<PAGE>
Securities and Exchange Commission
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_]
Pre-Effective Amendment No. _____________ [_]
Post-Effective Amendment No. _____________ [_]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 14 [X]
----
(Check appropriate box or boxes.)
Ameritor Investment Fund
- ------------------------
(Exact Name of Registrant as Specified in Charter)
1730 K Street N.W., Washington, D.C. 20006
- -------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (202) 223-1000
--------------
Max Katcher, 1730 K Street N.W., Washington D.C. 20006
- ------------------------------------------------------
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering
----------------------------------
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)
[_] 60days after filing pursuant to paragraph (a)(1)
[_] on (date) pursuant to paragraph (a)(2) of rule 485
[_] 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
previously filed post-effective amendment.
This conforming paper document is being submitted pursuant to Rule 902(g) of
Regulation S-T under the Investment Company Act of 1940.
<PAGE>
AMERITOR INVESTMENT FUND
Formerly STEADMAN INVESTMENT FUND
Registration No.
File No. 811-747
- --------------------------------------------------------------------------------
1730 K Street, NW 1-800-424-8570
Washington, DC 20006 202-223-1000
INVESTMENT POLICIES, OBJECTIVES AND TECHNIQUES
The investment objective of the Ameritor Investment Fund, formerly
Steadman Investment Fund (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 objective. The investment objective of the Fund may
be changed by the Board of Trustees without a vote of Shareholders of the Fund.
The Fund may also make substantial temporary defensive investments in debt
securities and money market instruments when market conditions warrant, such as
when a severe downturn in the stock market is anticipated. There can be no
assurance that the Fund's investment objective will be attained. In seeking to
achieve its objective the Fund may use the following investment vehicles,
without limitation:
* Common stocks of issuers of all kinds.
* Preferred stocks, warrants, and convertible securities.
* Corporate bonds and debentures and debt securities issued or
guaranteed by the U.S. government or its agencies or
instrumentalities ("U.S. government securities).
* Money market instruments, including but not limited
to commercial paper, bank certificates of deposits,
and U.S. government securities.
In choosing portfolio investments, the Fund is not restricted to any
particular criteria or quality standards. With respect to equity investments,
the Fund's investment adviser generally looks for issuers that show growth
potential, based on fundamental analysis of the relevant industries and the
issuers' financial position. In selecting debt instruments (other than short-
term debt for defense purposes), the adviser considers interest rate movements
and generally chooses investment grade instruments the yield of which exceeds
that of short-term U.S. Treasury securities.
1
<PAGE>
The Fund has the flexibility to employ a broad range of investment
techniques, including but not limited to the purchase and sale of put and call
options (primarily for premium income but also for hedging purposes), investing
in foreign securities, transactions in repurchase agreements, investments in
government securities, investments in high yield bonds ("junk bonds"),
acquisition of restricted or illiquid securities, purchase of real estate and
related loans, borrowing to increase investment funds, and lending portfolio
securities. For a discussion of certain characteristics and risks of these
vehicles and techniques and a discussion specifying the circumstances under
which the Fund will concentrate its investments in one or more industries,
please refer to the Appendix to this prospectus (the "Appendix") and to the
Statement of Additional Information. The fund may invest in these instruments
and use these techniques without limit, except as expressly stated in the
Appendix. The effect of such techniques can produce portfolio turnover rates of
100% or more and increase the Fund's brokerage costs.
RISK FACTORS
Maintaining an investment in the Fund involves greater risk than an
investment in many other mutual funds. Fund shares should only be considered as
a supplement to an overall investment program and only if you are willing to
undertake the risks involved. Investors are further advised to consult with
their personal accountant or personal investment adviser prior to making an
investment in the Fund.
The Fund's investment objectives and policies afford management wide
possible latitude in choosing investment vehicles and techniques. This latitude
is greater than that afforded many other investment companies. Many of the
vehicles and techniques - including but not limited to option activities,
investment in foreign securities, borrowing to increase investment funds, and
short-selling are highly specialized and involve significant risks. For a
fuller discussion of the risk attendant to particular investments and
techniques, please refer to the Appendix and to the Statement of Additional
Information. Use of such techniques may also produce higher than normal
portfolio turnover (100% or more), which generates additional brokerage
commissions and expenses for the Fund. Moreover, the Fund is not restricted
from making investments in real estate, precious metals, oil and gas limited
partnerships, or commodities and commodities contracts (including futures
contracts), all of which are considered speculative.
The Fund's classification as a "non-diversified" investment company
means that the proportion of the Fund's assets that may be invested in the
securities of a single issuer is not limited by the Investment Company Act of
1940. A "diversified investment company" is required by the Investment Company
Act of 1940 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, at
present, 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, and
thus, unlike most mutual
2
<PAGE>
funds, it is not restricted by certain diversification requirements imposed by
the Code. Since a relatively high percentage of the Fund's assets may be
invested in the obligation of a limited number of issuers, some of which may be
within the same economic sector, the Fund's portfolio securities will be more
susceptible to any single economic, political or regulatory occurrence than the
portfolio securities of a more diversified investment company.
MANAGEMENT OF THE FUND
Under the laws of the District of Columbia, the Trustees of the Fund
are responsible for managing the business and affairs of the Fund. The Fund has
entered into an investment advisory agreement (the "Advisory Agreement") with
Ameritor Financial Corporation (AFC), formerly Steadman Security Corporation
(sometimes referred to herein as the "Adviser") which has its principal offices
at 1730 K Street, N.W., Washington, D.C. 20006. All voting stock of AFC is
owned by United Securities, Inc., a Maryland corporation whose sole shareholders
Carole S. Kinney and Charles T.W. Steadman.
Since commencing business through its predecessor, William Allen
Steadman & Company, in 1932, the Adviser has principally engaged in the business
of providing continuous investment supervision for the Steadman Family of Mutual
Funds (now the "Ameritor Funds"). Under the terms of the Advisory Agreement,
the Adviser manages the Fund's investments and is responsible for overall
management of the Fund's business affairs subject to the supervision of the
Trustees. Max Katcher, President, is primarily responsible for the day-to-day
management of the Fund's portfolio. He became portfolio manager in December
1997 and has been in mutual fund management for the past 25 years as Executive
Vice President of Steadman Security Corporation. As compensation for its
services, the Fund pays to the Adviser 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.
AFC also receives certain other fees, which are described under "Custodian and
Transfer and Dividend Disbursing Agent". The Fund's operating expenses for the
year ended through June 30, 1998 amounted to 14.54% of its average net assets.
The Adviser also receives reimbursements for the Fund for salaries and
benefits of its employees who perform functions directly attributable to the
Fund other than investment advisory and shareholder service functions. For the
year ended June 30, 1998, these totaled $61,017. 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; compliance
with SEC regulation, including registration; preparation of materials for
Trustees' meetings; legal and other administrative functions; and clerical
assistance related to the above.
3
<PAGE>
DESCRIPTION OF CAPITAL STRUCTURE AND SHAREHOLDER RIGHTS
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. Each share has one vote 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. Shares of the Fund have no preemptive rights
and no conversion or subscription rights. Unlike many other mutual funds, the
Fund does not hold regularly scheduled annual shareholders' meetings. Special
meetings are called when required by applicable laws and regulations.
In addition, the Fund's governing documents contain several other
provisions relating to shareholders' rights that are uncommon to most other
mutual funds. (a) Trustees hold office for a term of unlimited duration, (b)
shareholders are not entitled to vote for or against any amendments to the Trust
Indenture, (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 Securities and Exchange Commission, the
Investment Company 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 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. The Fund will comply with these procedures.
DETERMINATION OF NET ASSET VALUE
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 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 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.
4
<PAGE>
PURCHASE OF FUND SHARES*
The Fund currently does not offer shares for purchase. In the future, the
Fund may offer Fund shares at net asset value without payment of any sales
charge or commission when purchases are made directly from the Fund. Shares
purchased through registered broker-dealers may incur a transaction fee.
*The Fund has not accepted new subscriptions for its shares
since 1988 and is not currently offering its shares.
Stock certificates for shares are ordinarily not issued, as they are not
necessary and complicate redemption. They will, however, be issued upon written
request.
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, Ameritor Financial Corporation ("AFC"), is
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.
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 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.
5
<PAGE>
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 following 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.
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. Information about
participation in this plan may be obtained by writing the fund at the address
shown on the cover of this Prospectus, or by telephoning the Fund at
1-(800)-424-8570.
6
<PAGE>
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.
AVAILABLE INFORMATION
The Fund provides each shareholder with semi-annual financial information
and an annual report containing audited financial statements. You may inquire
about the Fund or receive a free copy of the most recent semi-annual or annual
reports to shareholders by calling 1-(800)-424-8570 or (202) 223-1000, or by
writing the Fund at the address shown on the cover of this Prospectus.
7
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
AMERITOR INVESTMENT FUND
1730 K Street N.W.
Washington DC 20006
Telephone: (202) 223-1000
Toll Free: (800) 424-8570
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the prospectus of the Ameritor Investment Fund bearing
the same date. Requests for copies of the prospectus should be made by writing
to Ameritor Financial Corporation, 1730 K Street NW, Washington DC 20006, or by
calling one of the telephone numbers listed above.
No person has been authorized to give any information or to make any
representations other than those contained in this Statement of Additional
Information and the Prospectus bearing the same date and, if given or made, such
information or representations may not be relied upon a having been authorized
by the Fund.
This Statement of Additional Information does not constitute an offer to
sell securities.
Table of Contents Page No.
Fund History.............................................B-2
Investments and Risks....................................B-2--B-12
Portfolio Diversification................................B-12
Portfolio Turnover.......................................B-12
Trustees and Officers of the Fund........................B-12, B-13
Principal Shareholders...................................B-14
Investment Advisory and Other Services...................B-14, B-15
Custodian and Transfer and Dividend Disbursing Agent.....B-15
Distribution Expense.....................................B-16
Portfolio Transactions and Brokerage Commissions.........B-16, B-17
Shareholder Investment Plan..............................B-17
Tax Status...............................................B-18, B-19
Independent Accountants..................................B-19
Financial Statements and Related Information.............B-19
B-1
<PAGE>
THE FUND
The Ameritor Investment Fund, formerly Steadman Investment Fund, (the
"Fund")(name change effective September 23, 1998) is a no-load, non-diversified,
registered, open-end investment company originally organized as a Delaware
corporation on August 6, 1956. It now exists as a common law trust under the
laws of the District of Columbia pursuant to the Trust Indenture approved by
shareholders on May 11, 1979. Shares of the Fund are have not been continuously
offered since May 1988. The Fund intends to examine the feasibility of
continuously offering its shares at net asset value without the imposition of a
sales charge in the future, subject to compliance with federal and state
securities laws. Shares of the Fund may be redeemed at any time, without charge
by the Fund, at their net asset value, except during the occurrence of certain
extraordinary events. See "Redemption of Fund Shares".
INVESTMENTS AND RISKS
OPTIONS AND FUTURES
The fund may buy and sell ("write") options and futures contracts both to
generate income (premiums from the sale of call options) and to manage the
Fund's exposure to changing interest rates and security prices. Some
strategies, including buying puts, writing calls, and selling futures, tend to
hedge the Fund's investments against price fluctuations. Other strategies,
including writing puts, buying calls, and buying futures tend to increase market
exposure. The Fund may invest in options based on any type of securities,
index, or instrument.
Options and futures can be volatile investments, and involve certain risks.
If the Adviser applies a hedge at an inappropriate time or judges market
conditions incorrectly, options and futures strategies may lower the Fund's
return and the Fund would have been better off without the use of such
strategies. The Fund could also experience losses if the prices of its options
and futures positions were poorly correlated with its other investments or if it
could not close out its positions because of an illiquid secondary market.
Purchasing Put and Call Options. By purchasing a put option, the Fund
--------------------------------
obtains the right (but not the obligation) to sell the option's underlying
instrument at a fixed strike price. In return for this right, the Fund pays the
current market price for the option (known as the option premium). Options have
various types of underlying instruments, including specific securities and
indexes of securities prices. The Fund may terminate its position in a put
option it has purchased by allowing it to expire or by exercising the option.
If the option is allowed to expire, the fund will lose the entire premium it
paid. If the Fund exercises the option, it completes the sale of the underlying
instrument at the strike price. The Fund may also terminate a put option
position by closing it out in the secondary market at its current price, if a
liquid secondary market exists.
B-2
<PAGE>
The buyer of a put option can expect to realize a gain if security prices
fall substantially. However, if the underlying instrument's price does not fall
enough to offset the cost of purchasing the option, a put buyer can expect to
suffer a loss (limited to the amount of the premium paid, plus related
transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's strike
price. A call buyer attempts to participate in potential price increases of the
underlying instrument with risk limited to the cost of the option if security
prices fall. At the same time, the buyer can expect to suffer a loss if security
prices do not rise sufficiently to offset the cost of the option.
Writing Put and Call Options. When the Fund writes a put option, it takes
-----------------------------
the opposite side of the transaction from the option's purchaser. In return for
receipt of the premium, the Fund assumes the obligation to pay the strike price
for the option's underlying instrument if the other party to the option chooses
to exercise it. The Fund may seek to terminate its position in a put option it
writes before exercise by closing out the option in the secondary market at its
current price. If the secondary market is not liquid for a put option the Fund
has written, however, the Fund must continue to be prepared to pay the strike
price while the option is outstanding, regardless of price changes, and must
continue to set aside assets to cover its position.
If the security's price rises, a put writer would expect to profit,
although its gain would be limited to the amount of the premium it received. If
the security's price remains the same or declines over time, it is likely that
the writer would expect to suffer a loss. This loss should be less than the
loss from purchasing the underlying instrument directly, however, because the
premium received for writing the option should mitigate the effects of the
decline.
Writing a call option obligates the Fund to sell or deliver the options's
underlying instrument, in return for the strike price, upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer mitigates the effects of price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
Futures Contracts. When the Fund purchases a futures contract it agrees to
------------------
purchase a specified underlying instrument at a specified future date. When the
Fund sells a futures contract, it agrees to sell the underlying instruments at a
specified future date. The price at which the purchase and sale will take place
is fixed when the Fund enters into the contract. Futures can be held until their
delivery dates, or can be closed out before then if a liquid secondary market is
available.
B-3
<PAGE>
The value of a futures contract tends to increase and decrease in tandem
with the value of its underlying instrument. Therefore, purchasing futures
contracts will tend to increase the Fund's exposure to positive and negative
price fluctuations in the underlying instrument, much as if the Fund had
purchased the underlying instrument directly. When the Fund sells a futures
contract, by contrast, the values of its futures position will tend to move in a
direction contrary to the market. Selling futures contracts, therefore, will
tend to offset both positive and negative market price changes, much as if the
underlying instrument had been sold.
Futures Margin Payments. The purchaser or seller of a futures contract is
------------------------
not required to deliver or pay for the underlying instrument unless the contract
is held until the delivery date. However, both the purchaser and seller of a
futures contract are required to deposit "initial margin" with a futures broker
known as a futures commission merchant (FCM), when the contract is entered into.
Initial margin deposits are equal to a percentage of the contract's value. If
the value of either party's position declines, that party will be required to
make additional "variation margin" payments to settle the change in value on a
daily basis. The party that has a gain may be entitled to receive all or a
portion of this amount. Initial and variation margin payments do not constitute
purchasing securities on margin for purposes of any investment limitations. In
the event of the bankruptcy of a FMC that holds margin on behalf of the Fund,
the Fund may be entitled to return of margin owed to it only in proportion to
the amount received by the FCM's other customers which could potentially result
in losses to the Fund.
Combined Positions. The Fund may purchase and write options in combination
-------------------
with each other or in combination with futures contracts to adjust the risk and
return characteristics of the overall position. For example, the Fund may
purchase a put option and write a call option on the same underlying instrument,
in order to construct a combined position whose risk and return characteristics
are similar to selling a futures contract. Another possible combined position
would involve writing a call option at one strike price and buying a call option
at a lower price, in order to reduce the risk of the written call option in the
event of a substantial price increase. Because combined option positions
involve multiple trades, they result in higher transaction costs and may be more
difficult to open and close out.
Correlation of Price Changes. Because there are a limited number of types
-----------------------------
of exchange-traded options and futures contracts, it is likely that the
standardized contracts available will not match the Fund's current or
anticipated investments. The Fund may invest in options and futures contracts
based on securities with different issuers, maturities, or other particular
security with a futures contract reflecting a broad range of stock prices in
that market- which involves a risk that the options or futures position will not
track the performance of the Fund's investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match the Fund's
investments as well. Options and futures prices are affected by such factors as
current and anticipated short-term interest rates, changes in volatility of the
underlying instrument, and the time remaining until expiration of the
B-4
<PAGE>
contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options and
futures markets and the securities markets, from structural differences in how
options and futures and securities are traded, or from imposition of daily price
fluctuation limits or traditional halts. The Fund may purchase or sell options
and futures contracts with a greater or lesser value than the securities it
wishes to hedge or intends to purchase in order to attempt to compensate for
differences in historical volatility between the contract and the securities,
although this may not be successful in all cases. If price changes in the Fund's
options or futures positions are poorly correlated with its other investments,
the positions may fail to produce anticipated gains or result in losses that are
not offset by gains in other investments.
Liquidity of Options and Futures Contracts. There is no assurance a liquid
-------------------------------------------
secondary market will exist for any particular options or futures contract at
any particular time. Options may have relatively low trading volume and
liquidity if their strike prices are not close to the underlying instrument's
current price. In addition, exchanges may establish daily price fluctuation
limits for options and futures contracts, and may halt trading if a contract's
price moves upward or downward more than the limit in a given day. On volatile
trading days when the price fluctuation limit is reached or a trading halt is
imposed, it may be impossible for the Fund to enter into new positions or close
out existing positions. If the secondary market for a contract is not liquid
because of price fluctuation limits or otherwise, it could prevent prompt
liquidation of unfavorable positions, and potentially could require the Fund to
continue to hold a position until delivery or expiration regardless of changes
in its value. As a result, the Fund's access to other assets held to cover its
options or futures positions could also be impaired.
OTC Options. Unlike exchange-traded options, which are standardized with
------------
respect to the underlying instrument, expiration date, contract size and strike
price, the terms of over-the-counter options (options not traded on exchanges)
generally are established through negotiation with the other party to the option
contract. While this type of arrangement allows the Fund greater flexibility to
tailor an option to its needs, OTC options generally involve greater credit risk
than exchange traded-options, which are guaranteed by the clearing organization
of the exchanges where they are traded.
The staff of the Securities and Exchange Commission ("SEC") has taken the
position that purchased over-the-counter options and assets used to cover
written over-the-counter options are illiquid and, therefore, together with
other illiquid securities held by the Fund, can not exceed 15% of the Fund's net
assets. Although the Adviser disagrees with this position, the Adviser intends
to limit the Fund's writing of over-the-counter options in accordance with the
following procedure. Except as provided below, the Fund intends to write over-
the-counter options only with primary U.S. government securities dealers
recognized as such by the Federal Reserve Bank of New York. The contracts with
such primary dealers will provide that the Fund has the absolute right to
repurchase an option it writes at any time at a price which represents the fair
market value, as determined in good faith through negotiation between the
parties, but which in
B-5
<PAGE>
no event will exceed a price determined pursuant to a formula in the contract.
Although the specific formula may vary between contracts with different primary
dealers, the formula generally is based on a multiple of the premium received by
the Fund for writing the option, plus the amount, if any, of the option's
intrinsic value (i.e., the amount that the option is in-the-money). The formula
may also include a factor to account for the difference between the price of the
security and the strike price of the option if the option is written out-of-the-
money. The Fund will treat all or a portion of the formula as illiquid for
purposes of the 15% test imposed by the SEC staff. The Fund may also write over-
the-counter options with non-primary dealers, including foreign dealers (where
applicable), and will treat the assets used to cover these options as illiquid
for purposes of such 15% test.
Asset Coverage for Options and Futures Positions. The Fund will comply
-------------------------------------------------
with guidelines established by the Securities and Exchange Commission with
respect to coverage of options and futures strategies by mutual funds, and if
the guidelines so require will set aside appropriate high-grade debt securities
in a segregated custodial account in the amount prescribed. Securities held in a
segregated account cannot be sold while the futures or option strategy is
outstanding.
Limitations on Futures and Options Transactions. The Fund intends to file a
------------------------------------------------
notice of eligibility for exclusion from the definition of the term "commodity
pool operator" with the Commodity Futures Trading Corporation (CFTC) and the
National Futures Association, which regulate trading in the futures markets,
before engaging in any purchases or sales of future contracts.
Various exchanges and regulatory authorities have undertaken reviews of
options and futures trading in light of market volatility. Among the possible
actions that have been presented are proposals to adopt new or more stringent
daily price fluctuation limits for futures or options transactions, and
proposals to increase the margin requirements for various types of strategies.
It is impossible to predict what actions, if, any, will result from these
reviews at this time.
FOREIGN INVESTMENTS
The Fund may invest in foreign securities, which involve additional risks.
Foreign securities and securities denominated in or indexed to foreign
currencies may be affected by the strength of foreign currencies relative to the
U.S. dollar. Foreign securities are subject to adverse political or economic
developments in foreign countries or possible seizure or nationalization of
foreign deposits. Foreign companies are not subject to accounting standards or
governmental supervision comparable to U.S. companies, and there generally is
less public information about their operations. In addition, foreign markets may
be less liquid or more volatile than U.S. markets and may offer less protection
to investors such as the Fund. These risks are greater for
B-6
<PAGE>
investments in less developed countries whose governments and financial markets
are more susceptible to adverse political and economic developments. There is no
limitation on the amount of the Fund's assets that may be invested in foreign
securities or in any one country or currency.
The Fund's investments in foreign securities will primarily consist of
equity securities of private issuers, but may include debt instruments as well.
Foreign equity securities expose the Fund to risks relating to the more limited
liquidity and greater price volatility of foreign securities markets relative to
U.S. markets, as well as the other risks set forth above, which can adversely
affect a foreign issuer's financial performance and outlook and limit the Fund's
access to related information. Foreign debt securities are subject to the risk
of adoption of governmental restrictions which might adversely affect payment of
principal and interest on the securities, or restrict such payment to investors
located outside the country of the issuer, whether from currency blockage or
otherwise.
The dollar value of portfolio securities of non-U.S. issuers fluctuates
with changes in relative currency values (when the value of the dollar increases
as compared to a foreign currency, the dollar value of a foreign-denominated
security decreases, and vice versa). Costs may be incurred in connection with
conversions between various currencies. Currency exchange rates may fluctuate
significantly over short periods of time. They generally are determined by the
forces of supply and demand in the foreign exchange markets and relative merits
of investment in different countries, actual or perceived changes in interest
rates and other complex factors, as seen from an international perspective.
Currency exchange rates also can be affected unpredictably by intervention by
U.S. or foreign governments or central banks or the failure to intervene or by
currency controls or political developments in the U.S. or abroad. Currency
exchange rates will affect the value of Fund shares irrespective of the
performance of the underlying investment.
In selecting investments in foreign securities markets, the Fund considers
various criteria, including the particular foreign country's prospects for
relative economic growth, current and expected levels of inflation and interest
rates, government policies influencing business conditions, and the outlook for
currency relationships, as well as fundamental performance and outlook features
of the issuer in question and the risk factors discussed above.
UNITED STATES GOVERNMENT SECURITIES
United States government securities include United States Treasury
obligations, Government National Mortgage Association (GNMA) certificates,
Federal Housing Authority (FHA) debentures, Federal National Mortgage
Association (FNMA) bonds and Student Loan Mortgage Association (SLMA)
debentures, among others. Some of the foregoing obligations, such as Treasury
bills and GNMA certificates are supported by the full faith and credit of the
B-7
<PAGE>
United States government; others such as FNMA bonds by the right of the issuer
to borrow from the United States Treasury; still others such as SLMA are
supported only by the credit of the instrumentality. No assurance can be given
that the United States government will provide financial support to an
instrumentality sponsored by the United States when it is not obligated by law,
in certain instances, to do so. The Fund may invest in obligations of United
States government agencies and instrumentalities other than those specifically
listed above.
FIXED INCOME SECURITIES
The value of securities providing fixed returns, such as most bonds ("fixed
income securities"), are inversely correlated to changes in interest rates. As
interest rates increase, the value of a fixed income security decreases and,
conversely, as interest rates decrease the value of a fixed income security
increases. Longer-term obligations are more dramatically affected by changes in
interest rates than short-term obligations.
In addition, declining interest rates present risk to holders of fixed
income securities that may be redeemed by their issuer prior to maturity. As
interest rates decrease, the issuer of such securities is more likely to redeem
such securities prior to their stated maturities by issuing new securities at
lower rates. If such securities are redeemed prior to maturity, the holder of
the redeemed securities may be required to reinvest the proceeds received at
less attractive rates and will incur a loss for any premium paid in acquiring
the security.
ILLIQUID INVESTMENTS
The Fund may invest up to 15% of its net assets in illiquid investments.
Under the supervision of the Board of Trustees, the Adviser determines the
liquidity of the Fund's investments. The absence of a trading market can make it
difficult to ascertain a market value for illiquid investments. Disposing of
illiquid investments generally involves time-consuming negotiation and legal
expenses, and it may be difficult or impossible for the Fund to sell them
promptly at an acceptable price.
RESTRICTED SECURITIES
The Fund may purchase securities, which cannot be sold to the public
without registration under the Securities Act of 1933(restricted securities).
Unless registered for sale, these securities can only be sold in privately
negotiated transactions or pursuant to an exemption from registrations, such as
pursuant to Rule 144A under the Securities Act. Consequently, there may be a
more limited trading market for these securities and market quotations may be
less readily available. However, as to certain restricted securities, a
substantial market of qualified
B-8
<PAGE>
institutional buyers may develop pursuant to Rule 144A, and the Trustees may
determine that such securities are readily marketable, based upon trading
markets for the specific security. The Fund may invest in restricted securities
as to which the Trustees have made such determination. Where the Board has not
made such a determination, investments in restricted securities are subject to
the 15% limitation on illiquid investments described above.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements in order to earn income on
available cash or as a temporary defensive measure. Under a repurchase
agreement, the Fund acquires securities subject to the seller's agreement to
repurchase at a specified time and price. If the seller becomes subject to a
proceeding under the bankruptcy laws or its assets are otherwise subject to a
stay order, the Fund's right to liquidate the securities may be restricted
(during which time the values of the securities could decline). The Fund may
enter into repurchase agreements with sellers who are member firms (or
subsidiaries thereof) of the New York Stock Exchange, members of the Federal
Reserve System, recognized primary U.S. government securities dealers or
institutions which the Adviser has determined to be of comparable
creditworthiness.
LENDING OF SECURITIES
The Fund may make loans of its portfolio securities. Such loans will
usually be made only to member banks of the Federal Reserve system and member
firms (or subsidiaries thereof) of the New York Stock Exchange, or institutions
which the Adviser has determined to be of comparable creditworthiness, and would
be required to be secured continuously by collateral in cash, cash equivalents
or U.S. government securities maintained on a current basis at an amount at
least equal to the market value of the securities loaned. The Fund would
continue to collect the equivalent of the interest of the securities loaned and
would also receive either interest (through investment of cash collateral) or a
fee (if the collateral were government securities). In the event of the
bankruptcy of the other party to a securities loan transaction, or if such party
breaches its agreement with the Fund, the Fund could experience loss or delay in
recovering its cash or the securities lent. During these delays, the value of
the securities loaned could decline.
LOWER-RATED DEBT SECURITIES ("JUNK BONDS")
The Fund may purchase lower-rated debt securities (those rated BA or lower
by Moody's Investors Service, Inc. or BB or lower by Standard & Poor's
Corporation) which have poor protection against default or may be in default in
the payment of principal and interest. These securities are often considered to
be speculative and involve greater risk of loss or price changes
B-9
<PAGE>
due to change in the issuer's capacity to pay. The Market prices of lower-rated
debt securities may fluctuate more than higher-rated securities and may decline
significantly in periods of general economic difficulty, which may follow
periods of rising interest rates. The Fund will not invest more than 5% of its
net assets in junk bonds during the coming year.
LEVERAGE THROUGH BORROWING
The Fund may borrow from banks for investment purposes. 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 Investment Company Act of 1940 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 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 Adviser 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, are expected to provide the Fund with a flexible
borrowing tool.
B-10
<PAGE>
SHORT SALES
The Fund may make short sales, which are transactions in which the Fund
sells a security it does not own in anticipation of a decline in the market
value of that security. To complete such a transaction, the Fund must borrow the
security to make delivery to the buyer. The Fund then is obligated to replace
the security borrowed by purchasing it at market price at the time of
replacement. The price at such time may be more or less than the price at which
the security was sold by the Fund. Until the security is replaced, the Fund is
required to pay to the lender amounts equal to any dividends or interest, which
accrue during the period of the loan. To borrow the security, the Fund also may
be required to pay a premium, which would increase the cost of the security
sold. The proceeds of the short sale will be retained by the broker, to the
extent necessary to meet margin requirements, until the short position is closed
out.
Until the Fund closes its short position or replaces the borrowed security,
the Fund will: (a) maintain a segregated account, containing cash or U.S.
government securities, at such a level that (i) the amount deposited in the
account plus the amount deposited with the broker as collateral will equal the
current market value of the security sold short (ii) the amount deposited in the
segregated account plus the amount deposited with the broker as collateral will
not be less than the market value of the security at the time it was sold short;
or (b) otherwise cover its short position.
The Fund will incur a loss as a result of the short sale if the price of
the security increases between the date of the short sale and the date on which
the Fund replaces the borrowed security. The Fund will realize a gain if the
security declines in price between those dates. This result is the opposite of
what one would expect from a cash purchase of a long position in a security. The
amount of any gain will be decreased, and the amount of any loss increased by
the amount of any premium or amounts in lieu of dividends or interest the Fund
may be required to pay in connection with a short sale.
REAL ESTATE
The Fund may invest in commercial, industrial, retail or residential real
estate properties and related securities, including but not limited to the
securities of real estate investment trusts. Real estate investments are subject
to a number of investment risks, including fluctuations in occupancy rates and
operating expenses, variations in rental schedules, the character of the tenancy
and the possible effect on cash flow from a property if its tenants incur
financial difficulties. These investments may be adversely affected by general
and local economic conditions, the supply of and demand for properties of the
type involved, zoning laws, rent controls, environmental protection laws and
real property tax rates. Real estate investments are generally illiquid and will
be subject to the Fund's 15% limit on illiquid investments.
B-11
<PAGE>
CONCENTRATION POLICY
It is not the Fund's policy to invest 25% or more of the value of its total
assets in any one industry or group of industries. This is a matter of
fundamental policy. 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.
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, so that
the Fund may invest its assets in the securities of a small number of issuers.
This subjects the Fund's portfolio directly to the increase or decrease in the
particular investment. Thus, the opportunity for gain and the risk of loss are
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 Adviser to take maximum advantage of investment
opportunities which 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 Adviser determines that it is in the best interest of the
Fund to do so.
PORTFOLIO TURNOVER
Because the Fund may engage in short-term trading, its portfolio turnover
rates may exceed 300%. High portfolio turnover (over 100%) may result in
correspondingly higher brokerage costs.
TRUSTEES AND OFFICERS OF THE FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Name, Address, and Age Position(s) Held Principal Occupation(s)
with the Fund During Past 5 Years
- --------------------------------------------------------------------------------
<S> <C> <C>
PAUL F. WAGNER Chairman of the Chairman: Wagner, Hines
1006 Waynewood Blvd Board of Trustees & Avery, a Washington,
Alexandria, VA 20036 DC Public Affairs firm.
Age: 80
</TABLE>
B-12
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Name, Address, and Age Position(s) Held Principal Occupation(s)
with the Fund During Past 5 Years
- --------------------------------------------------------------------------------
<S> <C> <C>
PAUL A. BOWERS, M.D. Trustee Retired from private medical
9 Sandringham Road practice and as a Professor,
Bala-Cynwyd, PA 19004 Obstetrics and Gynecology
Age: 86 Jefferson Medical College,
Philadelphia, Pennsylvania
JOHN T. HAYWARD Trustee Vice Admiral, U.S.N. (ret)
PO Box 33000 formerly Vice President, General
Atlantic Beach, FL 32233 Dynamics Corporation
Age: 89 Washington, D.C.
MAX KATCHER President and Treasurer Executive Vice President
8408 Carlynn Drive of the Fund, President and Treasurer of Steadman
Bethesda, MD 20034 of Ameritor Financial Security Corp (SSC) and
Age: 68 Corporation(AFC). Executive Vice President and
Treasurer of the Fund
*CAROL S. KINNEY Secretary of the Fund National Association of
8020 Thornley Court Chairman of the Board Securities Dealers-Agent
Bethesda, MD 20817 of Ameritor Financial Former stock broker with
Age: 53 Corporation. Solomon-Smith Barney
KATHLEEN S. STYERS Asst. Vice President Asst. Vice President
14512 Leonard Calvert Dr and Asst. Secretary and Asst. Secretary of
Accokeek, MD 20607 of the Fund; Asst. the Fund; Asst. Vice
Age: 37 Vice President and President and Asst.
Asst. Secretary of AFC. Secretary of SSC.
</TABLE>
*Interested person as defined by Section 2(a)(19) of the Investment Company
Act.
The Trustees and officers hold the same positions relative to the other Funds in
the Ameritor Family of Mutual Funds.
The address of all of the officers of the Fund is 1730 K Street, NW, Washington,
DC 20006.
B-13
<PAGE>
On September 30, 1998, the Trustees and Officers of the Fund, as a group
beneficially owned no shares in the Fund.
During the year ended June 30, 1998, the Fund paid $1,843 fees and expenses
to all Trustees. Trustees are paid $300 per meeting attended. No officer
received compensation from the Fund exceeding $60,000.
PRINCIPAL SHAREHOLDERS
On September 30, 1998, no person beneficially owned more than 5% of the
then outstanding shares of the Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
AFC provides investment advisory services under an agreement which
continues in effect subject to annual approval by the Trustees or by a majority
of the outstanding voting securities of the Fund, provided that in either event,
the continuance is also approved by a majority of the Trustees who are not
"interested persons" of the Fund or of AFC. The fees for investment advisory
services are computed as follows: 1% of the first $35,000,000 of net assets;
7/8 of 1% of the next $35,000,000 and 3/4 of 1% of all sums in excess thereof.
The Fund paid investment advisory fees during the last three fiscal years
ending June 30, 1998 as follows: (1998) $18,120; (1997) $17,117 and (1996)
$21,259.
Under an agreement with the Fund which is contained in the approved minutes
of the Fund, AFC 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.
This agreement is embodied in resolutions by the Trustees. 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 June 30, 1998 as follows: (1998) $43,359; (1997) $47,647; (1996) $50,666.
The Fund also reimbursed AFC for salaries and fringe benefits, including
payroll taxes and group insurance, of its employees who perform functions other
than investment advisory and shareholder services during the year ended June 30,
1998 of $61,017.
B-14
<PAGE>
AFC assumes no responsibility under the 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
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 Agreement. Trustees, officers and employees of AFC 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.
The 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 and, contrary to
most other funds, the fees of those Trustees who also may be directors of the
Adviser 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 Adviser.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Crestar Bank, N.A., at 1445 New York Avenue, N.W., Washington, D.C.
20005, is the custodian of all cash and securities for the Fund.
AFC, the Adviser, also serves as the transfer and dividend disbursing
agent and agent for the shareholder accounts. The fee for such services is
$1.35 per account per month, and is calculated on the basis of the number of
shareholder accounts as of the last business day of each month. In the year
ended June 30, 1998, the Fund paid the Advisor $43,359 in fees for performing
such shareholder account services, 2.5% of average net assets.
B-15
<PAGE>
DISTRIBUTION EXPENSES
The Fund pays all fees and expenses in connection with registering its
shares under federal and state securities laws; preparing, printing and mailing
its prospectuses and reports to shareholders; and issuing its shares, including
expenses of confirming purchase orders. SSC will pay all fees and expenses in
connection with printing and distributing prospectuses and reports for use in
offering and selling Fund shares; preparing, printing and mailing all sales
literature and advertising; and offering and selling Fund shares, except for
those fees and expenses expressly assumed by the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
AFC 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 of
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 AFC 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 the Adviser. 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, AFC, as Adviser, will be assisted
in providing to the Fund more thorough and complete advisory material. Although
such services may tend to reduce the expenses of SSC in rendering investment
advice to the Fund, the value of the services is not determinable. Such
services may also be used in serving the other mutual funds managed by AFC, and
the brokerage commissions of such other mutual funds may indirectly benefit the
Fund. AFC 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.
While the Trustees oversee the portfolio transactions of the Fund in light
of the Fund's investment policies and objectives without regard to any other
Ameritor Fund, it is possible that at certain times the Fund and one or more of
the other Funds managed by AFC or its subsidiaries will seek to effect similar
portfolio transactions in the same security. In such instances, such
transactions are effected on a prorated basis based on the total assets of each
Ameritor Fund and at a prorated cost, if feasible, and in the alternative on a
rotating or other equitable basis. The Adviser makes all such allocations. In
some cases this arrangement could have a detrimental effect on the price or
volume executed insofar as a particular Fund is concerned.
B-16
<PAGE>
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 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.
During the last three fiscal years the Fund paid brokerage as follows:
<TABLE>
<CAPTION>
Brokerage Transactions
--------- ------------
<S> <C> <C>
6/30/98 $ 9,145 $1,508,001
6/30/97 $22,290 $4,614,556
6/30/96 $27,921 $4,749,425
</TABLE>
During the Fund's year ended June 30, 1998, the Adviser directed brokerage
transactions and paid brokerage commissions as follows because of research
services provided by Fahnestock & Co., Inc., of $7,745 on transactions of
$1,249,298. Brokerage commissions were directed to Fahnestock & Co., Inc.
pursuant to an understanding that quotation services and devices would be
provided to the Adviser 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>
Broker Transactions % of Total Commissions % of Total
---------- ----------
<S> <C> <C> <C> <C>
Fahnestock & Co $1,249,298 82.85% $7,745 84.69%
Dean Witter $ 227,578 15.09% $1,200 13.12%
Prudential $ 31,125 2.06% $ 200 2.19%
---------- ------ ------ ------
$1,508,001 100.00% $9,145 100.00%
</TABLE>
SHAREHOLDER INVESTMENT PLAN
As described under "PURCHASE OF FUND SHARES" in the
Prospectus, the Fund has available a "Systematic Withdrawal"
plan. The details of participation in this plan are contained in the Prospectus.
B-17
<PAGE>
TAX STATUS
Currently, the Fund does not qualify as a regulated investment company
("RIC") under the rules of Section 851 through 855 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.
In the event the Fund qualifies as a RIC in the future, distributions of
any taxable net investment income and any 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 carryforwards, they may be distributed to
shareholders and, if distributed, will be taxable to the shareholders as long-
term capital gain.
Distributions from the Fund currently are taxable under the normal
corporate tax rules because the Fund is not a 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 or 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 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 the 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 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.
B-18
<PAGE>
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 may wish to consult their tax advisers about the applicability of the
backup withholding provisions.
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 adviser 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 advisers with respect to the tax status of distributions
from the Fund in their own state and localities.
INDEPENDENT ACCOUNTANTS
Reznick Fedder & Silverman, 4520 East West Highway, Bethesda,
Maryland, 20814, has been selected as the independent accountants for the Fund
and provides audit and tax service.
FINANCIAL STATEMENTS AND RELATED INFORMATION
The Fund's Financial Statements and related notes for the period ended
June 30, 1998 follow:
See N-30 D
B-19
<PAGE>
PART C
OTHER INFORMATION
Item 23. Financial Statements and Exhibits
(a) Financial Statements:
Financial Statements and information of the Fund listed below are included
in part B hereof.
--Report of Independent Accountants, dated August 5, 1998.
--Portfolio of Investments, June 30, 1998.
--Statement of Assets and Liabilities, June 30, 1998.
--Statement of Operations, for the year ended June 30, 1998.
--Statements of Changes in Net Assets, for the year ended June 30, 1998
and year ended June 30, 1997.
--Financial Highlights, for the years ended June 30, 1998, 1997 and 1996
for the period January 1, 1995 through June 30, 1995 and for the two
years ending December 31 1994 and December 31, 1993.
--Notes to Financial Statements listed above.
(b) Exhibits:
(1) Annotated Declaration of Trust of Steadman Investment
Fund dated May 11, 1979 with amendments through June 23,
1993, previously filed.
(2) None
(3) None
(4) Form of Certificate for Share of Beneficial Interest,
previously filed.
(5) Investment Advisory Contract between the trustees of
Steadman Investment Fund and Steadman Security
Corporation dated July 3, 1984, previously filed.
C-1
<PAGE>
(6) None
(7) None
(8) Custody Agreement between Steadman Investment Fund and
Crestar Bank, N.A. dated May 1, 1996 filed under separate cover.
(9) None
(10) Not Applicable
(11) Consent of Independent Accountants filed herewith.
(12) Not Applicable
(13) None
(14) None
(15) None
(16) Not Applicable
Item 24. The Trustees of the Fund are on the boards of other funds advised by
the Adviser, each of which has the Adviser as its investment adviser.
In addition, the officers of these funds are substantially identical.
The Fund takes the position that it is not under common control with
these other funds since the power residing in the respective boards and
officers arises as the result of an official position with the
respective funds.
Item 25. Indemnification. The Fund's Declaration of Trust, Sections 2.18 and
5.3, provides that the Fund shall indemnify each of its Trustees,
Adviser, officers, employees and agents (including any person who
serves at its request as 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, in
compromise, as fines or penalties and as counsel fees, reasonably
incurred by him in connection with the defense or disposition of any
action, suit or other proceeding, whether civil or criminal, in which
he may be involved or with which he may be threatened, while acting as
a Trustee or Adviser or as an officer, employee or agent of the Fund or
the Trustees, as the case may be, or thereafter, by reason of his being
or having been such a Trustee, Adviser, officer, employee or agent,
except with respect to
C-2
<PAGE>
any matter as to which he shall have been adjudicated to have acted in
bad faith or with willful misconduct or reckless disregard of his
duties or gross negligence or not to have acted in good faith in the
reasonable belief that his action was in the best interests of the
Fund. Further, Trustees have power to the extent permitted by law to
indemnify or enter into agreements with respect to indemnification with
any person with whom the Fund has dealings, including without
limitation any investment adviser, including the Adviser, any
underwriter of securities of the Fund or any independent contractor, to
such extent as the Trustees shall determine.
Item 26. Business and Other Connections of Investment Adviser.
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 Underwriter. None
Item 28. Location of Accounts and Records
Ameritor Financial Corporation
1730 K Street N.W.
Washington, D.C. 20006
Item 29. Management Services. None
Item 30. Undertakings
(a) Not applicable
(b) Not applicable
C-3
<PAGE>
SIGNATURE
Pursuant to the requirements of the Investment Company Act of 1940, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Washington,
District of Columbia on the 28th day of October 1998.
Ameritor Investment Fund
Registrant
By /s/ Max Katcher
------------------------------
Max Katcher, President
Ameritor Investment Fund
<PAGE>
EXHIBIT 11
Consent of Independent Accountants
To the Board of Trustees of
Ameritor Investment Fund, formerly
Steadman Investment Fund
We consent to the inclusion in Amendment No. 14 to the Registration
Statement of Ameritor Investment Fund, formerly Steadman Investment Fund, (the
"Fund") on Form N-1A (File Number 811-747) 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 for the period
ended June 30, 1998, which is included in the Registration Statement. We also
consent to the reference of our firm under the caption "Independent Accountants"
in the Statement of Additional Information.
Reznick Fedder & Silverman
Bethesda, Maryland
October 26, 1998
