<PAGE>
As filed with the Securities & Exchange Commission
--------------------------
Securities Act File No. 2-60792
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Investment Company Act File No. 811-2807
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
Registration Statement Under the Securities Act of 1933 X
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Pre-Effective Amendment No.
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Post-Effective Amendment No. 24 X
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Registration Statement Under the Investment Company Act of 1940 X
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Amendment No. 21 X
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THE ANALYTIC OPTIONED EQUITY FUND, INC.
(Exact Name of Registrant as Specified in Charter)
2222 Martin Street, Suite 230, Irvine, CA 92715-1406
(Address of principal executive offices)
Registrant's Telephone Number: (800) 374-2633 or (714) 833-0294
NAME AND ADDRESS OF AGENT FOR SERVICE
COPIES TO:
ALAN L. LEWIS MICHAEL GLAZER
Analytic Optioned Equity Fund, Inc. Paul, Hastings, Janofsky & Walker
2222 Martin Street, Suite 230 555 South Flower Street
Irvine, CA 92715-1406 Los Angeles, CA 90071
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
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X on May 1, 1996 pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)(1)
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on ________________ pursuant to Rule 485 paragraph (a)(1)
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75 days after filing pursuant to paragraph (a)(2)
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on ________________ pursuant to paragraph (a)(2) of Rule 485
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This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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The Registrant has registered an indefinite number of shares of its common stock
under the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment
Company Act of 1940. The Registrant's Rule 24f-2 Notice for its most recent
fiscal year was filed on February 22, 1996.
i
<PAGE>
CROSS REFERENCE SHEET
FORM N-1A
PART A: INFORMATION REQUIRED IN PROSPECTUS
N-1A Item No. Item Location in Registration Statement
1. Cover Page Cover Page - Prospectus
2. Synopsis Fund Expense Table; How
Performance is Calculated
3. Condensed Financial Financial Highlights
Information
4. General Description of Registrant The Fund; Investment
Objective and Policies;
Dividends, Distributions
and Taxes
5. Management of the Fund Management of the Fund
6. Capital Stock and Other Capital Stock
Securities
7. Purchase of Securities Being How to Purchase Shares;
Offered Shareholder Accounts; Net
Asset Value
8. Redemption or Repurchase How to Redeem Shares
9. Legal Proceedings Not Applicable
PART B: INFORMATION REQUIRED IN STATEMENT OF ADDITIONAL INFORMATION
N-1A Item No. Item Location in Registration Statement
10. Cover Page Cover Page - Statement of
Additional Information
11. Table of Contents Table of Contents
12. General Information and Not Applicable
History
13. Investment Objectives and Investment Objective and
Policies Policies; Investment
Restrictions and Other
Investment Policies;
Hedging Transactions in
Options, Futures and
Related Options
14. Management of Registrant Management of the Fund
15. Control Persons and Management of the Fund;
Principal Holders of Principal Shareholders
Securities
16. Investment Advisory and Custodian; Independent
Other Services Accountants; Legal Counsel
17. Broker Allocation Brokerage
18. Capital Stock and Other Not Applicable
Securities
19. Purchase, Redemption, and Pricing and Redemption of
Pricing of Securities Being Fund Shares
Offered
20. Tax Status Tax Status; Tax Information
and Option Accounting
Principles
21. Underwriters Not Applicable
22. Calculation of Performance Calculation of Performance
Data Data and Other Performance
Comparisons and Statistics
23. Financial Statements Financial Statements
PART C: OTHER INFORMATION
Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement.
<PAGE>
PART A
PROSPECTUS
ANALYTIC OPTIONED EQUITY FUND, INC.
2222 MARTIN ST., #230, IRVINE, CA 92715-1406 -- (714) 833-0294 -- (800) 374-2633
FAX: 714-833-8049
Analytic Optioned Equity Fund, Inc. (the "Fund") is a NO-LOAD, open-end,
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 Analytic Investment Management, Inc.
The Fund's investment objective is to obtain a greater long-term total
return and smaller fluctuations in quarterly total return from a diversified,
hedged common stock portfolio than would be realized from the same portfolio
unhedged. (See "Glossary" for definitions of "quarterly total return,"
"long-term total return" and "fluctuations in total return".)
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 and in securities convertible into common stocks, by selling covered
call options and secured put options and by entering into closing purchase
transactions with respect to certain of such options. The Fund may also hedge
its securities by purchasing put and call options on its portfolio securities,
purchasing put and selling call options on the same securities, and engaging in
transactions in stock index and interest rate futures, stock index options, and
options on stock index and interest rate futures.
SPECIAL CHARACTERISTICS. The Fund may hedge against changes in stock prices
by engaging in transactions involving stock index futures and their related
options, and may hedge against changes in interest rates by engaging in
transactions involving interest rate futures and their related options. (See
"Investment Objectives and Policies -- Hedging Transactions"). The Fund may also
make short sales of securities "against the box" to receive interest from the
proceeds of such sale and/or to defer realizing of a gain or loss thereon; and
enter into "repurchase agreements" subject to certain limitations (see "Other
Investment Techniques").
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 $5,000 for an initial purchase and there is no minimum for subsequent
purchases.
This prospectus contains concise information respecting the Fund which a
prospective investor should know before investing. Additional information
concerning the Fund and its investment adviser has been filed with the
Securities and Exchange Commission (the "Statement of Additional Information").
The Statement of Additional Information is incorporated by reference into this
Prospectus and is available without charge to investors by writing or
telephoning the Fund at the address or the telephone number shown above.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
INVESTORS SHOULD READ AND RETAIN THIS PROSPECTUS FOR FURTHER REFERENCE.
THE DATE OF THIS PROSPECTUS AND THE RELATED STATEMENT OF ADDITIONAL INFORMATION
IS MAY 1, 1996
<PAGE>
THE FUND OFFERS INVESTORS THESE BENEFITS
PROFESSIONAL MANAGEMENT
Founded in 1970, Analytic TSA Global Asset Management, Inc. (the "Adviser")
provides continuous professional management to the Fund's portfolio. By pooling
their assets, shareholders can participate in investments that might not
otherwise be available to the individual shareholder.
NO-LOAD
There is never any sales charge, redemption fee, or 12b-1 promotional fees
when you buy or redeem shares in the Fund. All of your money goes to work
immediately to achieve your investment objectives.
LIQUIDITY
Although the Fund is designed for long-term investment, you may redeem all
or part of your Fund shares at net asset value, on any business day, without
charge. Your investment is liquid.
CONVENIENCE
Shareholders are relieved of the administrative burden associated with the
direct ownership of individual securities because the Fund handles all record
keeping, collecting dividends and interest, and safekeeping of securities.
QUARTERLY REPORTS
The Fund lets you know where you stand in easy-to-read, comprehensive
quarterly reports.
SYSTEMATIC WITHDRAWAL PLANS
Without cost a shareholder may elect to receive systematic withdrawal checks
on a monthly or quarterly basis.
EXCHANGE PRIVILEGES
Should your investment goals change, shares may be exchanged for shares of
any portfolio of the Analytic Series Fund, a registered investment company for
which the Adviser serves as investment adviser.
RETIREMENT PLANS
Shares of the Fund can be purchased in connection with the following
tax-deferred prototype retirement plans:
IRAs (including transfers and "rollovers" from existing retirement plans for
individuals and their spouses); SEP-IRA and profit sharing and
money-purchase plans for corporations, partnerships and self-employed
individuals to benefit themselves and their employees.
2
<PAGE>
FUND EXPENSE TABLE
The following tables illustrate the expenses and fees that a shareholder of
the Fund will incur. The expenses set forth in the tables are based on the
Fund's 1995 fiscal year.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Load Imposed on Purchases..................................................... None
Sales Load Imposed on Reinvested Dividends.......................................... None
Deferred Sales Load................................................................. None
Redemption Fees..................................................................... None
Exchange Fee........................................................................ None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<S> <C>
Investment Advisory Fees.............................................................. 0.75%
12b-1 Fees............................................................................ None
Other Expenses (1).................................................................... 0.47%
---
Total Fund Operating Expenses (1)................................................. 1.22%
---
---
</TABLE>
- ------------------------
(1) The Adviser has entered into agreements whereby a portion of the commissions
earned by a broker-dealer on portfolio transactions placed with such
broker-dealer is reimbursed to the Fund by payment of all or a portion of
the Fund's expenses, including its custodian fees. Absent such arrangements,
other expenses would have been 0.63% of the average net assets and total
operating expenses would have been 1.38% of the total average net assets.
EXAMPLE
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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: ..... $ 12 $ 39 $ 67 $ 148
</TABLE>
The purpose of the above information is to help an investor in the Fund to
understand the various costs and expenses he will bear directly or indirectly.
The example is not a representation of past or future expenses and actual
expenses may be greater or less than those shown.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The financial information in the table below for each of the nine years in
the period ended December 31, 1995 has been derived from audited financial
statements of the Fund performed by Deloitte & Touche LLP, independent auditors.
Such financial statements and the report of Deloitte & Touche LLP thereon are
incorporated by reference in the Statement of Additional Information. The
financial information, insofar as it relates to the year ended December 31,
1986, has been audited in conjuction with the audit of the financial statements
of the Fund by other auditors.
Copies of the Fund's 1995 Annual Report to Shareholders may be obtained, at
no charge, by writing or telephoning the Fund at the address or telephone number
appearing on the cover page of this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period................. $ 11.12 $ 11.96 $ 11.97 $ 12.29 $ 11.92 $ 13.00 $ 12.06 $ 11.38 $ 13.70
--------- --------- --------- --------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income.... 0.24 0.31 0.33 0.27 0.40 0.46 0.50 0.39 0.38
Net gains or losses on
securities (both
realized and
unrealized)............. 2.14 -0.02 0.48 0.48 1.17 -0.27 1.61 1.35 0.24
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total from investment
operations............ 2.38 0.29 0.81 0.75 1.57 0.19 2.11 1.74 0.62
LESS DISTRIBUTIONS
Dividends (from net
investment income)...... 0.24 0.31 0.33 0.29 0.40 0.48 0.51 0.40 0.46
Distributions (from
capital gains).......... 0.00 0.82 0.49 0.78 0.80 0.79 0.66 0.66 2.48
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total distributions.... 0.24 1.13 0.82 1.07 1.20 1.27 1.17 1.06 2.94
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Net asset value, end of
period.................... $ 13.26 $ 11.12 $ 11.96 $ 11.97 $ 12.29 $ 11.92 $ 13.00 $ 12.06 $ 11.38
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN............... 21.52% 2.47% 6.73% 6.17% 13.29% 1.54% 17.74% 15.60% 4.28%
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000)..................... $ 42,648 $ 48,254 $ 76,948 $ 91,561 $ 100,548 $ 106,220 $ 106,474 $ 102,239 $ 74,840
Ratio of expenses to
average net assets........ 1.38%(1) 1.10% 1.07% 1.02% 1.10% 1.11% 1.09% 1.13% 1.17%
Ratio of net investment
income to average
net assets................ 1.87% 3.45% 2.51% 2.33% 3.05% 3.68% 3.74% 3.44% 2.68%
Portfolio turnover rate.... 32.37% 48.71% 36.19% 81.73% 75.83% 72.20% 61.20% 66.11% 83.53%
Average commission rate
(2)....................... $ 0.0442
<CAPTION>
1986
---------
<S> <C>
Net asset value, beginning
of period................. $ 14.84
---------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income.... 0.45
Net gains or losses on
securities (both
realized and
unrealized)............. 1.06
---------
Total from investment
operations............ 1.51
LESS DISTRIBUTIONS
Dividends (from net
investment income)...... 0.45
Distributions (from
capital gains).......... 2.20
---------
Total distributions.... 2.65
---------
Net asset value, end of
period.................... $ 13.70
---------
---------
TOTAL RETURN............... 10.48%
---------
---------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000)..................... $ 76,392
Ratio of expenses to
average net assets........ 1.18%
Ratio of net investment
income to average
net assets................ 2.90%
Portfolio turnover rate.... 64.14%
Average commission rate
(2).......................
</TABLE>
- ------------------------
(1) Gross of expenses paid indirectly through broker-dealers.
(2) The formula for calculating the average commission rate is total commissions
paid divided by total shares purchased and sold. This rate includes
commissions paid on option contracts where each contract is 100 shares.
4
<PAGE>
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 "cumulated 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)).
See the "Glossary" for further discussion and examples of total return and
fluctuations in total return.
THE FUND
The Fund is a California corporation incorporated in 1977 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, no par value, 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 to obtain a greater long-term total
return and smaller fluctuations in quarterly total return from a diversified,
hedged common stock portfolio than would be realized from the same portfolio
unhedged. This investment objective may not be changed without shareholder
approval 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 and in securities convertible into common stocks, by selling covered
call options and secured put options and by entering into closing purchase
transactions with respect to certain of such options. The Fund may also hedge
its portfolio securities by purchasing put and call options on its portfolio
securities, purchasing put and selling call options on the same securities, and
engaging in transactions in stock index and interest rate futures, stock index
options, and options on stock index and interest rate futures. The Fund's
strategy is to create a well diversified and significantly hedged portfolio
using combined stock and option and fixed income and option positions.
Typically, the Fund remains diversified across all industries represented in the
Standard & Poor's 500 Index with similar industry weightings.
Total return will be obtained from the following sources:
(1) premiums from expired options.
(2) net profits, if any, from closing purchase or closing sale 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, U.S. Government
Securities, convertible securities, and short sales.
5
<PAGE>
In seeking a greater long-term total return, the Fund will equally emphasize
current return and long-term capital gains. (See "Dividends, Distributions and
Taxes -- Tax Considerations in Portfolio Transactions"). Since opportunities to
realize net gains from covered option writing programs and yields on stocks,
money market instruments, U.S. Government securities, convertible debt
securities, and short sales 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 80% 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 which have been approved by
one or more exchanges as underlying securities for listed call or put options,
or securities which are convertible into such common stocks without the payment
of further consideration. 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, or securities of registered investment companies. 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".) The Fund may also enter into short-term repurchase
agreements with respect to the foregoing securities, the sellers of which,
usually banks, agree to repurchase the securities subject to the agreement at
the Fund's cost plus interest within a specified time, usually, one day.
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.
COVERED OPTION WRITING. Covered call options and secured put options will
be written on the Fund's portfolio in order (i) to achieve, through the receipt
of premiums, a higher long-term total return then would be received from the
same portfolio unhedged and (ii) to reduce the fluctuation in this total return.
The writing of such options tends to reduce fluctuations in total return
because, in any short period of time, the gains or losses on the sale of options
will tend to offset the losses or gains, respectively, on the underlying
securities. 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 time 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 (i) own the underlying
securities subject to the option, or (ii) have the right to acquire the
underlying securities through immediate conversion or exchange of convertible
preferred stocks or convertible debt securities owned by the Fund, or (iii) hold
on a security-for-security basis a call on the same security as the call written
where the exercise price of the call held is equal to or less than the exercise
price of the call written (or, if greater than the exercise price of the call
written the difference will be maintained in U.S. Government securities in a
segregated account with the Custodian or broker).
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
6
<PAGE>
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 either 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 expects to increase its long-term
total return by writing options which, in its opinion, have sufficiently
attractive premiums to produce greater total return over the long-term.
SECURED PUT OPTIONS. The purchaser of a secured put option has the right to
sell, and the writer has the obligation to buy, the underlying security at the
exercise price during the option period. As a secured put writer, the Fund will
invest an amount equal to not less than the exercise price of the put option in
money market instruments, or it will hold on a security-for-security basis a put
on the same security as the put written where the exercise price of the put held
is equal to or greater than the exercise price of the put written (or, if less
than the exercise price of the put written, the difference will be maintained in
U.S. Government securities in a segregated account with the Custodian or
broker). These assets are then escrowed in a manner similar to that applicable
to securities underlying covered call options. Thereafter, should the option be
exercised, the Fund will have a money market investment available equal to the
exercise price of the option to honor its obligation as a writer. The obligation
of a secured put option writer is terminated either upon the exercise of the
option, its expiration without being exercised, or by effecting a closing
purchase transaction.
The risk characteristics and potential rewards of writing a secured put
option are essentially similar to those of covered call option writing. The
writer's gain on a put option is limited to interest earned on its money market
investment plus the premium received, while the risk is not less than the
exercise price of the option less the current market price of the underlying
stock when the put is exercised, offset by the premium received and interest
earned. The Fund will only write secured put options in circumstances where it
has made an investment decision that it desires to acquire the security
underlying the option at the exercise price specified in the option.
The Fund may engage in spreads in which it is both the purchaser and the
covered writer of the same type of option (puts or calls) on the same underlying
security with the options having different exercise prices and/or expiration
dates.
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
7
<PAGE>
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. Since the time required to obtain
physical delivery of underlying common stocks upon conversion or exchange of
convertible or exchangeable securities with respect to which the Fund has
written options may exceed the time within which it must make delivery in
accordance with an exercise notice of a call option assigned to it, the Fund may
purchase or borrow the underlying common stocks to make delivery. By so doing,
the Fund will not bear any market risk, since it will have the absolute right to
receive from the issuer of the underlying common stock an equal number of shares
to replace the borrowed stock, but the Fund may incur additional transaction
costs or interest expense in connection with any such purchase or borrowing.
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. Likewise, a secured put writer retains the risk of loss should the
value of the underlying security decline below the exercise price, less the
premium received and interest earned. In both cases 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 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. If a put expires
unexercised, the secured put writer realizes income from the amount of the
premium plus the interest income on the money market investment. If the secured
put writer has to buy the underlying security because of the exercise of the put
option, the secured put writer incurs a loss to the extent that the current
market value of the underlying security is less than the exercise price of the
put option. However, this may be offset in whole or in part by the premium
received and any interest income earned on the money market investment.
HEDGING TRANSACTIONS. To hedge its portfolio, the Fund may enter into
securities transactions intended to reduce investment risk by taking an
investment position which will move in the opposite direction from the position
being hedged. To the extent the hedge works as intended, a loss or gain on one
position will tend to be offset by a gain or loss on the other. Any losses
incurred in and the costs of hedging transactions will reduce the Fund's return.
Hedging transactions involve risks -- see "Risk Factors in Hedging Transactions"
below. The Fund's hedging strategies are fundamental policies which cannot be
changed without the approval of the holders of a majority of the Fund's
outstanding voting securities. (See "Investment Restrictions and Other
Investment Policies" in the Statement of Additional Information.) See the
Appendix for a more complete description of the instruments discussed below and
see the Statement of Additional Information for more discussion of the various
options, futures contracts and portfolio hedging strategies that may be used by
the Fund.
The extent to which the Fund may engage in the hedging techniques and
strategies described below, including spread transactions, covered call options
and "forward conversion" transactions, may be limited by the Internal Revenue
Code's requirements for qualification as a regulated investment company. See
"Option Accounting Principles" and "Tax Status" in the Statement of Additional
Information.
PURCHASING PUT AND CALL OPTIONS ON PORTFOLIO SECURITIES. The Fund may
purchase put options in connection with its hedging activities and will
generally do so at or about the same time it purchases the underlying security.
By buying a put, the Fund has a right to sell the security at the exercise
price, thus limiting its risk of loss through a decline in the market value of
the security until the put expires. The amount of any appreciation in the value
of the underlying security will be
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partially offset by the amount of the premium paid for the put option and any
related transaction costs. Prior to its expiration, a put option may be sold in
a closing sale transaction and profit or loss from the sale will depend on
whether the amount received is more or less than the premium paid for the put
option plus the related transaction costs.
The Fund may purchase call options on securities which it intends to
purchase in order to limit the risk of a substantial increase in the market
price of such security. The Fund may also purchase call options on securities
held in its portfolio and on which it has written call options. Prior to its
expiration, a call option may be sold in a closing sale transaction. Profit or
loss from such a sale will depend on whether the amount received is more or less
than the premium paid for the call option plus the related transaction costs.
PUT AND CALL OPTIONS ON THE SAME SECURITIES. The Fund may buy puts and sell
calls on the same portfolio security in "forward conversion" transactions. In a
forward conversion, the Fund will purchase a security and write call options and
purchase put options on the security. By purchasing puts, the Fund protects the
underlying security from depreciation in value. The Fund will not exercise a put
it has purchased while a call option on the same security is outstanding. By
selling calls on the same security, the Fund receives premiums which may offset
part or all of the cost of purchasing the puts while foregoing the opportunity
for appreciation in the value of the underlying security. The use of options in
connection with forward conversions is intended to hedge against fluctuations in
the market value of the underlying security. Although it is generally intended
in forward conversion transactions that the exercise price of put and call
options would be identical, situations might occur in which some option
positions are acquired with different exercise prices. Therefore, the Fund's
return may depend in part on movements in the price of the underlying security
because of the different exercise prices of the call and put options. Such price
movements may also affect the total return if the conversion is terminated prior
to the expiration date of the options. In such event, the Fund's return may be
greater or less than it would otherwise have been if it had hedged the security
only by purchasing put options.
OTHER HEDGING TOOLS. The Fund may engage in the following hedging
transactions which are described more fully in the Appendix: Stock index futures
and related options, stock index options, and financial futures and related
options.
STOCK INDEX FUTURES. The Fund may sell stock index futures contracts in
anticipation of or during a market decline to attempt to offset the decrease in
market value of its equity securities that might otherwise result. When the Fund
is not fully invested in stocks and anticipates a significant market advance, it
may purchase stock index futures in order to gain rapid market exposure that may
in part or entirely offset increases in the cost of common stocks that it
intends to purchase. As such purchases are made, an equivalent amount of stock
index futures contracts will be terminated by offsetting sales. In most of these
transactions, the Fund will purchase such securities upon termination of the
long futures position whether the long position results from the purchase of a
stock index futures contract or the purchase of a call option on a stock index
futures contract, but under unusual market conditions, a long futures position
may be terminated without the corresponding purchase of equity securities.
FINANCIAL FUTURES. The Fund may purchase and sell financial futures on U.S.
Government securities, including GNMA certificates (see the Appendix), in order
to hedge its U.S. Government securities and those portfolios securities which
may be sensitive to changes in interest rates. Such hedging is similar to the
Fund's hedging its equity securities through the use of stock index futures.
STOCK INDEX OPTIONS. The Fund may purchase and sell exchange listed call
and put options on stock indexes to hedge against risks of market-wide price
movements. The need to hedge against such risks will depend on the extent of
diversification of the Fund's common stock and the sensitivity of its stock
investments to factors influencing the stock market as a whole. Purchasing a put
or selling a call option on a stock index is analogous to the sale of a stock
index futures contract. Purchasing a call or selling a put option on a stock
index is analogous to the purchase of a stock index futures contract.
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OPTIONS ON STOCK INDEX FUTURES. The Fund may purchase and sell exchange
listed call and put options on stock index futures to hedge against risks of
market-wide price movements. The need to hedge against such risks will depend on
the extent of diversification of the Fund's common stock and the sensitivity of
its stock investments to factors influencing the stock market as a whole.
Purchasing a put or selling a call option on a stock index futures contract is
analogous to the sale of a stock index futures contract. Purchasing a call or
selling a put option on a stock index futures contract is analogous to the
purchase of a stock index futures contract.
OPTIONS ON FINANCIAL FUTURES. The Fund may purchase and sell exchange
listed call and put options on financial futures to hedge against risks of
interest rate movements. The need to hedge against such risks will depend on the
extent of diversification of the Fund's common stock and the sensitivity of its
stock investments to interest rates. Purchasing a put or selling a call option
on a financial future is analogous to the sale of a stock index futures
contract. Purchasing a call or selling a put option on a financial future is
analogous to the purchase of a stock index future.
LIMITATIONS ON PURCHASE AND SALE OF FUTURES CONTRACTS AND OPTIONS ON FUTURES
CONTRACTS. The Fund will not engage in transactions in futures contracts or
related options for speculation but only as a hedge against changes resulting
from market conditions in the values of its securities or securities which it
intends to purchase. The Fund will not enter into any stock index or financial
futures contract or related option if, immediately thereafter, more than
one-third of the Fund's net assets would be represented by futures contracts or
related options. In addition, the Fund may not purchase or sell futures
contracts or purchase or sell related options if, immediately thereafter, the
sum of the amount of margin deposits on its existing futures and related options
positions and premiums paid for related options would exceed 5% of the market
value of the Fund's total assets. In instances involving the purchase of futures
contracts or related call options, money market instruments equal to the market
value of the futures contract or related option will be deposited in a
segregated account with the Custodian or broker to collateralize such long
positions and thereby insure that the use of such futures contracts or related
options is unleveraged. The Fund's sale of futures contracts and purchase of put
options on futures contracts will be solely to protect its investments against
declines in value. The Fund expects that in the normal course it will purchase
securities upon termination of long futures contracts and long call options on
futures contracts most of the time, but under unusual market conditions it may
terminate any of such positions without a corresponding purchase of securities.
RISK FACTORS IN HEDGING TRANSACTIONS
The Fund's ability to hedge effectively all or a portion of its securities
through transactions in options on stock indexes, stock index futures, financial
futures and related options depends on the degree to which price movements in
the underlying index or underlying debt securities correlate with price
movements in the relevant portion of the Fund's securities. Inasmuch as such
securities will not duplicate the components of any index or such underlying
debt securities, the correlation will not be perfect. Consequently, the Fund
bears the risk that the prices of the securities being hedged will not move in
the same amount as the hedging instrument. It is also possible that there may be
a negative correlation between the index or other securities underlying the
hedging instrument and the hedged securities which would result in a loss on
both such securities and the hedging instrument.
In addition, there is the risk that the anticipated spread between the
prices may be distorted due to differences in the nature of the markets, such as
speculators in the futures market. However, the risk of imperfect correlation
generally tends to diminish as the maturity date of the futures contract
approaches.
Positions in stock index options, stock index futures and financial futures
and related options may be closed out only on an Exchange which provides a
secondary market. There can be no assurance that a liquid secondary market will
exist for any particular stock index option or futures contract or related
option at any specific time. Thus, it may not be possible to close such an
option or futures position. The inability to close options on futures positions
also could have an
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adverse impact on the Fund's ability to effectively hedge its securities. The
Fund will enter into an option or futures position only if there appears to be a
liquid secondary market for such options or futures and does not intend to take
delivery of the instruments underlying financial futures contracts it holds.
The Commodities Futures Trading Commission and the various exchanges have
established limits referred to as "speculative position limits" on the maximum
net long or net short position which any person may hold or control in a
particular futures contract. Trading limits are imposed on the maximum number of
contracts which any person may trade on a particular trading day. An Exchange
may order the liquidation of positions found to be in violation of these limits
and it may impose other sanctions or restrictions. Management does not believe
that these trading and positions limits will have adverse impact on the Fund's
strategies for hedging its securities.
OTHER INVESTMENT TECHNIQUES
LENDING OF SECURITIES. The Fund may lend those securities not subject to
written options or held in a segregated account with its Custodian to
broker-dealers pursuant to agreements requiring that the loans be continuously
secured by cash, or securities of the U.S. Government or its agencies, or any
combination of cash and such securities, as collateral equal to at least the
market value at all times of the securities lent. (See "Investment Restrictions
and Other Investment Policies" in the Statement of Additional Information.) Such
loans will not be made if as a result the aggregate of all outstanding
securities loans will exceed 30% of the value of the Fund's total assets taken
at current value. The Fund will continue to receive interest on the securities
lent and simultaneously earn interest on the investment of the cash collateral
in U.S. Government securities. However, the Fund will normally pay lending fees
to such broker-dealers from the interest earned on invested collateral. Such
loans will comply with applicable regulatory requirements. There may be risks of
delay in receiving additional collateral, or risks of delay in recovery should
the borrower of the securities fail financially. However, loans will be made
only to borrowers deemed by management to be of good standing, and when in the
judgment of management the consideration which can be earned currently from such
securities loans justifies the attendant risk.
SHORT SALES AGAINST THE BOX AND SYNTHETIC PUT OPTIONS. The Fund may make
short sales of common stocks, provided that at all times that a short position
is open the Fund owns at least an equal amount of preferred stocks or debt
securities convertible or exchangeable into an equal number of shares of the
common stocks sold short (known as short sales "against the box") without
payment of further consideration (except upon exercise of covered call options
on such securities with a strike price no higher than the price at which the
securities were sold short or, if higher, if the difference between the strike
price and the price at which the securities were sold short is maintained in
U.S. Government securities in a segregated account with the Fund's custodian or
a broker). A short sale of securities which is hedged by a corresponding long
position in a call option on the same security is known as a "synthetic put"
position because it has the same investment characteristics as owning a
protective put option on the same underlying security.
Management intends to make short sales "against the box" for the purpose of
receiving a portion of the interest earned by the executing broker from the
proceeds of such sale and/or to defer realization of gain or loss for Federal
income tax purposes. The proceeds of such a sale are held by the broker until
the settlement date when the Fund delivers the convertible security to close out
its short position. Although prior to such delivery the Fund will have to pay an
amount equal to any dividends paid on the common stocks sold short, the Fund
will receive the dividends from the preferred stocks or interest from the
securities convertible into the stocks sold short, plus a portion of the
interest earned from the proceeds of the short sale. The Fund will not make
short sales of any optioned securities. The Fund will segregate in a special
account with its Custodian or broker convertible preferred stocks or convertible
debt securities in connection with such short sales "against the box". The
extent to which the Fund may make such short sales may be limited by the Code's
requirements for qualification as a regulated investment company and the Fund's
intention to qualify as such. (See "Option Accounting Principles" and "Tax
Status" in the Statement of Additional Information.)
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Synthetic put positions are sometimes advantageous for the Fund to enter
instead of purchasing an actual put option. For example, the Fund may engage in
spreads in which it is both the purchaser and the covered writer of the same
type of option (puts or calls) on the same underlying security with the options
having different exercise prices and/ or expiration dates. When the Fund enters
into such a spread involving two put options, it is sometimes advantageous to
enter a synthetic put position instead of purchasing the put option which is the
long side of the spread. This can occur because there is smaller investor
interest in the put options as compared to the corresponding calls and
consequently the put options are offered for sale at a higher price than the
price that could be obtained by entering the synthetic put position.
INVESTMENTS IN SECURITIES OF OTHER INVESTMENT COMPANIES. Investments in the
securities of other investment companies are intended to (i) provide an
investment vehicle for the Fund's cash reserves that the Fund does not want to
commit to riskier investments, (ii) facilitate investment strategies in which
high-grade collateral is required, or (iii) facilitate investment strategies by
acquiring investments in portfolios of securities more diversified or with
specialized characteristics that could not be efficiently acquired directly.
Accordingly, the Fund may invest up to 35% of its total assets in such
securities. 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. The 1940 Act also permits the purchase of securities of other
investment companies in connection with a merger, reorganization, consolidation
or similar transaction.
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 of less than thirty days.
REPURCHASE AGREEMENTS. The Fund may purchase U.S. Government securities and
concurrently enter into so-called "repurchase agreements" with the seller, which
will agree to repurchase such securities at the Fund's cost plus interest within
a specified time (normally one day). While repurchase agreements involve certain
risks not associated with direct investments in U.S. Government securities, the
Fund will follow procedures designed to minimize such risks. These procedures
include effecting repurchase transactions only with large, well-capitalized
banks and certain reputable broker-dealers. In addition, the Fund's repurchase
agreements will provide that the value of the collateral underlying the
repurchase agreement will always be at least equal to the repurchase price,
including any accrued interest earned on the repurchase agreement. In the event
of a default or bankruptcy by a seller, the Fund will seek to liquidate such
collateral. However, to liquidate such collateral could involve certain costs or
delays and, to the extent that proceeds from any sale upon a default of the
obligation to repurchase were less than the repurchase price, the Fund could
suffer a loss. No more than 10% of the total market value of Fund assets at the
time of purchase will be invested in repurchase agreements which have a maturity
longer than 7 days.
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 years ended December 31, 1995 and 1994, the Fund's portfolio turnover
rates were 32.37% and 48.71%, respectively. Higher portfolio turnover involves
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<PAGE>
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 and buying a security on exercise of a put
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, which 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 FUND
The officers of the Fund manage its day to day operations and are
responsible to the Fund's Board of Directors.
INVESTMENT ADVISER. Analytic-TSA Global Asset Management, Inc. (the
"Adviser") 2222 Martin Street, Suite 230, Irvine, California 92715, is the
investment adviser of the Fund. The Adviser is a wholly owned subsidiary of
United Asset Management Corporation, a holding company described under
"Management of the Fund" in the Statement of Additional Information.
The Adviser was founded in 1970 as Analytic Investment Management, Inc. one
of the first independent investment counsel firms specializing in the creation
and continuous management of optioned equity and optioned debt portfolios for
fiduciaries and other long term investors. It is one of the oldest and largest
independent investment management firms in this specialized area. In January
1996, the Adviser acquired and merged with TSA Capital Management which
emphasizes U.S. and global tactical asset allocation, currency management,
quantitative equity and fixed income management, as well as option yield curve
strategies. The Adviser serves, among others, pension and profit-sharing plans,
endowments, foundations, corporate investment portfolios, mutual savings banks,
and insurance companies, for which it manages in excess of $2,000,000,000. It is
also the investment adviser of The Analytic Series Fund, a registered investment
company which commenced operations in late 1992.
Pursuant to an Investment Management Agreement with the Fund, the Adviser,
subject to the control and direction of the Fund's Officers and Board of
Directors, manages the portfolio of the Fund in accordance with its stated
investment objective and policies, makes investment decisions for the Fund, and
administers the operations of the Fund. Charles L. Dobson is the primary
portfolio manager for the Fund, subject to the supervision of the Adviser's
investment management committee. Mr. Dobson is Executive Vice President of
Analytic Optioned Equity Fund and The Analytic Series Fund and has been a
portfolio manager of the Adviser since 1978.
MANAGEMENT AND SERVICE FEES. 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 0.75% of the first $100,000,000 of average daily net assets,
0.65% of the next $100,000,000 of average daily net assets, and 0.55% of average
daily net assets in excess of $200,000,000.
The Adviser also acts as the Fund's transfer agent, dividend disbursing
agent, and shareholder relations servicing agent for which the Fund pays a fee
based on the number of accounts and net assets. The Fund also pays the Adviser a
fee based on its net assets to calculate its daily share price and maintain its
general accounting records.
EXPENSES. In addition to the management and service fees, the Fund pays all
other costs and expenses of its operations including, among other things, legal
and audit fees, unaffiliated Directors' fees and expenses, registration fees,
custodian fees, and expenses of printing and mailing of proxies, prospectuses,
statements of additional information and reports to shareholders. During 1995,
the Fund's ratio of operating expenses (net of expenses paid indirectly through
broker-dealers) to average net assets was 1.22%.
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BROKERAGE. Under the terms of the Investment Advisory Agreement, the
Adviser is authorized to employ broker-dealers to execute orders for the
purchase and sale of portfolio securities, including options and futures, who in
its best judgment can provide "best execution" (prompt and reliable execution at
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; 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 factors in the allocation of portfolio transactions to a
broker-dealer the broker-dealer's sale of Fund shares, agreement to pay
operating expenses of the Fund, or the provision of research services to the
Adviser.
Money market securities are traded primarily in the over-the-counter market.
Where possible, the Fund will deal directly with the dealers who make a market
in the securities involved except in those circumstances where better prices and
execution are available elsewhere. Such dealers usually are acting as principal
for their own account. On occasion, securities may be purchased directly from
the issuer. Money market securities are generally traded on a net basis and do
not normally involve either brokerage commission or transfer taxes. The cost of
executing portfolio transactions will primarily consist of dealer spreads and
underwriting commissions.
The Fund has entered into agreements whereby a portion of the commissions
earned by a broker-dealer on portfolio transactions placed with such
broker-dealer is reimbursed to the Fund by payment of Fund expenses. Such
payments aggregated $147,819 for the Fund's 1995 fiscal year.
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, or such other time as is determined by or
under the direction of the Board of Directors, on each day in which there is a
sufficient degree of trading in the Fund's portfolio securities that the current
net asset value of the Fund might be materially affected by changes in the value
of portfolio securities. The net asset value per share is calculated by taking
the total value of the Fund's assets, deducting total liabilities and dividing
the results 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 1:00 P.M. Pacific Time will be
processed at the next day's closing net asset value. Broker-dealers who place
orders for the purchase of Fund shares on
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behalf of their customers may charge the customer for that service. 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 $5,000 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. Overnight mail service is
suggested. Shares will be purchased at the next determined net asset value per
share after an order and payment are received by the Fund.
PURCHASE BY WIRE. Initial and subsequent purchases may be made by wiring
Federal Funds addressed:
The Union Bank of California, N.A.
ABA #1210-0001-5
For San Francisco Trust Account #001-094166
Analytic Optioned Equity Fund #2110-5992
for account of (your name)
Before wiring funds you must telephone Shareholder Services at (800)
374-2633 or (714) 833-0294 with the bank name, date and amount being wired to
insure proper investment. FOR INITIAL PURCHASES ONLY: No purchases will be
processed until a completed and signed application is received.
PURCHASE BY EXCHANGE. You may open an account or purchase additional shares
by making an exchange from an existing account in The Analytic Series Fund. You
may not open an account by exchange unless you have completed an account
application. For further information concerning exchanges, see "Exchanging
Shares" discussed below.
All shares (including reinvested dividends and capital gain distributions)
are issued or redeemed in full and fractional shares rounded to the fourth
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
TELEPHONE REDEMPTION PRIVILEGE: Provided the shareholder has previously
established the telephone redemption privilege (by completing the telephone
redemption portion of his application to purchase shares or by subsequent
written instructions with signature(s) guaranteed) a shareholder may redeem all
or part of his shares by calling the Fund. No request for redemption will be
accepted by telephone or wire except where redemption proceeds are to be
remitted to a predesignated bank account. The redemption proceeds will be wired
to the bank designated in the instructions. Any changes to the telephone
redemption instructions must be in writing with signature(s) guaranteed.
Telephone redemption privileges are not permitted for Analytic prototype
retirement plans.
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The Fund's transfer agent will employ procedures designed to provide
reasonable assurance that instructions communicated by telephone are genuine
and, if it does not do so, it may be liable for any losses due to unauthorized
or fraudulent instructions. The procedures employed by the transfer agent
include requiring the following information at the time of the telephone call:
1. Account number;
2. Registration of account; and
3. Social Security Number or Tax I.D.
NOTE: Neither the Fund nor the transfer agent is responsible for
unauthorized telephone redemptions by a person reasonably believed to be a
shareholder unless the transfer agent has received written notice canceling the
telephone redemption authorization. The Fund may change or discontinue the
telephone redemption privilege without notice. For your protection, the Fund and
its agents reserve the right to record all calls.
The Fund reserves the right to refuse a telephone redemption if it believes
it is advisable to do so. Telephone redemptions may be difficult to implement
during periods of drastic economic or market changes, which may result in an
unusually high volume of telephone calls. If a shareholder is unable to reach
the Fund by telephone, shares may be redeemed in writing as described below.
REDEMPTIONS BY WRITTEN INSTRUCTIONS: A shareholder may also 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.
REDEEMING BY EXCHANGE: Shares may be redeemed by making an exchange into
any portfolio of The Analytic Series Fund. For more information, see "How to
Exchange Shares" discussed below.
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. the 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 1:00 P.M. Pacific 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
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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 may
delay the mailing of a redemption check until such time as it has determined
that good payment has been collected for the purchase of such shares. 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. With the exception of retirement plan accounts, the Fund may
close out any investor's account whenever, due to redemptions, the value of the
account falls below the minimum account balance of $1,000 and the investor fails
to purchase sufficient shares to bring the value of the account up to $1,000 or
more within 90 days after written notice to do so is sent by the Fund. Thus, for
example, an investor who opens an account with an initial investment of $5,000,
does not add to it, and then redeems a portion of it, may be asked to increase
his balance to $1,000 or have it involuntarily redeemed.
HOW TO EXCHANGE SHARES
Should your investment goals change, you may exchange your shares for shares
of any portfolio in The Analytic Series Fund. Exchanges are processed at the net
asset value per share next computed after receipt of instructions in proper
form.
EXCHANGING SHARES BY TELEPHONE: Provided that Telephone Exchange Privileges
have been established (by completing the "Telephone Exchange Privileges" portion
of the Account Registration or by subsequent written instructions with
signature(s) guaranteed), a shareholder may exchange all or part of his shares
by calling Shareholder Services at (800) 374-2633.
The Fund's transfer agent will employ procedures designed to provide
reasonable assurance that instructions communicated by telephone are genuine
and, if it does not do so, it may be liable for any losses due to unauthorized
or fraudulent instructions. The procedures employed by the transfer agent
include requiring the following information at the time of the telephone call:
1. Account number;
2. Registration of account; and
3. Social Security Number or Tax I.D.
NOTE: Neither the Fund nor the transfer agent is responsible for
unauthorized telephone exchanges by a person reasonably believed to be a
shareholder unless the transfer agent has received written notice canceling the
telephone exchange authorization. The Fund may change or discontinue the
telephone exchange privilege without notice. For your protection, the Fund and
its agents reserve the right to record all calls.
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The Fund reserves the right to refuse a telephone exchange if it believes it
is advisable to do so. Telephone exchanges may be difficult to implement during
periods of drastic economic or market changes, which may result in an unusually
high volume of telephone calls. If a shareholder is unable to reach Shareholder
Services by telephone, shares may be exchanged in writing as described below.
A shareholder may exchange all or part of his shares by written request to
Shareholder Services. The written request must be endorsed by the owner(s)
exactly as the account is registered, including any special capacity of the
registered owner(s). The Fund requires that the signature(s) be guaranteed.
IMPORTANT EXCHANGE INFORMATION. Before you make an exchange you should
consider the following:
1. Please read the prospectus of The Analytic Series Fund before making
an exchange.
2. An exchange is treated as a redemption and a purchase and any gain
or loss on the transaction is taxable.
3. Recently purchased shares may not be exchanged until payment for the
purchase has been collected. The Fund reserves the right to defer honoring
exchange requests where shares to be exchanged have been purchased by check
within 15 days prior to the date of the exchange request, unless the Fund
has been advised that such check has been cleared for payment by the
shareholder's bank.
4. Exchanges are accepted only if the registrations of the accounts are
identical.
5. The redemption and purchase price of shares redeemed by exchange is
the net asset value per share of the respective funds next computed after
the Fund receives instructions in proper form.
6. No exchange can be made unless the shares to be purchased have been
registered in the state of the purchaser.
EXCHANGE PRIVILEGE LIMITATIONS. The Fund's exchange privilege is not
intended to afford shareholders a way to speculate on short-term market
movements. Accordingly, in order to prevent excessive use of the Exchange
Privilege that may potentially disrupt the management of the Fund and increase
transaction costs, the Fund may establish a policy of limiting excessive
exchange activity.
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 fourth decimal place, at the net asset value
per share determined on the payment date. Shareholders wishing to receive fixed
payments on a monthly or quarterly basis in amounts of $100 or more may do so by
writing to the Fund or noting the appropriate box on the application form. (See
"Withdrawal Plan".)
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<PAGE>
TAX SHELTERED RETIREMENT PLANS
Shares of the Fund may be purchased in connection with certain prototype tax
sheltered retirement plans, (IRA, SEP-IRA and profit sharing and money-purchase
plans) for corporations, partnerships and self-employed individuals to benefit
themselves and their employees. Investors with existing plans who wish to invest
their plan assets in the Fund without adopting a prototype may do so by
completing the Application to Purchase Shares which accompanies this Prospectus.
The Adviser, at no cost to the Fund or any of the Fund's shareholders, pays
all fees for prototype retirement plans offered by the Fund (including IRA
accounts) for the life of the plan's account with the Fund. These fees can be
substantial and include all trustee and custodian, set-up, activity, and annual
maintenance fees. Complete information and simplified forms to establish new
accounts, or to transfer assets from existing accounts, are available on
request.
WITHDRAWAL PLAN
Any shareholder may establish a withdrawal plan under which he receives a
monthly or quarterly check in a predetermined amount of not less than $100. All
income dividends and any realized gain distributions attributable to the account
will be reinvested at net asset value on the payment dates, as with other
shareholder accounts, and shares of the Fund as specified on the Application
will be redeemed from the account in order to make the required withdrawal
payments. The shareholder may vary the amount or frequency of withdrawal
payments, temporarily discontinue them or terminate them by notifying the Fund
in writing. There is no charge for this service; however, the Fund reserves the
right to amend or discontinue such plans on thirty days' notice.
Withdrawal payments should not be considered dividends, yield, or income on
an investment, since portions of each payment may consist of a return of
capital. Depending upon the size and frequency of payments and fluctuations in
value of the Fund's shares redeemed, redemptions for the purpose of making
withdrawal plan disbursements may reduce or even exhaust a shareholder account.
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 did so qualify during its last fiscal
year, and 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 its investment company
taxable income, exclusive of capital gains, on a quarterly basis. Any net
short-term capital gains will be distributed at least annually and may be
distributed more frequently at the discretion of the Fund's Board of Directors.
Distributions of net capital gains (net long-term capital gains less net
short-term capital losses) if any, will be made annually. 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 fourth decimal place, at the net asset value
per share determined on the payment date.
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
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<PAGE>
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 maximum marginal tax rate of 35% and ordinary
income distributions are subject to the maximum marginal rate is 39%.
Distributions paid from the Fund's dividend and interest income and from any
net realized short-term capital gains are taxable to shareholders 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 a 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 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 distributions.
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. As a covered call and secured
put option writer, the Fund has great flexibility in determining the taxable
nature of its investment results, and it is this flexibility which the Fund will
utilize to attempt to achieve an equal emphasis on current income and long-term
capital gains earned on the Fund's investment
20
<PAGE>
portfolio. There can be no assurance, however, that such equal emphasis can be
achieved over any particular period of time. Moreover, 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 and 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.
CAPITAL STOCK
The Fund has an authorized capital of 100,000,000 shares of common stock
with no par value. All shares are of the same class with equal rights and
privileges. Except with respect to the election of directors where cumulative
voting may apply, each share is entitled to one vote and to participate equally
in dividends and distributions declared by the Fund. Cumulative voting means
that each shareholder is entitled to as many votes as shall equal the number of
his shares of common stock multiplied by the number of directors to be elected,
and such shareholder may cast all such votes for a single director or divide
them among two or more directors as he sees fit. The shares are fully paid and
nonassessable and have no pre-emptive, conversion or exchange rights. The shares
are transferable without restriction. The Fund does not normally hold annual
meetings of shareholders except when required by the Investment Company Act of
1940.
GENERAL INFORMATION
Shareholder inquiries should be made in writing to Analytic-TSA Global Asset
Management, Inc. at 2222 Martin Street, Suite 230, Irvine, California
92715-1406, Attention: Shareholder Services; or by telephone to (800) 374-2633
or (714) 833-0294; or by telecopy to (714) 833-8049.
Each shareholder will receive semi-annual financial statements, including a
list of portfolio securities and outstanding call and put options. The annual
financial statements of the Fund will be audited by certified public
accountants.
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<PAGE>
GLOSSARY OF INVESTMENT TERMS AND STOCK AND DEBT OPTION TERMS
INVESTMENT TERMS
QUARTERLY TOTAL RETURNS. The percentage change over a quarter in the value
of a shareholder's investment, assuming immediate reinvestment of all
distributions in additional Fund shares and no adjustment for the shareholder's
income tax consequences. This change derives from: dividends, interest, realized
capital gains or losses, changes in unrealized capital appreciation or
depreciation, premiums received from expired options and gains or losses on
closing purchase transactions, all less expenses. For example, assume a
shareholder's investment in the Fund has a value of $100 at the start of a
three-month period. If the value of his investment, after immediate reinvestment
of all income and capital gains distributions, is $101 at the end of such
period, the total return for the period would be +1%. If the value at the end of
such period is $99 (again after reinvestment of all income and capital gains
distributions), the total return for the period would be -1%.
LONG TERM TOTAL RETURNS. The percentage change in the value of a
shareholder's initial investment after a full market cycle (usually 3 or more
years), expressed as a constant annual compound rate of total return, assuming
the reinvestment of all subsequent income and capital gain distributions in
additional Fund shares. For example, suppose a shareholder's initial investment
is $100 (one share whose net asset value is $100) and that all subsequent income
and capital gain distributions are reinvested in additional Fund shares on the
distribution date. If after three years the initial one share has become 1.2
shares and the net asset value per share is $104.98, then the initial $100
investment is worth $125.98 (1.2 X $104.98) and has grown at 8% per annum
compounded. Compounded means that at the end of each compounding interval, in
this example one year, the total return is computed and reinvested in additional
fund shares at the end of each compounding interval. Thus, at the end of the
first year the initial $100 investment is worth $108, and at the end of the
second year it is worth $116.64, and at the end of the third year it is worth
$125.98. Similarly, if after three years the net asset value per share is $64.89
then the initial $100 investment is worth $77.87 (1.2 X $64.89) and has had a
negative return of 8% per annum compounded. Also if after three years the net
asset value per share is $83.33 then the initial $100 investment is worth $100
(1.2 X $83.33) and has had a net return of zero per cent per annum. As these
examples show, the basic components on total return, income and the change in
value of the portfolio securities will vary and there can be no assurance that
the Fund's total return will be positive or that it will accrue at a constant
rate.
FLUCTUATIONS IN TOTAL RETURN. Fluctuations in the Fund's total return will
be measured by the standard deviation of the Fund's quarterly total returns. The
standard deviation of returns measures the extent to which the individual
returns deviate from their arithmetic average. The standard deviation is used
extensively as a measure of dispersion (risk) and provides a good historical
measure of the variability of returns from an investment portfolio. For example,
the following table shows the 104 quarterly total returns (assuming reinvestment
of all dividends at the end of each calendar quarter with no transaction costs)
for a Standard & Poor's 500 Stock Index over the twenty-six year period ended
December 31, 1995. The arithmetic average of these quarterly returns is 3.19%
and their standard deviation is 8.25%. In 31 of these 104 quarters the total
return was negative.
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PERCENT QUARTERLY TOTAL RETURN, S & P 500 STOCK INDEX, 1970-1995
<TABLE>
<CAPTION>
YEAR QTR % RETURN YEAR QTR % RETURN YEAR QTR % RETURN
- --------- --- ----------- --------- --- ----------- --------- --- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1970 1 -1.77 1971 1 9.69 1972 1 5.75
2 -18.03 2 0.16 2 .67
3 16.92 3 -0.58 3 3.92
4 10.41 4 4.64 4 7.56
1973 1 -4.89 1974 1 -2.82 1975 1 22.95
2 -5.77 2 -7.56 2 15.36
3 4.81 3 -25.16 3 -10.95
4 -9.18 4 9.37 4 8.65
1976 1 14.98 1977 1 -7.45 1978 1 -4.94
2 2.47 2 3.31 2 8.51
3 1.91 3 -2.83 3 8.67
4 3.22 4 -0.11 4 -4.93
1979 1 7.10 1980 1 -4.12 1981 1 1.38
2 2.73 2 13.49 2 -2.30
3 7.65 3 11.22 3 -10.23
4 0.14 4 9.49 4 6.93
1982 1 -7.31 1983 1 10.12 1984 1 -2.40
2 -0.56 2 11.10 2 -2.57
3 11.52 3 -0.13 3 9.70
4 18.25 4 0.40 4 1.89
1985 1 9.19 1986 1 14.11 1987 1 21.36
2 7.34 2 5.89 2 5.02
3 -4.10 3 -6.97 3 6.60
4 17.21 4 5.58 4 -22.53
1988 1 5.70 1989 1 8.83 1990 1 -3.00
2 6.67 2 7.09 2 6.28
3 0.33 3 10.71 3 13.75
4 3.08 4 2.07 4 8.96
1991 1 14.53 1992 1 -2.53 1993 1 4.37
2 -0.22 2 1.90 2 .49
3 5.35 3 3.16 3 2.58
4 8.38 4 5.04 4 2.32
1994 1 -3.79% 1995 1 9.74
2 0.42% 2 9.55
3 4.89% 3 3.59
4 -0.02% 4 10.49
</TABLE>
The arithmetic average of these quarterly returns is 3.19% and their
standard deviation is 8.25%. In 31 of the 104 quarters, the total return was
negative. Source: Standard & Poor's.
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STOCK AND DEBT OPTION TERMS
OPTION. An option is either a call or put option issued by the Options
Clearing Corporation (the "Clearing Corporation") on a stock or debt security
and traded on one or more Exchanges, as defined below, or subject to regulatory
approval is traded over-the-counter. Currently options are traded on common
stocks, stock indexes, stock index futures; on U.S. Treasury bonds, notes, and
bills; and on GNMA securities. 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.
CLOSING SALE TRANSACTION. A transaction in which an investor who is the
holder of an outstanding option liquidates his position as a holder by selling
an option of the same series as the option previously purchased. Such sale does
not result in the investor assuming the obligations of a writer.
COVERED CALL OPTION WRITER. A writer of a call option who, so long as he
remains obligated as a writer, owns the underlying security or a security which
is immediately convertible into the underlying security or who holds on a
security-for-security basis on all on the same security as the call written
where the exercise price of the call held is equal to or less than the exercise
price of the call written or, if greater than the exercise price of the call
written, the difference is maintained by the writer in U.S. Government
securities in a segregated account with the writer's broker or custodian.
COVERED PUT OPTION WRITER. A writer of a put option who, so long as he
remains obligated as a writer, has deposited U.S. Government securities with a
value equal to or greater than the exercise price with a securities depository
and has pledged them to the Options Clearing Corporation for the account of the
broker-dealer carrying the writer's position or who holds on a
security-for-security basis a put on the same security as the put written where
the exercise price of the put held is equal to or greater than the exercise
price of the put written or if less than the exercise price of the put written,
the difference is maintained by the writer in U.S. Government securities in a
segregated account with the writer's broker or custodian.
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.
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<PAGE>
PREMIUM. The price of an option agreed upon between the buyer and writer
(seller) for 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.
SECURED PUT OPTION WRITER. A writer of a put option who has an underlying
money market investment in an amount not less than the exercise price of the
option, so long as he remains obligated as writer of the put option.
SERIES OF OPTIONS. Options covering the same underlying security and having
the same exercise prices and expiration dates.
STANDARD & POOR'S 500 STOCK INDEX. 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.
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.
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<PAGE>
APPENDIX
DESCRIPTION OF U.S. GOVERNMENT SECURITIES
U.S. Government securities include (1) U.S. Treasury obligations, which
differ only in their interest rates, maturities and times of issuance: U.S.
Treasury bills (maturity of one year or less), U.S. Treasury notes (maturities
of one to ten years) and U.S. Treasury bonds (generally maturities of greater
than ten years); and (2) obligations issued or guaranteed by U.S. Government
agencies and instrumentalities which are supported by any of the following: (a)
the full faith and credit of the U.S. Treasury (such as Government National
Mortgage Association (GNMA) Certificates), (b) the right of the issuer to borrow
an amount limited to a specific line of credit from the U.S. Treasury, (c)
discretionary authority of the U.S. Government to purchase certain obligations
of the U.S. Government agency or instrumentality, or (d) the credit of the
instrumentality. Agencies and instrumentalities include: Federal Land Banks,
Farmers Home Administration, Central Bank for Cooperatives, Federal Intermediate
Credit Banks, Federal Home Loan Banks, and Federal National Mortgage
Association.
GNMA Certificates are mortgage-backed securities representing part ownership
of a pool of mortgage loans. These loans -- issued by lenders such as mortgage
bankers, commercial banks and savings and loan associations -- are either
insured by the Federal Housing Administration or guaranteed by the Veterans
Administration. A "pool" or group of such mortgages is assembled and, after
being approved by GNMA, is offered to investors through securities dealers. Once
approved by GNMA, the timely payment of interest and principal on each mortgage
is guaranteed by the full faith and credit of the U.S. Government.
GNMA Certificates differ from bonds in that principal is paid back monthly
by the borrower over the term of the loan rather than returned in a lump sum at
maturity. GNMA Certificates are called "pass-through" securities because both
interest and principal payments (including prepayments) are passed through to
the holder of the Certificate.
DESCRIPTION OF VARIOUS OPTIONS, FUTURES CONTRACTS, AND RELATED OPTIONS
OPTIONS ON STOCK INDEXES. Options on stock indexes are similar to options
on stock except that the delivery requirements are different. Instead of giving
the right to take or make delivery of stock at a specified price, an option on a
stock index gives the holder the right to receive a cash "exercise settlement
amount" equal to (i) the amount by which the fixed exercise price of the options
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of exercise, multiplied by
(ii) a fixed "index multiplier". Receipt of this cash amount will depend upon
the closing level of the stock index upon which the option is based being
greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the option. The amount of cash received will be equal to such
difference between the closing price of the index and the exercise price of the
option expressed in dollars times a specified multiple. The writer of the option
is obligated, in return for the premium received, to make delivery of this
amount. Gain or loss to the Fund on transactions in stock index options will
depend on price movements in the stock market generally (or in a particular
industry or segment of the market) rather than price movements of individual
securities.
As with stock options, the Fund may offset its position in stock index
options prior to expiration by entering into a closing transaction on an
exchange or it may let the option expire unexercised.
A stock index fluctuates with changes in the market value of the stocks
included in the index. Some stock index options are based on a broad market
index such as the S & P 500, the S & P 100, or the N.Y.S.E. Composite Index.
Indexes are also based on an industry or market segment such as the AMEX Oil and
Gas Index or the Computer and Business Equipment Index. Options on stock indexes
are currently traded on the following exchanges among others: The Chicago Board
Options Exchange, New York Stock Exchange and American Stock Exchange.
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<PAGE>
STOCK INDEX FUTURES. A stock index futures contract is a bilateral
agreement pursuant to which the Fund will agree to receive or deliver at
settlement an amount of cash equal to a dollar amount multiplied by the
difference between the value of a stock index at the close of the last trading
day of the contract and the price at which the futures contract is originally
struck. Stock index futures have similar characteristics to other futures
contracts such as the financial futures discussed below, except that settlement
is through delivery of cash rather than the underlying instruments. The Fund
will be required to deposit with its Custodian or broker an amount of cash, cash
equivalents, money market instruments or U.S. Treasury bills equal to
approximately 5% of the contract amount as initial margin. Daily variation
margin payments to and from the Fund must be made during the life of the futures
contract in order to reflect increases or decreases in the contract's value. At
any time prior to expiration of the stock index futures contract, the Fund may
elect to close the position by taking an opposite position. A final
determination of variation margin is then made, and additional cash is required
to be paid or released by the Fund, which will realize a gain or loss. In
addition, the Fund will pay a commission on each contract, including offsetting
transactions. Stock index futures are currently traded on the following
exchanges among others: Chicago Mercantile Exchange, New York Financial Exchange
and Kansas City Board of Trade.
OPTIONS ON STOCK INDEX FUTURES. Put and call options are traded on stock
index futures and they have characteristics and terminology similar to other
exchange traded options discussed above. See "Stock Index Futures" above for a
description of the instruments underlying these options.
FINANCIAL FUTURES CONTRACTS. A financial futures contract sale creates an
obligation by the Fund, as seller, to deliver the specific type of financial
instrument called for in the contract at a specified future time for a specified
price. A financial futures contract purchase creates an obligation by the Fund,
as purchaser, to take delivery of the specific type of financial instrument at a
specified future time at a specified price. The specific securities delivered or
taken, respectively, on the settlement date, are not determined until at or near
that date. The determination is in accordance with the rules of the exchange on
which the futures contract sale or purchase was made. The Fund does not intend
to take delivery of the instruments underlying futures contracts it holds.
Although financial futures contracts by their terms call for actual delivery
or acceptance of securities, in most cases the contracts are closed out before
the settlement date without the making or taking of delivery of securities.
Closing out a futures contract sale is effected by the Fund entering into a
futures contract purchase for the same aggregate amount of the specific type of
financial instrument and same delivery date. If the price in the sale exceeds
the price in the offsetting purchase, the Fund is paid the difference and thus
realizes a gain. If the offsetting purchase price exceeds the sale price, the
Fund pays the difference and realizes a loss. Similarly, the closing out of a
futures contract purchase is effected by the Fund entering into a futures
contract sale. If the offsetting sale price exceeds the purchase price, the Fund
realizes a gain, and if the purchase price exceeds the offsetting sale price,
the Fund realizes a loss.
The purchase or sale of a futures contract differs from the purchase or sale
of the security, in that no price or premium is paid or received. Instead, cash,
cash equivalents, money market instruments, or U.S. Treasury bills equal to
approximately 1 1/2% of the contract amount must be deposited by the Fund with
its Custodian or broker. This amount is known as initial margin. Subsequent
payments to and from the broker, called variation margin, are made on a daily
basis as the price of the underlying security fluctuates making the long and
short positions in the futures contract more or less valuable, a process known
as "mark-to-market". At any time prior to expiration of the futures contract,
the Fund may elect to close the position by taking an opposite position which
will operate to terminate the position in the futures contract. A final
determination of variation margin is then made, additional cash is required to
be paid to or released by the broker, and the Fund realizes a loss or gain. In
addition, the Fund will pay a commission on each contract, including offsetting
transactions.
Currently, financial futures contracts can be purchased or sold on U.S.
Treasury bills, U.S. Treasury bonds, U.S. Treasury notes with maturities between
2 and 10 years, on GNMA Certificates, and on three-month domestic bank
27
<PAGE>
certificates of deposit. While Treasury bonds, Treasury bills and Treasury notes
are backed by the full faith and credit of the U.S. Government and GNMA
Certificates are guaranteed by a U.S. Government agency, the futures contracts
in U.S. Government securities are not obligations of the U.S. Treasury.
Financial futures contracts are traded in an auction environment on the
floors of several exchanges -principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. The Fund will
deal only in standardized contracts on recognized exchanges. Each exchange
guarantees performance under contract provisions through a clearing corporation,
a nonprofit organization managed by the exchange membership which is also
responsible for handling daily accounting of deposits or withdrawals of margin.
OPTIONS ON FINANCIAL FUTURES. Put and call options are traded on financial
futures contracts, and they have characteristics and terminology similar to
other exchange traded options. See "Financial Futures Contracts" above for a
description of the instruments underlying these options.
28
<PAGE>
- ------------------------------------------------------------
ANALYTIC
OPTIONED EQUITY FUND, INC.
- -------------------------------------------
INVESTMENT ADVISER
Analytic-TSA Global Asset Management, Inc.
2222 Martin St., Suite 230
Irvine, California 92715-1406
- ------------------------------------------------
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Analytic-TSA Global Asset Management, Inc.
2222 Martin Street, Suite 230
Irvine, California 92715-1406
- ------------------------------------------------
CUSTODIAN
The Union Bank of California, N.A.
Mutual Fund Services
475 Sansome Street, 11th Floor
San Francisco, California 94111
- ------------------------------------------------
COUNSEL
Paul, Hastings, Janofsky & Walker
555 South Flower Street
Los Angeles, California 90071
- ------------------------------------------------
INDEPENDENT AUDITORS
Deloitte & Touche LLP
695 Town Center Drive, Suite 1200
Costa Mesa, California 92626-9978
- ------------------------------------------------
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.
- ------------------------------------------------
PROSPECTUS
MAY 1, 1996
- ------------------------------------
ANALYTIC
OPTIONED
EQUITY
FUND,
INC.
- --------------------
A NO-LOAD, OPEN-END FUND WITH
NO SALES CHARGE OR REDEMPTION FEE.
- ------------------------------------------------
TABLE OF CONTENTS
Benefits to Investors....................................................... 2
Fund Expense Table.......................................................... 3
Financial Highlights........................................................ 4
How Performance is Calculated............................................... 5
The Fund.................................................................... 5
Investment Objectives and Policies.......................................... 5
Covered Option Writing...................................................... 6
Risks of Option Writing..................................................... 8
Hedging Transactions......................................................... 8
Risk Factors in Hedging Transactions........................................ 10
Other Investment Techniques................................................. 11
Portfolio Turnover.......................................................... 12
Further Information......................................................... 13
Management of the Fund...................................................... 13
How to Purchase Shares...................................................... 14
How to Redeem Shares........................................................ 15
How to Exchange Shares...................................................... 17
Shareholder Accounts........................................................ 18
Tax Sheltered Retirement Plans.............................................. 19
Withdrawal Plan............................................................. 19
Dividends, Distributions and Taxes.......................................... 19
Distributions............................................................. 19
Taxation of Shareholders.................................................. 19
Tax Considerations in Portfolio Transactions.............................. 20
Capital Stock............................................................... 21
General Information......................................................... 21
Glossary of Investment Terms and Stock and Debt
Option Terms.............................................................. 22
<PAGE>
PART B
ANALYTIC OPTIONED EQUITY FUND, INC.
2222 MARTIN STREET, SUITE 230, IRVINE, CALIFORNIA 92715-1406
(800) 374-2633 OR (714) 833-0294
FAX - 714-833-8049
MAY 1, 1996
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a Prospectus but should be
read in conjunction with the Prospectus for Analytic Optioned Equity Fund, Inc.
(the "Fund") dated May 1, 1996. 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
Investment Objective and Policies 2
Covered Option Writing 2
Factors Which May Adversely Affect Transactions in Options 3
Position Limitations 3
Investment Restrictions and Other Investment Policies 4
Hedging Transactions in Options, Futures and Related Options 6
Stock Index Options 6
Stock Index Futures 6
Options on Stock Index Futures 6
Financial Futures and Related Options 7
Management of the Fund 7
Investment Advisory and Other Services 8
Brokerage 10
Tax Information and Option Accounting Principles 11
Calculation of Performance Data and Other Performance Comparisons
and Statistics 13
Principal Shareholders 16
Pricing and Redemption of Fund Shares 16
Custodian 17
Transfer, Dividend Disbursing and Shareholder Servicing Agent 17
Independent Auditors 17
Legal Counsel 17
Financial Statements 17
B - 1
<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. Likewise, a secured
put option writer retains the risk of loss should the value of the underlying
security decline below the exercise price. In both cases 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. If a put option
expires unexercised, the secured put option writer realizes income from the
amount of the premium plus the interest income of the money market investment.
If the secured put writer has to buy the underlying security because of the
exercise of the put option, the secured put writer incurs an unrealized loss to
the extent that the current market value of the underlying security is less than
the exercise price of the put option. However, this may be offset in whole or in
part by the premium received and any interest income earned on the money market
investment.
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. A put option gives the purchaser the right to sell,
and the writer the obligation to buy, 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, in the case of a call, or
take delivery of, in the case of a put, 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, or to pay for
the underlying security in the case of a put 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, through the receipt of premiums, a greater long term total
return and smaller fluctuations in quarterly return than would be realized on
the securities alone. 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. Conversely, the put option writer has, in the form of the
premium, gained a profit as long as the price of the underlying security remains
above the exercise price, but has assumed an obligation to purchase the
underlying security from the buyer of the put option at the exercise price, even
though the security may fall below the exercise price, at any time during the
option period. The option writer has no control over when he may be required to
sell his securities in the case of a call option, or to purchase securities in
the case of a put option, since he may be assigned an exercise notice at any
time prior to the termination of his obligation as a 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 in 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. If a put option is exercised, the writer
must fulfill his obligation to purchase the underlying security at the exercise
price, which will usually
B - 2
<PAGE>
exceed the then market value 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.
Likewise, a secured put writer could not sell the money market instrument and
use the proceeds for other investments, such as an investment in common stocks,
while he was obligated as a put writer.
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 times, 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 and puts in each class (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). It is possible that the Fund and clients advised by the
Adviser may constitute such a group. 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, 7500, or 10,500 options is determined by the most
recent six-month trading volume of the underlying security. Every six
B - 3
<PAGE>
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) Purchase securities of any issuer (other than U.S. Government
obligations) if, as a result, more than 5% of the value of the Fund's assets
would be invested in securities of that issuer, nor may it concentrate its
investments in any single industry except that it may invest up to 25% of its
net asset value in a single industry.
(2) Purchase more than 10% of the voting securities or more than 10% of any
class of securities of any issuer. (For this purpose, all outstanding debt
securities of an issuer are considered as one class, and all preferred stocks of
an issuer are considered as one class.)
(3) 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 futures contracts or related options is not considered the
purchase of a security on margin.)
(4) Write, purchase or sell puts, calls or combinations thereof, except
that the Fund may write covered call options with respect to all of its
portfolio securities, write covered put options, and enter into closing purchase
transactions with respect to such options, engage in put and call option
transactions, and engage in interest rate and stock index futures contracts and
related options transactions, as described under "Investment Objective and
Policies".
(5) Make short sales of securities or maintain a short position, unless at
all times when a short position is open the Fund owns an equal amount of such
securities or owns securities convertible into or exchangeable for securities,
without payment of additional consideration (except upon exercise of covered
call options on such securities with a strike price no higher than the price at
which the securities were sold short or, if higher, if the difference between
the strike price and the price at which the securities were sold short is
maintained in U.S. Government securities in a segregated account with the Fund's
custodian or a broker), which are at least equal in amount to and of the same
issue as the securities sold short and such securities are not subject to
outstanding call options, and unless not more than 10% of the Fund's net assets
(taken at current value) are held as collateral for such sales at any one time.
(6) Invest in real estate 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 10% of the
value of its total assets in securities which are not readily marketable,
including real estate interests.
(7) Invest more than 5% of the value of its total assets in securities of
issuers which have a record of less than three years continuous operation,
including in such three years the operation of any predecessor company or
companies, partnership or individual proprietorship if the company whose
securities are to be purchased by the Fund has come into existence as a result
of a distribution, merger, consolidation, reorganization or the purchase of all
or substantially all of the assets of such predecessor.
B - 4
<PAGE>
(8) 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.
(9) Make loans, except through the making of time or demand deposits with
banks, and subject to paragraphs 6 and 16, the purchase of bonds, debentures,
commercial paper and other short term obligations, and except through repurchase
agreements (provided however, that the Fund will not invest more than 10% of its
total net assets in repurchase agreements of more than seven days duration).
(10) Borrow money in excess of 10% of the Fund's total assets at current
value and then only as a temporary measure for extraordinary or emergency
purposes and not for leverage.
(11) Pledge more than 10% of the Fund's total assets at current value.
Neither the deposit or escrow of underlying securities, convertible preferred
stocks or convertible debt securities, or U.S. Government securities, in
connection with the writing of call options, nor the deposit of U.S. Government
securities in escrow in connection with the writing of put options, nor the
segregation in a segregated account with the Custodian of securities in
connection with short sales "against the box," nor the deposit of cash, cash
equivalents, or money market instruments in a segregated account with the
Custodian and/or a broker in connection with futures contracts or related
options, is deemed to be a pledge.
(12) 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.
(13) Purchase securities of other investment companies, except as permitted
under the Investment Company Act of 1940.
(14) Invest for the purpose of exercising control or management of another
company.
(15) 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.
(16) Invest in securities restricted as to disposition under the Federal
securities laws.
(17) Participate on a joint or a joint and several basis in any trading
account in securities.
(18) Buy or sell commodities or commodity contracts except that the Fund
may engage in interest rate futures contracts, stock index futures contracts and
related options, as described under "Hedging Transactions in Options, Futures
and Related Options".
If a percentage restriction is adhered to at the time of an investment, a
later increase or decrease in percentage beyond the specified limit resulting
from a change in values of net assets will not be considered a violation of
these restrictions.
In addition to the policies described above, the Fund has adopted the
following investment policies which are not deemed to be fundamental, which may
be changed without shareholder approval, and are not otherwise described in the
Fund's Prospectus:
It is contrary to the Fund's present policies to:
- Sell or buy options which are not listed for trading on a national
securities exchange if, as a result, more than 5% of the Fund's net
assets would be at risk in connection with all such unlisted options;
- Sell any covered put stock option if, as a result, the Fund would then
have more than 50% of its total assets at current value subject to
being invested upon the exercise of put options;
B - 5
<PAGE>
- Make short sales "against the box", except for the purpose of
deferring realization of gain or loss for Federal income tax purposes
and/or to receive interest on the proceeds of such sales when made in
connection with convertible securities. Such sales will not be made of
securities subject to outstanding options;
- Lend its unencumbered portfolio securities against collateral if the
Fund's aggregate lending will exceed 30% of its total net assets;
- Borrow securities, except as a temporary measure, to enable the Fund
to meet, in a timely manner, obligations to deliver such securities
upon the exercise of a call option written by it in connection with a
convertible security. If, due to market fluctuations or other reasons,
the value of the Fund's assets fall below 300% of its borrowings, the
Fund will reduce its borrowings to the required level within three
days thereafter (not including Sundays and holidays) which reduction
may result in the Fund's being required to sell securities at a time
when it may otherwise be disadvantageous to do so.
HEDGING TRANSACTIONS IN OPTIONS, FUTURES AND RELATED OPTIONS
The Fund does not intend to enter into transactions in stock index options,
stock index futures and related options or financial futures and related options
except in connection with hedging its portfolio. The Fund will invest in stock
index options, futures and options on futures only if, in the judgment of
management, there is a sufficient degree of correlation between movements in the
value of such instrument and movements in the value of the relevant portion of
the Fund's investments for such hedge to be effective. There can be no assurance
that such judgment will be accurate or that hedging transactions will be
successful. As noted in the Prospectus, the Fund may purchase options to hedge
its portfolio securities or securities which it intends to purchase, but as set
forth above its option writing strategies are intended to obtain a greater long
term total return with smaller fluctuations in quarterly total return than would
be realized on the securities alone.
STOCK INDEX OPTIONS. The Fund may purchase exchange listed call and put
options on stock indexes for the purpose of hedging its portfolio. As stated in
the Prospectus, the effectiveness of this hedging technique will depend upon the
extent to which price movements in the portion of the Fund's portfolio being
hedged correlate with price movements of the stock index selected. Because the
value of an index option depends upon movements in the level of the index rather
than the price of a particular stock, whether the Fund will realize a gain or
loss from purchases of options on an index depends upon movements in the level
of stock prices in the stock market generally or in an industry or market
segment rather than movements in the price of a particular stock.
STOCK INDEX FUTURES. The Fund may sell stock index futures contracts in
anticipation of or during a market decline in an endeavor to offset the decrease
in market value of portfolio securities that would otherwise result from a
market decline. When the Fund is not fully invested in the securities market and
anticipates a significant market advance, it may purchase stock index futures in
order to gain rapid market exposure that may in part or entirely offset
increases in the cost of the securities that it intends to purchase. No purchase
of stock index futures will be made, however, unless the Fund intends to
purchase securities in approximately the amount of the market value of the
stocks represented by the index futures purchased and it has identified the cash
or cash equivalents needed to make such a purchase. An amount of cash and cash
equivalents equal to the market value of the futures contracts will be deposited
in a segregated account with the Fund's Custodian to collateralize its position
in stock index futures.
OPTIONS ON STOCK INDEX FUTURES. The Fund may sell options on stock index
futures only to terminate an existing position. Put options on stock index
futures sometimes may be purchased in lieu of the sale of a stock index future
for the purpose of hedging a portion of the securities portfolio of the Fund.
The purchase of a call option on a stock index futures contract is intended to
serve as a temporary substitute for the purchase of individual securities which
may subsequently be purchased in an orderly fashion. However, if such options
are exercised and futures contracts are purchased to hedge against a possible
increase in the price of a security before the Fund is able to purchase such
security in an orderly
B - 6
<PAGE>
fashion and the security declines instead, the Fund may then decide not to
purchase the security because of concerns of possible further declines or for
other reasons. Thus, the Fund will realize a loss on the futures contract that
is not offset by a reduction in the price of securities purchased. When it
purchases a call on stock index futures, the Fund will set aside the amount of
additional cash or cash equivalents necessary to meet its obligations on the
underlying index futures contract.
FINANCIAL FUTURES AND RELATED OPTIONS. The Fund may purchase and sell
financial futures on U.S. Treasury bills, U.S. Treasury bonds, U.S. Treasury
notes, and GNMA mortgage-backed certificates, or sell call options or purchase
put options on such futures, in order to hedge U.S. Government and other
portfolio securities and convertible preferred stocks, whose prices are or may
be sensitive to changing interest rates. Certain convertible preferred stocks
tend to trade more like fixed-income securities than other equity securities.
However, the values of convertible preferred stocks are also affected by changes
in the prices of the securities into which they are convertible; thus, at times,
there may not be a close correlation between such convertible preferred stocks
and financial futures or related options. The effectiveness of these hedging
strategies will depend upon the correlation between interest rates and changes
in the value of the Fund's securities. In addition, due to temporary price
distortions in the market, even a correct forecast of general interest trends by
management may still not result in an effective use of these instruments as a
hedge.
MANAGEMENT OF THE FUND
The officers of the Fund manage its day to day operations and are
responsible to the Fund's Board of Directors. The following is a list of
directors and officers of the Fund and their principal occupations during the
past five years. The mailing address of the directors and officers of the Fund
is 2222 Martin Street, Suite 230, Irvine, CA 92715-1406. (* indicates
a director who is an interested person of the
Fund, as defined under the Investment Company Act of 1940.)
MICHAEL F. KOEHN*. Chairman of the Board of Directors.
Co-Chairman and Executive Director of the Adviser, Trustee of The Analytic
Series Fund and President of Analysis Group, Inc., a consulting firm providing
economic and financial consulting services. He earned a Ph.D. in Finance at the
Wharton School, University of Pennsylvania.
MICHAEL D. BUTLER. Director.
Trustee of The Analytic Series Fund. Professor emeritus of Social Sciences,
former Dean of Undergraduate Studies at the University of California at Irvine
and former member of the Society of Fellows, Harvard University.
DR. ROBERT E. VILLAGRANA. Director.
Trustee of The Analytic Series Fund and President of Scientific Failure
Analysis. He earned his Met. Eng. (Metallurgical Engineer) from Colorado School
of Mines and his M.S. and Ph.D. in material science from the University of
California at Berkeley.
ROBERTSON WHITTEMORE. Director.
Trustee of The Analytic Series Fund and Partner, Encore of La Jolla, retail
clothing store. Former real estate broker, attorney, President of La Jolla Town
Council; trustee of Combined Arts and Education Council of San Diego, and
Executive Director of the San Diego Community Foundation. He earned his B.A.
from Yale University, and his J.D. and M.B.A. from University of California at
Berkeley.
DR. ALAN L. LEWIS. President.
Co-Chief Investment Officer of the Adviser and President of The Analytic Series
Fund. He holds a B.S. from the California Institute of Technology and earned his
Ph.D. in Physics from the University of California, Berkeley. He is the author
of various articles concerning portfolio optimization, options, and other
financial topics.
B - 7
<PAGE>
CHARLES L. DOBSON. Executive Vice President and Secretary.
Director, Secretary and Portfolio Manager of the Adviser and Executive Vice
President and Secretary of The Analytic Series Fund. He holds a B.A. in
Economics and M.S. in Administration from the University of California, Irvine.
ALAN R. ADELMAN. Treasurer.
Co-Chairman, President, Chief Executive Officer and Treasurer of the Adviser and
Treasurer of The Analytic Series Fund since 1994. Formerly, Chief Investment
Officer, Senior Vice President and Manager of Investment Management Services of
First Interstate Bank of California.
DEBORAH D. BOEDICKER. Senior Vice President.
Director of Business Development of the Adviser and Senior Vice President of The
Analytic Series Fund. She holds a B.S. from California State University, Long
Beach and earned an M.B.A. in Management Information Science from the University
of California, Irvine. She is co-author of a book concerning expert systems and
artificial intelligence.
RICARDO R. PORRAS. Vice President and Principal Accounting Officer.
Controller of the Adviser and Vice President and Principal Accounting Officer of
The Analytic Series Fund. He holds a B.A. in Finance from California State
University, Fullerton.
DEBORAH C. SHEFLIN. Vice President.
Director of Administration and Operations and Vice President of The Analytic
Series Fund.
Officers and directors of the Fund who are affiliates of the Adviser receive no
fee or salary from the Fund. Each director who is not an affiliate of the
Adviser receives an annual fee of $2,000 plus $1,000 per meeting attended and
reimbursement for expenses. For the fiscal year ended December 31, 1995, total
compensation received by the three directors who are not affiliates of the
Adviser is as follows:
<TABLE>
<CAPTION>
Aggregate Pension/Retirement Total Compensation
Compensation from Benefits Accrued as Estimated From Analytic Optioned
Analytic Optioned Part of Fund Annual Benefits Equity Fund and The
Name Equity Fund Expenses from Retirement Analytic Series Fund
- ------------------------ ----------------- ------------------- --------------- ----------------------
<S> <C> <C> <C> <C>
Michael D. Butler $5,000 None None $10,000
Sheen T. Kassouf** $5,000 None None $10,000
Dr. Robert E. Villagrana $5,060 None None $10,120
Robertson Whittemore $5,060 None None $10,120
</TABLE>
**Deemed unaffiliated commencing in January 1995.
INVESTMENT ADVISORY AND OTHER SERVICES
THE INVESTMENT ADVISER: Analytic-TSA Global Asset Management, Inc. (the
"Adviser") is the investment adviser of the Fund pursuant to an Investment
Management Agreement between the Fund and the Adviser, dated August 12, 1993
(the "Management Agreement"). The Management Agreement was last approved by the
Board of Directors, including the unanimous vote of the Fund's Directors who are
not parties to the agreement or "interested persons" of the Fund, on March 21,
1996 at a meeting called for the purpose of voting on such approval.
The Adviser is a wholly owned subsidiary of United Asset Management
Corporation ("UAMC"). UAMC was organized in 1980 by its President and principal
stockholder, Norton H. Reamer, for the purpose of acquiring firms engaged in the
institutional investment management business and currently owns 42 such firms.
Mr. Reamer is a member of the Board of Directors of the Adviser and may be
deemed to be a controlling person of the Adviser.
B - 8
<PAGE>
The officers and directors of the Adviser are:
Alan R. Adelman Co-Chairman, President, Chief Executive Officer and
Treasurer
Michael F. Koehn Co-Chairman and Executive Director
Alan L. Lewis Co-Chief Investment Officer
Roger G. Clarke Co-Chief Investment Officer
Robert Bannon Director - Research
Harindra de Silva Director - Research
Charles L. Dobson Director and Portfolio Manager
Gregory M. McMurran Director and Portfolio Manager
Deborah Boedicker Director - Business Development
Marie Nastasi Arlt Director - Business Development
Ann Townsend Director - Marketing
Ricardo Porras Controller
Deborah Sheflin Director - Adminstration and Operations
THE INVESTMENT MANAGEMENT AGREEMENT: Pursuant to an Investment Management
Agreement with the Fund, the Adviser, subject to the control and direction of
the Fund's Officers and Board of Directors, manages the Fund in accordance with
its stated investment objective and policies, and makes investment decisions for
the Fund. Pursuant to separate agreements, the Adviser also acts as the Fund's
transfer agent, dividend disbursing agent, and shareholder relations servicing
agent, and provides accounting and daily pricing services to the Fund. At its
expense, the Adviser provides the office space and all necessary office
facilities, equipment, and personnel for providing these services to the Fund.
As compensation for furnishing investment advisory, management and other
services, and expenses assumed, pursuant to the Investment Management Agreement,
the fund pays the Adviser an annual fee equal to 0.75% of the first $100,000,000
of the Fund's average daily net assets, 0.65% of the next $100,000,000 of
average daily net assets, and 0.55% of average net assets in excess of
$200,000,000. Prior to August 12, 1993, the Adviser performed fund accounting
and transfer agency services, as well as investment management services,
pursuant to an Investment Advisory Agreement providing for annual compensation
to the Adviser at the rate of 1% of the first $100 million of the Fund's average
daily net assets, 0.9% of the next $100 million of average daily net assets, and
0.8% of average daily net assets over $200 million, calculated daily and paid
monthly. For the fiscal years ended December 31, 1993, 1994, and 1995, the Fund
paid advisory fees of $641,000, $497,600, and $346,095, respectively pursuant to
the current Investment Management Agreement and the former Investment Advisory
Agreement.
The Adviser has agreed that if in any fiscal year the expenses borne by the
Fund exceed the applicable expense limitations imposed by the securities
regulations of any state in which shares of such Fund are registered or
qualified for sale to the public, it will reimburse the Fund for any excess to
the extent required by such regulations. Unless otherwise required by law such
reimbursement would be accrued and paid on the same basis that the advisory fees
are accrued and paid by the Fund. To the Fund's knowledge, the only state
expense limitation in effect on the date of this Statement of Additional
information is that of California, which requires the Adviser to reimburse the
Fund for advisory fees to the extent that certain expenses exceed 2-1/2% of
average annual net assets up to $30,000,000, 2% of the next $70 million of
average net assets, and 1-1/2% of average net assets in excess of $100,000,000.
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
B - 9
<PAGE>
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."
ACCOUNTING AND TRANSFER AGENCY AGREEMENTS: Pursuant to a Fund Accounting
Agreement with the Fund, the Adviser maintains certain books and records for the
Fund, provides pricing information with respect to portfolio investments,
calculates daily net asset value per share for the Fund, and performs certain
other accounting services. As compensation for such services, the Adviser
receives an annual fee equal to 0.05% of the Fund's average daily net assets,
plus reimbursement of reasonable out-of-pocket expenses.
Pursuant to a Transfer Agency Agreement with the Fund, the Adviser provides
transfer agency services for the Fund, including processing of purchase and
redemption orders and confirmations, maintenance of shareholder account
information, and preparation and filing of reports to the Internal Revenue
Service, Securities and Exchange Commission and state securities authorities.
As compensation for such services, the Adviser receives an annual base fee equal
to 0.16% of the Fund's average daily net assets up to $100 million, 0.14% of
average daily net assets in excess of $100 million up to $200 million, and 0.12%
of average daily net assets in excess of $200 million. The Adviser also
receives a fee of $1.50 per shareholder account per month, plus reimbursement of
reasonable out-of-pocket expenses.
Each such Agreement is terminable by either party upon 60 days notice.
Under each such 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 Agreement.
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 reasonable competitive price). During the fiscal the years ended December
31, 1993, 1994, and 1995, aggregate commissions paid by the Fund amounted to
$275,832, $251,936, and $159,118, respectively. During the fiscal year ended
December 31, 1994, none of the Fund's commissions were allocated to brokers who
also provided research services to the Adviser.
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 factors in the allocation of
portfolio transactions to a broker-dealer the broker-dealer's sale of Fund
shares, agreement to pay operating expenses of the Fund, or the provision of
research services to the Adviser. Research services furnished by brokers
through which the Fund affects portfolio transactions may be used by the adviser
in servicing all of its accounts. Similarly, research services furnished by
brokers through which the adviser's other accounts affect portfolio transactions
may be used in servicing the Fund.
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
B - 10
<PAGE>
where the Fund utilizes a clearing agent with respect to certain put and call
options. Likewise, if an option written by the Fund is exercised, normally the
sale or purchase of the underlying securities will be executed by the same
broker-dealer or clearing agent who executed the sale of the option. During the
year ended December 31, 1995, such clearing agents received commissions of
$11,300.
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.
The Adviser currently manages separate accounts and other mutual funds
aggregating in excess of $2,000,000,000 which employ investment strategies
similar to those used by the Fund. At times, investment decisions may be made to
purchase or sell the same investment security for the Fund and one or more of
the other clients advised by the Adviser. When two or more of such clients are
simultaneously engaged in the purchase or sale of the same security or option,
the transactions will be allocated as to amount and price in a manner considered
equitable to each and so that each receives, to the extent practicable, the
average price or premium for such transaction. There may be circumstances in
which such simultaneous transactions would be disadvantageous to the Fund with
respect to price and availability of securities. In other cases, however, it is
believed that transactions would be advantageous to the Fund.
TAX INFORMATION AND OPTION ACCOUNTING PRINCIPLES
As of the date of this Prospectus, the Fund is qualified 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 transaction.
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. If a put option which the
Fund has written on an equity security is exercised, the amount of the premium
originally received will reduce the cost of the security which the Fund
purchases upon exercise of the option.
In the case of put and call options on nonequity securities, the principle
of marking-to-market carries over to the Federal income tax treatment of such
options in that an option is treated as having been closed on the last day of
the Fund's taxable year, giving rise to a capital gain or loss. Nonequity
options include broad-based stock index options, debt options, commodity options
and currency options.
B - 11
<PAGE>
Sixty percent of any net gain or loss recognized on such deemed closings, as
well as 60% of the gain or loss with respect to such options on any actual
closing transactions or exercises will be treated as long-term capital gain or
loss, and the remainder will be treated as short-term capital gain or loss.
Also, 60% of the gain on the expiration of any such option on its stipulated
expiration date will be treated as long-term capital gain, and the balance as
short-term capital gain. However, if a put or call option the Fund has written
or holds relating to a nonequity security is part of a "mixed straddle," as
defined by the Internal Revenue Code (the "Code") (see discussion of straddles
below), the Fund may be able to make an election under which these provisions
will be inapplicable in whole or in part to such option, and the rules
applicable to options on equity securities described above will apply. In any
event, the provisions of Code Section 1092 described below in Special Tax Rules
Applicable to Straddles will be applicable to such straddles.
THE PURCHASE OF CALLS AND PUTS ON DEBT AND EQUITY SECURITIES - IN GENERAL -
the premium paid by the Fund for the purchase of a call or put option is
included in the asset section of the Fund's "Statement of Assets and
Liabilities" as an investment and subsequently adjusted to the current market
value of the option. For example, if the current market value of the option
exceeds the premium paid, the excess would be unrealized appreciation. The
current market value of a purchased option is the last sale price on the
principal Exchange on which such option is traded or, in the absence of a sale,
the mean between the last bid and offering prices.
If the option on an equity security which the Fund has purchased expires on
the stipulated expiration date, the Fund realizes a short-term or long-term loss
for tax purposes in the amount of the cost of the option. If the Fund enters
into a closing sale transaction with respect to such an option, it realizes a
capital gain or loss, depending on whether the sales proceeds from the closing
sale transaction are greater or less than the cost of the option. The gain or
loss will be short-term or long-term, depending on the Fund's holding period in
the option. If the Fund exercises a put option on an equity security, it will
realize a gain or loss (long-term or short-term, depending on the period for
which the Fund has held the underlying security prior to the time it purchased
the put) from the sale of the underlying security and the proceeds from such
sale will be decreased by the premium originally paid. However, since the
purchase of a put option is treated as a short sale for Federal income tax
purposes, the holding period of a hedged underlying security held for not more
than one year will be terminated by such a purchase and will start again only
when the Fund enters into a closing sale transaction with respect to such option
or it expires. If the Fund exercises a call option on an equity security, the
premium paid for the option will be added to the cost of the security purchased.
SPECIAL TAX RULES APPLICABLE TO "STRADDLES" - Section 1092 of the Code may
affect the taxation of options on debt or 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 a debt
security and 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. For example, if the Fund owns a stock and has purchased a put option
with respect to such stock, any loss realized from a closing sale transaction
with respect to the option can only be recognized to the extent that such loss
exceeds any unrealized gain on the underlying stock. 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
and that "short sale" rules are applicable to offsetting positions. These rules
are applicable to the Fund's debt option positions, "deep-in-the-money" stock
option positions, options on convertible securities and certain of the Fund's
hedging transactions in options, stock index options, stock index and financial
futures contracts and related options described under "Hedging Transactions in
Options, Futures and Related Options". In addition, Section 1092 will suspend or
terminate the Fund holding period in certain stocks with respect to which the
Fund writes or acquires options, including non-"deep-in-the-money" options which
are "qualified covered call
B - 12
<PAGE>
options" and stock index options and subject stocks to restrictions comparable
to the "wash sale rules" of Code Section 1091.
Moreover, a Portfolio will not be able to deduct currently part of the
interest and other expenses which are attributable to positions that are
governed by the straddle rules of Section 1092 of the Code. 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.
FUTURES CONTRACTS - Accounting for futures contracts will be in accordance
with generally accepted accounting principles. The amount of any realized gain
or loss on closing out of futures contracts will result in a realized capital
gain or loss for tax purposes. Futures contracts held by the Fund at the end of
each fiscal year will be required to be "marked-to-market" for Federal income
tax purposes. Sixty percent of any net gain or loss recognized on such deemed
sales or on any actual sales will be treated as long-term capital gain or loss,
and the remainder will be treated as short-term capital gain or loss. However,
if a futures contract is part of "mixed straddle," as defined by the Code, the
Fund may be able to make an election under which these provisions will be
inapplicable in whole or in part to such futures contracts,. In any event, the
provisions of Section 1092 described above will be applicable to such straddles.
OPTIONS ON CERTAIN STOCK INDEXES AND ON FUTURES CONTRACTS - accounting for
options on futures contracts and on certain stock indexes will be in accordance
with generally accepted accounting principles. The amount of any realized gain
or loss on closing out such a position will result in a realized capital gain or
loss for tax purposes. Such options held by the Fund at the end of each fiscal
year will be required to be "marked-to-market" for Federal income tax purposes.
Sixty percent of any net gain or loss recognized on such deemed sales or on any
actual sales will be treated as long-term capital gain or loss, and the
remainder will be treated as short-term capital gain or loss. However, if the
option is part of a "mixed straddle," as defined by the Code, the Trust may be
able to make an election under which these provisions will be inapplicable in
whole or in part to such option. In any event, the provisions of Section 1092
described above will be applicable to such straddles. The above rules apply to
options on stock indexes if there is in effect a designation by the Commodities
Futures Trading Commission (the "CFTC") of a contract market based on such stock
index or the Treasury Department determines that such options meet the
requirements of law for such a designation. Options on "broad-based" stock
indexes have generally been so designated. Options on stock indexes for which
the CFTC has not designated a contract market and which the Treasury Department
has not determined meet the requirements of law for such designation, generally
including options on "narrow-based" stock indexes, will receive Federal income
tax treatment similar to that of stock options.
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)).
See the "Glossary" in the Prospectus for further discussion and examples of
total return and fluctuations in total return.
B - 13
<PAGE>
For example, the Fund's total return for various periods has been as follows:
1 year 5 years 10 years
1/1/95 - 12/31/95 1/1/91 - 12/31/95 1/1/86 - 12/31/95
----------------- ----------------- -----------------
Cumulative Total
Return 21.50% 59.88% 154.55%
Average Annual
Compound Total
Return 21.50% 9.80% 9.80%
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 is it 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.
B - 14
<PAGE>
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 First Boston
Corporation, The J.P. Morgan companies, Salomon Brothers, Merrill Lynch, Lehman
Brothers, Smith Barney Shearson and Bloomberg L.P.
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, 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.
B - 15
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table shows as of March 31, 1996, the beneficial ownership of
shares of the Fund's common stock by all officers and directors of the Fund as a
group and the record ownership of shares by each person known to the Fund to be
a record owner of more than 5% of its issued and outstanding common stock
(3,480,820 shares). Except for the shares held by officers and directors, the
Fund has no information regarding beneficial ownership of such shares.
<TABLE>
<CAPTION>
Name and Address Number of Shares Percentage of Class
- ---------------- ---------------- -------------------
<S> <C> <C>
Public School Retirement System of St. Louis 407,008 11.69%
One Mercantile Center, Room 2607
St. Louis, MO 53101
Wendell & Co. 247,318 7.11%
c/o Bank of New York
P.O. Box 1066, Wall Street Station
New York, NY 10286
Charles Schwab & Co., Inc. 184,753 5.31%
101 Montgomery Street
San Francisco, CA 94104
All Officers and Directors of the Fund as a group 89,645 2.58%
</TABLE>
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
corporations, executors, administrators, trustees and guardians; if a
shareholder is in doubt as to what
B - 16
<PAGE>
documents are required, he should contact the Fund. The Fund is not bound to
record any transfer of the stock transfer books until the Fund has received all
required documents.
CUSTODIAN
The Fund's custodian is The Union Bank of California N.A., Mutual Fund
Services, 475 Sansome Street, 11th Floor, San Francisco, California 94111.
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's Transfer, Dividend Disbursing and Shareholder Service Agent is
Analytic-TSA Global Asset Management, Inc. (see "Investment Advisory and Other
Services").
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 695 Town Center Drive, Costa Mesa, California 92626-
9978 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.
LEGAL COUNSEL
The Fund's legal counsel is Paul, Hastings, Janofsky & Walker, 555 South
Flower Street, Los Angeles, California 90071.
FINANCIAL STATEMENTS
The financial statements in the Fund's 1995 Annual Report to Shareholders are
incorporated in this Statement of Additional Information by reference. Such
financial statements have been audited by the Fund's independent auditors,
Deloitte & Touche LLP, whose report thereon also appears in such Annual Report
and is incorporated herein by reference. Such financial statements have been
incorporated hereby in reliance upon such reports given upon their authority as
experts in accounting and auditing. Copies of the Fund's 1995 Annual Report to
Shareholders may be obtained at no charge by writing or telephoning the Fund at
the address or number on the front page of this Statement of Additional
Information.
B - 17
<PAGE>
PART C
OTHER INFORMATION
Item 24: FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements:
(1) The following information is included in Part A - Prospectus:
Financial Highlights
(2) The following information is included in Part B - Statement of
Additional Information:
Registrant's Statement of Assets and Liabilities including Schedules
of Portfolio Investments, Statement of Changes in Net Assets, Statement of
Operations, related notes, and Independent Auditors' Report, are included
as part of Registrant's Annual Report to Shareholders for the period ended
December 31, 1995, are incorporated by reference in Part B.
(b) Exhibits
1 Articles of Incorporation, as amended -- filed as Exhibit 1 to
Registrant's Form N-1A Registration Statement on April 26, 1990
and incorporated herein by reference.
2 Bylaws, as amended -- filed as Exhibit 2 to Registrant's Form
N-1A Registration Statement on April 26, 1990 and incorporated
herein by reference.
3 None.
4 Specimen of share certificate of Registrant -- filed as Exhibit 4
to Registrant's Form N-1A Registration Statement on April 26,
1990 and incorporated herein by reference.
5 Investment Advisory Agreement dated August 12, 1993 between
Registrant and Analytic Investment Management, Inc. -- filed as
Exhibit 5 to Post Effective Amendment No. 21 to Registrant's Form
N-1A Registration Statement on June 10, 1993 and incorporated
herein by reference.
6 None.
7 None.
8 Custodian Agreement between Registrant and The Bank of
California, National Association -- filed as Exhibit 9 to
Registrant's Form N-1A Registration Statement on April 26, 1990
and incorporated herein by reference.
9.1 Fund Accounting Agreement dated August 12, 1993 between
Registrant and Analytic Investment Management, Inc. -- filed as
Exhibit 9.1 to Post Effective Amendment No. 21 to Registrant's
Form N-1A Registration Statement on June 10, 1993 and
incorporated herein by reference.
9.2 Transfer Agency Agreement dated August 12, 1993 between
Registrant and Analytic Investment Management, Inc. -- filed as
Exhibit 9.2 to Post Effective Amendment No. 21 to Registrant's
Form N-1A Registration Statement on June 10, 1993 and
incorporated herein by reference.
10 Opinion and Consent of Counsel - included as part of Registrant's
Form 24f-2 Notice filed February 22, 1996 and incorporated herein
by reference.
11 Consent of Deloitte & Touche.
12 None.
13 None.
14 Analytic Individual Retirement Account and Disclosure Statement -
filed as Exhibit 14 to Post Effective Amendment No. 17 to the
Registrant's Form N-1A Registration Statement on April 26, 1990
and incorporated herein by reference..
15 None.
C - 1
<PAGE>
16 Schedule of Computation of Performance Quotations in Registration
Statement -- filed as Exhibit 16 to Post Effective Amendment No.
22 to the Registrant's Form N-1A Registration Statement on April
29, 1994 and incorporated herein by reference.
17 Financial Data Schedule.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
By reason of its common Board of Trustees and investment adviser, The
Analytic Series Fund, a Delaware business trust which is registered as a
diversified, open-end management investment company under the 1940 Act, may be
deemed to be under common control with the Registrant.
Item 26: NUMBER OF HOLDERS OF SECURITIES
TITLE OF CLASS NUMBER OF RECORD HOLDERS AS OF
MARCH 31, 1996
Common Stock, No Par Value 1,604
Item 27: INDEMNIFICATION
Article V of Registrant's Articles of Incorporation and Article VI of
Registrant's Bylaws provide for indemnification of Registrant's officers and
directors.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
Registrant pursuant to the foregoing provisions or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a director, officer or controlling person of Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
During the two years ended December 31, 1995, Analytic-TSA Global Asset
Management, Inc. has engaged only in the business of acting as investment
adviser to fiduciaries and other long-term investors. It also acts as adviser to
The Analytic Series Fund, an open-end, diversified registered investment
company. During such period, the other substantial business, professions,
vocations or employments of the directors and officers of Analytic-TSA Global
Asset Management, Inc have been as follows:
C - 2
<PAGE>
Name Office Other Employment
Alan R. Adelman Co-Chairman, Treasurer of Analytic Optioned
President, Chief Equity Fund; Treasurer of
Executive Officer The Analytic Series Fund
and Treasurer
since 1994. Formerly, Chief
Investment Officer, Senior
Vice President and Manager of
Investment Manager Services,
First Interstate Bank of
California.
Michael F. Koehn Co-Chairman and Co-founder and President of
Executive Director Analysis Group, Inc.;
Director of Analytic Optioned
Equity Fund; Trustee of The
Analytic Series Fund.
Alan L. Lewis Co-Chief Investment President of Analytic Optioned
Officer Equity Fund and The Analytic
Series Fund.
Roger G. Clarke Co-Chief Investment President of Analytic-TSA
Officer Investors (wholly owned subsidiary
of Adviser) and
Director of Investment
Securities of the Church of
Jesus Christ of Latter Day
Saints, since January 1996.
Formerly, Managing Director,
President, Chief Executive
Officer and Chief Investment
Officer of TSA Capital
Management.
Harindra de Silva Director of President of AG Risk
Research Management and Principal of
Analysis Group
Robert J. Bannon Director - Research Portfolio Manager of
Analytic-TSA Investors
(wholly owned subsidiary of
Adviser) since March, 1996.
Formerly, Senior Vice
President and Senior
Investment Strategist of TSA
Capital Management (4/95 to
1/96); Senior Bond Strategist
of I.D.E.A. (5/92 to 4/95)
Charles L. Dobson Director, Secretary Executive Vice President and
and Portfolio Secretary of Analytic
Manager Optioned Equity Fund and The
Analytic Series Fund.
Gregory M. McMurran Director and None
Portfolio Manager
Marie Nastasi Arlt Director - Business Secretary, Treasurer, Principal and
Development Vice President of Analytic-TSA
Investors (wholly owned subsidiary
of Adviser) since January, 1996.
Executive Vice President, Managing
Director, Princiepal, Treasurer and
Secretary of TSA Capital
Management.
Deborah D. Boedicker Director - Business Senior Vice President of Analytic
Development Optioned Equity Fund and The
Analytic Series Fund.
Ann Townsend Director - Formerly Vice President, First
Marketing Interstate Bank (until September
1994).
Ricardo R. Porras Controller Vice President and Principal
Accounting Officer of Analytic
Optioned Equity Fund and The
Analytic Series Fund.
Deborah C. Sheflin Director - Vice President of Analytic Optioned
Administration and Equity Fund and The Analytic Series
Operations Fund.
The business address of such persons is 2222 Martin Street, Suite 230, Irvine,
California 92715-1406.
C - 3
<PAGE>
Item 29. Not applicable.
Item 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder will be maintained at the offices of the Registrant and its
investment adviser, 2222 Martin Street, Suite 230, Irvine, CA 92715-1406.
Item 31. Not applicable.
Item 32. UNDERTAKINGS
The Fund hereby undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
C - 4
<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 of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this amendment
to Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Irvine, and State of California, on the 18th day
of April, 1996.
ANALYTIC OPTIONED EQUITY FUND, INC.
(Registrant)
By /s/ Michael F. Koehn
---------------------
Michael F. Koehn, Chairman
Pursuant to the requirements of the Securities Act of 1933, this amended
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
NAME TITLE DATE
/s/ALAN L. LEWIS President April 18, 1996
- ----------------------- --
Alan L. Lewis
/s/ALAN R. ADELMAN Treasurer (Chief April 18, 1996
- ----------------------- --
Alan R. Adelman Financial Officer)
/s/RICARDO R. PORRAS Vice President April 18, 1996
- ----------------------- --
Ricardo R. Porras (Principal Accounting
Officer)
/s/MICHAEL F. KOEHN Chairman of the Board April 18, 1996
- ----------------------- --
Michael F. Koehn of Directors
/s/MICHAEL D. BUTLER Director April 18, 1996
- ----------------------- --
Michael D. Butler*
/s/ROBERTSON WHITTEMORE Director April 18, 1996
- ----------------------- --
Robertson Whittemore*
/s/ROBERT E. VILLAGRANA Director April 18, 1996
- ----------------------- --
Robert E. Villagrana*
*By /s/DEBORAH SHEFLIN April 18, 1996
- ----------------------- --
Deborah Sheflin
Attorney-in-fact
C - 5
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. EXHIBIT DESCRIPTION PAGE
11 Consent of Deloitte & Touche LLP C-7
17 Financial Data Schedule C-8
C - 6
<PAGE>
EXHIBIT 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use in this Post-Effective Amendment No. 24 to Registration
Statement No. 2-60792 on Form N-1A of our report dated February 2, 1996,
appearing in the financial statements and financial highlights of Analytic
Optioned Equity Fund, Inc. for the year ended December 31, 1995, which is
included in the Statement of Additional Information of such Registration
Statement. We also consent to the reference to us under the heading
"Independent Auditors" and "Financial Statements" in such Statement of
Additional Information and to the reference to us under the heading "Financial
Highlights" in the Prospectus constituting part of this Registration Statement.
DELOITTE & TOUCHE LLP
Costa Mesa, California
April 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000230025
<NAME> ANALYTIC OPTIONED EQUITY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 32,974,069
<INVESTMENTS-AT-VALUE> 41,167,921
<RECEIVABLES> 93,884
<ASSETS-OTHER> 4,390,275
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 45,652,080
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,004,471
<TOTAL-LIABILITIES> 3,004,471
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 35,441,148
<SHARES-COMMON-STOCK> 3,216,021
<SHARES-COMMON-PRIOR> 4,341,350
<ACCUMULATED-NII-CURRENT> 6,544
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (184,518)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,384,435
<NET-ASSETS> 42,647,609
<DIVIDEND-INCOME> 1,215,950
<INTEREST-INCOME> 210,648
<OTHER-INCOME> 0
<EXPENSES-NET> (563,665)
<NET-INVESTMENT-INCOME> 862,993
<REALIZED-GAINS-CURRENT> (185,575)
<APPREC-INCREASE-CURRENT> 8,394,839
<NET-CHANGE-FROM-OPS> 9,072,197
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (847,716)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 424,638
<NUMBER-OF-SHARES-REDEEMED> (1,614,600)
<SHARES-REINVESTED> 64,633
<NET-CHANGE-IN-ASSETS> (5,606,505)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,057
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 346,095
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 636,763
<AVERAGE-NET-ASSETS> 46,159,046
<PER-SHARE-NAV-BEGIN> 11.12
<PER-SHARE-NII> 0.24
<PER-SHARE-GAIN-APPREC> 2.14
<PER-SHARE-DIVIDEND> (0.24)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.26
<EXPENSE-RATIO> 1.38
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
