<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
Pre-Effective Amendment No. [ ]
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Post-Effective Amendment No. 14 [ X ]
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AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 20 [ X ]
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(check appropriate box or boxes)
AMERITOR SECURITY TRUST
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(Exact Name of Registrant as Specified in Charter)
1730 K Street, N.W., Washington, D.C. 20006
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: 202-223-1000
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Max Katcher, President
Ameritor Security Trust
1730 K Street, N.W.
Washington, D.C. 20006
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(Name and Address of Agent for Service of Process)
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Approximate Date of Proposed Public Offering: AS SOON AS POSSIBLE AFTER EFFECTIVENESS
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It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ X ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
<PAGE>
PROSPECTUS
AMERITOR SECURITY TRUST
A No-Load Fund - No Sales Charge
Shares are Purchased and Redeemed at Net Asset Value
______________ ___, 199__
This Prospectus contains information you should know before investing. Please
keep it for future reference. A Statement of Additional Information about the
Fund, dated _________ __, 199_, has been filed with the Securities and Exchange
Commission and is incorporated by reference in this Prospectus. To obtain a
free copy, call 202-223-1000 or 1-800-424-8570.
Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the Federal Deposit Insurance
Corporation (FDIC), or any other agency, and are subject to investment risks,
including possible loss of the principal amount invested.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY CLAIM TO THE CONTRARY IS ILLEGAL.
<PAGE>
FACTS AT A GLANCE
AMERITOR SECURITY TRUST
INVESTMENT GOAL
To provide an increasing level of current income from stock dividends together
with long-term capital appreciation.
As with any mutual fund, there is no guarantee the Fund will achieve its goal.
STRATEGY
To invest primarily in dividend-paying common stocks that have favorable
prospects for increasing dividends and long-term appreciation.
RISK/REWARD
The potential to provide increasing current income, together with long-term
capital appreciation. Stocks paying attractive dividends generally have less
volatile share prices than stocks that pay below-average dividends or none at
all. The Fund's share price may decline, possibly causing a loss even though
stocks believed by the Fund to be less volatile stocks are purchased.
INVESTOR PROFILE
Individuals seeking increasing income over time along with capital appreciation
who can accept the price declines inherent in common stock investing.
Appropriate for both regular and tax-deferred accounts, such as IRAs.
FEES AND CHARGES
No sales fee (load). No fees or charges to buy or sell shares or to reinvest
dividends; no Distribution (and/or Service) (12b-1) fees.
INVESTMENT ADVISOR
Since commencing business through its predecessor, William Allen Steadman &
Company, in 1932, Ameritor Financial Corporation has principally engaged in the
business of providing continuous investment supervision for the Ameritor family
of funds. Ameritor Financial Corporation manages approximately $9 million in
assets.
ADDITIONAL INFORMATION
Additional information about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders. You may obtain copies of these
reports at no cost by calling 202-223-1000 or 1-800-424-8570.
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TABLE OF CONTENTS
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Page
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INFORMATION ABOUT THE AMERITOR SECURITY TRUST. . . . . . . . . . . . . . . . . . . . . . . . . . 1
About the Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Investments, Risks, and Performance: What to Expect. . . . . . . . . . . . . . . . . . . . 1
Fees and Expenses: What to Expect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Other Information about the Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
INVESTMENT OBJECTIVES, PRINCIPAL INVESTEMENT
STRATEGIES, AND RELATED RISKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Investment Objective of the Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Implementation of Investment Objective. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Concentration Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Temporary Defensive Positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Portfolio Turnover. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Portfolio Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Portfolio Diversification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE. . . . . . . . . . . . . . . . . . . . . . . . . . 12
Performance Graph . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Comparison of Fund Performance for the Fiscal Years Ended June 30, 1998 and 1997. . . . . 14
Year 2000 Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
MANAGEMENT, ORGANIZATION, AND CAPITAL STRUCTURE. . . . . . . . . . . . . . . . . . . . . . . . 15
Investment Advisor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Organization and Capital Structure. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Special Provisions of the Trust Indenture of the Fund . . . . . . . . . . . . . . . . . . 16
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SHAREHOLDER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Pricing of Fund Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Purchase of Fund Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Redemption of Fund Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Dividends and Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Tax Status and Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
FINANCIAL HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
<PAGE>
INFORMATION ABOUT THE AMERITOR SECURITY TRUST
ABOUT THE FUND
The Ameritor Security Trust (hereinafter, the "Fund") is a common-law trust
organized under the laws of the District of Columbia. The Fund was originally
founded in 1939 under the name Associated Fund Trust. As of December 31, 1998,
the Fund had approximately $5 million of assets under management.
INVESTMENTS, RISKS, AND PERFORMANCE: WHAT TO EXPECT
To help you decide whether this fund is appropriate for you, this section
reviews the Fund's investment objective, strategy, and potential risks. As with
all mutual funds, there is no guarantee this fund will achieve its goals.
- The fund should not represent your complete investment program or be
used for short-term trading.
What is the Fund's investment objective?
The primary investment objective of the Fund is to seek current income. As
a secondary objective, the Fund seeks to maximize the total return but only
to the extent consistent with its primary investment objective.
- For more details about the Fund's investment program, please see the
section entitled "Investment Objectives, Principal Investment
Strategies, and Related Risks" in this Prospectus.
What are the Fund's principal investment strategies?
The Fund seeks to meet its investment objective through a broad range of
investment vehicles. The Fund may also make substantial temporary
defensive investments in (i) high-grade debt securities of all types, (ii)
U.S. government securities, and (iii) repurchase agreements.
In choosing an investment for the Fund, the Fund is not restricted to any
particular criteria or quality standards except as expressly provided for
in this Prospectus. With respect to equity investments, the Fund's
financial adviser generally looks for issuers that pay attractive dividends
and show growth potential, based on fundamental analysis of the relevant
industries and the issuers' financial strength. With respect to debt
instruments (other than short-term debt used for defensive purposes), the
Fund's investment adviser considers probable interest rate movements and
generally chooses investment grade instruments. The yield sought by the
Fund on investment grade instruments usually exceeds that of short-term
U.S. treasury securities.
The Fund may also uses a variety of investment techniques to attempt to
achieve its investment objective. The use of these investment techniques
can produce portfolio turnover of 100% or more per year. The portfolio
turnover for the year ended June 30, 1998 was 48%. High portfolio turnover
(100% or more) increases the Fund's brokerage costs and increases the
likelihood that the Fund will experience short-term gains and losses.
- For more details on the Fund's investment strategies and techniques,
see the section entitled "Investment Objectives, Principal Investment
Strategies, and Related Risks" in this
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Prospectus and see the Fund's Statement of Additional Information.
Also, additional information about the Fund's investments is available
in the Fund's annual and semi-annual reports to shareholders.
What are the main risks of investing in the Fund?
An investor should select investments which reflect his or her financial
goals, time horizon, and risk tolerance. The Fund is not intended to
provide a complete or balanced investment program, but can serve as one
component of an investor's program to accumulate assets for retirement,
college tuition, or other major goals. Investors should consult with their
personal accountant or investment advisor prior to making an investment in
the Fund.
By investing in the Fund, an investor assumes the risks of investing in the
types of investments acquired by the Fund. Investing in securities
involves varying degrees of market risk, credit or financial risk, and
prepayment risk. The Fund invests primarily in stocks, some of which may
not be currently producing income, which could limit its potential for
current income compared with a fund that invests primarily in
interest-earning assets such as debt securities. In addition, the Fund is
not restricted in the investment vehicles and techniques that it may use,
some of which are highly specialized and involve significant risks.
Furthermore, the Fund may invest in real estate, precious metals, oil and
gas limited partnerships, or commodities and commodities contract, such as
futures contracts, all of which are considered speculative.
Foreign securities present additional special risks. For example,
political, social, and economic developments abroad might adversely affect
foreign investments. Often, there is less information publicly available
about foreign issuers, so it can be more challenging to assess the
viability and prospects of foreign companies. The value of investments
that are denominated in foreign currencies may be adversely affected by
fluctuations in foreign currency values. In addition, given the particular
risks associated with investing in developing countries, an investment in
the developing countries should be considered speculative.
There are also special risks associated with investment in high yield debt
securities. These bonds, which are commonly known as "junk bonds," may
provide higher yields, but present a higher risk of loss of interest and
principal, as well as a greater risk of default. These securities may also
be more susceptible to changes in economic or market conditions than
investment grade bonds, resulting in greater price volatility. At times,
the markets in which these securities are traded may be less liquid than
the markets for higher rated securities. Lower liquidity may adversely
affect the price at which a particular security may be sold. Accordingly,
an investment in high yield debt securities should also be considered
speculative.
The Fund is classified as a "non-diversified" investment company pursuant
to the Investment Company Act of 1940. Because the Fund is a
non-diversified investment company, the Fund's assets may be invested in
the securities of a single issuer generally without limitation. A
"diversified" investment company is required generally to invest, with
respect to 75% of its total assets, not more than 5% of such assets in the
securities of a single issuer. Moreover, the Fund has not elected to
conduct its operations so as to qualify as a "regulated investment company"
for purposes of the Internal Revenue Code of 1986, as amended. Thus,
unlike most mutual funds, the Fund is not restricted by certain
diversification requirements imposed by the Internal Revenue Code. Because
a relatively high percentage of the Fund's assets may be invested in the
securities or obligations of a limited number of issuers, some of which may
be within the same economic sector, the Fund's
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portfolio of investments will be more susceptible to a single economic,
political, or regulatory event than the portfolio of investments of a more
diversified investment company.
What are derivatives and can the Fund invest in them?
The term derivative is used to describe financial instruments whose value
is derived from an underlying security (E.G., a stock or bond) or a market
benchmark (E.G., an interest rate index). Many types of investments
representing a wide range of potential risks and rewards fall under the
"derivatives" umbrella - from conventional instruments, such as callable
bonds, futures, and options, to more exotic investments, such as stripped
mortgage securities and structured notes. While the term "derivative" only
recently became widely known among the investing public, derivatives have
in fact been employed by investment managers for many years.
The Fund will invest in derivatives only if the expected risks and rewards
are consistent with its objectives, policies, and overall risk profile as
described in this Prospectus. The Fund currently only uses call options.
The Fund will limit its use of derivatives to situations in which they may
enable the Fund to accomplish the following: increase yield; hedge against
a decline in principal value; invest in eligible asset classes with greater
efficiency and lower cost than is possible through direct investment; or
adjust portfolio duration.
Risk/Return Bar Chart and Table
The bar chart and table shown below provide an indication of the risks of
investing in the Fund by showing the percentage increase or decrease in the
net asset value per share of the Fund's shares from year to year over a
10-year period. The table also shows the Fund's average annual returns for
one, five, and ten years compared to those of a broad-based securities
index. The Fund can experience short-term performance swings and results
may very widely from year to year. How the Fund has performed in the past
is not necessarily an indication of how the Fund will perform in the
future.
[BAR CHART]
The following information is the plotting points for a bar chart.
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Year Return
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1989 47%
1990 (32)%
1991 17%
1992 (4)%
1993 35%
1994 (17)%
1995 1%
1996 (4)%
1997 8%
1998 21%
</TABLE>
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<TABLE>
<CAPTION>
Average Annual Total Return (1)
----------------------------------------------------
Past One Year Past 5 Years Past 10 Years
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<S> <C> <C> <C>
Ameritor Security Trust 21.40% 6.56% 1.44%
Standard & Poor's 500(2) 30.16 21.82 15.67
</TABLE>
_____________
(1) Adjusted to reflect reinvestment of dividends.
(2) The Standard & Poor's Composite Index of 500 Stocks is a widely recognized,
unmanaged index of common stock prices.
During the 10-year period shown in the above bar chart, the highest return
for a quarter was approximately 17% (quarter ended December 31, 1992) and the
lowest return for a quarter was approximately negative 29% (quarter ended
September 30, 1990).
FEES AND EXPENSES: WHAT TO EXPECT
What fees or expenses will I pay?
For a better understanding of the expenses you will incur when investing in
the Fund, a summary based on the Fund's operations during the fiscal year
ended June 30, 1998 is set forth below. There are no sales fees (loads)
imposed upon any purchase of Fund shares, reinvestment or dividends, or
redemption of Fund shares. Furthermore, there are no distribution (and/or
service) (12b-1) fees.
The following tables describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
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<CAPTION>
SHAREHOLDER FEES (fees paid directly from your investment)
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Maximum Sales Charge (Load) Imposed on Purchases. . . . . . . . . . . None
Maximum Deferred Sales Charge (Load). . . . . . . . . . . . . . . . . None
Maximum Sales Charge (Load) Imposed on Reinvested Dividend. . . . . . None
Redemption Fees (1) . . . . . . . . . . . . . . . . . . . . . . . . . None
Exchange Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . None
Maximum Account Fee . . . . . . . . . . . . . . . . . . . . . . . . . None
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(1) The Fund imposes a service charge on wire redemptions of less than $5,000.
<TABLE>
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As a Percentage of
ANNUAL FUND OPERATING EXPENSES (expenses deducted from Fund assets) Average Net Assets
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Management fees (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.00%
Distribution (and/or service) (12b-1) fees . . . . . . . . . . . . . . . . . . . . . . 0.00
Other expenses
Salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . 2.94
Proposed merger expenses (2) . . . . . . . . . . . . . . . . . . . . . . . . . . 3.00
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.91
----
Total annual Fund operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . 9.85%
----
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(1) The management fee is higher than that paid by most other investment
companies.
(2) In fiscal 1998, the Fund incurred expenses relating to a proposed
merger with other funds managed by Ameritor Financial Corporation.
These expenses will not be recurring.
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The numbers in the above table provide an estimate of how much it will cost
to operate the Fund for a year based on 1998 fiscal year expenses. These
are costs you pay directly because they are deducted from the Fund's total
assets before the daily share price is determined and before distributions
are made.
EXAMPLE: This example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.
The example assumes you invest $10,000 in the Fund for the time periods
indicated. The example also assumes (i) a 5% annual return and (ii)
redemption at the end of the period.
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<CAPTION>
1 year 3 years 5 years 10 years
- ----------------- ------------------ ----------------- ------------------
<S> <C> <C> <C>
$960 $2,750 $4,360 $7,760
</TABLE>
This example should not be considered a representation of past or future
expenses, and actual expenses may be greater or less than shown.
OTHER INFORMATION ABOUT THE FUND
What are some of the Fund's potential rewards?
Income is normally a more stable and predictable component of total return
than capital appreciation. While the price of a company's stock can go up
or down in response to earnings or to fluctuations in the general market,
income is usually more reliable.
The Fund is designed for investors seeking to balance the income and
relative stability of securities over the long term with potential capital
appreciation through common stocks. The Fund's approach to achieving a
combination of income, growth, and stability is used by many large pension
funds because of their conservative, long-term focus.
How can I tell if the Fund is appropriate for me?
Consider your investment goals, your time horizon for achieving those
goals, and your tolerance for risk. If you are investing primarily for
safety and liquidity or primarily for current income (such as dividends),
you should consider another investment. If you can accept the price
fluctuations of stocks in an effort to achieve income and capital
appreciation, the Fund could be an appropriate part of your overall
investment strategy.
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT
STRATEGIES, AND RELATED RISKS
INVESTMENT OBJECTIVE OF THE FUND
The primary investment objective of the Fund is to seek current income. As
a secondary objective, the Fund seeks to maximize the total return but only to
the extent consistent with its primary investment objective. The Fund's
investment objective may be changed by a vote of the Trustees of the Fund at any
time without a vote of the shareholders of the Fund.
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IMPLEMENTATION OF INVESTMENT OBJECTIVE
The Fund seeks to meet its investment objective through a broad range of
investment vehicles. In seeking to achieve its investment objective, the Fund
primarily will use the following principal investments, without limitation:
- Common stocks of any issuer.
- Preferred stocks, warrants, and convertible securities of any issuer.
- Corporate bonds and debentures and debt securities issued or
guaranteed by the U.S. government or its agencies or
instrumentalities.
- Money market instruments, such as commercial paper, bank certificates
of deposit, and U.S. government securities.
In choosing an investment for the Fund, the Fund is not restricted to any
particular criteria or quality standards except as expressly provided for in
this Prospectus. With respect to equity investments, the Fund's financial
adviser generally looks for issuers that pay attractive dividends and show
growth potential, based on fundamental analysis of the relevant industries and
the issuers' financial strength. With respect to debt instruments (other than
short-term debt used for defensive purposes), the Fund's investment adviser
considers probable interest rate movements and generally chooses investment
grade instruments. The yield sought by the Fund on investment grade instruments
usually exceeds that of short-term U.S. treasury securities.
The Fund may also use the following principal investment strategies:
- The purchase and sale of securities of U.S. and non-U.S. issuers.
- The purchase and sale of call options. This is primarily to achieve
premium income but may also be used for hedging purposes.
- The purchase and sale of U.S. government securities.
- The purchase and sale of high-yield bonds, sometimes called Junk
Bonds.
- The purchase and sale of U.S. government agency mortgage-backed
securities.
CONCENTRATION POLICY
The current concentration policy of the Fund states that it is not the
policy of the Fund to invest 25% or more of the value of its total assets in any
one industry. An industry is determined by looking at the standard industry
classification (SIC) code (I.E., if two companies have the same SIC code, the
companies would be in the same industry). However, when securities of a given
industry come to constitute 25% or more of the value of the Fund's total assets
by reason of changes in value of either the concentrated securities or other
securities, the excess need not be sold. The Fund has also instituted policies
and procedures to assist in preventing a violation of the concentration policy
of the Fund. The policy provides that prior to the investment advisor making a
purchase of a security, the chief financial officer, or designee thereof, must
confirm that the purchase will not result in a violation of the concentration
policy. In addition, pursuant to the policy, the chief financial officer will
determine weekly if any portfolio securities have appreciated in value above 25%
such that additional purchases would be prohibited.
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<PAGE>
TEMPORARY DEFENSIVE POSITIONS
In response to unfavorable market conditions, the Fund may commit up to
100% of its assets to temporary defensive investments in (i) high-grade debt
securities of all types, (ii) U.S. government securities, and (iii) repurchase
agreements. While the Fund believes that these temporary defensive investments
are consistent with the Fund's investment objective, the rate of return on such
investments tends to be lower and may have an adverse effect on Fund
performance.
PORTFOLIO TURNOVER
The use of the principal investment strategies discussed above can produce
portfolio turnover of 100% or more per year. The portfolio turnover for the
year ended June 30, 1998 was 48%. High portfolio turnover (100% or more)
increases the Fund's brokerage costs and increases the likelihood that the Fund
will experience short-term gains and losses.
PORTFOLIO RISKS
GENERAL. Because of its investment policy, the Fund may or may not be
suitable or appropriate for all investors. The Fund is not a money market fund
and is not an appropriate investment for those whose primary objective is
principal stability. The Fund will normally have substantially all of its
assets in equity securities (E.G., common stocks). This portion of the Fund's
assets will be subject to all of the risks of investing in the stock market.
There is risk in all investments. The value of the portfolio securities of the
Fund will fluctuate based upon market conditions.
Although the Fund seeks to reduce risk by investing in a diversified
portfolio, such diversification does not eliminate all risk. In addition,
because of the small size of the Fund, the Fund is not able to diversify the
portfolio across a large number of industries. There can, of course, be no
assurance that the Fund will achieve its investment objective.
FOREIGN SECURITIES. The Fund may invest in U.S. dollar-denominated and
non-U.S. dollar-denominated securities of foreign issuers. There are special
risks in foreign investing.
Individual foreign economies of certain countries differ favorably or
unfavorably from the United States' economy in such respects as growth of gross
national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. The internal politics of
certain foreign countries are not as stable as in the United States.
Governments in certain foreign countries continue to participate to a
significant degree, through ownership interest or regulation, in their
respective economies. Action by these governments could have a significant
effect on market prices of securities and payment of dividends. The economies
of many foreign countries are heavily dependent upon international trade and are
accordingly affected by protective trade barriers and economic conditions of
their trading partners. The enactment by these trading partners of
protectionist trade legislation could have a significant adverse effect upon the
securities markets of such countries.
With respect to certain foreign countries, especially developing and
emerging ones, there is the possibility of adverse changes in investment or
exchange control regulations, expropriation or confiscatory taxation,
limitations on the removal of funds or other assets of the Fund, political or
social instability, or diplomatic developments which could adversely affect
investments by the Fund in those countries.
OPTIONS. The Fund may engage in a variety of investment strategies
relating to the use of options including the following:
-7-
<PAGE>
- WRITING CALL OPTIONS. The Fund may write (sell) American or European
style "covered" call options and purchase options to close out options
previously written by the Fund. In writing covered call options, the Fund
expects to generate additional premium income which should serve to enhance the
Fund's total return and reduce the effect of any price decline of the security
or currency involved in the option. Covered call options will generally be
written on securities or currencies which, in the Fund's opinion, are not
expected to have any major price increases or moves in the near future but
which, over the long term, are deemed to be attractive investments for the Fund.
A call option gives the holder (buyer) the "right to purchase" a
security or currency at a specified price (the exercise price) at expiration of
the option (European style) or at any time until a certain date (the expiration
date) (American style). So long as the obligation of the writer of a call
option continues, the writer may be presented with an exercise notice by the
broker-dealer through whom such option was sold, requiring the writer to deliver
the underlying security or currency against payment of the exercise price. This
obligation terminates upon the expiration of the call option, or such earlier
time at which the writer effects a closing purchase transaction by repurchasing
an option identical to that previously sold. To secure the writer's obligation
to deliver the underlying security or currency in the case of a call option, a
writer is required to deposit in escrow the underlying security or currency or
other assets in accordance with the rules of a clearing corporation.
The Fund will write only covered call options. This means that the Fund
will own the security or currency subject to the option or an option to purchase
the same underlying security or currency, having an exercise price equal to or
less than the exercise price of the "covered" option, or will establish and
maintain with its custodian for the term of the option, an account consisting of
cash, U.S. government securities, other liquid high-grade debt obligations, or
other suitable cover as determined by the Securities and Exchange Commission
("SEC") having a value equal to the fluctuating market value of the optioned
securities or currencies.
Portfolio securities or currencies on which call options may be written
will be purchased solely on the basis of investment considerations consistent
with the Fund's investment objective. The writing of covered call options is a
conservative investment technique believed to involve relatively little risk (in
contrast to the writing of naked or uncovered options, which the Fund will not
do), but capable of enhancing the Fund's total return. When writing a covered
call option, the Fund, in return for the premium, gives up the opportunity for
profit from a price increase in the underlying security or currency above the
exercise price, but conversely retains the risk of loss should the price of the
security or currency decline. Unlike one who owns securities or currencies not
subject to an option, the Fund has no control over when it may be required to
sell the underlying securities or currencies, because it may be presented with
an exercise notice at any time prior to the expiration of its obligation as a
writer. If a call option which the Fund has written expires, the Fund will
realize a gain in the amount of the premium; however, such gain may be offset by
a decline in the market value of the underlying security or currency during the
option period. If the call option is exercised, the Fund will realize a gain or
loss from the sale of the underlying security or currency.
The premium the Fund will receive from writing a call option will reflect,
among other things, the current market price of the underlying security or
currency, the relationship of the exercise price to such market price, the
historical price volatility of the underlying security or currency, and the
length of the option period. Once the decision to write a call option has been
made, the Fund, in determining whether a particular call option should be
written on a particular security or currency, will consider the reasonableness
of the anticipated premium and the likelihood that a liquid secondary market
will exist for those options. The premium received by the Fund for writing
covered call options will be recorded as a liability of the Fund. This
liability will be adjusted daily to the option's current market value, which
will be the latest sale price at the time at which the net asset value per share
of the Fund is computed (close of the New York Stock
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<PAGE>
Exchange), or, in the absence of such sale, the latest asked price. The option
will be terminated upon expiration of the option, the purchase of an identical
option in a closing transaction, or delivery of the underlying security or
currency upon the exercise of the option.
Closing transactions will be effected in order to realize a profit on an
outstanding call option, to prevent an underlying security or currency from
being called, or, to permit the sale of the underlying security or currency.
Furthermore, effecting a closing transaction will permit the Fund to write
another call option on the underlying security or currency with either a
different exercise price or expiration date or both. If the Fund desires to
sell a particular security or currency from its portfolio on which it has
written a call option, or purchased a put option, it will seek to effect a
closing transaction prior to, or concurrently with, the sale of the security or
currency. There is, of course, no assurance that the Fund will be able to
effect such closing transactions at favorable prices. If the Fund cannot enter
into such a transaction, it may be required to hold a security or currency that
it might otherwise have sold. When the Fund writes a covered call option, it
runs the risk of not being able to participate in the appreciation of the
underlying securities or currencies above the exercise price, as well as the
risk of being required to hold on to securities or currencies that are
depreciating in value. This could result in higher transaction costs. The Fund
will pay transaction costs in connection with the writing of options to close
out previously written options. Such transaction costs are normally higher than
those applicable to purchases and sales of portfolio securities.
Call options written by the Fund will normally have expiration dates of
less than nine months from the date written. The exercise price of the options
may be below, equal to, or above the current market values of the underlying
securities or currencies at the time the options are written. From time to
time, the Fund may purchase an underlying security or currency for delivery in
accordance with an exercise notice of a call option assigned to it, rather than
delivering such security or currency from its portfolio. In such cases,
additional costs may be incurred.
The Fund will realize a profit or loss from a closing purchase transaction
if the cost of the transaction is less or more than the premium received from
the writing of the option. Because increases in the market price of a call
option will generally reflect increases in the market price of the underlying
security or currency, any loss resulting from the repurchase of a call option is
likely to be offset in whole or in part by appreciation of the underlying
security or currency owned by the Fund.
The Fund will not write a covered call option if, as a result, the
aggregate market value of all portfolio securities or currencies covering
written call or put options exceeds 25% of the market value of the Fund's net
assets. In calculating the 25% limit, the Fund will offset, against the value
of assets covering written calls and puts, the value of purchased calls and puts
on identical securities or currencies with identical maturity dates.
- PURCHASING CALL OPTIONS. The Fund may purchase American or European
style call options. As the holder of a call option, the Fund has the right to
purchase the underlying security or currency at the exercise price at any time
during the option period (American style) or at the expiration of the option
(European style). The Fund may enter into closing sale transactions with
respect to such options, exercise them or permit them to expire. The Fund may
purchase call options for the purpose of increasing its current return or
avoiding tax consequences which could reduce its current return. The Fund may
also purchase call options in order to acquire the underlying securities or
currencies.
The Fund will not commit more than 5% of its assets to premiums when
purchasing call and put options. The Fund may also purchase call options on
underlying securities or currencies it owns in order to protect unrealized gains
on call options previously written by it. A call option would be purchased for
this
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<PAGE>
purpose where tax considerations make it inadvisable to realize such gains
through a closing purchase transaction. Call options may also be purchased at
times to avoid realizing losses.
DEBT SECURITIES. Although at June 30, 1998, all of the Fund's assets were
invested in common stocks, the Fund may invest in convertible securities,
corporate debt securities, and preferred stocks which hold the prospect of
contributing to the achievement of the Fund's objectives. Yields on short-,
intermediate-, and long-term securities are dependent on a variety of factors,
including the general conditions of the money and bond markets, the size of a
particular offering, the maturity of the obligation, and the credit quality and
rating of the issuer. Debt securities with longer maturities tend to have
higher yields and are generally subject to potentially greater capital
appreciation and depreciation than obligations with shorter maturities and lower
yields. The market prices of debt securities usually vary, depending upon
available yields. An increase in interest rates will generally reduce the value
of portfolio investments, and a decline in interest rates will generally
increase the value of portfolio investments. The ability of the Fund to achieve
its investment objective is also dependent on the continuing ability of the
issuers of the debt securities in which the Fund invests to meet their
obligations for the payment of interest and principal when due. The Fund's
investment program permits it to purchase below investment-grade securities.
Because investors generally perceive that there are greater risks associated
with investment in lower-quality securities, the yields from such securities
normally exceed those obtainable from higher-quality securities. However, the
principal value of lower-rated securities generally will fluctuate more widely
than higher-quality securities. Lower-quality investments entail a higher risk
of default; that is, the nonpayment of interest and principal by the issuer than
higher-quality investments. Such securities are also subject to special risks,
discussed below. Although the Fund seeks to reduce risk by portfolio
diversification, credit analysis, and attention to trends in the economy,
industries and financial markets, such efforts will not eliminate all risk.
There can, of course, be no assurance that the Fund will achieve its investment
objective.
After having been purchased by the Fund, a debt security may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither event will require a sale of such security by the Fund.
However, the Fund will consider such event in its determination of whether the
Fund should continue to hold the security. To the extent that the ratings given
by Moody's Investor Services or Standard & Poor's may change as a result of
changes in such organizations or their rating systems, the Fund will attempt to
use comparable ratings as standards for investments in accordance with the
investment policies contained in the Prospectus.
The Fund may invest in low-quality bonds commonly referred to as "junk
bonds." Junk bonds are regarded as predominantly speculative with respect to
the issuer's continuing ability to meet principal and interest payments.
Because investment in low- and lower-medium-quality bonds involves greater
investment risk, to the extent the Fund invests in such bonds, achievement of
its investment objective will be more dependent on the Fund's credit analysis
than would be the case if the Fund were investing in higher-quality bonds. Junk
bonds may be more susceptible to real or perceived adverse economic conditions
than investment-grade bonds. A projection of an economic downturn, or higher
interest rates, for example, could cause a decline in high-yield bond prices
because the advent of such events could lessen the ability of highly leveraged
issuers to make principal and interest payments on their debt securities. In
addition, the secondary trading market for high-yield bonds may be less liquid
than the market for higher-grade bonds, which can adversely affect the ability
of a Fund to dispose of its portfolio securities. Bonds for which there is only
a "thin" market can be more difficult to value inasmuch as objective pricing
data may be less available and judgment may play a greater role in the valuation
process.
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES. These are obligations
issued or guaranteed by the United States government of one of its agencies or
instrumentalities, such as the Government National Mortgage Association ("Ginnie
Mae" or "GNMA"), the Federal National Mortgage Association ("Fannie
-10-
<PAGE>
Mae" or "FNMA") the Federal Home Loan Mortgage Corporation ("Freddie Mac" or
"FHLMC"), and the Federal Agricultural Mortgage Corporation ("Farmer Mac" or
"FAMC"). FNMA, FHLMC, and FAMC obligations are not backed by the full faith and
credit of the U.S. government as GNMA certificates are, but they are supported
by the instrumentality's right to borrow from the United States Treasury. U.S.
Government Agency Mortgage-Backed Certificates provide for the pass-through to
investors of their pro-rata share of monthly payments (including any
prepayments) made by the individual borrowers on the pooled mortgage loans, net
of any fees paid to the guarantor of such securities and the servicer of the
underlying mortgage loans. Each of GNMA, FNMA, FHLMC, and FAMC guaranties
timely distributions of interest to certificate holders. GNMA and FNMA
guarantee timely distributions of scheduled principal. FHLMC has in the past
guaranteed only the ultimate collection of principal of the underlying mortgage
loan; however, FHLMC now issues mortgage-backed securities (FHLMC Gold PCS)
which also guarantee timely payment of monthly principal reductions.
Prepayments on the underlying mortgages and their effect upon the rate of
return of a mortgage-backed security, is the principal investment risk for a
purchaser of such securities, like the Fund. Over time, any pool of mortgages
will experience prepayments due to a variety of factors, including (1) sales of
the underlying homes (including foreclosures), (2) refinancings of the
underlying mortgages, and (3) increased amortization by the mortgagee. These
factors, in turn, depend upon general economic factors, such as level of
interest rates and economic growth. Thus, investors normally expect prepayment
rates to increase during periods of strong economic growth or declining interest
rates, and to decrease in recessions and rising interest rate environments.
Accordingly, the life of the mortgage-backed security is likely to be
substantially shorter than the stated maturity of the mortgages in the
underlying pool. Because of such variation in prepayment rates, it is not
possible to predict the life of a particular mortgage-backed security, but FHA
statistics indicate that 25- to 30-year single family dwelling mortgages have an
average life of approximately 12 years. The majority of Ginnie Mae Certificates
are backed by mortgages of this type, and, accordingly, the generally accepted
practice treats Ginnie Mae Certificates as 30-year securities which prepay in
full in the 12th year. FNMA and Freddie Mac Certificates may have differing
prepayment characteristics.
REAL ESTATE INVESTMENT TRUST (REIT). A real estate investment trust,
commonly referred to as a REIT, is an entity that receives special tax benefits
under the Internal Revenue Code for maintaining a specific percentage of its
assets in real estate and real estate related assets. Investors in the Fund may
experience many of the same risks involved with investing in real estate
directly because of investments made by the Fund in REITs. These risks
include: declines in real estate values, risks related to local or general
economic conditions, particularly lack of demand, overbuilding and increased
competition, increases in property taxes and operating expenses, changes in
zoning laws, heavy cash flow dependency, possible lack of availability of
mortgage funds, obsolescence, losses due to natural disasters, condemnation of
properties, regulatory limitations on rents and fluctuations in rental income,
variations in market rental rates, and possible environmental liabilities.
REITs can be affected by rising interest rates that may cause investors to
demand a high annual yield from future distributions which, in turn, could
decrease the market prices for the REITs. In addition, rising interest rates
also increase the costs of obtaining financing for real estate projects.
Because many real estate projects are dependent upon receiving financing, this
could cause the value of the REITs in which the Fund invests to decline. REITs
may hold mortgages that the mortgagors elect to prepay during periods of
declining interest rates which may diminish the yield on such REITs. In
addition, borrowers may not be able to repay mortgages when due which could have
a negative effect on the Fund.
PORTFOLIO DIVERSIFICATION
The Fund has elected to qualify as a "non-diversified investment company,"
as defined under Section 5(b)(2) of the Investment Company Act of 1940, as
amended (the "1940 Act"), so that the Fund may invest its assets in the
securities of a small number of issuers. This subjects the value of the Fund's
portfolio
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<PAGE>
directly to the increase or decrease in the particular investment. Thus, the
opportunity for gain and the risk of loss arc not spread over as broad a base as
would be the case in a "diversified" company. While diversification spreads the
risk of loss over a broader base, it also restricts the ability of the Advisor
to take maximum advantage of investment opportunities that it determines are in
the best interest of the Fund.
The Fund will limit its investments in the securities of a small number of
issuers only when the investment advisor determines that it is in the best
interest of the Fund to do so.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
PERFORMANCE GRAPH
The following graph provides a comparison of the change in the value of a
$10,000 investment in the Fund and same investment in the S & P 500 Index for
each fiscal year from October 1, 1987 to September 30, 1994, the nine month
fiscal period ended June 30, 1995, and the fiscal years from July 1, 1995 to
June 30, 1998.
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<PAGE>
[PERFORMANCE GRAPH]
The following information is the plotting information for the performance graph.
<TABLE>
<CAPTION>
Year Ameritor Security Trust* S&P***
- ------------------------ ----------------------------- -----------------------
<S> <C> <C>
10-01-87 $10,000 $10,000
9-30-88 7,214 8,746
9-30-89 10,641 11,630
9-30-90 7,207 10,556
9-30-91 8,469 13,846
9-30-92 8,090 15,377
9-30-93 10,993 17,375
9-30-94 9,098 18,015
6-30-95** 9,224 21,652
6-30-96 8,820 27,282
6-30-97 9,604 36,746
6-30-98 11,660 47,828
</TABLE>
[CHART WITHIN PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
Average Annual Total Return
---------------------------------------------------
One Year 5 Years 10 Years
---------------------------------------------------
<S> <C> <C> <C>
Ameritor Security Trust 21.40% 6.56% 1.44%
</TABLE>
_____________
* Past performance is not predictive of future performance.
** Not annualized. The Fund's fiscal year was changed to June 30.
*** S&P 500 Index is adjusted to reflect the reinvestment of dividends.
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<PAGE>
From time to time the Fund may quote its total return in advertisements or
in reports or other communications to shareholders. A mutual fund's total
return is a measurement of the overall change in value, including changes in
share price and assuming reinvestment of all distributions, of an investment in
the fund. Cumulative total return shows the fund's performance over a specific
period of time. Average annual total return is the average annual compounded
return that would have produced the same cumulative total return if the fund's
performance had been constant over the entire period. The returns shown are
based on historical results and are not intended to indicate future performance.
The investment return and principal value of an investment in the Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. Average annual returns, which differ from actual
year-to-year results, tend to smooth out variations in a fund's returns.
COMPARISON OF FUND PERFORMANCE FOR THE FISCAL YEARS ENDED JUNE 30, 1998 AND 1997
During its fiscal year ended June 30, 1998, the Fund's net asset value per
share increased 21.40% to $0.93 at June 30, 1998 from $0.76 at June 30, 1997.
The Fund experienced a net increase in net assets from operations of
approximately $769,000 or 85%, as a result of a net realized gain from
investment transactions of $821,000 and unrealized appreciation of investments
of $320,000, offset by a net investment loss of $372,000. The Standard & Poor's
Composite Index of 500 stocks, a recognized indicator of market conditions,
gained 30.16% (including reinvestment of dividends) during the same period.
The portfolio turnover rate declined to 48% for the fiscal year ended
June 30, 1998 from 193% for the fiscal year ended June 30, 1997. The decline in
the portfolio turnover rate was primarily the result of a new management
philosophy towards portfolio strategy of selecting and holding securities for
longer terms rather than frequently trading. The changes made in the portfolio
were partly to provide liquidity for operating expenses and redemptions and also
to increase diversity among the industrial groups. During fiscal 1998, the Fund
maintained an aggressive trading position with its assets almost fully invested
in equity securities and as of June 30, 1998, the Fund's assets were 100%
invested in equity securities. The Fund's net investment loss of $372,000
resulted from expenses after taking into account the Fund's investment income
from dividends and interest of $37,000. Although the Fund's primary goal is
seeking current income and capital appreciation is secondary, it was the latter
that produced most of the increase in net assets from operations.
During the fiscal year's ended June 30, 1998 and 1997, the Fund made no
distributions to shareholders.
YEAR 2000 ISSUE
Many computer programs use two digits to identify the year. These
programs, if not adapted, will not correctly handle the change from "99" to "00"
on January 1, 2000, and will not be able to perform the necessary functions. The
Year 2000 issue affects virtually all companies and organizations.
Investment companies, such as the Fund, are highly dependent on computer
systems to communicate with its investment advisor as well as third parties,
such as brokers and custodians. In order for the investment advisor to manage
the Fund's portfolio, calculate net asset values, keep accurate account
statements, process shareholder purchases and redemptions, and timely deliver
disclosure documents and account statements, the Fund and the investment adviser
must continuously exchange information with each other and their service
providers. Any breakdown in this exchange of information could interfere with
the day-to-day operations of the Fund, delay shareholder transactions, and
compromise recordkeeping and other compliance systems.
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<PAGE>
The Fund has identified six steps for the preparation of the Fund to remedy
any Year 2000 problems. These steps are (1) the identification of potential
Year 2000 problems; (2) the assessment of steps that must be taken to avoid
those problems; (3) the implementation of the steps to avoid Year 2000 problems;
(4) internal testing of software to avoid Year 2000 problems; (5) point-to-point
testing of software designed to avoid the problems (I.E., testing with service
providers such as broker-dealers and custodians); and (6) the implementation of
tested software that will avoid the Year 2000 problem.
The Fund, working closely with its investment advisor, has completed the
first two steps and has identified and assessed potential Year 2000 problems.
The Fund is now implementing steps to avoid these problems. Internal testing of
mission-critical systems is expected to be completed by April 15, 1999.
Point-to-point testing of mission-critical systems is expected to be completed
by May 31, 1999. Final implementation of tested software is expected to be
completed by June 30, 1999.
An expected reasonable "worst case" scenario is that, notwithstanding the
testing and certification of all the Fund's and the investment advisor's
critical systems beforehand, a problem is discovered in the year 2000 that
impacts the core systems. In this event, the Fund and the investment advisor
would be required to perform many business functions manually until such time as
the Fund, or an outside vendor, as applicable, corrects the problem. Such
manual processing of functions is provided for in the Fund's contingency plans,
which are currently being reviewed by the Fund. The contingency plan provides
for changing outside vendors if current vendors cannot meet their schedules to
be year 2000 compliant and for manual processing and other action by the Fund in
the event a problem is not discovered in a critical system that has previously
been tested and certified as compliant.
The Fund will utilize both internal and external resources to reprogram or
replace, and test hardware and software for Year 2000 compliance. The Fund
anticipates that the total costs of the Year 2000 project are $75,000, of which
$30,000 have been incurred through June 30, 1998.
Finally, companies, organizations, government entities, and markets which
the Fund invests could be affected by the Year 2000 issue, but at this time the
Fund cannot predict the degree of impact. To the extent the effect is negative,
the Fund's returns could be reduced.
MANAGEMENT, ORGANIZATION, AND CAPITAL STRUCTURE
INVESTMENT ADVISOR
The Fund has entered into an investment advisory agreement (the "Advisory
Agreement") with Ameritor Financial Corporation which has its principal offices
at 1730 K Street, N.W., Washington, D.C. 20006. All voting stock of Ameritor
Financial Corporation is owned by United Securities, Inc., a Maryland
corporation whose sole shareholders are Carole S. Kinney and Charles T.W.
Steadman.
Since commencing business through its predecessor, William Allen Steadman &
Company, in 1932, the advisor has principally engaged in the business of
providing continuous investment supervision for the Funds. Under the terms of
the Advisory Agreement, the advisor manages the investments of the Fund and is
responsible for overall management of its business affairs subject to
supervision of the Trustees. Max Katcher, President of the Fund and the
Advisor, is primarily responsible for the day-to-day management of the Funds'
portfolios. Mr. Katcher became portfolio manager in December 1997 and has been
in mutual fund management for the past 26 years as an executive officer of
Ameritor Financial Corporation. As compensation for its services, the Fund pays
to the advisor a monthly advisory fee at the annual rate of 1% of the first
$35,000,000 of the average daily net asset value of the Fund, 7/8 of 1% on the
next $35,000,000 and 3/4 of 1% on all sums in excess thereof. The advisory fee
is higher than that paid by many other investment
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<PAGE>
companies. The advisor also receives certain other fees, which are described in
the Statement of Additional Information.
The Advisor also receives reimbursement from the Fund for salaries and
benefits of its employees who perform directly attributable functions to the
Fund other than investment advisory and shareholder services. These functions
include: fund accounting, reviewing the Fund's internal financial reports;
coordinating the editing, printing and mailing of reports to the Fund's
shareholders; internal audit of the Fund's books, transactions, and daily
pricing; compliance with SEC regulation, including registration; preparation of
materials for Trustees' meetings; legal and other administrative functions; and
clerical assistance related to the above.
ORGANIZATION AND CAPITAL STRUCTURE
The Fund is organized as a common law trust under the laws of the District
of Columbia and has outstanding only one class of shares of beneficial interest.
All shareholders have equal voting rights, and all shares participate equally in
dividends and other distributions by the Fund, and in the residual assets of the
Fund in the event of liquidation. Fractional shares have the same rights
proportionately as do full shares, except that, pursuant to the trust indenture,
fractional shares do not have the right to vote. Shares of the Funds have no
preemptive rights and no conversion or subscription rights. The Funds do not
hold regularly scheduled annual shareholders' meetings. Special meetings are
called when required by applicable laws and regulations. No shareholder of the
Fund shall be subject to any liability to any person in connection with the
property or affairs of any such Fund.
In addition, the governing documents of the Funds contain several other
provisions relating to shareholders' rights that are uncommon to most other
mutual funds including: (a) trustees hold office for a term of unlimited
duration, (b) shareholders are entitled to vote for or against any amendments to
the Trust Indenture, only in very limited circumstances, (c) shareholders are
not entitled to vote for or against a termination of the Fund, and (d) except as
otherwise required by law, shareholders may call special meetings only upon a
vote of 90% of the outstanding shares.
As interpreted by the staff of the SEC, the 1940 Act provides shareholders
of the Funds with certain rights with respect to removal of Trustees. Under
these provisions, shareholders may remove one or more Trustees by declaration or
vote of two-thirds of the Fund's outstanding shares. The Trustees will promptly
call a meeting of shareholders for the purpose of voting upon the question of
removal of Trustees when requested to do so by the record holders of not less
than 10% of the outstanding shares of the Fund.
SPECIAL PROVISIONS OF THE TRUST INDENTURE OF THE FUND
The following discussion is a general summary of the material provisions of
the Amended and Restated Trust Indenture of the Fund. The description of these
provisions is necessarily general and reference should be made in each case to
the complete document.
1. ELECTION AND REMOVAL OF TRUSTEES. Trustees are chosen for a term of
unlimited duration. Trustees may only be removed by a vote of 90% of the
remaining Trustees or a vote of two-thirds of the shareholders.
2. MEETINGS OF SHAREHOLDERS. Special meetings of the Shareholders may be
called at any time by the Chairman or by a majority of the Trustees, and
shall be called upon written request of shareholders holding in the
aggregate not less than ninety percent (90%) of the outstanding shares
having voting rights. The Trustees shall promptly call a meeting of
shareholders for the purpose of voting upon the
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<PAGE>
question of removal of Trustees when requested to do so by the record
holders of not less than 10% of the outstanding shares of the Fund.
3. ABSENCE OF CUMULATIVE VOTING. The Amended and Restated Trust
Indenture provides that there shall not be cumulative voting by
shareholders for the election of Trustees. The absence of cumulative
voting rights means that holders of a majority of the shares voted at a
meeting of shareholders may, if they so choose, elect all Trustees to be
selected, thus precluding minority shareholder representation among the
Trustees. Other than a provision of the Act requiring every shareholder to
have equal voting power, no provision of the Act requires cumulative
voting.
4. POSSIBLE LIMITATION ON ACQUISITION. The trust indenture of the Fund
permits the Trustees to limit the amount of Fund shares owned at any one
time by any one person to 5% of Fund shares. The purpose of this provision
is to allow the Trustees to prevent a person from becoming an affiliated
person within the meaning of Section 2 of the 1940 Act. There is no
provision of the Act that limits the percentage ownership one person may
have in an open-end investment company.
LEGAL PROCEEDINGS
There are no material legal proceedings to which the Fund or the Fund's
investment advisor are a party.
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES
The Fund's net asset value per share is determined at the close of trading
on the New York Stock Exchange (currently 4:00 p.m., New York Time) on days when
the New York Stock Exchange is open for business. Fund shares are bought and
sold at the net asset value next calculated after the buy or sell order is
placed. It is computed by dividing the value of net assets (I.E., the value of
the assets less liabilities) by the total number of shares outstanding.
Portfolio securities are valued at the last sale price on the national
securities exchange or national securities market on which the securities are
primarily traded. Securities not listed on an exchange or national securities
market or securities for which there were no transactions are valued at the mean
between the most recent reported bid and asked prices. Any securities or other
assets for which market quotations are not readily available are valued at fair
value as determined in good faith by the Trustees. Debt securities having
remaining maturities of less than 60 days are valued by the amortized cost
method, unless the Trustees determine this is not fair value. Expenses and
fees, including the management fee, are accrued daily and taken into account for
the purpose of determining the net asset value.
PURCHASE OF FUND SHARES
The Fund is currently in the process of registering Fund shares for sale in
certain states. The Fund will offer the shares at net asset value without
payment of any sales fee (load) or commission when purchases are made directly
from the Fund. Shares purchased through registered broker-dealers may incur a
transaction fee.
To make an initial investment and open an account, complete the attached
application and forward it with a check or money order for $1,000 or more, made
payable to Ameritor Security Trust, 1730 K Street, N.W., Washington, D.C.
20006. Initial investments of less than $1,000 will not be accepted.
After an account has been established, a confirmation will be issued
indicating the amount invested, the number of shares purchased, and the purchase
price per share (net asset value per share). The
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<PAGE>
confirmation will include a deposit stub, which may be used to make an
additional investment of $100 or more at any time by completing the form and
mailing with a check in the appropriate amount. Additional investments of less
than $100 will not be accepted.
Investments received prior to the closing of the New York Stock Exchange
(currently 4:00 p.m., New York Time) and which are in good order will be
credited at the net asset value determined at the close of the exchange on that
day. Investments received after closing will be credited at the net asset value
on the next subsequent day in which the net asset value of the Fund is
calculated.
All investments are subject to the Fund's acceptance and subject to
compliance with state and federal securities laws. The Fund may decline to
accept an investment when in the judgment of the Fund's investment advisor, the
acceptance of such investment would not be in the interest of existing
shareholders or after consultation with counsel, such investment would violate
any state or federal securities law. This determination is made upon receipt of
the purchase order or as soon thereafter as reasonably practicable. The
prospective investor whose order is not accepted will have his or her check or
money order returned as soon as possible thereafter. This Prospectus does not
constitute an offer to sell, or the solicitation of an offer to buy, any
securities offered hereby to any person in any jurisdiction in which such offer
or solicitation would be unlawful.
Stock certificates for shares are ordinarily not issued, as they are not
necessary and complicate redemption.
REDEMPTION OF FUND SHARES
Money may be withdrawn from an account at any time by following the
procedures set forth herein. Shares will be redeemed at the net asset value
next calculated after the request has been received and found to be in good
order and the proceeds are paid by check within seven days after receipt of a
redemption request.
Accounts without share certificates - A signed request (all joint owners
must sign) stating the amount to be withdrawn must be made to Ameritor Financial
Corporation, 1730 K Street, N.W., Washington, D. C. 20006. For amounts over
$1,000 it will be necessary to obtain a "signature guarantee" from a commercial
bank or trust company. Signature guarantees shall be accepted from all eligible
guarantor institutions, which include domestic banks, brokers, dealers, credit
unions, national securities exchanges, registered securities associations,
clearing agencies and savings associations.
Instant Liquidity (by telephone) - Any amount may be withdrawn by telephone
by calling 1-(800)-424-8570 on any business day if telephone withdrawals have
been previously authorized on the Investment Application. Telephone instructions
from any person representing himself or herself to be you or your
representative, and believed by Ameritor Financial Corporation, as Transfer
Agent for the Fund, to be genuine will be acted upon. The Fund or the Transfer
Agent will not be liable for executing unauthorized instructions communicated by
telephone that they reasonably believe to be genuine. The Fund will employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine.
Accounts with share certificates - The signed share certificates (all joint
owners must sign) together with a "signature guarantee" from an eligible
guarantor institution (see "Accounts without share Certificates," above) and a
written request that the certificates be redeemed, must be submitted to Ameritor
Financial Corporation, 1730 K Street, N.W., Washington, D. C. 20006.
Requests for redemption by corporations, executors, administrators,
trustees or guardians may require further documentation.
-18-
<PAGE>
The proceeds of redemptions are paid by check within seven days after
receipt of a request for redemption that complies with the procedures set forth
above. Proceeds may also be wired to a bank or trust company if wire transfers
have been previously authorized on the Investment Application. When a personal
or corporate check was used to purchase the shares, redemption proceeds will be
released only when bank clearance on the check has been received. This
procedure could take up to seven days after the purchase date and can be avoided
by submitting a certified check along with the purchase order. Also, there may
be a charge if a shareholder uses a broker-dealer to repurchase the Fund's
shares.
The right of redemption may be suspended during any period when: (a)
trading on the New York Stock Exchange is restricted as determined by the SEC or
such Exchange is closed for other than weekends and holidays; or (b) as
permitted by the SEC.
For cost reasons we may close an account upon 30 days written notice when
the net asset value of the shares in an account is less than $100 as a result of
redemptions. Involuntary redemption may be avoided if additional funds are
added to the account during the 30-day period.
SYSTEMATIC WITHDRAWAL PLAN. The Fund has a Systematic Withdrawal Plan
under which shareholders who own at least $5,000 (at current net asset value)
worth of the Fund, may receive a fixed distribution amount at monthly intervals
by redeeming a portion of their shares equal to the specified dollar amounts on
a monthly basis. A sufficient number of shares will be liquidated at the then
current net asset value attributable to such shares on the date of liquidation
to meet withdrawals specified. Systematic withdrawals are processed on the
twenty-fifth day of the month. Shareholders who wish to exercise this election
should request and complete the Systematic Withdrawal Application.
SHAREHOLDER RETIREMENT PLANS. Taxes on current income can be deferred by
investing in Keogh Plans, Individual Retirement Accounts (IRAs), Simplified
Employee Pensions (SEPs), 401(k), pension, profit-sharing, employee benefit,
deferred compensation and other qualified retirement plans. The federal tax law
governing these tax-deferred retirement plans must be complied with to avoid
adverse tax consequences.
The Fund does not directly sponsor any retirement plans. However,
shareholders may fund their own self-directed IRA or other qualified plan with
Ameritor Security Trust shares. You should contact the Adviser for specific
plan documentation and any additional information you may require. You should
also consult your tax adviser before investing.
DIVIDENDS AND DISTRIBUTIONS
The Fund has not paid a dividend or made a capital distribution since 1989.
See "Financial Highlights." The Fund does not anticipate paying any cash
dividends or distributions in the foreseeable future. If, at some future time,
the Fund does determine to pay a cash dividend or make a capital distribution,
unless an election to the contrary is made in writing to the Fund at 1730 K
Street, N.W., Washington, D. C. 20006, all income dividends and all capital gain
distributions payable on shares of the Fund will be reinvested in additional
shares at the net asset value in effect on the dividend or distribution record
date. The Fund's investment adviser also serves as the agent to reinvest
dividends and distributions in additional shares. A change of election may be
made at any time as to whether or not to receive dividends and distributions in
cash or have them reinvested in additional shares. Such changes of election
apply to dividends and distributions the record dates of which fall on or after
the date that the Fund receives such change of election.
-19-
<PAGE>
TAX STATUS AND CONSEQUENCES
Distributions from the Fund are taxable under the normal corporate tax
rules because the Fund is not a regulated investment company ("RIC") for federal
income tax purposes. Non-redemption cash distributions to shareholders
constitute ordinary dividend income if such distributions are out of the
corporation's current or accumulated earnings and profits. Thereafter, the
distributions are a non-taxable return of basis to the extent of the recipient's
tax basis for the recipient's shares. Any distributions in excess of earnings
and profits and in excess of such tax basis constitute gain from a deemed sale
or exchange of the shares.
Redemption distributions may be taxable under the rules described above, or
such redemptions may be treated for federal income tax purposes as a sale or
exchange of the redeemed shares. Such characterization depends upon the
application to the recipient of Section 302(b) of the Code. A redemption
distribution may be a sale or exchange of the redeemed shares for tax purposes
if it is not essentially equivalent to a dividend, is a substantially
disproportionate redemption, is in complete termination of a shareholder's
interest in the corporation, or is a redemption from a noncorporate shareholder
in partial liquidation of the distributor (all within the technical meanings of
Section 302(b)). Such determinations are highly individualized. Shareholders
must consult with their own tax advisors concerning the effect to them of any
redemption distribution from the Fund.
Special rules apply for federal income tax purposes if the Fund makes a
distribution of its assets in kind (which could be a liquidating distribution
from the Fund or a non-liquidating distribution). Other special tax rules apply
if the Fund makes a distribution of its shares or rights to acquire its shares
to its shareholders with respect to their Fund shares. No such distributions
are contemplated currently by the Fund so an explanation of these rules is
beyond the scope of this discussion.
The foregoing discussion relates solely to U.S. federal income tax law as
applicable to U.S. persons (I.E., U.S. citizens and residents and U.S. domestic
corporations, partnerships, trusts and estates). Each shareholder who is not a
U.S. person should consult his or her tax advisor regarding the U.S. and foreign
tax consequences of ownership of shares of the Fund, including the likelihood
that such a shareholder would be subject to a U.S. withholding tax at a rate of
30% (or at a lower rate under a tax treaty) on amounts constituting ordinary
income to him or her, where such amounts are treated as income from U.S. sources
under the Code.
In addition to federal taxes, shareholders of the Fund may be subject to
state and local taxes on distributions from the Fund. Shareholders should
consult their own tax advisors with respect to the tax status of distributions
from the Fund in their own state and localities. For more information on
taxation, see the section entitled "Taxation of the Fund" in the Statement of
Additional Information."
-20-
<PAGE>
FINANCIAL HIGHLIGHTS*
<TABLE>
<CAPTION>
For the
period
For the years ended October 1,
June 30, 1994
----------------------- through
June 30,
1998 1997 1996 1995**
---- ---- ---- ----
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period............. $0.76 $0.70 $0.73 $0.72
---- ---- ---- ----
Net investment income (loss) .................... (0.09) (0.11) (0.17) (0.03)
Net realized and unrealized gain (loss)
on investments................................. 0.26 0.17 0.14 0.04
---- ---- ---- ----
Total from investment operations................. 0.17 0.06 (0.03) 0.01
Dividends and distributions paid:
From net realized gain........................... -.-- -.-- -.-- -.--
From net investment income....................... -.-- -.-- -.-- -.--
From capital..................................... -.-- -.-- -.-- -.--
----- ----- ----- -----
Total distributions.............................. -.-- -.-- -.-- -.--
----- ----- ----- -----
Net asset value, end of period..................... $0.93 $0.76 $0.70 $0.73
----- ----- ----- -----
----- ----- ----- -----
Ratio/Supplemental Data: Total return (1)........ 21.40% 8.89% (4.38)% 1.85%***
Net Assets, end of period
(in thousands)............................... $3,903 $4,397 $4,581 $5,735
Ratio of expenses to average net assets.......... 9.85% 12.42% 8.14% 8.17%***
Ratio of net investment income (loss) to average
net assets..................................... (8.95)% (11.82)% (7.48)% (7.23)%***
Portfolio turnover rate............................ 48% 193% 231% 505%***
<CAPTION>
For the years ended September 30,
------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period............. $0.87 $0.64 $0.67 $0.57 $0.84 $0.60 $0.91
---- ---- ---- ---- ---- ---- ----
Net investment income (loss) .................... (0.08) (0.05) (0.03) (0.02) (0.03) -.-- -.--
Net realized and unrealized gain (loss)
on investments................................. (0.07) 0.28 -.-- 0.12 (0.24) 0.27 (0.25)
---- ---- ----- ---- ---- ---- ----
Total from investment operations................. (0.15) 0.23 (0.03) 0.10 (0.27) 0.27 (0.25)
Dividends and distributions paid:
From net realized gain........................... -.-- -.-- -.-- -.-- -.-- (0.03) - .--
From net investment income....................... -.-- -.-- -.-- -.-- -.-- - .-- - .--
From capital..................................... -.-- -.-- -.-- -.-- -.-- - .-- (0.06)
----- ----- ----- ----- ----- ----- ----
Total distributions.............................. -.-- -.-- -.-- -.-- -.-- (0.03) (0.06)
----- ----- ----- ----- ----- ---- ----
Net asset value, end of period..................... $0.72 $0.87 $0.64 $0.67 $0.57 $0.84 $0.60
----- ----- ----- ----- ----- ---- ----
----- ----- ----- ----- ----- ---- ----
Ratio/Supplemental Data: Total return (1)........ (17.24)% 35.88% (4.50)% 17.51% (32.27)% 47.50% (27.86)%
Net Assets, end of period
(in thousands)............................... $6,307 $8,844 $7,254 $8,539 $8,392 $16,035 $13,572
Ratio of expenses to average net assets.......... 7.76% 5.79% 6.92% 7.16% 6.08% 6.65% 4.10%
Ratio of net investment income (loss) to average
net assets..................................... (6.09)% (4.63)% (5.14)% (3.29)% (4.54)% (0.24)% (0.33)%
Portfolio turnover rate............................ 241% 300% 301% 267% 86% 208% 367%
</TABLE>
- -------------------------
(1) Total return on the changes in net value of a share during the period and
assumes reinvestment of distributions at net asset value.
* The Financial Highlights Information for the six months ended December 31,
1998 is hereby incorporated by reference from the Semi-Annual Report to
Shareholders for the six months ended December 31, 1998.
** The Fund's fiscal year-end was changed to June 30.
*** Annualized.
-21-
<PAGE>
AMERITOR SECURITY TRUST
This Prospectus contains information you should know before making an investment
decision. Please keep it for future reference.
A Statement of Additional Information about the Fund, date __________ __, 1999,
has been filed with the SEC and is legally regarded as part of this Prospectus.
Further information about the Fund is available in the annual and semi-annual
shareholder reports of the Fund. The Financial Highlights Information for the
six month period ended December 31, 1998 is incorporated into this Prospectus
from the Fund's semi-annual report. To obtain a free copy of the Statement of
Additional Information or an annual or semi-annual report, or for any other
inquiries regarding the Fund, please call Shareholder Services at 202-223-1000
or 1-800-424-8570.
Fund reports and the Statement of Additional Information are also available from
the SEC by calling 1-800-SEC-0330 or writing the SEC's Public Reference Section,
Washington, DC 20549-6009 (you will be charged a duplicating fee). You may
also visit the Public Reference Room at the offices of the SEC or access the
SEC's website at www.sec.gov.
1940 Act File # 811-00018
<PAGE>
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF ADDITIONAL INFORMATION
The date of this Statement of Additional Information is ___________ __, 199__.
AMERITOR SECURITY TRUST
Mailing Address:
Ameritor Security Trust
c/o Ameritor Financial Corporation
1730 K Street, N.W.
Washington, DC 20006
This Statement of Additional Information is not a prospectus but should be read
in conjunction with the Fund's prospectus dated ____________ __, 199__. You may
obtain a copy of the Fund's prospectus by writing to Ameritor Financial
Corporation, 1730 K Street NW, Washington DC 20006 or calling Shareholder
Services at 202-223-1000 or 1-800-424-8570. A prospectus with more complete
information, including management fees and expenses, will be sent to you.
Please read it carefully before investing.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Fund History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .SAI-2
Description of the Fund and its Investments
and Risks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .SAI-2
The Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .SAI-2
Investment Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . .SAI-2
Investment Risks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .SAI-2
Fund Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .SAI-7
Temporary Defensive Positions . . . . . . . . . . . . . . . . . . . . . . .SAI-9
Portfolio Turnover. . . . . . . . . . . . . . . . . . . . . . . . . . . . .SAI-9
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . .SAI-9
Board of Trustees Responsibilities. . . . . . . . . . . . . . . . . . . . .SAI-9
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .SAI-9
Control Persons and Principal Holders of
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SAI-10
Investment Advisory and Other
Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SAI-11
Investment Advisor; Services
Provided. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SAI-11
Principal Underwriter . . . . . . . . . . . . . . . . . . . . . . . . . . SAI-12
Brokerage Allocation and Other
Practices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SAI-12
Brokerage Transactions and
Selection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SAI-12
Directed Brokerage. . . . . . . . . . . . . . . . . . . . . . . . . . . . SAI-13
Description of Fund Shares . . . . . . . . . . . . . . . . . . . . . . . . . . SAI-13
Purchase and Pricing of Shares . . . . . . . . . . . . . . . . . . . . . . . . SAI-14
Purchase of Fund Shares . . . . . . . . . . . . . . . . . . . . . . . . . SAI-14
Offering Price of Fund Shares . . . . . . . . . . . . . . . . . . . . . . SAI-15
Taxation of the Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SAI-15
Calculation of Performance Data. . . . . . . . . . . . . . . . . . . . . . . . SAI-15
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SAI-16
</TABLE>
SAI-1
<PAGE>
FUND HISTORY
The Fund, originally named the Associated Fund Trust, is a common law trust and
was organized under the laws of the District of Columbia pursuant to a trust
indenture on February 23, 1939. The Fund's name was changed in 1969 to the
Steadman Associated Fund, in January 1997 to the Steadman Security Trust, and in
September 1998 to the Ameritor Security Trust.
DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS
THE FUND
The Fund is a no-load, non-diversified, open-end investment company. The Fund
is registered under the Investment Company Act of 1940, as amended (hereinafter
referred to as the 1940 Act).
INVESTMENT STRATEGIES
The following information supplements the discussion of the Fund's investment
strategies discussed in the Fund's prospectus.
Although not the Fund's principal investment strategies, the Fund may also use
the following:
- The sale of securities pursuant to repurchase agreements.
- The purchase and sale of put options. This is primarily to achieve
premium income but may also be used for hedging purposes.
- The purchase and sale of restricted or illiquid securities.
- Borrowing to increase the amount of money available for the Fund to
invest.
- Short sales.
- Lending securities in the Fund's portfolio.
- The purchase and sale of real estate and real estate related loans and
securities, other than U.S. Government agency mortgage-backed
securities.
INVESTMENT RISKS
The following information supplements the discussion of the Fund's investment
strategies discussed in the Fund's prospectus.
REPURCHASE AGREEMENTS. The Fund may enter into a repurchase agreement
through which an investor (such as the Fund) purchases a security (known as the
"underlying security") from a well-established securities dealer or a bank that
is a member of the Federal Reserve System. Any such dealer or bank will be on
the Fund's approved list and must have a minimum credit rating with respect to
its short-term debt by Standard & Poor's Corporation or by Moody's Investors
Services, Inc.. At that time, the bank or securities dealer agrees to
repurchase the underlying security at the same price, plus specified interest.
Repurchase agreements are generally for a short period of time, often less than
a week. Repurchase agreements which do not provide for payment within seven
days will be treated as illiquid securities. The Fund will only enter into
SAI-2
<PAGE>
repurchase agreements where (i) the underlying securities are of the type
(excluding maturity limitations) which the Fund would be allowed to purchase
directly, (ii) the market value of the underlying security, including interest
accrued, will be at all times equal to or exceed the value of the repurchase
agreement, and (iii) payment for the underlying security is made only upon
physical delivery or evidence of book-entry transfer to the account of the
custodian or a bank acting as agent. In the event of a bankruptcy or other
default of a seller of a repurchase agreement, the Fund could experience both
delays in liquidating the underlying security and losses, including: (a)
possible decline in the value of the underlying security during the period while
the Fund seeks to enforce its rights thereto; (b) possible subnormal levels of
income and lack of access to income during this period; and (c) expenses of
enforcing its rights.
OPTIONS.
- WRITING COVERED PUT OPTIONS. The Fund may write American or European
style covered put options and purchase options to close out options previously
written by the Fund. A put option gives the purchaser of the option the right
to sell, and the writer (seller) has the obligation to buy, the underlying
security or currency at the exercise price during the option period (American
style) or at the expiration of the option (European style). So long as the
obligation of the writer continues, the writer may be presented with an exercise
notice by the broker-dealer through whom such option was sold, requiring the
writer to make payment to the exercise price against delivery of the underlying
security or currency. The operation of put options in other respects, including
their related risks and rewards, is substantially identical to that of call
options.
The Fund would write put options only on a covered basis, which means that
the Fund would maintain in a segregated account cash, U.S. government
securities, other liquid high-grade debt obligations, or other suitable cover as
determined by the SEC, in an amount not less than the exercise price or the Fund
will own an option to sell the underlying security or currency subject to the
option having an exercise price equal to or greater than the exercise price of
the "covered" option at all times while the put option is outstanding. (The
rules of a clearing corporation currently require that such assets be deposited
in escrow to secure payment of the exercise price.)
The Fund would generally write covered put options in circumstances where
the Fund wishes to purchase the underlying security or currency for the Fund's
portfolio at a price lower than the current market price of the security or
currency. In such event, the Fund would write a put option at an exercise price
which, reduced by the premium received on the option, reflects the lower price
it is willing to pay. Because the Fund would also receive interest on debt
securities or currencies maintained to cover the exercise price of the option,
this technique could be used to enhance current return during periods of market
uncertainty. The risk in such a transaction would be that the market price of
the underlying security or currency would decline below the exercise price less
the premiums received. Such a decline could be substantial and result in a
significant loss to the Fund. In addition, the Fund, because it does not own
the specific securities or currencies which it may be required to purchase in
exercise of the put, cannot benefit from appreciation, if any, with respect to
such specific securities or currencies.
The Fund will not write a covered put option if, as a result, the aggregate
market value of all portfolio securities or currencies covering put or call
options exceeds 25% of the market value of the Fund's net assets. In
calculating the 25% limit, the Fund will offset, against the value of assets
covering written puts and calls, the value of purchased puts and calls on
identical securities or currencies with identical maturity dates.
- PURCHASING PUT OPTIONS. The Fund may purchase American or European
style put options. As the holder of a put option, the Fund has the right to
sell the underlying security or currency at the exercise price at any time
during the option period (American style) or at the expiration of the option
(European style).
SAI-3
<PAGE>
The Fund may enter into closing sale transactions with respect to such options,
exercise them or permit them to expire. The Fund may purchase put options for
defensive purposes in order to protect against an anticipated decline in the
value of its securities or currencies.
The Fund may also purchase put options at a time when the Fund does not own
the underlying security or currency. By purchasing put options on a security or
currency it does not own, the Fund seeks to benefit from a decline in the market
price of the underlying security or currency. If the put option is not sold
when it has remaining value, and if the market price of the underlying security
or currency remains equal to or greater than the exercise price during the life
of the put option, the Fund will lose its entire investment in the put option.
In order for the purchase of a put option to be profitable, the market price of
the underlying security or currency must decline sufficiently below the exercise
price to cover the premium and transaction costs, unless the put option is sold
in a closing sale transaction.
The Fund will not commit more than 5% of its assets to premiums when
purchasing put and call options. The premium paid by the Fund when purchasing a
put option will be recorded as an asset of the Fund. This asset will be
adjusted daily to the option's current market value, which will be the latest
sale price at the time at which the net asset value per share of the Fund is
computed (close of New York Stock Exchange), or, in the absence of such sale,
the latest bid price. This asset will be terminated upon expiration of the
option, the selling (writing) of an identical option in a closing transaction,
or the delivery of the underlying security or currency upon the exercise of the
option.
- DEALER (OVER-THE-COUNTER) OPTIONS. The Fund may engage in
transactions involving dealer options. Certain risks are specific to dealer
options. While the Fund would look to a clearing corporation to exercise
exchange-traded options, if the Fund were to purchase a dealer option, it would
rely on the dealer from whom it purchased the option to perform if the option
were exercised. Failure by the dealer to do so would result in the loss of the
premium paid by the Fund as well as loss of the expected benefit of the
transaction.
Exchange-traded options generally have a continuous liquid market while
dealer options have none. Consequently, the Fund will generally be able to
realize the value of a dealer option it has purchased only by exercising it or
reselling it to the dealer who issued it. Similarly, when the Fund writes a
dealer option, it generally will be able to close out the option prior to its
expiration only by entering into a closing purchase transaction with the dealer
to which the Fund originally wrote the option. While the Fund will seek to
enter into dealer options only with dealers who will agree to and which are
expected to be capable of entering into closing transactions with the Fund,
there can be no assurance that the Fund will be able to liquidate a dealer
option at a favorable price at any time prior to expiration. Until the Fund, as
a covered dealer call option writer, is able to effect a closing purchase
transaction, it will not be able to liquidate securities (or other assets) or
currencies used as cover until the option expires or is exercised. In the event
of insolvency of the contra party, the Fund may be unable to liquidate a dealer
option. With respect to options written by the Fund, the inability to enter
into a closing transaction may result in material losses to the Fund. For
example, because the Fund must maintain a secured position with respect to any
call option on a security it writes, the Fund may not sell the assets which it
has segregated to secure the position while it is obligated under the option.
This requirement may impair a Fund's ability to sell portfolio securities or
currencies at a time when such sale might be advantageous.
The Staff of the SEC has taken the position that purchased dealer options
and the assets used to secure the written dealer options are illiquid
securities. The Fund may treat the cover used for written OTC options as liquid
if the dealer agrees that the Fund may repurchase the OTC option it has written
for a maximum price to be calculated by a predetermined formula. In such cases,
the OTC option would be
SAI-4
<PAGE>
considered illiquid only to the extent the maximum repurchase price under the
formula exceeds the intrinsic value of the option.
ILLIQUID OR RESTRICTED SECURITIES. Restricted securities may be sold only
in privately negotiated transactions or in a public offering with respect to
which a registration statement is in effect under the Securities Act of 1933
(the "Securities Act"). Where registration is required, the Fund may be
obligated to pay all or part of the registration expenses, and a considerable
period may elapse between the time of the decision to sell and the time the Fund
may be permitted to sell a security under an effective registration statement.
If, during such a period, adverse market conditions were to develop, the Fund
might obtain a less favorable price than prevailed when it decided to sell.
Restricted securities will be priced at fair value as determined in accordance
with procedures prescribed by the Fund's Board of Trustees. If, through the
appreciation of illiquid securities or the depreciation of liquid securities,
the Fund should be in a position where more than 15% of the value of its net
assets is invested in illiquid assets, including restricted securities, the Fund
will take appropriate steps to protect liquidity.
Notwithstanding the above, the Fund may purchase securities which, while
privately placed, are eligible for purchase and sale under Rule 144A under the
Securities Act. This rule permits certain qualified institutional buyers, such
as the Fund, to trade in privately placed securities even though such securities
are not registered under the Securities Act. The investment advisor, under the
supervision of the Fund's Board of Trustees, will consider whether securities
purchased under Rule 144A are illiquid and thus subject to the Fund's
restriction of investing no more than 15% of its net assets in illiquid
securities. A determination of whether a Rule 144A security is liquid or not is
a question of fact. In making this determination, the investment advisor will
consider the trading markets for the specific security taking into account the
unregistered nature of a Rule 144A security. In addition, the investment
advisor could consider the (1) frequency of trades and quotes, (2) number of
dealers and potential purchases, (3) dealer undertakings to make a market, and
(4) the nature of the security and of marketplace trades (E.G., the time needed
to dispose of the security, the method of soliciting offers, and the mechanics
of transfer). The liquidity of Rule 144A securities would be monitored and, if
as a result of changed conditions it is determined that a Rule 144A security is
no longer liquid, the Fund's holdings of illiquid securities would be reviewed
to determine what, if any, steps are required to assure that the Fund does not
invest more than 15% of its net assets in illiquid securities. Investing in
Rule 144A securities could have the effect of increasing the amount of the
Fund's assets invested in illiquid securities if qualified institutional buyers
are unwilling to purchase such securities.
LENDING OF PORTFOLIO SECURITIES. Securities loans are made to
broker-dealers or institutional investors or other persons, pursuant to
agreements requiring that the loans be continuously secured by collateral at
least equal at all times to the value of the securities lent marked to market on
a daily basis. The collateral received will consist of cash, U.S. government
securities, letters of credit or such other collateral as may be permitted under
its investment program. While the securities are being lent, the Fund will
continue to receive the equivalent of the interest or dividends paid by the
issuer on the securities, as well as interest on the investment of the
collateral or a fee from the borrower. The Fund has a right to call each loan
and obtain the securities, within such period of time which coincides with the
normal settlement period for purchases and sales of such securities in the
respective markets. The Fund will not have the right to vote on securities
while they are being lent, but it will call a loan in anticipation of any
important vote. The risk in lending portfolio securities, as with other
extensions of secured credit, consist of possible delay in receiving additional
collateral or in the recovery of the securities or possible loss of rights in
the collateral should the borrower fail financially. Loans will only be made to
firms deemed by the Fund to be of good standing and will not be made unless, in
the judgment of the Fund, the consideration to be earned from such loans would
justify the risk.
SAI-5
<PAGE>
MORTGAGE-RELATED SECURITIES. Mortgage-related securities, other than U.S.
Government agency mortgage-backed securities, in which the Fund may invest
include, but are not limited to, those described below.
- MORTGAGE-BACKED SECURITIES. Mortgage-backed securities are securities
representing an interest in a pool of mortgages. The mortgages may be of a
variety of types, including adjustable rate, conventional 30-year fixed rate,
graduated payment, and 15-year fixed rate. Principal and interest payments made
on the mortgages in the underlying mortgage pool are passed through to the Fund.
This is in contrast to traditional bonds where principal is normally paid back
at maturity in a lump sum. When a mortgage in the underlying mortgage pool is
prepaid, an unscheduled principal prepayment is passed through to the Fund.
This principal is returned to the Fund at par. As a result, if a mortgage
security were trading at a premium, its total return would be lowered by
prepayments, and if a mortgage security were trading at a discount, its total
return would be increased by prepayments. Unscheduled prepayments of principal
shorten the securities' weighted average life and may lower their total return.
The value of these securities also may change because of changes in the market's
perception of the creditworthiness of the entity that issued them. In addition,
the mortgage securities market in general may be adversely affected by changes
in governmental regulation or tax policies.
- COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs). CMOs are bonds that are
collateralized by whole loan mortgages or mortgage pass-through securities. The
bonds issued in a CMO transaction are divided into groups, and each group of
bonds is referred to as a "tranche." Under the traditional CMO structure, the
cash flows generated by the mortgages or mortgage pass-through securities in the
collateral pool are used to first pay interest and then pay principal to the CMO
bondholders. The bonds issued under a CMO structure are retired sequentially as
opposed to the pro-rata return of principal found in traditional pass-through
obligations. Subject to the various provisions of individual CMO issues, the
cash flow generated by the underlying collateral (to the extent it exceeds the
amount required to pay the stated interest) is used to retire the bonds. Under
the CMO structure, the repayment of principal among the different tranches is
prioritized in accordance with the terms of the particular CMO issuance. The
"fastest-pay" tranche of bonds, as specified in the prospectus for the issuance,
would initially receive all principal payments. When that tranche of bonds is
retired, the next tranche, or tranches, in the sequence, as specified in the
prospectus, receive all of the principal payments until they are retired. The
sequential retirement of bond groups continues until the last tranche, or group
of bonds, is retired. Accordingly, the CMO structure allows (a) the issuer to
use cash flows of long maturity, and (b) monthly-pay collateral to create
securities with short, intermediate and long final maturities and expected
average lives.
In recent years, new types of CMO structures have evolved. These include
floating rate CMOs, planned amortization classes, accrual bonds and CMO
residuals. These newer structures affect the amount and timing of principal and
interest received by each tranche from the underlying collateral. Under certain
of these new structures, given classes of CMOs have priority over others with
respect to the receipt of prepayments on the mortgages. Therefore, depending on
the type of CMOs in which the Fund invests, the investment may be subject to a
greater or lesser risk of prepayment than other types of mortgage-related
securities.
The primary risk of any mortgage security is the uncertainty of the timing
of cash flows. For CMOs, the primary risk results from the rate of prepayments
on the underlying mortgages serving as collateral. An increase or decrease in
prepayment rates (resulting from a decrease or increase in mortgage interest
rates) will affect the yield, average life and price of CMOs. The prices of
certain CMOs, depending on their structure and the rate of prepayments, can be
volatile. Some CMOs may also not be as liquid as other securities.
SAI-6
<PAGE>
- STRIPPED MORTGAGE-BACKED SECURITIES. These instruments are a type of
potentially high-risk derivative. They represent interests in a pool of
mortgages, the cash flow of which has been separated into its interest and
principal components. "IOs" (interest only securities) receive the interest
portion of the cash flow while "POs" (principal only securities) receive the
principal portion. Stripped Mortgage-Backed Securities may be issued by U.S.
government agencies or by private issuers similar to those described above with
respect to CMOs and privately-issued mortgage-backed certificates. As interest
rates rise and fall, the value of IOs tends to move in the same direction as
interest rates. The value of the other mortgage-backed securities described
herein, like other debt instruments, will tend to move in the opposite direction
compared to interest rates. Under the Internal Revenue Code of 1986, as amended
(the "Code"), POs may generate taxable income from the current accrual of
original issue discount, without a corresponding distribution of cash to the
Fund.
The cash flows and yields on IO and PO classes are extremely sensitive to
the rate of principal payments (including prepayments) on the related underlying
mortgage assets. In the case of IOs, prepayments affect the amount, but not the
timing, of cash flows provided to the investor. In contrast, prepayments on the
mortgage pool affect the timing, but not the amount, of cash flows received by
investors in POs. For example, a rapid or slow rate of principal payments may
have a material adverse effect on the prices of IOs or POs, respectively. If
the underlying mortgage assets experience greater than anticipated prepayments
of principal, an investor may fail to fully recoup its initial investment in an
IO class of a stripped mortgage-backed security, even if the IO class is rated
AAA or Aaa or is derived from a full faith and credit obligation. Conversely,
if the underlying mortgage assets experience slower than anticipated prepayments
of principal, the price on a PO class will be affected more severely than would
be the case with a traditional mortgage-backed security.
The staff of the SEC believes IOs and POs, other than government-issued IOs
or POs backed by fixed rate mortgages, should be treated as illiquid securities
and, accordingly, investments in such securities, together with all other
illiquid securities, are limited to 15% of the Fund's net assets. Under the
staff's position, the determination of whether a particular government-issued IO
and PO backed by fixed rate mortgages may be made on a case by case basis under
guidelines and standards established by the Fund's Board of Trustees. The
Fund's Board of Trustees has delegated to the investment advisor the authority
to determine the liquidity of these investments based on the following
guidelines: the type of issuer; type of collateral, including age and prepayment
characteristics; rate of interest on coupon relative to current market rates and
the effect of the rate on the potential for prepayments; complexity of the
issue's structure, including the number of trenches; size of the issue and the
number of dealers who make a market in the IO or PO. The Fund will treat
nongovernment-issued IOs and POs not backed by fixed or adjustable rate
mortgages as illiquid unless and until the SEC Staff modifies its position.
FUND POLICIES
POLICY ON ISSUANCE OF SENIOR SECURITIES. The Fund, as an open-end,
management investment company registered under the 1940 Act, is prohibited from
issuing senior securities. The Fund may not issue preferred stock or debt
securities of any kind, nor may the Fund borrow from any entity other then a
bank.
BORROWING POLICY. The Fund's current borrowing policy is that the Fund may
borrow from banks for investment purposes not to exceed 33 1/3% of the value of
the Fund's total assets, less its liabilities other than such borrowings. This
borrowing, which is a speculative technique known as leveraging, generally will
be unsecured, except to the extent the Fund enters into reverse repurchase
agreements described below. The 1940 Act requires the Fund to maintain
continuous asset coverage (that is, total assets including borrowings, less
liabilities exclusive of borrowings) of 300% of the amount borrowed. If the
300% asset coverage should decline as a result of market fluctuations or other
reasons, the Fund is required to sell some of its portfolio
SAI-7
<PAGE>
holdings within three days to reduce the debt and restore the 300% asset
coverage, even though it may be disadvantageous from an investment standpoint to
sell securities at that time. Leveraging may exaggerate the effect on net asset
value of any increase or decrease in the market value of the Fund's portfolio.
Money borrowed for leveraging will be subject to interest costs which may or may
not be recovered by appreciation of the securities purchased. The Fund also may
be required to maintain minimum average balances in connection with such
borrowing or to pay a commitment or other fee to maintain a line of credit;
either of these requirements would increase the cost of borrowing over the
stated interest rate.
Among the forms of borrowing in which the Fund may engage is the entry into
reverse repurchase agreements with members of the New York Stock Exchange (or
subsidiaries thereof), members of the Federal Reserve System, recognized primary
U.S. government securities dealers, or institutions which the investment adviser
of the Fund has determined to be of comparable creditworthiness. These
transactions involve the transfer by the Fund of an underlying debt instrument
in return for cash proceeds based on a percentage of the value of the security.
The Fund retains the right to receive interest and principal payments on the
security. At an agreed upon future date, the Fund repurchases the security at
principal, plus accrued interest. In certain types of agreements, there is no
agreed-upon repurchase date and interest payments are calculated daily, often
based on the prevailing overnight repurchase rate. The Fund will maintain in a
segregated custodial account cash, cash equivalents, or U.S. government
securities or other high quality liquid debt securities at least equal to the
aggregate amount of its reverse repurchase obligations, plus accrued interest,
in certain cases, in accordance with releases promulgated by the Securities and
Exchange Commission. The Securities and Exchange Commission views reverse
repurchase transactions as collateralized borrowings by the Fund. These
agreements, which are treated as if reestablished each day, may provide the Fund
with a flexible borrowing tool.
POLICY ON UNDERWRITING SECURITIES OF OTHER ISSUERS. The Fund may engage in
the business of underwriting securities issued by other persons to the extent
that the purchase of restricted securities constitutes such underwriting.
CONCENTRATION POLICY. The current concentration policy of the Fund states
that it is not the policy of the Fund to invest 25% or more of the value of its
total assets in any one industry. An industry is determined by looking at the
standard industry classification (SIC) code (I.E., if two companies have the
same SIC code, the companies would be in the same industry). However, when
securities of a given industry come to constitute 25% or more of the value of
the Fund's total assets by reason of changes in value of either the concentrated
securities or other securities, the excess need not be sold. The Fund has also
instituted policies and procedures to assist in preventing a violation of the
concentration policy of the Fund. The policy provides that prior to the
investment advisor making a purchase of a security, the chief financial officer,
or designee thereof, must confirm that the purchase will not result in a
violation of the concentration policy. In addition, pursuant to the policy, the
chief financial officer will determine weekly if any portfolio securities have
appreciated in value above 25% such that additional purchases would be
prohibited.
POLICY ON PURCHASING AND SELLING REAL ESTATE AND COMMODITIES. The Fund may
purchase and sell real estate, including land and buildings and securities of
companies whose assets consist of real property and interests therein. Although
the Fund may purchase commodities, the Fund does not purchase or intend to
purchase commodities, and has no policy governing its purchase of commodities.
POLICY ON MAKING LOANS. The Fund may make both long and short-term loans
to others, including the purchase of non-publicly offered debt securities on a
case-by-case basis.
LIMITATIONS ON FUND POLICIES. The Fund's Trust Indenture provides that the
Fund may, in the sole discretion of the investment advisor and to the maximum
extent permissible by the applicable laws and
SAI-8
<PAGE>
regulations, engage in all lawful investment activities. Without limitation on
any other investment activities, the Fund reserves freedom of action to engage
in the foregoing types of activities specified in Section (8)(b) of the 1940
Act. The extent to which the Fund intends to engage in the foregoing activities
is entirely dependent upon the market conditions and the economic environment in
which the Fund must operate. Thus it is not practical to predict the extent to
which the Fund will or may engage in such activities. The Fund intends to
engage in these activities to the maximum extent permissible under applicable
laws and regulations when, in the judgment of the investment advisor, such
activities appear to be beneficial to the Fund and its shareholders.
Accordingly, the risks involved in an investment in the Fund may be greater than
the risks generally associated with many other mutual funds.
TEMPORARY DEFENSIVE POSITIONS
In response to unfavorable market conditions, the Fund may commit up to 100% of
its assets to temporary defensive investments in (i) high-grade debt securities
of all types, (ii) U.S. government securities, and (iii) repurchase agreements.
While the Fund believes that these temporary defensive investments are
consistent with the Fund's investment objective, the rate of return on such
investments tend to be lower and may have an adverse effect on Fund performance.
PORTFOLIO TURNOVER
The portfolio turnover rate during the year dropped significantly from prior
years as a result of a new management philosophy. For the years ended June 30,
1998, 1997, 1996, 1995, and 1994, the portfolio turnover rate was 48%, 193%,
231%, 505%, and 241%, respectively.
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES RESPONSIBILITIES
Pursuant to the Trust Indenture of the Fund, the Trustees possess full,
exclusive and absolute power, control and authority over the Fund property and
the business of the Fund to the same extent as if the Trustees were the sole and
absolute owners of the Fund property and business in their own right. This
authority is exercised free from any power or control on the part of the
shareholders of the Fund, except as may be required by law. The Trustees may
also delegate certain functions as may be permitted by the Trust Indenture.
MANAGEMENT
TRUSTEES AND OFFICERS. The following table sets forth certain information
concerning the Trustees and officers of the Fund.
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation(s)
Name, Address, and Age Age(1) with the Fund During Past 5 Years
- --------------------------------- ---------- ---------------------------------- -----------------------------------------------
<S> <C> <C> <C>
PAUL F. WAGNER 80 Chairman of the Board of Trustees Chairman:
1006 Waynewood Blvd Wagner, Hines & Avery, a Washington, DC Public
Alexandria, VA 20036 Affairs firm
PAUL A. BOWERS, M.D. 86 Trustee Retired from private medical practice and as a
9 Sandringham Road Professor, Obstetrics and Gynecology Jefferson
Bala-Cynwyd, PA 19004 Medical College, Philadelphia, Pennsylvania
</TABLE>
SAI-9
<PAGE>
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation(s)
Name, Address, and Age Age(1) with the Fund During Past 5 Years
- --------------------------------- ---------- ---------------------------------- -----------------------------------------------
<S> <C> <C> <C>
W. MARK CRAIN 46 Trustee Professor of Economics and Research Associate
9603 Concerto Circle with the Center for Study of Public Choice
Vienna, VA 22182 George Mason University Fairfax, Virginia
RICHARD O. HAASE 63 Trustee Vice President: Maiden, Hasse & Smith, a
7026 Elizabeth Drive Washington DC real estate valuation company
McLean, VA 22101
JOHN T. HAYWARD 89 Trustee Vice Admiral, U.S.N. (ret) formerly Vice
PO Box 33000 President, General Dynamics Corporation,
Atlantic Beach, FL 32233 Washington, D.C.
MAX KATCHER 68 President and Treasurer of the Fund President of Ameritor Financial Corporation
8408 Carlynn Drive and Executive Vice President of the Fund,
Bethesda, MD 20034 Ameritor Industry Fund, Ameritor Investment
Fund, and Steadman Technology and Growth Fund
CAROL S. KINNEY * 53 Secretary of the Fund Chairman of the Board of Ameritor Financial
8020 Thornley Court Corporation, National Association of
Bethesda, MD 20817 Securities Dealers-Agent, Former stock broker
with Solomon-Smith Barney
KATHLEEN S. STYERS 37 Assistant Vice President and Assistant Vice President and Assistant
14512 Leonard Calvert Drive Assistant Secretary of the Fund Secretary of the Fund, Ameritor Industry Fund,
Accokeek, MD 20607 Ameritor Investment Fund, and Steadman
Technology and Growth Fund; Assistant Vice and
President and Assistant Secretary of Ameritor
Financial Corporation
</TABLE>
- --------------------
* Interested person as defined by Section 2(a)(19) of the Investment Company
Act.
(1) As of June 30, 1998.
COMPENSATION. During the fiscal year ended June 30, 1998, the Fund paid
$1,843 in fees and expenses to all Trustees. Trustees are paid $300 per meeting
attended. No officer received compensation from the Fund exceeding $60,000.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
At January 31, 1999, no person beneficially owned of record, or to the
knowledge of the Fund, beneficially owned, more than 5% of the then outstanding
shares of the Fund. Furthermore, no person has exerted himself or herself as a
party in control of the Fund and there has been no adjudication under section
2(a)(9) of the 1940 Act that control exists.
At January 31, 1999, the Trustees and officers of the Fund, as a group
beneficially owned no shares in the Fund.
SAI-10
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISOR; SERVICES PROVIDED
The Fund has entered into an investment advisory agreement (the "Advisory
Agreement") with Ameritor Financial Corporation which has its principal offices
at 1730 K Street, N.W., Washington, D.C. 20006. All voting stock of Ameritor
Financial Corporation is owned by United Securities, Inc., a Maryland
corporation whose sole shareholders are Carole S. Kinney and Charles T.W.
Steadman.
Since commencing business through its predecessor, William Allen Steadman &
Company, in 1932, the advisor has principally engaged in the business of
providing continuous investment supervision for the Funds. Under the terms of
the Advisory Agreement, the advisor manages the investments of the Fund and is
responsible for overall management of its business affairs subject to
supervision of the Trustees. Max Katcher, President of the Fund and Ameritor
Financial Corporation, is primarily responsible for the day-to-day management of
the Funds' portfolios. As compensation for its services, each Fund pays to the
advisor a monthly advisory fee at the annual rate of 1% of the first $35,000,000
of the average daily net asset value of the Fund, 7/8 of 1% on the next
$35,000,000 and 3/4 of 1% on all sums in excess thereof. The advisory fee is
higher than that paid by many other investment companies.
The Fund paid investment advisory fees during the last three fiscal years as
follows: June 30, 1998, $41,538; June 30, 1997, $45,410; June 30, 1996, $51,706.
Under an agreement with the Fund which is contained in the approved minutes of
the Fund, Ameritor Financial Corporation also serves as Transfer and Dividend
Disbursing Agent and Agent for Administration of Shareholder Accounts
(hereinafter "delegated services") for the Fund. The fee for such services is
computed on the basis of the number of shareholder accounts calculated as of the
last business day of each month at $1.35 per account, per month. The last
increase in fee amount was made on May 21,1986 (effective retroactive to May 1,
1986) and renewed annually by the Trustees since that date. The Fund paid fees
for delegated services for the last three fiscal years ending as follows: June
30, 1998, $28,299; June 30, 1997, $36,859; and June 30, 1996, $41,214.
Ameritor Financial Corporation also receives reimbursements from the Fund for
salaries and benefits of its employees who perform directly attributable
functions to the Fund other than investment advisory and shareholder services.
These functions include: fund accounting, reviewing the Fund's internal
financial reports; coordinating the editing, printing and mailing of reports to
the Fund's shareholders; internal audit of the Fund's books, transactions, and
daily pricing; compliance with SEC regulation, including registration;
preparation of materials for Trustees' meetings; legal and other administrative
functions; and clerical assistance related to the above. Total reimbursements
for the fiscal year ending June 30, 1998 totaled $121,975.
Ameritor Financial Corporation assumes no responsibility under the Advisory
Agreement other than to render the services called for thereunder, in good
faith, and is not responsible for any action of the Fund in following or
declining to follow any advice or recommendation. It is not liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with matters to which the Advisory Agreement relates, except for a
loss resulting from willful misfeasance, bad faith, gross negligence or reckless
disregard in the performance of its duties under the Advisory Agreement.
Directors, officers and employees of the investment advisor have the unlimited
and unrestricted right to engage in any other business or to devote time and
attention in part to the management or other aspects of any other business,
whether of a similar or dissimilar nature.
SAI-11
<PAGE>
The Advisory Agreement also provides that the Fund will pay all of its ordinary
expenses of operation except specifically excepted, such expenses of operation
including, but not being limited to, the following: (i) the expenses of
maintaining its own books of accounts; (ii) the expenses of its custodian, the
transfer agent and dividend disbursing agent; (iii) the expenses of computing
the daily net asset value of the shares; (iv) the fees and expenses of the
Trustees including, contrary to most other funds, the fees of those Trustees who
also may be directors of the investment advisor or its subsidiary corporation;
(v) the expenses of meetings of shareholders; (vi) the expenses of printing and
mailing of all shareholder reports and other required reports and documents
provided shareholders, including the cost of printing and mailing prospectuses
to shareholders; (vii) taxes of any kind assessed against the Fund; (viii)
interest and commissions; (ix) Securities and Exchange Commission registration
fees; (x) state registration fees; (xi) the expenses of trust existence; (xii)
all or part of the salaries of the fund officers and other employees who also
may be directors or officers or employees of the Adviser or its subsidiaries;
(xiii) the fees of auditors; (xiv) the fees of legal counsel; (xv) travel,
entertainment, publication, telephone, telegraph, office space rent; and (xvi)
all other ordinary expenses of operation. The Fund also will pay all
extraordinary expenses of whatever kind unless such expenses have been
specifically assumed by the investment advisor.
PRINCIPAL UNDERWRITER
The Fund currently has no principal underwriter.
BROKERAGE ALLOCATION AND OTHER PRACTICES
BROKERAGE TRANSACTIONS AND SELECTION
Ameritor Financial Corporation makes decisions as to buying and selling
investment securities, subject to supervision by the Fund's Board of Trustees.
It is the practice of the Fund to seek the most favorable prices and execution
of orders for the purchase or sale of portfolio securities, taking into
consideration the facilities and services of a particular broker or dealer.
Subject to these considerations, the Fund has authorized the investment advisor
to place a portion of such business on a principal or agency basis with eligible
brokers who have provided statistical, quote, and research material to Ameritor
Financial Corporation. Research services include written and oral advice,
analyses and reports concerning issuers, industries, securities, markets,
economic factors and trends and portfolio strategy. The Fund has been informed
that, to the extent brokerage is allocated to obtain statistical, investment,
research, or quotation services, the investment advisor will be assisted in
providing to the Fund more thorough and complete advisory material. Although
such services may tend to reduce the expenses of the investment advisor in
rendering investment advice to the Fund, the value of the services is not
determinable. Ameritor Financial Corporation's investment personnel determine
the overall reasonableness of commissions paid by rating brokers or dealers on
such general factors as execution capabilities, quality of research and
financial condition, and net results of specific transactions in such terms as
price, promptness, size of order, and difficulty of execution.
The Fund's investment adviser, acting on behalf of the Fund, is authorized to
pay a brokerage commission in excess of that which another broker might have
charged for effecting the same transaction, in recognition of the value of
brokerage or research services. The investment adviser and the Trustees
consider the above allocation of brokerage to be consistent with the Fund's
brokerage policy. Brokers do not exercise investment discretion as to the
Fund's portfolio securities, hence no brokerage is allocated for such service.
The following table sets forth the amount of brokerage paid by the Fund and the
total volume of transactions for the periods indicated.
SAI-12
<PAGE>
<TABLE>
<CAPTION>
For the fiscal year ended June 30,
--------------------------------------------------
1998 1997 1996
---------- ----------- -----------
<S> <C> <C> <C>
Transactions......... $4,888,372 $16,916,669 $22,887,207
Brokerage............ 18,730 88,713 126,558
</TABLE>
As the above table indicates, during the year ended June 30, 1998, the total
amount of transactions and the brokerage paid thereon decreased substantially.
Brokerage decreased 78.9%, while the amount of transactions decreased 71.1% from
fiscal 1997 to fiscal 1998. This decrease is consistent with a new management
philosophy that has also resulted in a portfolio turnover rate that has
decreased significantly.
DIRECTED BROKERAGE
During the Fund's fiscal year ended June 30, 1998, Ameritor Financial
Corporation directed brokerage transactions and paid brokerage commissions as
follows because of research services provided by Fahnestock & Co. Inc. of
$17,380 on transactions of $4,638,294. Brokerage commissions were directed to
Fahnestock & Co., Inc. pursuant to an understanding that quotation services and
devices would be provided to the investment advisor in exchange for these
brokerage commissions. This arrangement ceased in February, 1998.
The following table details transaction amounts and commissions paid to brokers
during the last fiscal year for the Fund as well as the percentage of
transactions and commissions as related to the total for the Fund.
<TABLE>
<CAPTION>
Amount of Percent of Total Percent of Total
Broker Transactions Transactions Commissions Commissions
- --------------------------- ------------ ---------------- ----------- ----------------
<S> <C> <C> <C> <C>
Fahnestock & Co. $4,638,294 94.88% $17,380 92.79%
Dean Witter 250,078 5.12 1,350 7.21
---------- ------ ------- -------
Total $4,888,372 100.00% $18,730 100.00%
---------- ------ ------- -------
---------- ------ ------- -------
</TABLE>
DESCRIPTION OF FUND SHARES
The Fund is organized as a common law trust under the laws of the District of
Columbia and has outstanding only one class of shares of beneficial interest.
All shareholders have equal voting rights, and all shares participate equally in
dividends and other distributions by the Fund, and in the residual assets of
such Fund in the event of liquidation. Fractional shares have the same rights
proportionately as do full shares, except that fractional shares do not have
voting rights. Shares of the Fund have no preemptive rights and no conversion
or subscription rights. The Fund does not hold regularly scheduled annual
shareholders' meetings. Special meetings are called when required by applicable
laws and regulations. No shareholder of any Fund shall be subject to any
liability to any person in connection with the property or affairs of any such
Fund. The shares of the Fund are not subject to mandatory redemption and or
subject to a sinking fund.
In addition, the governing documents of the Fund contain several other
provisions relating to shareholders' rights that are uncommon to most other
mutual funds including: (a) trustees hold office for a term of unlimited
duration, (b) shareholders are entitled to vote for or against any amendments to
the Trust Indenture only under limited circumstances, (c) shareholders are not
entitled to vote for or against a termination of the
SAI-13
<PAGE>
Fund, and (d) except as otherwise required by law, shareholders may call special
meetings only upon a vote of 90% of the outstanding shares.
As interpreted by the staff of the Securities and Exchange Commission, the 1940
Act provides shareholders of the Fund with certain rights with respect to
removal of Trustees. Under these provisions, shareholders may remove one or
more Trustees by declaration or vote of two-thirds of each Fund's outstanding
shares. The Trustees will promptly call a meeting of shareholders for the
purpose of voting upon the question of removal of Trustees when requested to do
so by the record holders of not less than 10% of the outstanding shares of the
Fund. The Fund will comply with these procedures.
The Trust Indenture of the Fund provides that there shall not be cumulative
voting by shareholders for the election of Trustees. The absence of cumulative
voting rights means that holders of a majority of the shares voted at a meeting
of shareholders may, if they so choose, elect all Trustees to be selected, thus
precluding minority shareholder representation among the Trustees. Other than a
provision of the Act requiring every shareholder to have equal voting power, no
provision of the Act requires cumulative voting.
Finally, a provision of the Trust Indenture of the Fund permits the Trustees to
limit the amount of Fund shares owned at any one time by any one person to 5% of
Fund shares. This provision allows the Trustees to prevent a person from
becoming an affiliated person within the meaning of Section 2 of the 1940 Act.
There is no provision of the Act that limits the percentage ownership one person
may have in an open-end investment company.
PURCHASE AND PRICING OF SHARES
PURCHASE OF FUND SHARES
The Fund is currently in the process of registering Fund shares for sale in
certain states. The Fund will offer the shares at net asset value without
payment of any sales fee (load) or commission when purchases are made directly
from the Fund. Shares purchased through registered broker-dealers may incur a
transaction fee.
To make an initial investment and open an account, complete the attached
application and forward it with a check or money order for $1,000 or more, made
payable to Ameritor Security Trust, 1730 K Street, N.W., Washington, D.C.
20006. Initial investments of less than $1,000 will not be accepted.
After an account has been established, a confirmation will be issued indicating
the amount invested, the number of shares purchased, and the purchase price per
share (net asset value per share). The confirmation will include a deposit
stub, which may be used to make an additional investment of $100 or more at any
time by completing the form and mailing with a check in the appropriate amount.
Additional investments of less than $100 will not be accepted.
Investments received prior to the closing of the New York Stock Exchange
(currently 4:00 p.m., New York Time) and are in good order will be credited at
the net asset value determined at the close of the exchange on that day.
Investment received after closing will be credited at the net asset value on the
next subsequent day in which the net asset value of the Fund is calculated.
All investments are subject to our acceptance and subject to compliance with
state and federal securities laws. The Fund may decline to accept an investment
when in the judgment of the Fund's investment advisor, the acceptance of such
investment would not be in the interest of existing shareholders or after
consultation with counsel, such investment would violate any state or federal
securities law. This determination is made upon receipt of the purchase order
or as soon thereafter as reasonably practicable. The prospective investor whose
SAI-14
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order is not accepted will have his or her check or money order returned as soon
as possible thereafter. This Prospectus does not constitute an offer to sell,
or the solicitation of an offer to buy, any securities offered hereby to any
person in any jurisdiction in which such offer or solicitation would be
unlawful.
Stock certificates for shares are ordinarily not issued, as they are not
necessary and complicate redemption.
OFFERING PRICE OF FUND SHARES
Fund shares are bought and sold at the net asset value next calculated after the
buy or sell order is placed. The Fund's net asset value per share is determined
at the close of trading on the New York Stock Exchange (currently 4:00 p.m., New
York Time) on days when the New York Stock Exchange is open for business. It
is computed by dividing the value of net assets (I.E., the value of the assets
less liabilities) by the total number of shares outstanding. Portfolio
securities are valued at the last sale price on the national securities exchange
or national securities market on which the securities are primarily traded.
Securities not listed on an exchange or national securities market or securities
for which there were no transactions are valued at the mean between the most
recent reported bid and asked prices. Any securities or other assets for which
market quotations are not readily available are valued at fair value as
determined in good faith by the Trustees. Debt securities having remaining
maturities of less than 60 days are valued by the amortized cost method, unless
the Trustees determine this is not fair value. Expenses and fees, including the
management fee, are accrued daily and taken into account for the purpose of
determining the net asset value.
TAXATION OF THE FUND
Currently, the Fund does not qualify as a regulated investment company ("RIC")
taxable under the rules of Sections 851 through 855 of Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). The Fund is taxed under
the normal corporate tax rules under Subchapter C of the Code. It is
anticipated that such tax status as a non-RIC shall continue indefinitely.
While not being qualified as a RIC will permit the Fund to utilize certain loss
carryforwards, which at June 30, 1998 totaled approximately $5,581,000, it will
not be able to take advantage of certain potentially favorable tax rules
applicable to electing qualified regulated investment companies.
In the event the Fund qualifies as a RIC in the future, distributions of any
taxable net investment income and of any excess of net short-term capital gain
over net long-term capital loss and capital loss carryovers, if any, will be
taxable to shareholders as ordinary income. Further, in qualifying years, to
the extent that long-term capital gains exceed short-term capital losses and any
capital loss carry forwards, they may be distributed to shareholders and, if
distributed, will be taxable to the shareholders as long-term capital gain.
Under the federal income tax law, the Fund is required to report to the Internal
Revenue Service all dividend distributions. Under the backup withholding
provisions, all distributions by the Fund may be subject to withholding of
federal income tax at the rate of 31% in the case of non-exempt shareholders who
fail to furnish the Fund with their correct taxpayer identification numbers and
with required certifications regarding their status under federal income tax
laws. If the withholding provisions are applicable, any such distributions will
be reduced by the amounts required to be withheld. Investors should consult
their tax advisors about the applicability of the backup withholding provisions.
CALCULATION OF PERFORMANCE DATA
The Fund will calculate its total rate of return for certain periods by
determining the average annual compounded rates of return over these periods
that would cause an investment of $10,000 (with all dividends and distributions
reinvested) to reach the value of that investment at the end of the periods.
The Fund may
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<PAGE>
also calculate total rates of return, which represent aggregate performance over
a period or year-by-year performance. The average annual total rate of return
for Fund shares for the one year, five year, and ten year periods ended June 30,
1998 are 21.40%, 6.56%, and 1.44%, respectively.
FINANCIAL STATEMENTS
The Fund's Financial Statements and related notes for the fiscal year ended June
30, 1998 are incorporated herein by reference to the Fund's Form N-30D filed
with the Securities and Exchange Commission on September 28, 1998 (SEC File
Number: 811-00018).
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<PAGE>
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
Exhibit Description
------- -----------
(a) Amended and Restated Trust Indenture of Ameritor Security
Trust (1)
(c) Specimen share certificate (1)
(d) Ameritor Security Trust Amended and Restated Investment
Advisory Agreement (1)
(g) Custodian agreement and depository contract with Crestar
Bank N.A. (1)
(i) Opinion of Manatt, Phelps & Phillips, LLP as to the legality
of the securities being registered (1)
(n) Financial Data Schedule (2)
(x)(i) Power of Attorney of John T. Hayward (3)
(x)(ii) Power of Attorney of Paul A. Bowers (3)
(x)(iii) Power of Attorney of Paul F. Wagner (3)
(x)(iv) Power of Attorney of W. Mark Crain (3)
(x)(v) Power of Attorney of Richard O. Haase (3)
(y)(i) Consent of PricewaterhouseCoopers LLP
(y)(ii) Consent of Reznick Fedder & Silverman, P.C.
- --------------
(1) Incorporated by reference to the Exhibits to the Registration Statement on
Form N-14 originally filed with the SEC on January 1, 1997 (SEC File Number:
333-20889).
(2) Contained in electronically filed version only.
(3) Reference is made to the signature page.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND
None.
ITEM 25. INDEMNIFICATION
Section 5.3 of the Amended Restated Trust Indenture of Ameritor Security
Trust and Declaration of Trust (the "Trust Agreement"), provides that the Fund
shall indemnify each of its trustees, advisors, officers, employees, and agents
(including any person who serves at the request of the Fund as a director,
officer, partner, trustee or the like of another organization in which the Fund
has any interest as a shareholder, creditor or otherwise) against all
liabilities and expenses, including amounts paid in satisfaction of judgments,
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<PAGE>
in compromise, as fines or penalties and as counsel fees, reasonably incurred by
such person in connection with the defense or disposition of any action, suit or
other proceeding, whether civil or criminal, in which the person may be involved
or with which the person may be threatened, while acting as a trustee or
advisor, or as an officer, employee, or agent of the Fund or the trustees, or
thereafter, by reason of the person being or having been a trustee, advisor,
officer, employee or agent. However, indemnification shall not be available
with respect to any matter as to which such person has been adjudicated to have
acted in bad faith or with willful misconduct or reckless disregard of such
person's duties or gross negligence or not to have acted in good faith in the
reasonable belief that such person's action was in the best interest of the
Fund. If the matter is disposed of by a compromise payment, pursuant to a
consent decree or otherwise, no indemnification either for said payment or for
any other expenses shall be provided unless such compromise shall have been
approved as in the best interests of the Fund by a majority of the disinterested
trustees or the Fund has received a written opinion of independent legal counsel
to the effect that the person to be indemnified appears to have acted in good
faith in the reasonable belief that such person's action was in the best
interests of the fund. A provision of this section of the Trust Agreement also
provides that the Trust Agreement is not the sole means of indemnification and
that the Fund may indemnify persons as provided by applicable law.
The District of Columbia Code does not contain a provision relating to the
indemnification of trustees, officers, employees, or agents of a trust.
However, under general common law trust principles, a trustee is normally
entitled to reimbursement from the trust for all necessary and reasonable
expenditures made in the execution of the trust if the trustee acted in good
faith for the benefit of the trust. However, under common law trust principles,
property of the trust cannot be used to reimburse the trustee for losses or
expenses incurred by the trustee, unless the trustee has exercised good faith
and common prudence.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISOR
The Investment Adviser provides transfer agent and fund accounting services
to the Copley Fund, Inc. of Fall River, Massachusetts and the Ehrenkrantz Trust
of New York City, New York.
ITEM 27. PRINCIPAL UNDERWRITERS
Not Applicable. The Fund does not have a principal underwriter.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
Each account, book, or other document required to be maintained by Section
31(a) of the Investment Company Act of 1940, as amended, is maintained by the
Ameritor Financial Corporation at 1730 K Street, N.W., Washington, D.C. 20006.
ITEM 29. MANAGEMENT SERVICES
Not applicable. There are no management-related service contracts to which
the Fund or the investment advisor are a party.
ITEM 30. UNDERTAKINGS
Not applicable.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment
Company Act, the Fund has duly caused this registration statement to be signed
on its behalf by the undersigned, duly authorized, in the City of Washington and
the District of Columbia on the 22nd day of March , 1999 .
AMERITOR SECURITY TRUST
/s/ Max Katcher
--------------------------------------------
Max Katcher, President and Treasurer
(duly authorized representative)
We the undersigned trustees and officers of Ameritor Security Trust do
hereby severally constitute and appoint Max Katcher our true and lawful attorney
and agent, to do any and all things and acts in our names in the capacities
indicated below and to execute all instruments for us and in our names in the
capacities indicated below which said Max Katcher may deem necessary or
advisable to enable Ameritor Security Trust to comply with the Securities Act of
1933, as amended, the Investment Company Act of 1940, as amended, and any rules,
regulations, and requirements of the Securities and Exchange Commission, in
connection with the registration statement on Form N-1A relating to the offering
of share interests in Ameritor Security Trust, including specifically but not
limited to, power and authority to sign for us or any of us in our names in the
capacities indicated below the registration statement and any and all amendments
(including post-effective amendments) thereto; and we hereby ratify and confirm
all that Max Katcher shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed below by the following persons in the capacities and
on the date(s) indicated.
(Signature) (Title) (Date)
/s/ Max Katcher President and Treasurer March 22 1999
----------------------- (Principal Executive -------------------
Max Katcher Officer, Principal
Financial Officer,
and Principal
Accounting Officer)
/s/ Paul A. Bowers Trustee March 22 1999
----------------------- -------------------
Paul A. Bowers
/s/ W. Mark Crain Trustee March 22 1999
----------------------- -------------------
W. Mark Crain
/s/ Richard O. Haase Trustee March 22 1999
----------------------- -------------------
Richard O. Haase
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<PAGE>
SIGNATURES March 22 1999
(CONTINUED) -------------------
/s/ John T. Hayward Trustee March 22 1999
----------------------- -------------------
John T. Hayward
/s/ Paul E. Wagner Chairman of the Board of March 22 1999
----------------------- Trustees -------------------
Paul E. Wagner
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<PAGE>
EXHIBIT (Y)(I)
CONSENT OF PRICEWATERHOUSECOOPERS LLP
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
-------------
To the Board of Trustees of
Ameritor Security Trust
We consent to the incorporation by reference in Post-Effective Amendment No. 14
to the Registration Statement of the Ameritor Security Trust (formerly, Steadman
Associated Fund) (the "Fund") on Form N-1A (File No. 333-20889) of our report
dated August 6, 1996, on our audit of the financial statements and financial
highlights of the Fund, which report is included in the Annual Report to
Shareholders for the year ended June 30, 1996, which is incorporated by
reference in the Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Baltimore, Maryland
March 22, 1999
<PAGE>
EXHIBIT (Y)(II)
CONSENT OF REZNICK FEDDER & SILVERMAN, P.C.
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
To the Board of Trustees of
Ameritor Security Trust, formerly
Steadman Security Trust
We consent to the incorporated by reference in Post-Effective Amendment No. 14
to the Registration Statement of Ameritor Security Trust, formerly Steadman
Security Trust, (the "Fund") on Form N-1A (File Number 333-20889) of our report
dated August 5, 1998, on our audit of the financial statements and financial
highlights of the Fund, which report is included in the Annual Report to
Shareholders as of June 30, 1998, which is incorporated by reference in the
Registration Statement.
/s/ Reznick Fedder & Silverman P.C.
Reznick Fedder & Silverman P.C.
Bethesda, Maryland
March 22, 1999
