Registration No. 33-98980
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 2
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 2
WEST UNIVERSITY FUND, INC.
(Exact Name as Specified in Charter)
3030 University Blvd.
Houston, Texas 77005
(Address of Principal Executive)
(713) 666-1652
(Registrant s Telephone Number)
Richard Peter Cancelmo, Jr.
3030 University Blvd.
Houston, Texas 77005
(Name and Address of Agent for Service)
It is proposed that this filing will become effective on April 29, 1996
pursuant to Paragraph (b) under Rule 485 of the Securities Act of 1933.
Title of Securities Being Registered: Common Stock $1.00 Par Value
Amount Being Registered:
Proposed Maximum Offering Price Per Unit:
Proposed Maximum Aggregate Offering Price:
Amount of Registration Fee:
No additional shares being registered at this time.
THIS DOCUMENTS CONTAINS 31 pages
WEST UNIVERSITY FUND, INC.
3030 UNIVERSITY BOULEVARD
HOUSTON, TEXAS 77005
713-666-1652
800-465-5657
PART A
PROSPECTUS
West University Fund, Inc. (the Fund) is a no load,
diversified management investment company or "mutual fund." As a
no-load mutual fund, shares may be purchased directly from and
are redeemed by the Fund at net asset value without any sale or
redemption charges. The Fund's investment adviser is Cancelmo
Capital Management, Inc.
The Fund's investment objective is income through stock
ownership and option writing.
The Fund will attempt to achieve this objective by investing
primarily in dividend paying common stocks on which options are
traded on national securities exchanges by selling covered call
options, and by entering into closing purchase transactions with
respect to such call options.
There is no minimum on initial or subsequent purchases of
fund shares by tax deferred retirement plans (including IRA, SEP-
IRA and Profit Sharing and Money Purchase Plans) or Uniform Gifts
to Minor Accounts. For other investors the minimum is $1,000 for
an initial purchase and there is no minimum for subsequent
purchases.
This prospectus contains concise information respecting the
Fund which a prospective investor should know before investing.
Additional information concerning the Fund and its investment
adviser has been filed with the Securities and Exchange
Commission (The "Statement of Additional Information"). The
Statement of Additional Information is incorporated by reference
into this Prospectus and is available without charge to investors
by writing or telephoning the Fund at the address or the
telephone number shown above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
INVESTORS SHOULD READ AND RETAIN THIS PROSPECTUS FOR FURTHER
REFERENCE.
THE DATE OF THIS PROSPECTUS AND THE RELATED STATEMENT OF
ADDITIONAL INFORMATION IS MARCH 31, 1997.
TABLE OF CONTENTS
Page
Fund Expense Table 1
How Performance is Calculated 2
Financial Highlights
The Fund 2
Investment Objective and Policies 2
Investments in Securities of Other
Investment Companies 3
Covered Option Writing 4
Covered Call Options 4
Risk of Option Writing 5
Portfolio Turnover 5
Further Information 6
Management of the Company 6
Net Asset Value 7
How to Purchase Shares 8
How to Redeem Shares 8
Shareholder Accounts 9
IRA Plan
Dividends, Distributions and Taxes 10
Description of Common Stock 12
Transfer, Dividend Disbursing and Shareholder
Servicing Agent 12
Legal Proceedings 12
General Information 13
Stock Option Terms 13
FUND EXPENSE TABLE
The following table illustrates the expenses and fees that a
shareholder of the Fund will incur.
Shareholder Transaction Expenses
Salesload Imposed on Purchases None
Salesload Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Annual Fund Operating Expenses
(As a Percentage of Average Net Assets)
Investment Advisory Fees 1.0%
12 B-1 Fees None
Other Expenses .82%
Total Fund Operating Expenses 1.82%
Example
1 Year 3 Years 5 Years 10 Years
You would pay the following
expenses on a $1,000
investment, assuming (1) 5%
annual return and (2)
redemption at the end of
each time period $18.00 $56.00 $97.00 $210.00
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESSER
THAN THOSE SHOWN ABOVE.
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period from February 1,
1996 (date of the initial public offering) to December 31, 1996)
The following Financial Highlights of the Fund for the
fiscal year ended December 31, 1996 have been examined by
Simonton, Kutac & Barnidge, L.L.P., independent public
accountants, whose report thereon is included in the Fund s
Annual Report for the fiscal year December 31, 1996. The
Financial Highlights should be read in conjunction with the
financial statements and related notes included in the Fund s
annual report which is incorporated herein by reference.
<PAGE>
Period from
February 1, 1996
to December 31, 1996
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .09
Net realized and unrealized gains on
securities .80
Total from investment operations .89
LESS DISTRIBUTIONS:
Dividends .68
NET ASSET VALUE, END OF PERIOD 10.21
TOTAL RETURN 9.71*
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period 2.0 million
Ratio of expenses to average net assets 1.82
Ratio of net investment income to average net assets 1.19
Portfolio turnover rate 101.38%
Average commission rate .0446**
*Annualized
**The formula for calculating the average commission rate is
total commission paid divided by total shares purchased and sold.
Each option contract is 100 shares.
HOW PERFORMANCE IS CALCULATED
From time to time the Fund may report its "total return" in
prospectuses, the Fund's annual reports, shareholder
communications, and advertising.
Total return for a performance period is calculated by
assuming a hypothetical initial investment ("p") in the Fund at
the beginning of the period. Then, assuming reinvestment of all
distributions into new Fund shares, a redeemable value at the end
of the performance period ("ERV") is calculated based on actual
Fund performance. The percentage change between the ending value
and initial investment is the return as an annual rate, which, if
compounded annually over the period ("n" is the number of years),
would increase or decrease the initial investment to the ending
value. (Formula for calculating average annual total compound
return: (ERV/p)1/n-1).
THE FUND
The Fund is a Texas corporation incorporated in 1995 and
registered with The Securities and Exchange Commission under the
Investment Company Act of 1940 as an open end diversified,
management investment company. The Fund offers for sale its
common stock on a no- load basis, which means that such shares
may be purchased directly from and redeemed by the Fund at net
asset value without any sales or redemption charge (See "Purchase
of Fund Shares" for minimum investment limitations).
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is income through stock
ownership and option writing. This investment objective may not
be changed without a vote of a majority of the Fund's
shareholders, in accordance with applicable requirements of the
Investment Company Act of 1940.
The Fund seeks to achieve its investment objective by
investing primarily in dividend paying common stocks on which
options are traded on national securities exchanges by selling
covered call options, and by entering into closing purchase
transactions with respect to such call options. The Fund will
invest in both large and small companies. Extensive study will
be made of the balance sheet and earnings power to appraise the
fundamental worth of each investment. A guiding principle is the
consideration of common stocks as units of ownership of a
business and the purchase of them when the price appears low in
relation to the value of the total enterprise. The Fund's
strategy is to create a well diversified portfolio using stock
and option positions.
Total return defined as income, and capital appreciation
will be obtained from the following sources:
1) premiums from expired options
2) net profits, if any from closing purchase transactions
3) dividends received on the securities in the Fund's
portfolio
4) net realized capital gains, if any
5) net changes in unrealized capital appreciation, if any
6) interest income from money market instruments, and U.S.
Government securities.
Since opportunities to realize net gains from covered call
option writing programs and yields on stocks, money market
instruments, and U.S. Government securities vary from time to
time because of general economic and market conditions and many
other factors, it is anticipated that the Fund's total return
will fluctuate and therefore there can be no assurance that the
Fund will be able to achieve its investment objective.
Except as described below, at least 75% of the Fund's total
assets (taken at current value), excluding cash, cash equivalents
and U.S. Government securities, will be invested in dividend
paying common stocks with covered call options written against
such stocks. The Fund s investment policy of covered call
writing will tend to cause the fund to be required to sell its
securities which are appreciating. The net result of this affect
will be to cause the fund to experience relatively poor
performance in upwardly moving markets. The fund has no maximum
or minimum level that will be dedicated to covered writing, but
under normal market conditions would anticipate being fully
invested. The Fund may invest its cash reserves in securities
of the U.S. Government and its agencies or the following cash
equivalents: deposits in domestic banks, bankers' acceptances,
certificates of deposit, commercial paper. Commercial paper
investments will be limited to investment grade issues, rated A-1
or A-2 by Standard & Poor's Corporation, or Prime 1 or Prime 2 by
Moody's Investors Service, Inc. Investments in registered
investment companies are limited by certain additional
restrictions (see "Investments in Securities of Other Investment
Companies").
In periods of unusual market conditions and for defensive
purposes the Fund may retain all or part of its assets in cash or
cash reserves of the type described above.
INVESTMENTS IN SECURITIES OF OTHER INVESTMENT COMPANIES.
Investments in the securities of other investment companies are
intended to provide an investment vehicle for the fund's cash
reserves that the Fund does not want to commit to riskier
investments. Accordingly, the Fund may invest up to 35% of its
total assets in securities, such as money market funds. However,
the Fund is restricted to purchasing securities only to the
extent that is permitted under the Investment Company Act of
1940. The 1940 Act generally permits the Fund to purchase or
otherwise acquire securities issued by another investment company
so long as, immediately after such acquisition, the Fund and all
affiliated persons of the Fund do not own in the aggregate more
than 3% of the total outstanding voting stock of the acquired
investment company.
Such transactions may in some cases raise the Fund s
transaction costs relative to a direct investment in the same
securities, but in some cases the Fund may benefit from being
able to acquire a diversified investment in one purchase that
could not be made economically in a direct fashion. As other
investment companies pay management fees to their investment
advisers, shareholders will bear a proportionate share of such
fees as well as the management fees paid by the Fund. In
addition, the 1940 Act provides that no investment company in
which the Fund invests is obligated to redeem shares of such
company owned by the Fund in an amount exceeding 1% of the
company s outstanding shares during any period or less than
thirty days.
COVERED OPTION WRITING. Covered call options will be
written on the Fund s portfolio in order to achieve, through the
receipt of premiums, income. The premium received represents an
increase in income to the stockholder. The option writer is
giving up potentially unlimited price appreciation in exchange
for the option premium. Covered option writing involves risks --
see Risks of Option Writing below.
COVERED CALL OPTIONS. A call option gives the purchaser of
the option the right to buy, and the writer has the obligation to
sell, the underlying securities at the exercise price during the
option period. The Fund, as the writer of the option, receives
the premium from the purchaser of the call option. The writer,
during the time he is obligated under the option, may be assigned
an exercise notice by the broker-dealer through whom the call was
sold, requiring him to deliver the underlying security against
payment of the exercise price. The obligation is terminated only
upon expiration of the option or at such earlier times as the
writer effects a closing purchase transaction. Once a writer has
been assigned an exercise notice, he will thereafter be unable to
effect a closing purchase transaction in that option. So long as
the Fund is obligated as the writer of a call option, it will own
the underlying securities subject to the option.
To secure this obligation to deliver the underlying
security, a covered call option writer is required to deposit in
escrow the underlying security or other assets in accordance with
the rules of the Clearing Corporation and the exchange on which
the covered call option is traded. To fulfill this obligation,
at the time an option is written, the Fund, in compliance with
its custodian agreement, directs the custodian of its investment
securities, or a securities depository acting for the custodian,
to act as the Fund's escrow agent by issuing an escrow receipt to
the Clearing Corporation respecting the option's underlying
securities. The Clearing Corporation will release the securities
from this escrow upon the exercise of the option, its expiration
without being exercised or when the Fund enters into a closing
purchase transaction. Until such release the Fund cannot sell
the underlying securities.
So long as his obligation as a writer continues, the covered
call option writer gives up the opportunity to profit from a
price increase in the underlying security above the sum of the
exercise price plus the premium received in exchange for
increasing his return if the underlying security does not advance
to or beyond the sum of the exercise price plus the premium.
Thus, in some periods the Fund will receive less total return and
in other periods greater total return from its call options than
it would have received from its underlying securities unoptioned.
The Fund will write options from time to time on such
portion of its portfolio as management determines is appropriate
in seeking to attain the Fund's objective. The Fund will write
options when management believes that a liquid secondary market
will exist on a national securities exchange for options of the
same series so that the Fund can effect a closing purchase
transaction if it desires to close out its position. Consistent
with the investment policies of the Fund, a closing purchase
transaction will ordinarily be effected to realize a profit on an
outstanding option, to prevent an underlying security from being
called, or to permit the sale of the underlying security.
Effecting a closing purchase transaction will permit the Fund to
write another option on the underlying security with either a
different exercise price or expiration date or both.
The premium the Fund receives for writing an option will
reflect, among other things, the current market price of the
underlying security, the relationship of the exercise price to
such market price, the historical price volatility of the
underlying security, the option period, supply and demand and
interest rates. The exercise price of an option may be below,
equal to or above the current market value of the underlying
security at the time the option is written. Options written by
the Fund will normally have expiration dates between one and nine
months from the date written. From time to time, for tax and
other reasons, the Fund may purchase an underlying security for
delivery in accordance with an exercise notice assigned to it,
rather than delivering such security from its portfolio.
RISKS OF OPTION WRITING. In return for the premium
received, a covered call writer during the term of the option is
subject to the risk of losing the potential for capital
appreciation above the exercise price of the underlying security.
The writer has no control over the time when he has to fulfill
his obligation as a writer of the option. Once an option writer
has received an exercise notice he cannot effect a closing
purchase transaction. If a call expires unexercised, the covered
writer realizes a gain in the amount of the premium received,
although there may have been a decline (unrealized loss) in the
market value of the underlying security during the option period
which may exceed such gain. If an underlying security should
fall by more than the option premium received there will be a
loss on the overall position. Thus, the downside protection or
hedge on any given security is partial and will not protect the
position if the stock falls by an amount greater than the call
option premium that was originally taken in. If the covered
writer has to sell the underlying security because of the
exercise of a call option, the writer will realize a gain or loss
from the sale of the underlying security with the proceeds being
increased by the amount of the premium.
PORTFOLIO TURNOVER. The Fund will not attempt to achieve,
nor will it be limited to, a predetermined rate of portfolio
turnover. Turnover rate is the lesser of purchases or sales of
portfolio securities for a year (excluding all securities and
options with maturities of one year or less) divided by the
monthly average of the market value of such securities. The
anticipated turnover rate is not expected to be higher than 100%;
however, a higher turnover rate may occur if the Fund writes a
substantial number of options which are exercised. For the year
ending December 31, 1996, the Fund s portfolio turnover rate was
101.38%. Higher portfolio turnover involves correspondingly
greater brokerage commissions and other transaction costs. The
Fund will pay brokerage commissions on its securities
transactions and in connection with the purchase and sale of
options as well as for selling a security on exercise of a call
option.
FURTHER INFORMATION. The Fund's investment objective and
policies are subject to certain restrictions, including
limitations on borrowing, short sales of securities and
investments in real estate companies or securities secured by
real estate. These restrictions may not be changed without
approval of the holders of a majority of the Fund's outstanding
shares. In addition, certain factors may restrict the ability of
the Fund to write options. These restrictions and factors are
described in the Statement of Additional Information.
MANAGEMENT OF THE COMPANY
The overall business and affairs of the Company are the
responsibility of the Company's Board of Directors, the members
of which are elected by the shareholders. The day-to-day
operations of the Company are managed by the Company's President
subject to the bylaws of the Company and review by the Board of
Directors. Information relating to the directors and officers of
the Company is provided in the "Statement of Additional
Information."
The Company has entered into an Investment Advisory Contract
(the "Contract") with Cancelmo Capital Management, Inc. (the
"Adviser"), 3030 University Boulevard, Houston, Texas 77005. The
Adviser, which is registered with the Securities and Exchange
Commission under the Investment Advisers Act of 1940, manages the
investment and reinvestment of the assets of the Company in
accordance with the Company's investment objective, policies, and
restrictions. Richard Peter Cancelmo, Jr. is the sole
shareholder of the Adviser and is responsible for all its
investment decisions, including the day-to-day management of the
Company's portfolio. There can be no assurance that the Adviser
could find a suitable replacement for Mr. Cancelmo in the event
of his death or disability. Mr. Cancelmo also serves as the
President and a Director of the Company. Prior to forming the
Adviser in 1995, Mr. Cancelmo was an investment executive for a
securities firm. He held that position since 1983.
The Adviser is paid a monthly fee computed at an annual rate
of 1% of the average daily net assets of the Company. This fee
is higher than the fee paid to most advisers for similar
services.
The Adviser pays all the salaries and related expenses (such
as health insurance premiums and similar benefits) of the
officers of the Company, provides office space for the Company
and pays all distribution expenses of the Company. The Adviser
permits, if desired by the Company, for officers of the Adviser
to serve, without compensation from the Company, as directors,
officers or agents of the Company if duly elected or appointed to
such positions.
In addition to the fee of the Adviser, the Company assumes
and pays any expenses for services rendered by any custodian for
the safekeeping of the Company's securities or other property,
for keeping its books of account, for any other charges of a
custodian and for calculating the net asset value of the Company.
The Company also assumes and pays the expenses of its operations,
including compensation of the directors (other than those
affiliated with the Adviser), expenses of independent accounting
services and auditors, of legal counsel, of any transfer or
dividend disbursing agent or any registrar of the company, costs
of acquiring and disposing of portfolio securities, interest, if
any, on obligations incurred by the Company, costs of share
certificates, association membership dues, salaries and related
expenses of administrative and clerical personnel who are not
officers of the Company, costs of reports and notices to
shareholders, other like miscellaneous or related expenses and
all taxes and fees payable to federal, state or other
governmental agencies by the Company.
The contract between the Company and its Adviser is
effective through October 24, 1997. Unless earlier terminated as
described below, the contract will remain in effect from year to
year thereafter if approved annually (1) by the Board of
Directors of the Company or by the holders of a majority of the
Company's common stock, and (2) by a majority of the Company's
disinterested directors. The contract terminates on its
assignment by either party, and may be terminated without penalty
on sixty days written notice by either party. The Company may
effect termination by action of the Board of Directors or by vote
of the holders of a majority of the Company's common stock.
The Adviser will reduce its fees to limit the total annual
expenses of the Company (including the Adviser's fee, but
excluding interest, taxes, fees incurred in acquiring and
disposing of portfolio securities and certain extraordinary
expenses) to 2.0% of the first $10,000,000 of average daily
assets, 1.5% of the next $20,000,000 of such assets, and 1.0% of
such assets over $30,000,000.
NET ASSET VALUE. The net asset value of the Fund is
computed once daily at 4:30 P.M. Eastern Time after the close of
trading of the New York Stock Exchange and the various option
exchanges. The net asset value per share is calculated by taking
the total value of the Fund's assets, deducting total liabilities
and dividing the result by the number of shares outstanding.
Securities traded on the New York Stock Exchange are valued at
their price at the close of regular trading on the New York Stock
Exchange. Options traded on one or more exchanges are valued at
their closing prices on whatever exchange the last sale occurred.
All other portfolio securities which are traded on a national
securities exchange are valued at their last sale. In all cases,
when there is no last sale on that day or if the last sale is
unrepresentative, the value is taken to be the mean between the
last current bid and asked prices. All other securities not so
traded are valued at the mean between the last current bid and
asked prices if market quotations are available. Other
securities and assets are valued at fair value in accordance with
methods determined in good faith by or under the direction of the
Fund's Board of Directors.
Money market securities are valued at the most recent bid
price or yield equivalent as obtained from dealers that make
markets in such securities. Securities with a remaining maturity
of 60 days or less are valued on an amortized basis. This
involves valuing a portfolio security at its cost initially and
thereafter assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the security.
HOW TO PURCHASE SHARES
Shares of the Fund are purchased directly from the Fund with
no sales charge or commission at net asset value next computed
after an order and payment are received by the Fund. Any order
received after 4:30 P.M. Eastern Standard Time will be processed
at the next day's closing net asset value. There is no minimum
on initial or subsequent purchases of Fund shares by tax deferred
retirement plans (including IRA, SEP-IRA and profit sharing and
money purchase plans) or Uniform Gifts to Minors Act accounts.
For other investors the minimum is $1,000 for an initial purchase
and there is no minimum for subsequent purchases.
The Fund reserves the right to reject any purchase order or
to suspend or modify the continuous offering of its shares.
PURCHASE BY MAIL. The simplest way to make initial and
subsequent purchases of Fund shares is to mail to the Fund a
completed and signed application to purchase shares with a check
payable to the Fund. Shares will be purchased at the next
determined net asset value per share after an order and payment
are received by the Fund.
All shares (including reinvested dividends and capital gain
distributions) are issued or redeemed in full and fractional
shares rounded to the third decimal place, at net asset value,
with no fees or charges. No share certificates will be issued
except for investors whose regulators require them to hold
certificates. Instead, an account will be established for each
shareholder and all shares purchased will be held in book entry
form by the Fund. Any transaction respecting an account,
including reinvestment of dividends and distributions, will be
confirmed in writing to the shareholder showing the details of
the transaction. (See "Shareholder Accounts.")
HOW TO REDEEM SHARES
REDUCTIONS BY WRITTEN INSTRUCTIONS: A shareholder may
redeem all or part of his shares by written request to the Fund.
The written request must be endorsed by the registered owner(s)
exactly as the account is registered, including any special
capacity of the registered owner(s). Where the owner or owners
have not arranged with the Fund for redemption proceeds to be
remitted to a predesignated bank account, the Fund requires that
the signature(s) be guaranteed. Fiduciaries, corporations and
other entities may also be required to furnish supporting
documents.
SIGNATURE GUARANTEES. To protect the shareholder's account
and the Fund from fraud, signature guarantees are required for
certain redemptions. The purpose of signature guarantees is to
verify the identity of the party who has authorized the
redemption. A guarantor must be a commercial bank or trust
company which is a member of the Federal Deposit Insurance
Corporation, a member firm of a national securities exchange or
another eligible guarantor institution. Notaries public are not
acceptable guarantors. Signature guarantees are required
for:
1. any redemption request for an account where the
owner(s) have not arranged with the Fund for redemption
proceeds to be remitted to a predesignated bank
account;
2. transfers or exchanges between accounts which are not
identically registered;
3. he addition of or change in the wiring instructions for
the financial institution designated to receive
redemption/proceeds directly into a shareholder's
account; and
4. procedures involving disputed or deceased shareholder
accounts.
Shares are redeemed without charge at the net asset value
next computed after instructions and required documents are
received in proper form. Any instructions received after 4:30
P.M. Eastern Standard Time will be processed at the next day's
closing net asset value. Payment will be made as promptly as
possible but in no event later than 3 business days from the day
the redemption request is received. Any letter of instruction
must be signed exactly as the account is registered, including
any special capacity of the registered owner. Under the Interest
and Dividend Tax Compliance Act of 1983, the Fund may be required
to withhold at a rate of 31% from dividends and capital gain
distributions to shareholders and upon payment of redemptions to
shareholders, if they have not complied with the provisions of
the Act relating to the furnishing of taxpayer identification
numbers and reporting of dividends.
A request for a distribution from an IRA, SEP-IRA or other
tax deferred retirement account for which the Fund acts as
sponsor may be delayed until the Fund has ascertained the
withholding requirements applicable to the distribution.
Investors may send withholding instructions to the Fund on
Internal Revenue Service ("IRS") Form W-4P along with the
distribution request. The form is available from the IRS or by
calling the Fund. If an investor does not want tax withholding
from distributions, the investor may state in the distribution
request (instead of using Form W-4P) that no withholding is
desired and that the investor understands that there may be a
liability for income tax on the distribution, including penalties
for failure to pay estimated taxes.
In the event that the Fund is requested to redeem shares for
which it has not received good payment (e.g., cash or cashier's
check on a U.S. bank), it will mail the redemption check upon
clearance of the purchase check (which may take up to 10 days or
more). In addition, the Fund reserves the right to defer
honoring redemption requests where the shares to be redeemed have
been purchased by check within 15 days prior to the date the
redemption request is received unless the Fund has been advised
that the check used for investment has been cleared for payment
by the shareholder's bank.
SHAREHOLDER ACCOUNTS
When an investor makes his initial purchase of shares an
account will be opened for him on the books of the Fund, and he
will receive a confirmation of the opening of his account.
Thereafter, whenever a transaction takes place in the account,
such as a purchase, redemption, transfer, change of address,
reinvestment of income or capital gain distributions, or
withdrawal of share certificates, a confirmation will be sent to
the shareholder giving complete details of that transaction. In
addition, shareholders will receive quarterly statements giving
complete details of all transactions during the quarter.
A shareholder may make additional investments in his account
by sending a check, money order or wired funds made payable to
the Fund. Income distributions (including dividends and
distributions of net short-term capital gains) and net long-term
capital gains distributions, if any, will be reinvested in full
and fractional shares rounded to the third decimal place, at the
net asset value per share determined on the payment date.
IRA PLAN
The Fund has a master individual retirement account (IRA)
plan which allows you to invest in the Fund. Income and capital
gains earned by an IRA are sheltered from taxation until
withdrawal. There is no minimum investment. The plan also
permits you to "roll over" to a West University Fund IRA a lump
sum distribution from a qualified pension or profit-sharing plan,
including by a direct transfer from the plan trustee, thereby
postponing your federal income tax on the distribution if rolled
over within 60 days. Many distributions from qualified plans are
subject to income tax withholding unless transferred directly
from the plan to an IRA or another plan.
If your employer has a Simplified Employee Pension Plan
(SEP), you may establish an IRA with the Fund to which your
employer may contribute annually up to the lesser of 15% of your
earned income or $30,000, subject to special rules designed to
avoid discrimination.
Detailed information about the IRA, including related
documents and charges of Firstar, as custodian, may be obtained
from the Fund.
DIVIDENDS, DISTRIBUTIONS AND TAXES
TAX STATUS OF THE FUND. The Fund intends to qualify as a
"regulated investment company" under the Internal Revenue Code.
As a regulated investment company, it will not be liable for
federal income taxes on amounts paid by it as dividends and
distributions. The Fund intends to qualify in current and future
years. However, the Code contains a number of complex tests
relating to qualification which the Fund might not meet in any
particular year. For example, if the Fund derives 30% or more of
its gross income from the sale or other disposition of securities
held for less than 3 months, it may fail to qualify (see, also,
"Tax Information and Option Accounting Principles" in the
Statement of Additional Information). If it did not so qualify,
it would be treated for tax purposes as an ordinary corporation
and receive no tax deduction for payments made to shareholders.
DISTRIBUTIONS. The Fund intends to distribute, at least
annually, ordinary dividends and net capital gains substantially
equal to the Fund's net investment income and net capital gains
for each year. There can be no guarantee that the Fund will have
such net investment income or net capital gains for annual
distribution. All distributions will be automatically reinvested
in shares of the Fund, unless the shareholder makes a written
request for distributions in cash. Such request must be sent to
the Fund at its current mailing address.
TAXATION OF SHAREHOLDERS. The following is only a brief
discussion of Federal income taxation in effect on the date of
this prospectus, and does not discuss the status of dividends and
distributions from the Fund under state and local tax laws. All
applicable tax laws and regulations are subject to change by
legislative and administrative action. Each shareholder of the
Fund is advised to consult his own tax adviser with respect to
applicable Federal, state and local tax laws.
The maximum marginal tax rate for individuals is currently
28% on net capital gains distributions and 39.60% on ordinary
income distributions. The reduction of certain deductions and
phase-out of exemptions may increase the individuals marginal tax
rate to more than 39.60%. For corporations, net capital gains
distributions are subject to the maximum marginal rate of 39%.
Distributions paid from the Fund's dividend and interest
income and from any net realized short-term capital gains are
taxable to shareholder as ordinary income under Federal income
tax law, whether received in cash or in additional shares. Net
capital gains distributions are taxable to shareholders as long-
term capital gains, whether received in cash or additional
shares, regardless of how long such shareholders have held their
shares. However, any loss (to the extent of the distribution of
net capital gain received by a shareholder) will be treated as
long-term capital loss upon the redemption of shares of the Fund
held for six months or less.
The sale of shares of the Fund is a taxable event and may
result in a capital gain or loss. A capital gain or loss may be
realized from any ordinary redemption of shares or exchange of
shares.
All or part of the Fund's dividends will be eligible for the
70% deduction for dividends received by corporations. Special
provisions are contained in the Internal Revenue Code as to the
eligibility, for the deduction, of payments made by mutual funds
to corporate shareholders. Net capital gains distributions are
not eligible for the deduction. The Fund will report to its
shareholders income dividends and net capital gains distributed
during the calendar year and will designate that portion which
qualifies for the 70% corporate dividends received deduction.
This determination will be based on the ratio between aggregate
dividends received by the Fund on domestic corporate stock held
for at least 46 days (91 days for certain preferred stock) and
the Fund's gross income. Gross income will include dividends,
interest and the excess of net short-term capital gains (which
includes premium from expired options and gains from closing
purchase transactions) over net long-term capital losses. Each
year the Fund will mail you information on the tax status of
dividends and distribution.
Pursuant to the Interest and Dividend Tax Compliance Act of
1983, shareholders may be subject to backup withholding of
federal income tax at a 31% rate on dividends and other payments
made to shareholders if they have not provided the Fund with
their correct social security number or other taxpayer
identification number, or have not made the certifications
required by the Internal Revenue Service.
The foregoing is only a brief discussion of Federal income
taxation in effect on the date of this Prospectus, and does not
discuss the status of dividends and distributions from the Fund
under state and local tax laws. All applicable tax laws and
regulations are subject to change by legislative and
administrative action. Each shareholder of the Fund is advised
to consult his own tax adviser with respect to applicable
Federal, state and local tax laws. Any net capital gain
distribution paid by the Fund has the effect of reducing the net
asset value per share on the reinvestment date by the amount of
the distribution. Therefore, a capital gain distribution paid
shortly after a purchase of shares by an investor would
represent, in substance, a partial return of capital to the
shareholder (to the extent it is paid on the shares so
purchased), even though it would be subject to income taxes as
discussed above. Accordingly, prior to purchasing shares of the
Fund, an investor should carefully consider the impact of
dividends or capital gains distributions which are expected to be
or have been announced.
TAX CONSIDERATIONS IN PORTFOLIO TRANSACTIONS. Optioning
securities in the Fund's investment portfolio may have the effect
of reducing capital appreciation earned on such securities below
that which could have been earned had no options been written on
such securities. Further, since shareholders of the Fund who are
taxable may receive distributions which are taxed to them as
ordinary income in years when the total return of the Fund is
less than its dividend and interest return, during such years the
Fund will attempt, consistent with its investment objective, to
minimize its shareholders' ordinary taxable income by offsetting,
to the extent possible, any net short-term capital gains that may
have been realized from expired options and profitable closing
purchase transactions by selling underlying stocks with
unrealized capital losses. Otherwise, in such years the Fund's
shareholders might have both a negative total return an current
taxable income, thus being subject to the payment of income taxes
in a year in which their real wealth may have declined. Of
course, there can be no assurance that the Fund will have
sufficient unrealized losses on its underlying common stocks to
be able to offset these net short-term capital gains.
DESCRIPTION OF COMMON STOCK
The Company was incorporated in Texas on October 25, 1995
with 10,000,000 authorized shares of common stock, $1.00 par
value. There were 199,497 shares issued and outstanding as of
December 31, 1996. All the outstanding shares are, and the
shares to be issued as contemplated herein will be, duly
authorized, fully paid and nonassessable. Each issued and
outstanding share has full voting rights and is entitled to one
vote on all matters submitted to the shareholders, including the
right to vote at the annual meeting of shareholders on the
election of directors and the selection of independent certified
public accountants. No shareholder is entitled to cumulative
voting rights or to any preemptive right to acquire securities of
the Company. Each share has equal dividend, distribution, and
liquidation rights.
TRANSFER, DIVIDEND DISBURSING
AND SHAREHOLDER SERVICING AGENT
The Fund serves as its own Transfer, Dividend Disbursing and
Shareholder Service Agent.
LEGAL PROCEEDINGS
As of the date of this Prospectus, there was no pending, or
threatened litigation involving the fund, or the Adviser in any
capacity whatsoever.
GENERAL INFORMATION
Shareholder inquiries should be made in writing to Cancelmo
Capital Management, Inc. at 3030 University Blvd., Houston, Texas
77005; or by telephone to (713) 666-1652 or (800) 465-5657.
Each shareholder will receive semi-annual financial
statements, including a list of portfolio securities and
outstanding call options. The annual financial statements of the
Fund will be audited by certified public accountants.
STOCK OPTION TERMS
OPTION. An option is either a call or put option issued by
the Options Clearing Corporation (the "Clearing Corporation") on
a stock and traded on one or more Exchanges, as defined below.
Such options give a holder the right to sell (in the case of a
put option) or to buy (in the case of a call option) the number
of shares or other units of the underlying security covered by
the option at a fixed or determinable exercise price. The rights
represented by an option may be exercised by the proper filing of
an exercise notice prior to the fixed expiration time of the
option.
CLASS OF OPTIONS. Options covering the same underlying
security.
CLEARING CORPORATION. The Option Clearing Corporation.
CLOSING PURCHASE TRANSACTION. A transaction in which an
investor who is obligated as a writer (seller) of an option
terminates his obligation as a writer by purchasing on an
exchange, in a closing purchase transaction, an option of the
same series as the option previously written. Such a transaction
has the effect of canceling the option writer's position as a
writer and does not result in the ownership of a new option.
COVERED CALL OPTION WRITER. A writer of a call option who,
so long as he remains obligated as a writer, owns the underlying
security.
EXCHANGE. A national securities exchange on which options
are traded: currently the Chicago Board Options Exchange
("CBOE"), American Stock Exchange ("AMEX"), Pacific Stock
Exchange ("PSE"), Philadelphia Stock Exchange ("PHLX") and New
York Stock Exchange ("NYSE").
EXERCISE PRICE. The price per unit at which the holder of a
call option may purchase (and the holder of a put option may
sell) the underlying security upon exercise of the option,
sometimes referred to as the striking price.
EXPIRATION DATE. The latest date when an option may be
exercised.
NASDAQ OPTIONS. Standardized options on unlisted securities
which are displayed on the National Association of Securities
Dealers Automated Quotations System.
OPTION PERIOD. The time during which an option may be
exercised, generally from the date the option is written through
its expiration date.
PREMIUM. The price of an option agreed upon between the
buyer and writer (seller) or their agents in a transaction on an
Exchange.
PUT OPTION. Any option issued by the Clearing Corporation
and traded on one or more of the Exchanges referred to above
which gives the holder the right to sell to the Clearing
Corporation the underlying security at the stated exercise price
by filing an exercise notice prior to the expiration date.
SERIES OF OPTIONS. Options covering the same underlying
security and having the same exercise prices and expiration
dates.
UNDERLYING SECURITIES. The securities subject to purchase
upon the exercise of a call option or subject to sale upon the
exercise of a put option.
INVESTMENT ADVISER
Cancelmo Capital Management, Inc.
3030 University Boulevard
Houston, Texas 77005
(713) 666-1652
(800) 465-5657
CUSTODIAN
Firstar Trust Company
P.O. Box 701
Milwaukee, Wisconsin 53201
(414) 765-4124
INDEPENDENT AUDITORS
Simonton, Kutac & Barnidge, L.L.P.
Certified Public Accountants
Two Houston Center
909 Fannin, Suite 2050
Houston, Texas 77010-1007
No dealer, salesman or any other person has been authorized to
give any information or to make any representation not contained
in this Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized
by the Fund or the Adviser. This Prospectus does not constitute
any offer to sell or a solicitation of any offer to buy any of
the securities offered hereby in any jurisdiction to any person
to whom it is unlawful to make such offer
in such jurisdiction.
<PAGE>
PART B
WEST UNIVERSITY FUND, INC.
3030 UNIVERSITY BOULEVARD
HOUSTON, TEXAS 77005
713-666-1652
800-465-5657
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a Prospectus
but should be read in conjunction with the Prospectus for West
University Fund, Inc. (the "Fund") dated March 31, 1997. A copy
of the Prospectus may be obtained by writing or telephoning the
Fund at the address or telephone number shown above.
TABLE OF CONTENTS
Page
1. Investment Objective and Policies 2
Covered Option Writing 2
Factors Which May Adversely Affect
Transactions in Options 2
Position Limitations 3
2. Investment Restrictions and Other Investment Policies 4
3. Management of the Fund 5
4. Brokerage 6
5. Tax Information and Option Accounting Principles 7
6. Calculation of Performance Data and Other
Performance Comparisons and Statistics 8
7. Description of Common Stock 10
8. Principal Shareholders 10
9. Tax Status 10
10. Pricing and Redemption of Fund Shares 11
11. Custodian 11
12. Transfer, Dividend Disbursing and Shareholder
Servicing Agent 12
13. Independent Auditors 12
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Prospectus discusses the Fund's investment objective and
the policies it employs to achieve this objective. The following
information supplements the discussion in the Prospectus.
COVERED OPTION WRITING. In return for the premium received,
a covered call option writer during the term of the option is
subject to the risk of losing the potential for capital
appreciation above the exercise price. The writer has no control
over the time when he has to fulfill his obligation as a writer
of the option. Once an option writer has received an exercise
notice he cannot effect a closing purchase transaction.
If a call option expires unexercised, the covered option
writer realizes a gain in the amount of the premium received
although there may have been a decline (unrealized loss) in the
market value of the underlying security during the option period
which may exceed such gain. If the covered option writer has to
sell the underlying security because of the exercise of a call
option, the writer will realize a gain or loss from the sale of
the underlying security with the proceeds being increased by the
amount of the premium.
A call option gives the purchaser of the option the right to
buy, and the writer the obligation to sell, the underlying
security at the exercise price during the option period. So long
as the obligation of the writer continues, he may be assigned an
exercise notice by the broker-dealer through whom such option was
sold, requiring him to deliver the underlying security against
payment of the exercise price. This obligation terminates upon
expiration of the option, or such earlier time at which the
writer effects a closing purchase transaction by purchasing an
option of the same series as he previously sold. Once a writer
has been assigned an exercise notice in respect of an option, he
is thereafter not allowed to effect a closing purchase
transaction. To secure his obligation to deliver the underlying
security in the case of a call option, a covered writer is
required to deposit in escrow the underlying security or other
assets in accordance with the rules of the Options Clearing
Corporation (the "Clearing Corporation") and of the Exchanges.
The principal reason for writing options on a securities
portfolio is to attempt to realize income, through the receipt of
premiums. The covered call option writer has, in return for the
premium, given up the opportunity for profit from a price
increase in the underlying security above the exercise price so
long as his obligation as a writer continues, but has retained
the risk of loss should the price of the security decline. The
call option writer has no control over when he may be required to
sell his securities since he may be assigned an exercise notice
at any time prior to the termination of his obligation as writer.
If an option expires unexercised, the writer realizes a gain in
the amount of the premium. Such a gain, of course, may, in the
case of a covered call option, be offset by a decline the market
value of the underlying security during the option period. If a
call option is exercised, the writer realizes a gain or loss from
the sale of the underlying security. Options written by the Fund
will normally have expiration dates not more than nine months
from the date written. The exercise price of the options may be
below, equal to, or above the current market prices of the
underlying securities at the times the options are written.
FACTORS WHICH MAY ADVERSELY AFFECT TRANSACTIONS IN OPTIONS.
An option position may be closed out only on an Exchange which
provides a secondary market for an option of the same series.
Although the Fund will generally purchase or write only those
options for which there appears to be an active secondary market,
there is no assurance that a liquid secondary market on an
Exchange will exist for any particular option, or at any
particular time, and for some options no secondary market on an
Exchange may exist. In such event, it might not be possible to
effect closing transactions in particular options. If as a
covered call option writer the Fund is unable to effect a closing
purchase transaction in a secondary market, it will not be able
to sell the underlying security until the option expires or it
delivers the underlying security upon exercise.
Reasons for the absence of a liquid secondary market on an
Exchange include the following: (i) there may be insufficient
trading interest in certain options; (ii) restrictions may be
imposed by an Exchange on opening transactions or closing
transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or
series of options or underlying securities; (iv) unusual or
unforeseen circumstances may interrupt normal operations on an
Exchange; (v) the facilities of an Exchange or the Clearing
Corporation may not at all times be adequate to handle current
trading volume; or (vi) one or more Exchanges could, for economic
or other reasons, decide or be compelled at some future date to
discontinue the trading of options (or a particular class or
series of options), in which event the secondary market thereon
would cease to exist, although outstanding options on that
Exchange which have been issued by the Clearing Corporation as a
result of trades on that Exchange would continue to be
exercisable in accordance with their terms.
There can be no assurance that higher than anticipated
trading activity or order flow or other unforeseen events might
not, at time, render certain of the facilities of the Clearing
Corporation and the Exchanges inadequate. Such events have in the
past resulted, and may again result, in the institution by an
Exchange of special procedures, such as trading rotations,
restrictions on certain types of orders, or trading halts or
suspensions, with respect to one or more options, or may
otherwise interfere with the timely execution of customers
orders.
In the event that NASDAQ options are traded, it is
anticipated that many of the factors which may adversely affect
transactions in Exchange listed options may also adversely affect
NASDAQ options.
The size of the premiums which the Fund may receive may be
adversely affected as new or existing institutions, including
other investment companies, engage in or increase their option
writing activities.
POSITION LIMITATIONS. Each of the Exchanges has established
limitations governing the maximum number of calls (whether or not
covered) which may be written by a single investor, or group of
investors acting in concert, (regardless of whether the options
are written on the same or different Exchanges or are held or
written in one or more accounts or through one or more brokers).
An Exchange may order the liquidation of positions found to be in
violation of these limits, and it may impose certain other
sanctions. At the date of this Prospectus, the only such limits
which may affect the operations of the Fund are those which limit
the writing of call options on the same underlying security by an
investor or such group to 4,500 options (450,000 shares), 7,500
options (750,000 shares) or 10,500 options (1,050,000 shares) in
each class regardless of expiration date. Whether the applicable
limit is 4,500, 7,500, or 10,500 options is determined by the
most recent six-month trading volume of the underlying security.
Every six months each Exchange reviews the status of underlying
securities to determine which limit should apply. These position
limits may limit the number of options which the Fund can write
on a particular security.
INVESTMENT RESTRICTIONS AND OTHER INVESTMENT POLICIES
The following restrictions are fundamental policies for the
protection of the Fund's shareholders and cannot be changed
without the approval of the holders representing a majority of
the Fund's outstanding voting securities, which for purposes of
such approval shall be the lesser of (i) 67% or more of the
shares present at a meeting of shareholders if the holders of
more than 50% of the outstanding voting securities of the Fund
are present or represented by proxy or (ii) more than 50% of the
outstanding voting securities of the Fund. The Fund may not:
(1) With respect to 75 percent of its total assets, invest
in securities of any one issuer if immediately after and as a
result of such investment more than 5 percent of the total assets
of the Company, taken at market value, would be invested in the
securities of such issuer. This restriction does not apply to
investments in obligations of, or guaranteed by, the United
States Government, its agencies or instrumentalities (U.S.
Government Securities).
(2) Invest more than 25 percent of its total assets in
securities or issuers in any one particular industry. This
restriction does not apply to investments in U.S.
Government Securities.
(3) Purchase more than 10 percent of the outstanding voting
securities, or any class of securities, of any one issuer.
(4) Purchase securities on margin (but the Fund may obtain
such short-term credits as may be necessary for the clearance of
purchases and sales of securities). (The deposit or payment by
the Fund of initial or variation margin in connection with
related options is not considered the purchase of a security on
margin.)
(5) Engage in any option strategy except that the Fund may
write covered call options with respect to all of its portfolio
securities, and enter into closing purchase transactions with
respect to such options.
(6) Make short sales of securities, maintain a short
position, or participate in a joint or a joint and several basis
in any trading account in securities.
(7) Invest in real estate, or real estate limited
partnerships, although the Fund may invest in marketable
securities which are secured by real estate and securities of
companies which invest in or deal in real estate. The Fund will
not invest more than 15% of the value of its total net assets in
illiquid securities, including real estate interests.
(8) Borrow money, except that the Company may borrow money
on a secured or unsecured basis from banks as a temporary measure
for extraordinary or emergency purposes including, but not
limited to, the purchase of its own common stock. Such temporary
borrowings may not exceed 5 percent of the value of the Company's
total assets at the time any loan is made. No more than 10
percent of the value of the Company's total assets at the time
any loan is made may be pledged as collateral for such temporary
borrowings.
(9) Buy or sell commodities, commodities futures contracts
or commodities options contracts.
(10) Make loan of money, except by the purchase of debt
obligations in which the Company may invest consistent with its
investment objective and policies.
(11) Issue senior securities, as defined in the Investment
Company Act of 1940, or mortgage, pledge, hypothecate or in any
manner transfer, as security for indebtedness, any securities
owned or held by the Company except as may be necessary in
connection with borrowings mentioned in number 8 above, and then
only to the extent there mentioned.
(12) Invest more than 5 percent of the value of the
Company's total assets in securities of issuers which have been
in continuous operation less than three years.
(13) Purchase or retain the securities of any issuer if, to
the knowledge of the Fund, any of the officers or directors of
the Fund or its investment adviser owns individually more than
one-half of one percent of the securities of such issuer and
together own more than 5% of the securities of such issuer.
(14) Underwrite securities of others except to the extent
the Fund may be deemed to be an underwriter, under the federal
securities laws, in connection with the disposition of portfolio
securities.
(15) Purchase securities of other investment companies,
except as permitted under the Investment Company Act of 1940.
(16) Invest for the purpose of exercising control or
management of another company.
(17) Invest in interests in oil, gas or other mineral
exploration or development programs, although the Fund may invest
in the common stock of companies which invest in or sponsor such
programs.
(18) Invest in securities restricted as to disposition under
the Federal securities laws.
(19) Invest in warrants.
MANAGEMENT OF THE COMPANY
The overall business and affairs of the Company are the
responsibility of the Company's Board of Directors, the members
of which are elected by the shareholders. The day-to-day
operations of the Company are managed by the Company's President
subject to the bylaws of the Company and review by the Board of
Directors. The following persons are directors and/or officers
of the Company.
Name, Age, Company, Address, Principal Occupation
Position with Company For Last Five Years
Richard Peter Cancelmo, Jr.* (38) Founder of the Adviser.
3030 University Boulevard Former Investment
Houston, Texas 77005 Executive, Paine Webber,
President, Treasurer & Director Inc. He earned a B.A.
from Washington and Lee
University.
James Barry Kendrick (35) Construction Manager,
3514 Dumbarton St. Hanscomb, Inc.
Houston, Texas 77025 Former Project Manager,
Director and Secretary Brown and Root, Inc.
He earned a B.S. from
Texas A & M University.
Samuel Lee Moreland (36) Manager, Real Estate,
2311 Briar Park American General Corp.
Houston, Texas 77042 Former Vice President,
Director Asset Management,
Bonnet Resources Corp.
He earned a B.A. from
the University of Texas.
*Indicates an "interested person" as defined in the Company
Investment Act of 1940.
Directors and Officers as a group were beneficial owners of
2.38% of the outstanding shares of the company as of December 31,
1996.
The Company has entered into an Investment Advisory Contract
(the "Contract") with Cancelmo Capital Management, Inc., 3030
University Blvd., Houston, Texas 77005. The Adviser, which is
registered with the Securities and Exchange Commission under the
Investment Advisers Act of 1940, manages the investment and
reinvestment of the assets of the Company in accordance with the
Company's investment objective, policies, and restrictions.
Richard P. Cancelmo, Jr. is the sole shareholder of the Adviser
and is responsible for all its investment decisions, including
the day-to-day management of the Company's portfolio. There can
be no assurance that the Adviser could find a suitable
replacement for Mr. Cancelmo in the event of his death or
disability. Mr. Cancelmo also serves as the President and a
Director of the Company. Prior to forming the Adviser in 1995,
Mr. Cancelmo was affiliated from 1982 with a securities firm.
The "Management of the Company" section of the Prospectus
contains further information about the Adviser.
Under the Management Agreement, any liability of the Adviser
to the Fund and its shareholders is limited to situations
involving its own willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties and obligations
under the Management Agreement.
The Management Agreement may not be assigned by the Adviser
and will terminate automatically upon assignment. It may be
terminated without penalty upon 60-days' written notice by either
party or by a vote of a majority of the Fund's outstanding voting
securities (as defined in the 1940 Act). The Management
Agreement may be amended by a vote of a majority of the Directors
of the Fund, including a majority of the disinterested directors,
cast in person at a meeting called for that purpose, subject to
approval by the vote of a majority of the Fund's outstanding
voting securities. "A majority of the Fund's outstanding voting
securities" as used herein, is defined in the first paragraph of
"Investment Restrictions and Other Investment Policies."
BROKERAGE
Under the terms of the Advisory Agreement, the Adviser is
authorized to employ brokers and dealers to execute orders for
the purchase and sale of the Fund's portfolio securities,
including the writing of option contracts, who, in its best
judgment, can provide "best execution" (prompt and reliable
execution at a reasonably competitive price).
In determining the abilities of the broker-dealer to provide
best execution of a particular portfolio transaction, the Adviser
considers all relevant factors including the execution
capabilities required by the transaction or transactions; the
ability and willingness of the broker-dealer to facilitate each
transaction by participation therein for its own account; the
importance to the Fund of speed, efficiency, or confidentiality;
the broker-dealer's apparent familiarity with sources from or to
whom particular securities might be purchased or sold; and the
quality and continuity of service rendered by the broker-dealer
with regard to the Fund's other transactions; and any other
factors relevant to the selection of a broker-dealer for
particular and related portfolio transactions of the Fund.
Subject to the foregoing obligation to seek best execution, the
Adviser may consider as a factor in the allocation of portfolio
transactions to a broker-dealer the broker-dealer's provision of
research services to the Adviser. The aggregate amount of
brokerage commissions paid by the Fund for the year ending
December 31, 1996 was $20,069.
If the Fund effects a closing purchase transaction with
respect to an option written by it, normally such transaction
will be executed by the same broker-dealer who executed the sale
of the option, except where the Fund utilizes a clearing agent
with respect to certain call options. Likewise, if an option
written by the Fund is exercised, normally the sale of the
underlying securities will be executed by the same broker-dealer
or clearing agent who executed the sale of the option.
The Fund may purchase or sell listed securities in the
over-the- counter market ("the third market"). Where
transactions are executed in the third market, the Fund generally
will deal with the primary market makers; however, if it is to
the advantage of the Fund, the services of other brokers may be
utilized.
TAX INFORMATION AND OPTION ACCOUNTING PRINCIPLES
When the Fund writes an option, an amount equal to the
premium received is recorded by the Fund as an asset and an
equivalent liability. The liability is thereafter valued to
reflect the current value of the option which is either the last
sale price, or, in the absence of a sale, the mean between the
last current bid and asking price. If the option is not
exercised and expires, or if the Fund effects a closing purchase
transaction, the Fund will realize a gain (or a loss in the case
of a closing purchase transaction where the cost exceeds the
original premium received) and the liability related to the
option will be extinguished. Any such gain or loss is a
short-term capital gain or loss for Federal income tax purposes,
except that a short-term loss realized when the Fund closes
certain in-the-money covered call options involving portfolio
equity securities will be converted to a long-term capital loss
if the hypothetical sale of the underlying security on the date
of such transaction would have given rise to a long-term capital
gain. If a call option which the Fund has written on any equity
security is exercised, the Fund realizes a capital gain or loss
(long-term or short-term, depending on the holding period of the
underlying security) from the sale of the underlying security and
the proceeds from such sale are increased by the premium
originally received.
SPECIAL TAX RULES APPLICABLE TO "STRADDLES" - Section 1092
of the Code may affect the taxation of options on equity
securities. Section 1092 defines a "straddle" as offsetting
positions with respect to personal property. A position in
personal property is generally defined as any interest, including
an option, in personal property. A position in personal property
includes certain options written thereon and also includes a
stock position and "deep-in-the-money" options (as defined in the
Code) written thereon.
Section 1092 generally provides that in the case of a
straddle, any loss from the disposition of a position in the
straddle can only be deducted to the extent that the loss exceeds
the unrealized gains on all offsetting straddle positions.
Section 1092 also provides that "wash sale" rules are applicable
to transactions where a position is sold at a loss and a new
offsetting position is acquired within a prescribed period.
These rules are applicable to the Fund's "deep-in-the-money"
stock option positions. In addition, Section 1092 will suspend
or terminate the Fund holding period in certain stocks with
respect to which the Fund writes options, including
non-"deep-in-the money" options which are "qualified covered call
options," and subject stocks to restrictions comparable to the
"wash sale rules" of Code Section 1091. Losses which the Fund
realizes on certain transactions involving certain in-the-money
covered call options may be converted from short-term to
long-term capital loss. Management will manage the Fund to take
into account Section 1092 and such Regulations.
CALCULATION OF PERFORMANCE DATA AND OTHER
PERFORMANCE COMPARISONS AND STATISTICS
From time to time the Fund may report its "total return" in
prospectuses, the Fund's annual reports, shareholder
communications, and advertising.
Total return for a performance period is calculated by
assuming a hypothetical initial investment ("p") in the Fund at
the beginning of the period. Then, assuming reinvestment of all
distributions into new Fund shares, a redeemable value at the end
of the performance period ("ERV") is calculated based on actual
Fund performance. The percentage change between the ending value
and initial investment is the "cumulative total return." The
"average annual total compound return" (growth rate) expresses
the total return as an annual rate, which if compounded annually
over the period ("n" is the number of years), would increase or
decrease the initial investment to the ending value (Formula for
calculating average annual total compound return:
(ERV/p)1/n-1)).
VOLATILITY. Occasionally statistics may be used to specify
the Fund's volatility or risk. Measures of volatility or risk
are generally used to compare the Fund's net asset value or
performance relative to a market index. One measure of
volatility is beta. Beta is the volatility of the Fund relative
to the total market as represented by the Standard & Poor's 500
Stock Index. A beta of more than 1.00 indicates volatility
greater than the market, and a beta of less than 1.00 indicates
volatility less than the market. Sometimes beta may be calculated
relative to a different market index. Another measure of
volatility or risk is standard deviation. Standard deviation is
used to measure variability of net asset value or total return
around an average, over a specified period of time. The premise
is that greater volatility connotes greater risk undertaken in
achieving performance.
OTHER PERFORMANCE QUOTATIONS. One measure of performance
that adjusts for risk is alpha. Alpha is a measure of the
difference between the Fund's performance and a market index
portfolio with the same beta.
For example, suppose the Fund's beta is approximately 0.5
over a historical period. Then, a similar risk market index
portfolio can be constructed with a beta of 0.5 by creating an
index with a weight of 50% in the S & P 500 Index and 50% in U.S.
Treasury Bills. The Fund's return is then compared to the return
of the market index.
Sales literature referring to the use of the Fund as a
potential investment for Individual Retirement Accounts (IRAs),
Business Retirement Plans, and other tax-advantaged retirement
plans may quote a total return based upon compounding of
dividends on which it is presumed no federal income tax applies.
Regardless of the method used, past performance is not
necessarily indicative of future results, but is an indication of
the return to shareholders only for the limited historical period
used.
COMPARISONS. To help investors better evaluate how an
investment in the Fund might satisfy their investment objective,
advertisements and other materials regarding the Fund may discuss
various measures of the Fund's performance as reported by various
financial publications. Materials may also compare performance
(as calculated above) to performance as reported by other
investments, indices, and averages. The following publications,
indices, and averages, among others, may be used:
a) The Dow Jones Composite Average or its component
averages -an unmanaged index composed of 30 blue-chip industrial
corporation stocks (Dow Jones Industrial Average), 15 utilities
company stocks (Dow Jones Utilities Average), and 20
transportation company stocks. Comparisons of performance assume
reinvestment of dividends.
b) Standard & Poor's 500 Stock Index or its component
indices - an unmanaged index composed of 400 industrial stocks,
40 financial stocks, 40 utilities stocks, and 20 transportation
stocks. Comparisons of performance assume reinvestment of
dividends.
c) The New York Stock Exchange composite or component
indices - unmanaged indices of all industrial, utilities,
transportation, and finance stocks listed on the New York Stock
Exchange.
d) Wilshire 5000 Equity Index -represents the return on
the market value of all common equity securities for which daily
pricing is available. Comparisons of performance assume
reinvestment of dividends.
e) Mixtures of indexes and U.S. Treasury Bills which
approximate the historical risk level of the Fund. In
particular: mixtures of the S & P 500 Stock Index and U.S.
Treasury Bills such as the 50%/50% mixture discussed under "Other
Performance Quotations."
f) Lipper -Mutual Fund Performance Analysis and Lipper
- -Fixed Income Fund Performance Analysis -measure total return and
average current yield for the mutual fund industry, and rank
individual mutual fund performance over specified time periods,
assuming reinvestment of all distributions, exclusive of any
applicable sales charges.
g) CDA Mutual Fund Report, published by CDA Investment
Technologies, Inc. - analyzes price, current yield, risk, total
return, and average rate of return (average annual compounded
growth rate) over specified time periods for the mutual fund
industry.
h) Financial publications: The Wall Street Journal and
Business Week, Changing Times, Financial World, Forbes, Fortune,
and Money magazines - provide performance statistics over
specified time periods.
i) Consumer Price Index (or Cost of Living Index),
published by the U.S. Bureau of Labor Statistics - a statistical
measure of change, over time, in the price of goods and services,
in major expenditure groups.
j) Stocks, Bonds Bills, and Inflation, published by
Ibbotson Associates -historical measure of yield, price, and
total return for common and small company stock, long-term
government bonds, Treasury bills, and inflation.
k) Savings and Loan Historical Interest Rates - as
published in the U.S. Savings & Loan League Fact Book. l)
Historical data supplied by the research departments of major
brokerage firms.
l) Historical data supplied by the research departments of
major brokerage firms.
m) Standard & Poor's 100 Stock Index -an unmanaged index
based on the prices of 100 blue-chip stocks, including 92
industrials, one utility, two transportation companies, and five
financial institutions. The S & P 100 Stock Index is a smaller
more flexible index for options trading.
In assessing such comparisons of performance an investor
should keep in mind that the composition of the investments in
the reported indices and averages is not identical to the Fund,
and that the averages are generally unmanaged. In addition there
can be no assurance that the Fund will continue this performance
as compared to such other averages.
DESCRIPTION OF COMMON STOCK. The Company was incorporated
in Texas on October 25, 1995 with 10,000,000 authorized shares of
common stock, $1.00 par value. There were 199,497 shares issued
and outstanding as of December 31, 1996. All the outstanding
shares are, and the shares to be issued as contemplated herein
will be, duly authorized, fully paid and nonassessable. Each
issued and outstanding share has full voting rights and is
entitled to one vote on all matters submitted to the
shareholders, including the right to vote at the annual meeting
of shareholders on the election of directors and the selection of
independent certified public accountants. No shareholder is
entitled to cumulative voting rights or to any preemptive right
to acquire securities of the Company. Each share has equal
dividend, distribution, and liquidation rights.
PRINCIPAL SHAREHOLDERS. As of December 31, 1996, the
following individuals each owned beneficiary and of record 5% or
more of the 199,497 outstanding shares of the company.
Owner # of Shares % Total
HIS Trust 49,164 24.64
Peggy D. Cancelmo 18,876 9.46
William F. Denney 18,876 9.46
Richard P. Cancelmo, M.D. 10,697 5.36
J.L. and S.J. Hochenedel 10,643 5.34
James P. Jackson 10,633 5.33
Sarah F. Jackson 10,617 5.32
Walter McCaine 10,455 5.24
TAX STATUS
As of the date of this Prospectus, the Fund intends to
qualify as a regulated investment company under Subchapter M of
the internal Revenue Code of 1986, as amended, and the Fund
intends to continue to qualify under said Subchapter M. As a
result of such qualification the Fund will not be subject to
Federal income taxes to the extent that it distributes not less
than 98% of its investment company taxable income and its capital
gains net income. Investment company taxable income includes net
income from dividends, interest and net short-term capital gain.
Premiums from expired options written by the Fund and net gains,
if any, from closing purchase transactions are treated as
short-term capital gains for Federal income tax purposes. In
order to qualify under Subchapter M, the Fund, among other things
must derive less than 30% of its gross income from the sale or
other disposition of securities held less than three months; as a
result the Fund may be restricted in the writing of options which
expire in less than three months or in effecting closing purchase
transactions in options written less than three months before
such transactions.
PRICING AND REDEMPTION OF FUND SHARES
The Fund's net asset value per share is calculated by taking
the total value of the Fund's assets, deducting total liabilities
and dividing the result by the number of shares outstanding.
Portfolio securities which are traded on a national securities
exchange are valued at the last sale price or if there is no
recent sale, at the mean between the last current bid and asked
prices. All other securities not so traded are valued at the mean
between the last current bid and asked prices if market
quotations are available. Other securities and assets are valued
at fair value in accordance with methods determined in good faith
by the Fund's Board of Directors.
The Fund may suspend the right of redemption or delay
payment more than three (3) business days: (a) during any period
when the New York Stock Exchange is closed (other than customary
weekend and holiday closings); (b) when trading on the New York
Stock Exchange is restricted; (c) when an emergency exists as
determined by the Securities and Exchange Commission so that
disposal of the Fund's investments or determination of its net
asset value is not reasonably practicable; or (d) for such other
periods as the Securities and Exchange Commission by order may
permit for protection of the Fund's shareholders. The amount
received by a shareholder upon redemption may be more or less
than he paid for his shares depending on the market value of the
Fund's portfolio securities at the time.
Shares of the Fund may be transferred upon delivery to the
Fund of (1) a letter of instructions, signed by each registered
owner exactly as the shares are registered, which clearly
identifies the exact names in which the account is presently
registered, the account number, the number of shares to be
transferred, and the names, addresses and social security or tax
identification number of the account to which the shares are to
be transferred, (2) stock certificates, if any, which are the
subject of the transfer, and (3) an instrument of assignment
("stock power"), which should specify the total number of shares
to be transferred and on which the signature(s) of the registered
owner(s) have been guaranteed by a commercial bank or trust
company which is a member of the Federal Deposit Insurance
Corporation, or by a member firm of a national securities
exchange. Additional documents are required for transfers by
corporation, executors, administrators, trustees and guardians;
if a shareholder is in doubt as to what documents are required,
he should contact the Fund. The Fund is not bound to record any
transfer on the stock transfer books until the Fund has received
all required documents.
CUSTODIAN
The Fund's custodian is Firstar Trust Company. Pursuant to
the terms of the Custodian Agreement the Fund will forward to the
Custodian the proceeds of each purchase of Fund shares. The
Custodian will hold such proceeds and make disbursements
therefrom in accordance with the terms of the Custodian
Agreement. It will retain possession of the securities purchased
with such proceeds and maintain appropriate records with respect
to receipt and disbursements of money, receipt and release of
securities, and all other transactions of the Custodian with
respect to the securities and other assets of the Fund.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING
AGENT The Fund serves as its own Transfer, Dividend
Disbursing and Shareholder Service Agenting.
INDEPENDENT AUDITORS
Simonton, Kutac & Barnidge, L.L.P., Certified Public
Accountants, Two Houston Center, 909 Fannin, Suite 2050, Houston,
Texas 77010-1007 serves as independent auditors to the Fund.
The services provided by the firm include the audit of the
financial statements of the Fund included in the Statement of
Additional Information and services related to other filings made
with the Securities and Exchange Commission.
Independent Auditors Report
January 15, 1997
To the Shareholders and Board of Directors,
West University Fund, Inc.
Houston, Texas
We have audited the accompanying statement of assets and
liabilities of West University Fund, Inc., (a Texas
corporation), including the schedule of portfolio
investments, as December 31, 1996, and the related statement
of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period
then ended, and the selected per share data and ratios for
the year then ended. These financial statements and per
share data and ratios are the responsibility of the Company s
management. Our responsibility is to express an opinion on
these financial statements and per share data and ratios
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about
whether the financial statements and per share data and
ratios are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of December 31,
1996, by correspondence with the custodian and brokers. An
audit also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and selected per
share data and ratios referred above present fairly, in all
material respects, the financial position of West University
Fund, Inc. at December 31, 1996, 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 ended, and the
selected per share data and ratios for the year then ended,
in conformity with generally accepted accounting principles.
Simonton, Kutac and Barnidge, L.L.P.
WEST UNIVERSITY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
ASSETS
Investments in securities, at market value
(cost: $1,432,480) $1,723,517
Variable demand notes, at market value
(cost: $629,349) 629,349
Receivables:
Dividends 2,622
Interest 2,365
Total Assets $2,357,853
LIABILITIES
Covered call options written, at market value
(premiums received: $189,725) $ 267,820
Payables for securities purchased 42,962
Accrued expenses 9,620
Total Liabilities $ 320,402
NET ASSETS $2,037,451
Net asset value per share
($2,037,451 / 199,497 shares outstanding) $ 10.21
COMPONENTS OF NET ASSETS
Common stock, $1.00 par value; 10,000,000 shares
authorized, 199,497 shares issued and outstanding $ 199,497
Paid-in capital 1,814,737
Undistributed net investment income --
Net unrealized appreciation on investments 23,217
Net Assets $
2,037,451
West University Fund, Inc. Portfolio of Investments
December 31, 1996
Common Stocks
Airlines - 2.70%
Southwest Airlines
Investments:
No. of Shares: 2,500 Market Value: 55,000
Outstanding Options:
Shares Optioned: 2,500 Exp. Date: Mar 97
Exercise Price: 20 Market Value: 7,968
Autos - 2.37%
Ford Motor
Investments:
No. of Shares: 1,500 Market Value: 48,375
Outstanding Options:
Shares Optioned: 1,500 Exp. Date: Mar 97
Exercise Price: 30 Market Value: 3,938
Chemicals - 9.21%
Calgon Carbon Corp.
Investments:
No. of Shares: 8,000 Market Value: 98,000
Outstanding Options:
Shares Optioned: 8,000 Exp. Date: Feb 97
Exercise Price: 10 Market Value: 19,000
Great Lakes Chemical
Investments:
No. of Shares: 1,000 Market Value: 46,750
Outstanding Options:
Shares Optioned: 1,000 Exp. Date: Jan 97
Exercise Price: 50 Market Value: 3,000
* Non-Income Producing Security
The accompanying notes are an integral part
of these financial stat ements.
<PAGE>
Common Stocks (continued)
Wellman, Inc.
Investments:
No. of Shares: 2,500 Market Value: 42,813
Outstanding Options:
Shares Optioned: 2,500 Exp. Date: Mar 97
Exercise Price: 15 Market Value: 6,875
Chemicals Market Value: 187,563
Chemicals Options Sold: 28,875
Containers - 1.53%
Sea Containers
Investments:
No. of Shares: 2,000 Market Value: 31,250
Electronics and Semi-Conductors - 6.77%
AMP, Inc.
Investments:
No. of Shares: 2,000 Market Value: 76,750
Outstanding Options:
Shares Optioned: 2,000 Exp. Date: May 97
Exercise Price: 35 Market Value: 8,875
Motorola
Investments:
No. of Shares: 1,000 Market Value: 61,250
Outstanding Options:
Shares Optioned: 1,000 Exp. Date: Apr 97
Exercise Price: 40 Market Value: 22,000
Electronics and Semi-Conductors Market Value: 138,000
Electronics and Semi-Conductors Sold: 30,875
Insurance & Brokerage - 5.05%
Lehman Brothers, Inc.
Investments:
No. of Shares: 2,000 Market Value: 62,750
Outstanding Options:
Shares Optioned: 2,000 Exp. Date: Apr 97
Exercise Price: 20 Market Value: 40,125
* Non-Income Producing Security
The accompanying notes are an integral part
of these financial stat ements.
<PAGE>
Common Stocks (continued)
Leucadia National
Investments:
No. of Shares: 1,500 Market Value: 40,125
Insurance & Brokerage Market Value: 102,875
Insurance & Brokerage Sold: 23,500
Medical Services - 1.29%
Healthsource *
Investments:
No. of Shares: 2,000 Market Value: 26,250
Outstanding Options:
Shares Optioned: 2,000 Exp. Date: Jan 97
Exercise Price: 15 Market Value: 313
Mining - 6.19%
Battle Mountain Gold
Investments:
No. of Shares: 5,920 Market Value: 40,700
Outstanding Options:
Shares Optioned: 5,900 Exp. Date: Apr 97
Exercise Price: 7-1/2 Market Value: 3,319
Cyprus Amex Minerals
Investments:
No. of Shares: 2,000 Market Value: 47,000
Outstanding Options:
Shares Optioned: 2,000 Exp. Date: Jan 97
Exercise Price: 22-1/2 Market Value: 2,125
Santa Fe Pacific
Investments:
No. of Shares: 2,500 Market Value: 38,438
Outstanding Options:
Shares Optioned: 2,500 Exp. Date: June 97
Exercise Price: 15 Market Value: 4,063
Mining Market Value: 126,138
Mining Options Sold: 9,507
* Non-Income Producing Security
The accompanying notes are an integral part
of these financial statements.
<PAGE>
Common Stocks (continued)
Miscellaneous Manufacturing - 10.49%
Gould Pumps, Inc.
Investments:
No. of Shares: 6,000 Market Value: 137,625
Outstanding Options:
Shares Optioned: 6,000 Exp. Date: Mar 97
Exercise Price: 20 Market Value: 19,500
Keystone International
Investments:
No. of Shares: 2,000 Market Value: 40,250
Outstanding Options:
Shares Optioned: 2,000 Exp. Date: Mar 97
Exercise Price: 17-1/2 Market Value: 5,375
Singer Company, N.V.
Investments:
No. of Shares: 1,600 Market Value: 35,800
Outstanding Options:
Shares Optioned: 1,600 Exp. Date: Jan 97
Exercise Price: 17-1/2 Market Value: 7,800
Miscellaneous Manufacturing Market Value: 213,675
Miscellaneous Manufacturing Options Sold: 32,675
Packaging - 6.44%
Ball Corp.
Investments:
No. of Shares: 5,000 Market Value: 131,250
Outstanding Options:
Shares Optioned: 2,000 Exp. Date: Feb 97
Exercise Price: 22-1/2 Market Value: 7,625
Shares Optioned: 2,000 Exp. Date: Feb 97
Exercise Price: 25 Market Value: 3,000
Publishing - 2.96%
Readers Digest
Investments:
No. of Shares: 1,500 Market Value: 60,375
Outstanding Options:
Shares Optioned: 1,500 Exp. Date: Apr 97
Exercise Price: 40 Market Value: 2,953
* Non-Income Producing Security
The accompanying notes are an integral part
of these financial stat ements.
Common Stocks (continued)
Real Estate - 1.57%
Castle and Cooke, Inc.*
Investments:
No. of Shares: 2,000 Market Value: 32,000
Retail - 7.25%
Auto Zone, Inc.*
Investments:
No. of Shares: 2,000 Market Value: 55,000
Outstanding Options:
Shares Optioned: 2,000 Exp. Date: June 97
Exercise Price: 22-1/2 Market Value: 12,125
StanHome, Inc.
Investments:
No. of Shares: 3,500 Market Value: 92,750
Outstanding Options:
Shares Optioned: 2,000 Exp. Date: Feb 97
Exercise Price: 25 Market Value: 4,000
Shares Optioned: 1,500 Exp. Date: May 97
Exercise Price: 25 Market Value: 4,031
Retail Market Value: 147,750
Retail Market Options Sold: 20,156
Service - 4.52%
Kelly Services, Inc.
Investments:
No. of Shares: 2,000 Market Value: 54,000
Outstanding Options:
Shares Optioned: 2,000 Exp. Date: May 97
Exercise Price: 25 Market Value: 7,125
Ogden Corp.
Investments:
No. of Shares: 2,000 Market Value: 38,000
Outstanding Options:
Shares Optioned: 2,000 Exp. Date: Feb 97
Exercise Price: 17-1/2 Market Value: 3,000
Service Market Value: 92,000
Service Market Options Sold: 10,125
* Non-Income Producing Security
The accompanying notes are an integral part
of these financial statements.
<PAGE>
Common Stocks (continued)
Software - .70%
Novell, Inc.
Investments:
No. of Shares: 1,500 Market Value: 14,203
Outstanding Options:
Shares Optioned: 1,500 Exp. Date: Feb 97
Exercise Price: 12-1/2 Market Value: 328
Tires - 9.94%
TBC Corp.*
Investments:
No. of Shares: 27,000 Market Value: 202,500
Outstanding Options:
Shares Optioned: 22,000 Exp. Date: Mar 97
Exercise Price: 5 Market Value: 60,500
Shares Optioned: 5,000 Exp. Date: Mar 97
Exercise Price: 7-1/2 Market Value: 5,313
Tires Market Value: 202,500
Tires Market Options Sold: 65,813
Toiletries/Cosmetics - 5.61%
Carter Wallace
Investments:
No. of Shares: 4,700 Market Value: 73,438
Outstanding Options:
Shares Optioned: 4,700 Exp. Date: Apr 97
Exercise Price: 12-1/2 Market Value: 17,919
Tambrands, Inc.
Investments:
No. of Shares: 1,000 Market Value: 40,875
Outstanding Options:
Shares Optioned: 1,000 Exp. Date: Apr 97
Exercise Price: 40 Market Value: 2,250
Toiletries/Cosmetics Market Value: 114,313
Toiletries/Cosmetics Market Options Sold: 20,169
* Non-Income Producing Security
The accompanying notes are an integral part
of these financial statements.
<PAGE>
Common Stocks (continued)
Total Equities - 84.59%
(Cost: $1,622,205) Market Value: 1,723,517
Total Option Contracts Written - (13.14%)
(Premiums received: $189,725)
Market Value: (267,820)
Short-Term Investments
Variable Demand Notes
American Family - 4.91%
(Cost: $100,000) Market Value: $100,000
Eli Lilly - 4.91%
(Cost: $100,000) Market Value: 100,000
General Mills - 4.91%
(Cost: $100,000) Market Value: 100,000
Pitney Bowes - 1.43%
(Cost: $29,349) Market Value: 29,349
Sara Lee - 4.91%
(Cost: $100,000) Market Value: 100,000
Southwestern Bell - 4.91%
(Cost: $100,000) Market Value: 100,000
Warner Lambert - 4.91%
(Cost: $100,000) Market Value: 100,000
Total Short Term Investments - 30.89%
(Cost: $629,349) Market Value: 629,349
Other Assets and Liabilities Net - (2.34%)
Market Value: (47,595)
Net Assets - 100% Market Value: $2,037,451
The accompanying notes are an integral part
of these financial statements.
WEST UNIVERSITY FUND, INC.
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
Income:
Interest $ 20,093
Dividends 27,265
47,358
Expenses:
Management fee 14,316
Accounting fee 7,755
Audit and tax consulting fees 4,562
Custodian fees 5,001
Other operating expenses 2,256
Total expenses 33,890
Less: Reimbursed Expenses (5,258)
Net Expenses 28,632
Net Investment Income 18,726
Net Realized and Unrealized Gain on Investments
Net realized gain on investments 110,481
Net change in unrealized appreciation 23,217
Net gain on investments 133,698
Net increase in net assets resulting from operations $ 152,424
WEST UNIVERSITY FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1996 and 1995
1996 1995
Operations:
Net investment income $ 18,726 $ 2,188
Net realized gain on investments 110,481 --
Net change in unrealized appreciation 23,217 --
Net increase in net assets resulting
from operations 152,424 2,188
Distributions to Shareholders:
Distributions from net investment income 18,726 2,188
Distributions from net realized gains 110,481 --
Total distributions 129,207 2,188
Capital Share Transactions:
Proceeds from shares issued (165,228 and
35,400 shares, respectively) 1,675,593 354,000
Increase from shares issued in reinvested distributions 88,570 --
Cost of shares redeemed (103,929) --
Net increase in net assets derived from
capital share transactions 1,660,234 354,000
Net increase in net assets 1,683,451 354,000
Net assets at beginning of year 354,000 --
Net assets at end of year $ 2,037,451 $ 354,000
WEST UNIVERSITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
West University Fund, Inc. (the Fund ), was incorporated
under the laws of the State of Texas on October 25, 1995
and commenced investment activity in February 1996. The
Fund is registered under the Investment Company Act of
1940, as amended, as a diversified, no-load, open-end
management investment company. The following is a summary
of the Fund s significant accounting policies.
Basis of Accounting --- The accounting records of the Fund
and its financial statements are maintained and prepared on
the accrual basis under 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 the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Securities Valuation --- Investments and outstanding
options (collectively referred to as securities) are stated
at market value. Securities traded on securities exchanges
are valued at the last sale price on the day of valuation
or, in the absence of a sale that day, at the mean between
the last current bid and asked prices.
Investment Income and Securities Transactions --- Dividend
income is recorded on the ex-dividend date and interest
income is accrued as earned. Securities transactions are
accounted for on the trade date (the date the order to buy
or sell is executed). Realized gains and losses from
securities transactions and unrealized appreciation or
depreciation of securities are reported on an identified
cost basis for both financial statement and Federal income
tax purposes.
Option Accounting Principles --- When the Fund writes a
call option, an amount equal to the premium received by the
Fund is included in the Fund s Statement of Assets and
Liabilities as an asset and an equivalent liability. The
amount of the liability will be subsequently marked-to-
market to reflect the current market value of the option
written. The current market value of a traded option is
the last sales price or, in the absence of a sale, the mean
between the last current bid and asked prices.
When a call expires on its stipulated expiration date, or
if the Fund enters into a closing purchase transaction, the
Fund will realize a gain (or loss if the cost of a closing
purchase transaction exceeds the premium received when the
call option was written) without regard to any unrealized
gain or loss on the underlying security, and the liability
related to such option will be extinguished. When a call
option is exercised, the Fund will realize a gain or loss
from the sale of the underlying security and the proceeds
of the sale are increased by the premium originally
received.
Fund Share Valuation --- Fund shares are sold and redeemed
on a continuing basis at net asset value. Net asset value
per share is determined daily as of the close of trading of
the New York Stock Exchange on each day the Exchange is
open for trading by dividing the total value of the Fund s
investments and other assets, less the sum of liabilities
and the value of outstanding call options, by the number of
Fund Shares outstanding.
Federal Income Taxes --- It is the Fund s intention to
comply with the provisions of the Internal Revenue Code
enabling it to qualify as a regulated investment company
and, in the manner provided therein, to distribute all of
its taxable income to its shareholders. Accordingly, no
provision for income taxes has been made.
Custodian --- The Fund s custodian is Firstar Trust
Company. Pursuant to the terms of the Custodian Agreement
the Fund will forward to the Custodian the proceeds of each
purchase of Fund shares. The Custodian will hold such
proceeds and make disbursements therefrom in accordance
with the terms of the Custodian Agreement. It will retain
possession of the securities purchased with such proceeds
and maintain appropriate records with respect to receipt
and disbursements of money, receipt and release of
securities, and all other transactions of the Custodian
with respect to the securities and other assets of the
Fund.
NOTE 2 - INVESTMENT ADVISORY AGREEMENT AND AFFILIATED
PERSONS
Cancelmo Capital Management , Inc. (the Adviser ) is the
investment adviser of the Fund. The Adviser, subject to
the control and direction of the Fund s board of directors,
manages and supervises the investment operations of the
Fund and the composition of its portfolio, including the
writing of all options and making recommendations to the
Fund s board of directors as to investment policies.
As compensation for furnishing investment advisory,
management, and other services, and costs and expenses
assumed, pursuant to the Investment Management Agreement,
the Fund pays the Adviser an annual fee equal to 1.0% of
average daily net assets. The Adviser will reduce its fees
to limit the total annual expenses of the Company
(including the Adviser s fee, but excluding interest,
taxes, fees incurred in acquiring and disposing of
portfolio securities and certain extraordinary expenses) to
2.0% of the first $10,000,000 of average daily assets, 1.5%
of the next $20,000,000 of such assets, and 1.0% of such
assets over $30,000,000.
NOTE 3 - CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue 10,000,000 shares of common
stock, par value $1.00. On October 25, 1995, 35,400 shares
of common stock were issued for $354,000 of marketable
securities. The 35,400 outstanding shares are held by two
shareholders who are related to an officer and director of
the Company.
As of December 31, 1996, there were 199,497 shares of $1.00
par value capital stock authorized and capital paid-in
aggregated $1,814,737.
Transactions in capital stock were as follows:
Shares Amount
1996 1995 1996 1995
Shares sold 165,22835,400 $1,675,593$ 354,000
Shares issued in reinvestment of dividends 8,692 -- 88,570 --
Shares redeemed 9,823 -- 103,929 --
Net increase 164,09735,400 $1,660,234 $ 354,000
NOTE 4 - INVESTMENT ACTIVITY
For the year ended December 31, 1996, purchases of investment
securities (excluding short term investments) totaled $3,111,007
and proceeds from sales totaled $1,549,917.
As of December 31, 1996, portfolio securities valued at
$1,593,755 were held in escrow by the custodian in connection
with covered call options written by the Fund.
Number
of
Contracts Premiums
Outstanding at beginning of year -- $ --
Call options written 1,722 389,952
Call options terminated in closing purchase
transactions (43) (9,678)
Call options expired (182) (53,321)
Call options exercised (580) (137,228)
Outstanding at December 31, 1996 917 $ 189,725
SUPPLEMENTARY INFORMATION
SELECTED PER SHARE DATA AND RATIOS
1996
Net asset value at beginning of year $ 10.00
Income from investment operations:
Net investment income .09
Net realized and unrealized gain on securities .80
Total from investment operations .87
Less Distribution (.68)
Net asset value at end of period $ 10.21
Total return* 9.71%
Ratios/Supplemental Data:
Net assets at end of period (in thousands) $ 2,037
Expenses to average net assets 1.82
Net investment income before taxes
to average net assets 1.19
Portfolio turnover rate 101.38%
Average commission rate** .0446
* Annualized
** The formula for calculating the average commission rate
is
total commission paid divided by total shares purchased
and
sold. Each option contract is 100 shares.
<PAGE>
SIGNATURES
Pursuant to the requirements of (the Securities Act of
1933 and) the Investment Company Act of 1940 the Registrant
(certifies that it meets all the requirements for
effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and) has duly
caused this Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the
City of Houston and state of Texas on the 31st day of
March, 1997.
West University Fund, Inc.
BY Richard Peter Cancelmo, Jr.
Richard Peter Cancelmo, Jr.
President
Pursuant to the requirements of (the Securities Act of 1933
and) this Registration Statement has been signed below by the
following persons in the capacities and on the date
indicated.
Director, Secretary March 31,
1997
James Barry Kendrick (Title) (Date)
Director March 31,
1997
Samuel Lee Moreland (Title) (Date)
