<PAGE>
THE DEFENSIVE EQUITY PORTFOLIO
of Analytic Optioned Equity Fund [LOGO OF 100% NO-LOAD/TM/
- ----------------------------------- MUTUAL FUND COUNCIL
APPEARS HERE]
February 2, 1998
Dear Fellow Shareholders:
We are pleased to report that for the quarter ended December 31, 1997, your
Fund's net asset value increased 2.40% per share with dividends reinvested. At
quarter end, the Fund's share price was $13.02 after paying its 78th
consecutive quarterly dividend from net investment income of $0.06 and a long-
term capital gain of $3.97.
While the Fund's return was slightly below that of the S&P 500 Index, which
returned 2.87% for the quarter, it continues to meet its performance objectives
by providing equity participation with substantially less risk. Since its
inception on July 1, 1978, the Fund's annualized compound growth rate of 11.77%
is nearly 70% of the S&P 500's annualized compound growth rate of 16.9%.
Meanwhile, the Fund's volatility, as measured by standard deviation, has been
only 61% of that of the S&P 500. The combination of 70% of the return and only
61% of the volatility is superior risk adjusted performance. The Fund's success
is evident in its Morningstar risk-adjusted performance ranking (Sharpe
ratio)--the Fund ranks in the top quartile of all (1,651) equity mutual funds
for the most recent three-year period ended December 31, 1997.
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. 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 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 Bein /s/ Harindra de Silva /s/ Charles Dobson
Dennis Bein, CFA Harindra de Silva, Ph.D., CFA Charles Dobson
Portfolio Manager President/Portfolio Manager Executive Vice
President/
Portfolio Manager
THE DEFENSIVE EQUITY PORTFOLIO
OF THE ANALYTIC OPTIONED EQUITY FUND
AVERAGE ANNUAL COMPOUND TOTAL RETURN(1),
PERIODS ENDING 12/31/97, PERCENT
<TABLE>
<S> <C>
One Year........ 19.11
Five Years...... 12.86
Ten Years....... 11.77
</TABLE>
(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.
1
<PAGE>
The Defensive Equity Portfolio of Analytic Optioned Equity Fund
Total Return
Growth of $10,000 Investment 7/1/87-12/31/97
[LINE GRAPH APPEARS HERE]
- ----------------------------
Average Annual Compound
Total Return
1 Year 5 Years 10 Years
19.1% 12.9% 11.8%
- ----------------------------
Analytic Optioned
Date Equity Fund S&P 500 CPI
------ ----------------- ------- -----
Sep-87 10,398.59 10,662.33 10,126.43
Dec-87 9,228.84 8,249.43 10,164.66
Jun-88 10,175.75 9,310.00 10,393.67
Dec-88 10,668.86 9,636.10 10,613.87
Jun-89 11,647.85 11,220.53 10,930.96
Dec-89 12,560.96 12,670.60 11,107.13
Jun-90 12,785.52 13,060.66 11,441.84
Dec-90 12,754.51 12,268.60 11,785.36
Jun-91 13,632.01 14,025.78 11,979.15
Dec-91 14,449.76 16,016.60 12,146.50
Jun-92 14,768.90 15,914.63 12,349.09
Dec-92 15,341.87 17,245.10 12,498.83
Jun-93 16,009.00 18,076.54 12,719.03
Dec-93 16,373.00 18,967.86 12,842.35
Jun-94 16,264.72 18,318.76 13,036.14
Dec-94 16,776.71 19,215.82 13,185.88
Jun-95 18,848.87 23,087.49 13,432.51
Dec-95 20,392.06 26,408.21 13,520.59
Jun-96 22,055.86 29,100.71 13,802.45
Dec-96 23,591.69 32,501.57 13,969.81
Jun-97 26,305.30 39,172.74 14,106.34
Dec-97 28,102.33 43,319.28 14,225.18
Past performance is not predictive of future performance.
2
<PAGE>
Yearly Risk Comparison
1/1/87 - 12/31/97
[BAR GRAPH APPEARS HERE]
Analytic Optioned
Equity Fund S&P 500
----------------- ---------
1987 15.94 29.00
1988 2.64 7.59
1989 5.98 11.69
1990 14.01 24.75
1991 2.68 9.37
1992 2.62 4.00
1993 3.21 5.89
1994 6.20 9.20
1995 1.28 2.90
1996 7.80 13.80
1997 3.06 6.54
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.
FEDERAL INCOME TAX INFORMATION (UNAUDITED):
For the year ended December 31, 1997, The Portfolio hereby
designates $2,018,605 and $8,785,353 as 28% long-term capital gains
dividends and 20% long-term capital gains dividends, respectively,
for the purpose of the dividend paid deduction on their Federal
income tax return.
3
<PAGE>
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND
PORTFOLIO OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
(*INDICATES PUT)
---------------------------------------
INVESTMENTS MARKET VALUE
--------------------- ------------------
NUMBER MARKET SHARES EXPIRATION EXERCISE PURCHASED WRITTEN
OF SHARES VALUE OPTIONED DATE PRICE OPTIONS OPTIONS
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
COMMON STOCKS
- -----------------------------------------------------------------------------------------------
AEROSPACE & DEFENSE--0.73% OF NET ASSETS
Boeing Co.............. 6,920 $ 338,647 6,900 Jan'98 $ 52.50 $ $ 2,156
- -----------------------------------------------------------------------------------------------
AUTO RELATED--0.88%
Goodyear Tire & Rubber
Co.................... 3,000 190,875 3,000 Jan'98 75.00 375
TRW, Inc............... 4,000 213,500 4,000 Jan'98 65.00 125
----------- --------
404,375 500
- -----------------------------------------------------------------------------------------------
AUTOS & TRUCKS--5.16%
Chrysler Corp.......... 36,759 1,293,457
Johnson Controls,
Inc................... 23,164 1,106,081 15,000 Jan'98 50.00 3,750
8,100 Feb'98 50.00 7,087
----------- --------
2,399,538 10,837
- -----------------------------------------------------------------------------------------------
BANKS / SAVINGS & LOANS--13.04%
Banc One Corp.......... 8,473 460,190
BankAmerica Corp....... 10,000 730,000 7,500 Jan'98 75.00 11,250
Barnett Banks, Inc..... 8,000 575,000
Chase Manhattan Corp... 10,293 1,127,083 3,200 Jan'98 115.00 2,800
7,000 Jan'98 120.00 875
Citicorp............... 6,100 771,269 3,000 Jan'98 130.00 8,250
3,100 Jan'98 140.00 1,356
First Chicago NBD
Corp.................. 10,921 911,904 7,500 Jan'98 85.00 9,375
Fleet Norstar Financial
Group................. 5,000 374,687 3,000 Jan'98 75.00 4,125
J.P. Morgan & Co....... 306 34,540
NationsBank Corp....... 17,911 1,089,212
----------- --------
6,073,885 38,031
- -----------------------------------------------------------------------------------------------
BROAD BASED INDEX--0.41%
S&P 500 Index.......... 10,000 Jan'98 900.00* 32,500
10,000 Feb'98 925.00* 157,500
--------
190,000
- -----------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
4
<PAGE>
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND
PORTFOLIO OF INVESTMENTS--(CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
(*INDICATES PUT)
--------------------------------------
INVESTMENTS MARKET VALUE
--------------------- ------------------
NUMBER MARKET SHARES EXPIRATION EXERCISE PURCHASED WRITTEN
OF SHARES VALUE OPTIONED DATE PRICE OPTIONS OPTIONS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
COMMON STOCKS--(CONTINUED)
- ----------------------------------------------------------------------------------------------
COMMERCIAL SERVICES--0.17%
Interpublic Group of
Companies, Inc........ 1,586 $ 79,003
- ----------------------------------------------------------------------------------------------
COMPUTER SERVICES / SOFTWARE--2.13%
Cisco Systems, Inc.**.. 15,750 878,062 8,250 Jan'98 $ 80.00 $ $ 29,906
First Data Corp. ...... 5,000 146,250 5,000 Feb'98 30.00 7,500
----------- --------
1,024,312 37,406
- ----------------------------------------------------------------------------------------------
COMPUTERS--2.05%
International Business
Machines Corp......... 9,070 948,382
- ----------------------------------------------------------------------------------------------
COSMETICS & PERSONAL CARE--0.05%
Avon Products, Inc..... 400 24,550
- ----------------------------------------------------------------------------------------------
ELECTRONICS--2.71%
General Electric Co.... 3,863 283,448 2,500 Jan'98 75.00 2,969
Hewlett-Packard Co. ... 7,543 471,437 7,500 Feb'98 70.00 11,250
Motorola, Inc.......... 9,000 513,563 4,500 Jan'98 75.00 281
4,500 Jan'98 95.00 140
----------- --------
1,268,448 14,640
- ----------------------------------------------------------------------------------------------
ELECTRIC / GAS / WATER UTILITIES--3.89%
American Electric Power
Co.................... 5,000 258,125
Duke Power Co.......... 5,000 276,875
People's Energy Corp... 21,571 849,358
Southern Co............ 16,000 414,000
-----------
1,798,358
- ----------------------------------------------------------------------------------------------
ENTERTAINMENT / ADVERTISING--1.43%
The Walt Disney Co..... 7,000 693,438 3,500 Jan'98 90.00 31,938
- ----------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
5
<PAGE>
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND
PORTFOLIO OF INVESTMENTS--(CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
(*INDICATES PUT)
--------------------------------------
INVESTMENTS MARKET VALUE
--------------------- ------------------
NUMBER MARKET SHARES EXPIRATION EXERCISE PURCHASED WRITTEN
OF SHARES VALUE OPTIONED DATE PRICE OPTIONS OPTIONS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
COMMON STOCKS--(CONTINUED)
- ----------------------------------------------------------------------------------------------
FINANCIAL SERVICES & BROKERS--
3.18%
American Express Co.... 3,300 $ 294,525
Federal National
Mortgage Association.. 7,000 399,437
Merrill Lynch & Co. ... 12,000 875,250 12,000 Jan'98 $ 65.00 $ $ 97,500
----------- --------
1,569,212 97,500
- ----------------------------------------------------------------------------------------------
FOOD--0.85%
Wrigley Wm. Jr. Co. ... 5,000 397,813 5,000 Jan'98 80.00 5,313
- ----------------------------------------------------------------------------------------------
FOOD PROCESSING & WHOLESALE--8.35%
Coca-Cola Co. ......... 22,000 1,465,750 6,000 Jan'98 65.00 15,000
10,000 Feb'98 70.00 16,875
Conagra, Inc. ......... 13,132 430,894
Fleming Companies,
Inc. ................. 30,576 410,865
Great Atlantic &
Pacific Tea Co. ...... 13,552 402,325
SuperValu, Inc. ....... 28,345 1,186,947
----------- --------
3,896,781 31,875
- ----------------------------------------------------------------------------------------------
HOME--CONSTRUCTION / TOOLS / FURNISHING--0.58%
Whirlpool Corp......... 5,000 275,000 5,000 Feb'98 60.00 5,000
- ----------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS / WARES--0.83%
Clorox Co. ............ 5,000 395,312 5,000 Jan'98 80.00 10,000
- ----------------------------------------------------------------------------------------------
INSURANCE--2.81%
American International
Group, Inc. .......... 2,400 261,000
Loews Corp............. 9,097 965,419
Torchmark Corp. ....... 1,800 75,713 1,800 Feb'98 45.00 1,575
----------- --------
1,302,132 1,575
- ----------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
6
<PAGE>
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND
PORTFOLIO OF INVESTMENTS--(CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
(*INDICATES PUT)
--------------------------------------
INVESTMENTS MARKET VALUE
--------------------- ------------------
NUMBER MARKET SHARES EXPIRATION EXERCISE PURCHASED WRITTEN
OF SHARES VALUE OPTIONED DATE PRICE OPTIONS OPTIONS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
COMMON STOCKS--(CONTINUED)
- ----------------------------------------------------------------------------------------------
MACHINERY--3.18%
Caterpillar, Inc. ..... 6,000 $ 291,375 3,000 Jan'98 $ 50.00 $ $ 1,875
NACCO Industries, Inc.,
Class A............... 11,050 1,184,422
----------- --------
1,475,797 1,875
- ----------------------------------------------------------------------------------------------
METALS & MINING--2.04%
Armco, Inc............. 172,533 851,882
Barrick Gold, Corp..... 5,000 93,125 5,000 Jan'98 25.00 156
----------- --------
945,007 156
- ----------------------------------------------------------------------------------------------
MISCELLANEOUS MANUFACTURING--5.96%
Allied Signal Corp..... 10,000 389,375
Eaton Corp............. 10,996 981,393 4,000 Jan'98 95.00 875
Tyco International
Ltd. ................. 31,380 1,414,061 10,000 Feb'98 45.00 25,000
----------- --------
2,784,829 25,875
- ----------------------------------------------------------------------------------------------
OFFICE / BUSINESS EQUIPMENT--3.18%
Harris Corp............ 24,830 1,139,076 10,000 Jan'98 45.00 18,125
10,000 Jan'98 50.00 1,875
4,800 Feb'98 47.50 7,200
Xerox Corp............. 5,000 369,063 5,000 Jan'98 75.00 8,750
----------- --------
1,508,139 35,950
- ----------------------------------------------------------------------------------------------
OIL / GAS DOMESTIC--1.82%
Atlantic Richfield
Co. .................. 10,000 801,250 10,000 Jan'98 90.00 625
Tenneco, Inc........... 1,000 39,500
----------- --------
840,750 625
- ----------------------------------------------------------------------------------------------
OIL / GAS INTERNATIONAL--9.47%
Amoco Corp............. 4,500 383,063 4,500 Jan'98 100.00 563
Ashland, Inc........... 22,475 1,206,627 12,200 Jan'98 55.00 9,913
10,000 Feb'98 55.00 18,750
</TABLE>
See accompanying Notes to Financial Statements.
7
<PAGE>
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND
PORTFOLIO OF INVESTMENTS--(CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
(* INDICATES PUT)
--------------------------------------
INVESTMENTS MARKET VALUE
--------------------- ------------------
NUMBER MARKET SHARES EXPIRATION EXERCISE PURCHASED WRITTEN
OF SHARES VALUE OPTIONED DATE PRICE OPTIONS OPTIONS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
COMMON STOCKS--(CONTINUED)
- ----------------------------------------------------------------------------------------------
OIL / GAS INTERNATIONAL--
(CONTINUED)
Exxon Corp. ........... 14,677 $ 898,049 5,000 Jan'98 $ 65.00 $ $ 1,563
4,000 Jan'98 70.00 375
Mobil Corp............. 12,000 866,250 12,000 Jan'98 75.00 7,500
Texaco, Inc............ 19,644 1,068,142 8,000 Jan'98 125.00 250
----------- --------
4,422,131 38,914
- ----------------------------------------------------------------------------------------------
PAPER & PACKAGING--0.35%
Stone Container
Corp.**............... 15,411 160,852
- ----------------------------------------------------------------------------------------------
PHARMACEUTICAL & BIOTECHNOLOGY--9.49%
Abbott Laboratories.... 10,321 676,671
American Home Products
Corp. ................ 8,034 614,601 8,000 Feb'98 80.00 14,500
Bristol Myers Squibb
Co. .................. 1,000 94,625
Eli Lilly & Co......... 20,000 1,392,499 10,000 Jan'98 70.00 22,500
Merck & Co............. 5,070 538,688 3,500 Jan'98 105.00 10,500
Warner-Lambert Co. .... 9,438 1,170,312 6,000 Jan'98 120.00 37,500
3,400 Jan'98 125.00 11,475
----------- --------
4,487,396 96,475
- ----------------------------------------------------------------------------------------------
PRINT AND PUBLISHING--0.65%
Times Mirror Co.,
Class A............... 5,000 307,500 2,500 Jan'98 60.00 5,781
- ----------------------------------------------------------------------------------------------
RAILROAD / TRUCKING / MISCELLANEOUS--0.23%
C.S.X. Corp............ 2,000 108,000
- ----------------------------------------------------------------------------------------------
RESTAURANTS & LODGING--1.90%
Darden Restaurants,
Inc................... 57,094 713,675
McDonald's Corp........ 3,500 167,125
-----------
880,800
- ----------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
8
<PAGE>
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND
PORTFOLIO OF INVESTMENTS--(CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
(* INDICATES PUT)
---------------------------------------
INVESTMENTS MARKET VALUE
--------------------- -------------------
NUMBER MARKET SHARES EXPIRATION EXERCISE PURCHASED WRITTEN
OF SHARES VALUE OPTIONED DATE PRICE OPTIONS OPTIONS
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
COMMON STOCKS--(CONTINUED)
- --------------------------------------------------------------------------------------------------------
RETAIL--GENERAL / DEPARTMENT--0.94%
Sears Roebuck & Co........... 10,000 $ 452,500 7,500 Feb'98 $ 45.00 $ $ 16,875
- --------------------------------------------------------------------------------------------------------
TELECOMMUNICATION UTILITIES--7.19%
AirTouch Communications,
Inc.**...................... 11,626 483,206 7,500 Jan'98 40.00 15,938
AT & T....................... 10,400 637,000
Ameritech Corp. ............. 5,000 402,500
Bellsouth Corp. ............. 7,400 416,712
G T E Corp................... 26,876 1,404,271
----------- ---------
3,343,689 15,938
- --------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS & EQUIPMENT--0.95%
Northern Telecom, Ltd........ 5,000 445,000 5,000 Jan'98 95.00 5,000
- --------------------------------------------------------------------------------------------------------
TRANSPORTATION--0.82%
AMR Corp.**.................. 3,000 385,500 3,000 Jan'98 130.00 8,062
- --------------------------------------------------------------------------------------------------------
TOTALS........................ $45,437,076 $190,000 $ 538,297
- --------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS--98.17%
(Cost $36,586,577)........... $45,437,076
- --------------------------------------------------------------------------------------------------------
TOTAL PURCHASED OPTIONS--0.41%
(Cost $370,600).............. 190,000
- --------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS--98.58%
(Cost $36,957,177)........... 45,627,076
- --------------------------------------------------------------------------------------------------------
TOTAL WRITTEN OPTIONS--(1.16)%
(Premiums received $570,334).. (538,297)
- --------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
9
<PAGE>
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND
PORTFOLIO OF INVESTMENTS--(CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
INVESTMENTS
-----------
MARKET
VALUE
- --------------------------------------------------------------------------------
<S> <C>
CASH EQUIVALENTS--3.09%
Vista Cash Managed Money Market Fund 5.21%
(Cost $1,431,481)................................................ $ 1,431,481
- --------------------------------------------------------------------------------
EXCESS OTHER LIABILITIES OVER ASSETS (NET)--(0.51%)................ (234,603)
- --------------------------------------------------------------------------------
NET ASSETS (100%).................................................. $46,285,657
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
** Non-income producing security
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS***
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
----------
<S> <C>
1. Coca Cola Co. .............................................. 3.1%
2. GTE Corp. .................................................. 3.0
3. Tyco International Ltd. .................................... 3.0
4. Eli Lilly & Co. ............................................ 3.0
5. Chrysler Corp. ............................................. 2.8
6. SuperValu Stores............................................ 2.6
7. NACCO Industries, Inc., Class A............................. 2.6
8. Ashland, Inc. .............................................. 2.5
9. Chase Manhattan Corp. ...................................... 2.4
10. Warner-Lambert.............................................. 2.4
</TABLE>
- --------------------------------------------------------------------------------
*** Reduced by written options and excludes cash equivalents.
See accompanying Notes to Financial Statements.
10
<PAGE>
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
- -------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at market value (identified cost $36,957,177)........ $45,627,076
Cash equivalents................................................. 1,431,481
Cash held by brokers............................................. 90,450
Cash............................................................. 3,955
Dividends receivable............................................. 78,397
Interest receivable.............................................. 204
Other assets..................................................... 3,646
- -------------------------------------------------------------------------------
Total assets.................................................... 47,235,209
- -------------------------------------------------------------------------------
LIABILITIES:
Written options outstanding at market value (premiums received
$570,334)....................................................... 538,297
Distributions payable............................................ 254,782
Payable for shares redeemed...................................... 62,785
Payable for investment advisory fees............................. 32,053
Payable for administrative fees.................................. 20,778
Payable for variation margin on futures.......................... 450
Other liabilities................................................ 40,407
- -------------------------------------------------------------------------------
Total liabilities............................................... 949,552
- -------------------------------------------------------------------------------
NET ASSETS........................................................ $46,285,657
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
REPRESENTED BY:
Paid in capital.................................................. $37,457,421
Distributions in excess of net investment income................. (5,591)
Undistributed net realized gains................................. 149,316
Net unrealized appreciation of investments....................... 8,684,511
- -------------------------------------------------------------------------------
$46,285,657
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Net asset value, purchase and redemption price per outstanding
capital share (100,000,000 shares of no par capital shares au-
thorized, 3,555,928 capital shares outstanding)................. $ 13.02
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
11
<PAGE>
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND
STATEMENT OF OPERATIONS
Year Ended December 31, 1997
<TABLE>
- ----------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest........................................................ $ 72,202
Dividend........................................................ 999,609
- ----------------------------------------------------------------------------------
Total investment income........................................ 1,071,811
- ----------------------------------------------------------------------------------
EXPENSES:
Investment advisory and management fees......................... 389,998
Administrative fees............................................. 115,544
Audit fees...................................................... 45,282
Custodian fees.................................................. 38,844
Shareholder services, reports, and notices...................... 33,457
Registration fees............................................... 24,745
Legal fees...................................................... 12,189
Directors' fees and expenses.................................... 12,080
Miscellaneous fees.............................................. 8,450
- ----------------------------------------------------------------------------------
Total expenses................................................... 680,589
- ----------------------------------------------------------------------------------
EXPENSE REDUCTIONS............................................... (1,867)
- ----------------------------------------------------------------------------------
NET EXPENSES..................................................... 678,722
- ----------------------------------------------------------------------------------
NET INVESTMENT INCOME............................................ 393,089
- ----------------------------------------------------------------------------------
NET REALIZED GAINS (LOSSES) ON:
Investments..................................................... 16,359,380
Written options................................................. (5,346,126)
Futures......................................................... (10,128)
- ----------------------------------------------------------------------------------
TOTAL NET REALIZED GAIN.......................................... 11,003,126
- ----------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION / DEPRECIATION ON:
Investments..................................................... (3,326,076)
Futures transactions............................................ (17,425)
Written option transactions..................................... 1,035,632
- ----------------------------------------------------------------------------------
TOTAL NET CHANGE IN UNREALIZED APPRECIATION / DEPRECIATION....... (2,307,869)
- ----------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN................................. 8,695,257
- ----------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM OPERATIONS....................... $ 9,088,346
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
12
<PAGE>
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income............................... $ 393,089 $ 694,100
Net realized gain on investments.................... 11,003,126 2,783,447
Change in unrealized appreciation/depreciation on
investments........................................ (2,307,869) 3,607,945
- --------------------------------------------------------------------------------
Increase in net assets from operations............. 9,088,346 7,085,492
- --------------------------------------------------------------------------------
DISTRIBUTION TO SHAREHOLDERS:
From net investment income.......................... (393,089) (700,644)
In excess of net investment income.................. (5,591) --
From net realized gains............................. (10,854,215) (2,598,524)
- --------------------------------------------------------------------------------
Decrease in net assets from distributions.......... (11,252,895) (3,299,168)
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS:
Proceeds from sales of 422,622 and 865,241 capital
shares for the years ended December 31, 1997 and
1996, respectively................................. 6,552,231 11,970,173
Proceeds from 839,596 and 192,456 capital shares
issued upon reinvestment of distributions for the
years ended December 31, 1997 and 1996,
respectively....................................... 10,959,522 2,761,283
Cost of 1,355,012 and 624,996 capital shares
redeemed for the years ended December 31, 1997 and
1996, respectively................................. (21,545,351) (8,681,585)
- --------------------------------------------------------------------------------
Increase (decrease) in net assets from fund share
transactions...................................... (4,033,598) 6,049,871
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets............... (6,198,147) 9,836,195
Net assets, beginning of year...................... 52,483,804 42,647,609
- --------------------------------------------------------------------------------
Net assets, end of year (including distributions in
excess of net investment income of $5,591 and $0,
respectively)..................................... $ 46,285,657 $52,483,804
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
13
<PAGE>
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------
1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
YEAR............................. $ 14.38 $ 13.26 $ 11.12 $ 11.96 $ 11.97
- --------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income............ 0.13 0.20 0.24 0.31 0.33
Net realized or unrealized gains
(losses) on investments and
options......................... 2.61 1.87 2.14 (0.02) 0.48
- --------------------------------------------------------------------------------
Total from investment
operations..................... 2.74 2.07 2.38 0.29 0.81
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income(1).... 0.13 0.20 0.24 0.31 0.33
From net realized gains.......... 3.97 0.75 0.00 0.82 0.49
- --------------------------------------------------------------------------------
Total distributions............. 4.10 0.95 0.24 1.13 0.82
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR...... $ 13.02 $ 14.38 $ 13.26 $ 11.12 $ 11.96
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL RETURN...................... 19.11% 15.66% 21.52% 2.47% 6.73%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
Net assets, end of period ($000).. $46,286 $52,484 $42,648 $48,254 $76,948
Ratio of expenses to average net
assets:
Before expense reimbursement..... 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............... 0.75% 1.43% 1.87% 3.45% 2.51%
Portfolio turnover rate........... 75.41% 43.17% 32.37% 48.71% 36.19%
Average commission rate (2)....... $0.0591 $0.0446 $0.0442 -- --
- --------------------------------------------------------------------------------
</TABLE>
(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.
14
<PAGE>
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
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 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 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>
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 for Federal income tax purposes at December 31, 1997
was $36,957,177. Net unrealized appreciation of $8,669,899 was comprised of
aggregate gross unrealized appreciation of $9,463,559 less aggregate gross
depreciation of $793,660.
CASH AND CASH EQUIVALENTS--Cash and cash equivalents at December 31, 1997
consist of cash on deposit and money market funds valued at cost, which
approximates market value. Cash held by brokers 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.
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 December 31, 1997, five officers and one director
of the Fund also became officers and director of the Adviser.
16
<PAGE>
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. ADMINISTRATION SERVICES
Effective May 15, 1997, 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. Also, effective May
15, 1997, the Administrator has entered into a Mutual Funds Service Agreement
with Chase Global Funds Services Company ("CGFSC"), a wholly owned subsidiary
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 period
May 15, 1997 to December 31, 1997, UAM Fund Services, Inc. earned $67,766 from
the Portfolio as Administrator of which $47,684 was paid to CGFSC for their
services.
Prior to May 15, 1997, the Adviser served as the administrator, fund
accounting and transfer agent to the Analytic Funds. For its service, the
Adviser received annual fees, computed daily and payable monthly, based on the
number of accounts and the average daily net assets of each portfolio. For the
period January 1, 1997 to May 14, 1997, the Adviser earned $47,778 as
Administrator.
4. INVESTMENT ACTIVITY
For the year ended December 31, 1997, the cost basis of purchases and proceeds
of sales of investments aggregated $39,769,425, and $61,366,744 (including
$970,666 premiums for call options exercised), respectively.
5. FUTURES AND WRITTEN OPTIONS CONTRACTS
The Fund trades financial instruments with off-balance-sheet risk in the
normal course of its investing activities in order to manage exposure to
market risks such as interest rates. These financial instruments include
written options and futures contracts. The notional or contractual amounts of
these instruments represent the investment the Fund has in particular classes
of financial instruments and does not necessarily represent the amounts
potentially subject to risk. The measurement of the risks associated with
these instruments is meaningful only when all related and offsetting
transactions are considered.
17
<PAGE>
THE DEFENSIVE EQUITY PORTFOLIO
OF ANALYTIC OPTIONED EQUITY FUND
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Transactions in option contracts written were as follows:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS PREMIUMS
--------- -----------
<S> <C> <C>
Outstanding at beginning
of year................ 7,582 $ 1,929,290
Options written......... 22,466 6,151,797
Options terminated in
closing purchase trans-
actions................ (15,026) (5,089,108)
Options expired......... (7,102) (1,450,979)
Options exercised....... (4,462) (970,666)
------- -----------
Outstanding at end of
year................... 3,458 $ 570,334
======= ===========
</TABLE>
18
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of The Defensive Equity Portfolio
of Analytic Optioned Equity Fund
We have audited the accompanying statement of assets and liabilities,
including the schedule of portfolio investments, of The Defensive Equity
Portfolio of Analytic Optioned Equity Fund as of December 31, 1997 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, 1997 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 The
Defensive Equity Portfolio of Analytic Optioned Equity Fund as of December 31,
1997, and the results of its operations, the changes in its net assets, and
the financial highlights for the respective stated periods in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 6, 1998
19
<PAGE>
ANALYTICFUNDS
THE DEFENSIVE
EQUITY PORTFOLIO
of Analytic Optioned
Equity Fund
ANNUAL REPORT
December 31, 1997
[LOGO OF 100% NO-LOAD/TM/ MUTUAL FUND COUNCIL APPEARS HERE]
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
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
1211 Avenue of the Americas
New York, NY 10036
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.
