Shareholders of the ASM Index 30 Fund are due to vote in the next few weeks on a permanent replacement for an adviser who was ousted because the fund's board believed the adviser could not pay expenses and was in danger of being sued for alleged misappropriation of funds.

Shareholders of the $25 million no-load fund which tracks the 30 industrial stocks of the Dow Jones index, must vote by July 1 whether to make Orbitex Management of New York, the fund's permanent adviser. If shareholders do not approve the change, the eight-year-old fund will be liquidated, said Daniel Calabria, independent trustee and spokesperson for the fund's board.

The board of directors of the ASM Index 30 Fund terminated the advisory contract of Vector Index Advisors of Tampa, Florida, the advisers of the fund since its inception in 1991, late last year, according to the prospectus the fund issued in March.

Under its 1997 management contract with the fund, Vector agreed to cap the fund's expenses at .18 percent and reimburse the fund for expenses above that level on a monthly basis, according to a fund prospectus.

But, in October, 1998, Steve Adler, the president and CEO of Vector and a director of the fund, told the board that his firm might not be able to cover the expenses for which the adviser was responsible, Adler said. At the time, he told the board he was seeking additional investors for the management company, Adler said. At the same time, he told the board to consider other "alternatives," he said.

Although Vector had reimbursed the fund for all expenses accrued through October 31, 1998, the fund's fiscal year-end, continued expense reimbursements were in doubt.

If indeed the adviser was unable to meet its expenses, it would not have been the first time. In July, 1996, Vector, without admitting or denying the charges, settled an administrative proceeding brought by the SEC alleging that Vector had not reimbursed the fund for a total of $420,775 in expenses incurred from October 31, 1993 through October 26, 1994. According to SEC documents, Vector finally repaid the full amount due to the fund on October 26, 1994.

The SEC, as part of its 1996 settlement, sanctioned the adviser and required that a majority of the board be comprised of independent trustees and that the fund establish a board audit committee. The SEC also fined Vector and Adler $5,000 each.

While the ASM fund board was trying to determine the financial situation of Vector late last year, board trustees began hearing of other problems within Vector, said a source close to the fund. There were rumors of an impending lawsuit alleging misappropriation of funds by the advisory firm. A civil lawsuit was indeed filed on Feb. 8 of this year against Vector, Adler and the fund itself by one of the investors in Vector.

Acting on the advice of the fund's lawyer, the ASM Index 30 fund board's four independent trustees decided to quickly take steps to safeguard the fund and its shareholders from any harm, according to another source close to the situation. In late 1998, the board asked Adler to take an indefinite leave of absence. It then stepped in to supervise the fund along with S. Cash Ulman, formerly vice president of the fund who was appointed by the board to serve as acting fund CEO. The board also, on two separate occasions since last fall, temporarily suspended sales of shares of the fund because the fund was not in compliance with its prospectus, the source said.

To protect investors, board members instructed the fund's transfer agent and custodian that all instructions for redemptions or portfolio transactions be approved by either of two board members.

Then, on December 28, 1998 the fund's four independent trustees informed Vector and Adler that their advisory contract would be terminated. Adler had served since inception as the fund's portfolio manager. Allowing for the required 60 days' advance notice allotted in the contract, the advisory relationship ended February 28 of this year.

On March 1, 1999 the board signed an interim advisory contract with Orbitex after considering several potential advisers.

To remove an adviser before its contract terminates is an unusually aggressive move for a board to take. Vector's contract was to run through September of this year. This is the first time the ASM Index 30 Fund board's actions have been reported.

Orbitex, a recent entrant to the U.S. mutual fund market, is the adviser to four intermediary-sold mutual funds launched in late 1997: the Orbitex Strategic Natural Resources Fund, the Orbitex Info-Tech & Communications Fund, the Orbitex Asian High Yield Fund and the Orbitex Growth Fund. Orbitex began operating as an advisor in the U.S. in 1995 and began advising funds in 1997. Its parent affiliate, Orbitex Group of Companies is a 13-year-old European global investment adviser headquartered in Zurich. Worldwide, Orbitex manages over $1.2 billion.

Calabria, the fund board's spokesperson, declined to comment on the events other than to defend the board's actions.

"We took the actions necessary," he said. "The board is comfortable that no shareholder was disadvantaged."

If shareholders approve Orbitex as the new permanent adviser, Orbitex will add the index fund to its existing fund lineup, said Richard Stierwalt, CEO of Orbitex.

Although Vector may have served its last day as a mutual fund adviser, it still faces the lawsuit filed in early February. Dr. Paul Gonzales, a Florida investor, filed the suit in Tampa circuit court alleging Vector and Adler misappropriated hundreds of thousands of dollars in assets that were earmarked for investment in the fund.

The plaintiff charges that two checks from him payable to Vector Advisors, one for $150,000 and the second for a larger amount, were presented to Adler. But the ASM Index 30 Fund shows no record of the investor ever having purchased shares in the ASM fund, said the fund's counsel Steven Felsenstein of Stradley, Ronon, Stevens & Young in Philadelphia.

According to the fund's prospectus, filed in March, the suit seeks to recover the alleged misdirected assets plus interest, monetary damages and reimbursement of legal costs. The fund's directors have not been named in the suit.

A source close to Vector said the charges had no merit. According to the source, Vector was a privately-held investment management company with 35 partners, each of whom had invested in the firm and become an equity stockholder. According to the source, Dr. Gonzalez was one of the 35 equityholders and had reportedly been a Vector stockholder for over a year. But at no time could Dr. Gonzalez's additional investments have been mistaken for an investment in the fund itself, said the source.

Steve Adler, in a telephone interview from his home in Tampa, Florida declined to comment on the lawsuit, other than to say that shareholders should not bare the burden of the allegation.

"The fund is not a party to any of this," he said. As the ASM Index Fund was Vector's sole investment client, Vector is likely to be disbanded shortly, Adler said.

The lawyer for the plaintiff was not available for comment.

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