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OMB APPROVAL
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OMB NUMBER 3235-0570
Expires: Nov. 30, 2005
Estimated average burden
hours per response: 5.0
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UNITED STATES
SECURITIES AND EXCHANGE COMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-09112
---------
EAI Select Managers Equity Fund
---------------------------------------------------------
(Exact name of registrant as specified in charter)
200 Connecticut Avenue, Suite 700, Norwalk, CT 06854-1958
---------------------------------------------------------
(Address of principal executive offices) (Zip code)
Evaluation Associates Capital Markets Inc.
200 Connecticut Avenue, Norwalk, CT 06854-1958
---------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 203-855-2255 (call collect)
---------------------------
Date of fiscal year end: December 31, 2002
-----------------
Date of reporting period: December 31, 2002
-----------------
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policy making roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO SHAREHOLDERS
EAI SELECT MANAGERS EQUITY FUND
REVIEW OF 2002
- --------------------------------------------------------------------------------
Dear Fellow Shareholder:
We are very pleased to present the seventh 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 and
third parts summarize the economy and domestic equity market in 2002.
EAI SELECT MANAGERS EQUITY FUND
EAI Select Managers Equity Fund was down 25.00% for the full calendar year 2002,
despite a gain of 5.41% in the fourth quarter. The Fund underperformed both the
S&P 500, down 22.11%, and its peer group, the Morningstar Large Blend Equity
Fund Universe, whose average return was a loss of 22.06%. The Fund's performance
lag was due to poor stock selection, despite favorable sector allocations.
Notable problem areas for the Fund included healthcare and information
technology sectors. But one bright spot for the fund was the consumer staples
sector. Companies with steady growth and simple business plans were favored by
investors, such as Wm. Wrigley, up 8.5%, and Hershey Foods Corp, up 1.4%.
Despite these positive returns the sector, which represents 9% of the Fund, was
down 5.2%.
The healthcare sector lost 25.2% compared to the S&P 500 healthcare sector, down
18.9%. One of the group's worst performing stocks was Tenet Healthcare Corp,
down 58.1%, which fell after it was revealed that the government was
investigating its Medicare billing practices. The healthcare sector also
included the Fund's largest contributor, Boston Scientific which surged 76.3%
due to a continued strong demand for minimally invasive medical/surgical
devices. Also within healthcare, biotechnology issues were especially weak as
concerns mounted about delays in FDA approvals. Most biotech stocks (7 out of 8)
were down over 30%, with the smallest loss generated by Amgen Inc., down only
14.4%.
Losses in information technology issues also hurt Fund performance, with the
sector down 40.7% compared to the S&P 500 information technology sector, down
37.4%. The 3.3% lag in performance muted the Fund's benefit of a smaller
allocation to information technology (13% versus 15% for the S&P 500). Many
information technology stocks were hurt by continuing weak consumer demand. Some
of the group's worst performing issues were Sun Microsystems Inc., down 74.7%,
EMC Corp., down 54.3%, and Intel Corp., down 50.3%. But the sector's largest
holding, Intuit, a personal software provider, gained 9.7%.
PERCENT OF NET ASSETS AS OF 12/31/02: WM. WRIGLEY (1.6%), HERSHEY FOODS CORP
(1.1%), TENET HEALTHCARE CORP (0.4%), BOSTON SCIENTIFIC (0.7%), AMGEN INC.
(0.7%), SUN MICROSYSTEMS INC. (0.2%), EMC CORP. (0.4%), INTEL CORP. (0.5%), AND
INTUIT (1.2%). ALL OTHER WEIGHTS STATED ABOVE REPRESENT THE AVERAGE WEIGHT FOR
THE YEAR 2002.
ECONOMIC REVIEW
During most of 2002 the Federal Reserve took a "wait-and-see" approach after
lowering interest rates eleven times in the prior year in order to jump-start
the economy. As evidence mounted that the economy was not rebounding on a
sustained basis, the Federal Reserve policy makers reduced short-term interest
rates by a surprisingly large 0.50% at their regularly scheduled November 6
meeting. The twelve cuts since early 2001 brought the cumulative reduction to
5.25% (Fed Funds: 6.5% down to 1.25%; and Discount Rate: 6.0% down to 0.75%).
This is the most aggressive pace of cuts since 1982 as rates fell to their
lowest level since 1961. Fed Chairman Greenspan described the latest cut, the
first in eleven months, as an "insurance policy" for continued economic growth.
1
EAI SELECT MANAGERS EQUITY FUND
- --------------------------------------------------------------------------------
THE STOCK MARKET REVIEW
QUARTERLY RETURNS
------------------------------ YEAR
MARCH JUNE SEPT. DEC. 2002
------ ---- ---- ---- ----
S&P 500 ........ 0.3% -13.4% -17.3% 8.4% -22.1%
Russell 2000 ... 4.0 -8.4 -21.4 6.1 -20.5
NASDAQ ......... 5.3 -20.6 -19.8 14.1 -31.3
- --------------------------------------------------------------------------------
In 2002, the S&P 500 fell 22.1%, marking the third consecutive year of losses,
and the worst drop since 1974.
The U.S. markets had five distinct phases during 2002. See below:
PERIOD S&P 500 RUSSELL 2000 NASDAQ
- ------ ------- ------------ ------
12/31--7/23 -30.0% -25.0% -36.9%
7/23--8/22 +20.9 +12.7 +15.8
8/22--10/9 -19.1 -20.0 -21.7
10/9--11/28 +21.2 +25.7 +33.6
11/28--12/31 -6.1 -6.5 -10.2
As you can see above, the market was on the extreme defensive during the first
61/2 months of the year. Concerns about tensions in the Middle East and its
impact on oil prices, the budding U.S. recovery, corporate earnings and
integrity of corporate accounting records took their toll on the market. Also
confidence was shaken by concerns over analyst independence from the investment
banking relationships of their firms and accounting issues, such as revelations
of fraud at WorldCom.
A brief one-month, mid-summer reprieve from the devastating losses was a welcome
relief. The steep drops from the highs of 2000 finally brought some brave
investors back to the market. In fact, July 24's turnaround gains (S&P 500:
+5.7%) were the best in 15 years and those were matched on the 29th! The
four-day rally (+12.7%) was the best since October 1974.
The month long advance started to unravel on news that the New York Attorney
General's office was broadening its investigation of Citigroup. Investors were
also discouraged when a diverse group of companies, such as Nortel Networks,
McDonalds, Electronic Data Systems and J.P. Morgan Chase, announced extremely
discouraging outlooks. And the economy, the one bright spot in 2002, started to
show signs of slowing. By October 9, the market had retraced six years of gains.
In fact, the S&P 500's decline of 49.1% since the start of the bear market in
March 2000 now exceeded the losses of 1973/1974.
Other than Yahoo's news of better-than-expected earnings, there was no other
catalyst for the start of an extremely strong six-week rally that began on
October 10th. As was true during the summer, the rally ran out of steam in
December, which was the worst since 1931. In addition to the concerns noted
above, was the geopolitical tension created by North Korea's decision to restart
its nuclear arms program.
Despite a robust rebound in the fourth quarter, all sectors measured generated
negative returns for the full year, with 8 of the 10 posting double-digit
losses. The worst performing sectors were the growth biased information
technology, down 37.4%, and telecomm services, down 34.0%. On the flip side, the
defensively-oriented consumer staples held up well for the year, losing only
4.3%.
* * * * *
The attached report provides you with the performance results, schedule of
investments and the financial statements as of December 31, 2002. As always,
should you have any questions, please feel free to contact us at 203-855-2255
(call collect), or visit the Fund's website at: www.eaiselect.com.
2
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
January 23, 2003
[Data below represents line chart in the printed piece]
EAI Select S&P 500 Index
---------- -------------
12/31/95 10000 10000
12/31/96 11435 12296
12/31/97 14732.3 16397.9
12/31/98 18247.5 21082.8
12/31/99 23851.2 25516.6
12/31/00 22565.4 23192
12/31/01 19513.3 20436.8
12/31/02 14635 15918
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/02
- --------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 3 YEARS 5 YEARS (1/2/96)
- --------------------------------------------------------------------------------
The Fund ....... -25.00 -15.02 -0.13 5.59
- --------------------------------------------------------------------------------
Peer Group* .... -22.06 -13.53 -1.47 5.54
- --------------------------------------------------------------------------------
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 Average is a universe of large-cap blend mutual funds
which focus on big companies that are fairly representative of the overall stock
market in both size and price. They tend to invest across the spectrum of U.S.
industries and owing to their broad exposure, the funds' returns are often
similar to the S&P 500 Index. As of 12/31/02 the Large Blend Universe contained
1,372 funds. Source: Morningstar Principia Pro Mutual Funds December 31, 2002
release.
The S&P 500 Index is an unmanaged capitalization weighted index of 500 commonly
traded stocks designed to measure performance of the broad domestic economy
through changes in the aggregate market value of those stocks. The index assumes
reinvestment of dividends. Unless otherwise indicated, performance figures are
for the month indicated (through the last trading date that month).
The Manager is currently waiving certain or all expenses on the Fund. Had the
Fund incurred all expenses, investment returns would have been reduced.
3
EAI SELECT MANAGERS EQUITY FUND
SCHEDULE OF INVESTMENTS DECEMBER 31, 2002
NO. OF
COMMON
SHARES SECURITIES VALUE (NOTE 1)
- --------------------------------------------------------------------------------
AEROSPACE & DEFENSE: 4.0%
4,800 General Dynamics Corp. ........................ $ 380,976
2,700 L-3 Communications Holdings, Inc.+ ............ 121,257
6,600 Lockheed Martin Corp. ......................... 381,150
4,800 Northrop Grumman Corp. ........................ 465,600
1,200 United Technologies Corp. ..................... 74,328
------------
1,423,311
------------
AIR FREIGHT & LOGISTICS: 0.8%
3,500 Expeditors International of
Washington, Inc. ............................ 114,275
3,100 Fedex Corp. ................................... 168,082
------------
282,357
------------
BANKS: 3.3%
4,100 Bank of America Corp. ......................... 285,237
4,100 HSBC Holdings PLC (ADR) ....................... 225,418
10,400 Mellon Financial Corp. ........................ 271,544
8,100 Wells Fargo & Co. ............................. 379,647
------------
1,161,846
------------
BEVERAGES: 2.8%
8,310 Coca-Cola Co. ................................. 364,144
14,900 PepsiCo, Inc. ................................. 629,078
------------
993,222
------------
BIOTECHNOLOGY: 4.3%
5,370 Amgen, Inc.+ .................................. 259,586
11,100 Biogen, Inc.+ ................................. 444,666
5,600 Genentech, Inc.+ .............................. 185,696
10,100 Genzyme Corp.--General Division+ .............. 298,657
4,000 IDEC Pharmaceuticals Corp.+ ................... 132,680
3,100 Invitrogen Corp.+ ............................. 97,123
4,200 MedImmune, Inc.+ .............................. 114,114
------------
1,532,522
------------
CHEMICALS: 1.4%
2,900 Dow Chemical Co. .............................. 86,130
4,900 E.I. Du Pont de Nemours & Co. ................. 207,760
5,000 International Flavors & Fragrances, Inc. ...... 175,500
461 Monsanto Co. 8,874
------------
478,264
------------
COMMERCIAL SERVICES & SUPPLIES: 5.5%
4,500 Automatic Data Processing, Inc. ............... 176,625
31,900 Cendant Corp.+ ................................ 334,312
4,075 Concord EFS, Inc.+ ............................ 64,141
15,400 First Data Corp. .............................. 545,314
3,200 H&R Block, Inc. ............................... 128,640
10,700 Sabre Holdings Corp.+ ......................... 193,777
6,800 Valassis Communications, Inc.+ ................ 200,124
13,600 Waste Management, Inc. ........................ 311,712
------------
1,954,645
------------
COMMUNICATIONS EQUIPMENT: 1.5%
13,920 Cisco Systems, Inc.+ .......................... 182,352
11,400 Motorola, Inc. ................................ 98,610
6,400 QUALCOMM, Inc.+ ............................... 232,896
------------
513,858
------------
COMPUTERS & PERIPHERALS: 2.2%
11,015 Dell Computer Corp.+ .......................... 294,541
23,150 EMC Corp.+ .................................... 142,141
3,215 International Business Machines Corp. ......... 249,163
27,620 Sun Microsystems, Inc.+ ....................... 85,898
------------
771,743
------------
DIVERSIFIED FINANCIALS: 13.6%
5,800 American Express Co. .......................... 205,030
31,300 Charles Schwab Co. ............................ 339,605
14,470 Citigroup, Inc. ............................... 509,199
17,400 Federal Home Loan Mortgage Corp. .............. 1,027,470
9,700 Federal National Mortgage Association ......... 624,001
7,570 Franklin Resources, Inc. ...................... 257,986
3,500 Goldman Sachs Group, Inc. ..................... 238,350
4,400 Household International, Inc. ................. 122,364
3,600 Lehman Brothers Holdings, Inc. ................ 191,844
21,900 MBNA Corp. .................................... 416,538
3,300 Merrill Lynch and Co., Inc. ................... 125,235
3,000 Moody's Corp. ................................. 123,870
8,300 Morgan Stanley ................................ 331,336
2,800 SLM Corp. ..................................... 290,808
------------
4,803,636
------------
ELECTRICAL EQUIPMENT: 0.8%
10,300 Energizer Holdings, Inc.+ ..................... 287,370
------------
ELECTRICAL EQUIPMENT &
INSTRUMENTATION: 0.9%
6,000 Agilent Technologies, Inc.+ ................... 107,760
4,490 Flextronics International Ltd.+ ............... 36,773
4 See Notes to Financial Statements
EAI SELECT MANAGERS EQUITY FUND
SCHEDULE OF INVESTMENTS DECEMBER 31, 2002 (continued)
NO. OF
COMMON
SHARES SECURITIES VALUE (NOTE 1)
- --------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT &
INSTRUMENTATION: (CONTINUED)
11,825 Solectron Corp.+ .............................. $ 41,979
5,400 Waters Corp.+ ................................. 117,612
------------
304,124
------------
ENERGY EQUIPMENT & SERVICES: 0.1%
1,500 Smith International, Inc.+ .................... 48,930
------------
FOOD & DRUG RETAILING: 0.7%
5,700 Sysco Corp. ................................... 169,803
3,300 Walgreen Co. .................................. 96,327
------------
266,130
------------
FOOD PRODUCTS: 2.7%
5,500 Hershey Foods Corp. ........................... 370,920
10,400 Wrigley (Wm.) Jr. Co. ......................... 570,752
------------
941,672
------------
HEALTHCARE EQUIPMENT & SUPPLY: 2.4%
3,000 Baxter International, Inc. .................... 84,000
5,000 Biomet, Inc. .................................. 143,300
5,711 Boston Scientific Corp.+ ...................... 242,832
11,700 Guidant Corp.+ ................................ 360,945
------------
831,077
------------
HEALTHCARE PROVIDERS & SERVICES: 1.5%
4,000 Health Management Associates, Inc.
(Class A) ................................... 71,600
2,815 McKesson Corp. ................................ 76,089
9,150 Tenet Healthcare Corp.+ ....................... 150,060
3,200 WellPoint Health Networks, Inc.+ .............. 227,712
------------
525,461
------------
HOTELS, RESTAURANTS & LEISURE: 3.7%
2,800 Brinker International Inc.+ ................... 90,300
2,800 Carnival Corp. ................................ 69,860
17,400 Harrah's Entertainment, Inc.+ ................. 689,040
16,235 McDonalds Corp. ............................... 261,059
7,600 Starwood Hotels and Resorts
Worldwide, Inc. ............................. 180,424
------------
1,290,683
------------
HOUSEHOLD PRODUCTS: 0.8%
3,400 Clorox Co. .................................... 140,250
3,300 Kimberly-Clark Corp. .......................... 156,651
------------
296,901
------------
INDUSTRIAL CONGLOMERATES: 0.7%
15,500 Tyco International Ltd. ....................... 264,740
------------
INFORMATION TECHNOLOGY CONSULTING &
SERVICES: 0.3%
2,900 Computer Sciences Corp.+ ...................... 99,905
------------
INSURANCE: 6.0%
8,800 Ace Ltd. ...................................... 258,192
4,500 Ambac Financial Group, Inc. ................... 253,080
150 Berkshire Hathaway, Inc. (Class B)+ ........... 363,450
3,600 Chubb Corp. ................................... 187,920
3,900 Hartford Financial Services Group, Inc. ....... 177,177
9,200 Marsh & McLennan Cos., Inc. ................... 425,132
13,300 St. Paul Cos., Inc. ........................... 452,865
------------
2,117,816
------------
MACHINERY: 0.6%
4,500 Deere & Co. ................................... 206,325
------------
MEDIA: 13.1%
17,400 AOL Time Warner, Inc.+ ........................ 227,940
19,151 Cablevision Systems Corp.--
New York Group (Class A)+ ................... 320,588
11,475 Clear Channel Communications, Inc.+ ........... 427,903
2,700 E.W. Scripps Co. (Class A) .................... 207,765
16,900 EchoStar Communications Corp.+ ................ 376,194
15,800 Entravision Communications Corp.
(Class A)+ .................................. 157,684
4,300 Gannett Co., Inc. ............................. 308,740
42,300 Liberty Media Corp. (Class A)+ ................ 378,162
13,100 Metro-Goldwyn-Mayer Inc.+ ..................... 170,300
3,500 New York Times Co. (Class A) .................. 160,055
2,400 Omnicon Group, Inc. ........................... 155,040
17,100 Univision Communications, Inc.
(Class A)+ .................................. 418,950
21,278 Viacom, Inc. (Class B)+ ....................... 867,291
11,200 Westwood One, Inc.+ ........................... 418,432
------------
4,595,044
------------
See Notes to Financial Statements 5
EAI SELECT MANAGERS EQUITY FUND
SCHEDULE OF INVESTMENTS DECEMBER 31, 2002 (continued)
NO. OF
COMMON
SHARES SECURITIES VALUE (NOTE 1)
- --------------------------------------------------------------------------------
MULTILINE RETAIL: 2.5%
6,900 Costco Wholesale Corp.+ ....................... $ 193,614
3,400 Family Dollar Stores, Inc. .................... 106,114
3,400 Sears, Roebuck & Co. .......................... 81,430
7,700 Target Corp. .................................. 231,000
5,100 Wal-Mart Stores, Inc. ......................... 257,601
------------
869,759
------------
OIL & GAS: 2.0%
5,500 Anadarko Petroleum Corp. ...................... 263,450
3,534 ChevronTexaco Corp. ........................... 234,940
4,200 ConocoPhillips ................................ 203,238
------------
701,628
------------
PAPER & FOREST PRODUCTS: 1.8%
7,300 International Paper Co. ....................... 255,281
7,400 Weyerhaeuser Co. .............................. 364,154
------------
619,435
------------
PERSONAL PRODUCTS: 1.0%
1,305 Avon Products, Inc. ........................... 70,300
9,000 Gillette Co. .................................. 273,240
------------
343,540
------------
PHARMACEUTICAL: 6.1%
5,800 Abbott Laboratories ........................... 232,000
1,700 Biovail Corp.+ ................................ 44,897
1,000 Eli Lilly & Co. .............................. 63,500
5,200 Johnson & Johnson ............................. 279,292
6,690 Merck & Co., Inc. ............................. 378,721
23,800 Pfizer, Inc. .................................. 727,566
1,907 Pharmacia Corp. ............................... 79,713
8,700 Wyeth ......................................... 325,380
------------
2,131,069
------------
ROAD & RAIL: 0.3%
4,800 Swift Transportation Co., Inc.+ ............... 96,086
------------
SEMICONDUCTOR EQUIPMENT &
PRODUCTS: 2.3%
3,000 Analog Devices, Inc.+ ......................... 71,610
16,170 Applied Materials, Inc.+ ...................... 210,695
4,900 Broadcom Corp. (Class A)+ ..................... 73,794
10,455 Intel Corp. ................................... 162,784
4,910 Micron Technology, Inc.+ ...................... 47,823
4,000 Novellus Systems, Inc.+ ....................... 112,320
5,000 Teradyne, Inc.+ ............................... 65,050
4,000 Texas Instruments, Inc. ....................... 60,040
------------
804,116
------------
SOFTWARE: 4.4%
3,805 Adobe Systems, Inc. ........................... 94,783
9,100 Intuit, Inc.+ ................................. 426,972
5,500 Microsoft Corp.+ .............................. 284,350
37,640 Oracle Corp.+ ................................. 406,512
6,500 Symantec Corp.+. .............................. 262,925
4,200 Veritas Software Corp.+ ....................... 65,604
------------
1,541,146
------------
SPECIALTY RETAIL: 1.5%
17,575 Home Depot, Inc. .............................. 421,097
3,300 Michaels Stores, Inc.+ ........................ 103,290
------------
524,387
------------
TEXTILE & APPAREL: 0.8%
6,500 Nike, Inc. (Class B) .......................... 289,055
------------
WIRELESS TELECOM SERVICE: 0.8%
74,600 Crown Castle International Corp.+ ............. 279,750
------------
TOTAL COMMON STOCKS: 97.2%
(cost: $40,772,484) ...................................... 34,191,553
------------
SHORT-TERM INVESTMENT: 2.7%
952,206 Dreyfus Cash Management Fund
(Institutional Shares) ...................... 952,206
------------
TOTAL SHORT-TERM INVESTMENT
(cost: $952,206) ......................................... 952,206
------------
TOTAL INVESTMENTS: 99.9%
(cost: $41,724,690) ...................................... 35,143,759
OTHER ASSETS LESS LIABILITIES: 0.1% ...................... 21,859
------------
NET ASSETS: 100% ......................................... $ 35,165,618
============
- -------------
Glossary:
ADR--American Depository Receipt
+--Non-income producing.
6 See Notes to Financial Statements
EAI SELECT MANAGERS EQUITY FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2002
ASSETS:
Investments, at value (cost: $41,724,690)(Note 1) $ 35,143,759
Receivables:
Securities sold 133,830
Dividends and interest 37,603
Capital shares sold 237
------------
Total assets 35,315,429
------------
LIABILITIES:
Payables:
Securities purchased 73,344
Administration fee 8,192
Management fee 1,322
Capital shares redeemed 50
Accrued expenses 66,903
------------
Total liabilities 149,811
------------
NET ASSETS $ 35,165,618
------------
Net asset value, maximum offering price and
redemption price per share
($35,165,618 / 6,011,610 shares of beneficial
interest outstanding with an unlimited number of
no par value shares authorized) $ 5.85
------------
Composition of net assets:
Aggregate paid in capital 48,126,845
Net unrealized depreciation of investments (6,580,931)
Accumulated net realized loss (6,380,296)
------------
$ 35,165,618
============
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Year Ended December 31, 2002
INCOME:
Dividends $ 421,322
Interest 14,627
------------
Total income 435,949
EXPENSES:
Management (Note 2) $ 391,499
Administrative (Note 2) 100,000
Professional 80,549
Insurance 67,316
Custodian 51,479
Transfer agent 31,869
Trustees 30,000
Shareholder reports 15,793
Registration 12,501
Other 5,362
-----------
Total expenses 786,368
-----------
STATEMENT OF OPERATIONS (CONTINUED)
Fees waived by the Manager (Note 2) $ (296,994)
------------
Net expenses 489,374
------------
Net investment loss (53,425)
------------
NET REALIZED AND UNREALIZED LOSS
ON INVESTMENTS: (NOTE 3)
Net realized loss from investments (4,388,901)
Net change in unrealized appreciation of investments (8,297,222)
------------
Net realized and unrealized loss on investments (12,686,123)
------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS $(12,739,548)
============
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
2002 2001
------------ ------------
DECREASE IN NET ASSETS:
Operations:
Net investment loss $ (53,425) $ (107,372)
Net realized loss
from investments (4,388,901) (1,468,836)
Net change in unrealized
appreciation of investments (8,297,222) (6,364,690)
------------ ------------
Net decrease in net assets
resulting from operations (12,739,548) (7,940,898)
------------ ------------
Capital share transactions*:
Net proceeds from sales of shares 3,289,749 4,238,519
Cost of shares redeemed (5,521,602) (9,908,385)
------------ ------------
Decrease in net assets
resulting from capital share
transactions (2,231,853) (5,669,866)
------------ ------------
Total decrease in net assets (14,971,401) (13,610,764)
NET ASSETS:
Beginning of year 50,137,019 63,747,783
------------ ------------
End of year $ 35,165,618 $ 50,137,019
============ ============
*SHARES OF BENEFICIAL INTEREST
ISSUED AND REDEEMED:
Shares sold 488,701 526,702
Shares redeemed (906,681) (1,165,670)
------------ ------------
Net decrease (417,980) (638,968)
============ ============
See Notes to Financial Statements 7
EAI SELECT MANAGERS EQUITY FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each year:
YEAR ENDED DECEMBER 31,
-----------------------------------------------
2002 2001 2000 1999 1998
----- ----- ------ ------ ------
Net Asset Value, Beginning of Year ............ $7.80 $9.02 $11.13 $10.29 $ 9.43
----- ----- ------ ------ ------
Income From Investment Operations:
Net Investment Income (Loss) .................. (0.01) (0.02) (0.02) (0.02) 0.01
Net Gain (Loss) on Investments
(both realized and unrealized) .............. (1.94) (1.20) (0.58) 3.18 2.24
----- ----- ----- ----- -----
Total From Investment Operations .............. (1.95) (1.22) (0.60) 3.16 2.25
Less Distributions from:
Net Investment Income ....................... -- -- -- -- (0.02)
Net Realized Gain on Investments ............ -- -- (1.51) (2.32) (1.37)
----- ----- ----- ----- -----
Total Distributions ........................... -- -- (1.51) (2.32) (1.39)
----- ----- ----- ----- -----
Net Asset Value, End of Year .................. $5.85 $7.80 $ 9.02 $11.13 $10.29
===== ===== ====== ====== ======
Total Investment Return(a) .................... (25.00%) (13.53%) (5.39%) 30.71% 23.86%
- ------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA
Net Assets, End of Year (000) ................. $35,166 $50,137 $63,748 $65,545 $55,449
Ratio of Gross Expenses to Average Net Assets . 1.85% 1.66% 1.56% 1.60% 1.66%
Ratio of Net Expenses to Average Net Assets ... 1.15% 1.15% 1.15% 1.15% 1.15%
Ratio of Net Investment Income (Loss)
to Average Net Assets(b) .................... (0.13%) (0.21%) (0.21%) (0.19%) 0.09%
Portfolio Turnover Rate 50% 70% 93% 82% 63%
- ----------
(a) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the year, reinvestment of distributions at
net asset value on the payable date and a redemption on the last day of the
year.
(b) Ratios would have been (0.83%), (0.72%), (0.62%), (0.64%) and (0.42%),
respectively, had the Manager not waived expenses.
8 See Notes to Financial Statements
EAI SELECT MANAGERS EQUITY FUND
- --------------------------------------------------------------------------------
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 in the United States. The preparation of financial
statements in conformity with generally accepted accounting principles in the
United States 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 market 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 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 in the United States. 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.
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.
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 $391,499 for the year ended
December 31, 2002 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, 2002, the
Manager agreed to waive management fees in the amount of $296,994 which
represents the amount exceeding a self imposed expense limitation of 1.15% of
average daily net assets per annum. Such limitation will be in effect until
December 31, 2003.
Certain 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 own 2,306,907 shares
(38.4%) and 1,971,506 shares (32.8%), respectively, of the outstanding shares of
the Fund. Additionally, 834,757 shares are owned by two other shareholders, each
of whom owns 7.2% and 6.7% of the outstanding shares of the Fund, respectively.
The Manager pays from its management fee four Subadvisers a fee at the annual
rate of 0.375 of 1% and one Subadviser a fee at the annual rate of 0.25% of 1%
of the average monthly net asset value of the Fund managed by that Subadviser.
At December 31, 2002, the Subadvisers are Iridian Asset Management LLC, Goldman
Sachs Asset Management, Mastrapasqua & Associates, Inc., Cohen, Klingenstein &
Marks, Inc., and Siphron Capital Management.
In accordance with a Portfolio Accounting and Administration Agreement with Van
Eck Associates Corporation, the Fund accrued $100,000 in administration fees for
the year ended December 31, 2002. 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
9
EAI SELECT MANAGERS EQUITY FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
average daily net assets in excess of $260 million. There is a minimum annual
fee of $100,000 payable to Van Eck Associates Corporation.
The Fund accrued $42,120 of legal fees payable to Day, Berry & Howard LLP,
counsel to the Fund, for the year ended December 31, 2002 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 $21,150,919 and $23,060,049, respectively,
for the year ended December 31, 2002. For federal income tax purposes the cost
of investments owned at December 31, 2002 was $42,292,804.
As of December 31, 2002, net unrealized depreciation for federal income tax
purposes aggregated $7,149,045 of which $2,243,650 related to appreciated
securities and $9,392,695 related to depreciated securities.
NOTE 4--DISTRIBUTIONS TO SHAREHOLDERS--At December 31, 2002, the Fund had for
tax purposes, capital loss carryforwards and Post-October losses of $5,434,844
and $377,338, respectively. The capital loss carryforward of $5,013,774 and
$421,070 expire on December 31, 2010 and December 31, 2009, respectively. There
were no dividends paid during 2002.
10
EAI SELECT MANAGERS EQUITY FUND
- --------------------------------------------------------------------------------
Report of Independent Accountants
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
(the "Fund") at December 31, 2002, 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 five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America. 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 of America, 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, 2002 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
New York, New York
January 27, 2003
11
EAI SELECT MANAGERS EQUITY FUND
- --------------------------------------------------------------------------------
TRUSTEE'S/OFFICER'S NAME,
ADDRESS(1), AGE, POSITION(S)
HELD WITH FUND AND LENGTH OTHER
OF SERVICE AS AN EAI SELECT DIRECTORSHIPS
TRUSTEE OR OFFICER(2): PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS: HELD:
- -------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
Phillip N. Maisano (55)*+# Chairman, Chief Executive Officer, President and Director of None
Trustee, Chief Executive Officer Evaluation Associates Holding Corporation ("Holding"), which
and President since 1995 is the general partner of EAI Partners, L.P., an investment
consulting and management company and parent of the Manager,
(the "Parent"); Chairman, Chief Executive Officer and
Director of Evaluation Associates Capital Markets,
Incorporated (the "Manager"), an investment management
company and investment adviser to the Fund; Chairman and
Director of EAI Securities Inc. (the "Distributor"), a
registered broker/dealer and the distributor for the Fund.
- -------------------------------------------------------------------------------------------------------------------
Keith Stransky (51)*# Senior Vice President of Holding; Executive Vice President of None
Trustee and Senior Vice the Manager.
President since 1995
- -------------------------------------------------------------------------------------------------------------------
NON-INTERESTED TRUSTEES
Charles E. Collard (69) @^ Vice President, Airline Claim Associated Aviation Underwriters, None
Trustee since 1995 an aviation insurance company (1974-1998); President, Collard
Network L.L.C., insurance claims and lawsuit consulting company.
- -------------------------------------------------------------------------------------------------------------------
Neal Jewell (67) @^ Retired/part-time independent consultant. Trustee of
Trustee since 1995 Diversified
Portfolios Investment
- -------------------------------------------------------------------------------------------------------------------
James Schuppenhauer (59)+@^ Vice President, Administration and Finance, Belmont None
Trustee since 1995 Abbey College.
- -------------------------------------------------------------------------------------------------------------------
OFFICERS
William C. Crerend (40)* Executive Vice President, Chief Operating Officer and General None
Vice President since 1995 Counsel of the Manager (1997-1999); President of the Manager;
Director, Senior Vice President and General
Counsel of Holding; Senior Vice President and
Agent for the Distributor.
- -------------------------------------------------------------------------------------------------------------------
Peter Gwiazdowski (49)* Vice President and Treasurer of the Manager. None
Treasurer (Chief Financial &
Accounting Officer) since 1995
- -------------------------------------------------------------------------------------------------------------------
12
EAI SELECT MANAGERS EQUITY FUND
- --------------------------------------------------------------------------------
OFFICERS (CONT'D)
Elke Bartel (60)* Secretary of the Manager and the Distributor; Senior Vice None
Secretary since 1995 President, Secretary and Treasurer of Holding.
- -------------------------------------------------------------------------------------------------------------------
Thomas H. Elwood (55) Former Associate Counsel of Jefferson Pilot Insurance Company None
99 Park Avenue and officer of other investment companies distributed by
New York, NY 10016 Jefferson Pilot and its affiliates (1994-1998); Vice
Assistant Secretary since 1998 President and Secretary of funds advised by Van Eck
Associates Corporation and officer of funds distributed and
administered by Van Eck Associates Corporation; Vice
President and/or General Counsel of Van Eck Associates
Corporation and other affiliated companies.
- ---------------
(1) The address for each Trustee/Officer is 200 Connecticut Avenue, Suite 700,
Norwalk, CT 06854, except where noted.
(2) Each trustee serves for an indefinite term, until his resignation, death or
removal. Officers are elected yearly by the Trustees.
* An "interested person" as defined in the Investment Company Act of 1940.
+ Member of the Executive Committee--exercises general powers of Board of
Trustees between meetings of the Board. The committee did not meet in 2002.
# Member of the Nominating Committee for interested Trustees. Such committee
will not consider nominees recommended by shareholders. The committee did
not meet in 2002.
^ Member of the Nominating Committee for non-interested Trustees. Such
committee will not consider nominees recommended by shareholders. The
committee did not meet in 2002.
@ Member of the Audit Committee--reviews fees, services, procedures,
conclusions and recommendations of independent auditors. The Audit Committee
met twice in the year ended December 31, 2002.
13
o o o
=========================================== ===========================
INVESTMENT MANAGER
Evaluation Associates Capital Markets, Inc.
200 Connecticut Avenue
Suite 700
Norwalk, CT 06854-1958
ADMINISTRATOR
Van Eck Associates Corporation EAI SELECT
99 Park Avenue
New York, NY 10016 ----------------------
INDEPENDENT ACCOUNTANTS MANAGERS
PricewaterhouseCoopers LLP
1177 Avenue of Americas ----------------------
New York, NY 10036
EQUITY FUND
LEGAL COUNSEL
Day, Berry & Howard LLP ----------------------
CityPlace
Hartford, CT 06103 ANNUAL
TRANSFER AGENT ----------------------
DST Systems, Inc.
210 West 10th Street REPORT
Kansas City, MO 64105-1802
----------------------
CUSTODIAN
Boston Safe Deposit and Trust Company DECEMBER 31, 2002
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.
[Graphic Omitted] EAI
SELECT [Graphic Omitted]
EAI Select Managers Equity Fund
EAI Securities Inc. -- DISTRIBUTOR
200 Connecticut Avenue
Suite 700
Norwalk, CT 06854-1958
(203) 855-2255 (call collect)
www.eaiselect.com
============================================
ITEM 2. CODE OF ETHICS
Due to early adoption of Form N-CSR, Item 2 Code of Ethics is not required as of
this filing date, as per Securities and Exchange Commission [Release Nos.
34-47262; IC-25914; File Nos. S7-33-02; S7-40-02] RIN 3235-AI63; RIN 3235-AI66.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
Due to early adoption of Form N-CSR, Item 3 Audit Committee Financial Expert
disclosure is not required as of this filing date as per Securities and Exchange
Commission [Release Nos. 34-47262; IC-25914; File Nos. S7-33-02; S7-40-02] RIN
3235-AI63; RIN 3235-AI66.
ITEMS 4-8. [RESERVED]
Due to early adoption of Form N-CSR, Items 4-8 are not required as of this
filing date as per Securities and Exchange Commission [Release Nos. 34-47262;
IC-25914; File Nos. S7-33-02; S7-40-02] RIN 3235-AI63; RIN 3235-AI66.
ITEM 9(A) CONTROLS AND PROCEDURES
Due to early adoption of Form N-CSR, Item 9(a) of Controls and Procedures is not
required as of this filing date as per Securities and Exchange Commission
[Release Nos. 34-47262; IC-25914; File Nos. S7-33-02; S7-40-02] RIN 3235-AI63;
RIN 3235-AI66.
ITEM 9(B) CONTROLS AND PROCEDURES
There have been no significant changes in EAI Select Managers Equity Fund
internal controls or other factors that could significantly affect these
controls subsequent to February 14, 2003.
ITEM 10. EXHIBITS
(A) None.
(B) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Act (17 CFR 270.30a-2) is attached as Exhibit 99.CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
EAI Select Managers Equity Fund
- --------------------------------------------------------------------------------
By
/s/ Phillip N. Maisano
- --------------------------------------------------------------------------------
Phillip N. Maisano
Chief Executive Officer
Dated: February 24, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By
/s/ Phillip N. Maisano
- --------------------------------------------------------------------------------
Phillip N. Maisano
Chief Executive Officer
Dated: February 24, 2003
By
/s/ Peter P. Gwiazdowski
- --------------------------------------------------------------------------------
Peter P. Gwiazdowski
Chief Financial Officer
Dated: February 24, 2003