ASM INDEX 30 FUND, INC.
PROSPECTUS
March 1, 1998
ASM Index 30 Fund, Inc. (the "Fund") is a pure no-load diversified,
open-end management investment company commonly referred to as a mutual fund.
The Fund has an investment objective of providing total return through a
combination of capital appreciation and current income. There can be no
assurance that the Fund will achieve its investment objective.
Shares of the Fund are sold at their net asset value without a sales
charge.
There is no distribution or "Rule 12b-1" charge.
The Fund will pursue its objective by investing primarily in equity
securities of well established companies with large market capitalizations and
earnings and dividend histories. The Fund has adopted a fundamental policy that
its investment advisor shall limit investments to the equity securities of the
thirty (30) companies that comprise the Dow Jones Industrial Average. The Dow
Jones Industrial Average is a trademark of Dow Jones & Company, Inc. The Fund is
neither sponsored by, nor affiliated with, Dow Jones & Company, Inc.
This prospectus concisely sets forth the information about the Fund
that a prospective investor should know before investing. Investors are advised
to read this prospectus and retain it for future reference. A Statement of
Additional Information dated March , 1998 has been filed with the Securities and
Exchange Commission and is available without charge by writing or calling the
Fund at the address or phone number listed on the back cover. The Statement of
Additional Information is incorporated into this prospectus by reference.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
AS OF THE DATE OF THIS PROSPECTUS, THE DOW CONSISTS OF COMMON STOCK OF
THE FOLLOWING COMPANIES:
AMERICAN TELEPHONE & TELEGRAPH CO.
ALLIED SIGNAL, INC.
ALUMINUM COMPANY OF AMERICA
AMERICAN EXPRESS CO.
BOEING CO.
CATERPILLAR
CHEVRON CORP.
COCA-COLA CO.
WALT DISNEY
E. I. DUPONT DE NEMOURS & CO.
EASTMAN KODAK CO.
EXXON CORP.
GENERAL ELECTRIC CO.
GENERAL MOTORS CORP.
GOODYEAR TIRE & RUBBER CO.
HEWLETT PACKARD
INTERNATIONAL BUSINESS MACHINES, CORP.
INTERNATIONAL PAPER CO.
JOHNSON & JOHNSON
McDONALD'S CORP.
MERCK & CO.
MINNESOTA MINING & MANUFACTURING CO.
J. P. MORGAN
PHILIP MORRIS COMPANIES, INC.
PROCTOR & GAMBLE CO.
SEARS ROEBUCK & CO.
TRAVELERS GROUP, INC.
UNION CARBIDE CORP.
UNITED TECHNOLOGIES CORP.
WALMART STORES
-2-
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page Page
<S> <C>
Table of Fees and Expenses.........................3 Net Asset Value....................................11
Financial Highlights...............................6 How to Redeem Shares................................11
The Fund...........................................7 Exchange Privileges.................................13
Principal Investment Restrictions..................7 Dividends and Tax Status............................14
Management of the Fund.............................8 General Information.................................14
How to Purchase Shares.............................9
</TABLE>
TABLE OF FEES AND EXPENSES
Shareholder Transaction Expenses:
<TABLE>
<CAPTION>
<S> <C>
Maximum Sales Load
Imposed on Purchases........................................................................ None
Maximum Sales Load
Imposed on Reinvested
Dividends and Capital Gains................................................................. None
Deferred Sales Load......................................................................... None
Redemption Fees............................................................................. up to 0.75% (a)
Annual Fund Operating Expenses
(as a percentage of average net assets) (b)
Management Fees after
Expense Reimbursement (c)................................................................... 0.00%
12b-1 Fees.................................................................................. None
Other Expenses.............................................................................. 0.18%
Total Fund Operating Expenses
(after expense reimbursement)(d).................................................. 0.18%
</TABLE>
(a) The Fund will deduct a redemption fee of up to 0.75% of the value of
shares redeemed only if they are redeemed more than six (6) times per
year. However, the redemption fee will not be applicable to shares held
in omnibus accounts. See page 12. This fee, which is applicable
-3-
<PAGE>
only to such short-term redemptions on certain accounts, is not
reflected in the example below.
(b) The percentages expressing annual operating expenses reflect the
Advisor's obligation effective January 15, 1997 to reimburse the Fund
for expenses in excess of 0.18% of its net asset value ("NAV") for the
current fiscal year. The Advisor's commitment to this expense
limitation will continue in effect until at least September 17, 1999.
For the period from November 1, 1996 until January 14, 1997, the
Advisor reimbursed the Fund for expenses in excess of 2.5%. For the
period from January 15, 1997 until October 31, 1997, the Advisor
reimbursed the Fund for expenses in excess of 0.18% of the Fund's NAV.
Without the reimbursement of $180,781, the ratio of expenses to
average net assets for the fiscal year ended October 31, 1997 would
have been 1.05%.
(c) The Fund's Investment Management Agreement authorizes the payment of a
management fee of 0.08% of the Fund's average net assets, subject to a
waiver of the fee to the extent necessary to comply with the expense
limitation commitment set forth above to limit the Total Fund Operating
Expenses to 0.18%. For the fiscal year ended October 31, 1997, the
Advisor did not receive any management fees.
(d) In addition to these costs, the Fund assesses at the beginning of each
calendar quarter an account maintenance fee of $2.50. This fee will be
waived for shareholders with an account balance of $10,000 or more.
The table above sets forth the various costs and expenses that a shareholder in
the Fund will bear directly or indirectly. The Annual Fund Operating Expenses
shown above are based in part on the agreement of the Fund's Advisor to
reimburse the Fund for expenses incurred. See also, "Management of the Fund."
Example:
You would pay the following expenses of a $1,000 investment assuming
(1) a 5% annual return; and (2) a redemption at the end of each time period:
1 year 3 years 5 years 10 years
$2 $6 $10 $23
The amounts listed in this example should not be considered as
representative of past or future expenses and actual expenses may be greater or
less than those indicated.
Moreover, while the example assumes a 5% annual return, the Fund's
actual performance will vary and may result in an actual return greater or less
than 5%. The example takes into account the fact that the Advisor has agreed to
limit the Fund's annual operating expenses to 0.18% of the Fund's average net
assets. Prior to January 15, 1997, the Advisor was obligated to reimburse the
Fund for expenses incurred in excess of 2.5% of the Fund's average net assets.
Consequently, the expenses reflected in this table are less than you would have
paid during the prior period.
-4-
<PAGE>
The following table represents debt amounts related to interest charged
to the Fund by the Fund's custodian bank as a result of early settlement of Fund
redemptions. The amounts shown were not subject to any voluntary expense
reimbursement by the Advisor, and are treated as bank loans to the Fund.
<TABLE>
<CAPTION>
(4)
(3) Average Number
Average Amount of Registrant's (5)
(2) of Debt Shares Average Amount
(1) Amount of Debt Outstanding Outstanding of Debt Per
Fiscal Year Outstanding at During the During the Share During the
(11/1-10/31) End of Period Period (b) Period Period (b)
<S> <C> <C> <C> <C>
1991 (a) $0.00 $113 23,700 $0.004768
1992 $0.00 $222,943 461,227 $0.483369
1993 $0.00 $474,902 901,865 $0.526577
1994 $0.00 $385,752 693,241 $0.556447
1995 $0.00 $93 747,877 $0.000124
(a) Inception 3/4/91
(b) Sum of debt outstanding each day divided by 365 (366 in fiscal year 1992)
</TABLE>
-5-
<PAGE>
Financial Highlights
The following financial information for the periods indicated, before
restatement of expense ratios as indicated below, has been audited by Hacker,
Johnson, Cohen & Grieb, independent auditors for the years ended 1992, 1993,
1994 and 1995 and Coopers & Lybrand LLP for the years ended 1996 and 1997. This
information should be read in conjunction with the financial statements and
related footnotes included in the Fund's Annual Report to shareholders, a copy
of which may be obtained from the Fund without charge.
ASM INDEX 30 FUND, INC.
Selected Per Share Data
<TABLE>
<CAPTION>
Years Ended October 31,
February 13,
1991 +
to October 31,
1997 1996 1995(b) 1994(b) 1993(b) 1992(b) 1991(b)(c)
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $14.13 $11.37 $9.78 $10.07 $9.23 $8.93 $10.00
Investment operations:
Net investment income 0.18 0.08 -- 0.56 0.43 0.26 0.09
Net gains (or losses) from
investments (realized and
unrealized) 3.34 2.76 1.77 (0.16) 0.88 0.20 (1.16)
------ ------ ------ ------ ------ ------ ------
Total from investment
operations 3.52 2.84 1.77 0.40 1.31 0.46 (1.07)
------ ------ ------ ------ ------ ------ ------
Distributions:
From net investment income (0.18) (0.07) (0.05) (0.52) (0.47) (0.16) --
In excess of net investment (0.11) (0.01) (0.13) -- -- -- --
income
From net realized gains (0.15) -- -- -- -- -- --
Tax Return of Capital -- -- -- (0.17) -- -- --
------ ------ ------ ------ ------ ------ ------
Total distributions (0.44) (0.08) (0.18) (0.69) (0.47) (0.16) --
------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $17.21 $14.13 $11.37 $9.78 $10.07 $9.23 $8.93
===== ===== ===== ==== ===== ==== ======
Total Return 25.18% 25.01% 18.10% 3.97% 14.65% 5.10% (17.74%)
===== ===== ===== ==== ===== ==== ======
Ratios/supplemental data:
Net assets, end of period
(000) $21,127 $9,315 $9,704 $7,277 $17,085 $6,583 $1,325
Ratio of expenses to average
net assets* 0.42% 1.86% 3.01% 0.75% 0.75% 0.75% 0.75%
Ratio of net investment
income to average net assets* 1.51% 0.53% 0.04% 2.17% 3.35% 2.41% 0.97%
Portfolio turnover rate*** 265% 391% 340% 1,193% 642% 405% 1%
Number of shares outstanding
at the end of period 1,227,897 659,472 853,716 743,776 1,696,004 713,816 148,399
Average commission rate (a) $0.0387 $0.0800 -- -- -- -- --
Ratio of expenses to average 1.05% 2.59% 5.77% 2.94% 3.38% 3.91% 26.09%
net assets
Ratio of net investment 0.88% (0.20%) (2.72%) (0.02%) 0.72% -- --
income (loss) to average net
assets
-6-
<PAGE>
+ Commencement of operations.
* Ratios are presented net of fees voluntarily reduced. If such voluntary fee reductions had not
occurred, the ratios would have been as follows:
** Includes $50,460 of interest expense not subject to the expense reimbursement agreement.
*** The ASM Fund continues to be as fully invested in equities as possible. Therefore, almost all Fund
portfolio turnover is a result of purchases and sales of securities
necessary for settlement of transactions requested by Fund
shareholders.
(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.
(b) Audited by predecessor auditor.
(c) Ratios are annualized.
</TABLE>
THE FUND
ASM Index 30 Fund, Inc. (the "Fund") is a no-load, diversified open-end
investment company or "mutual fund." The Fund has an objective of providing
total return through a combination of capital appreciation and current income.
The Fund seeks to achieve its objective by investing in equity securities of
large, well-established companies. The companies in which the Fund will invest
have a large market capitalization (in excess of $1.0 billion), an established
history of earnings and dividend payments, a large number of publicly held
shares and high trading volume and a high degree of liquidity.
On May 23, 1997, the Fund's Board of Directors approved a change in the
Fund's non-fundamental investment policy directing the Fund's advisor to limit
the Fund's investments to the equity securities of the 30 companies that
comprise the Dow Jones Industrial Average ("DJIA"), to a fundamental policy. It
is expected that the Fund will not invest in any other type of securities,
including securities investments which would constitute temporary, defensive
investment positions for the Fund. The DJIA is an index comprised of an equal
number of shares of each of the 30 companies in the DJIA, without regard to
share prices, as described more fully in the SAI. The Fund tracks the DJIA by
seeking to invest more than 95% of the Fund's total assets in an equal number of
shares of each of the 30 companies which comprise the index. Any assets of the
Fund not invested in such manner are normally held in cash.
PRINCIPAL INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions which are
fundamental policies that cannot be changed without the approval of a majority
of the Fund's outstanding voting securities (as defined in the Investment
Company Act of 1940, referred to as the "1940 Act").
The Fund's investment objective is such a fundamental policy. In
addition, as a matter of fundamental policy, (i) the Fund may not invest 25% or
more of its total assets (calculated at the time of purchase) taken at market
value in any one industry; (ii) purchase more than 10% of the outstanding voting
securities or of any class of securities of any one issuer; or (iii) borrow
money except from banks for temporary or emergency purposes in amounts not
exceeding 10% of the Fund's net assets. Additional information about the Fund's
fundamental policies is contained in the Statement of Additional Information.
In addition, the Fund's operating policies preclude it from making
certain investments if thereafter more than 10% of the value of its net assets
would be so invested. The investments included in this 10% are (i) those which
are restricted, i.e., those which cannot freely be sold for
-7-
<PAGE>
legal reasons (which the Fund does not expect to own); (ii) repurchase
agreements having a maturity of more than seven days; and (iii) investments for
which market quotations are not readily available (which the Fund does not
expect to own).
MANAGEMENT OF THE FUND
The Fund's Board of Directors decides on matters of general policy and
reviews the activities of the Fund's Advisor, and the Fund's officers conduct or
supervise the conduct of its daily business operations. Vector Index Advisors,
Inc. (the "Advisor"), 15438 N. Florida Ave., Suite 107, Tampa, FL 33613, acts as
the investment advisor to the Fund, subject to the control of the Fund's Board
of Directors. The Advisor is a Florida corporation that was organized to act as
the Fund's investment advisor. The Advisor is controlled by Mr. Steven H. Adler,
who has had over twenty years experience in the investment business including
employment with the management company of a major mutual fund and as a
consultant to eight mutual funds.
The Advisor is responsible for the investment and reinvestment of the
Fund's assets, provides the Fund with executive and other personnel, office
space and other facilities and administrative services, and conducts the
Fund's daily business affairs. It formulates and implements a continuous
investment program for the Fund, consistent with its investment objective,
policies and restrictions.
In placing orders for the Fund's portfolio transactions, the Advisor's
policy is to seek "best execution", i.e. prompt and efficient execution at the
most favorable price. In seeking to achieve this combination, the Advisor
evaluates factors such as the overall quality and reliability of dealers and
services they provide, including general execution capability, reliability,
operational capacity and financial condition. Subject to this policy, the
Advisor also is authorized to consider sales of shares of the Fund as a factor
in the selection of brokers to execute brokerage and principal transactions.
An Investment Management Agreement ("Management Agreement") for the
Fund was unanimously approved by the Fund's Board of Directors at a meeting held
on March 20, 1997 and continued to May 23, 1997. The Management Agreement
subsequently was approved by shareholders of the Fund at a Special Meeting of
Shareholders held on October 30, 1997. The Management Agreement became effective
on November 1, 1997, and will continue in effect until September 17, 1999.
Thereafter, the Management Agreement will continue in effect as long as such
continuance properly is approved pursuant to the requirements of the 1940 Act
and rules thereunder.
The management of the Fund is the only activity of the Advisor.
Therefore, the viability of the Advisor is totally dependent on the ability of
the Fund to grow to a size where it is able to pay its expenses including fees
to the Advisor. The Fund's Board of Directors monitors on a continuing basis the
ability of the Advisor to perform its obligations under its agreement with the
Fund. In addition to the fees payable to the Advisor, the Fund is responsible
for its operating expenses, which include such items as interest, taxes, legal
and audit expenses, and custodian and shareholder service agent fees. See the
Statement of Additional Information for more information as to the Fund's Board
of Directors, officers, the Advisor and the Fund's operating expenses.
In order to assist the Fund in meeting it's expenses, the Advisor has
agreed to reimburse the Fund for the expenses in excess of an agreed upon
percentage of its average NAV. Initially, this amount was 2.5% of average net
assets. On October 31, 1991 the Advisor revised this agreement
-8-
<PAGE>
retroactively to limit expenses of the Fund to 0.75% of average net assets and
continued this limitation until October 31, 1994. On November 1, 1994 the
Advisor reinstated the initial expense limitation of 2.5% of average net assets.
This expense limitation of 2.5% of average net assets continued until January
14, 1997. On January 15, 1997 the Advisor revised the expense limitation of the
Fund to the current limitation of 0.18% of average net assets. The current
expense limitation will continue in effect at least until September 17, 1999.
During fiscal years prior to October 31, 1995, certain expense
reimbursement obligations of the Advisor were accrued by the Fund as a
receivable from the Advisor. All such obligations have been paid in full to the
Fund and its shareholders. In the future, any such amount will be applied to
reduce advisory fees payable to the Advisor. The staff of the SEC advised the
Advisor that accrual procedures used in earlier years and the Advisor's failure
to pay its expense reimbursement obligations to the Fund in a timely manner were
not proper. The Advisor has informed the Fund that it has settled such concerns
with the SEC. In connection therewith, the Advisor retained an independent
consultant to conduct a comprehensive compliance audit of the Advisor and its
procedures for the ultimate benefit of the Fund and its shareholders. This audit
was conducted by counsel selected by the Advisor and approved by the Fund's
Board of Directors, and by the SEC. As a result of and in connection with the
audit, the Advisor has instituted additional compliance and audit procedures for
the protection of the Fund.
Portfolio Manager
Steven H. Adler is primarily responsible for the day-to-day management
of the Fund. Mr. Adler, a Director and President of the Fund, has been
associated with the Fund since its inception in 1991. Mr. Adler is a Certified
Investment Management Analyst (CIMA, Investment Consultants Association) and a
Certified Pension Consultant (CPC, American Society of Pension Actuaries).
HOW TO PURCHASE SHARES
Shares of the Fund are offered at their net asset value without a sales
charge as an investment vehicle for individuals, institutions, fiduciaries and
retirement plans. The Advisor may make payments of up to 0.20% of the average
daily net assets attributable to registered representatives, including
retirement plan consultants, that provide assistance to them in their efforts to
distribute shares of the Fund. Such payments will be made by the Advisor out of
its own resources. The Advisor, at its expense and under its objective criteria,
may from time to time provide additional promotional incentives to such
representatives. In some instances these payments or incentives may be offered
only to persons who have initiated the purchase of significant amounts of Fund
shares. The minimum initial investment in the Fund is $1,000, except for
retirement and other employee benefit plans, for which the minimum initial
investment is $500. The minimum subsequent investment is $100 for all accounts.
The Fund reserves the right to reject any order. Investors may be charged a fee
if they effect transactions in Fund shares through a securities dealer, bank or
other financial institution.
-9-
<PAGE>
Purchase by Check
Investors may purchase shares by sending a check payable to ASM Index
30 Fund, Inc. together with the application form to:
ASM Index 30 Fund, Inc.
c/o Mutual Funds Service Co., Inc.
6000 Memorial Drive
Dublin, Ohio 43017
SUBSEQUENT INVESTMENTS in an existing account may be made by mailing a
deposit slip and check made payable to ASM Index 30 Fund, Inc. to:
ASM Index 30 Fund, Inc.
P. O. Box 640276
Cincinnati, OH 45264-0276
Shareholders wishing to open an account or send subsequent investment
to the Fund using an OVERNIGHT COURIER service may use the following address:
ASM Index 30 Fund, Inc.
c/o Mutual Funds Service Co., Inc.
6000 Memorial Drive
Dublin, Ohio 43017
Shares of the Fund will be purchased for the account of the investor at
the net asset value next determined after receipt of the investor's check.
Purchase By Wire
Investors may invest in the Fund by first contacting the Fund's
transfer agent at 800-333-4276 to obtain a shareholder account number and then
wire the amount to be invested to ASM Index 30 Fund, Inc. care of the Fund's
custodian bank, at the following address:
Star Bank, N. A., Cinti/Trust, ABA # 0420-0001-3
Attn: ASM Fund. Credit Account # 480389436
Account Name (your name)
Personal Account Number (your ASM account number)
Shares of the Fund will be purchased for the account of the Investor at
the net asset value next determined after receipt of the Investor's order. To
secure this price, the Transfer Agent must be notified no later than 60 minutes
prior to the close of trading on the New York Stock Exchange.
-10-
<PAGE>
At the same time the Investor should mail an application form to the
Transfer Agent at the following address:
ASM Index 30 Fund, Inc.
c/o Mutual Funds Service Co., Inc.
P O. Box 7177
6000 Memorial Drive
Dublin, OH 43017
Automatic Investment Plan
The Fund offers an Automatic Investment Plan whereby an Investor may
automatically make purchases of shares of the Fund on a regular, convenient
basis ($100 minimum per transaction). Under the Automatic Investment Plan, an
Investor's designated bank or other financial institution debits a
pre-authorized amount on the Investor's account each month and applies the
amount to the purchase of Fund shares. The Automatic Investment Plan must be
implemented with a financial institution that is a member of the Automated
Clearing House ("ACH"). In addition, the Fund must have a currently effective
registration in those states in which it is required. No service fee is
currently charged by the Fund for participating in the Automatic Investment
Plan. A fee will be imposed by the Transfer Agent if sufficient funds are not
available in the Investor's account at the time of the automatic transaction.
Applications to establish the Automatic Investment Plan are available from the
Fund. The $1,000 minimum initial investment must be met before the Automatic
Investment Plan may be established.
NET ASSET VALUE
The Fund's net asset value per share is determined on each day that the
New York Stock Exchange is open for trading, as of the close of the Exchange
(currently 4:00 p.m. Eastern time). Shares tendered for redemption on a day the
Exchange is open for unrestricted trading prior to the close of trading will be
valued at the close of trading on that day. The Fund accepts orders to purchase
shares on days the Exchange is open for unrestricted trading. The Fund reserves
the right to reject any purchase order which is contrary to the interests of the
Fund. The Fund may reject any larger order to purchase shares received after
3:00 p.m. Therefore, any order received after that time will not be accepted by
the Fund or priced at the net asset value next computed on the following
business day.
The net asset value per share is the value of the Fund's assets, less
its liabilities, divided by the number of shares of the Fund outstanding. The
value of the Fund's portfolio securities is determined on the basis of the
market value of such securities. Short-term investments maturing in less than 60
days are valued at amortized cost unless the Board of Directors determines that
it does not represent a fair value. See the Statement of Additional Information
for further details.
HOW TO REDEEM SHARES
A shareholder wishing to redeem shares by telephone may do so if
appropriate information is supplied on the Account Registration Form. You can
redeem shares by calling the Fund's Transfer Agent at 1-800-333-4276 no later
than 60 minutes prior to the close of trading on the New York
-11-
<PAGE>
Stock Exchange to receive that day's price. The proceeds may be sent by check to
your address of record only or by wire transfer to your bank account on the next
business day following your telephone request. Wire transfers will be restricted
to amounts of $1,000 or more. A shareholder wishing to redeem shares may do so
at any time by writing or delivering instructions to:
ASM Index 30 Fund, Inc.
c/o Mutual Funds Service Co., Inc.
P.O. Box 7177
6000 Memorial Drive
Dublin, Ohio 43017
Shareholders desiring to use overnight courier services should address
correspondence to:
ASM Index 30 Fund, Inc.
c/o Mutual Funds Service Co., Inc.
6000 Memorial Drive
Dublin, Ohio 43017
The redemption request should specify the number of shares to be
redeemed and be signed by all registered owners exactly as the account is
registered, and it will not be accepted unless it contains all required
documents in proper form, as described below. If the request is in proper form,
the shares specified will be redeemed at the net asset value next determined
after receipt of the request.
Charge Applicable for Short-Term Redemptions
If you redeem shares more than six (6) times per year, the Fund will
deduct a redemption fee on each additional redemption. The fee will be retained
by the Fund and used to offset the transaction costs that short-term trading
imposes on the Fund and its shareholders. The fee does not apply to tax
qualified pension or retirement plan accounts. In addition, the redemption fee
will not be charged upon redemption of shares purchased through omnibus
accounts. Also, shares acquired through reinvestment of dividends and capital
gain distributions are exempt from the redemption fee. The fee is based on the
value of the assets redeemed in each transaction subject to this charge, in
accordance with the following schedule:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Over $10 million.................................. 0.06% Over $100,000 to $1.5 million................. 0.20%
Over $1.5 million to $10 million.................. 0.10% 0 to $100,000................................. 0.75%
</TABLE>
Proper Form
In addition to written instructions, if any shares being redeemed or
repurchased by stock certificates, the certificates must be surrendered. The
certificates must either be endorsed or accompanied by a stock power signed by
the registered owners, exactly as the certificates are registered. Additional
documents may be required from corporations or other organizations, fiduciaries
or anyone other than the shareholder of record. Any questions concerning
documents needed should be directed to 1-800-333-4276.
-12-
<PAGE>
Payments
Payment for shares tendered normally will be made within seven days
after receipt by the Fund of instructions, certificates, if any, and other
documents, all in proper form. However, payment may be delayed under unusual
circumstances, as specified in the 1940 Act or as determined by the Securities
and Exchange Commission. Payment may also be delayed for any shares purchased by
check for a reasonable time (not to exceed 15 days from the purchase date)
necessary to determine that the purchase check will be honored. Payment will be
sent only to shareholders at the address of record.
Redemption of Small Accounts
In order to reduce the Fund's expenses, the Board of Directors is
authorized to cause the redemption of all of the shares of any shareholder whose
account has declined to a net asset value of less than $500, as a result of a
transfer or redemption, at the net asset value determined as of the close of
business on the business day preceding the sending of proceeds of such
redemption. The Fund would give shareholders whose shares were being redeemed 60
days prior written notice in which to purchase sufficient shares to avoid such
redemption.
EXCHANGE PRIVILEGE
A shareholder may redeem all or any portion of his Fund shares and use
the proceeds to purchase shares of The Flex-Funds Money Market Fund, a money
market mutual fund not affiliated with the Fund or the Advisor, if shares are
offered in his/her state of residence. The redemption of shares of the Fund and
the purchase of shares of The Flex-Funds Money Market Fund will be effected at
the respective net asset values of such Funds. An exchange transaction is a sale
and purchase of shares for federal income tax purposes and may result in a
capital gain or loss. Also, if such exchange transaction is made more than six
times per year, the "Charge Applicable for Short-Term Redemptions" as described
on page 10 will be imposed. Prior to exercising the exchange privilege, a
shareholder should obtain and carefully read the prospectus for The Money Market
Fund, which is available from the Fund and may be obtained by telephone at
1-800-445-2763, or by writing to the Fund, ASM Index 30 Fund, Inc., 15438 North
Florida Avenue, Suite 107, Tampa Florida 33613. The exchange privilege does not
in any way constitute an offering or recommendation on the part of the Fund or
the Advisor of an investment in Flex Funds Money Market Fund. The registration
of both the account from which the exchange is being made and the account to
which the exchange is made must be identical.
In order to elect this exchange option, you must complete both the
Exchange Authorization Form and New Account Application for The Flex-Funds Money
Market Fund and mail it to:
Mutual Funds Service Co.
Box 7177
6000 Memorial Drive
Dublin, OH 43017
Once you have elected the exchange option you may initiate an exchange
by calling stating your name, account numbers for both the ASM Index 30 Fund and
The Flex-Funds Money Market
-13-
<PAGE>
Fund, and the number of shares or dollar value of shares to be exchanged or by
sending a letter stating the same information to the Fund c/o Mutual Funds
Service Co., Inc. An exchange must meet the applicable minimum investment of The
Flex-Funds Money Market Fund (currently $2500 for an initial investment and $100
for a subsequent investment).
The Fund reserves the right, at any time and without prior notice, to
suspend, limit, modify or terminate the exchange privilege or its use in any
manner by any person or class. In particular, since an excessive number of
exchanges may be disadvantageous to the Fund, the Fund reserves the right to
terminate the exchange privilege of any shareholder who makes more than six
exchanges of shares in a year or three in a calendar quarter.
DIVIDENDS AND TAX STATUS
The Fund expects to pay annual capital gain distributions and to pay
income dividends quarterly. For the convenience of investors, all dividends and
distributions are paid in full and fractional shares of the Fund based on the
net asset value per share at the close of business on the record date, unless
the shareholder has previously notified the transfer agent that dividends are to
be paid in cash by so electing on the application form or by subsequent written
notice to Mutual Fund Service Co., Inc., the Fund's transfer agent and the
dividend paying agent.
The Fund expects to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies for the current and all subsequent
fiscal years, under which all taxable income is expected to be distributed to
shareholders. If so qualified, the Fund will not be subject to federal income
taxes on its net investment income and capital gains, if any, realized during
any fiscal year in which it is distributed. All dividends from net investment
income together with distributions of net short-term capital gains (collectively
"income dividends") will be taxable as ordinary income to shareholders, even
though paid in additional shares. Capital gains dividends will be taxable to
shareholders as net long-term capital gains, regardless of the length of time a
shareholder has owned his shares. Dividends and distributions are generally
taxable to shareholders in the year in which received. However, dividends and
distributions received in January of any calendar year will be treated for tax
purposes as if received in the prior calendar year on the recorded date for the
dividend or distribution, if the record date was in October, November or
December. The Fund will notify each shareholder after the close of its fiscal
year both of the dollar amount and the tax status of that year's dividends and
distributions. Gains realized from the sale of securities will be long or short
term, depending on the length of time owned by the Fund.
The Fund may be required to impose backup withholding at a rate of 31%
from income dividends and capital gain distributions and upon payment of
redemption proceeds if a shareholder does not comply with federal requirements
relating to the furnishing and certification of taxpayer identification numbers
and reporting of dividends.
GENERAL INFORMATION
The Fund was incorporated in Maryland on April 25, 1990. Star Bank,
N.A. acts as custodian of the Fund's assets, Mutual Funds Service Co. acts as
accounting and shareholder servicing agent and Coopers & Lybrand LLP serve as
the independent auditors for the Fund. It is not contemplated that regular
annual meetings of shareholders will be held. No amendment may be made
-14-
<PAGE>
to the Articles of Incorporation without the affirmative vote of the holders of
more than 50% of the Fund's outstanding shares. The holders of shares have no
preemptive or conversion rights. Shares when issued are fully paid and
non-assessable.
Shareholder inquiries should be directed to the Fund at the address and
telephone number indicated on the cover of the Fund application.
[ASM LOGO]
-15-
<PAGE>
ASM INDEX 30 FUND, INC.
Statement of Additional Information
March 1, 1998
This Statement of Additional Information is not a prospectus, and it should be
read in conjunction with the prospectus of ASM Index 30 Fund, Inc. (the "Fund"),
dated March __, 1998. A copy of the prospectus may be obtained from the Fund at
15438 North Florida Avenue, Suite 107, Tampa, Florida 33613, Tel: (813) 963-3150
or (800) 445-2763.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Cross Reference to
Page Number Page in Prospectus
<S> <C> <C>
Investment Objective and Policies 2 4
Investment Restrictions 2,3 4
Repurchase Agreements 3 -
Portfolio Turnover 3 4
Management 4 5
Portfolio Transactions and Brokerage 5,6 6
Net Asset Value 6 8
Redemption in Kind 6 8
Taxation 6 11
Performance Information 7,8 12
General Information 8 13
Financial Statements
</TABLE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to provide total return through a
combination of capital appreciation and current income. The Fund's investment
policies are described in the Fund's prospectus. The Dow Jones Industrial
Average, the index which guides the Fund's investments, is comprised of an equal
number of shares of the 30 companies which make up the index. Over the years,
the selection of such companies has changed from time to time, and the value of
the index is also adjusted to reflect stock splits and other events which can
change the value of the securities comprising the index.
<PAGE>
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions (in addition to those indicated
in its prospectus) as fundamental policies, which may not be changed without the
favorable vote of the holders of a "majority," as defined in the Investment
Company Act of 1940 (the "1940 Act"), of the Fund's outstanding voting
securities. Under the 1940 Act, the vote of the holders of a majority of a
Fund's outstanding voting securities means the vote of the holders of the lesser
of (i) 67% of the shares of the Fund represented at a meeting at which the
holders of more than 50% of its outstanding shares are represented or (ii) more
than 50% of the outstanding shares.
The Fund may not:
1. Purchase securities on margin, except such short-term credits as may be
necessary for the clearance of transactions.
2. Make short sales of securities or maintain a short position.
3. Issue senior securities, borrow money or pledge its assets, except that
the Fund may borrow on an unsecured basis from banks for temporary or
emergency purposes or for the clearance of transactions in amounts not
exceeding 10% of its total assets (not including the amount borrowed)
and will not make investments while borrowings in excess of 5% of the
value of the Fund's total assets are outstanding.
4. Buy or sell commodities or commodity futures contracts, or buy or sell
real estate, real estate limited partnership interests or other
interests in real estate (although it may purchase and sell securities
which are secured by real estate and securities of companies which
invest or deal in real estate).
5. Make loans (except for purchases of publicly-traded debt securities
consistent with the Fund's investment policies).
6. Make investments for the purpose of exercising control or management.
7. Act as underwriter (except to the extent the Fund may be deemed to be
an underwriter in connection with the sale of securities in the Fund's
investment portfolio).
8. Invest 25% or more of its total assets (calculated at the time of
purchase and taken at market value) in any one industry.
9. As to 75% of the value of its total assets, invest more than 5% of the
value of its total assets in the securities of any one issuer (other
than obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities), or purchase more than 10% of all
outstanding voting securities of any one issuer.
The Fund observes the following restrictions as a matter of operating but not
fundamental policy, pursuant to positions taken by federal and state regulatory
authorities:
-2-
<PAGE>
The Fund may not:
10. Purchase any security if as a result the Fund would then hold more than
10% of any class of securities of an issuer (taking all common stock
issues as a single class, all preferred stock issues as a single class,
and all debt issues a single class).
11. Invest in securities of any issuer if, to the knowledge of the Fund,
any officer or director of the Fund or of the Advisor owns more than
1/2 of 1% of the outstanding securities of such issuer, and such
directors who own more than 1/2 of 1% own in the aggregate more than 5%
of the outstanding securities of such issuer.
12. Invest more than 5% of the value of its net assets in warrants
(included in that amount, but not to exceed 2% of the value of the
Fund's net assets, may be warrants which are not listed on the New York
or American Stock Exchange).
13. Invest in any security if as a result the Fund would have more than 5%
of its total assets invested in securities of companies which together
with any predecessor have been in continuous operation for fewer than
three years.
14. Invest in oil, gas or mineral related programs, partnerships or leases.
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which the Fund purchases a security
from a bank or recognized securities dealer and simultaneously commits to resell
that security to the bank or dealer at an agreed-upon date and price reflecting
a market rate of interest unrelated to the coupon rate or maturity of the
purchased security. The Fund maintains custody of the underlying securities
prior to their repurchase; thus the obligation of the bank or dealer to pay the
repurchase price on the date agreed to is, in effect, secured by such underlying
securities. If the value of such securities is less than the repurchase price,
the other party to the agreement will provide additional collateral so that at
all times the collateral is at least equal to the repurchase price.
Although repurchase agreements carry certain risks not associated with direct
investments in securities, the Fund intends to enter into repurchase agreements
only with banks and dealers believed by the Advisor to present minimum credit
risks in accordance with guidelines established by the Board of Directors. The
Advisor will review and monitor the creditworthiness of such institutions under
the Board's general supervision. To the extent that the proceeds from any sale
of collateral upon a default in the obligation to repurchase were less than the
repurchase price, the Fund would suffer a loss. If the other party to the
repurchase agreement petitions for bankruptcy or otherwise becomes subject to
bankruptcy or other liquidation proceedings, there might be restrictions on the
Fund's ability to sell the collateral and the Fund could suffer a loss. However,
with respect to financial institutions whose bankruptcy or liquidation
proceedings are subject to the U.S. Bankruptcy Code, the Fund intends to comply
with provisions under such Code that would allow it immediately to resell the
collateral.
-3-
<PAGE>
PORTFOLIO TURNOVER
The Fund's portfolio turnover rate for each of the fiscal years ending October
31, 1996 and 1997 was 391% and 265%, respectively. The Fund continues to be 100%
invested in equities. Therefore, almost all Fund portfolio turnover is a result
of purchases and sale of securities necessary for settlement of transactions
requested by Fund shareholders. The high portfolio turnover rate in 1996
resulted primarily from portfolio securities sales made by the Fund to make
payment on redemptions. High portfolio turnover may involve additional brokerage
or tax consequences to the Fund and shareholders. See "Dividends and Tax Status"
in the Fund's Prospectus.
MANAGEMENT
The overall management of the business and affairs of the Fund is vested with
its Board of Directors. The Board approves all significant agreements between
the Fund and persons or companies furnishing services to it, including the
Fund's agreement with its Advisor, Custodian and Transfer Agent. The day to day
operations of the Fund are delegated to its officers, subject to the investment
objectives and policies of the Fund and to general supervision by the Board of
Directors. The directors and officers of the Fund and of the Advisor, their age,
business addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
Directors and Officers Position with Fund Principal Occupation
<S> <C> <C>
Steven H. Adler,* 59 President, Secretary and President, Secretary, Director of
15438 N. Florida Avenue Director the Advisor; formerly Vice
Tampa, FL 33613 President, George K. Baum & Co.
Jerome P. Feltenstein, 63 Director President, American Business
61 Mimosa Drive Associates, Inc.
Cos Cob, CT 06807
W. Keith Schilit, 43 Director Faculty member, University of
Catalyst Ventures South Florida; President, Catalyst
4928 Bay Way Drive Ventures.
Tampa, FL 33629
Daniel Calabria, 62 Director Retired, private investor consultant;
7120 S. Short Drive formerly Executive Vice President,
South Pasadena, FL 33707 Wm. R. Hough & Co.; formerly
President, Templeton Funds
Management Corp.; Trustee, The
Idex Mutual Funds; Trustee, The
Florida Tax Free Funds.
Arthur Salzfass, 62 Director Consultant, Micro Info; Director,
98 Paulding Drive SBM, Inc.; President (nonsalaried),
Chappaqua, NY 10514 Rutledge Books, Inc.; Chief
Operating Officer, Honi-corp, Inc.;
Chief Executive Officer and
President, U.S. Fibercom, Inc..
</TABLE>
-4-
<PAGE>
* denotes directors or officers who are "interested persons" of the Fund under
the 1940 Act.
The following table shows the compensation paid by the Fund to the Directors of
the Fund during the fiscal year ended October 31, 1997:
<TABLE>
<CAPTION>
COMPENSATION TABLE
Pension or Retirement Estimated Annual
Aggregate Benefits Accrued as Benefits Upon
Director Compensation Part of Fund Expenses Retirement
<S> <C> <C> <C>
Steven H. Adler none none none
Jerome P. Feltenstein $6,000 none none
W. Keith Schilit $6,000 none none
Daniel Calabria $6,000 none none
Arthur Salzfass $4,500 none none
</TABLE>
The Fund pays fees of $1,000 per quarterly meeting (plus $500 for each special
meeting attended) to directors who are not "interested persons" of the Fund.
Such directors are reimbursed for any expenses incurred in attending meetings.
During the fiscal period ended October 31, 1997, directors fees and expenses
totaled $22,500.
THE MANAGEMENT AGREEMENT
Subject to the supervision of the Board of Directors, investment advisory,
management and administration services are provided to the Fund by Vector Index
Advisors, Inc., (the "Advisor") pursuant to an Investment Management Agreement
dated November 1, 1997 (the "Agreement"). The Advisor is a Florida corporation
organized in 1990 to act as Advisor to the Fund and is controlled by Mr. Steven
H. Adler.
The Agreement was approved by the Board of Directors and by a majority of the
directors who neither are interested persons of the Fund nor have any direct or
indirect financial interest in the Agreement or any other agreement related
thereto ("Independent Directors") on May 23, 1977. It was first approved by its
public shareholders at a meeting held on October 30, 1997.
Under the Agreement, the Advisor provides a continuous investment program for
the Fund and make decisions and place orders to buy, sell or hold particular
securities. The Advisor also supervises all matters relating to the operation of
the Fund and obtains for it corporate officers, clerical staff, office space,
equipment and services. Under the Agreement, the Advisor is entitled to receive
a monthly fee at an annual rate of 0.08 of 1% of the Fund's average daily net
assets for services provided to the Fund. In addition to the fee payable to the
Advisor, the Fund is responsible for its operating expenses, including: (i)
interest and taxes; (ii) brokerage and futures commissions; (iii) insurance
premiums; (iv) compensation and expenses of Directors other than those
affiliated with the Advisor; (v) legal and audit expenses; (vi) fees and
expenses of the custodian, shareholder, service or transfer agent; (vii) fees
and expenses for registration or qualification of the Fund and its shares under
federal or state securities laws; (viii) expenses of preparing, printing and
mailing reports and notices and
-5-
<PAGE>
proxy material to shareholders; (ix) other expenses incidental to holding any
shareholder meetings; (x) dues or assessments of or contributions to the
Investment Company Institute or any successor; and (xi) such non-recurring
expenses as may arise, including litigation affecting the Fund and the legal
obligations with respect to which the Fund may have to indemnify its officers
and Directors.
Effective January 15, 1997, the Advisor has agreed to limit expenses of the Fund
to 0.18% of average net assets on an annual basis. This expense limitation
commitment will remain in effect at least until September 17, 1997. For the
fiscal year ended 1995, the Advisor waived fees and reimbursed the Fund for
expenses in the amount of $204,354. This amount included management fees earned
by the Advisor of $23,415 for the fiscal year. For fiscal years ended 1996 and
1997, the Advisor was not entitled to any fees, and reimbursed the Fund for
expenses in the amount of $89,199 and $180,781, respectively.
Under the Agreement, the Advisor will not be liable to the Fund for any error of
judgment by the Advisor or any loss sustained by the Fund except in the case of
a breach of fiduciary duty with respect to the receipt of compensation for
services (in which case any award of damages will be limited as provided in the
1940 Act) or of willful misfeasance, bad faith, gross negligence or reckless
disregard of duty.
The cost of distributing shares of the Fund is borne by the Advisor.
Unaffiliated registered broker-dealers act as, or will act as, distributor of
Fund shares at no cost to the Fund.
The Agreement is terminable by vote of the Board of Directors or by the holders
of a majority of the outstanding voting securities of the Fund at any time
without penalty, on 60 days' written notice to the Advisors. The Agreement also
may be terminated by the Advisor on 60 days written notice to the Fund. The
Agreement terminates automatically upon its assignment (as defined in the 1940
Act).
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Agreement states that in connection with its duties to arrange for the
purchase and the sale of securities held in the portfolio of the Fund by placing
purchase and sale orders for the Fund, the Advisor shall select such
broker-dealers ("brokers") as shall, in its judgment, achieve the policy of
"best execution," i,e., prompt and efficient execution at the most favorable
securities price. In making such selection, the Advisor is authorized in the
Agreement to consider the reliability, integrity and financial condition of the
broker. The Advisor also is authorized by Agreement to consider whether the
broker provides research or statistical information to the Fund and/or other
accounts of the Advisor.
The Agreement states that the commissions paid to brokers may be higher than
another broker would have charged if a good faith determination is made by the
Advisor that the commission is reasonable in relation to the services provided,
viewed in terms of either that particular transaction or the Advisor's overall
responsibilities as to the accounts as to which it exercises investment
discretion and that the Advisor shall use its judgment in determining that the
amount of commissions paid are reasonable in relation to the value of brokerage
and research services provided and need not place or attempt to place a specific
dollar value on such services or on the portion of commission rates reflecting
such services. The Agreement provides that to demonstrate that such
determinations were in good faith, and to show the overall reasonableness of
commissions paid, the Advisor shall be prepared to show that commissions paid
(i) were for purposes contemplated by the Agreement; (ii)
-6-
<PAGE>
were for products or services which provide lawful and appropriate assistance to
its decision-making process; and (iii) were within a reasonable range as
compared to the rates charged by brokers to other institutional investors as
such rates may become known from available information.
The research services discussed above may be in written form or through direct
contact with individuals and may include information as to particular companies
and securities as well as market, economic or institutional areas and
information assisting the Fund in the valuation of its investments. The research
which the Advisor receives for the Fund's brokerage commissions, whether or not
useful to the Fund, may be useful to it in managing the accounts of its other
advisory clients, if any. Similarly, the research received for the commissions
of such accounts may be useful to the Fund.
During the fiscal years ended October 31, 1995, 1996 and 1997, the Fund paid a
total of $73,668, $124,142 and $83,760.70 in brokerage commissions,
respectively.
NET ASSET VALUE
The net asset value of the Fund's shares will fluctuate and is determined as of
the close of trading on the New York Stock Exchange (currently 4:00 p.m. Eastern
time) each business day. The Exchange annually announces the days on which it
will not be open for trading. The most recent announcement indicates that it
will not be open on the following days: New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. However, the Exchange may close on days not
included in that announcement.
The net asset value per share is computed by dividing the value of the
securities held by the Fund plus any cash or other assets (including interest
and dividends accrued but not yet received) minus all liabilities (including
accrued expenses) by the total number of Fund shares outstanding at such time.
Portfolio securities that are principally traded on a national securities
exchange are valued at their last sale on the exchange on which they are
principally traded prior to the close of the New York Stock Exchange or, in the
absence of recorded sales, at their current bid price on such exchanges.
Securities listed on the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") are valued at the last available sale price on
NASDAQ prior to the time of valuation. Securities that are principally traded in
securities markets, but not principally traded on securities exchanges or
NASDAQ, are valued at the current bid price prior to the close of the New York
Stock Exchange. Other securities and assets for which market quotations are not
readily available are valued at fair value as determined in good faith using
methods approved by the Board of Directors.
REDEMPTION IN KIND
If the Board of Directors determines that it would be detrimental to the best
interests of the remaining shareholders of the Fund to make payment wholly in
cash, the Fund may pay the redemption price in part by a distribution in kind of
securities from the portfolio of the Fund, in lieu of cash. The Fund has elected
to be governed by Rule 18f-1 under the 1940 Act pursuant to which the Fund is
obligated to redeem shares solely in cash up to the lesser of $250,000 or one
percent of the net asset value of the Fund during any 90 day period for any one
shareholder. Should redemption's by any shareholder exceed such limitation, the
Fund will have the option of redeeming the excess in cash or in kind. If
-7-
<PAGE>
shares are redeemed in kind, the redeeming shareholder would incur brokerage
costs in converting the assets into cash.
TAXATION
For the period ended October 31, 1997, the Fund qualified to be taxed as a
regulated investment company ("RIC") under the Internal Revenue Code (the
"Code") and therefore was not subject to federal and state income tax at October
31, 1997 on net investment income and realized and unrealized gains and losses.
For the current and all subsequent fiscal years, the Fund intends to elect to be
and to qualify for treatment as a regulated investment company ("RIC") under
Subchapter M of the Code. In each taxable year that the Fund qualifies, the Fund
(but not its shareholders) will be relieved of federal income tax on that part
of its investment company taxable income (consisting generally of interest and
dividend income and net short term capital gain) and net capital gain that is
distributed to shareholders.
In order to qualify for treatment as a RIC, the Fund must distribute annually to
its shareholders as least 98% of its investment company taxable income and must
meet several additional requirements. Among these requirements are the
following: (1) at least 90% of the Fund's gross income each taxable year must be
derived from dividends, interest, payments with respect to securities loans and
gains from the sale or other disposition of securities or foreign currencies, or
other income derived with respect to its business of investing in securities or
currencies; (2) at the close of each quarter of the Fund's taxable year, at
least 50% of the value of its total assets must be represented by cash and cash
items, U.S. Government securities, securities of other RICs and other
securities, with such other securities, limited in respect of any one issuer, to
an amount that does not exceed 5% of the value of the Fund and that does not
represent more than 10% of the outstanding voting securities of such issuer; and
(3) at the close of each quarter of the Fund's taxable year, not more than 25%
of the value of its assets may be invested in securities (other than U.S.
Government securities or the securities of other RICs) of any one issuer.
The Fund will be subject to a nondeductible 4% excise tax to the extent it fails
to distribute by the end of any calendar year substantially all of its ordinary
income for that year and capital gain net income for the one-year period ending
on October 31 of that year, plus certain other amounts.
Dividends and Distributions. Dividends from the Fund's investment company
taxable income (whether paid in cash or invested in additional shares) will be
taxable to shareholders as ordinary income to the extent of the Fund's earnings
and profits. Distributions of the Fund's net capital gain (whether paid in cash
or invested in additional shares) will be taxable to shareholders as long-term
capital gain, regardless of how long they have held their Fund shares.
Dividends declared by the Fund in October, November or December of any year and
payable to shareholders of record on a date in one of such months will be deemed
to have been paid by the Fund and received by the shareholders on the record
date if the dividends are paid by the Fund during the following January.
Accordingly, such dividends will be taxed to shareholders for the year in which
the record date falls.
-8-
<PAGE>
Withholding. The Fund is required to withhold 31% of all dividends, capital gain
distributions and repurchase proceeds payable to any individuals and certain
other non corporate shareholders who do not provide the Fund with a correct
taxpayer identification number. The Fund also is required to withhold 20% of all
dividends and capital gain distributions paid to such shareholders who otherwise
are subject to backup withholding.
PERFORMANCE INFORMATION
From time to time the Fund may quote its average annual total return
("standardized return") in advertisements or promotional materials.
Advertisements and promotional materials reflecting standardized return
("performance advertisements") will show percentage rates reflecting the average
annual change in the value of an assumed initial investment in the Fund of
$1,000 at the end of one, five and ten year periods. If such periods have not
yet elapsed, data will be given as of the end of a shorter period corresponding
to the duration of the Fund. Standardized return assumes the reinvestment of all
dividends and capital gain distributions.
The Fund also may refer in advertising and promotional materials to its yield.
The Fund's yield shows the rate of income that it earns on its investments,
expressed as a percentage of the net asset value of Fund shares. The Fund
calculates yield by determining the interest income it earned from its portfolio
investments for a specified thirty day period (net of expenses), dividing such
income by the average number of Fund shares outstanding, and expressing the
result as an annualized percentage based on the net assets value at the end of
that thirty day period. Yield accounting methods differ from the methods used
for other accounting purposes; accordingly, the Fund's yield may not equal the
dividend income actually paid to investors or the income reported in the Fund's
financial statements.
In addition to standardized return, performance advertisements may also include
other total return performance data ("non-standardized return").
Non-standardized return may be quoted for the same or different periods as those
for which standardized return is quoted and may consist of aggregate or average
annual percentage rate of return, actual year by year rates or any combination
thereof.
All data included in performance advertisements will reflect past performance
and will not necessarily be indicative of future results. The investment return
and principal value of an investment in the Fund will fluctuate, and an
investor's proceeds upon redeeming Fund shares may be more or less than the
original cost of the shares.
Total return. Average annual total return quotations used in the Fund's
advertising and promotional materials are calculated according to the following
formula:
n
P (1 + T) = ERV
Where P equals a hypothetical initial payment of $1000; T equals average annual
total return; n equals the number of years; and ERV equals the ending redeemable
value at the end of the period of a hypothetical $1000 payment made at the
beginning of the period.
Under the foregoing formula, the time periods used in advertising will be based
on rolling calendar quarters, updated to the last day of the most recent quarter
prior to submission of the advertising for publication. Average annual total
return, or "T" in the above formula, is computed by finding the
-9-
<PAGE>
average annual compounded rates of return over the period that would equate the
initial amount invested to the ending redeemable value. Average annual total
return assumes the reinvestment of all dividends and distributions.
Average Annual Total Returns
For Periods Ended October 31, 1997
Past 1 Year Past 5 Years From 3/4/91*
25.10% 17.20% 11.59%
* Date Shares Were First Sold
Yield. Annualized yield quotations used in the Fund's advertising and
promotional materials are calculated by dividing the Fund's interest income for
a specified thirty-day period, net of expenses, by the average number of shares
outstanding during the period, and expressing the result as an annualized
percentage (assuming semi-annual compounding) of the net asset value per share
at the end of the period. Yield quotations are calculated according to the
following formula:
6
YIELD = 2 [(a-b + 1) - 1]
cd
Where "a" equals dividends and interest earned during the period; "b" equals
expenses accrued for the period, net of reimbursements; "c" equals the average
daily number of shares outstanding during the period that are entitled to
receive dividends and "d " equals the maximum offering price per share on the
last day of the period.
Except as noted below, in determining net investment income earned during the
period ("a" in the above formula), the Fund calculates interest earned on each
debt obligation held by it during the period by (1) computing the obligation's
yield to maturity, based on the market value of the obligation (including actual
accrued interest) on the last business day of the period or, if the obligation
was purchased during the period, the maturity by 360 and multiplying the
resulting quotient by the market value of the obligation (including actual
accrued interest). Once interest earned is calculated in this fashion for each
debt obligation held by the Fund, net investment income is then determined by
totaling all such interest earned.
For purposes of these calculations, the maturity of an obligation with one or
more call provisions is assumed to be the next date on which the obligation
reasonably can be expected to be called or, if none, the maturity date. For the
30-day period ended 10/31/97, the yield of the Fund was 1.7762%.
Other information. The Fund's performance data quoted in advertising and other
promotional materials represents past performance and is not intended to predict
or indicate future results. The return and principal value of an investment in
the Fund will fluctuate, and an investor's redemption proceeds may be more or
less than the original investment amount. In advertising and promotional
materials the Fund may compare its performance with data published by Lipper
Analytical Services, Inc. ("Lipper") or CDA Investment Technologies, Inc.
("CDA"). The Fund also may refer in such materials to mutual fund performance
rankings and other data, such as comparative asset, expense and
-10-
<PAGE>
fee levels, published by Lipper or CDA. Advertising and promotional materials
also may refer to comparisons of the Fund and comparative mutual fund data and
ratings reported in independent periodicals including, but not limited to, The
Wall Street Journal, Money Magazine, Forbes, Business Week, Financial World, and
Barron's.
GENERAL INFORMATION
The Fund, incorporated in the State of Maryland on April 25, 1990 is authorized
to issue 1,000,000,000 shares of common stock, $.001 per value (the "Common
Stock"). Shares of the Fund, when issued, are fully transferable and redeemable
at the option of the holder. Shares are also redeemable at the option of the
Fund in certain circumstances as described in the Fund's Prospectus under "How
to Redeem Shares." All Fund shares are equal as to earnings assets and voting
privileges. There are no conversion, preemption or other subscription rights.
Under the Fund's Articles of Incorporation, the Board of Directors may authorize
the creation of additional series of common stock, with such preferences,
privileges, limitations and voting and dividend rights as the Board may
determine. Each share of the Fund outstanding is entitled to share equally in
dividends and other distributions and in the net assets of the Fund on
liquidation. Accordingly, in the event of liquidation, each share of the Fund's
common stock is entitled to its portion of all the Fund's assets after all debts
and expenses have been paid. The shares of the Fund do not have cumulative
voting rights for the election of Directors.
It is not contemplated that regular annual meetings of shareholders will be
held. There normally will be no meetings of shareholders for the purpose of
electing directors unless and until such time as less than a majority of the
directors holding office have been elected by shareholders, at which time the
directors then in office will call a shareholders' meeting for the election of
directors. The Fund has undertaken to afford shareholders certain rights,
including the right to call a meeting of shareholders for the purpose of voting
on the removal of one or more directors. Such removal can be effected upon the
action of two-thirds of the outstanding shares of the Fund. The directors are
required to call a meeting of shareholders for the purpose of voting on the
question of removal of any director when requested in writing to do so by
shareholders of record of not less than 10% of the Fund's outstanding shares. In
addition, ten of the Fund's shareholders holding the lesser of $25,000 worth or
one percent of the Fund's shares may advise the directors in writing that they
wish to communicate with other shareholders for the purpose of requesting a
meeting to remove a director. The directors will then, if requested by the
Applicants, mail at the applicants' expense the applicants' communication to all
other shareholders.
Coopers & Lybrand L.L.P., 101 East Kennedy Boulevard, Tampa, Florida 33602 have
been chosen to be Independent Auditors for the Fund. The Fund employs Mutual
Funds Service Co., P.O. Box 7177, 6000 Memorial Drive, Dublin, OH 43017 as
Transfer Agent, Shareholder Service and Fund Accounting Service. The Fund also
employs Star Bank, N.A. as it's Custodian.
As of December 30, 1997, FTC & Co., Denver, CO, held of record 20.08% of the
outstanding shares of common stock of the Fund. Persons or organizations owning
25% or more of the outstanding shares of the Fund may be presumed to "control"
(as that term is defined in the 1940 Act) the Fund. As a result, those persons
or organizations could have the ability to vote a majority of shares of the Fund
on any matter requiring the approval of shareholders of the Fund.
-11-
<PAGE>
Also, as of December 30, 1997, Donaldson, Lufkin & Jenrette, Jersey City, NJ,
held of record 20.12% and National Financial Services Corp., New York, NY, held
of record 10.53% of the outstanding shares of common stock of the Fund.
FINANCIAL STATEMENTS
The audited financial statements of the Fund for the fiscal year ended
October 31, 1997 are incorporated by reference to the Fund's Annual Report to
shareholders, a copy of which may be obtained without charge by writing to the
Fund or calling (800) 445-2763.
-12-
