<PAGE>
Officers and Directors
Chairman of the
Board of Directors Michael F. Koehn
Director Michael D. Butler
Director Robertson Whittemore
President Harindra de Silva
Treasurer Gregory M. McMurran
Senior Vice President Marie Nastasi Arlt
and Secretary
Investment Adviser
Analytic . TSA Global Asset Management, 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.
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208
Custodian
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, NY 11245
Counsel
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street
Los Angeles, CA 90071
Independent Accountants
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
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
This report has been prepared for shareholders and may be distributed to others
only if preceded or accompanied by a current prospectus.
ANALYTICFUNDS
The Defensive
Equity Portfolio
of Analytic Optioned
Equity Fund
Semi-Annual Report
June 30, 1998
[LOGO OF NO-LOAD(TM) MUTUAL FUND COUNCIL APPEARS HERE]
<PAGE>
THE DEFENSIVE EQUITY PORTFOLIO
of Analytic Optioned Equity Fund
- -------------------------------
[LOGO OF NO-LOAD(TM) MUTUAL
July 14, 1998 FUND COUNCIL APPEARS HERE]
Dear Fellow Shareholders:
We are pleased to report that for the quarter ending June 30, 1998, your
Fund's net asset value increased 6.51% per share with dividends reinvested. At
quarter end, the Fund's share price was $15.36 after paying its 80th
consecutive quarterly dividend from net investment income of $0.01 per share.
The Fund's strong return was well above that of the S&P 500, which returned
3.30% for the quarter, bringing the year-to-date returns to 18.13% for your
portfolio and 17.71% for the S&P 500. The out-performance this year, in spite
of the very high market returns, has been due to both superior stock selection
and continued prudent use of options to substantially protect the portfolio
during market downturns. Exemplifying these two phenomena best is the return in
May, during which the S&P 500 was down 1.72% while your portfolio was up 1.02%.
The selection of stocks which out-performed the market and the consistent
selling of call options which provided income ("premium") to further enhance
the returns clearly demonstrated the potential winning combination of this
investment strategy. The Fund's recent success is evident in the most recent
Lipper performance ratings, where your portfolio was the number 2 ranked
equity-income mutual fund for the year-to-date period ending June 30, 1998.
The Fund continues to utilize its proven strategy of remaining virtually
fully invested in a well-diversified portfolio of higher quality stocks, which
are hedged using both put and call options. We believe that the portfolio is
well-positioned to protect against market declines and to gain substantially
from market advances. With valuation measures in equity markets at all-time
peaks, we continue to use our quantitative valuation based approach to try to
identify investment opportunities that offer superior risk adjusted returns. We
believe that the defensive posture of this portfolio should deliver superior
performance in the current economic environment which is characterized by high
financial market volatility.
Should you ever have any questions regarding your Fund's investment strategy
or results, please call us at 1-800-374-2633.
WE APPRECIATE YOUR BUSINESS AND THANK YOU FOR INVESTING WITH US.
YOUR INVESTMENT MANAGEMENT TEAM:
/s/ Dennis M. Bein /s/ Harindra de Silva /s/ Greg McMurran
Dennis M. Bein, CFA Harindra de Silva, Ph.D., CFA Greg McMurran
Portfolio Manager President/Portfolio Manager Chief Investment
Officer
THE DEFENSIVE EQUITY PORTFOLIO
OF THE ANALYTIC OPTIONED EQUITY FUND
AVERAGE ANNUAL COMPOUND TOTAL RETURN(1),
PERIODS ENDING 06/30/98
One Year........ 26.20%
Five Years...... 15.69%
Ten Years....... 12.54%
(1) The investment returns quoted in this letter represent past returns and
should not be construed as a guarantee of the Fund's future performance.
Returns are 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.
Without the Adviser's company fee waiver or expenses assumed by the
Adviser, total returns for the portfolio would have been lower. The S&P 500
Index is an unmanaged index composed of 400 industrial, 40 financial, 40
utilities and 20 transportation stocks.
C/O CHASE GLOBAL FUND SERVICES COMPANY . P.O. BOX 2798 . BOSTON MA 02208 .
800/374-2633
1
<PAGE>
The Defensive Equity Portfolio of Analytic Optioned Equity Fund
Total Return
Growth of $10,000 Investment 7/1/87 - 6/30/98
[LINE GRAPH APPEARS HERE]
Analytic Optioned
Date Equity Fund S&P 500 CPI
- ---- --------------- ------- ---
10 10 10
Sep-88 10.179 10.03865 10.15254
Dec-88 10.48459 10.35027 10.21187
Mar-89 10.92798 11.07765 10.36441
Jun-89 11.44667 12.05212 10.51695
Sep-89 12.2008 13.33568 10.59321
Dec-89 12.34401 13.60966 10.68644
Mar-90 12.29654 13.19846 10.90679
Jun-90 12.56469 14.02863 11.00848
Sep-90 11.63682 12.09514 11.24576
Dec-90 12.53421 13.17787 11.33898
Mar-91 13.38596 15.09652 11.44068
Jun-91 13.39656 15.06528 11.52543
Sep-91 13.88798 15.87622 11.62712
Dec-91 14.20018 17.20364 11.68645
Mar-92 14.25795 16.76461 11.80509
Jun-92 14.51381 17.09411 11.88136
Sep-92 14.68908 17.62416 11.97458
Dec-92 15.07689 18.5232 12.02543
Mar-93 15.61849 19.31688 12.1695
Jun-93 15.73249 19.41626 12.23729
Sep-93 15.98748 19.91283 12.29661
Dec-93 16.09021 20.37363 12.35594
Mar-94 15.78078 19.59642 12.47459
Jun-94 15.9838 19.67643 12.54238
Sep-94 16.58287 20.64522 12.66103
Dec-94 16.48694 20.63997 12.68645
Mar-95 17.50998 22.64941 12.83052
Jun-95 18.52331 24.79858 12.92374
Sep-95 19.4075 26.77012 12.98306
Dec-95 20.03985 28.36542 13.00849
Mar-96 20.88618 29.90724 13.19493
Jun-96 21.67492 31.25746 13.27967
Sep-96 22.17687 32.21376 13.37289
Dec-96 23.18422 34.91051 13.44069
Mar-97 23.49055 35.82383 13.55933
Jun-97 25.85095 42.09049 13.58476
Sep-97 27.00132 45.25642 13.66103
Dec-97 27.61695 46.55749 13.6695
Mar-98 30.62996 53.0538 13.74578
Jun-98 32.62397 54.80566 13.82212
Past performance is not predictive of future performance.
2
<PAGE>
Yearly Risk Comparison
1/1/89 - 12/31/97
[LINE GRAPH APPEARS HERE]
Analytic Optioned
Date Equity Fund S&P 500
---- ---------------- --------
89 4.495855 7.388306
90 12.53154 20.5969
91 5.63219 12.30464
92 1.88552 6.482133
93 2.740962 3.085154
94 4.916817 7.155943
95 2.622195 3.478498
96 1.967802 4.48416
97 7.815898 13.90636
The S&P 500 Index is an unmanaged index composed of 400
industrial, 40 financial, 40 utilities and 20
transportation stocks.
Please note that one cannot invest directly in an
unmanaged index.
The investment returns quoted 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.
CPI--Consumer Price Index is an index of prices used to
measure the change in the cost of basic goods and
services in comparison with a fixed base period.
3
<PAGE>
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
INVESTMENTS CALL OPTIONS WRITTEN*
-------------------- -----------------------------
NUMBER MARKET SHARES EXPIRATION EXERCISE MARKET
OF SHARES VALUE OPTIONED DATE PRICE VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCKS
- -------------------------------------------------------------------------------------
AEROSPACE & DEFENSE--3.42% OF NET ASSETS
Lockheed Martin Corp... 8,901 $ 942,393
Raytheon Co., Class B.. 15,960 943,635
----------
1,886,028
- -------------------------------------------------------------------------------------
AUTO RELATED--4.52%
Dana Corp.............. 11,092 593,422
Ford Motor Co.......... 5,094 300,546
General Motors Corp.... 15,884 1,061,250
Navistar International
Corp.*................ 18,688 539,616
----------
2,494,834
- -------------------------------------------------------------------------------------
BANKS / SAVINGS &
LOANS--6.11%
Bankers Trust Corp..... 7,538 874,879
Chase Manhattan Corp... 8,645 652,698
First Chicago NBD
Corp.................. 9,432 835,911
Wells Fargo & Co....... 2,730 1,007,370
----------
3,370,858
- -------------------------------------------------------------------------------------
BENCHMARK INDEX--(0.71)%
AMEX Oil Index......... 10,000 July '98 $ 485.00 $ 23,750
Philadelphia Gold &
Silver Index.......... 10,000 Aug '98 75.00 40,000
S&P 500 Index.......... 5,000 July '98 1,095.00 223,750
S&P Chemical Index..... 5,000 July '98 550.00 3,125
S&P Insurance Index.... 2,500 July '98 650.00 50,625
S&P Transportation In-
dex................... 5,000 July '98 700.00 48,750
--------
390,000
- -------------------------------------------------------------------------------------
CHEMICALS--2.33%
Dow Chemical Co. ...... 6,458 624,408
DuPont (E.I.) De
Nemours Co............ 8,834 659,237
----------
1,283,645
- -------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
4
<PAGE>
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND
PORTFOLIO OF INVESTMENTS--(CONTINUED)
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
INVESTMENTS CALL OPTIONS WRITTEN*
-------------------- -----------------------------
NUMBER MARKET SHARES EXPIRATION EXERCISE MARKET
OF SHARES VALUE OPTIONED DATE PRICE VALUE
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCKS--(CONTIN-
UED)
- ------------------------------------------------------------------------------------
COMPUTERS--5.32%
Dell Computer Corp.*... 11,501 $1,066,718
Gateway 2000, Inc.*.... 10,262 519,514
International Business
Machines Corp......... 9,402 1,079,467
Unisys Corp.*.......... 9,457 267,160
----------
2,932,859
- ------------------------------------------------------------------------------------
ELECTRONICS--4.01%
General Electric Co. .. 19,343 1,760,213
Hewlett-Packard Co..... 7,559 452,595
----------
2,212,808
- ------------------------------------------------------------------------------------
ELECTRIC / GAS / WATER UTILITIES--3.44%
Consolidated Edison,
Inc................... 9,545 439,667
PG & E Corp............ 19,179 605,337
PECO Energy............ 29,276 854,493
----------
1,899,497
- ------------------------------------------------------------------------------------
ENTERTAINMENT / ADVERTISING--2.29%
The Walt Disney Co..... 1,849 194,260 1,800 July '98 $ 120.00 $ 675
Time Warner, Inc....... 12,498 1,067,798
---------- --------
1,262,058 675
- ------------------------------------------------------------------------------------
FINANCIAL SERVICES & BROKERS--6.21%
Associates First
Capital Corp.......... 1,638 125,921
Federal National
Mortgage Association.. 12,044 731,673
J.P. Morgan & Co.,
Inc................... 5,253 615,258
Lehman Brothers
Holdings, Inc......... 10,878 843,725
Morgan Stanley Dean
Witter & Co........... 12,147 1,109,932
----------
3,426,509
- ------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
5
<PAGE>
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND
PORTFOLIO OF INVESTMENTS--(CONTINUED)
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
INVESTMENTS CALL OPTIONS WRITTEN*
-------------------- -----------------------------
NUMBER MARKET SHARES EXPIRATION EXERCISE MARKET
OF SHARES VALUE OPTIONED DATE PRICE VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCKS--(CONTIN-
UED)
- ----------------------------------------------------------------------------------------
FOOD PROCESSING & WHOLESALE--5.18%
Bestfoods.............. 11,098 $ 644,378
Coca-Cola Co........... 2,526 215,973 2,500 July '98 $ 85.00 $ 5,000
PepsiCo, Inc........... 25,789 1,062,184
Philip Morris
Companies, Inc........ 19,606 771,986 19,600 July '98 40.00 15,925
SUPERVALU, INC......... 4,069 180,562
---------- --------
2,875,083 20,925
- ----------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS / WARES--4.59%
Colgate-Palmolive Co.
...................... 10,793 949,784
Johnson & Johnson...... 10,509 775,039
Procter & Gamble Co. .. 8,837 804,719
----------
2,529,542
- ----------------------------------------------------------------------------------------
INSURANCE--4.65%
Allstate Corp.......... 8,413 770,315
American International
Group, Inc. .......... 5,988 874,248
Hartford Financial
Services Group, Inc... 8,050 920,719
----------
2,565,282
- ----------------------------------------------------------------------------------------
MACHINERY--4.09%
Caterpillar, Inc. ..... 13,075 691,341
McDermott
International, Inc.... 23,126 796,402
NACCO Industries, Inc.,
Class A............... 5,949 768,908
----------
2,256,651
- ----------------------------------------------------------------------------------------
METALS & MINING--1.71%
Aluminum Co. of
America............... 13,087 862,924
Cyprus Amax Minerals
Co.................... 6,156 81,567
----------
944,491
- ----------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
6
<PAGE>
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND
PORTFOLIO OF INVESTMENTS--(CONTINUED)
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
INVESTMENTS CALL OPTIONS WRITTEN*
-------------------- -----------------------------
NUMBER MARKET SHARES EXPIRATION EXERCISE MARKET
OF SHARES VALUE OPTIONED DATE PRICE VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCKS--(CONTIN-
UED)
- -------------------------------------------------------------------------------------
MISCELLANEOUS MANUFACTURING--1.11%
Eastman Kodak Co........ 2,825 $ 206,402
Guidant Corp............ 5,656 403,343
----------
609,745
- -------------------------------------------------------------------------------------
OFFICE / BUSINESS EQUIPMENT--1.82%
Xerox Corp.............. 9,872 1,003,242
- -------------------------------------------------------------------------------------
OIL & GAS--9.27%
Chevron Corp............ 2,675 222,192
Exxon Corp.............. 14,704 1,048,579
Mobil Corp. ............ 13,563 1,039,265
Phillips Petroleum Co... 17,797 857,593
Praxair, Inc. .......... 11,699 547,659
Royal Dutch Petroleum
Co.--New York Shares... 7,764 425,564
Texaco, Inc............. 16,302 973,026
----------
5,113,878
- -------------------------------------------------------------------------------------
PAPER & PACKAGING--0.61%
Kimberly-Clark Corp..... 7,288 334,337
- -------------------------------------------------------------------------------------
PHARMACEUTICAL & BIOTECHNOLOGY--9.24%
Becton, Dickinson &
Co..................... 11,211 870,254
Bristol Myers Squibb
Co..................... 9,042 1,039,265
Pfizer, Inc............. 9,490 1,031,444
Schering-Plough Corp. .. 11,480 1,051,855
Warner-Lambert Co. ..... 15,869 1,100,912
----------
5,093,730
- -------------------------------------------------------------------------------------
RETAIL--GENERAL / DEPARTMENT--1.84%
Gap, Inc................ 15,411 949,703
Wal-Mart Stores, Inc. .. 1,068 64,881
----------
1,014,584
- -------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
7
<PAGE>
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND
PORTFOLIO OF INVESTMENTS--(CONTINUED)
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
INVESTMENTS CALL OPTIONS WRITTEN*
--------------------- --------------------------------------
NUMBER MARKET SHARES EXPIRATION EXERCISE MARKET
OF SHARES VALUE OPTIONED DATE PRICE VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCKS--(CONTIN-
UED)
- --------------------------------------------------------------------------------------
TELECOMMUNICATION UTILITIES--8.73%
A T & T................ 18,718 $ 1,069,266
Bell Atlantic Corp. ... 5,918 270,009
Bellsouth Corp. ....... 7,007 470,345 7,000 July '98 $ 70.00 $ 3,500
G T E Corp. ........... 18,395 1,023,222
MediaOne Group, Inc.*.. 21,589 948,566
SBC Communications,
Inc. ................. 3,020 120,800
U.S. WEST, Inc. ....... 19,484 915,748
----------- --------
4,817,956 3,500
- --------------------------------------------------------------------------------------
TELECOMMUNICATIONS & EQUIPMENT--3.78%
Lucent Technologies,
Inc. ................. 13,197 1,097,825
Northern Telecom,
Ltd. ................. 17,358 985,067
-----------
2,082,892
- --------------------------------------------------------------------------------------
TRANSPORTATION--2.28%
Burlington Northern
Santa Fe Corp. ....... 2,727 267,757
Ryder System, Inc. .... 4,048 127,765
U.S. Airways Group,
Inc.*................. 10,912 864,776
-----------
1,260,298
- --------------------------------------------------------------------------------------
TOTALS.................. $53,270,807 $415,100
- --------------------------------------------------------------------------------------
TOTAL COMMON STOCKS--
96.59% (Cost
$49,308,854)........... 53,270,807
- --------------------------------------------------------------------------------------
TOTAL WRITTEN OPTIONS--
(0.75%) (Premiums
received $364,586)..... (415,100)
- --------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
8
<PAGE>
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND
PORTFOLIO OF INVESTMENTS--(CONTINUED)
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
INVESTMENTS
-----------
MARKET
VALUE
- --------------------------------------------------------------------------------
<S> <C>
CASH EQUIVALENTS--9.58%
Vista Cash Managed Money Market Fund 5.08%
(Cost $5,281,882)................................................. $ 5,281,882
- --------------------------------------------------------------------------------
EXCESS OTHER LIABILITIES OVER ASSETS (NET)--(5.42%)................ (2,987,243)
- --------------------------------------------------------------------------------
NET ASSETS--100%................................................... $55,150,346
================================================================================
</TABLE>
* Non-income producing security
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS**
Percent of
Net Assets
----------
1. General Electric Co. ............ 3.2%
2. Morgan Stanley Dean Witter
& Co. ......................... 2.0
3. Warner-Lambert................... 2.0
4. Lucent Technologies, Inc. ....... 2.0
5. International Business Machines
Corp. ......................... 2.0
6. A T & T ......................... 1.9
7. Time Warner, Inc. ............... 1.9
8. Dell Computer Corp. ............. 1.9
9. General Motors Corp. ............ 1.9
10. PepsiCo, Inc. .................. 1.9
- --------------------------------------------------------------------------------
** Reduced by written options and excludes cash equivalents.
See accompanying Notes to Financial Statements.
9
<PAGE>
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
<TABLE>
- -------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at market value (identified cost $49,308,854)......... $53,270,807
Cash equivalents.................................................. 5,281,882
Cash.............................................................. 94,062
Receivable for investments sold................................... 17,313,934
Receivable for shares sold........................................ 799,735
Dividends receivable.............................................. 68,925
Other assets...................................................... 1,220
- -------------------------------------------------------------------------------
Total assets..................................................... 76,830,565
- -------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased................................. 21,170,161
Written options outstanding at market value (premiums received
$364,586)........................................................ 415,100
Payable for investment advisory fees.............................. 30,948
Payable for administrative fees................................... 13,738
Payable for shares redeemed....................................... 3,400
Payable for daily variation margin on futures contracts........... 2,000
Distributions payable............................................. 597
Other............................................................. 44,275
- -------------------------------------------------------------------------------
Total liabilities................................................ 21,680,219
- -------------------------------------------------------------------------------
NET ASSETS......................................................... $55,150,346
===============================================================================
REPRESENTED BY:
Paid in capital................................................... $38,260,329
Undistributed net investment income............................... 7,383
Undistributed net realized gain................................... 12,973,195
Net unrealized appreciation on investments........................ 3,909,439
- -------------------------------------------------------------------------------
$55,150,346
===============================================================================
Net asset value, purchase and redemption price per outstanding
capital share (100,000,000 shares of no par capital shares autho-
rized, 3,590,509 capital shares outstanding)..................... $ 15.36
</TABLE>
================================================================================
See accompanying Notes to Financial Statements.
10
<PAGE>
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1998 (Unaudited)
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest.......................................................... $ 16,103
Dividend.......................................................... 389,930
- --------------------------------------------------------------------------------
Total investment income.......................................... 406,033
- --------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees.......................................... 179,767
Administrative fees............................................... 53,169
Audit fees........................................................ 26,930
Custodian fees.................................................... 20,112
Shareholder reports fees.......................................... 15,266
Registration fees................................................. 12,409
Legal fees........................................................ 5,857
Directors' fees and expenses...................................... 5,012
Miscellaneous fees................................................ 3,826
- --------------------------------------------------------------------------------
Net expenses...................................................... 322,348
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME.............................................. 83,685
- --------------------------------------------------------------------------------
NET REALIZED GAINS (LOSSES) ON:
Investments....................................................... 13,892,238
Written options................................................... (1,030,333)
Futures........................................................... (38,026)
- --------------------------------------------------------------------------------
TOTAL NET REALIZED GAIN............................................ 12,823,879
- --------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION / DEPRECIATION:
Investments....................................................... (4,707,946)
Written options................................................... (82,551)
Futures........................................................... 15,425
- --------------------------------------------------------------------------------
NET CHANGE IN UNREALIZED APPRECIATION / DEPRECIATION............... (4,775,072)
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN................................... 8,048,807
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM OPERATIONS......................... $ 8,132,492
================================================================================
</TABLE>
See accompanying Notes to Financial Statements.
11
<PAGE>
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income....................... $ 83,685 $ 393,089
Net realized gain on investments............ 12,823,879 11,003,126
Change in unrealized
appreciation/depreciation on investments... (4,775,072) (2,307,869)
- --------------------------------------------------------------------------------
Increase in net assets from operations..... 8,132,492 9,088,346
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income.................. (70,711) (393,089)
In excess of net investment income.......... -- (5,591)
From net realized gains..................... -- (10,854,215)
- --------------------------------------------------------------------------------
Decrease in net assets from distributions.. (70,711) (11,252,895)
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS:
Proceeds from sales of 492,947 and 422,622
capital shares for six months ended June
30, 1998 and year ended December 31, 1997,
respectively............................... 7,333,685 6,552,231
Proceeds from 5,250 and 839,596 capital
shares issued upon reinvestment of
distributions for the six months ended June
30, 1998 and year ended December 31, 1997,
respectively............................... 69,549 10,959,522
Cost of 463,616 and 1,355,012 capital shares
redeemed for the six months ended June 30,
1998 and year ended December 31, 1997,
respectively............................... (6,600,326) (21,545,351)
- --------------------------------------------------------------------------------
Increase (decrease) in net assets from fund
share transactions........................ 802,908 (4,033,598)
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets....... 8,864,689 (6,198,147)
Net assets, beginning of period............ 46,285,657 52,483,804
- --------------------------------------------------------------------------------
Net assets, end of period (including
undistributed (distributions in excess of)
net investment income of $7,383 and
$(5,591) respectively).................... $55,150,346 $ 46,285,657
================================================================================
</TABLE>
See accompanying Notes to Financial Statements.
12
<PAGE>
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31
1998 -------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $ 13.02 $ 14.38 $ 13.26 $ 11.12 $ 11.96 $ 11.97
- ---------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income.. 0.02 0.13 0.20 0.24 0.31 0.33
Net realized and
unrealized gains
(losses) on
investments and
options............... 2.34 2.61 1.87 2.14 (0.02) 0.48
- ---------------------------------------------------------------------------------
Total from investment
operations........... 2.36 2.74 2.07 2.38 0.29 0.81
- ---------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment
income(1)............. 0.02 0.13 0.20 0.24 0.31 0.33
From net realized
gains................. 0.00 3.97 0.75 0.00 0.82 0.49
- ---------------------------------------------------------------------------------
Total distributions... 0.02 4.10 0.95 0.24 1.13 0.82
- ---------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD................. $ 15.36 $ 13.02 $ 14.38 $ 13.26 $ 11.12 $ 11.96
=================================================================================
TOTAL RETURN............ 18.13% 19.11% 15.66% 21.52% 2.47% 6.73%
=================================================================================
RATIOS / SUPPLEMENTAL
DATA
Net assets, end of
period ($000).......... $55,150 $46,286 $52,484 $42,648 $48,254 $76,948
Ratio of expenses to
average net assets:
Before expense
reimbursement......... 1.34%* 1.30% 1.34% 1.38% 1.10% 1.07%
After expense
reimbursement......... -- -- 1.23% 1.22% -- --
Ratio of net investment
income to average net
assets................. 0.35%* 0.75% 1.43% 1.87% 3.45% 2.51%
Portfolio turnover
rate................... 214.60% 75.41% 43.17% 32.37% 48.71% 36.19%
Average commission
rate(2)................ $0.0435 $0.0591 $0.0446 $0.0442 -- --
- ---------------------------------------------------------------------------------
</TABLE>
* Annualized
(1) For the year ended December 31, 1997, the distributions in excess of net
investment income amounted to $0.002.
(2) For fiscal years beginning on or after September 1, 1995, a portfolio is
required to disclose the average commission rate per share it paid for
portfolio trades on which commissions were charged. 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.
See accompanying Notes to Financial Statements.
13
<PAGE>
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
(Unaudited)
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 the
valuation or, in the absence of a sale that day, at the mean between the last
current bid and asked prices. Short-term investments that have remaining
maturities of sixty days or less at time of purchase are valued at amortized
cost, if it approximates market value. The value of other assets and
securities for which no quotations are readily available is determined in good
faith at fair value using methods determined by the Board of Directors.
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 or
losses from securities transactions are reported on an identified cost basis
for financial statement purposes.
EXPENSE REDUCTIONS--The Portfolio has directed certain portfolio trades to
brokers who paid a portion of the Portfolio's expenses. This amount, if any is
shown as an expense reduction on the statement of operations.
WRITTEN OPTION ACCOUNTING PRINCIPLES--Covered call options and secured put
options are written on the Fund's portfolio in order (i) to achieve, through
the receipt of premiums, a higher long-term 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 the closing purchase transaction exceeds the premium received
14
<PAGE>
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
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 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 June
30, 1998 was approximately $54,226,150. Net unrealized appreciation of
$3,911,439 was comprised of aggregate gross unrealized appreciation of
$4,375,112 less aggregate gross depreciation of $463,673.
CASH AND CASH EQUIVALENTS--Cash and cash equivalents at June 30, 1998 consist
of cash on deposit and money market funds valued at cost, which approximates
market value. Cash held by brokers, if any consists of cash held in margin
accounts to cover futures activity.
ESTIMATES--The preparation of the accompanying financial statements in
conformity with generally accepted accounting principles requires management
to make estimates 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. INVESTMENT ADVISORY AGREEMENT AND "AFFILIATED PERSONS"
Analytic.TSA Global Asset Management, 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 its portfolio,
including the writing of options and makes recommendations to the Fund's board
of directors as to investment policies.
15
<PAGE>
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 net assets in
excess of $200,000,000. At June 30, 1998, five officers and one director of
the Fund are also officers and director of the Adviser.
3. ADMINISTRATION SERVICES
UAM Fund Services, Inc. (the "Administrator"), a wholly-owned subsidiary of
United Asset Management Corporation, provides and oversees administrative,
fund accounting, dividend disbursing and transfer agent services to the Fund
under a Fund Administration Agreement (the "Administration Agreement").
Pursuant to the Administration Agreement, the Administrator is entitled to
receive annual fees, computed daily and payable monthly, of 0.19% of the first
$200 million of the combined aggregate net assets; plus 0.11% of the next $800
million of the combined aggregate net assets; plus 0.07% of the next $2
billion of the combined aggregate net assets; plus 0.05% of the combined
aggregate net assets in excess of $3 billion. The fees are allocated among the
portfolios of other funds administered by UAM Fund Services, Inc. and the
Analytic Series Fund and The Analytic Optioned Equity Fund on the basis of
their relative net assets and are subject to a graduated minimum fee schedule
per portfolio which rises from $2,000 per month, upon inception of a
portfolio, to $70,000 annually after two years. In addition, the Administrator
receives a Portfolio-specific monthly fee of 0.04% of the average daily net
assets of the Fund. The Administrator has entered into a Mutual Funds Service
Agreement with Chase Global Funds Services Company ("CGFSC"), a corporate
affiliate of the Chase Manhattan Bank, under which CGFSC agrees to provide
certain services, including but not limited to, administration, fund
accounting, dividend disbursing, and transfer agent services. Pursuant to the
Mutual Funds Services Agreement, the Administrator pays CGFSC a monthly fee.
For the six months ended June 30, 1998, UAM Fund Services, Inc. earned $53,169
from the Portfolio as Administrator of which $38,963 was paid to CGFSC for
their services.
4. INVESTMENT ACTIVITY
For the six months ended June 30, 1998, the cost basis of purchases and
proceeds of sales of investments aggregated $104,414,853, and $106,292,812
(including $10,752 premiums for call options exercised), respectively.
Transactions in option contracts written were as follows:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS PREMIUMS
--------- -----------
<S> <C> <C>
Outstanding at beginning
of year................ 3,458 $ 570,334
Options written......... 10,038 2,983,706
Options terminated in
closing purchase trans-
actions................ (8,367) (2,330,884)
Options expired......... (4,379) (847,818)
Options exercised....... (66) (10,752)
------ -----------
Outstanding at June 30,
1998................... 684 $ 364,586
====== ===========
</TABLE>
16
<PAGE>
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. FUTURES CONTRACTS
At June 30, 1998, the Portfolio had the following future contracts open:
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE EXPIRATION UNREALIZED
CONTRACTS FACE VALUE DATE DEPRECIATION
--------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
PURCHASES:
S&P 500 Index................... 1 $285,750 Sept '98 $(2,000)
</TABLE>
6. SUBSEQUENT EVENT
The Board of Directors has approved (a) an Agreement and Plan of
Reorganization between the Fund and PBHG Advisor Funds, Inc. providing for the
tax-free reorganization of the Analytic Fund into a newly created series of
PBHG Advisor Funds, Inc., subject to the approval of the reorganization by the
shareholders of the Analytic Fund, and (b) the termination of the Analytic
Fund. A special meeting of the shareholders of the Analytic Fund is currently
expected to be held on August 20, 1998, to consider the reorganization.
Further details will be provided in a proxy statement, which has been sent to
all shareholders entitled to vote at that meeting.
Effective July 20, 1998, the Adviser will become a subsidiary of Pilgrim
Baxter & Associates, Ltd. ("Pilgrim Baxter") a wholly-owned subsidiary of
United Asset Management Corporation.
17
