<PAGE>
[Logo] ANNUAL REPORT, MARCH 31, 1998
AMERICAN GAS INDEX FUND, INC.
4922 FAIRMONT AVENUE, BETHESDA, MARYLAND 20814
(800) 622-1386 (301) 657-1510
- --------------------------------------------------------------------------------
Dear Shareholders:
The net asset value of the American Gas Index Fund, Inc. (the "Fund") increased
from $14.84 at the beginning of the Fund's fiscal year to $18.59 at the end on
March 31, 1998. In addition, during this period, the Fund declared regular
dividends of 47 cents per share and a capital gain distribution of 12 cents per
share. The resulting fiscal year total return is 29.62%. Over ninety percent of
the Fund's holdings, including all of the ten largest increased in value.
During the fiscal year, several new names in the Fund's portfolio are the result
of finalization of previously reported mergers, acquisitions and restructurings.
The major changes include:
<TABLE>
<CAPTION>
OLD LISTING NEW LISTING
- ------------------------------- ---------------------------
<S> <C>
Brooklyn Union Keyspan Energy Corp.
Delmarva Power and Light Co. Connectiv, Inc.
ENSERCH Corp. Texas Utilities Co.
NorAm Energy Corp. Houston Industries, Inc.
Pan Energy Corp. Duke Energy Corp.
Public Service Co. of Colorado New Century Energies, Inc.
</TABLE>
Other changes were the result of gas properties being purchased, such as KN
Energy buying Occidental Petroleum's Midcom Pipeline, Atmos Energy acquiring
United Cities Gas Co. and ONEOK, Inc. taking over Western Resources gas utility
operations.
The robust performance of the Fund during this period was attributed to several
positive influences. Growth in natural gas utilization was stressed by private
sector and government
<TABLE>
<S> <C>
TOP FIVE PERFORMERS
(PRICE CHANGE: YEAR ENDED MARCH 31, 1998)
Commonwealth Energy System Co. 91.02%
Essex County Gas Co. 90.21%
New York State Electrical and Gas Corp. 84.39%
MDU Resources Group, Inc. 71.55%
Rochester Gas and Electric Corp. 71.05%
</TABLE>
<TABLE>
<S> <C>
BOTTOM FIVE PERFORMERS
(PRICE CHANGE: YEAR ENDED MARCH 31, 1998)
Virginia Gas Co. -21.80%
Southwestern Energy Co. -20.56%
Sonat, Inc. -20.18%
Citizens Utilities Co., Series B -11.05%
SEMCO Energy, Inc. - 8.78%
</TABLE>
TOTAL RETURN COMPARISON
(YEAR ENDED MARCH 31, 1998)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C> <C>
Dow Jones
American Gas Index Fund Dow Jones Industrials Utilities S&P 500
29.62% 34.67% 34.52% 48.00%
</TABLE>
The average annual total return was 29.62% for the one-year period, 12.89% for
the five-year period, and 11.86% for the period 5/10/89 (inception) through
March 31, 1998. Returns are historical and include changes in principal and
reinvested dividends and capital gains. Your return and principal will vary
and you may have a gain or loss when you sell shares.
<PAGE>
analysts in spite of the negative impact of the El Nino winter on the seasonal
heating load. They also emphasized the low emission and high efficiency
attributes of natural gas in response to concerns regarding air quality, global
warming and worldwide economic competitiveness.
Looking ahead, industry's desire to generate electricity close to the point of
use with small power plants, called distributed power, is growing, and gas is
the preferred fuel. In addition, several aging nuclear plants are being
decommissioned and hydropower expansion is losing environmental support. These
developments provide excellent opportunities for new gas-fired units. Other
potential sources of increased demand result from technological developments in
gas-fueled climate control, power generation and fleet vehicles. Also, the stock
markets' record gains have made many investment advisors cautious and starting
to suggest natural gas stocks as a flight-to-quality refuge. Merger and
acquisition activity should continue to be an important influence on the value
of the Fund's portfolio.
The future of the natural gas industry seems bright. With gas supply and
delivery capacity expanding to meet growing demand, the Fund's holdings should
appreciate and financially reward Fund investors.
Sincerely,
[SIG]
Richard J. Garvey
Chairman
American Gas Index Fund, Inc.
2
<PAGE>
AMERICAN GAS INDEX FUND, INC.
STATEMENT OF NET ASSETS
MARCH 31, 1998
<TABLE>
<CAPTION>
MARKET VALUE PERCENT OF
SHARES (NOTE 1) NET ASSETS
------- ------------- ----------
<S> <C> <C> <C>
COMMON STOCKS
The Williams Companies, Inc. ........... 375,000 $ 12,000,000 4.91%
Duke Energy Corp. ...................... 200,000 11,912,500 4.88
El Paso Energy Co. ..................... 160,000 11,290,000 4.62
Consolidated Natural Gas Co. ........... 195,000 11,249,062 4.60
The Coastal Corp. ...................... 162,000 10,550,250 4.32
Enron Corp. ............................ 225,000 10,434,375 4.27
The Columbia Gas System, Inc. .......... 130,000 10,107,500 4.14
P G & E Corp. .......................... 295,000 9,735,000 3.98
Pacific Enterprises .................... 235,000 9,590,937 3.92
Houston Industries, Inc. ............... 270,000 7,762,500 3.18
MCN Energy Group, Inc. ................. 160,000 5,980,000 2.45
NICOR, Inc. ............................ 125,000 5,281,250 2.16
Sonat, Inc. ............................ 120,000 5,220,000 2.14
KN Energy, Inc. ........................ 85,400 5,043,938 2.06
Keyspan Energy Corp. ................... 115,000 4,175,938 1.71
National Fuel Gas Co. .................. 85,000 3,995,000 1.63
CMS Energy Corp. ....................... 75,000 3,520,312 1.44
Consolidated Edison Co. of New York,
Inc. ................................. 75,000 3,506,250 1.43
Peoples Energy Corp. ................... 95,000 3,455,625 1.41
AGL Resources, Inc. .................... 155,000 3,332,500 1.36
Washington Gas Light Co. ............... 120,000 3,285,000 1.34
Public Service Enterprise Group,
Inc. ................................. 80,000 3,030,000 1.24
Questar Corp. .......................... 70,000 2,909,375 1.19
Piedmont Natural Gas Co., Inc. ......... 80,000 2,780,000 1.14
ONEOK, Inc. ............................ 65,000 2,648,750 1.08
NIPSCO Industries, Inc. ................ 90,000 2,520,000 1.03
Atmos Energy Corp. ..................... 85,000 2,518,125 1.03
NGC Corp. .............................. 150,000 2,193,750 0.90
WICOR, Inc. ............................ 45,000 2,176,875 0.89
New Century Energies, Inc. ............. 42,500 2,140,937 0.88
Indiana Energy, Inc. ................... 61,700 1,877,994 0.77
Equitable Resources, Inc. .............. 55,000 1,828,750 0.75
Puget Sound Energy Co. ................. 61,000 1,719,438 0.70
Northwest Natural Gas Co. .............. 60,000 1,687,500 0.69
UtiliCorp United, Inc. ................. 40,000 1,577,500 0.65
Texas Utilities Co. .................... 40,000 1,572,500 0.64
New Jersey Resources Corp. ............. 40,000 1,567,500 0.64
Southwest Gas Corp. .................... 75,000 1,565,625 0.64
Eastern Enterprises .................... 35,000 1,505,000 0.62
Bay State Gas Co. ...................... 37,500 1,413,281 0.58
</TABLE>
3
<PAGE>
AMERICAN GAS INDEX FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
MARKET VALUE PERCENT OF
SHARES (NOTE 1) NET ASSETS
------- ------------- ----------
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED)
Cinergy Corp. .......................... 37,500 $ 1,387,500 0.57%
Northern States Power Co. .............. 22,500 1,327,500 0.54
MDU Resources Group, Inc. .............. 35,000 1,305,938 0.53
Baltimore Gas and Electric Co. ......... 37,500 1,225,781 0.50
Enova Corp. ............................ 42,500 1,187,344 0.49
Laclede Gas Co. ........................ 46,000 1,152,875 0.47
Pennsylvania Enterprises, Inc. ......... 45,300 1,143,825 0.47
Public Service Co. of North Carolina,
Inc. ................................. 55,000 1,127,500 0.46
Southern Union Co.* .................... 44,625 1,071,000 0.44
Long Island Lighting Co. ............... 30,000 945,000 0.39
PECO Energy Co. ........................ 42,500 940,312 0.38
Wisconsin Energy Corp. ................. 30,000 920,625 0.38
MidAmerican Energy Holdings Co. ........ 40,000 907,500 0.37
The Montana Power Co. .................. 25,000 901,563 0.37
Energen Corp. .......................... 40,000 880,000 0.36
TECO Energy ............................ 30,000 847,500 0.35
South Jersey Industries, Inc. .......... 28,200 837,188 0.34
NUI Corp. .............................. 30,000 821,250 0.34
New York State Electric and Gas
Corp. ................................ 20,000 797,500 0.33
Citizens Utilities Co., Series B ....... 75,000 792,188 0.32
Connecticut Energy Corp. ............... 25,000 768,750 0.31
North Carolina Natural Gas Corp. ....... 28,200 763,163 0.31
Colonial Gas Co. ....................... 25,000 717,188 0.29
UGI Corp. .............................. 25,000 706,250 0.29
Commonwealth Energy System Co. ......... 17,000 677,875 0.28
Yankee Energy System, Inc. ............. 27,500 675,469 0.28
Rochester Gas & Electric Corp. ......... 20,000 650,000 0.27
CTG Resources, Inc. .................... 25,000 642,187 0.26
Illinova Corp. ......................... 20,000 603,750 0.25
SEMCO Energy, Inc. ..................... 35,000 590,625 0.24
DPL, Inc. .............................. 30,000 585,000 0.24
L G & E Energy Corp. ................... 22,500 580,781 0.24
Public Service Co. of New Mexico ....... 22,500 549,844 0.23
WPL Holdings, Inc. ..................... 12,500 421,094 0.17
WPS Resources Corp. .................... 12,500 416,406 0.17
EnergySouth, Inc. ...................... 16,000 377,000 0.15
Providence Energy Corp. ................ 17,000 355,937 0.15
Orange and Rockland Utilities, Inc. .... 7,500 336,562 0.14
Niagara Mohawk Power ................... 25,000 325,000 0.13
SIGCORP, Inc. .......................... 10,000 319,375 0.13
Connectiv, Inc. ........................ 13,000 285,187 0.12
</TABLE>
4
<PAGE>
AMERICAN GAS INDEX FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
MARKET VALUE PERCENT OF
SHARES (NOTE 1) NET ASSETS
------- ------------- ----------
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED)
Central Hudson Gas and Electric
Corp. ................................ 6,500 $ 283,562 0.12%
Essex County Gas Co. ................... 6,000 276,750 0.11
EnergyNorth, Inc. ...................... 9,000 260,438 0.11
Southwestern Energy Co. ................ 22,000 233,750 0.10
Sierra Pacific Resources ............... 6,000 225,375 0.09
Chesapeake Utilities Corp. ............. 10,000 183,750 0.08
The Berkshire Gas Co. .................. 7,500 181,875 0.07
Fall River Gas Co. ..................... 11,000 178,063 0.07
Roanoke Gas Co. ........................ 7,500 166,875 0.07
National Gas and Oil Co. ............... 15,300 153,956 0.06
Entergy Corp. .......................... 5,000 148,750 0.06
Valley Resources, Inc. ................. 12,000 133,500 0.05
Delta Natural Gas Co., Inc. ............ 6,500 108,875 0.04
Corning Natural Gas Corp. .............. 4,500 90,000 0.04
Energy West, Inc. ...................... 7,500 65,625 0.03
Virginia Gas Co. ....................... 7,500 57,188 0.02
Minnesota Power and Light Co. .......... 1,000 42,500 0.02
------------- ----------
Total Common Stocks (Cost
$120,892,534) ........................ 225,319,001 92.20
------------- ----------
REPURCHASE AGREEMENT
With PaineWebber dated 3/31/98, at 5.75%
to be repurchased at $18,203,007 on
4/1/98, collaterized by U.S. Treasury
Notes due 8/15/98 (Cost
$18,200,100) ......................... 18,200,100 7.45
------------- ----------
TOTAL INVESTMENTS (COST
$139,092,634) ........................ 243,519,101 99.65
OTHER ASSETS LESS LIABILITIES .......... 848,619 0.35
------------- ----------
NET ASSETS (NOTE 5) .................... $244,367,720 100.00%
------------- ----------
------------- ----------
NET ASSET VALUE PER SHARE (BASED ON
13,147,754 SHARES OUTSTANDING) ....... $18.59
-------------
-------------
</TABLE>
*Non-income producing.
See Notes to Financial Statements.
5
<PAGE>
AMERICAN GAS INDEX FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends...................................................... $ 7,715,972
Interest....................................................... 350,483
-----------
Total Investment Income...................................... 8,066,455
-----------
EXPENSES
Investment Advisory Fee (Note 2)............................... 877,926
Accounting and Administrative Service Fee (Note 2)............. 768,186
Administrative Fee (Note 2).................................... 219,482
-----------
Total Expenses............................................... 1,865,594
-----------
NET INVESTMENT INCOME............................................ 6,200,861
-----------
Net Realized Gain on Investment Transactions..................... 10,027,070
Change in Net Unrealized Appreciation/Depreciation of
Investments.................................................... 40,256,921
-----------
NET GAIN ON INVESTMENTS.......................................... 50,283,991
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............. $56,484,852
-----------
-----------
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
AMERICAN GAS INDEX FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED MARCH 31,
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income........................... $ 6,200,861 $ 6,618,283
Net Realized Gain on Investment Transactions.... 10,027,070 8,513,880
Change in Net Unrealized
Appreciation/Depreciation of Investments...... 40,256,921 15,598,586
------------- -------------
Net Increase in Net Assets Resulting from
Operations.................................. 56,484,852 30,730,749
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
From Net Investment Income...................... (6,222,067) (6,785,371)
From Net Realized Gain on Investments........... (1,570,262) --
------------- -------------
Total Distributions to Shareholders........... (7,792,329) (6,785,371)
------------- -------------
SHARE TRANSACTIONS
Net Proceeds from Sales of Shares............... 47,979,895 45,036,144
Reinvestment of Distributions................... 6,937,426 5,996,997
Cost of Shares Redeemed......................... (72,300,100) (65,920,201)
------------- -------------
Net Decrease in Net Assets Resulting from
Share Transactions.......................... (17,382,779) (14,887,060)
------------- -------------
TOTAL INCREASE IN NET ASSETS................... 31,309,744 9,058,318
NET ASSETS -- Beginning of Year................... 213,057,976 203,999,658
------------- -------------
NET ASSETS -- End of Year......................... $244,367,720 $213,057,976
------------- -------------
------------- -------------
SHARES
Sold............................................ 2,842,334 3,081,033
Issued in Reinvestment of Distributions......... 402,257 414,751
Redeemed........................................ (4,449,482) (4,534,204)
------------- -------------
Net Decrease in Shares........................ (1,204,891) (1,038,420)
------------- -------------
------------- -------------
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
AMERICAN GAS INDEX FUND, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
----------------------------------------------------
1998 1997 1996 1995 1994
----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value -- Beginning of Year................................ $ 14.84 $ 13.25 $ 11.13 $ 11.08 $ 12.17
----------- -------- -------- -------- --------
Income from Investment Operations:
Net Investment Income............................................. 0.47 0.45 0.45 0.44 0.41
Net Realized and Unrealized Gain (Loss) on Investments............ 3.87 1.60 2.13 0.05 (1.03)
----------- -------- -------- -------- --------
Total from Investment Operations................................ 4.34 2.05 2.58 0.49 (0.62)
----------- -------- -------- -------- --------
Distributions to Shareholders:
From Net Investment Income........................................ (0.47) (0.46) (0.46) (0.44) (0.41)
From Net Realized Capital Gain.................................... (0.12) -- -- -- (0.06)
----------- -------- -------- -------- --------
Total Distributions............................................. (0.59) (0.46) (0.46) (0.44) (0.47)
----------- -------- -------- -------- --------
Net Increase (Decrease) in Net Asset Value.......................... 3.75 1.59 2.12 0.05 (1.09)
----------- -------- -------- -------- --------
Net Asset Value -- End of Year...................................... $ 18.59 $ 14.84 $ 13.25 $ 11.13 $ 11.08
----------- -------- -------- -------- --------
----------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN............................................... 29.62% 15.60% 23.46% 4.72% (5.37)%
RATIOS TO AVERAGE NET ASSETS
Expenses............................................................ 0.85% 0.85% 0.85% 0.85% 0.84%
Net Investment Income............................................... 2.83% 3.06% 3.71% 4.04% 3.33%
SUPPLEMENTARY DATA
Portfolio Turnover Rate............................................. 12.9% 8.2% 10.0% 8.5% 11.4%
Net Assets at End of Year (000's omitted)........................... $ 244,368 $213,058 $204,000 $188,544 $209,036
Number of Shares Outstanding at End of Year (000's omitted)......... 13,148 14,353 15,391 16,941 18,858
Average Commission Rate Paid(A)..................................... $ 0.0422 $ 0.0439 -- -- --
</TABLE>
- ------------------------------
(A) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for security trades on
which commissions are charged.
See Notes to Financial Statements.
8
<PAGE>
AMERICAN GAS INDEX FUND, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES
American Gas Index Fund, Inc. (the "Fund") is registered with the Securities and
Exchange Commission under the Investment Company Act of 1940 as an open-end,
diversified investment company. The Fund is authorized to issue 1,000,000,000
shares of $0.001 par value capital stock. The Fund invests primarily in the
common stock of natural gas distribution and transmission companies. Since the
Fund has a specialized focus, it carries more risk than a fund that invests more
generally. The financial statements have been prepared in conformity with
generally accepted accounting principles which permit management to make certain
estimates and assumptions at the date of the financial statements. The following
is a summary of significant accounting policies which the Fund follows.
(a) Securities listed on stock exchanges are valued at the last sales
price of the applicable exchange. Over-the-Counter securities are
valued at the last sales price. If market quotations are not readily
available, the Board of Directors will value the Fund's securities
in good faith.
(b) Security transactions are recorded on the trade date (the date the
order to buy or sell is executed). Interest income is accrued on a
daily basis. Dividend income is recorded on the ex-dividend date.
Realized gains and losses from securities transactions are computed
on an identified cost basis.
(c) Net investment income is computed, and dividends are declared
quarterly. Dividends are reinvested in additional shares unless
shareholders request payment in cash. Capital gains, if any, are
distributed annually.
(d) The Fund complies with the provisions of the Internal Revenue Code
applicable to regulated investment companies and distributes all net
investment income to its shareholders. Therefore, no Federal income
tax provision is required.
2. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Investment advisory and management services are provided by Money Management
Associates (the "Adviser"). Under an agreement with the Adviser, the Fund pays a
fee for such services at an annual rate of 0.40% of the average daily net assets
of the Fund. Certain Officers and Directors of the Fund are affiliated with
Money Management Associates.
Rushmore Trust and Savings, FSB ("Trust"), a majority-owned subsidiary of the
Adviser, provides transfer agency, dividend-disbursing and other shareholder
services to the Fund. In addition, the
9
<PAGE>
Trust serves as custodian of the Fund's assets and pays the operating expenses
of the Fund. For these services the Trust receives an annual fee of 0.35% of the
average daily net assets of the Fund.
The American Gas Association (A.G.A.) serves as administrator for the Fund. As
administrator, A.G.A. calculates and maintains the Index and provides the Fund
with information concerning the natural gas industry. For these services, the
Fund pays a fee at an annual rate of 0.10% of the average daily net assets of
the Fund.
3. SECURITIES TRANSACTIONS
For the year ended March 31, 1998, purchases of securities were $27,651,058, and
sales of securities were $62,263,017. These totals exclude short-term
securities.
4. NET UNREALIZED APPRECIATION/DEPRECIATION OF INVESTMENTS
As of March 31, 1998, net unrealized appreciation of investments for Federal
income tax purposes was $103,132,484 of which $103,436,893 related to
appreciated investments and $304,409 related to depreciated investments. At
March 31, 1998, the cost of the Fund's securities for Federal income tax
purposes was $140,386,617.
5. NET ASSETS
At March 31, 1998 net assets consisted of the following:
<TABLE>
<S> <C>
Paid-in-Capital.......................................................... $136,753,894
Net Unrealized Appreciation of Investments............................... 104,426,467
Accumulated Realized Gain on Investments................................. 3,154,298
Undistributed Net Investment Income...................................... 33,061
-------------
NET ASSETS............................................................... $244,367,720
-------------
-------------
</TABLE>
10
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors
of American Gas Index Fund, Inc.:
We have audited the statement of net assets of American Gas Index Fund, Inc.
(the Fund) as of March 31, 1998, the related statements of operations for the
year then ended and 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 at March
31, 1998 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, such financial statements and financial highlights present
fairly, in all material respects, the financial position of American Gas Index
Fund, Inc. at March 31, 1998, 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.
[SIGNATURE]
Princeton, New Jersey
May 1, 1998
11
<PAGE>
[LOGO]
Annual Report
March 31, 1998
