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ANNUAL REPORT, March 31, 1999
AMERICAN GAS INDEX FUND, INC.
[RUSHMORE LOGO APPEARS HERE] 4922 Fairmont Avenue, Bethesda, Maryland 20814
(800) 622-1386 (301) 657-1510
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Dear Shareholders:
Two consecutive near record warmer than average winters reduced gas heating de-
mand in the residential, commercial and industrial sectors. As a result, gas
company financial results were dismal and gas stocks were jettisoned by short-
term market traders. According to one veteran industry analyst, "The good news
is that the odds for a repeat performance in 1999/2000 are very slim." Conse-
quently, the fiscal year ended March 31, 1999 was the Fund's low point in per-
formance, since the Fund was launched in May 1989.
For the fiscal year ended March 31, 1999, the Fund's total return was a nega-
tive 6.35%. Net asset value (NAV) at the beginning of the period was $18.59 and
reached an all-time high of $18.95 on April 2, 1998. As the financial impact of
the first of the warm winters became widespread and was compounded by the sec-
ond warm winter the Fund's NAV steadily declined to a low of $16.27 on February
16, 1999. During the fiscal year, the Fund provided an income return of 6.08%
composed of a regular dividend of $0.507 and capital gains distributions of
$0.6832 per share. Six of the Fund's ten largest holdings declined during the
fiscal year, as did 78% of the total portfolio. As a result, the Fund lagged
behind most market benchmarks.
The American Gas Association forecasts that with normal weather, gas demand
will grow
Top Five Performers
(Price Change: Year Ended March 31, 1999)
PECO Energy Company 109.04%
The Montana Power Company 103.99%
Enron Corporation 38.54%
Public Service Co. of North Carolina, Inc. 38.42%
Energy East Corporation 31.82%
Bottom Five Performers
(Price Change: Year Ended March 31, 1999)
Virginia Gas Company (67.21)%
MCN Energy Group (57.02)%
KN Energy, Inc. (49.37)%
UGI Corporation (40.93)%
ONEOK, Inc. (39.26)%
[TOTAL RETURN COMPARISON GRAPH APPEARS HERE]
Total Return Comparison
(Year Ended March 31, 1999)
American Gas Index Fund (6.35)%
Dow Jones Industrials 12.82%
Dow Jones Utilities 5.98%
S&P 500 18.46%
The average annual total return was (6.35)% for the one-year period, 12.65% for
the five-year period, and 9.87% for the period 5/10/89 (inception) through
March 31, 1999. Returns are historical and include changes in principal and
reinvested dividends and capital gains. Your return and principal will vary and
you may hav a gain or loss when you sell shares.
<PAGE>
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by 5% this year and increase by 32% by the year 2010. Similar predictions have
been promulgated by American and Canadian governmental bodies and energy
"think tanks". The industry is preparing for this growth by expanding pipeline
delivery capacity, increasing storage facilities, and maintaining domestic and
Canadian gas reserves. New technology, especially in power generation and cli-
mate control, is expected to account for much of the growth. In addition, new
construction and conversion of non-gas heated homes represent a huge and prof-
itable market for gas utilities. This positive long-term industry outlook com-
bined with the deregulation of gas and electric power companies and depressed
stock prices has accelerated merger and acquisition activity by growth ori-
ented management. Several major announced "deals" are being finalized. This
activity has increased investor interest in the Fund's holdings and should be
a bonus for the Fund by providing financial rewards for Fund shareholders.
You can follow the Fund's progress on our web site www.rushmorefunds.com or
contact us directly. We welcome your interest and participation in the Fund.
Sincerely,
Richard J. Garvey
Chairman
American Gas Index Fund, Inc.
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2
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AMERICAN GAS INDEX FUND, INC.
STATEMENT OF NET ASSETS
March 31, 1999
<TABLE>
<CAPTION>
Market Value Percent of
Shares (Note 1) Net Assets
------- ------------ ----------
<S> <C> <C> <C>
COMMON STOCKS
The Williams Companies, Inc. ................... 285,000 $11,257,500 5.62%
Columbia Energy Group .......................... 200,000 10,450,000 5.22
Consolidated Natural Gas Co. ................... 205,000 9,980,938 4.98
The Coastal Corp. .............................. 300,000 9,900,000 4.94
Duke Energy Corp. .............................. 175,000 9,559,375 4.77
El Paso Energy Corp. ........................... 285,000 9,315,937 4.65
KeySpan Energy Corp. ........................... 365,000 9,170,625 4.58
Enron Corp. .................................... 135,200 8,686,600 4.34
Sempra Energy .................................. 401,600 7,705,700 3.85
PG&E Corp. ..................................... 225,000 6,989,063 3.49
NICOR, Inc. .................................... 125,000 4,492,188 2.24
Reliant Energy, Inc. ........................... 170,000 4,430,625 2.21
Sonat, Inc. .................................... 130,000 3,900,000 1.95
Consolidated Edison, Inc. ...................... 85,000 3,851,562 1.92
NIPSCO Industries, Inc. ........................ 129,052 3,484,404 1.74
National Fuel Gas Co. .......................... 85,000 3,336,250 1.67
KN Energy, Inc. ................................ 165,000 3,289,688 1.64
Public Service Enterprise Group, Inc. .......... 85,000 3,245,938 1.62
UtiliCorp United, Inc. ......................... 139,500 3,173,625 1.58
Piedmont Natural Gas Co., Inc. ................. 90,000 3,150,000 1.57
Peoples Energy Corp. ........................... 95,000 3,069,688 1.53
CMS Energy Corp. ............................... 75,000 3,004,688 1.50
Washington Gas Light Co. ....................... 130,000 2,941,250 1.47
AGL Resources, Inc. ............................ 165,000 2,897,812 1.45
Questar Corp. .................................. 140,000 2,371,250 1.18
MCN Energy Group, Inc. ......................... 135,000 2,168,437 1.08
Southwest Gas Corp. ............................ 75,000 2,062,500 1.03
Atmos Energy Corp. ............................. 85,000 2,045,313 1.02
PECO Energy Co. ................................ 42,500 1,965,625 0.98
ONEOK, Inc. .................................... 75,000 1,856,250 0.93
The Montana Power Co. .......................... 25,000 1,839,063 0.92
WICOR, Inc. .................................... 80,000 1,620,000 0.81
Indiana Energy, Inc. ........................... 83,066 1,573,062 0.79
Public Service Co. of North Carolina, Inc. ..... 55,000 1,560,625 0.78
Eastern Enterprises ............................ 42,103 1,531,497 0.76
Southern Union Co.* ............................ 78,750 1,486,406 0.74
Texas Utilities Co. ............................ 35,000 1,459,063 0.73
New Century Energies, Inc. ..................... 42,500 1,447,656 0.72
New Jersey Resources Corp. ..................... 40,000 1,422,500 0.71
Northwest Natural Gas Co. ...................... 60,000 1,312,500 0.66
</TABLE>
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3
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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)
Equitable Resources, Inc. ....................... 50,000 $1,303,125 0.65%
MDU Resources Group, Inc. ....................... 52,500 1,200,938 0.60
Northern States Power Co. ....................... 50,000 1,159,375 0.58
Niagara Mohawk Holdings, Inc.* .................. 80,000 1,075,000 0.54
Energy East Corp. ............................... 20,000 1,051,250 0.52
Cinergy Corp. ................................... 37,500 1,031,250 0.51
Laclede Gas Co. ................................. 46,000 963,125 0.48
Baltimore Gas and Electric Co. .................. 37,500 951,562 0.48
Pennsylvania Enterprises, Inc. .................. 39,500 948,000 0.47
North Carolina Natural Gas Corp. ................ 30,000 911,250 0.45
Colonial Gas Co. ................................ 25,000 862,500 0.43
L G & E Energy Corp. ............................ 40,000 832,500 0.42
Interstate Energy, Inc. ......................... 30,000 795,000 0.40
Wisconsin Energy Corp. .......................... 30,000 783,750 0.39
Energen Corp. ................................... 45,000 672,187 0.34
Dynegy, Inc. .................................... 47,300 665,156 0.33
DPL, Inc. ....................................... 40,000 660,000 0.33
Commonwealth Energy System Co. .................. 17,000 654,500 0.33
South Jersey Industries, Inc. ................... 30,000 648,750 0.32
NUI Corp. ....................................... 30,000 646,875 0.32
Yankee Energy System, Inc. ...................... 27,500 634,219 0.32
Connecticut Energy Corp. ........................ 25,000 606,250 0.30
CTG Resources, Inc. ............................. 25,000 603,125 0.30
TECO Energy, Inc. ............................... 30,000 596,250 0.30
Citizens Utilities Co., Series B* ............... 75,000 581,250 0.29
SEMCO Energy, Inc. .............................. 36,750 565,031 0.28
Rochester Gas & Electric Corp. .................. 20,000 512,500 0.26
Orange and Rockland Utilities, Inc. ............. 7,500 430,781 0.22
Illinova Corp. .................................. 20,000 423,750 0.21
UGI Corp. ....................................... 25,000 417,188 0.21
Connectiv, Inc. ................................. 20,000 387,500 0.19
Public Service Co. of New Mexico ................ 22,500 382,500 0.19
WPS Resources Corp. ............................. 12,500 368,750 0.18
EnergySouth, Inc. ............................... 16,000 328,000 0.16
Providence Energy Corp. ......................... 17,000 312,375 0.16
MidAmerican Energy Holdings Co. ................. 10,000 280,000 0.14
SIGCORP, Inc. ................................... 10,000 273,750 0.14
EnergyNorth, Inc. ............................... 9,000 247,500 0.12
Central Hudson Gas and Electric Corp. ........... 6,500 232,781 0.12
Sierra Pacific Resources ........................ 6,000 211,125 0.11
Fall River Gas Co. .............................. 10,000 176,250 0.09
Chesapeake Utilities Corp. ...................... 10,000 160,625 0.08
</TABLE>
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4
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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)
Southwestern Energy Co. ........................ 22,000 $ 155,375 0.08%
Roanoke Gas Co. ................................ 7,500 146,250 0.07
Berkshire Energy Resources ..................... 7,500 143,437 0.07
Entergy Corp. .................................. 5,000 137,500 0.07
Valley Resources, Inc. ......................... 12,000 126,000 0.06
P P & L Resources, Inc. ........................ 5,000 123,750 0.06
Delta Natural Gas Co., Inc. .................... 6,500 116,187 0.06
Corning Natural Gas Corp. ...................... 4,500 96,750 0.05
Energy West, Inc. .............................. 7,500 65,625 0.03
USX-Marathon Group ............................. 2,000 55,000 0.03
Minnesota Power, Inc. .......................... 2,000 39,500 0.02
Virginia Gas Co. ............................... 15,000 37,500 0.02
UNITIL Corp. ................................... 1,000 23,000 0.01
------------ ------
Total Common Stocks (Cost $122,813,982) ........ 196,818,670 98.26
------------ ------
REPURCHASE AGREEMENT
With PaineWebber Inc., at 4.80%, dated 3/31/99,
to be repurchased at $2,187,597 on 4/1/99,
collaterized by U.S. Treasury Notes due
12/31/99 (Cost $2,187,305) .................... 2,187,305 1.09
------------ ------
Total Investments (Cost $125,001,287) .......... 199,005,975 99.35
Other Assets Less Liabilities .................. 1,310,835 0.65
------------ ------
Net Assets (Note 5) ............................ $200,316,810 100.00%
============ ======
Net Asset Value Per Share (Based on 12,305,907
Shares
Outstanding) .................................. $16.28
============
</TABLE>
*Non-income producing
See Notes to Financial Statements.
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5
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AMERICAN GAS INDEX FUND, INC.
STATEMENT OF OPERATIONS
For the Year Ended March 31, 1999
<TABLE>
<S> <C>
Investment Income
Dividends....................................................... $ 7,929,361
Interest........................................................ 383,326
------------
Total Investment Income........................................ 8,312,687
------------
Expenses
Investment Advisory Fee (Note 2)................................ 901,335
Accounting and Administrative Service Fee (Note 2).............. 788,668
Administrative Fee (Note 2)..................................... 225,334
------------
Total Expenses................................................. 1,915,337
------------
Net Investment Income............................................ 6,397,350
------------
Net Realized Gain on Investment Transactions..................... 9,883,696
Change in Net Unrealized Appreciation of Investments............. (30,421,779)
------------
Net Loss on Investments.......................................... (20,538,083)
------------
Net Decrease in Net Assets Resulting from Operations............. $(14,140,733)
============
</TABLE>
See Notes to Financial Statements.
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6
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AMERICAN GAS INDEX FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended March 31,
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations
Net Investment Income............................. $ 6,397,350 $ 6,200,861
Net Realized Gain on Investment Transactions...... 9,883,696 10,027,070
Change in Net Unrealized Appreciation of
Investments...................................... (30,421,779) 40,256,921
------------ ------------
Net Increase (Decrease) in Net Assets Resulting
from Operations................................. (14,140,733) 56,484,852
------------ ------------
Distributions to Shareholders
From Net Investment Income........................ (6,353,353) (6,222,067)
From Net Realized Gain on Investments............. (8,531,808) (1,570,262)
------------ ------------
Total Distributions to Shareholders.............. (14,885,161) (7,792,329)
------------ ------------
Share Transactions
Net Proceeds from Sales of Shares................. 35,889,754 47,979,895
Reinvestment of Distributions..................... 13,403,164 6,937,426
Cost of Shares Redeemed........................... (64,317,934) (72,300,100)
------------ ------------
Net Decrease in Net Assets Resulting from Share
Transactions.................................... (15,025,016) (17,382,779)
------------ ------------
Total Increase (Decrease) in Net Assets.......... (44,050,910) 31,309,744
Net Assets -- Beginning of Year.................... 244,367,720 213,057,976
------------ ------------
Net Assets -- End of Year.......................... $200,316,810 $244,367,720
============ ============
Shares
Sold.............................................. 2,006,326 2,842,334
Issued in Reinvestment of Distributions........... 764,283 402,257
Redeemed.......................................... (3,612,456) (4,449,482)
------------ ------------
Net Decrease in Shares........................... (841,847) (1,204,891)
============ ============
</TABLE>
See Notes to Financial Statements.
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7
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AMERICAN GAS INDEX FUND, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the Years Ended March 31,
-------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net Asset Value --
Beginning of Year........ $ 18.59 $ 14.84 $ 13.25 $ 11.13 $ 11.08
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net Investment Income...... 0.51 0.47 0.45 0.45 0.44
Net Realized and Unrealized
Gain (Loss) on
Investments............... (1.63) 3.87 1.60 2.13 0.05
-------- -------- -------- -------- --------
Total from Investment
Operations............... (1.12) 4.34 2.05 2.58 0.49
-------- -------- -------- -------- --------
Distributions to
Shareholders:
From Net Investment Income. (0.51) (0.47) (0.46) (0.46) (0.44)
From Net Realized Capital
Gain...................... (0.68) (0.12) -- -- --
-------- -------- -------- -------- --------
Total Distributions....... (1.19) (0.59) (0.46) (0.46) (0.44)
-------- -------- -------- -------- --------
Net Increase (Decrease) in
Net Asset Value........... (2.31) 3.75 1.59 2.12 0.05
-------- -------- -------- -------- --------
Net Asset Value -- End of
Year...................... $ 16.28 $ 18.59 $ 14.84 $ 13.25 $ 11.13
======== ======== ======== ======== ========
Total Investment Return..... (6.35)% 29.62% 15.60% 23.46% 4.72%
Ratios to Average Net Assets
Expenses................... 0.85% 0.85% 0.85% 0.85% 0.85%
Net Investment Income...... 2.84% 2.83% 3.06% 3.71% 4.04%
Supplementary Data
Portfolio Turnover Rate.... 10.4% 12.9% 8.2% 10.0% 8.5%
Net Assets at End of Year
(in thousands)............ $200,317 $244,368 $213,058 $204,000 $188,544
Number of Shares
Outstanding at End of Year
(in thousands)............ 12,306 13,148 14,353 15,391 16,941
</TABLE>
See Notes to Financial Statements.
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8
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AMERICAN GAS INDEX FUND, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
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 the Adviser.
Rushmore Trust and Savings, FSB ("Rushmore Trust"), a majority-owned
subsidiary of the Adviser, provides transfer agency, dividend-disbursing and
other shareholder services to the Fund. In addition, Rushmore Trust serves as
custodian of the Fund's assets and pays the operating expenses of the Fund.
For these services Rushmore Trust receives an annual fee of 0.35% of the
average daily net assets of the Fund.
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9
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The American Gas Association (A.G.A.) serves as administrator for the Fund. As
administrator, A.G.A. is responsible for calculating and maintaining the Index
and providing 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, 1999, purchases of securities were $22,477,220,
and sales of securities were $30,439,272. These totals exclude short-term
securities.
4. UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS
As of March 31, 1999, net unrealized appreciation of investments for Federal
income tax purposes was $72,840,720 of which $76,935,426 related to
appreciated investments and $4,094,706 related to depreciated investments. At
March 31, 1999, the cost of the Fund's securities for Federal income tax
purposes was $126,165,255.
5. NET ASSETS
At March 31, 1999 net assets consisted of the following:
<TABLE>
<S> <C>
Paid-in-Capital................................................... $121,728,878
Net Unrealized Appreciation of Investments........................ 74,004,688
Accumulated Realized Gain on Investment Transactions.............. 4,506,186
Undistributed Net Investment Income............................... 77,058
------------
NET ASSETS........................................................ $200,316,810
============
</TABLE>
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10
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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, 1999, the related statement 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, 1999 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, 1999, 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
Princeton, New Jersey
April 30, 1999
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11
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[American Gas Index Fund]
Annual Report
March 31, 1999
