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
Informa-tion"). The Statement of Additional Information is
incorp-orated 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 APRIL 30, 1998.
TABLE OF CONTENTS
Page
Fund Expense Table 1
How Performance is Calculated 1
Financial Highlights 2
The Fund 3
Investment Objective and Policies 3
Investments in Securities of Other
Investment Companies 4
Covered Option Writing 5
Covered Call Options 5
Risks of Option Writing 6
Portfolio Turnover 7
Further Information 7
Management of the Company 7
Net Asset Value 9
How to Purchase Shares 9
How to Redeem Shares 10
Shareholder Accounts 12
IRA Plan 12
Dividends, Distributions and Taxes 13
Description of Common Stock 15
Transfer, Dividend Disbursing and Shareholder
Servicing Agent 15
Legal Proceedings 16
General Information 16
Stock Option Terms 16
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 .75%
Total Fund Operating Expenses 1.75%
Example
1 3 5 10
Years Years Years 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 $17.50 $54.10 $92.90 $200.60
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.
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).
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period from February
1, 1996 (date of the initial public offering) to December
31, 1997)
The following Financial Highlights of the Fund for the
fiscal year ended December 31, 1997 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, 1997. 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.
1997 1996
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.21 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .12 .09
Distributions from net investment
income (.12) (.09)
Net realized and unrealized gain on
securities .82 .80
Distribution from Realized gains on
securities (.64) (.59)
NET ASSET VALUE AT END OF YEAR $ 10.35 $10.21
TOTAL RETURN 9.73% 9.71%*
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $ 3,541 $2,037
Expenses to average net assets 1.75 1.82
Net investment income before taxes
to average net assets (%) 188.53% 101.38%
Portfolio turnover rate .0463 .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.
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, 1997, the Fund s portfolio turnover rate was
188.53%. 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 21, 1998. 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 342,287 shares issued and
outstanding as of December 31, 1997. 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
April 30, 1998. 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 3
Position Limitations 4
2. Investment Restrictions and Other Investment
Policies 4
3. Management of the Fund 6
4. Brokerage 8
5. Tax Information and Option Accounting Principles 9
6. Calculation of Performance Data and Other
Performance Comparisons and Statistics 10
7. Description of Common Stock 13
8. Principal Shareholders 13
9. Tax Status 13
10. Pricing and Redemption of Fund Shares 14
11. Custodian 15
12. Transfer, Dividend Disbursing and Shareholder
Servicing Agent 15
13. Independent Auditors 15
<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.* (39) 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 (36) 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.
M.B.A. Rice University.
Samuel Lee Moreland (37) 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 7.63% of the outstanding shares of the company as
of December 31, 1997.
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, 1997 was
$37,633.
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.
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 342,287 shares issued and outstanding as of December
31, 1997. 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, 1997, the
following individuals each owned beneficiary and of record
5% or more of the 342,287 outstanding shares of the company.
Owner # of Shares % Total
HIS Trust 49,164.208 14.36
R. P. Cancelmo, M.D. 40,709.931 11.89
VLA 1993 Trust 25,556.385 7.47
J.L. and S.J. Hochenedel 24,414.999 7.13
Peggy D. Cancelmo 20,433.353 5.97
William F. Denney 20,433.353 5.97
Richard P. Cancelmo, Jr. 18,202.768 5.32
and Martha H. Cancelmo
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.
<PAGE>
Independent Auditors Report
January 15, 1998
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, 1997, 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,
1997, 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, 1997, 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.
<PAGE>
WEST UNIVERSITY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
ASSETS
Investments in securities, at market value
(cost: $2,642,937) $ 2,735,903
Variable demand notes, at market value
(cost: $233,145) 233,145
U.S. Treasury Bills, at market value, 5.23%
due January 22, 1998 (cost: $996,951) 996,951
Receivables:
Dividends 3,000
Interest 4,658
Investment securities sold 22,427
Total Assets $ 3,996,084
LIABILITIES
Covered call options written, at market value
(premiums received: $367,343) $ 443,153
Accrued expenses 11,700
Total Liabilities $ 454,853
NET ASSETS $3,541,231
Net asset value per share
($3,541,231 / 342,287 shares outstanding) $ 10.35
COMPONENTS OF NET ASSETS
Common stock, $1.00 par value; 10,000,000 shares
authorized, 342,287 shares issued and
outstanding $ 342,287
Paid-in capital 3,180,015
Undistributed net investment income 1,773
Net unrealized appreciation on investments 17,156
Net Assets $3,541,231
The accompanying notes to financial statements are an integral
part of this statement.
<PAGE>
West University Fund, Inc. Portfolio of Investments December
31, 1997
Common Stocks
Basic Materials - 13.63%
Barrick Gold Corp.
Investments:
No. of Shares: 10,000 Market Value: 186,250
Outstanding Options:
Shares Optioned: 2,500 Exp. Date: Jan 98
Exercise Price: 17-1/2 Market Value: 3,594
Outstanding Options:
Shares Optioned: 5,000 Exp. Date: Apr 98
Exercise Price: 20 Market Value: 6,250
Outstanding Options:
Shares Optioned: 2,500 Exp. Date: Apr 98
Exercise Price: 22-1/2 Market Value: 1,719
Calgon Carbon Corp.
Investments:
No. of Shares: 6,000 Market Value: 64,500
Outstanding Options:
Shares Optioned: 6,000 Exp. Date: Feb 98
Exercise Price: 10 Market Value: 7,125
Newmont Mining Corp.
Investments:
No. of Shares: 5,075 Market Value: 149,078
Outstanding Options:
Shares Optioned: 3,000 Exp. Date: Mar 98
Exercise Price: 30 Market Value: 6,750
Pall Corp.
Investments:
No. of Shares: 4,000 Market Value: 82,750
Outstanding Options:
Shares Optioned: 2,000 Exp. Date: June 98
Exercise Price: 20 Market Value: 4,125
Basic Materials Market Value: 482,578
Basic Materials Options Sold: 29,563
Capital Goods - 6.00%
*Non-Income Producing Security
The accompanying notes are an integral part of these
financial statements.
<PAGE>
Common Stocks (continued)
AMP Inc.
Investments:
No. of Shares: 1,500 Market Value: 63,000
Outstanding Options:
Shares Optioned: 1,500 Exp. Date: May 98
Exercise Price: 40 Market Value: 6,375
Crown Cork & Co., Inc.
Investments:
No. of Shares: 1,000 Market Value: 50,125
Outstanding Options:
Shares Optioned: 1,000 Exp. Date: Apr 98
Exercise Price: 45 Market Value: 6,125
Worthington Ind.
Investments:
No. of Shares: 6,000 Market Value: 99,000
Outstanding Options:
Shares Optioned: 4,000 Exp. Date: June 98
Exercise Price: 17-1/2 Market Value: 4,250
Outstanding Options:
Shares Optioned: 2,000 Exp. Date: June 98
Exercise Price: 15 Market Value: 4,500
Capital Goods Value: 212,125
Capital Goods Sold: 21,250
Communication Services - 7.53%
GTE Corp.
Investments:
No. of Shares: 2,000 Market Value: 104,500
Outstanding Options:
Shares Optioned: 2,000 Exp. Date: Mar 98
Exercise Price: 40 Market Value: 25,250
Loral Space & Comm.*
Investments:
No. of Shares: 900 Market Value: 19,249
Outstanding Options:
Shares Optioned: 900 Exp. Date: Jan 98
Exercise Price: 12-1/2 Market Value: 8,044
*Non-Income Producing Security
The accompanying notes are an integral part of these
financial statements.
<PAGE>
Common Stocks (continued)
Next Level Systems*
Investments:
No. of Shares: 8,000 Market Value: 143,000
Outstanding Options:
Shares Optioned: 4,000 Exp. Date: Mar 98
Exercise Price: 10 Market Value: 32,000
Outstanding Options:
Shares Optioned: 4,000 Exp. Date: Mar 98
Exercise Price: 15 Market Value: 14,500
Communication Services Value: 266,794
Communication Services Sold: 79,794
Consumer Cyclicals - 16.77%
Clayton Homes
Investments:
No. of Shares: 4,000 Market Value: 72,000
Outstanding Options:
Shares Optioned: 4,000 Exp. Date: Feb 98
Exercise Price: 15 Market Value: 13,000
Coastcast Corp.*
Investments:
No. of Shares: 8,500 Market Value: 117,937
Outstanding Options:
Shares Optioned: 5,000 Exp. Date: Feb 98
Exercise Price: 10 Market Value: 20,312
Outstanding Options:
Shares Optioned: 2,500 Exp. Date: Feb 98
Exercise Price: 12-1/2 Market Value: 4,063
Pep Boys
Investments:
No. of Shares: 4,500 Market Value: 107,438
Outstanding Options:
Shares Optioned: 2,500 Exp. Date: Jan 98
Exercise Price: 25 Market Value: 547
Outstanding Options:
Shares Optioned: 2,000 Exp. Date: Apr 98
Exercise Price: 25 Market Value: 2,875
*Non-Income Producing Security
The accompanying notes are an integral part of these
financial statements.
<PAGE>
Common Stocks (continued)
Sears, Roebuck & Co.
Investments:
No. of Shares: 2,000 Market Value: 90,500
Outstanding Options:
Shares Optioned: 2,000 Exp. Date: Apr 98
Exercise Price: 40 Market Value: 13,750
Singer Company
Investments:
No. of Shares: 4,000 Market Value: 34,250
Outstanding Options:
Shares Optioned: 4,000 Exp. Date: Apr 98
Exercise Price: 12-1/2 Market Value: 1,625
Stanhome, Inc.
Investments:
No. of Shares: 3,000 Market Value: 77,062
Outstanding Options:
Shares Optioned: 3,000 Exp. Date: May 98
Exercise Price: 22-1/2 Market Value: 11,812
TBC Corp.*
Investments:
No. of Shares: 8,000 Market Value: 76,500
Outstanding Options:
Shares Optioned: 2,000 Exp. Date: March 98
Exercise Price: 7-1/2 Market Value: 4,875
Outstanding Options:
Shares Optioned: 6,000 Exp. Date: June 98
Exercise Price: 7-1/2 Market Value: 18,375
Telespectrum Worldwide, Inc.*
Investments:
No. of Shares: 5,000 Market Value: 18,125
Consumer Cyclicals Value: 593,812
Consumer Cyclicals Sold: 91,234
Consumer Staples - 6.88%
AMC Entertainment
Investments:
No. of Shares: 4,000 Market Value: 89,000
*Non-Income Producing Security
The accompanying notes are an integral part of these
financial statements.
<PAGE>
Common Stocks (continued)
Food Lion
Investments:
No. of Shares: 4,000 Market Value: 33,000
Outstanding Options:
Shares Optioned: 4,000 Exp. Date: Apr 98
Exercise Price: 7-1/2 Market Value: 5,500
Paxson Communications*
Investments:
No. of Shares: 3,300 Market Value: 24,750
Outstanding Options:
Shares Optioned: 3,000 Exp. Date: Jun 98
Exercise Price: 7-1/2 Market Value: 3,937
Wallace Computer Services
Investments:
No. of Shares: 2,500 Market Value: 97,187
Outstanding Options:
Shares Optioned: 2,500 Exp. Date: Mar 98
Exercise Price: 30 Market Value: 22,344
Consumer Staples Value: 243,937
Consumer Staples Sold: 31,781
Energy - 5.15%
Bellwether Exp.*
Investments:
No. of Shares: 8,000 Market Value: 88,000
Outstanding Options:
Shares Optioned: 8,000 Exp. Date: Apr 98
Exercise Price: 10 Market Value: 15,500
EVI, Inc.*
Investments:
No. of Shares: 1,000 Market Value: 51,750
Outstanding Options:
Shares Optioned: 1,000 Exp. Date: Feb 98
Exercise Price: 35 Market Value: 17,250
*Non-Income Producing Security
The accompanying notes are an integral part of these
financial statements.
<PAGE>
Common Stocks (continued)
Varco Intl., Inc.*
Investments:
No. of Shares: 2,000 Market Value: 42,875
Outstanding Options:
Shares Optioned: 2,000 Exp. Date: Mar 98
Exercise Price: 20 Market Value: 7,875
Energy Value: 182,625
Energy Sold: 40,625
Financials - 1.46%
Leucadia National
Investments:
No. of Shares: 1,500 Market Value: 51,750
Technology - 1.96%
NCR Corp.*
Investments:
No. of Shares: 2,500 Market Value: 69,531
Outstanding Options:
Shares Optioned: 2,500 Exp. Date: Jan 98
Exercise Price: 25 Market Value: 7,656
Utilities - 17.87%
Central and Southwest
Investments:
No. of Shares: 7,000 Market Value: 189,438
Outstanding Options:
Shares Optioned: 3,000 Exp. Date: Feb 98
Exercise Price: 20 Market Value: 21,375
Outstanding Options:
Shares Optioned: 4,000 Exp. Date: May 98
Exercise Price: 20 Market Value: 28,500
Houston Industries
Investments:
No. of Shares: 3,000 Market Value: 80,062
Outstanding Options:
Shares Optioned: 3,000 Exp. Date: Mar 98
Exercise Price: 20 Market Value: 20,437
*Non-Income Producing Security
The accompanying notes are an integral part of these
financial statements.
<PAGE>
Common Stocks (continued)
Potomac Electric Power Co.
Investments:
No. of Shares: 7,000 Market Value: 180,688
Outstanding Options:
Shares Optioned: 7,000 Exp. Date: May 98
Exercise Price: 20 Market Value: 42,875
Southern Co.
Investments:
No. of Shares: 1,500 Market Value: 38,813
Outstanding Options:
Shares Optioned: 1,500 Exp. Date: Feb 98
Exercise Price: 20 Market Value: 9,000
Wisconsin Energy Corp.
Investments:
No. of Shares: 5,000 Market Value: 143,750
Outstanding Options:
Shares Optioned: 5,000 Exp. Date: Apr 98
Exercise Price: 25 Market Value: 19,063
Utilities Value: 632,751
Utilities Sold: 141,250
Total Equities - 77.25%
(Cost $2,642,937) Market Value: 2,735,903
Total Option Contracts Written - 12.51%
(Premiums received: $367,343) Market Value: (443,153)
Short-Term Investments
Variable Demand Notes
General Mills - 2.76
(Cost: 97,689) Market Value: 97,689
Sara Lee - 3.83%
(Cost: 135,456) Market Value: 135,456
Total Variable Demand Notes Market Value: 233,145
U.S. Treasury Bills - 28.15%
5.23% due January 22, 1998
(Cost: $996,951) Market Value: 996,951
*Non-Income Producing Security
The accompanying notes are an integral part of these
financial statements.
<PAGE>
Common Stocks (continued)
Total Short Term Investments - 34.74%
(Cost: $1,230,096) Market Value: 1,230,096
Other Assets and Liabilities Net - .52%
Market Value: 18,385
Net Assets - 100% Market Value: 3,541,231
*Non-Income Producing Security
The accompanying notes are an integral part of these
financial statements.
<PAGE>
WEST UNIVERSITY F UND, INC.
STATEMENT OF OPER ATIONS
For the year ende d December 31, 1997
INCOME
Interest $ 52,319
Dividends 42,852
95,171
EXPENSES
Management fee 30,551
Accounting fee 8,475
Audit and tax consulting fees 5,658
Custodian fees 5,986
Other operating expenses 2,909
Total expenses 53,579
Net Investment Income 41,592
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 234,551
Net decrease in unrealized appreciation (6,062)
Net gain on investments 228,489
Net increase in net assets resulting
from operations $ 270,081
The accompanying notes to financial statements are an integral
part of this statement.
<PAGE>
WEST UNIVERSITY FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the years ending December 31, 1997 and 1996
1997 1996
OPERATIONS
Net investment income $ 41,592 $ 18,726
Net realized gain on investments 234,551 110,481
Net (decrease) in unrealized (6,062) 23,217
appreciation
Net increase in net assets
resulting from operations 270,081 152,424
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment
income 41,590 18,726
Distributions from net realized gains 232,779 110,481
Total distributions 274,369 129,207
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued (158,253
and 165,228 shares, respectively) 1,675,696 1,675,593
Increase from shares issued in
reinvested distributions 209,797 88,570
Cost of shares redeemed (377,425) (103,929)
Net increase in net assets derived
from capital share transactions 1,508,068 1,660,234
Net increase in net assets 1,503,780 1,683,451
NET ASSETS AT BEGINNING OF PERIOD 2,037,451 345,000
NET ASSETS AT END OF YEAR $3,541,231 $2,037,451
The accompanying notes to financial statements are an integral
part of this statement.
<PAGE>
Notes to Financia l Statements
1. Summary of Significant Accounting Policies
West University Fund, Inc. (the Fund) is registered under
the
Investment Company Act of 1940, as amended, as a
diversified,
no-load, open-end management investment company. The
follow-
ing is a summary of the Fund s significant accounting
policies.
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 sale 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.
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, manage-
ment, 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.
3. Investment Activity
For the years ended December 31, 1997 and 1996, purchases of
investment securities (excluding short-term investments)
totaled $5,546,593 and $3,111,007 and proceeds from sales
totaled $4,138,019 and $1,549,917.
As of December 31, 1997 and 1996, portfolio securities
valued at $2,497,163 and $1,593,755, respectively, 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 917 $ 189,725
Call options written 3,009 825,616
Call options terminated in closing
purchase transactions (230) (63,703)
Call options expired (370) (70,061)
Call options exercised (2,127) (514,234)
Outstanding at December 31, 1997 1,199 $ 367,343
<PAGE>
SUPPLEMENTARY INFORMATION
SELECTED PER SHARE DATA AND RATIOS
1997 1996
Net asset value at beginning of year $ 10.21 $ 10.00
Income from investment operations:
Net investment income .12 .09
Distributions from net investment
income (.12) (.09)
Net realized and unrealized gain on
securities .82 .80
Distribution from realized gains on
securities (.64) (.59)
Net asset value at end of year $ 10.35 $ 10.21
Total return 9.73% 9.71%*
Ratios/Supplemental Data:
Net assets at end of year
(in thousands) $ 3,541 $ 2,037
Expenses to average net assets (%) 1.75 1.82
Net investment income before taxes
to average net assets (%) 1.36 1.19
Portfolio turnover rate 188.53% 101.38%
Average commission rate** .0463 .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 Regulation 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 30th day of April 1998.
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 4/30/98
James Barry Kendrick (Title) (Date)
Director 4/30/98
Samuel Lee Moreland (Title) (Date)
