 165,625
-----------
Restaurants: 1.2%
18,900 McDonald's Corp. ........... 761,906
-----------
Retail--General Merchandise: 1.5%
3,000 Safeway, Inc.+.............. 106,688
12,500 Wal-Mart Stores, Inc........ 864,063
-----------
970,751
-----------
Retail--Specialty: 0.6%
4,000 Abercrombie & Fitch Co.
(Class A)+................. 106,750
3,750 Home Depot, Inc. ........... 257,109
900 Tandy Corp. ................ 44,269
-----------
408,128
-----------
Soap and Cosmetics: 1.7%
11,500 Clorox Co................... 579,313
13,500 Gillette Co................. 556,031
-----------
1,135,344
-----------
Telephone/Communications: 11.7%
3,100 Adtran, Inc................. 159,456
6,800 BellSouth Corp. ............ 318,325
6,000 Broadwing, Inc. ............ 221,250
6,300 Crown Castle International
Corp. ..................... 202,388
</TABLE>
<TABLE>
<CAPTION>
No. of
Common
Shares Securities Value (Note 1)
- -------------------------------------------------------------------------------------------
<C> <S> <C>
Telephone/Communications: (continued)
14,000 EchoStar Communications
Corp....................... $1,365,000
6,800 General Instrument Corp.+... 578,000
4,500 Global Crossing Ltd. ....... 225,000
8,400 GTE Corp.................... 592,725
4,400 JDS Uniphase Corp. ......... 709,775
2,800 Lucent Technologies, Inc.... 209,475
7,950 MCI WorldCom, Inc........... 421,847
8,300 Nextel Communications, Inc.
(Class A).................. 855,938
2,800 QUALCOMM, Inc.+............. 493,500
9,080 SBC Communications, Inc. ... 442,650
4,200 Sprint Corp................. 282,713
1,000 Sprint Corp. (PCS Group).... 102,500
7,400 Telefonaktiebolaget LM
Ericsson (ADR) ............ 486,073
----------
7,666,615
----------
Toys: 0.1%
2,050 Hasbro, Inc................. 39,078
----------
Total Common Stocks: 97.8%
(cost: $43,474,831)............................. 64,112,712
----------
</TABLE>
<TABLE>
<CAPTION>
Date of Interest Value
Short-Term Obligation Maturity Rate (Note 1)
- --------------------------------------------------------------
<S> <C> <C> <C>
Repurchase Agreement (Note 4):
Purchased on
12/31/99; maturity
value--$2,328,786
(with Boston Safe
Deposit and Trust
Co., collateralized
by $2,354,000 U.S.
Treasury Note due
4/30/00 with an
interest rate of
5.625% valued at
$2,376,547) 1/03/00 4.05%
Total Short-Term Obligation: 3.6%
(cost: $2,328,000) 2,328,000
-----------
Total Investments:
101.4%
(cost: $45,802,831) 66,440,712
Other assets less liabilities: (1.4)% (895,747)
-----------
Net Assets: 100% $65,544,965
===========
</TABLE>
- -------
Glossary:
ADR--American Depository Receipt
+--Non-income producing
See Notes to Financial Statements
<PAGE>
EAI Select Managers Equity Fund Financial Statements
Statement of Assets and Liabilities
December 31, 1999
<TABLE>
<S> <C>
Assets:
Investments, at value (cost: $45,802,831)(Note 1) $66,440,712
Cash 516
Receivables:
Securities sold 173,833
Dividends and interest 32,016
Capital shares sold 16,882
Deferred organization costs (Note 1) 41,438
-----------
Total assets 66,705,397
-----------
Liabilities:
Payables:
Dividends 1,005,913
Management fee 80,981
Administration fee 10,447
Capital shares redeemed 8,441
Accrued expenses and other liabilities 54,650
-----------
Total liabilities 1,160,432
-----------
Net Assets $65,544,965
===========
Net asset value, maximum offering price and redemption price per
share ($65,544,965/5,889,293 shares of beneficial interest
outstanding with an unlimited number of no par value shares
authorized) $ 11.13
===========
Composition of net assets:
Aggregate paid in capital $45,050,070
Net unrealized appreciation of investments 20,637,881
Overdistributed net realized gains (142,986)
-----------
$65,544,965
===========
</TABLE>
- --------------------------------------------------------------------------------
Statement of Operations
For the Year Ended December 31, 1999
<TABLE>
<S> <C> <C>
Income:
Dividends $ 485,931
Interest 70,913
-----------
Total income 556,844
Expenses:
Management (Note 2) $534,998
Administrative (Note 2) 116,304
Custodian 45,398
Amortization of deferred organization costs (Note 1) 41,219
Professional 38,133
Shareholder reports 31,073
Transfer agent 30,850
Trustees 15,000
Registration 14,625
Other 61,155
--------
Total expenses 928,755
Fees waived by the Manager (Note 2) (260,008)
--------
Net expenses 668,747
-----------
Net investment loss (111,903)
-----------
Net Realized and Unrealized Gain on Investments: (Note
3)
Net realized gain from investments 11,500,400
Net change in unrealized appreciation of investments 4,732,799
-----------
Net gain on investments 16,233,199
-----------
Net Increase in Net Assets Resulting from Operations $16,121,296
===========
</TABLE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31,1999 December 31, 1998
---------------- -----------------
<S> <C> <C>
Increase in Net Assets:
Operations:
Net investment income (loss) $ (111,903) $ 50,501
Net realized gain from investments 11,500,400 6,560,106
Net change in unrealized appreciation of
investments 4,732,799 4,537,618
----------- -----------
Net increase in net assets resulting from
operations 16,121,296 11,148,225
----------- -----------
Dividends and distributions to shareholders
from: (Note 1)
Net investment income -- (95,169)
Net realized gain from investments (11,467,181) (6,519,108)
----------- -----------
(11,467,181) (6,614,277)
----------- -----------
Capital share transactions*:
Net proceeds from sales of shares 5,170,246 4,079,264
Reinvestment of dividends 10,461,268 6,466,639
----------- -----------
15,631,514 10,545,903
Cost of shares redeemed (10,189,848) (11,975,132)
----------- -----------
Increase(decrease) in net assets resulting
from capital share transactions 5,441,666 (1,429,229)
----------- -----------
Total increase in net assets 10,095,781 3,104,719
Net Assets:
Beginning of year 55,449,184 52,344,465
----------- -----------
End of year $65,544,965 $55,449,184
=========== ===========
*Shares of Beneficial Interest Issued and
Redeemed:
Shares sold 471,772 395,252
Reinvestment of dividends 939,916 628,439
----------- -----------
1,411,688 1,023,691
Shares redeemed (909,752) (1,188,023)
----------- -----------
Net increase (decrease) 501,936 (164,332)
=========== ===========
</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
1999 1998 1997 December 31, 1996
------- ------- ------- ------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period......................... $ 10.29 $ 9.43 $ 10.82 $ 10.00
------- ------- ------- -------
Income From Investment
Operations:
Net Investment Income (Loss)... (0.02) 0.01 0.08 0.08
Net Gain on Investments (both
realized and unrealized)...... 3.18 2.24 3.04 1.35
------- ------- ------- -------
Total From Investment
Operations..................... 3.16 2.25 3.12 1.43
------- ------- ------- -------
Less Distributions from:
Net Investment Income.......... -- (0.02) (0.08) (0.08)
Net Realized Gain on
Investments................... (2.32) (1.37) (4.43) (0.53)
------- ------- ------- -------
Total Distributions............. (2.32) (1.39) (4.51) (0.61)
------- ------- ------- -------
Net Asset Value, End of Period.. $ 11.13 $ 10.29 $ 9.43 $ 10.82
======= ======= ======= =======
Total Investment Return(b)...... 30.71% 23.86% 28.84% 14.30%
- --------------------------------------------------------------------------------
Ratios/Supplementary Data
Net Assets, End of Period (000). $65,545 $55,449 $52,344 $88,607
Ratio of Gross Expenses to
Average Net Assets............. 1.60% 1.66% 1.55% 1.50%(d)
Ratio of Net Expenses to Average
Net Assets..................... 1.15% 1.15% 1.15% 1.15%(d)
Ratio of Net Investment Income
(Loss) to Average Net
Assets(c)...................... (0.19%) 0.09% 0.37% 0.73%(d)
Portfolio Turnover Rate......... 82% 63% 78% 174%
</TABLE>
- -------
(a) Commencement of operations.
(b) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of distributions
at net asset value on the payable date and a redemption on the last day of
the period. Total return for the period less than one year is not
annualized.
(c) Ratios would have been (0.64%), (0.42%), (0.03%) and 0.38%, respectively,
had the Manager not waived expenses.
(d) Annualized.
See Notes to Financial Statements.
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Notes To Financial Statements
Note 1--Organization and 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 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 with more than sixty days remaining to maturity are
valued at market. Short-term obligations with sixty days or less to
maturity are valued at amortized 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
<PAGE>
EAI Select Managers Equity Fund
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Notes to Financial Statements (continued)
taxable income to its shareholders. Therefore, no federal income tax
provision is required.
C. Dividends and Distributions to Shareholders--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 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, 1999, the Fund made capital account
reclassifications due to permanent book/tax differences. The Fund
reclassified $41,219 and $70,684 from net investment loss to aggregate paid
in capital and overdistributed net realized gains, respectively, primarily
due to organization expenses and reclass of net investment loss. The Fund
also reclassified $7,183 from overdistributed net realized gains to paid in
capital, primarily due to distributions in excess of realized gains.
Temporary book/tax differences are primarily related to wash sale loss
deferrals.
D. Security Transactions and Investment Income--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 identification
cost method. Dividend income is recorded on ex-dividend date. Interest
income is accrued as earned.
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 $534,998 for the year ended
December 31, 1999 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,
1999, the Manager agreed to waive management fees in the amount of $260,008
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, 2000.
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 1,854,629
shares (31.5%) and 1,829,243 shares (31.1%), respectively, of the outstanding
shares of the Fund. Additionally, 837,249 shares are owned by two other
shareholders, each of whom own more than 5% but less than 7.3% of the
outstanding shares of the Fund.
The Manager pays from its management fees each Subadviser a fee at the annual
rate of 0.375 of 1% of the average monthly assets of the Fund managed by that
Subadviser. At December 31, 1999, the Subadvisers are Iridian Asset Management
LLC, Liberty Investment Management, Mastrapasqua & Associates, Inc., Peachtree
Asset Management, and Siphron Capital Management.
In accordance with a Portfolio Accounting and Administration Agreement with Van
Eck Associates Corporation, the Fund accrued $116,304 in administration fees
for the year ended December 31, 1999. The annual fee is graduated, beginning at
0.20 of 1% of the average daily net assets of less than $100 million to 0.12 of
1% of the average daily net assets in excess of $260 million.
The Fund accrued $7,857 of legal fees payable to Day, Berry and Howard, counsel
to the Fund, for the year ended December 31, 1999 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 $46,505,129 and $52,892,976, respectively,
for the year
<PAGE>
EAI Select Managers Equity Fund
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Notes to Financial Statements (continued)
ended December 31, 1999. For federal income tax purposes the cost of
investments owned at December 31, 1999 was $45,945,817.
As of December 31, 1999, net unrealized appreciation for federal income tax
purposes aggregated $20,494,895 of which $21,823,780 related to appreciated
securities and $1,328,885 related to depreciated securities.
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 Shareholders and Board of Directors 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, 1999, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended and the financial highlights for each
of the periods presented, in conformity with accounting principles generally
accepted in the United States. 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 auditing standards
generally accepted in the United States, 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, 1999 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 8, 2000
<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
Independant Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Day, Berry & Howard
CityPlace
Hartford, CT 06103
Transfer Agent
DST Systems, Inc.
210 West 10th Street
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 OF EAI SELECT]
EAI Select Managers Equity Fund
EAI Securities, Inc. -- Distributor
200 Connecticut Avenue
Suite 700
Norwalk, CT 06854-1958
(203) 855-2200
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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, 1999
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[LOGO OF EAI SELECT]
