SEMI-ANNUAL REPORT
JUNE 30, 1999
August 20, 1999
Dear Shareholder:
The West University Fund's total return for the six month period ending June
30, 1999 was 6.39%. This compares to (.58%) for the Lehman Government
/Corporate Intermediate Bond Index, 12.38% for the Standard and Poors 500
Index and 9.28% for the Russell 2000 Index.
I am pleased with our performance year to date. For new and old shareholders
alike, there are a few principles I wish to state. First, I appreciate and
want the responsibility you give me to make the investment decisions for our
Fund. As part of this responsibility, please be assured that every
investment decision made for our Fund is dictated by a desire to generate a
conservative income stream. The large majority of equity income funds are
income funds in name only. They simply invest in stocks with above average
dividend yields. With the Standard and Poors dividend yield at 1.22%
(a record low) it is hard to generate significant income. What makes The West
University Fund unique is our Covered Call Writing Strategy. It does limit
our upside, but it also gives us significant income and downside protection.
I would like the main theme of this letter to be risk and risk aversion. Risk
is a four letter word you don't hear as often as others. Everyone talks
about returns, but how much risk do you take to achieve those returns? How
much risk does the West University Fund have versus the stock and
bond market?
One risk measurement tool is called Beta; it measures the volatility of a
fund's share price changes relative to a specific index such as the S&P 500.
The index is assigned a Beta of 1.00. A fund with a Beta of 1.20 would have
more volatility than the market and theoretically rise or fall 12% if the
index rose or fell 10%. A fund with a Beta of .80 would have less volatility
than the market and theoretically rise or fall 8% if the index rose or fell
10%. West University Fund has a Beta of .20 as calculated by Mutual Fund
Magazine. This means the Fund's volatility is significantly less (80%) than
the S&P 500 Index.
Having a high or low Beta is neither good or bad. What is important, is fund
returns versus Beta. If your Beta is 1.50 and your returns are the same as
the market, then your risk adjusted returns are poor. As of this writing,
August 20,1999 our Net Asset Value is $10.36 which is up 6.80% year to date.
The S&P 500 Index is up 8.74% and the Russell 2000 Index is up 2.94%. We have
returned 77% of the S&P 500, and are beating the Russell 2000 with a fraction
of the volatility.These are excellent risk adjusted returns.
The West University Fund's low level of volatility is more comparable to
intermediate term bond funds than to equity funds. It would be nice if you
could easily compare their respective Betas, but this is not an apples to
apples comparison because they are calculated versus a bond index and
not a stock index. I asked Mutual Fund Magazine the best way to make a fair
comparison of volatility between a stock and bond fund. They suggested I
look at their Safety Ratings which range from 0 (the least safe, most
volatile funds) to 10 (the funds with the most stable prices).
West University Fund has a Safety Rating of 9. I ran a screen of funds with
Safety Ratings of 9 or higher and there were 19 equity funds and 225 bond
funds. I then looked for a bond index fund that duplicates the Lehman
Government/Corporate Intermediate Bond Index and found the Vanguard
Intermediate Term Bond Index Fund, which has a Safety Rating of 8.6 and had a
negative return of (2.9%) for the period ending June 30, 1999. Hence,
West University Fund has less volatility and performed better than the
intermediate bond fund standard. This profile should prove attractive to
traditional fixed income investors.
I have told you in past letters that I am concerned with absolute and not
relative returns. This remains true. The comparisons I made here today were
done simply to try and help you understand how we were doing on a risk
adjusted basis. I am very happy with our returns after a difficult year in
1998, and I remain confident about future returns and the growth of assets.
I have always been a big fan of John Bogle, the founder and former chairman
of Vanguard Funds. In a recent interview he was asked about set backs which
included being fired from his job as an investment manager over 25 years ago.
"I adore struggles and admire the Greek god Antaeus, each time he got knocked
down, he came back stronger."
As always I thank you for your patience and confidence.
Sincerely,
Richard P. Cancelmo, Jr.
President
WEST UNIVERSITY FUND, INC. PORTFOLIO OF INVESTMENTS
June 30, 1999 (Unaudited)
Shares Common Stocks Value
BASIC MATERIALS, 16.85%
7,500 A Schulman, Inc. $128,906
2,000 Anglo Gold 43,000
2,500 Lubrizol Corp. 70,156
3,400 Newmont Mining 67,575
4,000 RPM, Inc. 56,750
8,000 Worthington Ind. 131,500
497,887
CAPITAL GOODS, 4.49%
4,000 Aviall, Inc.* 75,250
2,000 Diebold, Inc 57,500
132,750
CONSUMER CYCLICALS, 9.95%
2,000 National Service Ind. 72,000
2,500 Pep Boys 52,500
24,000 TBC Corp.* 169,500
294,000
The accompanying notes are an integral part of these financial statements.
WEST UNIVERSITY FUND, INC. PORTFOLIO OF INVESTMENTS (continued)
June 30, 1999 (Unaudited)
Shares Common Stocks Value
CONSUMER STAPLES, 16.34%
10,000 AMC Entertainment* $191,250
7,500 CBRL Group 129,843
2,000 Chris Craft 94,250
5,000 Paxson Commun Corp.* 67,500
482,843
ENERGY, 1.49%
8,000 Bellwether Exp.* 44,000
44,000
HEALTH CARE, 2.17%
2,000 Datascope Corp.* 64,250
64,250
MUTUAL FUNDS, 3.27%
15,000 MFS Int. Income Fund 96,563
96,563
TECHNOLOGY, 3.21%
4,000 Checkpoint Systems* 35,750
2,500 Compaq Computer 59,063
94,813
TELECOMMUNICATIONS, 2.44%
4,000 Loral Space* 72,000
72,000
UTILITIES, 9.11%
4,500 Northern States Power 108,844
3,800 Pacific Corp. 69,825
4,000 Teco Energy, Inc. 91,000
269,669
TOTAL COMMON STOCKS, 69.32% $2,048,775
(Cost $1,927,403)
SHORT TERM INVESTMENTS
Principal Amount Value
VARIABLE DEMAND NOTES, 28.29%
$140,000 American Family $140,000
140,000 Firstar 140,000
136,165 General Mills 136,165
140,000 Warner Lambert 140,000
140,000 Wisconsin Corp. C.U. 140,000
140,000 Wisconsin Electric 140,000
$836,165
The accompanying notes are an integral part of these financial statements.
WEST UNIVERSITY FUND, INC. PORTFOLIO OF INVESTMENTS (continued)
June 30, 1999 (Unaudited)
COMMERCIAL PAPER, 14.11%
$140,000 Ford, 8/23/99, 5.03% $138,963
140,000 GE, 8/23/99, 5.05% 138,959
140,000 GMAC, 8/23/99, 5.06% 138,957
$416,880
TOTAL SHORT TERM INVESTMENTS, 42.4%
(Cost $1,253,045) $1,253,045
Contracts Value
Call Options Outstanding on Common Stocks
(25) AMC Entertainment expires December 17,1999 at 12.5 $(18,437)
(20) Anglogold expires October 15,1999 at 17.5 (9,250)
(40) Bellwether Exp. expires July 16,1999 at 5 (2,874)
(25) CBRL Group expires September 17,1999 at 15 (7,344)
(50) CBRL Group expires December 17,1999 at 15 (16,563)
(40) Checkpoint Systems expires November 19,1999 at 7.5 (10,000)
(25) Compaq Computer expires October 15,1999 at 20 (12,188)
(20) Datascope expires September 17,1999 at 20 (25,250)
(20) Diebold, Inc expires August 20,1999 at 20 (18,625)
(40) Loral Space expires January 21,2000 at 15 (20,250)
(25) Lubrizol Corp. expires August 20,1999 at 20 (20,625)
(20) National Service Ind. Expires September 17,1999 at 30 (12,750)
(34) Newmont Mining expires December 17,1999 at 17.5 (15,088)
(20) Northern States Power expires September 17,1999 at 22.5 (4,000)
(25) Northern States Power expires December 17,1999 at 22.5 (6,172)
(25) Pacific Corp. expires August 20,1999 at 15 (8,594)
(13) Pacific Corp. expires August 20,1999 at 17.5 (1,706)
(50) Paxson Communications expires September 17,1999 at 7.5 (30,625)
(25) Pep Boys expires July 16,1999 at 12.5 (22,031)
(40) RPM, Inc. expires November 19,1999 at 12.5 (7,875)
(60) TBC Corp. expires September 17,1999 at 5 (13,125)
(60) TBC Corp. expires December 17,1999 at 7.5 (4,500)
(40) Teco Energy expires November 19,1999 at 20 (12,250)
(40) Worthington Ind. Expires December 17,1999 at 10 (26,000)
(40) Worthington Ind. Expires December 17,1999 at 12.5 (17,750)
(822) TOTAL CALL OPTIONS OUTSTANDING (11.64%) ($343,872)
(Premiums received $219,192)
OTHER ASSETS AND LIABILITIES, NET (.08%) (2,478)
NET ASSETS 100% $ 2,955,470
*Non-income producing security
The accompanying notes are an integral part of these financial statements.
WEST UNIVERSITY FUND, INC. STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999 (Unaudited)
ASSETS
Investments in Securities at value (cost $1,927,403) $2,048,775
Commercial Paper and Variable
Demand Notes at value (cost $1,253,045) 1,253,045
Receivable for Dividends 50
Receivable for Interest 3,129
TOTAL ASSETS $3,304,999
LIABILITIES
Covered Call Options at value (Premiums received $219,192) $343,872
Accrued Expenses 5,657
TOTAL LIABILITIES $349,529
NET ASSETS $2,955,470
Net asset value per share
($2,955,470 / 286,494 shares outstanding) $10.32
COMPONENTS OF NET ASSETS
Common stock ($1.00 par value; 10,000,000 shares authorized) $ 286,494
Paid in capital 2,729,821
Undistributed net investment income 18,844
Net unrealized appreciation (depreciation) on investments (3,307)
Net investment losses (76,382)
NET ASSETS $2,955,470
WEST UNIVERSITY FUND, INC. STATEMENT OF OPERATIONS
June 30, 1999 (Unaudited)
INVESTMENT INCOME
Dividends $15,258
Interest 28,724
TOTAL INCOME 43,982
EXPENSES
Investment Advisory Fee 14,355
Accounting Fee 4,203
Audit and tax consulting fees 3,620
Custodian fees 2,968
TOTAL EXPENSES 25,146
NET INVESTMENT INCOME 18,836
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments 120,633
Net increase in unrealized appreciation 31,966
Net gain on investments 152,599
Net increase in net assets resulting from operations $171,435
The accompanying notes are an integral part of these financial statements.
WEST UNIVERSITY FUND, INC. STATEMENT OF CHANGES IN NET ASSETS
June 30, 1999
Six Months
Ended Year
6/30/99 Ended
(Unaudited) 12/31/98
OPERATIONS
Net investment income $18,836 $56,857
Net realized gain (loss) 120,633 (198,767)
Net increase (decrease)
in unrealized appreciation 31,966 (52,429)
Net increase (decrease)
in net assets from operations 171,435 (194,339)
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income 0 (56,868)
Net realized gain 0 0
Total distributions 0 (56,868)
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 44,881 437,033
Increase from shares issued
in reinvested dividends 0 42,325
Cost of shares redeemed (698,207) (332,021)
Net increase (decrease)in net
assets from capital share transactions (653,326) 147,337
Total increase (decrease) (481,891) (103,870)
NET ASSETS AT BEGINNING OF PERIOD: $3,437,361 $3,541,231
NET ASSETS AT END OF PERIOD: $2,955,470 $3,437,361
WEST UNIVERSITY FUND, INC. NOTES TO FINANCIAL STATEMENTS
June 30,1999
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
West University Fund, Inc. (the "Fund"), was incorporated under the by laws
of the State of Texas on October 25, 1995, and commenced investment activity
in February 1996. The Fund is registered under the Investment Company Act of
1940, as amended, as a diversified, no-load, open-end management investment
company. The following is a summary of the Fund's significant accounting
policies.
Basis of Accounting, The accounting records of the Fund and its financial
statements are maintained and prepared on the accrual basis under generally
accepted accounting principles. The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Securities Valuation, Investments and outstanding options (collectively
referred to as securities) are stated at market value. Securities traded on
securities exchanges are valued at the last sale price on the day of
valuation or, in the absence of a sale that day, at the mean between the
last current bid and asked prices.
Investment Income and Securities Transactions, Dividend income is recorded on
the ex-dividend date and interest income is accrued as earned. Securities
transactions are accounted for on the trade date (the date the order to buy
or sell is executed). Realized gains and losses from securities transactions
and unrealized appreciation or depreciation of securities are reported on an
identified cost basis for both financial statement and Federal income tax
purposes.
WEST UNIVERSITY FUND, INC. NOTES TO FINANCIAL STATEMENTS (continued)
June 30,1999
Option Accounting Principles, When the Fund writes a call option, an amount
equal to the premium received by the Fund is included in the Fund's Statement
of Assets and Liabilities as an asset and an equivalent liability. The amount
of the liability will be subsequently marked-to-market to reflect the current
market value of the option written. The current market value of a traded
option is the last sales price or, in the absence of a sale, the mean between
the last current bid and asked prices. When a call expires on its stipulated
expiration date, or if the Fund enters into a closing purchase transaction,
the Fund will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the premium received when the call option was written)
without regard to any unrealized gain or loss on the underlying security, and
the liability related to such option will be extinguished. When a call option
is exercised, the Fund will realize a gain or loss from the sale of the
underlying security and the proceeds of the sale are increased by the
premium originally received.
Fund Share Valuation, Fund shares are sold and redeemed on a continuing basis
at net asset value. Net asset value per share is determined daily as of the
close of trading of the New York Stock Exchange on each day the Exchange is
open for trading by dividing the total value of the Fund's investments and
other assets, less the sum of liabilities and the value of outstanding call
options, by the number of Fund shares outstanding.
Federal Income Taxes, It is the Fund's intention to comply with the
provisions of the Internal Revenue Code enabling it to qualify as a regulated
investment company and, in the manner provided therein, to distribute all of
its taxable income to its shareholders. Accordingly, no provision for income
taxes has been made.
Custodian, The Fund's custodian is Firstar Trust Company. Pursuant to the
terms of the Custodian Agreement, the Fund will forward to the Custodian the
proceeds of each purchase of Fund shares. The Custodian will hold such
proceeds and make disbursements therefrom in accordance with the terms of the
Custodian Agreement. It will retain possession of the securities purchased
with such proceeds and maintain appropriate records with respect to receipt
and disbursements of money, receipt and release of securities,
and all other transactions of the Custodian with respect to the securities
and other assets of the Fund.
NOTE 2 - INVESTMENT ADVISORY AGREEMENT AND "AFFILIATED PERSONS"
Cancelmo Capital Management , Inc. (the "Adviser") is the investment adviser
of the Fund. The Adviser, subject to the control and direction of the Fund's
board of directors, manages and supervises the investment operations of the
Fund and the composition of its portfolio, including the writing of all
options and making recommendations to the Fund's board of directors as to
investment policies.
As compensation for furnishing investment advisory, management, and other
services, and costs and expenses assumed, pursuant to the Investment
Management Agreement, the Fund pays the Adviser an annual fee equal to 1.0%
of average daily net assets. The Adviser will reduce its fees to limit the
total annual expenses of the Company (including the Adviser's fee, but
excluding interest, taxes, fees incurred in acquiring and disposing of
portfolio securities and certain extraordinary expenses) to 2.0% of the first
$10,000,000 of average daily assets, 1.5% of the next $20,000,000 of such
assets, and 1.0% of such assets over $30,000,000.
NOTE 3 - CAPITAL SHARE TRANSACTIONS
As of June 30, 1999, there were 286,494 shares of $1.00 par value capital
stock authorized and capital paid-in aggregated $2,955,470.
NOTES TO FINANCIAL STATEMENTS (continued)
Transactions in capital stock were as follows:
1999 1998
Shares Amount Shares Amount
Shares sold 4,404 $44,881 40,865 $437,033
Shares issued in
reinvestment of dividends 0 0 4,382 42,325
4,404 44,881 45,247 479,358
Shares redeemed 72,126 698,207 33,318 332,021
Net increase (67,722) ($653,326) 11,929 $147,337
NOTE 4 - INVESTMENT ACTIVITY
For the period ending June 30, 1999, purchases of investment securities
(excluding short-term investments) totaled $1,705,995 and proceeds from
sales totaled $1,934,640.
As of June 30, 1999, portfolio securities valued at $1,403,619 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 895 $327,316
Call options written 1030 237,681
Call options bought back to close (30) (8,880)
Call options expired (485) (85,540)
Call options exercised (588) (251,385)
Outstanding, June 30, 1999 822 $219,192
WEST UNIVERSITY FUND, INC. SUPPLEMENTARY INFORMATION
June 30, 1999 (unaudited)
SELECTED PER SHARE DATA AND RATIOS
Six Months Ended
June 30, Year Ended December 31
1999 1998 1997 1996
Net asset value at
beginning of period $9.70 $10.35 $10.21 $10.00
Net investment income .06 .16 .12 .09
Net realized and unrealized
gain (loss) on securities .56 (.65) .82 .80
Total from investment .62 (.49) .94 .89
Less distributions:
Dividends from net
investment income .00 (.16) (.12) (.09)
Distribution from net
realized gains .00 .00 (.68) (.59)
Net asset value at
end of period $10.32 $9.70 $10.35 $10.21
Total return 6.39%** (4.70%) 9.73% 9.71%*
Ratios/Supplemental Data
Net assets at end of
period (in thousands) $2,955 $3,437 $3,541 $2,037
Ratio to average net assets:
Expenses 1.74%* 1.59% 1.75% 1.82%
Net investment income 1.30%* 1.53% 1.36% 1.19%
Portfolio turnover rate 167.56* 218.49% 188.53% 101.38%
*Annualized, **Not annualized, The accompanying notes are an integral part
of these financial statements.
