ASM INDEX 30 FUND PORTFOLIO
American Telephone and Telegraph Co.
Allied Signal, Inc.
Aluminum Company of America
American Express Company
Boeing Company
Caterpillar, Inc.
Chevron Corporation
Coca-Cola Company
Citigroup, Inc.
Walt Disney Company
Dupont de Nemours & Co.
Eastman Kodak Co.
Exxon Corp.
General Electric Corporation
General Motors Corp.
Goodyear Tire & Rubber
Hewlett-Packard
International Business Machines Corp.
International Paper Co.
Johnson & Johnson
McDonald's Corp.
Merck & Company
Minnesota Mining & Manufacturing Co.
J P Morgan, Inc.
Philip Morris Companies, Inc.
Proctor & Gamble Co.
Sears Roebuck & Company
Union Carbide Corporation
United Technologies Corp.
Wal-Mart Stores, Inc.
ASM INDEX FUND
15436 North Florida Avenue
Suite 110
Tampa, Florida 33613
[LOGO] ASM Index 30 Fund
<PAGE>
[LOGO] ASM Index 30 Fund
Dear Shareholder: December 30, 1998
We are pleased to report that the ASM Index 30 Fund has tracked the
performance of the Dow Jones Industrial Average (the "DJIA")* quite well during
the fiscal year ended October 31, 1998. After operating expenses, and with the
benefit of an expense limitation commitment, the total return for the Fund was
+17.13% compared with the DJIA with a return of 17.53%.** For the period from
January 1 through October 31, 1998, the Fund's total return was +9.96% compared
to the DJIA, which was +10.14% for this ten-month period. We are very pleased
that the Fund has substantially achieved its goal of tracking this widely
followed market indicator.
As you know, the Morningstar organization, a nationally known and widely
respected mutual fund rating service, assigned the Fund its "4 STAR" rating. In
addition, Mutual Fund Magazine has elevated the Fund's rating to "FIVE STARS,"
the highest rating awarded for risk-adjusted return in its All-Star Rating
system.
We have enclosed with this report a sticker to the Fund's prospectus. This
revision describes actions by your Fund's Board of Directors with respect to the
continuing operations of the Fund. We can't be sure where the future will take
the markets or the DJIA, and we can't be sure what the future will bring for the
Fund, but we hope that continued rising markets and the continued efforts of
everyone here at the Fund will provide a safe and positive future for the Fund's
shareholders.
The Board of Directors, the officers, and the staff of ASM Index 30 Fund
are gratified that the Fund has been recognized so highly by the rating
industry. We will continue to make every effort to pursue our investment
objective on your behalf and we wish you a happy and healthy new year.
Sincerely yours,
/s/ S. Cash Ulmer
S. Cash Ulmer
Vice President
- ------------------------------
* "DOW JONES INDUSTRIAL AVERAGE" AND "DJIA" ARE THE PROPERTY OF DOW JONES &
COMPANY. THE ASM INDEX 30 FUND, INC. IS NEITHER AFFILIATED WITH, NOR ENDORSED
BY, DOW JONES & COMPANY.
** THE DJIA'S PERFORMANCE ASSUMES REINVESTMENT OF ALL DIVIDENDS AND
DISTRIBUTIONS AND DOES NOT REFLECT ANY ASSET-BASED CHARGES FOR INVESTMENT
MANAGEMENT OR OTHER EXPENSES. THE RETURNS OF THE ASM INDEX 30 FUND ASSUME
REINVESTMENT OF ALL DIVIDENDS AND DISTRIBUTIONS. PAST INVESTMENT PERFORMANCE
DOES NOT GUARANTEE FUTURE PERFORMANCE.
<PAGE>
ASM INDEX 30 FUND
COMPARISON OF FUND PERFORMANCE
TO THE DOW JONES INDUSTRIAL AVERAGE
[GRAPH] The following information was presented as a line graph.
Date ASM Index 30 Dow
--------------------------------------------
3/4/91 10,000.00 10,000.00
10/31/91 8,790.00 10,785.36
10/31/92 9,385.14 11,689.22
10/31/93 10,763.25 13,698.42
10/31/94 11,213.05 14,987.72
10/31/95 13,264.66 18,720.03
10/31/96 16,581.65 24,281.59
10/31/97 20,754.14 30,546.00
10/31/98 24,307.26 35,892.37
This line graph depicts the performance of $10,000 when invested in the ASM
Index 30 Fund (the "Fund") from March 4, 1991 (when shares of the Fund were
first sold) to October 31, 1998 as compared to the Dow Jones Industrial Average
(the "Dow").
The graph illustrates that a $10,000 investment on March 4, 1991 would be worth
$24,307.26 for the Fund, $35,892.37 for the Dow. The average total return for
the Fund was 17.12%, 17.70% and 12.29% for the one year period ended October 31,
1998, the five year period ended October 31, 1998, and the period from March 4,
1991 (when shares of the Fund first sold) to October 31, 1998, respectively.
<PAGE>
ASM INDEX 30 FUND, INC.
Annual Report
For Fiscal Year Ended October 31, 1998
TABLE OF CONTENTS
Report of Independent Accountants...........................................1
Schedule of Investments in Securities
(Portfolio of Investments)................................................2-4
Statement of Assets and Liabilities.........................................5
Statement of Operations.....................................................6
Statement of Changes in Net Assets..........................................7
Selected Per-share Data and Ratios
(Financial Highlights)......................................................8
Notes to Financial Statements............................................9-12
[LOGO] ASM Index 30 Fund
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
December 30, 1998
To the Board of Directors and Shareholders of
ASM Index 30 Fund, Inc. (the "Fund")
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Fund at October 31, 1998, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years then ended and the financial highlights for each of
the five years then ended, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Funds'
management; our responsibility is to express an opinion on these financial
statements based on our audits. The financial highlights before restatement for
the years ended October 31, 1995 and 1994 were audited by other auditors, whose
report dated December 27, 1995 expressed an unqualified opinion. We also audited
the adjustments described in Note 4 that were applied to restate the expense
ratios included in the financial highlights for the years ended October 31, 1995
and 1994. In our opinion such adjustments are appropriate and have been properly
applied. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities owned at
October 31, 1998 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
As disclosed in Note 5 to the financial statements, the Board of Directors of
the Fund voted to notify the Fund's investment advisor of the termination of the
present investment advisory agreement and is considering alternative
arrangements for managing the Fund. These alternatives could include entering
into a new investment advisory agreement, reorganizing the Fund with another
fund in a tax free reorganization, or in the absence of such options,
terminating the Fund and distributing its assets to the shareholders. Any of
these alternatives could result in a material change in the Fund's future
investment objectives, operations, or expense ratios. No adjustments have been
made to the financial statements as a result of this matter.
PRICEWATERHOUSECOOPERS LLP
Tampa, Florida
1
<PAGE>
ASM INDEX 30 FUND, INC.
Portfolio of Investments
October 31, 1998
Percent of
Total Net
COMMON STOCKS: Assets Shares Value
AEROSPACE
Boeing Co. 13,900 $ 521,250
United Technologies Corp. 13,900 1,323,975
6.2% 1,845,225
ALUMINUM
Aluminum Company of America 3.7% 13,900 1,101,575
AUTO AND TRUCK
General Motors Corp. 3.0% 13,900 876,569
BANKING
J.P. Morgan & Co. 4.4% 13,900 1,310,075
BEVERAGE
Coca-Cola Co. 3.2% 13,900 939,988
CHEMICAL
E.I. du Pont de Nemours & Co. 13,900 799,250
Union Carbide Corp. 13,900 535,150
4.5% 1,334,400
COMPUTER & PERIPHERALS
International Business Machines Corp. 7.0% 13,900 2,063,281
CONSUMER PRODUCTS
Procter & Gamble Co. 4.2% 13,900 1,235,362
DIVERSIFIED
AlliedSignal, Inc. 13,900 541,231
Minnesota Mining & Manufacturing Co. 13,900 1,112,000
5.6% 1,653,231
DRUG
Merck & Co., Inc. 6.4% 13,900 1,879,975
ELECTRICAL EQUIPMENT
General Electric Corp. 4.1% 13,900 1,216,250
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
ASM INDEX 30 FUND, INC.
Portfolio of Investments, Continued
October 31, 1998
Percent of Shares Value
Total Net
COMMON STOCKS (continued): Assets
FINANCIAL SERVICES
American Express Co. 4.2% 13,900 1,228,413
HEALTH
Johnson & Johnson 3.8% 13,900 $1,132,850
INSURANCE
Citigroup, Inc. 2.2% 13,900 654,169
MACHINERY
Caterpillar Inc. 2.1% 13,900 625,500
MULTIMEDIA
The Walt Disney Co. 1.3% 13,900 374,431
OFFICE AUTOMATION & EQUIPMENT
Hewlett-Packard Co. 2.8% 13,900 836,606
OIL/GAS
Chevron Corp. 13,900 1,132,850
Exxon Corp. 13,900 990,375
7.2% 2,123,225
PAPER & FOREST PRODUCTS
International Paper Co. 2.2% 13,900 645,481
PHOTOGRAPHIC EQUIPMENT AND SUPPLIES
Eastman Kodak Co. 3.6% 13,900 1,077,250
RESTAURANT
McDonald's Corp. 3.1% 13,900 929,563
RETAIL STORE
Sears, Roebuck & Co. 13,900 624,631
Wal-Mart Stores, Inc. 13,900 959,100
5.4% 1,583,731
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
ASM INDEX 30 FUND, INC.
Portfolio of Investments, Continued
October 31, 1998
Percent of
Total Net Principal
COMMON STOCKS (continued): Assets Amount Value
TELECOMMUNICATION SERVICES
American Telephone & Telegraph Corp. 2.9% 13,900 865,275
TIRE AND RUBBER
The Goodyear Tire & Rubber Co. 2.5% 13,900 $ 748,863
TOBACCO
Philip Morris Companies, Inc. 2.4% 13,900 710,637
TOTAL COMMON STOCKS
(Cost $26,626,247) 98.2%* 28,991,925
REPURCHASE AGREEMENT:
Star Bank
4.70%, entered into 10/30/98, due 11/02/98 $ 591,000 591,000
Collateralized by $605,000 GNMA 6.625%, 9/20/22
with market value of $607,620
TOTAL REPURCHASE AGREEMENT 2.0% 591,000
(Cost $591,000)
TOTAL INVESTMENTS 100.2% 29,582,925
(Cost $27,217,247)
LIABILITIES IN EXCESS OF OTHER ASSETS -0.2% (47,864)
TOTAL NET ASSETS 100.0% $29,535,061
* Total consists of individual percentages which have been rounded.
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
ASM INDEX 30 FUND, INC.
Statement of Assets and Liabilities
October 31, 1998
Assets:
Investments in common stocks, at market value $ 28,991,925
(cost $26,626,247)
Repurchase agreements, at cost 591,000
Cash 531
Interest and dividends receivable 20,808
Receivable from advisor 92,872
Prepaid expense and other assets 34,602
Total Assets 29,731,738
Liabilities:
Payable for capital shares redeemed 129,780
Accrued expenses 66,897
Total Liabilities 196,677
Net Assets $ 29,535,061
Components of Net Assets:
Capital paid-in $ 26,449,017
Accumulated undistributed net realized gains from 720,366
investment transactions
Net unrealized appreciation of investments 2,365,678
Total Net Assets $ 29,535,061
Capital Shares Outstanding
($0.001 par value, 1,000,000,000 shares authorized) 1,552,908
Net Asset Value -- Offering and Redemption Price Per Shar $ 19.02
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
ASM INDEX 30 FUND, INC.
Statement of Operations
For the Year Ended October 31, 1998
Investment Income:
Dividends $ 547,620
Interest 37,229
Total investment income 584,849
Expenses:
Management fees 26,302
Audit fees 45,900
Custodian fees 33,291
Trustee fees 24,000
Legal expense 42,822
Administrative fees 24,167
Registration and filing fees 30,016
Transfer agent and accounting fees 52,297
Printing and postage 14,084
Tax expense (credit) (1,312)
Other expenses 8,466
Total expenses 300,033
Less: Reimbursement of expenses by advisor (242,280)
Total expenses--net 57,753
Investment income--net 527,096
Realized and Unrealized Gains from Investments:
Net realized gains from investment transactions 3,568,516
Change in unrealized appreciation of investments 592,550
Net realized and unrealized gains from investments 4,161,066
Net Increase in Net Assets Resulting from Operations $ 4,688,162
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
ASM INDEX 30 FUND, INC.
Statements of Changes in Net Assets
Year Year
Ended Ended
October October
31, 1998 31, 1997
Increase in net assets:
Operations:
Net investment income $ 527,096 $ 430,876
Net realized gains from investment transactions 3,568,516 5,534,868
Change in unrealized appreciation of investments 592,550 1,680,860
Net increase in net assets resulting from 4,688,162 7,646,604
operations
Distributions to shareholders:
From net investment income (453,542) (430,876)
In excess of net investment income --- (63,140)
From net realized gains (1,846,825) (208,768)
Net decrease in net assets resulting from (2,300,367) (702,784)
distributions to shareholders
Capital share transactions:
Proceeds from shares issued 79,003,347 77,870,255
Reinvestment of distributions 1,766,644 590,838
Cost of shares redeemed (74,749,547) (73,593,574)
Net increase in net assets resulting from 6,020,444 4,867,519
capital share transactions
Total increase in net assets 8,408,239 11,811,339
Net assets - beginning of period 21,126,822 9,315,483
Net assets - end of period $ 29,535,061 $ 21,126,822
Changes in shares outstanding:
Shares issued 4,211,829 4,853,861
Shares issued in connection with reinvestment 99,745 36,286
of distributions
Shares redeemed (3,986,563) (4,321,722)
Net increase in shares outstanding 325,011 568,425
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
ASM INDEX 30 FUND, INC.
Financial Highlights
Years Ended October 31,
<TABLE>
<CAPTION>
1998 1997 1996 1995(a) 1994(a)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 17.21 $ 14.13 $ 11.37 $ 9.78 $ 10.07
Investment operations:
Net investment income 0.29 0.18 0.08 0.00 0.56
Net gains (losses) from investments
(realized and unrealized) 2.57 3.34 2.76 1.77 (0.16)
Total from investment operations 2.86 3.52 2.84 1.77 0.40
Distributions:
From net investment income (0.24) (0.18) (0.07) (0.05) (0.52)
In excess of net investment income 0.00 (0.11) (0.01) (0.13) 0.00
From net realized gains (0.81) (0.15) 0.00 0.00 0.00
Tax return of capital 0.00 0.00 0.00 0.00 (0.17)
Total distributions (1.05) (0.44) (0.08) (0.18) (0.69)
Net asset value, end of period $ 19.02 $ 17.21 $ 14.13 $ 11.37 $ 9.78
Total return 17.13% 25.18% 25.01% 18.10% 3.97%
Ratios/supplemental data:
Net assets, end of period (000) $ 29,535 $ 21,127 $ 9,315 $ 9,704 $ 7,277
Ratio of expenses to average net assets * 0.18% 0.42% 1.86% 3.01%** 0.75%
Ratio of net investment income to average
net assets * 1.60% 1.51% 0.53% 0.04% 2.17%
Portfolio turnover rate *** 196% 265% 391% 340% 1193%
*Ratios are presented net of fees voluntarily
reduced. If such voluntary fee reductions
had not occurred, the ratios would have been
as follows:
Ratio of expenses to average net assets 0.91% 1.05% 2.59% 5.77% 2.94%
Ratio of net investment income (loss)
to average net assets 0.87% 0.88% (0.20%) (2.72%) (0.02%)
<FN>
As a result of certain tax adjustments necessitated by the Fund's failure to
qualify as a regulated investment company for the years ended October 31, 1995
and 1994, as well as other adjustments, the gross expense ratios previously
reported for these periods have been restated.
**Includes $50,460 of interest expense not subject to the expense reimbursement
agreement.
***The Fund continues to be as fully invested in equities as possible.
Therefore, portfolio turnover is higher than most equity mutual funds because
purchases and sales of securities are necessary for settlement of transactions
requested by Fund shareholders.
(a) Audited by predecessor auditor.
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
- --------------------------------------------------------------------------------
ASM INDEX 30 FUND, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
ASM Index 30 Fund, Inc. (the "Fund") was incorporated in Maryland on April
25, 1990 and is registered under the Investment Company Act of 1940, as amended
(the "1940 Act"), as a no-load, diversified, open-end management investment
company. The Fund has an investment objective of providing total return through
a combination of capital appreciation and current income.
1. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles. Preparation of the
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses for the
period.
SECURITY VALUATION
Portfolio securities are listed on a national securities exchange and are
stated at the last reported sales price on the day of valuation.
SECURITY TRANSACTIONS
The Fund records purchases of investments one business day after trade date
and sales of investments on the trade date. Realized gains and losses from sales
of investments are calculated on the specific identification basis. Interest
income is recognized on the accrual basis, and dividend income is recorded on
the ex-dividend date.
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which the Fund purchases
securities 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 may invest in repurchase agreements
with institutions believed by Vector Index Advisors, Inc. (the "Advisor") to
present minimum credit risk. Each repurchase agreement is recorded at cost. The
Fund requires that the securities purchased in a repurchase agreement be
transferred to the custodian in a manner sufficient to enable the Fund to obtain
those securities in the event of a counterparty default. The seller, under the
repurchase agreement, is required to maintain the value of the securities at
least equal to the repurchase price, including accrued interest.
9
<PAGE>
- --------------------------------------------------------------------------------
ASM INDEX 30 FUND, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on deposit with the custodian.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded on the ex-dividend date. On a
quarterly basis, the Fund declares and pays dividends from net investment
income, if any. On an annual basis, the Fund declares and pays net capital gain
dividends, if any.
Dividends from net investment income and net capital gain dividends are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. These differences are primarily
due to deferrals of certain losses and the Fund's use of the accounting practice
of tax equalization, whereby a portion of the costs of capital shares redeemed
is attributable to distributions to shareholders. Permanent book and tax basis
differences have been reclassified among the components of net assets.
FEDERAL INCOME TAXES
The Fund intends to continue to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of its taxable income to its shareholders.
2. INVESTMENT ADVISORY FEES
The Fund operates under an investment management agreement (the
"Agreement") with the Advisor. The Agreement provides for compensation to the
Advisor at an annual rate of 0.08% of the Fund's average daily net assets.
Pursuant to the Agreement, the Advisor provides continuous supervision of the
investment portfolio and pays the cost of compensation of the officers of the
Fund, and occupancy and certain clerical and administrative costs involved in
portfolio management. The Fund bears all other costs and expenses.
Certain officers and directors of the Fund are also officers and directors
of the Advisor. Commencing January 15, 1997, the Advisor voluntarily agreed to
limit expenses of the Fund to 0.18% of the Fund's average daily net assets.
Pursuant to commitments made to the Fund by the Advisor, the Advisor reimbursed
the Fund $242,280 for the year ended October 31, 1998. The Board of Directors of
10
<PAGE>
- --------------------------------------------------------------------------------
ASM INDEX 30 FUND, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
the Fund has obtained confirmation that the Advisor has made arrangements to
assure availability of funds to discharge the Fund's obligations. All amounts
due under statutory and voluntary expense limitations were paid by the Advisor
within 30 days of determination.
3. INVESTMENT TRANSACTIONS
For the year ended October 31, 1998, purchases and sales of investment
securities (excluding short-term securities) were $65,649,422 and $61,747,953,
respectively. As of October 31, 1998, the aggregate cost basis of investments
for Federal income tax purposes was $28,005,998 and net unrealized appreciation
of investments for Federal income tax purposes was comprised of the following:
Gross unrealized appreciation of investments $ 3,162,749
Gross unrealized depreciation of investments (1,585,822)
-------------------
Net unrealized appreciation of investments $ 1,576,927
===================
4. FINANCIAL HIGHLIGHTS RESTATEMENT
During the year ended October 31, 1996, the Fund, in consultation with its
auditors and legal counsel, determined, based on information available at the
time, that the Fund did not qualify as a regulated investment company under the
Internal Revenue Code for the years ended October 31, 1995 and 1994. As such,
the Fund would be subject to accrued Federal income taxes and interest of
approximately $1,312. The Advisor has agreed to pay these costs.
Also, advisory fees in the amount of $23,443 for the period from April 16,
1995 to October 31, 1995 should not have been accrued by the Fund nor reimbursed
by the Advisor. As a result, the expense ratios before reimbursement in the
Financial Highlights have been restated to reflect these changes. Prior to
restatement, such ratios were 5.94% and 2.55% for the years ended October 31,
1995 and 1994, respectively. All amounts discussed above as well as amounts due
under statutory and voluntary expense limitations are reflected in the
receivable from advisor on the Statement of Assets and Liabilities.
5. INVESTMENT ADVISOR EVENTS
The Fund had received a commitment from its Advisor (the "expense
commitment") that the Advisor would waive payment of its advisory fee, or would
11
<PAGE>
- --------------------------------------------------------------------------------
ASM INDEX 30 FUND, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
otherwise pay to the Fund amounts by which the actual expenses of the Fund
exceed eighteen basis points of the Fund's average net assets. Subsequent to the
completion of the fiscal year ended October 31, 1998, the Fund was reimbursed by
the Advisor for excess expenses during fiscal 1998 pursuant to the expense
commitment. Recently, the Board of Directors of the Fund was advised by its
Advisor of financial information which required the Board to consider whether
the Advisor would be able to continue to fulfill the expense commitment in the
future. Absent the expense commitment, the expense ratio for the Fund would be
materially higher than the Fund had to bear under the terms of the expense
commitment.
The Chairman and President of the Advisor, who is also a Director and
Officer of the Fund, requested and has received approval for a leave of absence
for personal reasons from all positions with the Fund, and from the day to day
operation of the Advisor with respect to the Fund. Other officers and employees
of the Advisor and the Fund continue to operate the Fund under the supervision
of the independent directors of the Fund.
On December 23, 1998, at a meeting of the independent members of the Board
of Directors, the directors voted to notify the Advisor of the termination of
the present investment advisory agreement effective sixty days after delivery of
notice of termination of the agreement. During this sixty-day period, the Board
will solicit proposals from other funds and advisers, and will consider
alternative arrangements. Such alternatives include a recommendation that
shareholders vote to approve a new investment advisory relationship with another
adviser, or vote to reorganize the Fund with another fund in a tax free
reorganization or, in the absence of such options, vote to terminate the Fund
and distribute its assets to the shareholders. The Board has established a
reserve for the expense of implementing such alternatives.
Pending resolution of these concerns, the Board is confident that the
custodian bank, transfer agent, accounting services agent, independent
accountants and counsel for the Fund can continue to provide the services
required for the conduct of the Fund's business.
6. FEDERAL INCOME TAX INFORMATION (UNAUDITED)
For the taxable year ended October 31, 1998, 19.6% of income dividends paid
by the Fund qualified for the dividends received deduction available to
corporations, and distributions from long-term capital gains for the Fund were
$4,126,336.
12
