<PAGE>
As filed with the Securities & Exchange Commission October 20, 1997
Securities Act File No. 2-60792
Investment Company Act File No. 811-2807
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. 28 X
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Registration Statement Under the Investment Company Act of 1940 X
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Amendment No. 25 X
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THE ANALYTIC OPTIONED EQUITY FUND, INC.
(Exact Name of Registrant as Specified in Charter)
700 South Flower Street, Suite 2400, Los Angeles, CA 90017
(Address of principal executive offices)
Registrant's Telephone Number: (213) 688-3015
NAME AND ADDRESS OF AGENT FOR SERVICE
COPIES TO:
HARINDRA DE SILVA MICHAEL GLAZER
Analytic Optioned Equity Fund, Inc. Paul, Hastings, Janofsky & Walker LLP
700 South Flower Street, Suite 2400 555 South Flower Street
Los Angeles, CA 90017 Los Angeles, CA 90017
It is proposed that this filing will become effective:
X immediately upon filing pursuant to paragraph (b)
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on _________________ 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.
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 27, 1997.
<PAGE>
CROSS REFERENCE SHEET
FORM N-1A
PART A: INFORMATION REQUIRED IN PROSPECTUS
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N-1A Item No. Item Location in Registration Statement
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1. Cover Page Cover Page - Prospectus
2. Synopsis Fund Expense Table; How Performance is
Calculated
3. Condensed Financial Information Financial Highlights
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 Securities Capital Stock
7. Purchase of Securities Being Offered How to Purchase Shares; Shareholder
Accounts; Management of the Fund - 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 History Not Applicable
13. Investment Objectives and Policies Investment Objective and 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 Principal Management of the Fund; Principal
Holders of Securities Shareholders
16. Investment Advisory and Other Services Investment Advisory and Other Services;
Custodian; Transfer, Dividend Disbursing
and Shareholder Servicing
Agent;Independent AuditorsLegal Counsel
17. Brokerage Allocation and Other Practices Brokerage
18. Capital Stock and Other Securities Not Applicable
19. Purchase, Redemption, and Pricing of Pricing and Redemption of Fund Shares
Securities Being Offered
20. Tax Status Tax Information and Option Accounting
Principles
21. Underwriters Not Applicable
22. Calculation of Performance Data Calculation of Performance Data and
Other Performance Comparisons and
Statistics
23. Financial Statements Financial Statements
</TABLE>
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
OCTOBER 20, 1997
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND, INC.
A NO-LOAD, OPEN-END FUND WITH NO SALES CHARGE OR REDEMPTION FEE.
TABLE OF CONTENTS
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PAGE
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Benefits to Investors.......................... 3
Fund Expense Table............................. 4
Financial Highlights........................... 5
How Performance is Calculated.................. 7
The Fund....................................... 7
Investment Objectives and Policies............. 7
Covered Option Writing....................... 9
Risks of Option Writing...................... 12
Hedging Transactions......................... 13
Risk Factors in Hedging Transactions......... 17
Other Investment Techniques.................. 18
Portfolio Turnover........................... 21
Further Information.......................... 22
Management of the Fund......................... 22
How to Purchase Shares......................... 26
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How to Redeem Shares........................... 28
How to Exchange Shares......................... 31
Shareholder Accounts........................... 32
Tax Sheltered Retirement Plans................. 33
Withdrawal Plan................................ 33
Dividends, Distributions and Taxes............. 34
Distributions................................ 34
Taxation of Shareholders..................... 34
Tax Considerations in Portfolio
Transactions............................... 36
Capital Stock.................................. 37
General Information............................ 37
Glossary of Investment Terms and Stock and Debt
Option Terms.................................. 38
Appendix....................................... 43
</TABLE>
This prospectus contains concise information regarding 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 telephoning the Fund
at (800) 374-2633.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE 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 OCTOBER 20, 1997
<PAGE>
PROSPECTUS
The Defensive Equity Portfolio of Analytic Optioned Equity Fund, Inc. (800)
374-2633
The Defensive Equity Portfolio of Analytic Optioned Equity Fund, Inc. (the
"Fund") is a NO-LOAD, open-end, diversified investment management 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-TSA Global Asset 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 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.
2
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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.
RISK CHARACTERISTICS.
The securities in the Fund's portfolio are subject to various risks, including
equity risk, interest rate risk, and credit risk. The historical equity risk
of the Fund is moderate with a risk level of 0.56 as measured by standard
deviation as compared to a risk level of 1.00 for the Standard & Poor's 500
Stocks. A chart comparing the Fund's equity risk to that of the Standard &
Poor's 500 Stocks is contained in the Fund's Semi-Annual Report to
Shareholders for the period ended June 30, 1997. The Fund also has a low
credit risk and a low interest rate risk.
3
<PAGE>
FUND EXPENSE TABLE
The following tables illustrate the expenses and fees that a shareholder of
the Fund will incur. However, transaction fees may be charged if a
broker-dealer or other financial intermediary deals with the Fund on your
behalf (See "How to Purchase Shares"). The other expenses set forth below are
estimates for the fiscal year ended December 31, 1997 and are annualized based
on the Fund's operations during the semi-annual period ended June 30, 1997.
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SHAREHOLDER TRANSACTION EXPENSES
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Sales Load Imposed on Purchases........................................................................... None
Sales Load Imposed on Reinvested Dividends................................................................ None
Deferred Sales Load....................................................................................... None
Redemption Fees........................................................................................... None
Exchange Fee.............................................................................................. None
</TABLE>
<TABLE>
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ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
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Investment Advisory Fees.................................................................................. 0.75%
12b-1 Fees................................................................................................ None
Other Expenses............................................................................................ 0.57%
---------
Total Fund Operating Expenses............................................................................. 1.32%
---------
</TABLE>
EXAMPLE
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1 YEAR 3 YEARS 5 YEARS 10 YEARS
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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: $ 13 $ 42 $ 72 $ 159
</TABLE>
The purpose of the above information is to help an investor in the Fund to
understand the various fees and expenses an investor 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.
4
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FINANCIAL HIGHLIGHTS
The annual financial statements presented in the table below for each of the
ten years in the period ended December 31, 1996 have been audited by Deloitte &
Touche LLP, independent auditors. Such annual financial statements and the
report of Deloitte & Touche LLP thereon are incorporated by reference in the
Statement of Additional Information. Also presented in the table below are
unaudited semi-annual financial statements for the six-month period ended June
30, 1997.
Copies of the Fund's 1996 Annual Report to Shareholders and 1997 Semi-Annual
Report to Shareholders may be obtained, at no charge, by telephoning the Fund at
the telephone number appearing on the cover page of this Prospectus.
<TABLE>
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SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1997 -------------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992
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Net asset value, beginning of period.............. $ 14.38 $ 13.26 $ 11.12 $ 11.96 $ 11.97 $ 12.29
------------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income........................... 0.07 0.20 0.24 0.31 0.33 0.27
Net realized or unrealized gains
(losses) on investments and options........... 1.58 1.87 2.14 (0.02) 0.48 0.48
------------- ------- ------- ------- ------- -------
Total from investment operations.............. 1.65 2.07 2.38 0.29 0.81 0.75
------------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From nvest investment income.................... 0.06 0.20 0.24 0.31 0.33 0.29
From net realized gains......................... -- 0.75 0.00 0.82 0.49 0.78
------------- ------- ------- ------- ------- -------
Total distributions........................... 0.06 0.95 0.24 1.13 0.82 1.07
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Net asset value, end of period.................... $ 15.97 $ 14.38 $ 13.26 $ 11.12 $ 11.96 $ 11.97
------------- ------- ------- ------- ------- -------
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TOTAL RETURN...................................... 11.50% 15.66% 21.52% 2.47% 6.73% 6.17%
------------- ------- ------- ------- ------- -------
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RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($000).................. $52,086 $52,484 $42,648 $48,254 $76,948 $91,561
Ratio of expenses to average net assets........... 1.32%* 1.34%(1) 1.38%(1) 1.10% 1.07% 1.02%
Ratio of net investment income to average net
assets........................................... 0.87%* 1.43% 1.87% 3.45% 2.51% 2.33%
Portfolio turnover rate........................... 12.41% 43.17% 32.37% 48.71% 36.19% 81.73%
Average commission rate(2)........................ $0.0421 $0.0446 $0.0442 -- -- --
</TABLE>
* Annualized
(1) Gross of expenses paid indirectly through broker arrangements. With the
expense reduction from brokerage arrangements, the ratio of expenses to
average net assets would have been 1.23% and 1.22% for the years ended
December 31, 1996 and 1995, respectively.
(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.
5
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<TABLE>
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YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1991 1990 1989 1988 1987
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Net asset value, beginning of period.................. $ 11.92 $ 13.00 $ 12.06 $ 11.38 $ 13.70
---------- ---------- ---------- ---------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net investment income............................... 0.40 0.46 0.50 0.39 0.38
Net realized or unrealized gains (losses) on
investments and options........................... 1.17 (0.27) 1.61 1.35 0.24
---------- ---------- ---------- ---------- ---------
Total from investment operations.................. 1.57 0.19 2.11 1.74 0.62
---------- ---------- ---------- ---------- ---------
LESS DISTRIBUTIONS:
From nest investment income......................... 0.40 0.48 0.51 0.40 0.46
From net realized gains............................. 0.80 0.79 0.66 0.66 2.48
---------- ---------- ---------- ---------- ---------
Total distributions............................... 1.20 1.27 1.17 1.06 2.94
---------- ---------- ---------- ---------- ---------
Net asset value, end of period........................ $ 12.29 $ 11.92 $ 13.00 $ 12.06 $ 11.38
---------- ---------- ---------- ---------- ---------
---------- ---------- ---------- ---------- ---------
TOTAL RETURN.......................................... 13.29% 1.54% 17.74% 15.60% 4.28%
---------- ---------- ---------- ---------- ---------
---------- ---------- ---------- ---------- ---------
RATIOS/SUPPLEMENTAL DATA
Nert assets, end of period ($000)..................... $ 100,548 $ 106,220 $ 106,474 $ 102,239 $ 74,840
Ratio of expenses to average net assets............... 1.10% 1.11% 1.09% 1.13% 1.17%
Ratio of net investment income to average net
assets............................................... 3.05% 3.68% 3.74% 3.44% 2.68%
Portfolio turnover rate............................... 75.83% 72.20% 61.20% 66.11% 83.53%
Average commission rate(2)............................ -- -- -- -- --
</TABLE>
(1) Gross of expenses paid indirectly through broker arrangements. With the
expense reduction from brokerage arrangements, the ratio of expenses to
average net assets would have been 1.23% and 1.22% for the years ended
December 31, 1996 and 1995, respectively.
(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.
6
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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 (the "SEC") under the Investment Company Act
of 1940, as amended, (the "1940 Act") 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
"How to Purchase 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 1940 Act.
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
</TABLE>
7
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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.
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,
</TABLE>
8
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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
</TABLE>
9
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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 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
</TABLE>
10
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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.
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The premium the Fund receives for writing an option will
reflect, among other things, the current market price of
the underlying security, the relationship of the
exercise price to such market price, the historical
price volatility of the underlying security, the option
period, supply and demand and interest rates. The
exercise price of an option may be below, equal to or
above the current market value of the underlying
security at the time the option is written. Options
written by the Fund will normally have expiration dates
between one and nine months from the date written. From
time to time, for tax and other reasons, the Fund may
purchase an underlying security for delivery in
accordance with an exercise notice assigned to it,
rather than delivering such security from its portfolio.
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
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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 "Tax Information and
Option Accounting Principles" 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
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appreciation in the value of the underlying security
will be 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.
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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 portfolio 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
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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 The Fund's ability to hedge effectively all or a portion
TRANSACTIONS 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
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
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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 The Fund may also engage in the following transactions:
lending of securities; short sales against the box;
synthetic put options; investment in securities of other
investment companies; and repurchase agreements.
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.
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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 "Tax
Information and Option Accounting Principles" in the
Statement of Additional Information.)
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
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(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 1940 Act. 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
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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, 1996 and 1995, the Fund's portfolio
turnover rates were 43.17% and 32.37%, respectively.
Higher portfolio turnover involves correspondingly
greater brokerage commissions and other transaction
costs. The Fund will pay brokerage commissions on its
securities transactions and in connection with the
purchase and sale of options as well as for selling a
security on exercise of a call option and buying a
security on exercise of a put option.
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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"), 700 South Flower Street, Suite 2400, Los
Angeles, California 90017, 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
$1,000,000,000. 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 and makes investment
decisions for the Fund. Dennis M. Bein, Harindra de
Silva and Charles L. Dobson are the portfolio managers
for the Fund. Mr. Bein has been a member of the
portfolio manager and research team for the
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Adviser since August 1995. He concurrently serves as a
senior associate for Analysis Group, Inc. Dr. de Silva
is the President of the Fund and serves as a managing
director of the Adviser, which he joined in May 1995. He
concurrently serves as a principal of Analysis Group,
Inc., which he joined in March 1986. Mr. Dobson is
Executive Vice President and Secretary of the Fund and
The Analytic Series Fund and has been a portfolio
manager of the Adviser since 1978. They are subject to
the supervision of the Adviser's investment management
committee.
MANAGEMENT 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.
DISTRIBUTOR UAM Fund Distributors, Inc,. a wholly-owned subsidiary
of United Asset Management Corporation, is the
distributor of the Fund's shares. Its principal office
is located at 211 Congress Street, Boston, Massachusetts
02110. Under a Distribution Agreement with the Fund (the
"Distribution Agreement"), the Distributor, as agent of
the Fund, has agreed to use its best efforts as sole
distributor of Fund shares. The Distributor does not
receive any fee or other compensation under the
Distribution Agreement. The Distribution Agreement
provides that the Fund will bear costs of registration
of its shares with the SEC and various states as well as
the printing of its prospectuses, its Statement of
Additional Information and its reports to shareholders.
ADMINISTRATIVE SERVICES UAM Fund Services, Inc. ("UAM Fund Services"), a wholly-
owned subsidiary of United Asset Management Corporation,
performs and oversees all administrative, fund
accounting, dividend disbursing and transfer agent
services to the Fund pursuant to a Fund Administration
Agreement with the Fund (the "Administration
Agreement"). For its services UAM Fund Services receives
a fee based on net assets. UAM Fund Services' principal
office is located at 211 Congress Street, Boston,
Massachusetts 02110. UAM Fund Services has subcontracted
some of these services to Chase Global Funds Services
Company, an affiliate of The Chase Manhattan Bank. Chase
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Global Funds Services Company is located at 73 Tremont
Street, Boston, Massachusetts 02108.
Chase Global Funds Services Company is the Fund's sub-
dividend disbursing agent, sub-transfer agent and sub-
shareholder servicing agent. The shareholder servicing
phone number is (800)374-2633. All other administrative
and accounting functions are performed by UAM Fund
Services.
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 the semi-annual period ended June 30, 1997, the
Fund's ratio of operating expenses (net of expenses paid
indirectly through broker-dealers) to average net assets
was 1.32% on an annualized basis.
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 a reasonably competitive price).
In determining the abilities of the broker-dealer to
provide best execution of a particular portfolio
transaction, the Adviser considers all relevant factors
including the execution capabilities required by the
transaction or transactions; the ability and willingness
of the broker-dealer to facilitate each transaction by
participation therein for its own account; the
importance to the Fund of speed, efficiency, or
confidentiality; the broker-dealer's apparent
familiarity with sources from or to whom particular
securities might be purchased or sold; 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
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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
may be reimbursed to the Fund by payment of Fund
expenses. Such payments aggregated $53,203 for the
Fund's 1996 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
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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. 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.
Shares of the Fund may be purchased by customers of
broker-dealers or other financial intermediaries
("Service Agents") which have established a shareholder
servicing relationship with the Fund on behalf of their
customers. Service Agents may impose additional or
different conditions on purchases or redemptions of Fund
shares and may charge transaction or other account fees.
Each Service Agent is responsible for transmitting to
its customers a schedule of any such fees and
information regarding additional or different purchase
or redemption conditions. Shareholders who are customers
of Service Agents should consult their Service Agent for
information regarding these fees and conditions. Amounts
paid to Service Agents may include transaction fees
and/or service fees paid by the Fund from the Fund
assets attributable to the Service Agent, which would
not be imposed if shares of the Fund were purchased
directly from the Fund or its distributor. Service
Agents may provide shareholder services to their
customers that are not available to a shareholder
dealing directly with the Fund.
Service Agents may enter confirmed purchase orders on
behalf of their customers. If shares of the Fund are
purchased in this manner, the Service Agent must receive
your investment order before the close of trading on the
New York Stock Exchange, and transmit it to the Fund's
Sub-Transfer Agent, Chase Global Funds Services Company,
prior to the close of their business day to receive that
day's share price. Proper payment for the order must be
received by the Sub-Transfer Agent no later than the
time when the Fund is priced on the following business
day.
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Service Agents are responsible to their customers and
the Fund for timely transmission of all subscription and
redemption requests, investment information,
documentation and money.
The Fund reserves the right to reject any purchase order
or to suspend or modify the continuous offering of its
shares.
PURCHASE BY MAIL Initial purchases of Fund shares may be made by mailing
a completed and signed application, together with a
check payable to the Fund, to:
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The Analytic Optioned Street Address
Equity Fund, Inc. (overnight mail)
P.O. Box 2798 73 Tremont Street
Boston, MA 02208 Boston, MA 02108
(800)374-2633
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Subsequent purchases of Fund shares may be made by
mailing to the above address the account stub which
accompanies any Fund confirmation statement along with a
check payable to the Fund or by mailing to the above
address a check payable to the Fund. If you chose to
mail a check without the account stub, please make sure
that your check includes your account number, account
name and the Fund's name.
PURCHASE BY WIRE Initial and subsequent purchases may be made by wiring
Federal Funds addressed:
The Chase Manhattan Bank
ABA #021000021
The Analytic Optioned Equity Fund, Inc. -- (DEFENSIVE
EQUITY PORTFOLIO)
CREDIT DDA 9102791614
Account Registration: (YOUR NAME)
Account #: (YOUR ACCOUNT NUMBER)
Before wiring funds you must telephone the Fund's
sub-transfer agent at (800) 374-2633 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
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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 third decimal place, at
net asset value, with no fees or charges. No share
certificates will be issued except for investors whose
regulators require them to hold certificates. Instead,
an account will be established for each shareholder and
all shares purchased will be held in book entry form by
the Fund. Any transaction respecting an account,
including reinvestment of dividends and distributions,
will be confirmed in writing to the shareholder showing
the details of the transaction. (See "Shareholder
Accounts.")
HOW TO REDEEM SHARES
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's
sub-transfer agent at (800) 374-2633. 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.
The Fund's sub-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 sub-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 sub-transfer agent is
responsible for unauthorized telephone redemptions by a
person reasonably believed to be a shareholder unless
the sub-transfer
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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's sub-transfer agent by telephone, shares may be
redeemed in writing as described below.
REDEMPTIONS BY WRITTEN A shareholder may also redeem all or part of his shares
INSTRUCTIONS by written request to the Fund's sub-transfer agent at
the address set forth above under "Purchase by Mail."
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;
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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.
GENERAL Shares are redeemed without charge at the net asset
value next computed after instructions and required
documents are received in proper form. Any instructions
received after 4:00 P.M. Eastern Time will be processed
at the next day's closing net asset value. Payment will
be made as promptly as possible but in no event later
than 3 business days from the day the redemption request
is received. Any letter of instruction must be signed
exactly as the account is registered, including any
special capacity of the registered owner. Under the
Interest and Dividend Tax Compliance Act of 1983, the
Fund may be required to withhold at a rate of 31% from
dividends and capital gain distributions to shareholders
and upon payment of redemptions to shareholders, if they
have not complied with the provisions of the Act
relating to the furnishing of taxpayer identification
numbers and reporting of dividends.
A request for a distribution from an IRA, SEP-IRA or
other tax deferred retirement account for which the Fund
acts as sponsor may be delayed until the Fund has
ascertained the withholding requirements applicable to
the distribution. Investors may send withholding
instructions to the Fund on Internal Revenue Service
("IRS") Form W-4P along with the distribution request.
The form is available from the IRS or by calling the
Fund. If an investor does not want tax withholding from
distributions, the investor may state in the
distribution request (instead of using Form W-4P) that
no withholding is desired and that the investor
understands that there may be a liability for income tax
on the distribution, including penalties for failure to
pay estimated taxes.
In the event that the Fund is requested to redeem shares
for which it has not received good payment (e.g., cash
or cashier's check on a U.S. bank), it 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
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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 the Fund's sub-transfer agent at
(800) 374-2633. The Fund's sub-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
sub-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 sub-transfer agent is
responsible for unauthorized telephone exchanges by a
person reasonably believed to be a shareholder unless
the sub-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.
The Fund reserves the right to refuse a telephone
exchange if it believes it is advisable to do so.
Telephone exchanges may be
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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's sub-transfer
agent 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 the Fund's sub-transfer agent at the
address set forth above under "Purchase by Mail." 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.
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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 wire funds
made payable to the Fund. Income distributions
(including dividends and distributions of net short-term
capital gains) and net long-term capital gains
distributions, if any, will be reinvested in full and
fractional shares rounded to the third decimal place, at
the net asset value per share determined on the payment
date. 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 (at the address set
forth above under "Purchase by Mail") or noting the
appropriate box on the application form. (See
"Withdrawal Plan".)
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
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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 at the address set forth above under
"Purchase by Mail." 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. 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 third decimal
place, at the net asset value per share determined on
the payment date.
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TAXATION OF SHAREHOLDERS The following is only a brief discussion of Federal
income taxation in effect on the date of this
prospectus, and does not discuss the status of dividends
and distributions from the Fund under state and local
tax laws. All applicable tax laws and regulations are
subject to change by legislative and administrative
action. Each shareholder of the Fund is advised to
consult his own tax adviser with respect to applicable
Federal, state and local tax laws.
The maximum marginal tax rate for individuals is
currently 28% on net capital gains distributions and
39.60% on ordinary income distributions. The reduction
of certain deductions and phase-out of exemptions may
increase the individuals marginal tax rate to more than
39.60%. For corporations, net capital gains
distributions are subject to 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
twelve 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,
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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 As a covered call and secured put option writer, the
TRANSACTIONS 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
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
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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 1940 Act.
GENERAL INFORMATION The Fund's custodian is The Chase Manhattan Bank.
Shareholder inquiries should be made by telephone at
(800) 374-2633 or in writing to the following address:
Analytic Funds Street Address
P.O. Box 2798 (overnight mail)
Boston, MA 02208 73 Tremont Street
(800)374-2633 Boston, MA 02108
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Each shareholder will receive annual and 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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GLOSSARY OF INVESTMENT TERMS AND QUARTERLY TOTAL RETURNS:
STOCK AND DEBT OPTION TERMS The percentage change over a quarter in the value of a
INVESTMENT TERMS 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
</TABLE>
38
<PAGE>
<TABLE>
<S> <C>
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 108 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-seven
year period ended December 31, 1996. The arithmetic
average of these quarterly returns is 3.22% and their
standard deviation is 8.11%. In 32 of these 108 quarters
the total return was negative.
</TABLE>
<TABLE>
<CAPTION>
PERCENT QUARTERLY TOTAL RETURN, S&P % %
500 STOCK INDEX, 1970-1996 YEAR QTR RETURN YEAR QTR RETURN YEAR QTR
--------- ----------- ---------- --------- ----------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1970 1 (1.77) 1971 1 9.69 1972 1
2 (18.03) 2 0.16 2
3 16.92 3 (0.58) 3
4 10.41 4 4.64 4
1973 1 (4.89) 1974 1 (2.82) 1975 1
2 (5.77) 2 (7.56) 2
3 4.81 3 (25.16) 3
4 (9.18) 4 9.37 4
1976 1 14.98 1977 1 (7.45) 1978 1
2 2.47 2 3.31 2
3 1.91 3 (2.83) 3
4 3.22 4 (0.11) 4
1979 1 7.10 1980 1 (4.12) 1981 1
2 2.73 2 13.49 2
3 7.65 3 11.22 3
4 0.14 4 9.49 4
1982 1 (7.31) 1983 1 10.12 1984 1
2 (0.56) 2 11.10 2
3 11.52 3 (0.13) 3
4 18.25 4 0.40 4
1985 1 9.19 1986 1 14.11 1987 1
2 7.34 2 5.89 2
3 (4.10) 3 (6.97) 3
4 17.21 4 5.58 4
<CAPTION>
PERCENT QUARTERLY TOTAL RETURN, S&P %
500 STOCK INDEX, 1970-1996 RETURN
----------
<S> <C>
5.75
.67
3.92
7.56
22.95
15.36
(10.95)
8.65
(4.94)
8.51
8.67
(4.93)
1.38
(2.30)
(10.23)
6.93
(2.40)
(2.57)
9.70
1.89
21.36
5.02
6.60
(22.53)
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
% %
YEAR QTR RETURN YEAR QTR RETURN YEAR QTR
--------- ----------- ---------- --------- ----------- ---------- --------- -----------
1988 1 5.70 1989 1 8.83 1990 1
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2 6.67 2 7.09 2
3 0.33 3 10.71 3
4 3.08 4 2.07 4
1991 1 14.53 1992 1 (2.53) 1993 1
2 (0.22) 2 1.90 2
3 5.35 3 3.16 3
4 8.38 4 5.04 4
1994 1 (3.79) 1995 1 9.74 1996 1
2 0.42 2 9.55 2
3 4.89 3 3.59 3
4 (0.02) 4 10.49 4
<CAPTION>
%
RETURN
----------
(3.00)
<S> <C>
6.28
(13.75)
8.96
4.37
.49
2.58
2.32
5.37
4.49
3.09
8.35
</TABLE>
<TABLE>
<S> <C>
The arithmetic average of these quarterly returns is
3.22% and their standard deviation is 8.11%. In 32 of
the 108 quarters, the total return was negative. Source:
Standard & Poor's.
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.
</TABLE>
40
<PAGE>
<TABLE>
<S> <C>
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.
</TABLE>
41
<PAGE>
<TABLE>
<S> <C>
EXPIRATION DATE:
The latest date when an option may be exercised.
NASDAQ OPTIONS:
Standardized options on unlisted securities which are
displayed on the National Association of Securities
Dealers Automated Quotations System.
OPTION PERIOD:
The time during which an option may be exercised,
generally from the date the option is written through
its expiration date.
PREMIUM:
The price of an option agreed upon between the buyer and
writer (seller) 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.
</TABLE>
42
<PAGE>
<TABLE>
<S> <C>
APPENDIX U.S. Government securities include (1) U.S. Treasury
DESCRIPTION OF U.S. GOVERNMENT obligations, which differ only in their interest rates,
SECURITIES. 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, OPTIONS ON STOCK INDEXES:
FUTURES CONTRACTS, AND RELATED Options on stock indexes are similar to options on stock
OPTIONS. 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
</TABLE>
43
<PAGE>
<TABLE>
<S> <C>
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.
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
</TABLE>
44
<PAGE>
<TABLE>
<S> <C>
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.
</TABLE>
45
<PAGE>
<TABLE>
<S> <C>
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 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.
</TABLE>
46
<PAGE>
<TABLE>
<S> <C>
OFFICERS AND DIRECTORS
CHAIRMAN OF THE
BOARD OF DIRECTORS... Michael F. Koehn
DIRECTOR............. Michael D. Butler
DIRECTOR............. Robertson Whittemore
PRESIDENT............ Harindra de Silva
EXECUTIVE VICE
PRESIDENT AND
SECRETARY............ Charles L. Dobson
TREASURER............ Gregory M. McMurran
SENIOR VICE
PRESIDENT............ Angelo A. Calvello
SENIOR VICE
PRESIDENT............ Marie Nastasi Arlt
</TABLE>
INVESTMENT ADVISOR
Analytic-TSA Global Asset Managment, Inc.
700 South Flower Street, Suite 2400
Los Angeles, CA 90017
TRANSFER AGENT, DIVIDEND DISBURSEMENT AGENT,
AND SHAREHOLDER RELATIONS SERVICING AGENT
UAM Fund Services, Inc.
211 Congress Street
Boston, MA 02110
CUSTODIAN
The Chase Manhattan Bank
1211 Avenue of the Americas
New York, NY 10036
COUNSEL
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street
Los Angeles, CA 90017
INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP
1000 Wilshire Blvd.
Los Angeles, CA 90017
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND
The Analytic Funds
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208
Phone: (800) 374-2633
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.
ANALYTICFUNDS
THE DEFENSIVE
EQUITY PORTFOLIO
- ----------------------
OF ANALYTIC OPTIONED
EQUITY FUND
PROSPECTUS
OCTOBER 20, 1997
MEMBER OF
100% NO-LOAD-TM-
MUTUAL FUND COUNCIL
- ----------------------------------------------------------------
<PAGE>
PART B
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND
(800)374-2633
OCTOBER 20, 1997
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 October 20, 1997. A copy of the Prospectus may be obtained
by telephoning the Fund at the 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 . 2
Position Limitations . . . . . . . . . . . . . . . . . . . . 3
Investment Restrictions and Other Investment Policies . . . . . . 3
Hedging Transactions in Options, Futures and Related Options. . . 5
Stock Index Options. . . . . . . . . . . . . . . . . . . . . 5
Stock Index Futures. . . . . . . . . . . . . . . . . . . . . 5
Options on Stock Index Futures . . . . . . . . . . . . . . . 6
Financial Futures and Related Options. . . . . . . . . . . . 6
Management of the Fund. . . . . . . . . . . . . . . . . . . . . . 6
Investment Advisory and Other Services. . . . . . . . . . . . . . 7
Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Tax Information and Option Accounting Principles. . . . . . . . . 10
Calculation of Performance Data and Other Performance Comparisons
and Statistics. . . . . . . . . . . . . . . . . . . . . . . . . . 12
Principal Shareholders. . . . . . . . . . . . . . . . . . . . . . 14
Pricing and Redemption of Fund Shares . . . . . . . . . . . . . . 14
Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Transfer, Dividend Disbursing and Shareholder Servicing Agent . . 15
Independent Auditors. . . . . . . . . . . . . . . . . . . . . . . 15
Legal Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Financial Statements. . . . . . . . . . . . . . . . . . . . . . . 15
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 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
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<PAGE>
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), 10,500 options
(1,050,000 shares) 20,000 options (2,000,000 shares) or 25,000 options
(2,500,000 shares) in each class regardless of expiration date. Whether the
applicable limit is 4,500, 7500, 10,500, 20,000 or 25,000 options is determined
by the most recent six- month trading volume of the underlying security. Every
six months each Exchange reviews the status of underlying securities to
determine which limit should apply. These position limits may limit the number
of options which the Fund can write on a particular security.
INVESTMENT RESTRICTIONS AND OTHER INVESTMENT POLICIES
The following restrictions are fundamental policies for the protection of
the Fund's shareholders and cannot be changed without the approval of the
holders representing a majority of the Fund's outstanding voting securities,
which for purposes of such approval shall be the lesser of (i) 67% or more of
the shares present at a meeting of shareholders if the holders of more than 50%
of the outstanding voting securities of the Fund are present or represented by
proxy or (ii) more than 50% of the outstanding voting securities of the Fund.
The Fund may not:
(1) 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.)
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<PAGE>
(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.
(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.
B-4
<PAGE>
(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;
- 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
B-5
<PAGE>
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 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 700 South Flower Street, Suite 2400, Los Angeles, CA 90017. (* 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, Date of Birth: 9/16/46.
700 SOUTH FLOWER STREET, SUITE 2400, LOS ANGELES, CA 90017
Member of the Board of Directors, President and Chief Executive Officer of the
Adviser and Trustee of The Analytic Series Fund. He concurrently serves as
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, Date of Birth: 4/24/35.
28775 EL MIO LANE, MISSION VIEJO, CA 92692
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.
ROBERTSON WHITTEMORE. Director, Date of Birth: 10/30/44.
8470 EL PASEO GRANDE, LA JOLLA, CA 92037
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.
HARINDRA DE SILVA. President, Date of Birth: 9/15/60.
700 SOUTH FLOWER STREET, SUITE 2400, LOS ANGELES, CA 90017
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<PAGE>
Managing Director and Treasurer of the Adviser and President of The Analytic
Series Fund. He concurrently serves as Principal of Analysis Group, Inc. He
holds a B.S. from the University of Manchester at Manchester England, a M.B.A.
from Simon School at Rochester New York and a Ph.D. in Finance from the
University of California at Irvine.
CHARLES L. DOBSON. Executive Vice President and Secretary, Date of Birth:
12/9/41.
700 SOUTH FLOWER STREET, SUITE 2400, LOS ANGELES, CA 90017
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.
GREGORY M. MC MURRAN. Treasurer, Date of Birth: 7/20/54.
700 SOUTH FLOWER STREET, SUITE 2400, LOS ANGELES, CA 90017
Chief Investment Officer of the Adviser and Treasurer of The Analytic Series
Fund. He holds a B.A. in Economics from the University of California, Irvine
and a M.A. Economics from California State University at Fullerton.
MARIE NASTASI ARLT. Senior Vice President, Date of Birth: 11/8/49.
700 SOUTH FLOWER STREET, SUITE 2400, LOS ANGELES, CA 90017
Chief Operating Officer and Secretary of the Adviser and Senior Vice President
of The Analytic Series Fund and Vice President of Analytic-TSA Investors, Inc.
She holds a B.A. from California State University, Fullerton. Formerly she
served as Managing Director and Executive Vice President of TSA Capital
Management.
ANGELO A. CALVELLO. Senior Vice President, Date of Birth: 10/2/56.
700 SOUTH FLOWER STREET, SUITE 2400, LOS ANGELES, CA 90017
Director of Business Development of the Adviser and Senior Vice President of The
Analytic Series Fund. He earned a B.A., M.A. and Ph.D in Philosophy from DePaul
University at Chicago, Illinois. Formerly, he served as Executive Vice
President at Credit Agricole Futures and Vice President of The Chicago
Mercantile Exchange.
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. As of September 30, 1997, to the Fund's knowledge,
officers and Directors owned less than 1% of the outstanding shares of the Fund.
For the fiscal year ended December 31, 1996, total compensation received by the
directors who are not affiliates of the Adviser is as follows:
<TABLE>
<CAPTION>
Aggregate Total Compensation From
Compensation from Pension/Retirement Estimated Annual Analytic Optioned Equity
Analytic Optioned Benefits Accrued as Benefits from Fund and The Analytic
Name Equity Fund Part of Fund Expenses Retirement Series Fund
- ------------------ ----------------- --------------------- ---------------- -----------------------
<S> <C> <C> <C> <C>
Michael D. Butler $5,000 None None $10,000
Robertson Whittemore $5,060 None None $10,120
</TABLE>
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 April 2,
1997, 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.
The officers and directors of the Adviser are:
Roger G. Clarke Chairman of the Board
Michael F. Koehn Member of the Board, President and Chief Executive
Officer
Gregory M. McMurran Chief Investment Officer
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<PAGE>
Robert Bannon Managing Director
Harindra de Silva Managing Director and Treasurer
Marie Nastasi Arlt Chief Operating Officer and Secretary
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. 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. For the fiscal years ended December 31, 1994, 1995 and 1996, the
Fund paid advisory fees of $497,600, $346,095, and $363,576, 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 continues from year to year so long as it is
approved annually by a majority of the Board of Directors or of the outstanding
voting securities of the Fund, and by a majority of the Directors who are not
"interested persons" of any party to the Agreement (as defined in the Investment
Company Act of 1940).
The Management Agreement may not be assigned by the Adviser and will
terminate automatically upon assignment. It may be terminated without penalty
upon 60-days' written notice by either party or by a vote of a majority of the
Fund's outstanding voting securities (as defined in the 1940 Act). The
Management Agreement may be amended by a vote of a majority of the Directors of
the Fund, including a majority of the disinterested directors, cast in person at
a meeting called for that purpose, subject to approval by the vote of a majority
of the Fund's outstanding voting securities. "A majority of the Fund's
outstanding voting securities" as used herein, is defined in the first paragraph
of "Investment Restrictions and Other Investment Policies."
Personnel of the Adviser may invest in securities for their own accounts
pursuant to a Code of Ethics that sets forth all employees' fiduciary
responsibilities regarding the Fund, established procedures for personal
investing, and restricts certain transactions. For example, the Code restricts
the timing of personal investing in relation to trades by the Fund, prohibits
participating by employees in initial public offerings, and requires approval of
private placement purchases and service on boards of directors of publicly held
companies.
ADMINISTRATIVE SERVICES. UAM Fund Services, Inc. ("UAM Fund Services"),
a wholly-owned subsidiary of United Asset Management Corporation ("UAMC"),
has agreed to perform and oversee all administrative, fund accounting,
dividend disbursing and transfer agent services to the Fund pursuant to a
Fund Administration Agreement with the Fund (the "Administration Agreement")
dated May 16, 1997. UAM Fund Services has subcontracted some of these
services to Chase Global Funds Services Company ("Chase Global Funds
Services"), an affiliate of The Chase Manhattan Bank.
The Fund pays UAM Fund Services a two part monthly fee: a Fund-specific
fee at the annual rate of 0.06% of net assets which is retained by UAM Fund
Services, and a sub-administration fee which UAM Fund Services in turn pays to
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<PAGE>
Chase Global Funds Services. Chase Global Funds Services' monthly fee for its
services is calculated on an annualized basis as follows:
0.19 of 1% of the first $200 million of total net assets of the Fund
0.11 of 1% on the next $800 million of total net assets
0.07 of 1% on total net assets over $1 billion up to $3 billion
0.05 of 1% on total net assets over $3 billion
The Fund is subject to a graduated minimum fee schedule which starts at
$2,000 per month and increases to $70,000 annually after eighteen months. If a
separate class of shares is added, its minimum annual fee increases by $20,000.
The fees paid to Chase Global Funds Services are the responsibility of UAM
Fund Services, and not the Fund.
Under the Administration Agreement, any liability of UAM Fund Services
to the Fund and its shareholders is limited to situations involving its own
willful misfeasance, bad faith, gross negligence or reckless disregard of
duties. In addition, the Fund has agreed to indemnify UAM Fund Services against
certain matters, including all expenses arising out of actions of UAM Fund
Services pursuant to the Administration Agreement (other than those involving
UAM Fund Services' willful misfeasance, bad faith, gross negligence or reckless
disregard of duties).
UAM Fund Services may assign its obligations under the Administration
Agreement to subcontractors approved by the Board of Directors, but no such
assignment will relieve UAM Fund Services of its obligations to the Fund. The
Agreement may be terminated without penalty upon 60-days' written notice by
either party.
DISTRIBUTOR. UAM Fund Distributors, Inc. (the "Distributor"), a
wholly-owned subsidiary of UAMC, distributes shares of the Fund. Under the
Distribution Agreement (the "Distribution Agreement"), the Distributor, as
agent of the Fund, agrees to use its best efforts as sole distributor of Fund
shares. The Distributor does not receive any fee or other compensation under
the Distribution Agreement. The Distribution Agreement continues in effect
as long as it is approved at least annually by the Fund's Board of Directors.
Those approving the Distribution Agreement must include a majority of
Directors who are not interested persons of any party to the Distribution
Agreement.
The term and termination provisions of the Distribution Agreement are
similar to those of the Fund's Investment Management Agreement. In addition,
it contains provisions limiting the liability of, and providing
indemnification to, the Distributor, that are similar to those of the
Administration Agreement, except that nothing in the Distribution Agreement
protects the Distributor from any liabilities which it may have under the
Securities Act of 1933 or the Investment Company Act of 1940.
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, 1994, 1995, and 1996, aggregate commissions paid by the Fund amounted to
$251,936, $159,118 and $149,614, respectively. Brokerage commissions declined
in 1995 and 1996 from their 1994 levels due to an emphasis on larger
capitalization equities during those two years which resulted in lower turnover
in the Fund and lower transaction costs. During the fiscal year ended December
31, 1996, none of the Fund's commissions were allocated to brokers who also
provided research services to the Adviser.
Commissions charged by brokers that provide research services may be
somewhat higher than commissions charged by brokers that do not provide research
services. As permitted by Section 28(e) of the Securities Exchange Act of 1934,
the Adviser may cause the Fund to pay a broker-dealer that provides brokerage
and research services to the Adviser an amount of commission for effecting a
securities transaction for the Fund in excess of the commission another
broker-dealer would have charged for effecting that transaction. The Adviser
does not engage brokers and dealers whose commissions are believed to be
unreasonable in relation to brokerage and research services provided.
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
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<PAGE>
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 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, 1996, such clearing agents received commissions of $9,579.
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 $1,000,000,000 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. Until the Fund's 1998 fiscal year, 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 in order to
qualify under Subchapter M. 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. The requirement that investment companies derive less than
30% of gross income from the disposition of securities held less than three
months has been rescinded by legislation enacted in 1996. The rescission is
effective with respect to the Fund beginning on January 1, 1998.
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.
B-10
<PAGE>
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. 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 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
B-11
<PAGE>
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.
1/n
(Formula for calculating average annual total compound return: (ERV/p) -1)).
See the "Glossary" in the Prospectus for further discussion and examples of
total return and fluctuations in total return.
For example, the Fund's total return for various periods has been as follows:
<TABLE>
<CAPTION>
1 year 5 years 10 years
7/1/96 - 6/30/97 7/1/92 - 6/30/97 7/1/87 - 6/30/97
---------------- ---------------- ----------------
<S> <C> <C> <C>
Cumulative Total Return 19.27% 78.11% 163.00%
Average Annual Compound Total Return 19.27% 12.23% 10.14%
</TABLE>
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
B-12
<PAGE>
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.
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.
B-13
<PAGE>
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-14
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table shows as of September 30, 1997, 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 (3,207,138 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 12.69%
One Mercantile Center, Room 2607
St. Louis, MO 63101
LaSalle National Bank 254,912 7.95%
Metz Banking Pension Trust
c/o Mutual Funds, 18th Floor
135 LaSalle Street
Chicago, IL 60603
Charles Schwab & Co., Inc. 248,952 7.76%
101 Montgomery Street
San Francisco, CA 94104
All Officers and Directors of the Fund as a group 30,481 0.95%
owned less than 1% of the Fund's outstanding shares
as of September 30, 1997.
</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 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.
B-15
<PAGE>
CUSTODIAN
The Fund's custodian is The Chase Manhattan Bank. 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
UAM Fund Services, Inc. is responsible for performing and overseeing all
administrative, fund accounting, dividend disbursing and transfer agent services
for the Fund. UAM Fund Services has also contracted certain of these services
to Chase Global Funds Services Company. Chase Global Funds Services will act as
the Fund's sub-dividend disbursing agent, sub-transfer agent and sub-shareholder
servicing agent. (see "Investment Advisory and Other Services").
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 1000 Wilshire Boulevard, Los Angeles, CA 90017-2472
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 LLP, 555
South Flower Street, Los Angeles, California 90071.
FINANCIAL STATEMENTS
The financial statements in the Fund's 1996 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. Also incorporated into this
Statement of Additional Information by reference are the Fund's unaudited
financial statements included in the Fund's Semi-Annual Report to
Shareholders for the period ended June 30, 1997. These unaudited financial
statements reflect all adjustments which the Fund believes necessary to a
fair statement of the results for the period. Copies of the Fund's Annual
Report and Semi-Annual Report to Shareholders may be obtained at no charge by
telephoning the Fund at the number on the front page of this Statement of
Additional Information.
B-16
<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 audited and unaudited information is included
in Part B - Statement of Additional Information:
Audited:
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, 1996,
and are incorporated by reference in Part B.
Unaudited:
Registrant's Statement of Assets and Liabilities including a
Schedule of Portfolio Investments, Statement of Changes in Net
Assets, Statement of Operations and related notes, are included
as part of Registrant's Semi-Annual Report to Shareholders for
the period ended June 30, 1997, and 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 Distribution Agreement between Registrant and UAM Fund
Distributors, Inc. dated May 1, 1997 -- filed as Exhibit 6
to Registrant's Form N-1A Registration Statement on August
21, 1997 and incorporated herein by reference.
7 None.
8 Custodian Agreement between Registrant and The Chase
Manhattan Bank dated September 8, 1997.
9.1 Fund Administration Agreement between Registrant and UAM
Fund Services, Inc. dated May 16, 1997 -- filed as Exhibit
9.1 to Registrant's Form N-1A Registration Statement on
August 21, 1997 and incorporated herein by reference.
9.2 Mutual Funds Service Agreement between UAM Fund Services,
Inc. and Chase Global Funds Services Company dated May 16,
1997 -- filed as Exhibit 9.2 to Registrant's Form N-1A
Registration Statement on August 21, 1997 and incorporated
herein by reference.
10 Opinion and Consent of Counsel - included as part of
Registrant's Form 24f-2 Notice filed February 27, 1997 and
incorporated herein by reference.
11 Consent of Deloitte & Touche LLP.
12 None.
13 None.
C-1
<PAGE>
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.
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.
18 None
19. Power of Attorney.
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
<TABLE>
<CAPTION>
Title of Class Number of Record Holders as of September 30, 1997
- -------------- -------------------------------------------------
<S> <C>
Common Stock, No Par Value 1419
</TABLE>
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, 1996, 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:
<TABLE>
<CAPTION>
Name Office Other Employment
- ---- ------ ----------------
<S> <C> <C>
Roger G. Clarke Chairman of the Board President of Analytic-TSA Investors (wholly
of Directors 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.
C-2
<PAGE>
Michael F. Koehn Member of the Board of Director of Analytic Optioned Equity Fund;
Directors, President and Trustee of The Analytic Series Fund. Co-founder
Chief Executive Officer and President of Analysis Group, Inc.
Gregory M. McMurran Chief Investment Officer Treasurer of Analytic Optioned Equity Fund and
The Analytic Series Fund.
Harindra de Silva Managing Director President of Analytic Optioned Equity Fund and
The Analytic Series Fund. Concurrently, President
of AG Risk Management and Principal of Analysis
Group
Robert J. Bannon Managing Director 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.
Marie Nastasi Arlt Chief Operating Officer Senior Vice President of Analytic Optioned Equity
and Secretary Fund and The Analytic Series Fund. Secretary,
Treasurer, Principal and Vice President of
Analytic-TSA Investors (wholly owned subsidiary of
Adviser). Executive Vice President, Managing
Director, Principal, Treasurer and Secretary of
TSA Capital Management.
</TABLE>
The business address of such persons is 700 South Flower Street, Suite 2400, Los
Angeles, CA 90017.
Item 29. PRINCIPAL UNDERWRITERS
(a) UAM Fund Distributors, Inc. (the "Distributor"), the firm which
acts as sole distributor of the Registrant's shares, also acts as
distributor for UAM Funds Trust, UAM Funds, Inc. and The Analytic
Series Fund.
(b) The information required with respect to each Director and
officer of the Distributor is incorporated by reference to
Schedule A of Form BD filed by the Distributor pursuant to the
Securities and Exchange Act of 1934 (SEC File No. 8-41126).
(c) 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 (700 South Flower Street, Suite 2400, Los Angeles, CA 90017),
the Registrant's sub-transfer agent, sub-dividend disbursing agent and
sub-shareholder servicing agent (Chase Global Funds Services Company, 73 Tremont
Street, Boston, MA 02108) and the Registrant's custodian bank (The Chase
Manhattan Bank, 4 Chase MetroTech Center, Brooklyn, NY 11245).
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-3
<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 the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Los Angeles, and State of California,
on the ____ day of October, 1997.
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/ Harindra de Silva
- --------------------------
Harindra de Silva President October ____, 1997
/s/ Gregory M. McMurran
- --------------------------
Gregory M. McMurran Treasurer (Chief Financial October ____, 1997
Officer)
/s/ Michael F. Koehn
- --------------------------
Michael F. Koehn Chairman of the Board of October ____, 1997
Directors
/s/ Michael D. Butler
- --------------------------
Michael D. Butler* Director October ____, 1997
/s/ Robertson Whittemore
- --------------------------
Robertson Whittemore* Director October ____, 1997
*By /s/ Marie Nastasi Arlt
----------------------
Marie Nastasi Arlt
Attorney-in-fact
C-4
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Description Page
- ----------- ------------------- ----
8 Custodian Agreement C-
11 Consent of Independent Accountants C-
19 Power of Attorney C-
27 Financial Data Schedule C-
C-5
<PAGE>
[LOGO] EXHIBIT 8
GLOBAL CUSTODY AGREEMENT
This AGREEMENT is effective September 8, 1997, and is between THE CHASE
MANHATTAN BANK ("Bank") and The Analytic Optioned Equity Fund, Inc.
("Customer").
It is hereby agreed as follows:
1. CUSTOMER ACCOUNTS.
Bank shall establish and maintain the following accounts ("Accounts"):
(a) A custody account in the name of Customer ("Custody Account") for
any and all stocks, shares, bonds, debentures, notes, mortgages or other
obligations for the payment of money, bullion, coin and any certificates,
receipts, warrants or other instruments representing rights to receive,
purchase or subscribe for the same or evidencing or representing any other
rights or interests therein and other similar property whether certificated
or uncertificated as may be received by Bank or its Subcustodian (as defined
in Section 3) for the account of Customer ("Securities"); and
(b) A deposit account in the name of Customer ("Deposit Account") for
any and all cash in any currency received by Bank or its Subcustodian for the
account of Customer, which cash shall not be subject to withdrawal by draft
or check.
Customer warrants its authority to: 1) deposit the cash and Securities
("Assets") received in the Accounts and 2) give Instructions (as defined in
Section 11) concerning the Accounts. Bank may deliver securities of the same
class in place of those deposited in the Custody Account.
Upon written agreement between Bank and Customer, additional Accounts may
be established and separately accounted for as additional Accounts hereunder.
2. MAINTENANCE OF SECURITIES AND CASH AT BANK AND SUBCUSTODIAN LOCATIONS.
Unless Instructions specifically require another location acceptable to
Bank:
(a) Securities shall be held in the country or other jurisdiction in
which the principal trading market for such Securities is located, where such
Securities are to be presented for payment or where such Securities are
acquired; and
(b) Cash shall be credited to an account in a country or other
jurisdiction in which such cash may be legally deposited or is the legal
currency for the payment of public or private debts.
<PAGE>
Cash may be held pursuant to Instructions in either interest or
non-interest bearing accounts as may be available for the particular
currency. To the extent Instructions are issued and Bank can comply with
such Instructions, Bank is authorized to maintain cash balances on deposit
for Customer with itself or one of its "Affiliates" at such reasonable rates
of interest as may from time to time be paid on such accounts, or in
non-interest bearing accounts as Customer may direct, if acceptable to Bank.
For purposes hereof, the term "Affiliate" shall mean an entity controlling,
controlled by, or under common control with, Bank.
If Customer wishes to have any of its Assets held in the custody of an
institution other than the established Subcustodians as defined in Section 3
(or their securities depositories), such arrangement must be authorized by a
written agreement, signed by Bank and Customer.
3. SUBCUSTODIANS AND SECURITIES DEPOSITORIES.
Bank may act hereunder through the subcustodians listed in Schedule A
hereof with which Bank has entered into subcustodial agreements
("Subcustodians"). Customer authorizes Bank to hold Assets in the Accounts
in accounts which Bank has established with one or more of its branches or
Subcustodians. Bank and Subcustodians are authorized to hold any of the
Securities in their account with any securities depository in which they
participate.
Bank reserves the right to add new, replace or remove Subcustodians.
Customer shall be given reasonable notice by Bank of any amendment to
Schedule A. Upon request by Customer, Bank shall identify the name, address
and principal place of business of any Subcustodian of Customer's Assets and
the name and address of the governmental agency or other regulatory authority
that supervises or regulates such Subcustodian.
4. USE OF SUBCUSTODIAN.
(a) Bank shall identify the Assets on its books as belonging to Customer.
(b) A Subcustodian shall hold such Assets together with assets belonging
to other customers of Bank in accounts identified on such Subcustodian's
books as custody accounts for the exclusive benefit of customers of Bank.
(c) Any Assets in the Accounts held by a Subcustodian shall be subject
only to the instructions of Bank or its agent. Any Securities held in a
securities depository for the account of a Subcustodian shall be subject only
to the instructions of such Subcustodian.
(d) Any agreement Bank enters into with a Subcustodian for holding
Bank's customers' assets shall provide that such assets shall not be subject
to any right, charge, security interest, lien or claim of any kind in favor
of such Subcustodian except for safe custody or administration, and that the
beneficial ownership of such assets shall be freely transferable without the
payment of money or value other than for safe custody or administration.
Where Securities are deposited by a Subcustodian with a securities
depository, Bank shall cause the Subcustodian to identify on its books as
belonging to Bank, as agent, the Securities shown on the Subcustodian's
account on the books of such securities depository. The foregoing shall not
apply to the extent of any special agreement or arrangement made by Customer
with any particular Subcustodian.
5. DEPOSIT ACCOUNT TRANSACTIONS.
(a) Bank or its Subcustodians shall make payments from the Deposit
Account upon receipt of Instructions which include all information required
by Bank.
2
<PAGE>
(b) In the event that any payment to be made under this Section 5
exceeds the funds available in the Deposit Account, Bank, in its discretion,
may advance Customer such excess amount which shall be deemed a loan payable
on demand, bearing interest at the rate customarily charged by Bank on
similar loans.
(c) If Bank credits the Deposit Account on a payable date, or at any
time prior to actual collection and reconciliation to the Deposit Account,
with interest, dividends, redemptions or any other amount due, Customer shall
promptly return any such amount upon oral or written notification: (i) that
such amount has not been received in the ordinary course of business or (ii)
that such amount was incorrectly credited. If Customer does not promptly
return any amount upon such notification, Bank shall be entitled, upon oral
or written notification to Customer, to reverse such credit by debiting the
Deposit Account for the amount previously credited. Bank or its Subcustodian
shall have no duty or obligation to institute legal proceedings, file a claim
or a proof of claim in any insolvency proceeding or take any other action
with respect to the collection of such amount, but may act for Customer upon
Instructions after consultation with Customer.
6. CUSTODY ACCOUNT TRANSACTIONS.
(a) Securities shall be transferred, exchanged or delivered by Bank or
its Subcustodian upon receipt by Bank of Instructions which include all
information required by Bank. Settlement and payment for Securities received
for, and delivery of Securities out of, the Custody Account may be made in
accordance with the customary or established securities trading or securities
processing practices and procedures in the jurisdiction or market in which
the transaction occurs, including, without limitation, delivery of Securities
to a purchaser, dealer or their agents against a receipt with the expectation
of receiving later payment and free delivery. Delivery of Securities out of
the Custody Account may also be made in any manner specifically required by
Instructions acceptable to Bank.
(b) Bank, in its discretion, may credit or debit the Accounts on a
contractual settlement date with cash or Securities with respect to any sale,
exchange or purchase of Securities. Otherwise, such transactions shall be
credited or debited to the Accounts on the date cash or Securities are
actually received by Bank and reconciled to the Account.
(i) Bank may reverse credits or debits made to the Accounts in its
discretion if the related transaction fails to settle within a reasonable
period, determined by Bank in its discretion, after the contractual
settlement date for the related transaction.
(ii) If any Securities delivered pursuant to this Section 6 are
returned by the recipient thereof, Bank may reverse the credits and debits
of the particular transaction at any time.
7. ACTIONS OF BANK.
Bank shall follow Instructions received regarding Assets held in the
Accounts. However, until it receives Instructions to the contrary, Bank
shall:
(a) Present for payment any Securities which are called, redeemed or
retired or otherwise become payable and all coupons and other income items
which call for payment upon presentation, to the extent that Bank or
Subcustodian is actually aware of such opportunities.
(b) Execute in the name of Customer such ownership and other
certificates as may be required to obtain payments in respect of Securities.
3
<PAGE>
(c) Exchange interim receipts or temporary Securities for definitive
Securities.
(d) Appoint brokers and agents for any transaction involving the
Securities, including, without limitation, Affiliates of Bank or any
Subcustodian.
(e) Issue statements to Customer, at times mutually agreed upon,
identifying the Assets in the Accounts.
Bank shall send Customer an advice or notification of any transfers of
Assets to or from the Accounts. Such statements, advices or notifications
shall indicate the identity of the entity having custody of the Assets.
Unless Customer sends Bank a written exception or objection to any Bank
statement within sixty (60) days of receipt, Customer shall be deemed to have
approved such statement. In such event, or where Customer has otherwise
approved any such statement, Bank shall, to the extent permitted by law, be
released, relieved and discharged with respect to all matters set forth in
such statement or reasonably implied therefrom as though it had been settled
by the decree of a court of competent jurisdiction in an action where
Customer and all persons having or claiming an interest in Customer or
Customer's Accounts were parties.
All collections of funds or other property paid or distributed in respect
of Securities in the Custody Account shall be made at the risk of Customer.
Bank shall have no liability for any loss occasioned by delay in the actual
receipt of notice by Bank or by its Subcustodians of any payment, redemption
or other transaction regarding Securities in the Custody Account in respect
of which Bank has agreed to take any action hereunder.
8. CORPORATE ACTIONS; PROXIES; TAX RECLAIMS.
(a) CORPORATE ACTIONS. Whenever Bank receives information concerning
the Securities which requires discretionary action by the beneficial owner of
the Securities (other than a proxy), such as subscription rights, bonus
issues, stock repurchase plans and rights offerings, or legal notices or
other material intended to be transmitted to securities holders ("Corporate
Actions"), Bank shall give Customer notice of such Corporate Actions to the
extent that Bank's central corporate actions department has actual knowledge
of a Corporate Action in time to notify its customers.
When a rights entitlement or a fractional interest resulting from a
rights issue, stock dividend, stock split or similar Corporate Action is
received which bears an expiration date, Bank shall endeavor to obtain
Instructions from Customer or its Authorized Person (as defined in Section 10
hereof), but if Instructions are not received in time for Bank to take timely
action, or actual notice of such Corporate Action was received too late to
seek Instructions, Bank is authorized to sell such rights entitlement or
fractional interest and to credit the Deposit Account with the proceeds or
take any other action it deems, in good faith, to be appropriate in which
case it shall be held harmless for any such action.
(b) PROXY VOTING. Bank shall provide proxy voting services, if elected
by Customer, in accordance with the terms of the proxy voting services rider
hereto. Proxy voting services may be provided by Bank or, in whole or in
part, by one or more third parties appointed by Bank (which may be Affiliates
of Bank).
(c) TAX RECLAIMS.
(i) Subject to the provisions hereof, Bank shall apply for a
reduction of withholding tax and any refund of any tax paid or tax credits
which apply in each applicable market in respect of income payments on
Securities for the benefit of Customer which Bank believes may be available
to such Customer.
4
<PAGE>
(ii) The provision of tax reclaim services by Bank is conditional
upon Bank receiving from the beneficial owner of Securities (A) a
declaration of its identity and place of residence and (B) certain other
documentation (pro forma copies of which are available from Bank).
Customer acknowledges that, if Bank does not receive such declarations,
documentation and information, additional United Kingdom taxation shall be
deducted from all income received in respect of Securities issued outside
the United Kingdom and that U.S. non-resident alien tax or U.S. backup
withholding tax shall be deducted from U.S. source income. Customer shall
provide to Bank such documentation and information as it may require in
connection with taxation, and warrants that, when given, this information
shall be true and correct in every respect, not misleading in any way, and
contain all material information. Customer undertakes to notify Bank
immediately if any such information requires updating or amendment.
(iii) Bank shall not be liable to Customer or any third party for
any taxes, fines or penalties payable by Bank or Customer, and shall be
indemnified accordingly, whether these result from the inaccurate
completion of documents by Customer or any third party acting as agent for
Customer, or as a result of the provision to Bank or any third party of
inaccurate or misleading information or the withholding of material
information by Customer or any other third party, or as a result of any
delay of any revenue authority or any other matter beyond the control of
Bank.
(iv) Customer confirms that Bank is authorized to deduct from any
cash received or credited to the Deposit Account any taxes or levies
required by any revenue or governmental authority for whatever reason in
respect of the Securities or Cash Accounts.
(v) Bank shall perform tax reclaim services only with respect to
taxation levied by the revenue authorities of the countries notified to
Customer from time to time and Bank may, by notification in writing, at its
absolute discretion, supplement or amend the markets in which the tax
reclaim services are offered. Other than as expressly provided in this
sub-clause, Bank shall have no responsibility with regard to Customer's tax
position or status in any jurisdiction.
(vi) Customer confirms that Bank is authorized to disclose any
information requested by any revenue authority or any governmental body in
relation to Customer or the Securities and/or Cash held for Customer.
(vii) Tax reclaim services may be provided by Bank or, in whole or
in part, by one or more third parties appointed by Bank (which may be
Affiliates of Bank); provided that Bank shall be liable for the performance
of any such third party to the same extent as Bank would have been if it
performed such services itself.
9. NOMINEES.
Securities which are ordinarily held in registered form may be registered
in a nominee name of Bank, Subcustodian or securities depository, as the case
may be. Bank may without notice to Customer cause any such Securities to
cease to be registered in the name of any such nominee and to be registered
in the name of Customer. In the event that any Securities registered in a
nominee name are called for partial redemption by the issuer, Bank may allot
the called portion to the respective beneficial holders of such class of
security in any manner Bank deems to be fair and equitable. Customer shall
hold Bank, Subcustodians, and their respective nominees harmless from any
liability arising directly or indirectly from their status as a mere record
holder of Securities in the Custody Account.
5
<PAGE>
10. AUTHORIZED PERSONS.
As used herein, the term "Authorized Person" means employees or agents
including investment managers as have been designated by written notice from
Customer or its designated agent to act on behalf of Customer hereunder.
Such persons shall continue to be Authorized Persons until such time as Bank
receives Instructions from Customer or its designated agent that any such
employee or agent is no longer an Authorized Person.
11. INSTRUCTIONS.
The term "Instructions" means instructions of any Authorized Person
received by Bank, via telephone, telex, facsimile transmission, bank wire or
other teleprocess or electronic instruction or trade information system
acceptable to Bank which Bank believes in good faith to have been given by
Authorized Persons or which are transmitted with proper testing or
authentication pursuant to terms and conditions which Bank may specify.
Unless otherwise expressly provided, all Instructions shall continue in full
force and effect until canceled or superseded.
Any Instructions delivered to Bank by telephone shall promptly thereafter
be confirmed in writing by an Authorized Person (which confirmation may bear
the facsimile signature of such Person), but Customer shall hold Bank
harmless for the failure of an Authorized Person to send such confirmation in
writing, the failure of such confirmation to conform to the telephone
instructions received or Bank's failure to produce such confirmation at any
subsequent time. Bank may electronically record any Instructions given by
telephone, and any other telephone discussions with respect to the Custody
Account. Customer shall be responsible for safeguarding any testkeys,
identification codes or other security devices which Bank shall make
available to Customer or its Authorized Persons.
12. STANDARD OF CARE; LIABILITIES.
(a) Bank shall be responsible for the performance of only such duties as
are set forth herein or expressly contained in Instructions which are
consistent with the provisions hereof as follows:
(i) Bank shall use reasonable care with respect to its obligations
hereunder and the safekeeping of Assets. Bank shall be liable to Customer
for any loss which shall occur as the result of the failure of a
Subcustodian to exercise reasonable care with respect to the safekeeping of
such Assets to the same extent that Bank would be liable to Customer if
Bank were holding such Assets in New York. In the event of any loss to
Customer by reason of the failure of Bank or its Subcustodian to utilize
reasonable care, Bank shall be liable to Customer only to the extent of
Customer's direct damages, to be determined based on the market value of
the property which is the subject of the loss at the date of discovery of
such loss and without reference to any special conditions or circumstances.
Bank shall have no liability whatsoever for any consequential, special,
indirect or speculative loss or damages (including, but not limited to,
lost profits) suffered by Customer in connection with the transactions
contemplated hereby and the relationship established hereby even if Bank
has been advised as to the possibility of the same and regardless of the
form of the action. Bank shall not be responsible for the insolvency of
any Subcustodian which is not a branch or Affiliate of Bank.
(ii) Bank shall not be responsible for any act, omission, default
or the solvency of any broker or agent which it or a Subcustodian appoints
unless such appointment was made negligently or in bad faith.
6
<PAGE>
(iii) Bank shall be indemnified by, and without liability to
Customer for any action taken or omitted by Bank whether pursuant to
Instructions or otherwise within the scope hereof if such act or omission
was in good faith, without negligence. In performing its obligations
hereunder, Bank may rely on the genuineness of any document which it
believes in good faith to have been validly executed.
(iv) Customer shall pay for and hold Bank harmless from any
liability or loss resulting from the imposition or assessment of any taxes
or other governmental charges, and any related expenses with respect to
income from or Assets in the Accounts.
(v) Bank shall be entitled to rely, and may act, upon the advice
of counsel (who may be counsel for Customer) on all matters and shall be
without liability for any action reasonably taken or omitted pursuant to
such advice.
(vi) Bank need not maintain any insurance for the benefit of
Customer.
(vii) Without limiting the foregoing, Bank shall not be liable for
any loss which results from: 1) the general risk of investing, or 2)
investing or holding Assets in a particular country including, but not
limited to, losses resulting from malfunction, interruption of or error in
the transmission of information caused by any machines or system or
interruption of communication facilities, abnormal operating conditions,
nationalization, expropriation or other governmental actions; regulation of
the banking or securities industry; currency restrictions, devaluations or
fluctuations; and market conditions which prevent the orderly execution of
securities transactions or affect the value of Assets.
(viii) Neither party shall be liable to the other for any loss due to
forces beyond their control including, but not limited to strikes or work
stoppages, acts of war (whether declared or undeclared) or terrorism,
insurrection, revolution, nuclear fusion, fission or radiation, or acts of
God.
(b) Consistent with and without limiting the first paragraph of this
Section 12, it is specifically acknowledged that Bank shall have no duty or
responsibility to:
(i) question Instructions or make any suggestions to Customer or
an Authorized Person regarding such Instructions;
(ii) supervise or make recommendations with respect to investments
or the retention of Securities;
(iii) advise Customer or an Authorized Person regarding any default
in the payment of principal or income of any security other than as
provided in Section 5(c) hereof;
(iv) evaluate or report to Customer or an Authorized Person
regarding the financial condition of any broker, agent or other party to
which Securities are delivered or payments are made pursuant hereto; and
(v) review or reconcile trade confirmations received from brokers.
Customer or its Authorized Persons issuing Instructions shall bear any
responsibility to review such confirmations against Instructions issued to
and statements issued by Bank.
(c) Customer authorizes Bank to act hereunder notwithstanding that Bank
or any of its divisions or Affiliates may have a material interest in a
transaction, or circumstances are such that Bank may have a potential
conflict of duty or interest including the fact that Bank or any of its
Affiliates may provide brokerage services to
7
<PAGE>
other customers, act as financial advisor to the issuer of Securities, act
as a lender to the issuer of Securities, act in the same transaction as agent
for more than one customer, have a material interest in the issue of
Securities, or earn profits from any of the activities listed herein.
13. FEES AND EXPENSES.
Customer shall pay Bank for its services hereunder the fees set forth in
Schedule B hereto or such other amounts as may be agreed upon in writing,
together with Bank's reasonable out-of-pocket or incidental expenses,
including, but not limited to, legal fees. Bank shall have a lien on and is
authorized to charge any Accounts of Customer for any amount owing to Bank
under any provision hereof.
14. MISCELLANEOUS.
(a) FOREIGN EXCHANGE TRANSACTIONS. To facilitate the administration of
Customer's trading and investment activity, Bank is authorized to enter into
spot or forward foreign exchange contracts with Customer or an Authorized
Person for Customer and may also provide foreign exchange through its
subsidiaries, Affiliates or Subcustodians. Instructions, including standing
instructions, may be issued with respect to such contracts but Bank may
establish rules or limitations concerning any foreign exchange facility made
available. In all cases where Bank, its subsidiaries, Affiliates or
Subcustodians enter into a foreign exchange contract related to Accounts, the
terms and conditions of the then current foreign exchange contract of Bank,
its subsidiary, Affiliate or Subcustodian and, to the extent not
inconsistent, this Agreement shall apply to such transaction.
(b) CERTIFICATION OF RESIDENCY, ETC. Customer certifies that it is a
resident of the United States and shall notify Bank of any changes in
residency. Bank may rely upon this certification or the certification of such
other facts as may be required to administer Bank's obligations hereunder.
Customer shall indemnify Bank against all losses, liability, claims or
demands arising directly or indirectly from any such certifications.
(c) ACCESS TO RECORDS. Bank shall allow Customer's independent public
accountant reasonable access to the records of Bank relating to the Assets as
is required in connection with their examination of books and records
pertaining to Customer's affairs. Subject to restrictions under applicable
law, Bank shall also obtain an undertaking to permit Customer's independent
public accountants reasonable access to the records of any Subcustodian which
has physical possession of any Assets as may be required in connection with
the examination of Customer's books and records.
(d) GOVERNING LAW; SUCCESSORS AND ASSIGNS, CAPTIONS THIS AGREEMENT
SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED IN NEW YORK and shall not be assignable
by either party, but shall bind the successors in interest of Customer and
Bank. The captions given to the sections and subsections of this Agreement
are for convenience of reference only and are not to be used to interpret
this Agreement.
(e) ENTIRE AGREEMENT; APPLICABLE RIDERS. Customer represents that the
Assets deposited in the Accounts are (Check one):
_____ Employee Benefit Plan or other assets subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA");
__X__ Investment Company assets subject to certain U.S. Securities and
Exchange Commission rules and regulations;
8
<PAGE>
_____ Neither of the above.
This Agreement consists exclusively of this document together with
Schedules A and B, Exhibits I - _______ and the following Rider(s)
[Check applicable rider(s)]:
_____ ERISA
__X__ INVESTMENT COMPANY
__X__ PROXY VOTING
__X__ SPECIAL TERMS AND CONDITIONS
There are no other provisions hereof and this Agreement supersedes any
other agreements, whether written or oral, between the parties. Any
amendment hereto must be in writing, executed by both parties.
(f) SEVERABILITY. In the event that one or more provisions hereof are
held invalid, illegal or unenforceable in any respect on the basis of any
particular circumstances or in any jurisdiction, the validity, legality and
enforceability of such provision or provisions under other circumstances or
in other jurisdictions and of the remaining provisions shall not in any way
be affected or impaired.
(g) WAIVER. Except as otherwise provided herein, no failure or delay on
the part of either party in exercising any power or right hereunder operates
as a waiver, nor does any single or partial exercise of any power or right
preclude any other or further exercise, or the exercise of any other power or
right. No waiver by a party of any provision hereof, or waiver of any breach
or default, is effective unless in writing and signed by the party against
whom the waiver is to be enforced.
(h) REPRESENTATIONS AND WARRANTIES. (i) Customer hereby represents and
warrants to Bank that: (A) it has full authority and power to deposit and
control the Securities and cash deposited in the Accounts; (B) it has all
necessary authority to use Bank as its custodian; (C) this Agreement
constitutes its legal, valid and binding obligation, enforceable in
accordance with its terms; (D) it shall have full authority and power to
borrow moneys and enter into foreign exchange transactions; and (E) it has
not relied on any oral or written representation made by Bank or any person
on its behalf, and acknowledges that this Agreement sets out to the fullest
extent the duties of Bank. (ii) Bank hereby represents and warrants to
Customer that: (A) it has the full power and authority to perform its
obligations hereunder, (B) this Agreement constitutes its legal, valid and
binding obligation; enforceable in accordance with its terms; and (C) that it
has taken all necessary action to authorize the execution and delivery hereof.
(i) NOTICES. All notices hereunder shall be effective when actually
received. Any notices or other communications which may be required
hereunder are to be sent to the parties at the following addresses or such
other addresses as may subsequently be given to the other party in writing:
(a) Bank: The Chase Manhattan Bank, 4 Chase MetroTech Center, Brooklyn, N.Y.
11245, Attention: Global Investor Services, Investment Management Group; and
(b) Customer: The Analytic_TSA Global Asset Management, Inc., 700 South
Flower Street, Los Angeles, CA 90017.
(j) TERMINATION. This Agreement may be terminated by Customer or Bank
by giving sixty (60) days written notice to the other, provided that such
notice to Bank shall specify the names of the persons to whom Bank shall
deliver the Assets in the Accounts. If notice of termination is given by
Bank, Customer shall, within sixty (60) days following receipt of the notice,
deliver to Bank Instructions specifying the names
9
<PAGE>
of the persons to whom Bank shall deliver the Assets. In either case Bank
shall deliver the Assets to the persons so specified, after deducting any
amounts which Bank determines in good faith to be owed to it under Section
13. If within sixty (60) days following receipt of a notice of termination by
Bank, Bank does not receive Instructions from Customer specifying the names
of the persons to whom Bank shall deliver the Assets, Bank, at its election,
may deliver the Assets to a bank or trust company doing business in the State
of New York to be held and disposed of pursuant to the provisions hereof, or
to Authorized Persons, or may continue to hold the Assets until Instructions
are provided to Bank.
(k) MONEY LAUNDERING. Customer warrants and undertakes to Bank for
itself and its agents that all Customer's customers are properly identified
in accordance with U.S. Money Laundering Regulations as in effect from time
to time.
(l) IMPUTATION OF CERTAIN INFORMATION. Bank shall not be held
responsible for and shall not be required to have regard to information held
by any person by imputation or information of which Bank is not aware by
virtue of a "Chinese Wall" arrangement. If Bank becomes aware of
confidential information which in good faith it feels inhibits it from
effecting a transaction hereunder Bank may refrain from effecting it.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first-above written.
THE ANALYTIC OPTIONED EQUITY FUND, INC.
By: /s/ Harindra de Silva
-------------------------
Title: Managing Director
Date: September 8, 1997
THE CHASE MANHATTAN BANK
By: /s/ Donald P. Hearn
-------------------------
Title: Senior Vice President
Date: September 8, 1997
10
<PAGE>
STATE OF MASSACHUSETTS)
: ss.
COUNTY OF SUFFOLK)
On this 8th day of September, 1997, before me personally came Donald P.
Hearn, to me known, who being by me duly sworn, did depose and say that he
resides in Boston at 73 Tremont Street, that he is a Senior Vice President of
The Chase Manhattan Bank, the entity described in and which executed the
foregoing instrument; that he knows the seal of said entity, that the seal
affixed to said instrument is such seal, that it was so affixed by order of
said entity, and that he signed his name thereto by like order.
/s/ Donald P. Hearn
-------------------------
Donald P. Hearn
Sworn to before me this 8th
day of September, 1997.
/s/ Marquette K. Bamberg
- ------------------------
Marquette K. Bamberg
Notary
<PAGE>
Investment Company Rider to Global Custody Agreement
Between The Chase Manhattan Bank and
The Analytic Optioned Fund, Inc.
effective September 8, 1997
Customer represents that the Assets being placed in Bank's custody are
subject to the Investment Company Act of 1940, as amended (the "1940 Act"),
as the same may be amended from time to time.
Except to the extent that Bank has specifically agreed to comply with a
condition of a rule, regulation, interpretation promulgated by or under the
authority of the Securities and Exchange Commission ("SEC") or the Exemptive
Order applicable to accounts of this nature issued to Bank (1940 Act, Release
No. 12053, November 20, 1981), as amended, or unless Bank has otherwise
specifically agreed, Customer shall be solely responsible to assure that the
maintenance of Assets hereunder complies with such rules, regulations,
interpretations or exemptive order promulgated by or under the authority of
the SEC.
The following modifications are made to the Agreement:
Section 3. SUBCUSTODIANS AND SECURITIES DEPOSITORIES.
Add the following language to the end of Section 3:
The terms Subcustodian and securities depositories as used herein shall
mean a branch of a qualified U.S. bank, an eligible foreign custodian or an
eligible foreign securities depository, which are further defined as follows:
(a) "qualified U.S. Bank" shall mean a qualified U.S. bank as defined in
Rule 17f-5 under the 1940 Act;
(b) "eligible foreign custodian" shall mean (i) a banking institution or
trust company, incorporated or organized under the laws of a country other
than the United States, that is regulated as such by that country's
government or an agency thereof and that has shareholders' equity in excess
of $200 million in U.S. currency (or a foreign currency equivalent thereof)
as of the close of its fiscal year most recently completed prior to the date
hereof, (ii) a majority owned direct or indirect subsidiary of a qualified
U.S. bank or bank holding company that is incorporated or organized under the
laws of a country other than the United States and that has shareholders'
equity in excess of $100 million in U.S. currency (or a foreign currency
equivalent thereof) as of the close of its fiscal year most recently
completed prior to the date hereof, (iii) a banking institution or trust
company incorporated or organized under the laws of a country other than the
United States or a majority owned direct or indirect subsidiary of a
qualified U.S. bank or bank holding company that is incorporated or organized
under the laws of a country other than the United States which has such other
qualifications as shall be specified in Instructions and approved by Bank; or
(iv) any other entity that shall have been so qualified by exemptive order,
rule or other appropriate action of the SEC; and
(c) "eligible foreign securities depository" shall mean a securities
depository or clearing agency, incorporated or organized under the laws of a
country other than the United States, which operates (i) the central system
for handling securities or equivalent book-entries in that country, or (ii) a
transnational system for the central handling of securities or equivalent
book-entries.
<PAGE>
Customer represents that its Board of Directors has approved each of the
Subcustodians listed in Schedule A hereto and the terms of the subcustody
agreements between Bank and each Subcustodian, which are attached as Exhibits
I through of Schedule A, and further represents that its Board has
determined that the use of each Subcustodian and the terms of each subcustody
agreement are consistent with the best interests of the Fund(s) and its
(their) shareholders. Bank shall supply Customer with any amendment to
Schedule A for approval. Customer has supplied or shall supply Bank with
certified copies of its Board of Directors resolution(s) with respect to the
foregoing prior to placing Assets with any Subcustodian so approved.
Section 11. INSTRUCTIONS.
Add the following language to the end of Section 11:
Deposit Account Payments and Custody Account Transactions made pursuant
to Section 5 and 6 hereof may be made only for the purposes listed below.
Instructions must specify the purpose for which any transaction is to be made
and Customer shall be solely responsible to assure that Instructions are in
accord with any limitations or restrictions applicable to Customer by law or
as may be set forth in its prospectus.
(a) In connection with the purchase or sale of Securities at prices as
confirmed by Instructions;
(b) When Securities are called, redeemed or retired, or otherwise become
payable;
(c) In exchange for or upon conversion into other securities alone or
other securities and cash pursuant to any plan or merger, consolidation,
reorganization, recapitalization or readjustment;
(d) Upon conversion of Securities pursuant to their terms into other
securities;
(e) Upon exercise of subscription, purchase or other similar rights
represented by Securities;
(f) For the payment of interest, taxes, management or supervisory fees,
distributions or operating expenses;
(g) In connection with any borrowings by Customer requiring a pledge of
Securities, but only against receipt of amounts borrowed;
(h) In connection with any loans, but only against receipt of adequate
collateral as specified in Instructions which shall reflect any restrictions
applicable to Customer;
(i) For the purpose of redeeming shares of the capital stock of Customer
and the delivery to, or the crediting to the account of, Bank, its
Subcustodian or Customer's transfer agent, such shares to be purchased or
redeemed;
(j) For the purpose of redeeming in kind shares of Customer against
delivery to Bank, its Subcustodian or Customer's transfer agent of such
shares to be so redeemed;
(k) For delivery in accordance with the provisions of any agreement
among Customer, Bank and a broker-dealer registered under the Securities
Exchange Act of 1934 and a member of The National Association of Securities
Dealers, Inc., relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange, or of any
similar organization or organizations, regarding escrow or other arrangements
in connection with transactions by Customer;
2
<PAGE>
(l) For release of Securities to designated brokers under covered call
options, provided, however, that such Securities shall be released only upon
payment to Bank of monies for the premium due and a receipt for the
Securities which are to be held in escrow. Upon exercise of the option, or
at expiration, Bank shall receive from brokers the Securities previously
deposited. Bank shall act strictly in accordance with Instructions in the
delivery of Securities to be held in escrow and shall have no responsibility
or liability for any such Securities which are not returned promptly when due
other than to make proper request for such return;
(m) For spot or forward foreign exchange transactions to facilitate
security trading, receipt of income from Securities or related transactions;
(n) For other proper purposes as may be specified in Instructions issued
by an officer of Customer which shall include a statement of the purpose for
which the delivery or payment is to be made, the amount of the payment or
specific Securities to be delivered, the name of the person or persons to
whom delivery or payment is to be made, and a certification that the purpose
is a proper purpose under the instruments governing Customer; and
(o) Upon the termination hereof as set forth in Section 14(j).
Section 12. STANDARD OF CARE; LIABILITIES.
Add the following at the end of Section as 12:
(d) Bank hereby warrants to Customer that in its opinion, after due
inquiry, the established procedures to be followed by each of its branches,
each branch of a qualified U.S. Bank, each eligible foreign custodian and
each eligible foreign securities depository holding Customer's Securities
pursuant hereto afford protection for such Securities at least equal to that
afforded by Bank's established procedures with respect to similar securities
held by Bank and its securities depositories in New York.
Section 14. ACCESS TO RECORDS.
ADD THE FOLLOWING LANGUAGE TO THE END OF SECTION 14(C):
Upon reasonable request from Customer, Bank shall furnish Customer such
reports (or portions thereof) of Bank's system of internal accounting
controls applicable to Bank's duties hereunder. Bank shall endeavor to
obtain and furnish Customer with such similar reports as it may reasonably
request with respect to each Subcustodian and securities depository holding
Assets.
3
<PAGE>
GLOBAL PROXY SERVICE RIDER
To Global Custody Agreement
Between
THE CHASE MANHATTAN BANK
AND
THE ANALYTIC OPTIONED FUND, INC.
dated September 8, 1997.
1. Global Proxy Services ("Proxy Services") shall be provided for the
countries listed in the procedures and guidelines ("Procedures") furnished
to Customer, as the same may be amended by Bank from time to time on prior
notice to Customer. The Procedures are incorporated by reference herein
and form a part of this Rider.
2. Proxy Services shall consist of those elements as set forth in the
Procedures, and shall include (a) notifications ("Notifications") by Bank
to Customer of the dates of pending shareholder meetings, resolutions to be
voted upon and the return dates as may be received by Bank or provided to
Bank by its Subcustodians or third parties, and (b) voting by Bank of
proxies based on Customer directions. Original proxy materials or copies
thereof shall not be provided. Notifications shall generally be in English
and, where necessary, shall be summarized and translated from such
non-English materials as have been made available to Bank or its
Subcustodian. In this respect Bank's only obligation is to provide
information from sources it believes to be reliable and/or to provide
materials summarized and/or translated in good faith. Bank reserves the
right to provide Notifications, or parts thereof, in the language received.
Upon reasonable advance request by Customer, backup information relative to
Notifications, such as annual reports, explanatory material concerning
resolutions, management recommendations or other material relevant to the
exercise of proxy voting rights shall be provided as available, but without
translation.
3. While Bank shall attempt to provide accurate and complete Notifications,
whether or not translated, Bank shall not be liable for any losses or other
consequences that may result from reliance by Customer upon Notifications
where Bank prepared the same in good faith.
4 Notwithstanding the fact that Bank may act in a fiduciary capacity with
respect to Customer under other agreements or otherwise under the
Agreement, in performing Proxy Services Bank shall be acting solely as the
agent of Customer, and shall not exercise any discretion with regard to
such Proxy Services.
5. Proxy voting may be precluded or restricted in a variety of circumstances,
including, without limitation, where the relevant Securities are: (i) on
loan; (ii) at registrar for registration or reregistration; (iii) the
subject of a conversion or other corporate action; (iv) not held in a name
subject to the control of Bank or its Subcustodian or are otherwise held in
a manner which precludes voting; (v) not capable of being voted on account
of local market regulations or practices or restrictions by the issuer; or
(vi) held in a margin or collateral account.
6. Customer acknowledges that in certain countries Bank may be unable to vote
individual proxies but shall only be able to vote proxies on a net basis
(E.G., a net yes or no vote given the voting instructions received from all
customers).
<PAGE>
7. Customer shall not make any use of the information provided hereunder,
except in connection with the funds or plans covered hereby, and shall in
no event sell, license, give or otherwise make the information provided
hereunder available, to any third party, and shall not directly or
indirectly compete with Bank or diminish the market for Proxy Services by
provision of such information, in whole or in part, for compensation or
otherwise, to any third party.
8. The names of Authorized Persons for Proxy Services shall be furnished to
Bank in accordance with Section 10 of the Agreement. Proxy Services fees
shall be as set forth in Section 13 of the Agreement or as separately
agreed.
2
<PAGE>
SPECIAL TERMS AND CONDITIONS RIDER
GLOBAL CUSTODY AGREEMENT
WITH The Analytic Optioned Fund, Inc.
---------------------------------
DATE September 8, 1997
---------------------------------
<PAGE>
DOMESTIC ONLY
SPECIAL TERMS AND CONDITIONS RIDER
----------------------------------
DOMESTIC CORPORATE ACTIONS AND PROXIES
With respect to domestic U.S. and Canadian Securities (the latter if held in
DTC), the following provisions shall apply rather than the provisions of
Section 8 of the Agreement and the Global Proxy Service rider:
Bank shall send to Customer or the Authorized Person for a Custody Account,
such proxies (signed in blank, if issued in the name of Bank's nominee or
the nominee of a central depository) and communications with respect to
Securities in the Custody Account as call for voting or relate to legal
proceedings within a reasonable time after sufficient copies are received
by Bank for forwarding to its customers. In addition, Bank shall follow
coupon payments, redemptions, exchanges or similar matters with respect to
Securities in the Custody Account and advise Customer or the Authorized
Person for such Account of rights issued, tender offers or any other
discretionary rights with respect to such Securities, in each case, of
which Bank has received notice from the issuer of the Securities, or as to
which notice is published in publications routinely utilized by Bank for
this purpose.
FEES
The fees referenced in Section 13 hereof cover only domestic and euro-dollar
holdings. There shall be no Schedule A hereto, as there are no foreign assets
in the Accounts.
<PAGE>
DOMESTIC AND GLOBAL
SPECIAL TERMS AND CONDITIONS RIDER
----------------------------------
DOMESTIC CORPORATE ACTIONS AND PROXIES
With respect to domestic U.S. and Canadian Securities (the latter if held in
DTC), the following provisions shall apply rather than the pertinent
provisions of Section 8 of the Agreement and the Global Proxy Service rider:
Bank shall send to Customer or the Authorized Person for a Custody Account,
such proxies (signed in blank, if issued in the name of Bank's nominee or
the nominee of a central depository) and communications with respect to
Securities in the Custody Account as call for voting or relate to legal
proceedings within a reasonable time after sufficient copies are received
by Bank for forwarding to its customers. In addition, Bank shall follow
coupon payments, redemptions, exchanges or similar matters with respect to
Securities in the Custody Account and advise Customer or the Authorized
Person for such Account of rights issued, tender offers or any other
discretionary rights with respect to such Securities, in each case, of
which Bank has received notice from the issuer of the Securities, or as to
which notice is published in publications routinely utilized by Bank for
this purpose.
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to (a) the use in this Post-Effective No. 28 to Registration
Statement No. 2-60792 on Form N-1A of our report dated February 10, 1997 on
the statement of assets and liabilities of The Analytic Optioned Equity Fund,
Inc., including the schedule of investments, as of December 31, 1996, and the
related statements of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended
incorporated by reference in Part B, the Statement of Additional Information
of such Registration Statement, (b) the reference to us under the heading
"Financial Highlights" in the Prospectus, which are a part of such
Registration Statement, and (c) the reference to us under the headings
"Independent Auditors" and "Financial Statements" in the Statement of
Additional Information of such Registration Statement.
DELOITTE & TOUCHE LLP
Los Angeles, California
October 20, 1997
<PAGE>
EXHIBIT 19
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Marie Nastasi Arlt and Robert Flaherty, or either of them, to act
severally as attorney-in-fact for and in their respective names, places and
steads, in any and all capacities, to sign any or all amendments to the
Registration Statement of THE ANALYTIC OPTIONED EQUITY FUND, INC., pursuant to
the Securities Act of 1933, and the Investment Company Act of 1940, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as fully
to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact, or any of them, may lawfully do
or cause to be done by virtue hereof.
Dated: August 20, 1997
/s/ Michael D. Butler
- -------------------------
Michael D. Butler
/s/ Michael Koehn
- -------------------------
Michael Koehn
/s/ Robertson Whittemore
- -------------------------
Robertson Whittemore
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000230025
<NAME> ANALYTIC OPTIONED EQUITY FUND, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 39,192
<INVESTMENTS-AT-VALUE> 56,019
<RECEIVABLES> 202
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 56,221
<PAYABLE-FOR-SECURITIES> 73
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,062
<TOTAL-LIABILITIES> 4,135
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 35,612
<SHARES-COMMON-STOCK> 3,261
<SHARES-COMMON-PRIOR> 3,649
<ACCUMULATED-NII-CURRENT> 23
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,365
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 15,086
<NET-ASSETS> 52,086
<DIVIDEND-INCOME> 516
<INTEREST-INCOME> 50
<OTHER-INCOME> 0
<EXPENSES-NET> (341)
<NET-INVESTMENT-INCOME> 225
<REALIZED-GAINS-CURRENT> 1,365
<APPREC-INCREASE-CURRENT> 4,093
<NET-CHANGE-FROM-OPS> 5,683
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (202)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 307
<NUMBER-OF-SHARES-REDEEMED> (707)
<SHARES-REINVESTED> 12
<NET-CHANGE-IN-ASSETS> (398)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 194
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 341
<AVERAGE-NET-ASSETS> 52,144
<PER-SHARE-NAV-BEGIN> 14.38
<PER-SHARE-NII> 0.07
<PER-SHARE-GAIN-APPREC> 1.58
<PER-SHARE-DIVIDEND> (0.06)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.97
<EXPENSE-RATIO> 1.32
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
