<PAGE>
<TABLE>
<S> <C>
OFFICERS AND DIRECTORS
CHAIRMAN OF THE
BOARD OF DIRECTORS.... Michael F. Koehn
DIRECTOR.............. Michael D. Butler
DIRECTOR.............. Robertson Whittemore
PRESIDENT............. Alan L. Lewis
EXECUTIVE VICE
PRESIDENT AND
SECRETARY............. Charles L. Dobson
TREASURER............. Harindra de Silva
SENIOR VICE
PRESIDENT............. Deborah D. Boedicker
SENIOR VICE
PRESIDENT............. Marie Nastasi Arlt
VICE PRESIDENT........ Deborah C. Sheflin
</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
Analytic-TSA Global Asset Managment, Inc.
700 South Flower Street, Suite 2400
Los Angeles, CA 90017
CUSTODIAN
The Union Bank of California, N.A.
Mutual Fund Services
475 Sansome Street, 11th Floor
San Francisco, CA 94111
COUNSEL
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street
Los Angeles, CA 90071
INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP
1000 Wilshire Blvd.
Los Angeles, CA 90017
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND
700 South Flower Street, Suite 2400
Los Angeles, CA 90017
Phone: (800) 374-2633
FAX: (213) 688-8856
[LOGO]
THE DEFENSIVE
EQUITY PORTFOLIO
OF
ANALYTIC OPTIONED EQUITY FUND, INC.
ANNUAL REPORT
DECEMBER 31, 1996
MEMBER OF
100% NO-LOAD-TM-
MUTUAL FUND COUNCIL
<PAGE>
MEMBER OF
THE DEFENSIVE EQUITY PORTFOLIO 100% NO-LOAD-TM-
OF ANALYTIC OPTIONED EQUITY FUND, INC. MUTUAL FUND COUNCIL
- ----------------------
January 31, 1997
Dear Fellow Shareholders:
For the quarter ended December 31, 1996, your Fund's net asset value
increased 4.5% per share, while the S&P 500 increased 8.4%, both with dividends
reinvested. At quarter end, the Fund's share price was $14.38 and its dividend
was $0.06 per share, which was the 74th consecutive quarterly dividend paid by
the Fund. The Fund also declared and paid on December 31, 1996 a long-term
capital gain distribution of $0.74 per share.
The Fund's net total return (dividends plus appreciation) was 632.2%, after
all expenses including management fees, over the 18 1/2 years since inception on
July 1, 1978. Over the most recent 10 years, the net total return was 166.6%.
This 10 year return is equivalent to an annualized compound growth rate of
10.3%, well ahead of the 3.6% average annual rate of inflation (consumer price
index) over this period. Although the S&P 500 was also well ahead of inflation
(15.3%), the Fund's return was achieved with 43% less risk (volatility) as
measured by standard deviation.
The Fund's allocation at quarter end was 94% in large capitalization stocks,
and 6% in mid-capitalization stocks. Large capitalization is defined as
companies with over $5 billion total market value and mid-capitalization as
companies between $200 million and $5 billion total market value. The Fund
currently has less than 1% of its portfolio in small capitalization (under $200
million) issues.
For investors considering equity exposure with a lower level of risk than
the broad market, the Defensive Equity Portfolio of the Analytic Optioned Equity
Fund is an excellent alternative.
The Fund remains committed to its proven strategy of remaining virtually
fully invested in a well diversified portfolio of hedged, higher quality stocks.
The portfolio is well positioned to protect against market declines and to gain
substantially from market advances.
Should you have any questions regarding your Fund's investment strategy or
results, please do not hesitate to call us at 1-800-374-2633.
WE APPRECIATE YOUR BUSINESS AND THANK YOU FOR INVESTING WITH US.
[SIGNATURE] [SIGNATURE]
Alan L. Lewis Charles L. Dobson
President Executive Vice President & Portfolio
Manager
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND
AVERAGE ANNUAL COMPOUND TOTAL RETURN
(GROWTH RATE)(1), PERIODS ENDED 12/31/96, PERCENT
<TABLE>
<S> <C>
One Year 15.7%
Five Years 10.3%
Ten Years 10.3%
</TABLE>
(1) The investment returns quoted in this letter represent past returns, net of
all fees and expenses. The investment return and principal value of an
investment will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost.
700 South Flower Street, Suite 2400, Los Angeles, California 90017 - Tel: (800)
374-2633 - Fax: (213) 688-8856
<PAGE>
INVESTMENT RESULTS
For calendar year 1996 your Fund appreciated 15.7% while the S&P 500
appreciated 22.9%. Your Fund's return is net of all fees and expenses. Normally
when the S&P 500 exceeds 20% we expect to capture at best two-thirds of that
appreciation. Calendar year 1996 was somewhat better as we captured 68% of the
appreciation. This somewhat higher return can be attributed in part to our
weighting (94% of the portfolio) in the large capitalization issues during the
year. Another factor was the relative stability of monthly returns. Only
September and November showed S&P 500 gains over 5%. In fact these two months
accounted for over 57% of the market return in 1996.
Relatively stable markets allow us to capture some stock appreciation and a
large part of the premium or money we received from selling options on stock we
have in the portfolio. When the stock market appreciates rapidly the gain on
stocks is limited by the options we sold. The Fund may also have to repurchase
the options we sold at a loss.
Although selling options limits our gain in rapidly rising markets such as
1995 and 1996, they do reduce losses in declining markets. For example when the
S&P 500 declined in July and December of 1996 by 4.4% and 1.98% respectively,
your Fund declined 2.6% and .7%.
Despite the rise in the market over the past ten years, your Fund remains
committed to its conservative investment philosophy. From inception your Fund's
returns have been relatively predictable, given the market returns. This makes
the Fund an integral part of ones overall asset allocation.
SHAREHOLDER SERVICES (800) 374-2633
COMPLETE INVESTMENT RECORD FROM INCEPTION 7/1/78 TO 12/31/96
(PERCENTAGE)
<TABLE>
<CAPTION>
THE DEFENSIVE
EQUITY PORTFOLIO
OF ANALYTIC OPTIONED
EQUITY FUND S&P 500 INDEX CPI (INFLATION)
--------------------- --------------- ---------------
<S> <C> <C> <C>
Cumulative Total Return............ 632.23 1,485.7 141.5
Average Annual Compound Total
Return........................... 11.4 16.1 4.9
Standard Deviation (Risk Level).... 9.0 14.5 1.1
Beta............................... 0.6 1.0 N/A
</TABLE>
2
<PAGE>
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND
TOTAL RETURN
Growth of $10,000 Investment 1/1/87 - 12/31/96
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AOEF S&P 500 CPI
<S> <C> <C> <C>
12/86 10 10 10
3/87 10.9197 12.1327 10.145
6/87 11.2989 12.7561 10.2718
9/87 11.7492 13.601 10.4017
12/87 10.4276 10.5231 10.441
3/88 10.9407 11.1412 10.5405
6/88 11.4975 11.8759 10.6762
9/88 11.7033 11.9218 10.839
12/88 12.0546 12.2919 10.9024
3/89 12.5644 13.1558 11.0652
6/89 13.1608 14.313 11.2281
9/89 14.0278 15.8374 11.3095
12/89 14.1925 16.1628 11.409
3/90 14.1379 15.6744 11.6443
6/90 14.4462 16.6603 11.7529
9/90 13.3794 14.3641 12.0062
12/90 14.4112 15.65 12.1057
3/91 15.3904 17.9285 12.2143
6/91 15.4026 17.8914 12.3048
9/91 15.9676 18.8545 12.4133
12/91 16.3266 20.431 12.4767
3/92 16.393 19.9096 12.6033
6/92 16.6872 20.3009 12.6848
9/92 16.8887 20.9304 12.7843
12/92 17.3346 21.9981 12.8386
3/93 17.9573 22.9406 12.9924
6/93 18.0884 23.0586 13.0648
9/93 18.3815 23.6484 13.1281
12/93 18.4996 24.1956 13.1914
3/94 18.1439 23.2726 13.3181
6/94 18.3773 23.3676 13.3905
9/94 19.0661 24.5182 13.5171
12/94 18.9558 24.5119 13.5443
3/95 20.132 26.8983 13.6981
6/95 21.2971 29.4507 13.7976
9/95 22.3137 31.7921 13.861
12/95 23.0407 33.6866 13.8881
3/96 24.0138 35.5177 14.0872
6/96 24.9206 37.1212 14.1776
9/96 25.4978 38.2569 14.2591
12/96 26.656 41.4594 14.6898
Average Annual Compound Total Return
1 Year 5 Years 10 Years
15.7% 10.3% 10.3%
Past performance is not predictive of future
performance.
</TABLE>
YEARLY RISK COMPARISON
1/1/87 - 12/31/96
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AOEF S&P 500
<S> <C> <C>
87 17.5791 36.6951
88 3.17386 5.6692
89 4.49586 7.38831
90 12.5315 20.5969
91 5.63219 12.3046
92 1.88552 6.48213
93 2.74096 3.08515
94 4.91682 7.15594
95 2.62219 3.4785
96 1.9678 4.48378
</TABLE>
3
<PAGE>
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND DECEMBER 31, 1996
PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Outstanding Options
(*Indicates Put)
------------------------------------------------------
Investments Market Value
----------------------- --------------------
Number of Market Shares Expiration Exercise Options Options
COMMON STOCKS Shares Value Optioned Date Price Bought Sold
--------- ----------- --------- ---------- -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
AEROSPACE & DEFENSE--2.18% OF NET ASSETS
Boeing Co. 5,000 $ 531,875 5,000 Feb '97 $ 95 $ $ 65,625
McDonnell Douglas Corp. 4,000 256,000 4,000 Feb '97 55 39,000
Northrop Grumman Corp. 3,000 248,250 3,000 Feb '97 75 26,437
Raytheon Co. 5,000 240,625 5,000 Feb '97 55 2,812
----------- ----------
1,276,750 133,874
----------- ----------
AUTO RELATED--0.63%
Goodyear Tire & Rubber Co. 3,000 154,125 3,000 Apr '97 50 11,062
T R W, Inc. 4,000 198,000 4,000 Jan '97 47.50 9,500
----------- ----------
352,125 20,562
----------- ----------
AUTOS & TRUCKS--2.35%
Chrysler Corp. 17,000 561,000 10,000 Jan '97 32.50 13,750
7,000 Jan '97 37.50 219
Ford Motor Co. 6,000 191,250
General Motors Corp. 9,100 507,325 4,100 Mar '97 55 11,787
----------- ----------
1,259,575 25,756
----------- ----------
BANKS/SAVINGS & LOANS--6.67%
Banc One Corp. 5,500 236,500 5,500 Feb '97 37.50* 1,203
Bank of New York, Inc. 10,200 344,250 5,100 Apr '97 30 29,325
5,100 Apr '97 35 8,925
Bankamerica Corp. 5,500 548,625 5,500 Apr '97 90 72,187
Bankers Trust New York Corp. 300 25,875 300 Jan '97 80 1,725
Barnett Banks, Inc. 16,000 658,000 8,000 Jan '97 40 16,500
8,000 Apr '97 40 32,000
Citicorp 6,100 628,300 3,000 Jan '97 110 1,875
3,100 Apr '97 100 28,287
Fleet Norstar Financial Group 5,000 249,375 5,000 Apr '97 55 5,937
J.P. Morgan & Co. 4,000 390,500 4,000 Mar '97 95 25,000
Nationsbank Corp. 3,000 293,250 2,300 Feb '97 110 1,150
Republic New York Corp. 5,000 408,125 5,000 Mar '97 70 62,500
----------- ------- ----------
3,782,800 1,203 285,411
----------- ------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
<TABLE>
<CAPTION>
Outstanding Options
(*Indicates Put)
------------------------------------------------------
Investments Market Value
----------------------- --------------------
Number of Market Shares Expiration Exercise Options Options
COMMON STOCKS (CONTINUED) Shares Value Optioned Date Price Bought Sold
--------- ----------- --------- ---------- -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BREWERY/SPIRITS & TABACCO--0.82%
Anheuser-Busch Companies, Inc. 7,000 $ 280,000 7,000 Mar '97 $ 40 $ $ 14,437
Seagram Co., Ltd. 5,000 193,750 5,000 Feb '97 35 28,750
----------- ----------
473,750 43,187
----------- ----------
BROADCAST RADIO & TELEVISION--0.61%
Tele Communications** 10,000 130,625 10,000 Jan '97 12.50 15,625
Viacom, Inc., Class A** 5,800 200,100 5,800 Feb '97 40 2,175
Viacom, Inc., Class B** 226 7,882
----------- ----------
338,607 17,800
----------- ----------
BUILDING/PACKAGE MATERIALS--0.38%
Armstrong World Industries, Inc. 3,000 208,500 3,000 Mar '97 70 9,937
----------- ----------
208,500 9,937
----------- ----------
CHEMICALS--2.94%
Avery Dennison Corp. 4,000 141,500 4,000 Apr '97 32.50 16,500
Dow Chemical Co. 3,000 235,125 3,000 Mar '97 85 3,375
Du Pont (E. I.) De Nemours Co. 6,000 566,250 6,000 Apr '97 100 14,625
Grace (W R) & Co. 800 41,400
Hercules, Inc. 5,000 216,250 5,000 Mar '97 45 10,312
Monsanto Co. 5,000 194,375 5,000 Apr '97 45 4,062
Morton International 5,000 203,750 5,000 Mar '97 45 5,625
----------- ----------
1,598,650 54,499
----------- ----------
CLOSED-END FUNDS/HOLDING COMPANIES--0.05%
A.C. Nielsen, Corp.** 1,666 25,198
-----------
25,198
-----------
COMPUTER SERVICES/SOFTWARE--4.41%
Cisco Systems, Inc.** 11,500 731,687 6,000 Jan '97 60 28,500
5,500 Apr '97 70 22,000
First Data Corp. 10,000 365,000 10,000 Feb '97 40 8,750
Microsoft Corp.** 12,000 991,500 6,000 Jan '97 85 11,250
6,000 Apr '97 72.50 85,500
Oracle Systems** 9,600 400,800 5,000 Mar '97 50 5,000
4,600 Jun '97 50 11,500
----------- ----------
2,488,987 172,500
----------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND DECEMBER 31, 1996
PORTFOLIO OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Outstanding Options
(*Indicates Put)
------------------------------------------------------
Investments Market Value
----------------------- --------------------
Number of Market Shares Expiration Exercise Options Options
COMMON STOCKS (CONTINUED) Shares Value Optioned Date Price Bought Sold
--------- ----------- --------- ---------- -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
COMPUTERS--2.81%
Compaq Computer Corp.** 7,500 $ 556,875 4,000 Jan '97 $ 90 $ $ 500
3,500 Apr '97 65 46,812
International Business Machines Corp. 5,900 890,900 3,000 Jan '97 160 3,937
2,900 Apr '97 140 52,925
Silicon Graphics, Inc.** 5,000 127,500 5,000 Feb '97 22.50* 2,812
----------- ------- ----------
1,575,275 2,812 104,174
----------- ------- ----------
COSMETICS & PERSONAL CARE--0.83%
Avon Products, Inc. 3,000 171,376 3,000 Jan '97 50 24,000
Gillette Co. 4,000 311,000 4,000 Mar '97 75 20,000
----------- ----------
482,376 44,000
----------- ----------
ELECTRIC/GAS/WATER UTILITIES--3.51%
American Electric Power Co. 5,000 205,625 5,000 Feb '97 45 625
Consolidated Edison of New York 3,300 96,525
Dominion Resources, Inc. 10,000 385,000
Duke Power Co. 5,000 231,250
F P L Group, Inc. 5,000 230,000
Pacific Gas & Electric Co. 8,000 168,000
Public Service Enterprise Group, Inc. 6,000 163,500
Southern Co. 16,000 362,000
----------- ----------
1,841,900 625
----------- ----------
ELECTRICAL EQUIPMENT--1.19%
Emerson Electric Co. 3,500 338,625 3,500 Mar '97 90 30,625
Honeywell, Inc. 5,000 328,750 5,000 May '97 70 12,500
----------- ----------
667,375 43,125
----------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
<TABLE>
<CAPTION>
Outstanding Options
(*Indicates Put)
------------------------------------------------------
Investments Market Value
----------------------- --------------------
Number of Market Shares Expiration Exercise Options Options
COMMON STOCKS (CONTINUED) Shares Value Optioned Date Price Bought Sold
--------- ----------- --------- ---------- -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ELECTRONICS--7.60%
General Electric Co. 16,200 $ 1,601,776 4,700 Jan '97 $ 95 $ $ 25,850
6,000 Mar '97 90 72,000
5,500 Jun '97 105 27,500
Hewlett-Packard Co. 13,000 653,250 5,000 Feb '97 45 33,750
8,000 May '97 55 24,000
Intel Corp. 10,000 1,309,376 5,000 Jan '97 130 33,750
5,000 Apr '97 130 68,750
Motorola, Inc. 9,000 552,376 4,500 Jan '97 80 281
4,500 Apr '97 55 38,813
Texas Instruments, Inc. 4,000 255,000 4,000 Jan '97 50 56,000
----------- ----------
4,371,778 380,694
----------- ----------
ENTERTAINMENT/ADVERTISING--1.14%
Mirage Resorts, Inc.** 7,000 151,375 7,000 Feb '97 25 2,625
TCI Satellite Entertainment Class A** 1,000 9,875
The Walt Disney Co. 7,000 487,375 3,500 Jan '97 60 33,687
3,500 Apr '97 70 14,437
----------- ----------
648,625 50,749
----------- ----------
ENVIRONMENTAL CONTROL--0.36%
WMX Technologies, Inc. 6,000 195,750 6,000 Feb '97 32.50 7,125
----------- ----------
195,750 7,125
----------- ----------
FINANCIAL SERVICES & BROKERS--2.54%
American Express Co. 3,300 186,450 3,300 Jan '97 50 22,275
Dean Witter Discover and, Co. 5,000 331,250 5,000 Apr '97 60 40,626
Federal National Mortgage Association 7,000 260,750 7,000 Jun '97 42.50 9,625
Merrill Lynch & Co. 6,000 489,000 6,000 Apr '97 70 80,250
Transamerica Corp. 3,000 237,000 3,000 Feb '97 75 16,125
----------- ----------
1,504,450 168,901
----------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND DECEMBER 31, 1996
PORTFOLIO OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Outstanding Options
(*Indicates Put)
------------------------------------------------------
Investments Market Value
----------------------- --------------------
Number of Market Shares Expiration Exercise Options Options
COMMON STOCKS (CONTINUED) Shares Value Optioned Date Price Bought Sold
--------- ----------- --------- ---------- -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
FOOD PROCESSING & WHOLESALE--7.68%
Campbell Soup Co. 5,000 $ 401,250 5,000 Feb '97 $ 85 $ $ 7,187
Coca-Cola Co. 27,000 1,420,875 10,000 Jan '97 55 3,125
7,000 Feb '97 55 7,000
10,000 May '97 55 22,500
Conagra, Inc. 5,000 248,750 5,000 Mar '97 50 11,250
Earthgrains, Co. 140 7,315
Heinz (H.J.) Co. 1,500 53,625 1,500 Mar '97 30* 94
Kellogg Co. 5,000 328,125
Pepsico, Inc. 16,000 468,000 6,000 Jan '97 30 3,000
10,000 Apr '97 35 5,000
Philip Morris Companies, Inc. 9,000 1,013,626 6,500 Mar '97 95 123,500
2,500 Mar '97 120 9,375
Wrigley Wm. Jr. Co. 5,000 281,250 5,000 Mar '97 65 1,250
----------- ------- ----------
4,222,816 94 193,187
----------- ------- ----------
FOREST PRODUCTS & PAPER--1.69%
Georgia-Pacific Corp. 3,000 216,000 3,000 Jan '97 80 94
International Paper Co. 5,000 201,875 5,000 Apr '97 45 3,125
Kimberly Clark Corp. 5,000 476,250 5,000 Jan '97 100 2,656
----------- ----------
894,125 5,875
----------- ----------
HOME--CONSTRUCTION/TOOLS/FURNISHING--0.44%
Whirlpool Corp. 5,000 233,126 5,000 Mar '97 55 937
----------- ----------
233,126 937
----------- ----------
HOUSEHOLD PRODUCTS/WARES--1.79%
Clorox Co. 2,500 250,938 2,500 Jan '97 90 26,250
Procter & Gamble Co. 7,500 806,250 2,500 Jan '97 90 42,813
5,000 Apr '97 100 50,625
----------- ----------
1,057,188 119,688
----------- ----------
INSURANCE--3.13%
Allstate, Corp. 9,270 536,501 5,000 Jan '97 55 16,250
4,200 Apr '97 55 21,000
American International Group, Inc. 3,000 324,750 3,000 Feb '97 105 19,500
Cigna Corp. 3,500 478,187 3,500 Apr '97 130 39,156
Loews Corp. 4,000 377,000 4,000 Jun '97 95 25,000
Torchmark Corp. 900 45,450
----------- ----------
1,761,888 120,906
----------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
<TABLE>
<CAPTION>
Outstanding Options
(*Indicates Put)
------------------------------------------------------
Investments Market Value
----------------------- --------------------
Number of Market Shares Expiration Exercise Options Options
COMMON STOCKS (CONTINUED) Shares Value Optioned Date Price Bought Sold
--------- ----------- --------- ---------- -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
IRON & STEEL--0.38%
Corning, Inc. 5,000 $ 231,250 5,000 Feb '97 $ 40 $ $ 34,062
----------- ----------
231,250 34,062
----------- ----------
MACHINE CONSTRUCTION/DIVERSIFIED--0.84%
Caterpillar, Inc. 3,200 240,800
Deere & Co. 5,000 203,125 5,000 Mar '97 45 3,750
----------- ----------
443,925 3,750
----------- ----------
MEDICAL SUPPLIES & SERVICES--1.69%
Becton Dickinson & Co. 6,000 260,250 6,000 Mar '97 45 9,751
C.R. Bard, Inc. 5,000 140,000 4,000 Jan '97 35 250
Columbia HCA/Healthcare Corp. 7,500 305,625 7,500 Feb '97 40 16,875
Fresenius Medical Care** 877 24,666
Fresenius National Medical Care -
Preference shares** 800 104
United States Surgical Corp. 5,000 196,875 5,000 Apr '97 45 12,187
----------- ----------
927,520 39,063
----------- ----------
METALS & MINING--0.98%
Aluminum Co. of America 6,000 382,500 6,000 Jan '97 65 4,500
Barrick Gold, Corp. 5,000 143,750 5,000 Apr '97 30 7,812
----------- ----------
526,250 12,312
----------- ----------
MISCELLANEOUS SECURITIES--0.31%
Cognizant, Corp.** 5,000 165,000
-----------
165,000
-----------
MISCELLANEOUS MANUFACTURING--2.03%
Allied Signal Corp. 5,000 335,000 5,000 Mar '97 70 10,000
Eastman Kodak Co. 3,500 280,875 3,500 Jan '97 80 10,500
Imation, Corp.** 500 14,062
Minnesota Mining & Manufacturing Co. 5,000 414,375 5,000 Jan '97 70 70,000
Parker Hannifin Corp. 3,000 116,250 3,000 Feb '97 40 3,750
----------- ----------
1,160,562 94,250
----------- ----------
OFFICE/BUSINESS EQUIPMENT--0.49%
Xerox Corp. 5,000 263,125 5,000 Jan '97 53.375 5,313
----------- ----------
263,125 5,313
----------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND DECEMBER 31, 1996
PORTFOLIO OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Outstanding Options
(*Indicates Put)
------------------------------------------------------
Investments Market Value
----------------------- --------------------
Number of Market Shares Expiration Exercise Options Options
COMMON STOCKS (CONTINUED) Shares Value Optioned Date Price Bought Sold
--------- ----------- --------- ---------- -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
OIL/GAS DOMESTIC--2.43%
Atlantic Richfield Co. 5,000 $ 662,500 5,000 Jan '97 $ 140 $ $ 313
Enron Corp. 5,000 215,625 5,000 Apr '97 45 8,125
Pennzoil Co. 2,000 113,000 1,000 Jan '97 50 6,750
Tenneco, Inc. 6,300 284,287 6,300 Feb '97 55 5,709
----------- ----------
1,275,412 20,897
----------- ----------
OIL/GAS INTERNATIONAL--6.35%
Amoco Corp. 4,500 362,250 4,500 Feb '97 80 12,375
Chevron Corp. 5,000 325,000
Exxon Corp. 12,500 1,225,000 6,500 Jan '97 90 63,375
6,000 Apr '97 90 60,000
Mobil Corp. 6,000 733,500 6,000 May '97 125 24,750
Royal Dutch Petroleum Co. 3,000 512,250 3,000 Jan '97 155 48,375
Texaco, Inc. 4,000 392,500 4,000 Apr '97 105 9,000
----------- ----------
3,550,500 217,875
----------- ----------
OIL EQUIPMENT/EXPLORATION & SERVICES--0.53%
Halliburton Co. 5,000 301,250 5,000 Apr '97 65 12,500
Schlumberger, Ltd. 3,000 Feb '97 100* 11,063
----------- ----------
301,250 23,563
----------- ----------
PHARMACEUTICALS & BIOTECHNOLOGY--8.97%
Allergan, Inc. 5,100 181,687 5,100 Jan '97 45 956
American Home Products Corp. 6,000 351,750 6,000 Apr '97 70 2,438
Amgen, Inc.** 5,000 271,875 5,000 Apr '97 70 1,875
Bristol Myers Squibb Co. 5,000 543,750 5,000 Mar '97 115 15,625
Eli Lilly & Co. 10,000 730,000 5,000 Jan '97 80 1,250
5,000 Apr '97 70 32,500
Johnson & Johnson 15,000 746,250 5,000 Jan '97 50 5,938
5,000 Jan '97 52.50 1,563
5,000 Apr '97 55 5,625
Merck & Co. 15,000 1,188,750 7,500 Jan '97 85 3,750
7,500 Apr '97 80 36,563
Molecular Biosystems, Inc.** 16 104
Mylan Laboratories 1,000 Jan '97 20 62
Pfizer, Inc. 6,000 497,250 6,000 Mar '97 90 13,500
Warner-Lambert Co. 5,000 375,000 5,000 Apr '97 65 56,875
----------- ------- ----------
4,886,416 62 178,458
----------- ------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
<TABLE>
<CAPTION>
Outstanding Options
(*Indicates Put)
------------------------------------------------------
Investments Market Value
----------------------- --------------------
Number of Market Shares Expiration Exercise Options Options
COMMON STOCKS (CONTINUED) Shares Value Optioned Date Price Bought Sold
--------- ----------- --------- ---------- -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
PUBLISHING--0.58%
Donnelley R R & Sons 6,000 $ 188,250
Dun & Bradstreet 5,000 118,750 5,000 Feb '97 $ 65 $ $ 2,188
----------- ----------
307,000 2,188
----------- ----------
RAILROAD/TRUCKING/MISCELLANEOUS--0.88%
C. S. X. Corp. 2,000 84,500
Consolidated Rail Corp. 300 29,887 300 Jan '97 70 8,888
Newport News Shipbuilding** 1,260 18,900
Norfolk Southern 4,000 350,000 4,000 Mar '97 90 12,000
----------- ----------
483,287 20,888
----------- ----------
RESTAURANTS & LODGING--0.80%
Hilton Hotels Corp. 10,000 261,250 10,000 Jan '97 15* 312
McDonald's Corp. 3,500 158,375
----------- -------
419,625 312
----------- -------
RETAIL--GENERAL/DEPARTMENT--2.70%
Dayton-Hudson Corp. 9,000 353,250 4,500 Jan '97 35 19,969
4,500 Jan '97 33.375 27,000
Gap, Inc. 7,000 210,875 7,000 Jan '97 35 1,750
J.C. Penny Co. 5,500 268,125 5,500 Feb '97 55 344
Nordstrom, Inc. 5,000 177,187 5,000 Jan '97 45 625
Sears Roebuck & Co. 10,000 461,250 5,000 Jan '97 55 1,250
5,000 Apr '97 55 3,125
----------- ----------
1,470,687 54,063
----------- ----------
RETAIL--GROCERY/DRUG STORES--0.65%
Safeway, Inc.** 5,000 213,750 5,000 Mar '97 37.50 30,313
Winn-Dixie Stores, Inc. 5,000 158,125 5,000 Jan '97 35 313
----------- ----------
371,875 30,626
----------- ----------
SPECIALTY RETAIL/WHOLESALE--1.36%
Home Depot, Inc. 5,000 250,625 5,000 Jan '97 55 938
Alco Standard Corp. 2,500 129,062
NIKE, Inc. 6,000 358,500 6,000 Apr '97 62.50 21,750
----------- ----------
738,187 22,688
----------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND DECEMBER 31, 1996
PORTFOLIO OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Outstanding Options
(*Indicates Put)
------------------------------------------------------
Investments Market Value
----------------------- --------------------
Number of Market Shares Expiration Exercise Options Options
COMMON STOCKS (CONTINUED) Shares Value Optioned Date Price Bought Sold
--------- ----------- --------- ---------- -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
TELECOMMUNICATION UTILITIES--8.03%
American Telephone & Telegraph 19,500 $ 848,250 5,000 Jan '97 $ 60 $ $ 1,875
Ameritech Corp. 10,000 606,250 5,000 Apr '97 55 33,750
Bell Atlantic Corp. 5,000 323,750 5,000 Apr '97 65 16,875
Bellsouth Corp. 18,400 742,900 5,000 Jan '97 45 313
G T E Corp. 12,500 568,750 5,000 Jan '97 42.50 18,750
7,500 Jun '97 50 10,313
Hong Kong Telecom, Ltd. 2,000 32,500
M C I Communications 10,000 326,875 10,000 Jan '97 30 30,000
Nynex Corp. 8,500 409,062
SBC Communications, Inc. 9,000 465,750
U S West, Inc. 3,000 Jan '97 32.50 1,687
----------- ------- ----------
4,324,087 1,687 111,876
----------- ------- ----------
TELECOMMUNICATIONS & EQUIPMENT--1.48%
Lucent Technologies, Inc. 4,715 218,069
Northern Telecom, LTD. 10,000 618,750 5,000 Mar '97 55 41,250
5,000 Mar '97 65 16,250
----------- ----------
836,819 57,500
----------- ------- ----------
TOTALS $53,944,391 $6,170 $2,932,884
----------- ------- ----------
----------- ------- ----------
TOTAL COMMONS STOCKS
(Cost $41,917,190) 53,944,391
TOTAL OPTIONS PURCHASED
(Cost $37,396) 6,170
-----------
TOTAL INVESTMENTS--102.80%
(Cost $41,954,586) 53,950,561
TOTAL OPTIONS SOLD (5.59%)
(Premiums $1,929,290) (2,932,884)
CASH EQUIVALENTS--2.29%
SEI Cash Plus Trust-Prime Obligation, 5.61% 1,204,459
EXCESS OTHER ASSETS OVER LIABILITIES
(NET)--0.50% 261,668
-----------
NET ASSETS--100.00% $52,483,804
-----------
-----------
</TABLE>
**NON-INCOME PRODUCING SECURITY
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
12
<PAGE>
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS:
Securities portfolio at market value (identified cost $41,954,586)................................. $53,950,561
Cash equivalents (includes cash reserved for short puts options of $300,000)....................... 1,204,459
Receivable for investments sold.................................................................... 174,853
Dividends receivable............................................................................... 92,232
Interest receivable................................................................................ 9,458
-----------
Total assets..................................................................................... 55,431,563
-----------
LESS LIABILITIES:
Options outstanding at market value (premiums received $1,929,290)................................. 2,932,884
Accrued expenses................................................................................... 14,875
-----------
Total liabilities................................................................................ 2,947,759
-----------
NET ASSETS........................................................................................... $52,483,804
-----------
-----------
REPRESENTED BY:
Paid-in capital.................................................................................... $41,491,019
Undistributed net realized gains................................................................... 405
Net unrealized appreciation of investments......................................................... 10,992,380
-----------
$52,483,804
-----------
-----------
Net asset value, purchase and redemption price per outstanding share (100,000,000 shares of no par
capital shares authorized; 3,648,722 shares outstanding)......................................... $ 14.38
-----------
-----------
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
-------------------- --------------------
<S> <C> <C>
OPERATIONS:
Net investment income............................................... $ 694,100 $ 862,933
Net realized gain (loss) on investments and options................. 2,783,447 (185,575)
Change in unrealized appreciation of investments and options........ 3,607,945 8,394,839
-------------------- --------------------
Increase in net assets from operations............................ 7,085,492 9,072,197
-------------------- --------------------
DISTRIBUTION TO SHAREHOLDERS:
From net investment income.......................................... (700,644) (847,716)
From net realized gains............................................. (2,598,524) 0
-------------------- --------------------
Decrease in net assets from distributions......................... (3,299,168) (847,716)
-------------------- --------------------
FUND SHARE TRANSACTIONS:
Proceeds from sales of 865,241 and 424,638 capital shares for 1996
and 1995, respectively............................................ 11,970,173 5,108,441
Proceeds from 192,456 and 64,633 capital shares issued upon
reinvestment of distributions for 1996 and 1995, respectively..... 2,761,283 805,478
Cost of 624,996 and 1,614,600 capital shares redeemed for 1996 and
1995, respectively................................................ (8,681,585) (19,744,905)
-------------------- --------------------
Increase (decrease) in net assets from fund share transactions...... 6,049,871 (13,830,986)
-------------------- --------------------
Net increase (decrease) in net assets............................... 9,836,195 (5,606,505)
Net assets, beginning of year..................................... 42,647,609 48,254,114
-------------------- --------------------
Net assets, end of year........................................... $ 52,483,804 $ 42,647,609
-------------------- --------------------
-------------------- --------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
13
<PAGE>
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND
STATEMENT OF OPERATIONS
FOR YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................... $ 1,060,436
Interest............................................ 229,685
-----------
Total investment income........................... 1,290,121
-----------
EXPENSES:
Fees paid to Analytic-TSA Global Asset Management (the
adviser):
Investment advisory and management fees............. 363,576
Transfer agent and accounting fees.................. 129,424
Audit and tax fees.................................... 51,525
Registration fees, insurance and other expenses....... 25,678
Shareholder services, reports and notices............. 31,653
Custodian fees........................................ 27,757
Directors' fees and expenses.......................... 13,080
Legal fees............................................ 6,531
-----------
Total expenses.................................... 649,224
Expenses paid indirectly............................ (53,203)
-----------
Net expenses........................................ 596,021
-----------
Net investment income............................... 694,100
-----------
REALIZED & UNREALIZED GAINS (LOSSES) ON INVESTMENTS
AND OPTIONS:
Net realized gains (losses):
Proceeds from sales of investments.................. $21,033,832
Cost of investments sold............................ 17,088,003
-----------
Net realized gain on investments.................. 3,945,829
-----------
Premiums received on options closed................. 1,619,315
Cost of closing purchase transactions............... 4,328,086
-----------
Net realized loss on options closed................. (2,708,771)
Premiums received on options expired................ 1,546,389
-----------
Net realized loss on options...................... (1,162,382)
-----------
Total net realized gain........................... 2,783,447
Unrealized gains:
Change in unrealized appreciation of investments.... 3,802,123
Change in unrealized depreciation of options
outstanding....................................... (194,178)
-----------
Net change in unrealized appreciation............. 3,607,945
-----------
Net realized and unrealized gains on investments
and options..................................... 6,391,392
-----------
Net increase in net assets from operations...... $ 7,085,492
-----------
-----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
14
<PAGE>
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Defensive Equity Portfolio of Analytic Optioned Equity Fund, Inc. (the Fund)
is registered under the Investment Company Act of 1940, as amended, as a
diversified, no-load, open-end management investment company.
The Fund's investment objective is to obtain a greater long-term total return
and smaller fluctuations in quarterly return from a diversified, hedged common
stock portfolio than would be realized from the same portfolio unhedged. The
Fund attempts to achieve this objective by investing primarily in dividend
paying common stocks on which options are traded on national securities
exchanges, in securities convertible into common stocks, and selling covered
call options and secured put 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.
The following is a summary of the Fund's significant accounting policies.
SECURITIES VALUATION--Common stocks and outstanding options (collectively
referred to as securities) are stated at market value. Securities traded on
securities exchanges are valued at the last sale price on the day of valuation
or, in the absence of a sale that day, at the mean between the last current bid
and asked prices.
INVESTMENT INCOME AND SECURITIES TRANSACTIONS--Dividend income is recorded on
the ex-dividend date and interest income is accrued as earned. Interest income
on bonds is not reduced by amortization of premium paid but is increased by
amortization of any discount. Securities transactions are accounted for on the
trade date (the date the order to buy or sell is executed). Realized gains on
losses from securities transactions are reported on an identified cost basis for
both financial statement and Federal income tax purposes.
OPTION ACCOUNTING PRINCIPLES--Covered call options and secured put options are
written on the Fund's portfolio in order (i) to acheive, through the receipt of
premiums, a higher long-term total return than would be received from the same
portfolio unhedged and (ii) to reduce the fluctuation in this total return. When
the Fund writes a call or put option, an amount equal to the premium received by
the Fund is included in the Fund's Statement of Assets and Liabilities as an
asset and an equivalent liability. The amount of the liability will be
subsequently marked-to-market to reflect the current market value of the option
written. The current market value of a traded option is the last sale price or,
in the absence of a sale, the mean between the last current bid and asked
prices.
When a call expires on its stipulated expiration date, or if the Fund enters
into a closing purchase transaction, the Fund will realize a gain (or loss if
the cost of a closing purchase transaction exceeds the premium received when the
call option was written) without regard to any unrealized gain or loss on the
underlying security, and the liability related to such option will be
extinguished. When a call option is exercised, the Fund will realize a gain or
loss from the sale of the underlying security and the proceeds of the sale are
increased by the premium originally received.
15
<PAGE>
When the Fund writes a put option, cash equal to the exercise price is placed in
an interest bearing escrow account to secure the outstanding put option. When a
put option expires, or if the Fund enters into a closing purchase transaction,
the Fund will realize a gain or loss on the option transaction, the cash is
released from escrow and the liability related to such option is extinguished.
When a put option is exercised, the Fund uses the cash in escrow to purchase the
security, the cost of the security is reduced by the premium originally received
and no gain or loss is recognized.
FUND SHARE VALUATION--Fund shares are sold and redeemed on a continuing basis at
net asset value. Net asset value per share is determined daily as of the close
of trading of the New York Stock Exchange on each day the Exchange is open for
trading by dividing the total value of the Fund's investments and other assets,
less the sum of liabilities and the value of the outstanding options, by the
number of Fund shares outstanding.
FEDERAL INCOME TAXES--It is the Fund's intention to continue to comply with the
provisions of the Internal Revenue Code enabling it to qualify as a regulated
investment company and, in the manner provided therein, to distribute all of its
taxable income to its shareholders. Accordingly, no provision for income taxes
has been made
The cost of investments and options for Federal income tax purposes at December
31, 1996 was $41,954,586. Net unrealized appreciation of $10,992,380 was
comprised of aggregate gross unrealized appreciation of $13,270,772 less
aggregate gross depreciation of $2,278,392. During the year ended December 31,
1996, the Fund realized, on a federal tax basis and for financial reporting
purposes, net gains of $2,783,447.
CASH AND CASH EQUIVALENTS--Cash and cash equivalents at December 31, 1996
consist of cash on deposit and money market funds valued at cost, which
approximates market value.
USE OF ESTIMATES--The financial statements have been prepared in conformity with
generally accepted accounting principles. The preparation of the accompanying
financial statements requires management to make estimate and assumptions that
effect the reported amount of assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses during the
reporting period. Actual results could differ from these estimates.
2. DISTRIBUTIONS OF REALIZED GAINS
The Fund distributed net capital gains of $2,598,524 at December 31, 1996.
3. INVESTMENT ADVISORY AGREEMENT AND "AFFILIATED PERSONS"
Analytic-TSA Global Asset Management, Inc. (formerly Analytic Investment
Mangement, Inc.) is the investment adviser (the "Adviser") of the Fund. The
Adviser is a wholly owned subsidiary of United Asset Management Corporation, a
holding company that purchased all of the voting common stock of the Adviser on
May 9, 1985. The Adviser, subject to the control and direction of the Fund's
board of directors, manages and supervises the investment operations of the Fund
and the composition of it portfolio, including the writing of options and making
recommendations to the Fund's board of directors as to investment policies.
As compensation for furnishing investment advisory, management, and other
services, and costs and expenses assumed, pursuant to the Investment Management
Agreement, the Fund pays the Adviser an annual fee equal to 0.75% of the first
$100,000,000 of average daily net assets, 0.65% of the next $100,000,000 of
average daily net assets, and 0.55% of average daily net assets in excess of
$200,000,000. The Adviser also acts as the Fund's transfer agent, dividend
disbursing agent, and shareholder relations servicing agent for which the Fund
pays a fee based on the number of accounts and net assets. The Fund also pays
the Adviser a
16
<PAGE>
fee based on its net assets to calculate its daily share price and maintain its
general accounting records. In order to comply with the registration
requirements of certain states, the Adviser has agreed that, in any fiscal year,
if the expenses of the Fund (including the advisory fee but excluding interest,
taxes, brokerage commissions, backup withholding, litigation, indemnity and
extraordinary expenses) exceed the limits set by applicable regulations of state
securities commission, the Adviser will reduce its fee by the amount of such
excess. Any such reductions are subject to readjustment during the year.
Currently, the Fund believes that the most restrictive applicable expense
limitation of state securities commissions is 2.50% of the Funds $30,000,000 of
the average net assets, 2.0% of the next $70,000,000 of such average net assets,
and 1.50% of the average net assets in excess of $100,000,00. Additionally, the
Adviser has agreed to absorb all costs of marketing the shares of the Fund,
although the Adviser is not required to do so by the investment advisory
agreement. At December 31, 1996, six officers and a director of the Fund are
also officers and directors of the Adviser.
4. INVESTMENT ACTIVITY
For the year ended December 31, 1996, the cost basis of purchases and proceeds
of sales of investments aggregated $26,068,520 (reduced by $20,622 of premiums
for put options exercised), and $21,033,832 (including $656,641 of premiums for
call options exercised), respectively. Transactions in options contracts written
were as follows:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS PREMIUMS
----------- -------------
<S> <C> <C>
Outstanding at beginning of year.................. 5,972 $ 1,554,350
Options written................................... 17,341 4,217,907
Options terminated in closing purchase
transactions.................................... (6,219) (1,619,315)
Options expired................................... (6,677) (1,546,389)
Options exercised................................. (2,835) (677,263)
----------- -------------
Outstanding at December 31, 1996.................. 7,582 $ 1,929,290
----------- -------------
----------- -------------
</TABLE>
As of December 31, 1996, portfolio securities valued at $46,587,912 were held in
escrow by the custodian in connection with covered call options written by the
Fund.
5. EXPENSES PAID INDIRECTLY
The Fund has entered into an agreement whereby certain operating expenses of the
Fund are paid indirectly by a broker, based upon a percentage of commissions
earned by the broker for execution of portfolio transactions. For the year ended
December 31, 1996, such expenses amounted to $53,203. Gross commission rates for
this broker are consistent with those of other brokers utilized by the Fund.
17
<PAGE>
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.............. $ 13.26 $ 11.12 $ 11.96 $ 11.97 $ 12.29
--------- --------- --------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income........................... 0.20 0.24 0.31 0.33 0.27
Net realized or unrealized gains (losses) on
investments and options....................... 1.87 2.14 (0.02) 0.48 0.48
--------- --------- --------- ------- -------
Total from investment operations.............. 2.07 2.38 0.29 0.81 0.75
--------- --------- --------- ------- -------
LESS DISTRIBUTIONS:
From net investment income...................... 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............................. 0.95 0.24 1.13 0.82 1.07
--------- --------- --------- ------- -------
Net asset value, end of period.................... $ 14.38 $ 13.26 $ 11.12 $ 11.96 $ 11.97
--------- --------- --------- ------- -------
--------- --------- --------- ------- -------
TOTAL RETURN...................................... 15.66% 21.52% 2.47% 6.73% 6.17%
--------- --------- --------- ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($000).................. $ 52,484 $ 42,648 $ 48,254 $76,948 $91,561
Ratio of expenses to average net assets........... 1.34%(1) 1.38%(1) 1.10% 1.07% 1.02%
Ratio of net investment income to average net
assets........................................... 1.43% 1.87% 3.45% 2.51% 2.33%
Portfolio turnover rate........................... 43.17% 32.37% 48.71% 36.19% 81.73%
Average commission rate(2)........................ 0.0446 0.0442
</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 commission
paid divided by the total shares purchased and sold. Each option contract is
100 shares.
18
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF THE ANALYTIC OPTIONED EQUITY FUND,
INC.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of portfolio investments, of Analytic Optioned Equity Fund, Inc. as
of December 31, 1996 and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned and
outstanding options at December 31, 1996 by correspondence with the custodian
and brokers. Where confirmations were not received, we performed alternative
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Analytic Optioned Equity Fund, Inc. as of December 31, 1996, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
[SIG]
LOS ANGELES, CALIFORNIA
FEBRUARY 10, 1997
19
