EQUITY ANALYSTS INC. REGISTERED INVESTMENT ADVISORS ANALYSTS INVESTMENT TRUST ANNUAL REPORT July 31, 1996 ANALYSTS STOCK FUND ANALYSTS FIXED INCOME FUND MESSAGE FROM THE FUND PRESIDENT/PORTFOLIO MANAGER ANALYSTS STOCK FUND This report covers the period 8/1/95 through 7/31/96. The total return of the Stock Fund from August 1, 1995 to July 31, 1996 was 6.84%. This compares to a 6.10% rate of return for the Dow Jones World Index (DJWI). Since inception of the Analysts Stock Fund (August 25, 1993), the average annual total return of the Analysts Stock Fund is 10.78% versus 6.97% for the DJWI. The annual total return of the Analysts Stock Fund and the DJWI were very close for the year ending 7/31/96. The total allocation to foreign stocks in the Analysts Stock Fund is very similar to the total allocation in the DJWI. The Analysts Stock Fund has carried a lower allocation of Japanese stocks than the DJWI which has been the primary reason the Analysts Stock Fund has outperformed the Dow Jones World Index since inception of the Fund. The Analysts Stock Fund has also allocated more to certain sectors such as telecommunications, which has also helped the Analysts Stock Fund outperform the DJWI. The strategy of the Analysts Stock Fund is to diversify between Large Capitalization, Small Capitalization, International, Real Estate Investment Trusts and Precious Metal Stocks. Our goal is that over time these broad areas will move somewhat independent of each other giving a lower overall volatility while not sacrificing the rate of return. Interest rates and the growth of the world economy will be major factors in the performance of the stock markets. U.S. interest rates declined significantly in 1995 which helped the stock and bond markets recover from 1994 and appreciate significantly in 1995. The first half of 1996 saw interest rates rise and then level off at the end of April. This caused the stock market to remain flat from March through July 1996. Inflation remains low and economic growth sluggish which should help keep interest rates the same or slightly lower for the rest of 1996. These factors should help the U.S. stock market appreciate for the remainder of 1996. As the world economies become dependent on each other for trade and comparative advantages, strong world economic growth should result. The international stock markets should continue to develop and grow as countries look for ways to raise capital and invite foreign investment. ANALYSTS FIXED INCOME FUND The total return of the Fixed Income Fund for the period 8/1/95 through 7/31/96 was 5.84%. This compares to a 5.19% rate of return for the Lehman Intermediate T-Bond Index over the same time period. Since inception of the Analysts Fixed Income Fund (August 25, 1993), the average annual total return of the Analysts Fixed Income Fund is 2.44% versus 4.39% for the Lehman Intermediate T- Bond Index. The Analysts Fixed Income Fund is diversified between Government Bonds, Corporate Bonds, Mortgage Backed Securities, Preferred Stocks, Global Bond Funds and Real Estate Investment Trusts. Our strategy is to remain broadly diversified to reduce our exposure in any one area and reduce our volatility. During 1995 interest rates declined significantly. With long term interest rates declining, fixed income investments performed well in 1995. Interest rates in 1996 rose through the end of April. This caused fixed income investments to decline through April. From January 1996 through July 1996 the total return of fixed income investments have been just slightly positive. Although unemployment is at historical lows, inflation continues to be low and economic growth sluggish so far in 1996. The current low inflation is good news for the fixed income markets, but the low unemployment is cause for concern. The low unemployment could lead to higher inflation and could cause interest rates to rise sometime in 1997. A major factor though is the federal government's effort to balance the budget and American corporations efforts to remain competitive. The federal government will be under pressure to reduce spending and raise taxes to balance the budget. Corporations will be uner pressure to reduce payrolls and streamline to remain competitive. These factors should balance the high employment situation. Thank you for your support of the Analysts Group of Funds and your continued interest in our investment strategies. Please feel free to call me any time if you have questions about the funds or investments in general. Lee Manzler President and Portfolio Manager Analysts Stock and Fixed Income Funds INDEPENDENT AUDITORS REPORT To the Shareholders and Board of Trustees Analysts Investment Trust We have audited the accompanying statement of assets and liabilities of the Analysts Investment Trust (comprising, respectively, the Stock Fund and the Fixed Income Fund), including the schedules of investments in securities as of July 31, 1996, the related statements of operations for the year then ended, the statement of changes in net assets, and financial highlights for each of the two years in the period then ended. These financial statements and financial highlights are the responsibility of the Trusts' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for the period from inception (August 25, 1993) through July 31, 1994, were audited by other auditors whose report dated August 29, 1994, expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits 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 as of July 31, 1996, by correspondence with the custodian and brokers. 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 each of the respective portfolios constituting the Analysts Investment Trust as of July 31, 1996, the results of their operations for the year then ended, the changes in their net assets, and the financial highlights for each of the two years in the period then ended, in conformity with generally accepted accounting principles. Berge & Company LTD Cincinnati, Ohio September 12, 1996 ANALYSTS INVESTMENT TRUST ANALYSTS STOCK FUND SCHEDULE OF INVESTMENTS IN SECURITIES July 31, 1996 Common stock: 82.7% Large Capitalization U.S. Stocks: 23.3% Shares Market Value 2,000 Advanced Micro Devices* $ 24,250 556 Allstate Corporation 24,881 200 Ameritech Corporation 11,100 1,100 Banc One Corporation 38,088 200 Bell Atlantic Corporation 11,825 326 Bell South Corporation 13,366 400 Briggs & Stratton Corporation 15,050 2,500 Centerior Energy 18,437 460 Chevron Corporation 26,623 814 Chrysler Corporation 23,097 284 Cincinnati Financial Corporation 15,833 850 Cinergy Corporation 25,181 1,000 CIPSCO Inc. 35,750 500 Compaq Computer Corporation* 27,375 550 Du Pont EI De Nemours 44,413 450 Eastman Kodak Company 33,581 1,000 Entergy 25,500 300 Exxon Corporation 24,675 498 Ford Motor Corporation 16,185 550 General Electric Corporation 45,306 400 Intel Corporation 30,050 600 J.P. Morgan 51,600 1,000 National Fuel Gas 33,750 200 Nynex Corporation 8,975 900 PNC Bank 26,212 1500 Potomac Electric Power 36,187 950 RJR Nabisco Holdings 29,213 600 Sears, Roebuck & Company 24,600 700 Star Banc Corporation 52,500 305 Texaco, Inc. 25,925 1440 Woolworth Corporation* 27,720 Total (Cost: $674,884) $ 847,248 ANALYSTS INVESTMENT TRUST ANALYSTS STOCK FUND SCHEDULE OF INVESTMENTS IN SECURITIES July 31, 1996 Small/Medium Capitalization U.S. Stocks: 14.7% Shares Market Value 1,200 Airborne Freight Corporation $25,650 700 Ameron, Inc. 24,500 1,250 Aquarion Company 31,563 1,000 Arvin Industries 21,625 700 Circle Financial Corporation 23,975 1,500 Connecticut Energy 29,250 950 Essex County Gas 22,800 3,000 Fansteel, Inc. 18,375 3,000 Gibson Greetings, Inc.* 36,000 2,000 Handleman Company 9,250 1,900 Marsh Supermarkets Inc. Class B 19,712 1,250 Nash Finch Company 20,156 1,300 Provident Life & Accident Class B 47,450 1,000 S&P 400 Deposit Receipts 43,688 1,400 Sea Containers Ltd Class A 24,500 275 Silicon Graphics, Inc. 6,462 1,250 Sport Supply Group, Inc. 7,188 750 Standard Federal Bank 29,250 1,500 Standard Motor Products 22,500 1,000 Waban, Inc.* 19,000 1,500 Wynns International 36,187 1,200 Yellow Corporation* 15,300 Total (Cost: $510,400) $534,381 Foreign Stocks: 32.6% 600 Akzo NV ADR $33,675 1,800 Alcatel Alsthom 29,250 2,000 Anangel-American Shipholding ADR 19,500 1,454 BAT Industries PLC ADR 23,264 3,500 Bet PLC ADR 48,562 400 Brazil Fund, Inc. 8,650 900 British Gas ADR 27,338 1,000 British Steel ADR 27,750 ANALYSTS INVESTMENT TRUST ANALYSTS STOCK FUND SCHEDULE OF INVESTMENTS IN SECURITIES July 31, 1996 Foreign Stocks (continued): Shares Market Value 3,000 BT Shipping LTD. ADR* $12,562 900 Buenos Aires Embotella ADR 6,300 750 Cadbury Schwepps PLC ADR 24,281 13,000 Cifra S A De C V ADR 17,592 1,300 Compania Cervecerias Unida ADR 31,037 1,250 CRH PLC ADR 58,906 1,400 Emerging Germany Fund 9,975 1,200 Ericsson L M Tel. Company ADR 24,375 850 Europe Fund, Inc. 11,475 1,150 First Australia Fund, Inc. 9,919 2,000 Hanson PLC ADR 25,500 1,700 Hong Kong Telecommunications ADR 28,050 200 Ito Yakado LTD ADR 45,900 866 Japan Equity Fund, Inc. 9,418 700 KLM Royal Dutch Airlines ADR 22,050 1,050 Koninklijke Ahold N V ADR 53,287 2,600 Makita Corporation 39,650 300 Matsushita Electric 51,300 800 NEC Corp. ADR 42,000 200 Philippine Long Distance Tel. ADR 11,725 400 Polygram N V ADR 22,450 300 Royal Dutch 45,263 1,900 SKF AB ADR 40,613 800 Sony Corp. ADR 51,200 900 TDK Corp. ADR 51,638 1,200 Tele Danmark 28,050 400 Telecom Corp. New Zealand ADR 29,450 600 Telefonos De Mexico ADR 18,375 1,000 Templeton World China Fund 10,500 700 Tokio Marine & Fire Insurance ADR 43,050 1,350 United Newspapers Pub. ADR 26,325 600 Vodafone Group PLC ADR 21,450 1,400 WPP Group PLC ADR 45,500 Total (Cost: $1,078,107) $1,187,155 ANALYSTS INVESTMENT TRUST ANALYSTS STOCK FUND SCHEDULE OF INVESTMENTS IN SECURITIES July 31, 1996 Real Estate Stocks: 10.0% Shares Market Value 1,450 American Health Properties $30,450 900 Asarco 21,600 1,500 Carr Realty Corporation 36,000 2,800 Commercial Net Lease 38,150 1,500 First Industrial Realty 35,250 2,100 Health & Retirement Properties Trust 35,175 1,500 New Plan Realty Trust 31,875 1,186 Omega Healthcare Investors 33,505 3,500 Property Capital Trust 27,563 1,250 Public Storage Properties XVI 22,187 1,000 Resource Mtg. Capital, Inc. 24,125 1,250 Simon Property Group Inc. 29,375 Total (Cost: $362,602) $365,255 Mining/Precious Metals Stocks: 2.1% 1300 Barrick Gold Resources $36,238 1500 Pegasus Gold* 18,187 400 Phelps Dodge Corporation 23,500 Total (Cost: $69,370) $77,925 Total Common Stock (Cost: $2,695,363) $3,011,964 Repurchase Agreements: 16.6% Face 604,000 4.7% Star Bank Repurchase Agreement, issued July 31,1996, due August 7, 1996, collateralized by $1,130,000 GNMA Pool # 8359, 6.5%; due January 20, 2024. $604,000 Total Investment at Market Value (Cost: $3,299,363) 99.3% $3,615,964 All Other Assets less Liabilities 0.7% 26,528 Net Assets 100% $3,642,492 * Non-dividend paying investment. ANALYSTS INVESTMENT TRUST ANALYSTS FIXED INCOME FUND SCHEDULE OF INVESTMENTS IN SECURITIES July 31, 1996 Common Stock: 19.0% Real Estate Investment Trusts: 14.9% Shares Market Value 1,550 American Health Properties $32,550 3,000 Berkshire Realty, Inc. 32,250 1,000 Carr Realty Corporation 24,000 2,380 Commercial Net Lease 32,428 1,300 First Industrial Realty 30,550 1,850 Health & Retirement Properties Trust 30,987 1,000 Hospitality Properties Trust 26,375 2,000 Kranzco Realty 31,500 1,189 Omega Healthcare Investors 33,589 1,700 Resource Mortgage Capital, Inc. 41,013 1,250 Simon Property Group Inc. 29,375 Total (Cost $353,149) $344,617 Closed End Mutual Funds: 4.1% 3,900 Kleinwort Benson Australian Income Fund $35,100 5,800 Putnam Premier Income Fund 43,500 1,500 Templeton Emerging Markets Income Fund 17,437 Total (Cost: $103,260) $96,037 Total Common Stock (Cost: $456,409) $440,654 Preferred Stocks: 7.3% 2,000 Carolina Power & Light Company $51,500 2,000 Consolidated Edison 47,750 700 Environmental Systems Company 10,850 300 James River Corporation 7,463 2,000 Unum Corp. MIDS 51,500 Total Preferred Stock (Cost: $170,708) $169,063 ANALYSTS INVESTMENT TRUST ANALYSTS FIXED INCOME FUND SCHEDULE OF INVESTMENTS IN SECURITIES July 31, 1996 Corporate Bonds: 38.2% Face Market Value 5,000 DuPont E I De Nemours & Company 8.45%, 10/15/96 $5,025 3,000 AMR Corp. 8.1%, 11/1/98 3,068 30,000 Merrill Lynch 7.75%, 3/1/99 30,760 4,000 RJR Nabisco Inc. 8.3%, 4/15/99 4,080 35,000 Texaco Capital Corp. 9.0%, 12/15/99 37,323 50,000 DuPont E I De Nemours & Company 9.15%, 4/15/00 53,831 46,000 Household Financial 9.625%, 7/15/00 50,119 4,000 American Telephone & Telegraph 6.0%, 8/1/00 3,888 5,000 First Chicago Corp. 11.25%, 2/20/01 5,806 5,000 Bankamerica Corp. 8.375%, 3/15/02 5,290 100000 Kentucky Power 6.65%, 5/1/03 97,667 10,000 General Motors Corp. 8.875%, 5/15/03 10,827 10,000 Consolidated Natural Gas Company 5.75%, 8/1/03 9,294 50,000 New York Telephone Company 5.625%, 11/1/03 45,828 50,000 American Telephone & Telegraph Company 6.75%,4/1/04 49,187 50,000 Nationsbank Corp. 7.75%, 8/15/04 51,204 10,000 Southwestern Bell 5.75%, 9/1/04 9,054 50,000 Pacific Bell Telephone Company 6.25%, 3/1/05 46,794 50,000 U.S. West Communications 6.125%, 11/15/05 46,090 30,000 Chemical Banking Corp. 7.5%, 5/15/10 29,409 40,000 GE Capital Corp Step-Up 7.0%, 10/18/10 38,218 50,000 Coca-Cola Enterprises 7.0%, 12/01/10 45,934 50,000 Citicorp 7.0%, 12/15/10 45,917 50,000 J.P. Morgan 6.610%, 12/15/10 45,712 50,000 GE Capital Corp. Step-Up 7.0%, 3/18/11 48,176 10,000 Caterpillar Inc. Del. 9.375, 8/15/11 11,697 50,000 Aetna Life & Cas Company 6.750%, 9/15/13 45,216 10,000 International Business Machines 8.375%, 11/1/19 10,788 Total Corporate Bonds (Cost: $901,362) $886,202 ANALYSTS INVESTMENT TRUST ANALYSTS FIXED INCOME FUND SCHEDULE OF INVESTMENTS IN SECURITIES July 31, 1996 U.S. Government Obligations: 8.0% Face Market Value 50,000 Tennessee Valley Authority 6.875%, 1/15/02 $49,572 50,000 FNMA 6.320%, 7/28/03 47,897 20,000 FNMA 6.420%, 2/25/04 19,130 20,000 Federal Home Loan Bank 8.080%, 8/27/10 19,879 50,000 Federal Home Loan Bank 7.5%, 11/15/10 48,408 Total U.S. Government Obligations (Cost: $190,344) $184,886 Mortgage Backed Obligations: 7.0% 4,721 Paine Webber CMO Trust Series 1988-I, 8.6%,4/1/18 $4,869 5,914 Collaterized Mortgage Securities 1991-3I, 8.55%,8/20/20 6,031 12,000 FHLMC REMIC 1991 Trust 1177 Class I, 6.95%,1/15/21 11,618 15,000 FNMA REMIC Series 93-1601, 6.5%, 7/25/22 12,966 12,000 FNMA REMIC 1992 Trust G-53 Class J, 7.0%, 9/25/22 11,290 18,000 FHLMC 1993 Trust 1462 Class D, 7.5%, 11/15/22 17,008 12,000 FNMA 1993 Trust 122 Class L, 6.5%, 1/25/23 11,303 20,000 FNMA REMIC 1993 Trust G 10 Class J, 5.0%, 3/25/23 14,313 20,000 FHLMC REMIC 1993 Trust 1497 Class Q, 7.0%,4/15/23 18,044 20,000 FHLMC REMIC 1993 Trust 1602 Class BB 6.1%,4/15/23 18,048 12,000 FHLMC REMIC 1993 Trust 1503 Class H, 7.0%,5/15/23 10,825 12,000 FNMA REMIC 1993 Trust 50 Class L, 7.0%, 5/25/23 11,284 4,000 FHLMC REMIC 1993 Trust G13 Class D, 6.75%, 6/25/23 3,708 12,000 Ray Ellison Mac Series 92-H Class I, 7.1%,12/31/23 11,318 Total Mortgage Backed (Cost: $181,064) $162,625 Repurchase Agreements: 18.9% 438,000 4.7% Star Bank Repurchase Agreement, issued July31, 1996, due August 7, 1996, collateralized by $1,130,000 GNMA Pool # 8359, 6.5%; due January 20,2024 $438,000 Total Investment at Market Value (Cost: $2,337,887) 98.4% $2,281,430 All Other Assets less Liabilities 1.6% 37,793 Net Assets 100% $2,319,223 ANALYSTS INVESTMENT TRUST STATEMENT OF ASSETS AND LIABILITIES July 31, 1996 Fixed Stock Fund Income Fund ASSETS Investment securities, at value Unaffiliated Issuers $ 3,011,964 $1,843,430 Repurchase Agreements 604,000 438,000 3,615,964 2,281,430 Receivable for investment securities sold 245 Dividends and interest receivable 8,132 23,349 Cash 24,952 17,280 Total Assets 3,649,048 2,322,304 LIABILITIES Management fee payable 6,556 3,081 Total Liabilities 6,556 3,081 NET ASSETS $ 3,642,492 $2,319,223 Net assets consist of: Capital shares $ 3,306,449 $2,394,958 Accumulated undistributed net investment income 8,141 12,857 Accumulated net realized gains (losses) from securities transactions 11,997 (32,624) Net unrealized appreciation (depreciation) on investments 315 ,905 (55,968) NET ASSETS $ 3,642,492 $2,319,223 Net asset value, offering price, and redemption price per share $ 18.28 $13.62 Fund shares outstanding 199,273 170,327 ANALYSTS INVESTMENT TRUST STATEMENT OF OPERATIONS Year ended July 31, 1996 Fixed Stock Fund Income Fund INVESTMENT INCOME: Dividends $ 104,921 $40,799 Interest 17,633 92,333 Total Investment Income 122,554 133,132 EXPENSES: Management Fee 63,141 27,934 NET INVESTMENT INCOME 59,413 105,198 REALIZED AND UNREALIZED GAINS ON INVESTMENTS: Net realized gains (losses) from security transactions 25,122 Net change in net unrealized appreciation (depreciation) on investments 108,455 (1,075) NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS 133,577 (1,075) NET INCREASE IN NET ASSETS FROM OPERATIONS $192,990 $104,123 ANALYSTS INVESTMENT TRUST STATEMENT OF CHANGES IN NET ASSETS Years ended July 31, 1996 and 1995 Fixed Stock Fund Income Fund 1996 1995 1996 1995 FROM OPERATIONS: Net investment income $59,413 $30,970 $105,198 $73,306 Net realized gains (losses) from security transactions 25,122 60,118 (9,397) Net realized gains from covered call option transactions 6,016 Net change in net unrealized appreciation depreciation) on investments 108,455 216,927 (1,075) 36,231 Net increase (decrease) in net assets from operations 192,990 314,031 104,123 100,140 DISTRIBUTIONS TO SHAREHOLDERS: From net investment income 53,510 34,771 100,346 72,527 From capital gains 75,004 16,114 Decrease in net assets from distributions to shareholders 128,514 34,771 116,460 72,527 FROM FUND SHARE TRANSACTIONS: Proceeds from shares sold 1,347,445 931,945 1,041,702 738,491 Net asset value of shares issued in reinvestment of distributions to shareholders 128,415 34,750 86,046 63,505 Payment for shares redeemed (447,334) (764,831) (273,154) (431,283) Net increase from fund share transactions 1,028,526 201,864 854,594 370,713 NET INCREASE IN NET ASSETS: 1,093,002 481,124 842,257 398,326 NET ASSETS: Beginning of period 2,549,490 2,068,366 1,476,966 1,078,640 End of period $3,642,492 $2,549,490 $2,319,223 $1,476,966 Accumulated undistributed net investment income $8,141 $2,239 $12,857 $8,004 ANALYSTS INVESTMENT TRUST FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout the Years ended July 31, 1996 and 1995 and the Period from Inception (August 25, 1993) through July 31, 1994 Fixed Stock Fund Income Fund 1996 1995 1994 1996 1995 1994 Net asset value beginning of period $17.87 $15.79 $14.46 $13.57 $13.38 $14.74 Income from investment operations: Net investment income .34 .24 .19 .78 .80 .77 Net realized and unrealized gains on securities .81 2.11 1.24 .01 .18 (1.63) Total from investment operations 1.15 2.35 1.43 .79 .98 (.86) Less distributions: Dividends from net investment income (.31) (.27) (.10) (.74) (.79) (.50) Dividends from capital gains (.43) Total distributions (.74) (.27) (.10) (.74) (.79) (.50) Net asset value, end of period $ 18.28 $17.87 $15.79 $13.62 $13.57 $13.38 Total return 6.84% 15.01% 10.70%* 5.84% 7.61% (6.20%)* Ratios/Supplemental Data: Net assets, end of period (thousands) $3,642 $2,549 $2,068 $2,319 $1,477 $1,079 Ratio of expenses to average net assets 2.00% 2.00% 2.00% 1.50% 1.50% 1.50% Ratio of net investment income to average net assets 1.89% 1.45% 1.18% 5.65% 6.03% 5.57% Portfolio turnover rate 6.19% 32.02% 4.52% 22.34% 18.01% 22.67% Average commission rate paid $0.086 - - $0.082 - - *Annualized ANALYSTS INVESTMENT TRUST NOTES TO FINANCIAL STATEMENTS (1) SIGNIFICANT ACCOUNTING POLICIES Analysts Investment Trust (AIT) is registered under the Investment Advisor Act of 1940, as amended, as a no-load, diversified, open end management investment company. AIT was established as an Ohio Business Trust under a Declaration of Trust dated May 28, 1993. The Declaration of Trust, as amended, permits the Trustees to issue an unlimited number of shares of the Analysts Stock Fund (ASF) and the Analysts Fixed Income Fund (AFI) (The Funds). The following is a summary of the significant accounting policies of AIT: Securities Valuation: Equity securities, options and commodities listed on exchanges or on the NASDAQ are valued at the last sale price as of the close of business on the day the securities are being valued. Lacking a last sale price, a security is generally valued at its last bid price, except when, in Equity Analysts Inc.'s (The Advisor) opinion, the last bid price does not accurately reflect the current value of the security. All other securities for which over-thecounter market quotations are readily available are valued at their bid price. When market quotations are not readily available, when the Advisor determines the last bid price does not accurately reflect the current value, or when restricted securities are being valued, such securities are valued as determined in good faith by the Advisor, subject to review of the Trust's Board of Trustees. Fixed income securities (including mortgage related and asset backed and receivable backed securities) may be valued on the basis of prices furnished by a pricing service when the Advisor believes such prices accurately reflect the fair market value of such securities. A pricing service utilizes electronic data processing techniques to determine prices for normal institutional- size trading units of debt securities without regard to sale or bid prices. When prices are not readily available from a pricing service, or when restricted or illiquid securities are being valued, securities are valued at fair value as determined in good faith by the Advisor, subject to review by the Trust's Board of Trustees. Short term investments in fixed income securities with maturities of less than 60 days when acquired, or which subsequently are within 60 days of maturity, are valued by using the amortized cost method of valuation. Repurchase agreements are valued at cost which approximates market. It is the policy of the Funds that their custodian take possession of the underlying collateral securities. Collateral is marked to market daily to ensure that the market value of the underlying assets equals or exceeds the value of the seller's repurchase obligation. In the event of a bankruptcy or another default of the seller of a repurchase agreement, a Fund could experience both delays in liquidating the underlying securities and losses. The loss would equal the amount by which the carrying value of the repurchase agreement(s) exceeded the proceeds received in liquidation of the underlying collateral securities. To minimize the possibility of loss, the Funds enter into repurchase agreements only with institutions deemed to be creditworthy by the Advisor, including banks that serve as custodian for the Funds, banks having assets in excess of $1 billion of primary government securities dealers. ANALYSTS INVESTMENT TRUST NOTES TO FINANCIAL STATEMENTS (1) SIGNIFICANT ACCOUNTING POLICIES (continued) Options Accounting Principles: When a put or call option is written, an amount equal to the premium received is recorded as an asset and an equivalent liability. The amount of the liability is subsequently marked-to-market to reflect the current market value of the option written at which time an unrealized gain or loss is recognized. The current market value of a traded option contract is the last sale price or, in the absence of a last sale price, the mean between the last bid and ask price, or in the absence of either of these two prices, fair value as determined in good faith by the Board of Trustees. When a written option contract expires or is terminated (closing purchase transaction), a realized gain (or realized loss if the cost of the closing purchase transaction exceeds the premium received when the option was sold) is recorded without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. When an option is exercised by the holder, again or loss from the underlying security is realized and the proceeds from such a sale are increased by the premium originally received. When a put or call option is written, the Fund must maintain a margin account with its custodian or the broker with a maintenance margin determined on a daily basis as the value of the underlying security, commodity or currency fluctuates. Share Valuation: The net asset value per share is calculated daily by dividing the total value of each Fund's investments and other assets, less liabilities, by the total number of shares outstanding. Investment Income and Distributions to Shareholders: Interest income is accrued as earned. Dividend income is recorded on the ex-dividend date. Distributions to shareholders arising from net investment income are declared and it is the intention that such distributions be paid quarterly. Net realized capital gains, if any, are distributed to shareholders at least once per year. Security Transactions: Security transactions are accounted for on a trade date basis, which is the date the order to buy or sell is executed. Securities sold are valued on a specific identification basis. Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires the Advisor to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. The Advisor believes that the estimates utilized in preparing these financial statements are reasonable and prudent. Actual results could differ from these estimates. ANALYSTS INVESTMENT TRUST NOTES TO FINANCIAL STATEMENTS (1) SIGNIFICANT ACCOUNTING POLICIES (continued) Federal Income Taxes: It is each Fund's policy to comply with the special provisions of the Internal Revenue Code available to regulated investment companies. As provided therein, in any fiscal year in which a Fund so qualifies, and distributes at least 90% of its taxable net income, the Fund (but not its shareholders) will be relieved of federal income tax on the income distributed. Accordingly, no provision for income taxes is made. In order to avoid imposition of the excise tax created by the Tax Reform Act of 1986 as amended by the Revenue Act of 1987, it is each Fund's intention to declare as dividends in each calendar year at least 98% of its net investment income (earned during the calendar year) and 98% of its realized capital gains (earned during the twelve months ended October 31 of the calendar year) plus undistributed amounts from prior years. (2) INVESTMENT TRANSACTIONS Investment transactions are as follows for the year ended July 31, 1996: Analysts Stock Fund Analysts Fixed Income Fund Purchase of investment securities $742,906 $986,069 Proceeds from sales and maturities of investment securities 168,181 332,831 The table above includes U.S. Government Securities purchased and sold by Analysts Fixed Income Fund amounting to $139,035 and $197,000, respectively. There were no purchases or sales of U.S. Government Securities by the Analysts Stock Fund during the year. (3)TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES The President and Treasurer, and the Vice President and Secretary of the Trust are shareholders and employees of the Advisor, registered investment advisor to the Trust. In addition, each of these individuals are shareholders of the Funds. AIT's investments are managed by the Advisor under the terms of a Management Agreement. Under the Management Agreement, the Advisor pays all of the expenses of the Funds except brokerage, taxes, interest and extraordinary expenses. As compensation for investment advisory services and agreement to pay the above Fund expenses, each Fund pays the Advisor a fee computed and accrued daily and paid monthly. The fee for ASF is computed at an annual average rate of 2% of average daily net assets of ASF up to and including $20 million, 1.75% of such assets from $20 million up to and including $40 million, 1.5% of such assets from $40 million up to and including $100 million, and .75% of such assets above $100 million. The fee for AFI is computed at an annual rate of 1.5% of average daily net assets of AFI up to and including $20 million, 1.25% of such assets from $20 million up to and including $40 million, 1% of such assets from $40 million up to and including $100 million and .75% of such assets above $100 million. ANALYSTS INVESTMENT TRUST NOTES TO FINANCIAL STATEMENTS (4) FUND SHARE TRANSACTIONS Proceeds and payments on shares of the Funds as shown in the Statement of Changes in Net Assets are the result of the following share transactions: Analysts Stock Fund Analysts Fixed Income Fund Shares sold 73,841 75,103 Shares issued in reinvestment of distributions 7,097 6,276 Totals 80,938 81,379 Less shares redeemed 24,350 19,884 Net increase in shares outstanding 56,588 61,495 Shares at beginning of year 142,685 108,832 Shares at end of year 199,273 170,327 (5) FINANCIAL INSTRUMENT DISCLOSURE There are no reportable Financial instruments which have any offbalance sheet risk in either of the Funds as of July 31, 1996. (6) SECURITY TRANSACTIONS For Federal income tax purposes, the cost of investments owned at July 31, 1996 was the same as identified cost. At July 31, 1996, the composition of unrealized appreciation (the excess of value over tax cost) and depreciation (the excess of tax cost over value) was as follows: Appreciation Depreciation Net Stock Fund $488,442 $(172,538) $315,904 Fixed Income Fund 22,260 (78,227) (55,967)