STEADMAN ASSOCIATED FUND, N-14/A, 1997-07-29

STEADMAN ASSOCIATED FUND
N-14/A, 1997-07-29

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<PAGE>

As filed with the Securities and Exchange Commission on July 27, 1997

Securities Act File No. 333-20889
Investment Company Act File No. 811-00018

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------

FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------------

Pre-Effective Amendment No. 3 Post-Effective Amendment No.
(Check Appropriate Box of Boxes)

STEADMAN ASSOCIATED FUND
------------------------
(Exact Name of Registration as Specified in its Charter)

(202) 223-1000
------------------------
(Area Code and Telephone Number)

1730 K Street, N.W.
Washington, D.C. 20006
------------------------------------------------------------
(Address of Principal Executive Offices, including Zip Code)

Max Katcher
Steadman Associated Fund
1730 K Street, N.W.
Washington, D.C. 20006
---------------------------------------
(Name and Address of Agent for Service)

Copies to:

Peter R. Gilbert, Esq.
Manatt, Phelps & Phillips, LLP
1501 M Street, N.W., Suite 700
Washington, D.C. 20005
---------------------------------------
(Name and Address of Agent for Service)

Approximate date of proposed public offering: As soon as practicable after
the Registration Statement has been declared effective under the Securities Act
of 1933.

<PAGE>

STEADMAN ASSOCIATED FUND

REGISTRATION STATEMENT ON FORM N-14

CROSS REFERENCE SHEET

<TABLE>
<CAPTION>
N-14 LOCATION IN
ITEM NO. REGISTRATION STATEMENT
-------- ----------------------
<C> <S>
Part A: Information Required
in Prospectus/ Proxy Statement
- ----------------------------

1. Beginning of Registration Statement and Cover Page; Cross Reference Sheet
Outside Front Cover Page of Prospectus

2. Beginning and Outside Back Cover Page of Table of Contents
Prospectus

3. Synopsis and Risk Factors Synopsis; Principal Risk Factors

4. Information about the Transaction Synopsis; Approval of the Merger;
Capitalization Table; Difference
Between Operations of SST as an
Open-End and Closed-End
Investment Company; Exhibit A

5. Information about the Registrant Synopsis; Comparison of
Investment Objectives, Policies
and Techniques of the Funds;
Principal Risk Factors; Legal
Proceedings; Miscellaneous.

6. Information about the Company Synopsis; Comparison of
Being Acquired Investment Objectives, Policies
and Techniques of the Funds;
Principal Risk Factors;
Miscellaneous.

7. Voting Information Synopsis; Approval of the Merger;
Information concerning the
Meetings.

8. Interest of Certain Persons and Not Applicable.
Experts

9. Additional Information Required for Not Applicable.
Reoffering by Persons Deemed to be
Underwriters
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
N-14 LOCATION IN
ITEM NO. REGISTRATION STATEMENT
-------- ----------------------
<C> <S>
Part B: Information Required
in Statement of Additional Information
- --------------------------------------

10. Cover Page Cover Page

11. Table of Contents Item 11. Table of Contents

12. Additional Information about the Item 12. Additional Information
Registrant about the Registrant

13. Additional Information about the Item 13. Additional Information
Company Being Acquired about the Company Being Acquired.

14. Financial Statements Item 14. Financial Statements

Part C: Other Information
- -------------------------

15. Indemnification Item 15. Indemnification

16. Exhibits Item 16. Exhibits

17. Undertakings Item 17. Undertakings

</TABLE>

<PAGE>
STEADMAN AMERICAN INDUSTRY FUND
STEADMAN ASSOCIATED FUND
STEADMAN INVESTMENT FUND
STEADMAN TECHNOLOGY AND GROWTH FUND

JULY ____, 1997

DEAR SHAREHOLDER:

ENCLOSED IS A PROXY STATEMENT AND PROSPECTUS AND A MORE DETAILED SHAREHOLDER
LETTER CONCERNING A PROPOSED MERGER OF: STEADMAN AMERICAN INDUSTRY FUND
("SAIF"), STEADMAN INVESTMENT FUND ("SIF"), AND STEADMAN TECHNOLOGY AND GROWTH
FUND ("STGF") INTO STEADMAN ASSOCIATED FUND, WHICH WILL BE RENAMED

STEADMAN SECURITY TRUST ("SST")

THE MERGER WILL BE ACCOMPLISHED BY EXCHANGING SAIF, SIF AND STGF SHARES ON A
PRO RATA BASIS FOR SHARES OF SST. THEREAFTER, FOLLOWING THE APPROVAL OF THE SST
SHAREHOLDERS AT THE MEETING, SST WILL OPERATE AS A SINGLE CLOSED-END FUND.

CONSOLIDATION OF THE FOUR FUNDS WILL POTENTIALLY RESULT IN LOWER OPERATING
EXPENSES. A MANAGEMENT ANALYSIS ESTIMATES THAT MERGING THE FOUR OPEN-END FUNDS
INTO ONE CLOSED-END FUND SHOULD PERMIT THE FUNDS, WHEN MERGED AND OPERATING AS A
CLOSED-END FUND, TO REDUCE ANNUAL OPERATING COSTS FROM ABOUT $1,322,000 TO
$684,000. EVEN THOUGH THE MERGER AND CONVERSION WILL NOT ENSURE THAT THE
COMBINED SST WILL BE PROFITABLE, THE TRUSTEES BELIEVE IT HAS A BETTER
OPPORTUNITY FOR EARNINGS THAN CONTINUING WITH FOUR FUNDS SEPARATELY. THE
TRUSTEES ANTICIPATE THAT AFTER THE MERGER, OPERATING EXPENSES MAY EXCEED INCOME
AND IN ORDER TO OPERATE PROFITABLY, SST WILL HAVE TO RELY UPON CAPITAL
APPRECIATION, IF ANY. SST HAS APPLIED TO BE LISTED ON THE CHICAGO STOCK
EXCHANGE, PENDING COMPLIANCE WITH THE LISTING REQUIREMENTS, AND IF NOT LISTED ON
THE CHICAGO STOCK EXCHANGE, SHARES OF THE NEW SST MAY TRADE IN THE OPEN MARKET.
HOWEVER, A MARKET MAY NOT DEVELOP IN WHICH CASE IT MAY BE VERY DIFFICULT TO SELL
YOUR SHARES. MANAGEMENT HAS BEEN UNABLE TO LOCATE ANY BROKER-DEALERS WHO WILL
AGREE TO ACT AS MARKET-MAKERS FOR SST SHARES.

REDEMPTION--THIS MAY BE A SHAREHOLDER'S LAST CHANCE TO REDEEM SHARES AT NET
ASSET VALUE AND A SHAREHOLDER WHO WANTS TO REDEEM SHARES MUST DO SO BEFORE THE
EFFECTIVE DATE OF THE MERGER OR THE OPPORTUNITY WILL BE LOST FOR AT LEAST FIVE
YEARS.

MARKET FOR FUND SHARES - A SHAREHOLDER WHO DOES NOT REDEEM BEFORE THE MERGER
PROBABLY WILL NOT BE ABLE TO SELL SHARES, BECAUSE MANAGEMENT DOES NOT ANTICIPATE
THAT A MARKET WILL DEVELOP FOR SST SHARES; AND IF A MARKET DOES DEVELOP, SST
SHARES

<PAGE>

WILL PROBABLY TRADE AT A SUBSTANTIAL DISCOUNT FROM NET ASSET VALUE.

POSSIBLE REDUCTION IN FUND SIZE--THE COMBINED ASSETS OF THE FUNDS MAY
CONTINUE TO SHRINK AFTER THE MERGER BECAUSE THE TRUSTEES ANTICIPATE THAT SST'S
OPERATING EXPENSES MAY EXCEED SST'S INCOME.

SHAREHOLDERS SHOULD UNDERSTAND THAT A CLOSED-END FUND PROVIDES NO RIGHT OF
REDEMPTION OF INDIVIDUAL SHARES AT NET ASSET VALUE AS DO OPEN-END FUNDS, AND
THEY MAY SUFFER SUBSTANTIAL LOSSES UPON THE SALE OF THEIR SHARES IN THE OPEN
MARKET. SST, HOWEVER, WILL PROVIDE SHAREHOLDERS WITH THE ONE-TIME OPPORTUNITY TO
REDEEM THEIR SHARES AT NET ASSET VALUE FOR A THIRTY-DAY PERIOD, COMMENCING ON
THE FIFTH ANNIVERSARY DATE OF THE MERGER. FUTURE NET ASSET VALUE WILL LIKELY
DIFFER FROM THE NET ASSET VALUE SHAREHOLDERS WOULD RECEIVE IF THEY REDEEMED
SHARES PRIOR TO THE MERGER. SHAREHOLDERS SHOULD READ THE ENCLOSED PROXY
STATEMENT AND PROSPECTUS CAREFULLY, PAYING PARTICULAR ATTENTION TO FUND
EXPENSES, FUND PERFORMANCE AND THE MARKET FOR SST SHARES AFTER THE MERGER.

SHAREHOLDERS WHO DO NOT WISH TO PARTICIPATE IN THE MERGER CAN EITHER REDEEM
THEIR SHARES OR VOTE "NO" ON THE ENCLOSED PROXY.

THE TRUSTEES OF EACH OF THE FOUR FUNDS UNANIMOUSLY RECOMMEND SHAREHOLDER
APPROVAL OF THIS MERGER PROPOSAL AND CONVERSION TO A CLOSED-END FUND AND THE
RATIFICATION OF THE SELECTION OF REZNICK FEDDER & SILVERMAN TO SERVE AS
INDEPENDENT AUDITORS TO EXAMINE THE FINANCIAL STATEMENTS OF EACH OF THE FUNDS
FOR THE CURRENT FISCAL YEAR AND SST AFTER COMPLETION OF THE MERGER. THE SST
TRUSTEES ALSO UNANIMOUSLY RECOMMEND THAT THE SST SHAREHOLDERS ELECT THE PERSONS
NOMINATED TO SERVE AS TRUSTEES, AND RATIFY AND CONFIRM THE AMENDED AND RESTATED
TRUST INDENTURE OF SST AND TO CHANGE SST'S FUNDAMENTAL INVESTMENT POLICY.

PLEASE REVIEW THE ATTACHED MATERIALS CAREFULLY AND RETURN YOUR PROXY AS SOON
AS POSSIBLE.

FOR THE BOARD OF TRUSTEES
OF
STEADMAN AMERICAN INDUSTRY FUND
STEADMAN ASSOCIATED FUND
STEADMAN INVESTMENT FUND
STEADMAN TECHNOLOGY AND GROWTH FUND

Charles W. Steadman
Chairman of the Boards of Trustees
and President

<PAGE>
To the Shareholders of:

STEADMAN AMERICAN INDUSTRY FUND
STEADMAN ASSOCIATED FUND
STEADMAN INVESTMENT FUND
STEADMAN TECHNOLOGY AND GROWTH FUND

July ___, 1997

Dear Shareholder:

We are pleased to invite you to the Special Meetings of Shareholders of
Steadman American Industries Fund, Steadman Associated Fund, Steadman Investment
Fund and Steadman Technology and Growth Fund. The meetings are scheduled to be
held on ______________, 1997, at 9:30 a.m., Washington, D.C. time, at
____________________________Hotel, Washington, D.C. 2000? (the "Special
Meeting").

At these Special Meetings, you will be asked to consider and approve a
very important proposal. Subject to shareholder approval, Steadman American
Industry Fund, Steadman Investment Fund and Steadman Technology and Growth
Fund (the "Merging Funds") will merge into Steadman Associated Fund, which
will be renamed the "Steadman Security Trust" ("SST"). Immediately prior to
the Merger, SST will effect a reverse stock split so that each ten shares of
SST will be converted into one SST share after the reverse split.
Shareholders of the Merging Funds will receive shares of SST on a pro rata
basis in exchange for their shares of the Merging Funds. Upon the completion
of the merger and following the approval of SST shareholders at the Special
Meeting, SST will become a closed-end investment company.

Redemption--This may be a shareholder's last chance to redeem shares at net
asset value and a shareholder who wants to redeem shares must do so before the
effective date of the merger or the opportunity will be lost for at least five
years.

Market for Fund Shares--A shareholder who does not redeem before the merger
probably will not be able to sell shares, because management does not anticipate
that a market will develop for SST shares; and if a market does develop, SST
shares will probably trade at a substantial discount from net asset value.

Possible Reduction in Fund Size--The combined assets of the Funds may
continue to shrink after the merger because the Trustees anticipate that SST's
operating expenses may exceed SST's income.

THE REORGANIZATION WILL PROVIDE SHAREHOLDERS WITH POTENTIAL ECONOMIES:

1. Potential Lower Operating Costs. Operating costs of SST as a
closed-end fund on a post-merger basis will be reduced substantially from the
aggregate expense of operating the Merging Funds and SST separately. The
merger will enable SST to use its assets more

<PAGE>

effectively. Because of the Merger and the resulting reduction in the number
of shareholder accounts, Fund accounting fees, stock transfer costs, and
other shareholder service expenses will be reduced significantly. By
converting to a closed-end fund, SEC requirements for daily determination and
reporting of net asset values will be eliminated, as well as the need for
annual securities registration with the states. Management of the Funds
believes that annual operating costs will be reduced principally in the
following areas: shareholder servicing fees, professional fees, expenses
related to reports to shareholders, computer services and data processing
expenses, and custodian fees. Management estimates that SST's annual
operating expenses will be approximately $684,000 or about $638,000 lower
than current total expenses of the four Funds. The estimated reduction in
operating costs cannot guarantee profitable operation of SST.

2. Potential Lower Expense Ratio. The Trustees expect the merger to
reduce the expense ratio of SST. However, there can be no assurance that
reductions in expenses will result in profitable operations for SST.

3. Fully Invested Portfolio With Longer Term View. After the
merger, SST will operate as a closed-end investment company whose shares are
bought and sold in market transactions. Stockholders will not have a right of
redemption except during a thirty-day period commencing on the fifth
anniversary date of the Merger. Future net asset value will likely differ
from the net asset value shareholders would receive if they redeemed their
shares prior to the Merger. In the past, each Fund has kept a prudent portion
of its portfolio in cash or lower-yielding liquid assets to meet the
potential demand for redemptions. Upon consummation of the Merger and the
conversion of SST to a closed-end status, SST will be able to more
effectively use portfolio funds that would otherwise have been invested in
cash or lower-yielding securities that could be readily liquidated. Upon
consummation of the Merger, SST will be able to invest these funds with a
longer-term view without having to be concerned about the possibility of
liquidating a position at an inopportune moment solely to meet redemption
requests thereby creating a higher return on investments for SST. SST has
applied to be listed on the Chicago Stock Exchange, subject to compliance
with the listing requirement, and it is contemplated that if SST shares are
not listed on the Chicago Stock Exchange, SST shares will be traded in the
over-the-counter market. However, there can be no assurance that a market
will develop for SST shares in which case it may be very difficult to sell
your shares. Management has been unable to locate any broker-dealer who will
agree to act as market makers for SST shares. Closed-end funds typically
trade at substantial discounts from their net asset values. Consequently, SST
shareholders could suffer substantial losses if they elect to sell their
shares when the SST market price is below net asset value.

4. Tax Aspects. The reverse stock split will constitute a
recapitalization of SST for tax purposes, but the merger will not qualify as a
tax-deferred reorganization under the Internal Revenue Code. Shareholders of
SAIF, SIF and STGF will recognize gain or loss equal to the difference between
the tax bases of their SAIF, SIF or STGF shares surrendered by them in the
merger and the fair market value of the SST shares they receive in the exchange.
In many cases, the result may be a tax loss rather than a tax gain, but each
shareholder must calculate individually their own gain or loss. Such gain or
loss will be capital gain or loss for shareholders who hold their SAIF, SIF
or STGF shares as capital assets and will be long term or short term gain or
loss depending upon their individual holding periods for the shares
surrendered. SST and its shareholders will not

<PAGE>

recognize gain or loss as a result of the exchange of SST shares for SST shares
in the reverse stock split. SAIF, SIF and STGF will be treated for federal
income tax purposes as if they had transferred all of their assets to SST in a
taxable transaction, had recognized all of the built-in gains and losses on
those assets, and had then liquidated. SAIF, SIF and STGF will be able to
offset any net gain from this deemed asset sale with their respective capital
loss and net operating loss carryovers. The Trustees anticipate that there will
be sufficient loss carryovers to offset any net gain recognized by SAIF, SIF or
STGF in the merger. SST will not be taxable as a result of the deemed asset
sale, nor will its shareholders. Any capital loss and net operating loss
carryovers of SAIF, SIF and STGF not used to offset their net gain in the
merger will expire. SST, as the surviving single entity, will be able to
utilize its separate tax loss carryforwards against ordinary income and capital
gains to eliminate or reduce SST's post-merger taxable income. Based upon the
past performance of the Funds, there is little likelihood that SST will be able
to utilize these tax benefits.

The attached Joint Proxy Statement and Prospectus has been prepared to give
you detailed information about this reorganization.

WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN YOUR PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE SO THAT YOUR VOTE
WILL BE COUNTED.

We appreciate your continued support and confidence in our funds.

FOR THE BOARDS OF TRUSTEES
OF
STEADMAN AMERICAN INDUSTRY FUND
STEADMAN ASSOCIATED FUND
STEADMAN INVESTMENT FUND
STEADMAN TECHNOLOGY AND GROWTH FUND

Charles W. Steadman
Chairman of the Boards of Trustees
and President

<PAGE>

STEADMAN AMERICAN INDUSTRY FUND
STEADMAN ASSOCIATED FUND
STEADMAN INVESTMENT FUND
STEADMAN TECHNOLOGY AND GROWTH FUND
1730 K Street, N.W.
Washington, D.C. 20006
1-800-424-8570

NOTICE OF SPECIAL MEETINGS OF SHAREHOLDERS
To Be Held __________, 1997

To the Shareholders:

Notice is hereby given of Special Meetings of the Shareholders of Steadman
American Industry Fund ("SAIF"), Steadman Associated Fund ("SAF"), Steadman
Investment Fund ("SIF") and Steadman Technology and Growth Fund ("STGF"), each
is currently an open-end, investment company (together the "Funds"). The
meetings will be held at Hotel, Washington, D.C. 2000?, at 9:30 a.m.,
Washington, D.C. time, on , 1997, and any adjournments thereof (the
"Meetings"), for the following purposes:

1. FOR THE SHAREHOLDERS OF ALL OF THE FUNDS:

(a) To consider and act upon a proposal to approve the Agreement and Plan of
Merger dated as of May 2, 1997 (the "Merger Agreement") by and among SAIF, SAF,
SIF and STGF whereby SAIF, SIF and STGF will merge into SAF (the "Merger"),
which will be renamed Steadman Security Trust ("SST"); and

(b) To consider and act upon a proposal to ratify the selection of Reznick
Fedder & Silverman as independent auditors of each Fund and SST after the
Merger.

2. SOLELY FOR THE SHAREHOLDERS OF SAF:

(a) To elect three Trustees for terms of unlimited duration; and

(b) To consider and act upon a proposal to ratify and confirm the Amended
and Restated Trust Indenture of SST as of May 2, 1997, which provides, among
other things, for the change from an open-end to a closed-end investment company
and to change SST's fundamental investment policy from capital growth to current
income.

<PAGE>

Execution of a proxy in the form enclosed also permits the proxy holder to
vote, in their discretion, upon such other matters that may come before the
Meeting or any adjournment thereof. As of the date of mailing, the Trustees of
the Funds are not aware of any other matters that may come before the Meeting.

The Merger is more fully described in the accompanying Proxy Statement and
Prospectus. A copy of the Merger Agreement is attached as Exhibit A thereto.
Shareholders of record of SAIF, SAF, SIF and STGF at the close of business on
, 1997 are entitled to notice of, and to vote at, the Meetings. Please
read the Proxy Statement and Prospectus carefully before telling us, through
your proxy or in person, how you wish your shares to be voted. The Trustees of
each of SAIF, SAF, SIF and STGF unanimously recommend a vote in favor of the
Merger and for ratification of the selection of Reznick Fedder & Silverman as
independent auditors to examine the financial statements of each of the Funds
for the current fiscal year and for SST after the completion of the Merger. The
Trustees of SST also unanimously recommend that the SST shareholders elect the
persons nominated to serve as Trustees, and ratify and confirm the Amended and
Restated Trust Indenture of SST and the change in SST's fundamental investment
policy.

WE URGE YOU TO SIGN, DATE AND MAIL THE ENCLOSED PROXY PROMPTLY.

BY ORDER OF THE BOARDS OF TRUSTEES,

MAX KATCHER, SECRETARY

July , 1997

YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES YOU OWN

Please indicate your voting instructions on the enclosed proxy card; please
date and sign the card and return it in the envelope provided. If you sign,
date, and return the proxy card but give no voting instructions, your shares
will be voted "FOR" each applicable proposal noticed above. In order to avoid
the additional expense and delay of further solicitation, we ask your
cooperation in mailing your proxy card promptly so that a quorum may be ensured.
Unless proxy cards submitted by corporations and partnerships are signed by the
appropriate persons as indicated in the voting instructions on the proxy card,
such proxy cards cannot be voted.

<PAGE>
QUESTIONS AND ANSWERS ABOUT THE PROPOSED MERGER

1. What is the Merger?

The Merger proposes to combine four separate funds into a single
closed-end investment company, the Steadman Associated Fund ("SAF"), whose
name will change to Steadman Security Trust ("SST"). Fund shares no longer
will be sold or redeemed by SST on a request basis, but will be sold to other
investors in market transactions. Management has filed an application to list
SST shares on the Chicago Stock Exchange and expects SST shares will be
traded on that exchange, if accepted for listing, or in the over-the-counter
market; although it cannot ensure that a market will develop for these shares
in which case it may be very difficult to sell your shares. Management has
been unable to locate any broker-dealers who will agree to act as market
makers for the SST shares. Additionally, SST shareholders who wish to sell
their shares may suffer losses from the Fund's net asset value upon their
sale in the over-the-counter market due to the discount from net asset value
at which closed-end funds usually trade, and the potential limited market for
Fund shares, if any. Shareholders will have a one-time opportunity to redeem
their shares at net asset value during a thirty-day period, commencing on the
fifth anniversary date of the Merger. Future net asset value will likely
differ from the net asset value shareholders would receive if they redeemed
their shares prior to the Merger.

The number of shares of SST issued to shareholders of SAIF, SIF and STGF
will be determined on the basis of relative net asset values of SST and each
of the other funds. Immediately prior to the merger, SST will declare a
reverse stock split of ten to one so that each ten outstanding shares of SST
will become one share of the SST. The value of the new 10-to-1 shares of SST
issued to shareholders of the other funds as a result of the Merger will be
equal to the value of shares they held in the other funds on the day before
the closing date of the Merger. Shareholders of SST will continue to hold the
same number of shares before and after the Merger.

2. What are the reasons for the Merger?

After a detailed study of the operations of SAIF, SAF, SIF and STGF, the
Trustees concluded that the Merger would create substantial cost savings and
other economies and would provide shareholders with important benefits:

A. Potential Lower Operating Costs. Operating costs of SST as a closed-end
fund on a post-merger basis will be reduced substantially from the aggregate
costs of operating four funds separately. The Merger will enable SST to use its
assets more effectively and increase shareholder value. Because of the Merger
and the resulting reduction in the number of shareholder accounts, Fund
accounting fees, stock transfer costs, and other shareholder service expenses
will be reduced significantly. By converting to a closed-end fund, SEC
requirements for daily determination of net asset values will be eliminated, as
well as the need for annual securities registration with the states. The
Trustees believe that annual operating costs will be reduced principally in the
following areas: shareholder servicing fees, professional fees, expenses related
to reports to shareholders, computer services and data processing fees, and
custodian fees. Management estimates that SST annual operating expenses will be
about $684,000 or $638,000 lower than total expenses of the current four

<PAGE>

Funds, approximately $1,322,000. The estimated reduction in operating
expenses cannot guarantee profitable operation of SST.

B. Potential Lower Expense Ratio. The annual operating expenses for each of
the Funds as a percentage of average net assets at June 30, 1997 were as
follows: SAIF--31.44%, SAF- 12.18%, SIF-15.81%, and STGF- 41.84%. The Trustees
expect the Merger to reduce the expense ratio of SST. If the Merger had taken
place on June 30, 1997, the Trustees believe that as a result of anticipated
savings, the pro forma combined expense ratio of SST would have been 15.89% of
net assets at that date. There can be no assurance, however, that reductions in
expenses will result in profitable operations, and it is anticipated that
operating expenses of SST after the Merger may exceed net operating income of
SST before taking into account capital appreciation, if any.

C. Fully Invested Portfolio With Longer Term View. After the merger, SST
will operate as a closed-end investment company whose shares are bought and
sold in market transactions. Stockholders will not have a right of redemption
except during a thirty-day period commencing on the fifth anniversary date of
the Merger. Future net asset value will likely differ from the net asset
value shareholders would receive if they redeemed their shares prior to the
Merger. In the past, each Fund has kept a prudent portion of its portfolio in
cash or lower-yielding liquid assets to meet the potential demand for
redemptions. Upon consummation of the Merger and the conversion of SST to a
closed-end status, SST will be able to more effectively use portfolio funds
that would otherwise have been invested in cash or securities that could be
readily liquidated. Upon consummation of the Merger, SST will be able to
invest these funds with a longer-term view without having to be concerned
about the possibility of liquidating a position at an inopportune moment
solely to meet redemption requests thereby creating a higher return on
investments for SST. SST has applied to be listed on the Chicago Stock
Exchange, subject to compliance with the listing requirement, and it is
contemplated that if SST shares are not listed on the Chicago Stock Exchange,
SST shares will be traded in the over-the-counter market. However, there can
be no assurance that a market will develop for SST shares in which case it
may be very difficult to sell your shares. Management has been unable to
locate any broker-dealer who will agree to act as market makers for SST
shares. Closed-end funds typically trade at substantial discounts from their
net asset values. Consequently, SST shareholders could suffer substantial
losses if they elect to sell their shares when the SST market price is below
net asset value.

D. Tax Aspects. The ten to one reverse stock split of SST will be a
recapitalization of SST for federal income tax purposes, but the Merger will not
qualify as a tax-deferred reorganization under the Internal Revenue Code. SST
and its shareholders will not recognize gain or loss as a result of the exchange
of SST shares for SST shares in the reverse stock split. Shareholders of SAIF,
SIF and STGF will recognize gain or loss equal to the difference between the tax
bases of their SAIF, SIF or STGF shares surrendered by them in the Merger and
the fair market value of the SST shares they receive in the exchange. For many
SAIF, SIF and STGF shareholders, the result may be a tax loss rather than a tax
gain, but each shareholder's gain or loss calculation must be performed
individually and shareholders are encouraged to consult with their own tax
advisor. SAIF, SIF and STGF will be treated for federal income tax purposes as
if they had transferred all of their assets to SST in a taxable transaction, had
recognized all of the built-in gains

<PAGE>

and losses on those assets, and had then liquidated. SAIF, SIF and STGF will
be able to offset any net gain from this deemed asset sale with their
respective capital loss and net operating loss carryovers. The Trustees
anticipate that there will be sufficient loss carryovers to offset any net
gain recognized by SAIF, SIF or STGF in the Merger. SST will not recognize
any gain or loss as a result of the deemed asset sale, nor will its
shareholders. Any capital loss and net operating loss carryovers of SAIF, SIF
and STGF not used to offset their net recognized gain in the Merger will
expire. SST, as the surviving single entity, will be able to utilize its
separate tax loss carryforwards against ordinary income and capital gains to
eliminate or reduce SST's post-Merger taxable income. Management estimates
that after the Merger, a maximum of $4,648,795 of net operating losses and a
maximum of $1,109,769 of capital loss carryovers will be available to be used
by SST based upon June 30,1996 financial statements. If the former holders of
SAF represent less than 50% of the total ownership interests of SST after the
Merger, the amount of the above losses which may be used by SST in any one
year will be limited to $258,396. In addition, other transactions subsequent
to the Merger could result in a change in the ownership of SST (combined with
the change resulting from the Merger) that causes the loss limitation rules
to apply. Whether any future events will cause imposition of a restriction in
tax loss utilization for SST cannot be predicted at this point. Based upon
the past performance of the Funds, there is little likelihood that SST will
be able to utilize these tax benefits in full.

3. Who is paying the expenses of the Merger?

Each of the Funds will bear its proportionate share of the expenses of the
Merger of the Funds and the conversion of SST to a closed-end fund. It is
anticipated that the expenses of the Merger, which include, but are not limited
to, legal and accounting fees and expenses, printing, postage, and mailing
expenses for over 18,500 shareholder accounts, state blue-sky and SEC filing
fees, expenses relating to electronic filing with the SEC, and Chicago Stock
Exchange listing fees, will approximate $393,000, which will lower the net asset
value of SST by that sum upon consummation of the Merger.

4. Who will serve as Trustees of SST?

Charles W. Steadman, Dr. Paul A. Bowers and Vice Admiral John T. Hayward USN
(Ret.) will continue to serve as Trustees along with Paul F. Wagner, William
Mark Crain and Richard O. Haase, who have been nominated for election at the
shareholders' meeting.

5. Who will serve as Investment Advisor to SST?

Steadman Security Corporation is the current investment advisor to each of
the funds. It will serve as the investment advisor to SST.

6. Where can I get further information about SST?

Call SST at 1-800-424-8570. The Steadman Security Corporation will be
pleased to furnish any additional information that you want.

<PAGE>

7. After the Merger, whom do I get in touch with about my new SST account or
to initiate a transaction?

Once the Merger is effective, you will be a shareholder of SST. You will be
able to initiate a transaction to buy or sell shares through your representative
at your registered broker-dealer, as it is expected that shares of SST will be
traded in the over-the-counter market; however, there can be no assurance that a
market will develop for shares of SST.

8. Will this Merger result in any tax liability to any of the funds or to me
as a shareholder?

The Merger will not qualify as a tax-deferred reorganization for federal
income tax purposes. The transaction will be treated for federal income tax
purposes as if SAIF, SIF and STGF had transferred all of their assets to SST in
a taxable transaction, had recognized all built-in gains and losses on those
assets, and had distributed SST shares to their respective shareholders in
liquidation. The Trustees believe that the capital loss and net operating loss
carryovers of SAIF, SIF and STGF will be sufficient to offset any net gain of
those entities recognized in the Merger. SST and its shareholders will not
recognize any gain or loss as a result of the deemed asset sale. The
shareholders of SAIF, SIF and STGF will be deemed to have exchanged their SAIF,
SIF and STGF shares for SST shares in a taxable transaction. Such shareholders
will recognize gain or loss equal to the difference between their individual tax
bases for the SAIF, SIF and STGF shares surrendered and the fair market value of
the SST shares received. Such gain or loss will be capital for shareholders who
hold their SAIF, SIF or STGF shares as capital assets and will be long term or
short term gain or loss depending upon their individual holding periods for the
shares surrendered. For many SAIF, SIF and STGF shareholders, the result may be
a tax loss rather than a tax gain, but each shareholder's gain or loss
calculation must be determined individually.

Shareholders of the funds should consult their tax advisors regarding the
effect, if any, of the Merger in light of their individual circumstances. Since
the foregoing relates only to federal income tax consequences of the Merger,
shareholders should also consult their tax advisors as to state and local tax
consequences, if any.

9. When can I redeem my shares?

Shareholders may redeem their shares in each of the Funds at net asset value
at any time prior to the completion of the Merger by following Fund procedures.
Call 1-800-424-8570 to redeem your shares or for more information pertaining to
the redemption of your shares. Once the Merger is completed shareholders will
have a one-time opportunity to redeem their shares at net asset value during a
thirty-day period commencing on the fifth anniversary date of the Merger.

Shareholders are directed to read the accompanying Proxy Statement and
Prospectus for further information about the Merger and related matters.
Additional information about SST is set forth in its accompanying Proxy
Statement and Prospectus.

4
<PAGE>
STEADMAN AMERICAN INDUSTRY FUND
STEADMAN ASSOCIATED FUND
STEADMAN INVESTMENT FUND
STEADMAN GROWTH AND TECHNOLOGY FUND
- --------------------------------------------------------------------------------
1730 K Street, N.W. 1-800-424-8570
Washington, D.C. 20006 202-233-1000

PROXY STATEMENT
AND
PROSPECTUS

This Proxy Statement and Prospectus is furnished to shareholders of Steadman
American Industry Fund ("SAIF"), Steadman Associated Fund ("SAF"), Steadman
Investment Fund ("SIF") and Steadman Growth and Technology Fund ("STGF")
(individually referred to herein as "Fund" and collectively referred to as
"Funds") in connection with the solicitation by the Board of Trustees of each of
the Funds ("Trustees") of proxies to be used at Special Shareholders' Meetings.
The meetings will be held at Hotel, Washington, D.C. 2000? at 9:30 a.m.,
Washington, D.C. time, on , 1997, as well as any adjournments thereof (the
"Meetings"). Each of the Funds is currently a non-diversified, registered open-
end investment company. This Proxy Statement and Prospectus will be mailed to
shareholders of the Funds on or about July , 1997.

At the Meetings, shareholders will be asked to consider and vote upon
approval of the Agreement and Plan of Merger, dated as of May 2, 1997 (the
"Merger Agreement") by and among SAIF, SAF, SIF and STGF (the "Merger"). The
Merger Agreement provides for the merger of SAIF, SIF and STGF with and into
SAF, which will be renamed Steadman Security Trust ("SST") and with the approval
of the SST shareholders which will be sought at the Meeting, SST will change
from an open-end investment company to a closed-end investment company and
change its fundamental investment policy from capital growth to current income.
As a result of the proposed Merger, each shareholder of SAIF, SIF and STGF will
receive that number of SST shares equal in value to that shareholder's pro rata
interest in the net assets transferred to SST, as of the Valuation Date (as
defined in the Merger Agreement). The proposed Merger provides that immediately
prior to the effective date of the Merger, SST will effect a reverse split of
its shares so that each ten shares issued and outstanding will be converted to
one share of the Fund. The shareholders of SAF, which will become SST, will
continue to hold the same number of shares before and after the Merger. The
reverse stock split will constitute a tax-free recapitalization of SST, but the
Merger will not qualify as a tax deferred reorganization for federal income tax
purposes for SAIF, SIF, STGF or their respective shareholders. See "Approval of
the Merger--Tax Aspects of the Merger."

REDEMPTION--THIS MAY BE A SHAREHOLDER'S LAST CHANCE TO REDEEM SHARES AT NET
ASSET VALUE AND A SHAREHOLDER WHO WANTS TO

1
<PAGE>

REDEEM SHARES MUST DO SO BEFORE THE
EFFECTIVE DATE OF THE MERGER OR THE OPPORTUNITY WILL BE LOST FOR AT LEAST FIVE
YEARS.

POSSIBLE REDUCTION IN FUND SIZE--THE COMBINED ASSETS OF THE FUNDS MAY
CONTINUE TO SHRINK AFTER THE MERGER BECAUSE THE TRUSTEES ANTICIPATE THAT SST'S
OPERATING EXPENSES MAY EXCEED SST'S INCOME.

To simplify references herein, SAF in most cases will generally be referred
to as Steadman Security Trust (or "SST") which will be its post-merger name.

As of the date of this Prospectus, SST had 5,768,038 shares of a single
class issued and outstanding pursuant to an Amended and Restated Trust
Indenture, dated May 2, 1997 ("Trust Indenture"). The Trust Indenture provides
for the issuance of an unlimited number of shares. The Merger Agreement
contemplates as a condition precedent to the effectiveness of the Merger that
the shareholders of SST will approve the change of SST from an open-end
investment company to a closed-end investment company. Accordingly, the shares
to be issued upon the effectiveness of the Merger will not be "redeemable
securities" as defined in Section 2(a)(32) of the Investment Company Act of
1940, as amended (the "1940 Act"). Shareholders will be able to purchase and
sell shares of SST in market transactions through their representative at their
registered broker/dealer and may incur a brokerage cost on the sale of shares.
There are no assurances that an adequate and liquid market for Fund shares will
develop upon consummation of the Merger and to date, the Fund's management has
been unable to obtain broker-dealers who will agree to act as market makers for
Fund shares, in which case it may be very difficult to sell SST shares. Further,
it is anticipated that Fund shares will sell at a substantial discount from
their net asset value. As a result, shareholders who wish to sell shares of SST
after the Merger could suffer substantial losses and possibly may not be able to
sell their shares unless an appropriate market develops. Also, they may only be
able to sell such shares at a greater discount than the discounts at which most
closed-end fund shares are sold.

It is anticipated that operating expenses of SST after the Merger may exceed
net operating income of the Fund before taking into account capital
appreciation, if any.

The primary investment objective of three of the Funds, SAIF, STGF and SST,
is substantially the same--capital growth through the utilization of a broad
range of investment vehicles and techniques including, but not limited to, the
purchase and sale of put and call options. The realization of current income is
secondary to each fund's efforts in pursuing its goal of capital appreciation.
However, the current primary objective of the fourth Fund, SIF, is to seek
current income, and secondarily to maximize total return but only consistent
with its primary objective. Upon the consummation of the Merger, the new
investment policy of SST will be to seek current income

2
<PAGE>

and secondarily to maximize the total return but only to the extent
consistent with the primary objective. All of the Funds currently employ the
same investment management techniques. See "Investment Objectives and
Policies."

SST has filed with the Securities and Exchange Commission (the "SEC") a
Registration Statement on Form N-14 (the "Registration Statement") relating to
the registration of shares of SST to be offered to the shareholders of SAIF, SIF
and STGF pursuant to the Merger Agreement. This Proxy Statement and Prospectus
relating to the Merger also constitutes a Prospectus of SST filed as part of
such Registration Statement. Information contained or incorporated by reference
herein relating to SST has been prepared by and is the responsibility of SST.
Information contained or incorporated by reference herein relating to the SAIF,
SIF or STGF has been prepared by and is the responsibility of the respective
Fund.

This Proxy Statement and Prospectus sets forth certain information about SST
and the other Funds that a prospective investor should know before voting on the
Merger. The following documents are available without charge upon written
request to Steadman Security Company, 1730 K Street, N.W., Washington, D.C.
20006 or by calling the following toll free number 1-800-424-8570: Annual
Reports, dated June 30, 1996 for each of the Funds: SAIF, SAF, SIF and STGF.

Investors are advised to read and retain this Proxy Statement and Prospectus
for future reference.

A Statement of Additional Information, dated the date of this Prospectus,
relating to the proposed transactions described in this Proxy Statement and
Prospectus, has been filed with the SEC and is incorporated by reference herein.
Copies of this Statement of Additional Information may be obtained without
charge by contacting Steadman Security Corporation ("SSC") at 1730 K Street,
N.W., Washington, D.C. 20006 or calling SSC toll free at 1-800-424-8570.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

This Proxy Statement and Prospectus is dated July , 1997.

3
<PAGE>
TABLE OF CONTENTS

PROXY STATEMENT AND PROSPECTUS

<TABLE>
<S> <C>
AGREEMENT AND PLAN OF MERGER.......................................................... 7

SYNOPSIS.............................................................................. 7
Parties to the Merger............................................................... 7
The Merger.......................................................................... 7
Change to a Closed-End Fund......................................................... 9
Tax Consequences of the Merger...................................................... 10
Investment Objectives and Policies.................................................. 10
Investment Advisory Fee............................................................. 11
Purchases of Shares in the Funds.................................................... 11
Chicago Stock Exchange.............................................................. 11
Redemptions......................................................................... 11

PRINCIPAL RISK FACTORS................................................................ 12
Performance of the Funds............................................................ 12
Market For Shares of SST After the Merger........................................... 12
Redemption by States................................................................ 13
Anti-Takeover Provisions............................................................ 13
Absence of Dividends................................................................ 14
Investment Management Techniques.................................................... 14
Non-Diversified Status.............................................................. 14
Closed-End Investment Company--No Redemption Rights................................. 15
Borrowing Policy-Issuance of Senior Securities...................................... 15
Expense Ratios...................................................................... 16
Utilization of Tax Loss Carry Forwards.............................................. 16
Non-Qualification of Merger for Tax Deferral........................................ 17
Non-Qualification as a Regulated Investment Company for Tax Purposes................ 17

DIFFERENCE BETWEEN OPERATIONS OF SST AS ANOPEN-END AND CLOSED-END INVESTMENT
COMPANY............................................................................. 17
Amendment to SST Declaration of Trust............................................... 18
Acquisition and Disposition of Shares............................................... 18
Voting Rights....................................................................... 19
Determination of Net Asset Value.................................................... 19
Portfolio Management................................................................ 20
Blue Sky Restrictions............................................................... 20
Senior Securities................................................................... 20

APPROVAL OF THE MERGER................................................................ 21
Background.......................................................................... 21
</TABLE>

4
<PAGE>
TABLE OF CONTENTS (cont.)

<TABLE>
<S> <C>
The Merger.......................................................................... 21
Trustee Approval of the Merger...................................................... 22
Tax Aspects of the Merger........................................................... 24

CAPITALIZATION TABLE (UNAUDITED)...................................................... 26

COMPARATIVE FEE TABLES................................................................ 26
Transaction Charges................................................................. 26
Expenses of the Funds; Pro Forma Projected Operating Expenses....................... 27
Example............................................................................. 29

PRO FORMA FINANCIAL INFORMATION....................................................... 29

FORM OF ORGANIZATION OF THE FUNDS..................................................... 38

COMPARISON OF INVESTMENT OBJECTIVES,POLICIES AND TECHNIQUES OF THE FUNDS.............. 38

CONDENSED FINANCIAL INFORMATIONOF THE FUNDS........................................... 39
SAIF
Management's Discussion of Performance of the Fund................................ 44
SAF
Management's Discussion of Performance of the Fund................................ 44
SIF
Management's Discussion of Performance of the Fund................................ 45
STGF
Management's Discussion of Performance of the Fund................................ 46

DESCRIPTION OF CAPITAL STRUCTURE OF THE FUNDSAND SHAREHOLDER RIGHTS................... 51
Special Provisions of SST........................................................... 51
Redemption of Shares Prior to Merger................................................ 53
Redemption of Shares After Merger................................................... 54
Market for Shares of SST............................................................ 54

MANAGEMENT OF THE FUNDS............................................................... 55

LEGAL PROCEEDINGS..................................................................... 55
</TABLE>

5
<PAGE>
TABLE OF CONTENTS (cont.)

SELECTION OF INDEPENDENT AUDITORS..................................................... 56

ELECTION OF TRUSTEESOF STEADMAN ASSOCIATED FUND....................................... 57
Election of Trustees................................................................ 57
Committee and Meetings of Trustees.................................................. 58
Interested Persons.................................................................. 58
Compensation of Trustees............................................................ 58
Officers of SST..................................................................... 59

RATIFICATION OF AMENDED AND RESTATEDTRUST INDENTURE OF STEADMAN SECURITY TRUST........ 59
INFORMATION CONCERNING THE MEETINGS................................................... 60
The Meetings........................................................................ 60
Record Date; Vote Required; Share Information....................................... 61
Proxies............................................................................. 61
Costs of the Solicitation and the Reorganization.................................... 62

MISCELLANEOUS......................................................................... 62
Financial Information............................................................... 62
Public Information.................................................................. 62

OTHER BUSINESS........................................................................ 63
PART B: INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION............... B-1
PART C: OTHER INFORMATION........................................................... C-1
</TABLE>

Exhibit A--Agreement and Plan of Merger, dated as of May 2, 1997, by and
among Steadman American Industry Fund, Steadman Investment Fund,
Steadman Growth and Technology Fund and Steadman Security Trust

Exhibit B--Amended and Restated Trust Indenture of Steadman Security Trust
(formerly, Steadman Associated Fund) and Declaration of Trust with
Amendments through May 2, 1997.

6
<PAGE>
AGREEMENT AND PLAN OF MERGER

SYNOPSIS

Following is a synopsis of certain information contained in or incorporated
by reference in this Proxy Statement and Prospectus. It presents key
considerations to assist shareholders of SAIF, SAF, SIF and STGF in determining
whether to approve the Merger. This synopsis is only a summary and is qualified
in its entirety by the more detailed information contained in or incorporated by
reference in this Proxy Statement and Prospectus and the Exhibits hereto.
Shareholders should carefully review this Proxy Statement and Prospectus and the
Exhibits hereto in their entirety.

PARTIES TO THE MERGER

Each of the Funds, SAIF, SIF, STGF and SST is a common law trust, domiciled
in the District of Columbia. Each is currently a non-diversified open-end
investment company; however, a required condition of the Merger is that the
shareholders of SAF (which will become SST) must approve its change from an
open-end investment company to a closed-end investment company. After this
change, the SST shares will not be "redeemable securities" as that term is
defined in the Investment Company Act of 1940, as amended (the "1940 Act"). As a
result, shareholders of SST after the Merger will be able to liquidate their
investment through sales on the Chicago Stock Exchange, if SST shares are
accepted for listing, or in the over-the-counter market, if a market develops.
In such case, the shareholder may incur a brokerage cost on the sale of shares.
However, SST will provide shareholders with a one-time opportunity to redeem
their shares at net asset value during a thirty-day period commencing on the
fifth anniversary date of the Merger. Future net asset value will likely differ
from the net asset value shareholders would receive if they redeemed shares
prior to the Merger. Management has been unable to locate any broker-dealers who
will agree to act as market maker for SST shares; and accordingly there can be
no assurance that a market will develop or at what price SST shareholders would
be able to liquidate their investment in SST.

THE MERGER

The Merger Agreement provides for the merger of SAIF, SIF and STGF into SAF,
which will be named SST. Each shareholder of SAIF, SIF and STGF will receive
that number of SST shares equal in value to his pro rata interest in the net
assets transferred to SST as of the Valuation Date (as defined in the Merger
Agreement). Cash will be paid in lieu of fractional shares. The Merger Agreement
provides that immediately prior to the effective date of the Merger SST will
effect a reverse stock split so that each ten shares issued and outstanding will
be converted into one share of the Fund.

The Trustees of each Fund, including Trustees who are not "interested
persons" of the Fund (the "Independent Trustees"), as that term is defined in
the 1940 Act, have concluded that the Merger is in the best interests of each of
the Funds and their shareholders. They also believe that the interests of
existing shareholders will not be diluted as a result of the Merger except for
expenses of the Merger and for conversion of SST into a closed-end fund, which
will be shared proportionately

7
<PAGE>

by the Funds. The Trustees unanimously recommend
approval of the Merger by the shareholders of each Fund.

The Trustees' recommendation is based on the following conclusions:

First, operating costs of the Funds will be reduced substantially from
the aggregate costs of operating the four funds functioning separately.
However, it is anticipated that operating expenses of SST after the Merger
may exceed net operating income of the Fund before taking into account
capital appreciation, if any. The Merger may enable SST to use its assets
more effectively and increase shareholder value. Fund accounting fees, stock
transfer costs, and other shareholder service expenses will be reduced
significantly. By converting to a closed-end fund, SEC requirements for daily
determination of net asset values will be eliminated, as well as the need for
annual securities registration with the states. The Trustees believe
that annual operating costs will be reduced principally in the following
areas: shareholder servicing fees, professional fees, expenses related to
reports to shareholders, computer services and data processing expenses, and
custodian fees. Management of the Funds estimates that SST annual operating
expenses will be approximately $684,000 which is $638,000 lower than total
aggregate expenses of the current four Funds. The estimated reduction in
operating expenses cannot guarantee profitable operation of SST.

Second, The annual operating expenses for each of the Funds as a percentage
of average net assets at June 30, 1997 were as follows: SAIF--31.44%, SAF-
12.18%, SIF- 15.81% and STGF- 41.84%. The Trustees expect the Merger to reduce
the expense ratio of SST. If the Merger had taken place on June 30, 1997, the
Trustees believe that as a result of anticipated savings, the pro forma combined
expense ratio of SST would have been 15.89%. There can be no assurance, however,
that reductions in expenses will result in profitable operations, and it is
anticipated that operating expenses of SST after the Merger may exceed net
operating income of SST before taking into account capital appreciation, if any.

Third, after the Merger, SST will operate as a closed-end investment company
whose shares are bought and sold in market transactions. Stockholders will not
have a right of redemption except during a thirty-day period commencing on the
fifth anniversary date of the Merger. Future net asset value will likely differ
from the net asset value shareholders would receive if they redeemed their
shares prior to the Merger. In the past, each Fund has kept a prudent portion of
its portfolio in cash or lower-yielding liquid assets to meet the potential
demand for redemptions. Upon consummation of the Merger and the conversion of
SST to a closed-end status, SST will be able to more effectively use portfolio
funds that would otherwise have been invested in cash or securities that could
be readily liquidated. Upon consummation of the Merger, SST will be able to
invest these funds with a longer-term view without having to be concerned about
the possibility of liquidating a position at an inopportune moment solely to
meet redemption requests thereby creating a higher return on investments for
SST. SST has applied to be listed on the Chicago Stock Exchange, subject to
compliance with the listing requirement, and it is contemplated that if SST
shares are not listed on the Chicago Stock Exchange, SST shares will be traded
in the over-the-counter market. However, there can be no assurance that a market
will develop for SST shares in which case it may be very difficult to sell your
shares. Management has been unable to locate any broker-dealer who will agree to
act as market makers for SST shares. Closed-end funds typically trade

<PAGE>

at substantial discounts from their net asset values. Consequently, SST
shareholders could suffer substantial losses if they elect to sell their
shares when the SST market price is below net asset value.

Fourth, The reverse stock split of SST will constitute a recapitalization
of SST, but the Merger will not qualify as a tax-deferred reorganization
under the Internal Revenue Code. SST and its shareholders will not recognize
any gain or loss as a result of the exchange of SST shares for SST shares in
the reverse stock split. Shareholders of SAIF, SIF and STGF will recognize
gain or loss equal to the difference between the tax bases of their SAIF, SIF
or STGF shares surrendered by them in the Merger and the fair market value of
the SST shares they receive in the exchange. For many SAIF, SIF and STGF
shareholders, the result may be a tax loss rather than a tax gain, but each
shareholder's gain or loss calculation must be determined individually and
shareholders are encouraged to consult their own tax advisor. SAIF, SIF and
STGF will be treated for federal income tax purposes as if they had
transferred all of their assets to SST in a taxable transaction, had
recognized all of the built-in gains and losses on those assets, and had then
liquidated. SAIF, SIF and STGF will be able to offset any net gain from this
deemed asset sale with their respective capital loss and net operating loss
carryovers. The Trustees anticipate that there will be sufficient loss
carryovers to offset any net gain recognized by SAIF, SIF or STGF in the
Merger. SST will not recognize any gain or loss as a result of the deemed
asset sale, nor will its shareholders. Any capital loss and net operating
loss carryovers of SAIF, SIF and STGF not used to offset their net gain in
the Merger will expire. SST, as the surviving single entity, will be able to
utilize its separate tax loss carryforwards against ordinary income and
capital gains to eliminate or reduce SST's post-merger taxable income.
Management estimates that after the Merger, a maximum of $4,648,795 of net
operating losses and a maximum of $1,109,769 of capital loss carryovers will
be available to be used by SST based upon June 30,1996 financial statements.
If the former holders of SAF represent less than 50% of the total ownership
interests of SST after the Merger, the amount of the above losses which may
be used by SST in any one year will be limited to $258,396. Assuming that no
shareholders other than the Shareholder States redeem their shares,
management expects the assets of SAF to represent more than 50% of the assets
of SST upon consummation of the Merger. In addition, other transactions
subsequent to the Merger could result in a change in the ownership of SST
(combined with the change resulting from the Merger) that causes the loss
limitation rules to apply. Whether any future events will cause imposition of
a restriction in tax loss utilization for SST cannot be predicted at this
point. See "Approval of the Merger--Trustees Approval of the Merger" and "Tax
Aspects of the Merger." If the Merger is not approved by the shareholders of
each of the Funds, the Funds will continue in existence, and the Trustees of
each Fund will determine whether to pursue alternative actions.

Approval of the Merger will require the affirmative vote of a majority of
the outstanding shares of each Fund, voting separately, represented in person or
by proxy at the Meeting. The Trustees of each Fund recommend a vote "FOR" the
Merger. See "Information Concerning the Meetings--Record Date; Vote Required;
Share Information."

CHANGE TO A CLOSED-END FUND

Each of the Funds is currently registered as an open-end investment company
under the 1940 Act. The shareholders of SAF (which will be renamed SST) are
being asked to approve the change

<PAGE>

to a closed-end investment company. Accordingly, if the Merger is approved,
SST will be a closed-end investment company. Management expects that SAF
shareholders will represent more than 50% of the total assets of SST after
the Merger. However, if the Merger is not approved by the shareholders of
each of the Funds, SST will not convert to closed-end status. Open-end
investment companies issue redeemable securities, which can be surrendered at
any time in exchange for their proportionate value of net assets. The shares
of a closed-end fund are not redeemable, but they may be purchased or sold in
market transactions. SST will provide shareholders with the opportunity to
redeem their shares at net asset value during a thirty-day period commencing
on the fifth anniversary date of the Merger. Future net asset value will
likely differ from the net asset value shareholders would receive if they
redeemed shares prior to the Merger. See "Difference between the Operations
of SST as an Open-End and Closed-End Investment Company."

TAX CONSEQUENCES OF THE MERGER

The reverse stock split of SST will constitute a tax-free recapitalization
of SST, but the Merger will not qualify as a tax-deferred reorganization for
federal income tax purposes. The transaction will be treated for federal income
tax purposes as if SAIF, SIF and STGF had transferred all of their assets to SST
in a taxable transaction, had recognized all of the built-in gains and losses on
those assets, and had distributed SST shares to their respective shareholders in
liquidation. The Trustees believe that the capital loss and net operating loss
carryovers of SAIF, SIF and STGF will be sufficient to offset any net gain of
those entities recognized in the Merger. Loss carryforwards of SAIF, SIF and
STGF not utilized in the Merger will expire, but SST will be able to use its
separate loss carryforwards after the Merger. SST and its shareholders will not
recognize any gain or loss as a result of the deemed asset sale and liquidation.
The shareholders of SAIF, SIF and STGF will be deemed to have exchanged their
SAIF, SIF and STGF shares for SST shares in a taxable transaction. Such
shareholders will recognize gain or loss equal to the difference between their
individual tax bases for the SAIF, SIF and STGF shares surrendered and the fair
market value of the SST shares received. Such gain or loss will be capital for
shareholders who hold their SAIF, SIF or STGF shares as capital assets and will
be long term or short term gain depending upon their individual holding periods
for the shares surrendered. For many SAIF, SIF and STGF shareholders, the result
may be a tax loss rather than a tax gain, but each shareholder's gain or loss
calculation must be performed individually and shareholders are encouraged to
consult with their own tax advisor.

INVESTMENT OBJECTIVES AND POLICIES

Three of the Funds (SAIF, STGF and SST) share a common investment objective,
which is capital growth through the use of a broad range of investment vehicles
and techniques including, but not limited to, purchase and sale of put and call
options. The realization of current income is secondary to each Fund's efforts
in pursuing its goal of capital appreciation. The current primary investment
objective of the fourth Fund, SIF, however, is to seek current income, and
secondarily to maximize total return consistent with its primary objective. Upon
the consummation of the Merger, the new investment objective of SST will be to
seek current income and secondarily to maximize the total return but only to the
extent consistent with its primary objective. All of the Funds employ the same
investment management techniques.

<PAGE>

Shareholders of the Funds should consider these similarities and differences
in investment objectives and policies of the Funds. See "Comparison of
Investment Objectives and Techniques of the Funds."

INVESTMENT ADVISORY FEE

Each Fund obtains investment management services from the same investment
advisor, Steadman Security Corporation ("SSC"), pursuant to substantially
similar investment advisory agreements. A management fee is payable to the
investment advisor monthly and is computed on the net asset value of the Fund.
Each Fund pays a management fee at the annual rate of 1% of the first $35
million of net assets, 0.875% of the next $35 million and $0.75% on all assets
more than $70 million. Upon effectiveness of the Merger, SSC will continue to
provide investment advisory services to SST pursuant to its existing Investment
Advisory Agreement.

None of the Funds has a separate service and/or distribution plan pursuant
to Rule 12b-1 under the 1940 Act.

PURCHASES OF SHARES IN THE FUNDS

SAIF, SIF and STGF have not accepted new subscriptions for shares since May,
1988. Shares of SAF were available for purchase under a Prospectus dated
January, 1996 through October 31, 1996.

CHICAGO STOCK EXCHANGE

SST has filed an application to list its shares on the Chicago Stock
Exchange and has been advised that approval for listing must await completion of
the Merger to assess the impact of redemptions of shares prior to the Merger as
well as SST's ability to meet the Exchange's requirements for adequate annual
earnings. If the SST shares are not accepted for listing in the Chicago Stock
Exchange, the Trustees expect the shares to be traded in the over-the-counter
market if a market develops, however, management has been unable to locate a
broker-dealer who will act as a market maker in SST shares.

REDEMPTIONS

Prior to the closing date of the Merger, shares of each Fund may be redeemed
at their respective net asset values calculated after the redemption order is
received and accepted. Upon completion of the Merger and the change of SST to a
closed-end investment company, no shares of SST may be redeemed. It is expected
that shares of SST will be traded either on the Chicago Stock Exchange, or in
the over-the-counter market; however, there can be no assurance that a market
will develop for shares of SST. Moreover, if shares of SST are traded, it is
anticipated that shares of SST will trade at a substantial discount from their
net asset value, which discount will be greater than the discount applicable to
shares of most closed-end funds. Shareholders will have a one-time opportunity
to redeem their SST shares at net asset value during a thirty-day period
commencing on the fifth anniversary date of the Merger. Future net asset value
will likely differ from the net asset value shareholders would receive if they
redeemed shares prior to the Merger.

<PAGE>
PRINCIPAL RISK FACTORS

In evaluating whether to approve the Merger, shareholders should carefully
consider the following summary of risk factors relating to SST in addition to
the other information set forth in this Proxy Statement and Prospectus.

PERFORMANCE OF THE FUNDS

The historical performance of each of the Funds during the past ten years
has been substantially less than the performance of the S&P 500 index for the
same period. (See "Management's Discussion of Performance of the Funds").

The following table shows performance of each Fund and reflects reinvestment
of distributions.

<TABLE>
<CAPTION>
PER SHARE PERCENTAGE
NET ASSET INCREASE
FUND BEGINNING DATE PRICE ENDING DATE VALUE (DECREASE)
- --------------------------------------------------- -------------- --------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
SAIF............................................... 2/1/86 $ 2.89 4/15/97 $ 0.69 (76%)
SAF................................................ 10/1/86 $ 0.82 4/15/97 $ 0.70 (15%)
SIF................................................ 1/1/86 $ 1.46 4/15/97 $ 0.76 (48%)
STGF............................................... 1/1/86 $ 5.06 4/15/97 $ 0.61 (88%)
</TABLE>

From January 1, 1986, through April 15, 1997, the S&P 500 Index increased by
272% from 202.83 to 754.72 (which does not include the reinvestment of
dividends). Except for (a) SAF which paid a dividend in 1986, 1987 and 1989 and
made a capital distribution in 1988 and (b) SIF which paid a dividend in 1988,
none of the Funds paid dividends or made distributions to shareholders during
those years. There can be no assurance that as a result of the Merger,
performance of the SST will differ from past performance of the Funds.

MARKET FOR SHARES OF SST AFTER THE MERGER

The market for shares of SST after the Merger will be substantially affected
by conditions beyond the control of the Fund's management. Due to the small size
of SST after the Merger (approximately $6.3 million in net asset value as of
June 30, 1997), it is anticipated that there will be a limited market for SST
shares if a market develops at all. The size of SST is expected to be further
reduced by about $1,000,000 if all of the States holding shares of the Funds
request redemption of such shares and seek redemption prior to the Merger. (See
"--Redemption by States.") Furthermore, because of the limitations imposed on
the (a) voting rights of an investor who acquires more than 10% of SST's shares
and (b) the ability of SST to engage in certain business transactions if an
investor acquires more than 10% of the Fund's shares without the required
trustee and shareholder approvals, an additional discount may be applied by the
marketplace to the value of the Funds' shares. (See "Description of Capital
Structure of the Funds and Shareholder Rights--Special Provisions of SST.") As a
result, due to a change from an open-end fund to a closed-end

<PAGE>

fund, shareholders of SST after the Merger likely will not be able to
liquidate their investment in SST at net asset value but might suffer
substantial losses if they elect to liquidate their shares, and might, in
fact, be unable to sell their shares if an active trading market does not
develop.

REDEMPTION BY STATES

In 1993, the Funds entered into a Settlement Agreement with approximately
47 states with respect to the recovery of shares and distributions owned by
persons who had allegedly abandoned these properties. The Settlement
Agreement provides among other things, that forty-three of these
jurisdictions ("Shareholder States") will not request redemption of their
shares until February 14, 1998. The Shareholder States currently own shares
in the Funds, which have a net asset value of approximately $1 million. The
Shareholder States are represented by the Unclaimed Property Clearing House
("UPCH"), which has advised the Funds that it does not believe the Merger
should take place because the UPCH believes that after the Merger SST shares
will trade at a substantial discount from net asset value, and the
Shareholder States will receive substantially less from the sale of their
shares after the Merger than if those shares were redeemed at net asset
value. The UPCH told the Funds that it is prepared to recommend to the
Shareholder States that they commence litigation to prevent the consummation
of the Merger unless the restriction on their ability to redeem shares of the
Funds prior to February 14, 1998 is removed. The Trustees believe that the
delay and further expense which would result from such potential litigation
is not in the best interest of the shareholders. Accordingly, the Funds have
unconditionally agreed to remove the restriction on the redemption of shares
and to redeem prior to the Merger all of the shares of the Funds owned by the
Shareholder States upon their request. The Shareholder States do not have any
rights, priorities, or preferences regarding redemption of fund shares that
differ from any other shareholder of the Funds. If all the Shareholder States
redeem all of their shares, the net asset value of SST after the Merger would
be reduced by approximately $1 million.

ANTI-TAKEOVER PROVISIONS

Certain existing and proposed provisions of the Amended and Restated SST
Trust Indenture help the Fund maintain its status as an independent,
publicly-owned investment company, and render a hostile takeover more difficult,
particularly the provisions relating to super majority voting in connection with
certain business combinations and the limitations imposed on the voting rights
of any investor who acquires more than 10% of SST's shares. These provisions
include unlimited terms for trustees, limitations on the ability of shareholders
to remove trustees, limitations on the calling of special meetings and non-
cumulative voting in the election of trustees. See "Description of Capital
Structure of the Funds and Shareholders Rights--Special Provisions of SST."

Although these provisions do not preclude a hostile takeover, they could
discourage a takeover attempt through which shareholders might be offered a
premium over prevailing market prices. These provisions also render removal of
Trustees, management, and the investment advisor more difficult. The Trustees,
however, concluded that potential benefits of the provisions outweigh possible
disadvantages. They believe such provisions encourage potential acquirors to
negotiate directly with the Trustees, who are in the best position to act on
behalf of all shareholders. Furthermore, the Trustees have the ability to waive
certain of these restrictions. Not redeeming your shares prior to the Merger
will result in the above anti-takeover provisions applying to

<PAGE>

all shareholders equally should the Merger be consummated and the Amended and
Restated Trust Indenture be approved by shareholders of SST at the Meeting.

ABSENCE OF DIVIDENDS

SAIF and STGF have not paid a dividend or made a capital distribution for at
least ten years. SAF has not paid a dividend or made a capital distribution
since 1989 and SIF has not paid a dividend or made a capital distribution since
1988. See "Condensed Financial Information of the Funds." Following the Merger
of the Funds, SST does not anticipate paying any cash dividends or distributions
in the foreseeable future.

INVESTMENT MANAGEMENT TECHNIQUES

An investment in SST involves greater risk than an investment in many
other mutual funds because the investment objectives and policies of SST
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 full discussion of the risks attendant to particular
investments and techniques, please refer to the Statement of Additional
Information. Use of such techniques may also produce higher (100% or more)
than normal portfolio turn-over which will generate additional brokerage
commissions and expenses for SST. Moreover, SST 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. Currently, SST and two
of the Funds, SAIF and STGF, share the same investment objective and
techniques; while SIF's principal objective is different - to seek current
income rather than capital growth--all four Funds use the same investment
techniques. Upon completion of the Merger, the primary investment objective
of SST will change to seek current income and secondarily to maximize the
total return, but only to the extent consistent with its primary objective.

NON-DIVERSIFIED STATUS

The classification of SST as a "non-diversified" investment company means
that the proportion of assets of SST that may be invested in securities of a
single issuer is not limited by the 1940 Act. 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, SST 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 (the "Code"). Thus, unlike many
mutual funds, it is not restricted by certain diversification requirements
imposed by the Code. A relatively high percentage of SST's assets may be
invested in obligations of a limited number of issuers, some of which may be
within the same economic sector. Therefore, SST's portfolio will be more
susceptible to any single economic, political, or regulatory occurrence than the
portfolio securities of a diversified investment company.

<PAGE>

CLOSED-END INVESTMENT COMPANY--NO REDEMPTION RIGHTS

As a closed-end investment company SST will not redeem any of its
outstanding shares. SST shares will be traded either on the Chicago Stock
Exchange, if accepted for listing, or in the over-the-counter market; but there
can be no assurance that a market will develop. See "--Chicago Stock Exchange."
Closed-end investment company shares frequently trade at a discount from net
asset value and shareholders may incur a brokerage cost on the sale of shares.
The shares of SST have never traded publicly. Therefore, SST cannot predict
whether its shares will trade in the future at a premium or at a discount from
net asset value or the extent of either. The risk of its shares trading at a
discount is separate from the risk of a decline in net asset value. Shareholders
will have a one-time opportunity to redeem their SST shares at net asset value
during a thirty-day period commencing on the fifth anniversary date of the
Merger. Future net asset value will likely differ from the net asset value
shareholders would receive if they redeemed shares prior to the Merger.

BORROWING POLICY-ISSUANCE OF SENIOR SECURITIES

The Fund's borrowing policy is that SST 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 SST enters into reverse
repurchase agreements described below. The 1940 Act required SST 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, SST 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 SST'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. SST 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 SST 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 Fund's Adviser has
determined to be of comparable creditworthiness. These transactions involve the
transfer by SST of an underlying debt instrument in return for cash proceeds
based on a percentage of the value of the security. SST retains the right to
receive interest and principal payments on the security. At an agreed upon
future date, SST 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. SST 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

<PAGE>

reverse repurchase transactions as collateralized borrowings by SST. These
agreements, which are treated as if reestablished each day, are expected to
provide SST with a flexible borrowing tool.

As a closed-end investment company, SST may borrow from a bank or other
entity in a privately arranged transaction to the maximum extent permitted under
the 1940 Act. Loans would involve additional risk to SST, since the interest
expense may be greater than the income from or appreciation of the securities
carried by the borrowings and since the value of the securities carried may
decline below the amount borrowed.

SST WILL HAVE AUTHORITY TO ISSUE SENIOR SECURITIES. The 1940 Act requires
SST to maintain "asset coverage" of not less than 300% if a "class of senior
securities represents indebtedness," as those terms are defined and used in the
1940 Act. In addition, if SST issues a class of senior security that is stock,
SST may not declare any dividends (other than a dividend payable in common
stock). Neither can it make any cash distributions to its shareholders if, after
the distribution, the senior security would have less than 300% asset coverage.
SST has no present intention of issuing any class of senior security; however,
it may be in the best interests of the Fund to do so in the future.

Any investment gains made with the proceeds obtained from borrowings in
excess of interest will increase net income per share and net asset value per
share of SST's shares to be greater than would otherwise be the case. On the
other hand, if the investment performance fails to cover the cost of the
additional securities purchased (including any interest paid on the money
borrowed), net income per share and net asset value per share of the shares of
SST will be less than would otherwise be the case.

EXPENSE RATIOS

The Merger will create economies that will substantially reduce operating
costs of the four Funds, but SST will still have a high ratio of expenses to
average net assets relative to other funds because of its small size. The result
may be continuing operating losses.

UTILIZATION OF TAX LOSS CARRY FORWARDS

Although SST will be able to use its existing net operating loss and
capital loss carryforwards each year against income earned by SST, there can
be no assurance that sufficient income will be earned to utilize in their
entirety the loss carryforwards which are available, as the ability to use
certain loss carryforwards will expire on specific dates in the future. In
addition, the Merger is not a tax-deferred reorganization for federal income
tax purposes. As a result, the loss carryforwards of SAIF, SIF and STGF will
not be available to offset SST income after the Merger. Management estimates
that after the Merger, a maximum of $4,648,795 of net operating losses and a
maximum of $1,109,769 of capital loss carryovers will be available to be used
by SST based upon June 30,1996 financial statements. If the former holders of
SAF represent less than 50% of the total ownership interests of SST after the
Merger, the amount of the above losses which may be used by SST in any one
year will be limited to $258,396. In addition, other transactions subsequent
to the Merger could result in a change in the ownership of SST (combined with
the change resulting from the Merger) that causes the loss limitation rules
to apply. Whether any future events will cause imposition of a

<PAGE>

restriction in tax loss utilization for SST cannot be
predicted at this point. Based upon the past performance of the Funds, there is
little likelihood that SST will be able to utilize these tax benefits in full.

NON-QUALIFICATION OF MERGER FOR TAX DEFERRAL

Shareholders of SAIF, SIF, and STGF will have a fully taxable exchange when
they surrender their shares in exchange for SST shares. Their individual gain or
loss will be measured by the difference between the tax bases of their SAIF, SIF
and STGF shares they surrender and the fair market value of the SST shares they
receive. Each shareholder's computation of gain or loss will depend on his
specific circumstances regarding factors such as share basis, holding period,
and income, gain, loss or deductions in the year of the exchange which may be
wholly unrelated to the Merger. Although many SAIF, SIF and STGF shareholders
may recognize tax losses in the exchange, some shareholders may have net income
as a result of the exchange. In addition, if the exchange creates a recognized
capital loss for a shareholder, the shareholder may be subjected to restrictions
on use of that recognized capital loss. Shareholders are encouraged to consult
their own tax advisor regarding the individual tax consequences of the
transactions described in this Proxy Statement and Prospectus.

NON-QUALIFICATION AS A REGULATED INVESTMENT COMPANY FOR TAX PURPOSES

SST, the entity surviving the Merger, is not expected to qualify for special
Federal income tax rules applicable to electing qualified regulated investment
companies. While this factor permits SST to utilize certain loss carryforwards,
it will not be able to take advantage of certain potentially favorable tax rules
applicable to electing qualified regulated investment companies.

DIFFERENCE BETWEEN OPERATIONS OF SST AS AN
OPEN-END AND CLOSED-END INVESTMENT COMPANY

All of the Funds are currently registered as open-end investment companies
under the 1940 Act. Open-end investment companies issue redeemable securities.
The holders of these securities have the right to surrender, effectively at any
time, all, or any part of their shares in the open-end fund and obtain their
proportionate share of the value of the fund's net assets (sometimes referred to
as the "net asset value") less any redemption fee. This has been the way the
Funds have operated since their inception.

In contrast, a closed-end investment company neither redeems its outstanding
stock nor engages in the continuous sale of new securities; it operates with a
relatively fixed capitalization. Conversely, open-end investment companies are
obligated to calculate a daily net asset value and manage their portfolios to
provide sufficient liquidity for possible redemptions.

Some of the legal and practical differences between operation of SST as an
open-end and a closed-end investment company are as follows:

<PAGE>

AMENDMENT TO SST DECLARATION OF TRUST

Upon approval of the shareholders of SST to ratify and confirm the Amended
and Restated Trust Indenture of SST, among other things, Sections 8.3(a) and (b)
will be deleted. These sections currently provide as follows:

Section 8.3. Redemption of Shares. (a) Option of Shareholder. A
Shareholder may redeem all or any part of his Shares at net asset value as
defined in Section 2.8 less a withdrawal fee of $1.00 to be paid to the
Fund, including the proportionate brokerage, if any, necessary in order to
redeem such Shares. Payment shall be made within five days (the five days
to be five consecutive days during which the New York Stock Exchange shall
be open).

(b) Reserve for Contingent Liabilities. The Trustees are authorized in
their discretion to retain, at the time of such redemption, a sufficient
reserve for taxes and other contingent liabilities, provided that the
Trustees shall pay to the person entitled thereto the pro rata share of any
excess after determination and payment of such taxes and contingent
liabilities.

The foregoing provisions will be replaced with the following new
Sections 8.3.

Section 8.3. Redemption of Shares. Option of Shareholder. Upon the fifth
anniversary date of the Merger, as defined in Section 1.4, the Trustees
shall publish a notice in a national newspaper of general circulation
informing Shareholders of the right to redeem all or any part of their
Shares. For a period of thirty days commencing on the date of publication of
the notice, a Shareholder may redeem all or any part of his Shares at net
asset value as defined in Section 2.8, determined as of the close of
business on the thirtieth day following the publication of such notice, or
if such day is a Saturday, Sunday, or legal holiday, then such determination
will be made on the first business day immediately preceding such thirtieth
day.

ACQUISITION AND DISPOSITION OF SHARES

Currently, none of the four funds continuously offers its shares, which is
standard procedure for open-end funds. Closed-end funds do not continuously
offer their shares, and neither will SST. Shareholders thereby would lose the
possible benefit of an expanding pool of money from the sale of additional
shares, which SST as an open-end fund would have to invest. As a practical
matter, however, SST has no principal underwriter. It does not, and has not,
actively marketed its securities over the past several years, and infrequently
sold new shares. The Trustees of the Funds believe the very remote possibility
of selling shares of SST in the future is outweighed by the burden of costs.
These include the cost (a) to determine a daily net asset value and (b) to keep
Fund securities registered for sales in a continuous offering with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
and under "Blue Sky" or state securities laws in states which the Funds were
active in the past. In reality, the investment base of the Funds is generally
static, which is the hallmark of a true closed-end investment company.

<PAGE>

In an open-end fund, shareholders desiring to realize the value of their
shares are able to do so by exercising their right of redemption; that is, their
right to require the fund to repurchase their shares at current net asset value
(less such redemption fee as may be determined by the fund's Trustees). An open-
end fund's net asset value is calculated by dividing (i) the value of its
portfolio securities plus all cash and other assets (including accrued interest
and dividends received but not collected) less all liabilities (including all
accrued expenses) by (ii) the number of outstanding shares of such fund.

Shareholders of a closed-end fund have no such right of redemption. Unless
shares are admitted to trading on a securities exchange, or some other regular
trading market develops, shareholders may be unable to dispose of their shares
easily or at all. Even if a market should develop, the share price would be
affected by market forces. The shares of most closed-end funds trade at a
discount from net asset value.

SST has applied to be listed on the Chicago Stock Exchange, subject to the
shares being accepted for listing. In the event shares of SST are not so listed,
it is expected that shares of SST will be traded in the over-the-counter market;
however, there can be no assurance that a market will develop for shares of SST.
Management has been unable to locate a broker-dealer that will agree to make a
market in shares of SST. Shareholders wishing to sell shares in SST after
conversion may be able to sell in market transactions. Shares of SST are
expected to trade at a substantial discount from net asset value, however, the
extent of that discount cannot be predicted at this time. Shareholders of SST
will have the opportunity to redeem their shares at net asset value during a
thirty-day period commencing on the fifth anniversary date of the Merger.

VOTING RIGHTS

Currently, the shareholders of each Fund have equal voting rights with every
other shareholder of the same Fund. Upon consummation of the Merger, each
shareholder of SST will have equal voting rights with every other shareholder of
SST. However, the voting rights of shareholders of SST will be subject to
certain limitation provisions that may be deemed to have an anti-takeover
effect. See "Description of Capital Structure of the Funds and Shareholder
Rights." Not redeeming your shares prior to the Merger will result in the
anti-takeover provisions applying to all shareholders equally should the Merger
be consummated and the Amended and Restated Trust Indenture be approved by
shareholders of SST at the Meeting.

DETERMINATION OF NET ASSET VALUE

Currently, as open-end funds, each Fund determines its per share net asset
value on each business day. Upon consummation of the Merger and the conversion
of SST to a closed-end fund, SST would no longer need to compute daily net asset
value; this cost savings will benefit SST.

PORTFOLIO MANAGEMENT

As a closed-end investment company, SST would not be subject to pressures to
sell portfolio securities at disadvantageous times in order to meet redemptions.
There would be no need to

19
<PAGE>

maintain cash reserves, or cash equivalents, in order
to meet redemptions. As a closed-end fund, SST will be able to keep cash
reserves at a minimum, depending primarily on management's perception of market
conditions.

In the past, each Fund has kept a prudent portion of its portfolio in cash
or lower-yielding liquid assets to meet the potential demand for redemptions.
Upon consummation of the Merger and the conversion of SST to a closed-end
status, SST will be able to more effectively use portfolio funds that would
otherwise have been invested in cash or lower-yielding assets that could be
readily liquidated. Upon consummation of the Merger, SST will be able to invest
these funds with a longer-term view without having to be concerned about the
possibility of liquidating a position at an inopportune moment solely to meet
redemption requests thereby creating a higher return on investments for SST.

For the five fiscal years ended June 30, 1996, the annual portfolio turnover
rate for SST has ranged from 505% to 231%. Management of SST believes that the
expected portfolio turnover rate for SST after the Merger is likely to be in the
lower end of the range indicated above. This is because Management will
completely change the portfolio of the Funds upon completion of the Merger in
implementation of SST's new investment policy, which is to seek current income,
and secondarily to maximize the total return but only to the extent consistent
with its primary objective. Accordingly, SST's new portfolio of securities
following the merger is expected to consist of securities which offer higher
yields combined with price stability.

BLUE SKY RESTRICTIONS

As open-end fund, each Fund is required to register its shares of common
stock under applicable state securities, or "Blue Sky" laws. Upon consummation
of the Merger and the conversion of SST to a closed-end fund, SST will not be
required to keep such registrations current and will thereby benefit from a
reduction in costs and expenses.

SENIOR SECURITIES

The 1940 Act prohibits open-end funds from issuing "senior securities"
representing indebtedness (i.e., bonds, debentures, notes, and other similar
securities), other than indebtedness to banks where asset coverage is at
least 300% in relation to all borrowings. Closed-end investment companies, on
the other hand, are permitted to issue senior securities representing
indebtedness to any lender if the 300% asset coverage is met. In addition,
closed-end investment companies may issue preferred stock (subject to various
limitations), whereas open-end investment companies generally may not. This
ability to issue senior securities gives closed-end investment companies more
flexibility than open-end funds in "leveraging" their stockholders'
investments. See "Principal Risk Factors-Borrowing Policy-Issuance of
Securities." However, SST has no present intention of issuing any class of
senior security.

<PAGE>
APPROVAL OF THE MERGER

PROPOSAL NO. 1
(TO BE VOTED ON BY SHAREHOLDERS OF ALL FUNDS)

BACKGROUND

The Trustees of the Funds reviewed operations of each Fund with a view to
determining how best to reduce costs of operation, increase asset value and
enhance investment opportunities while preserving the investment objectives of
the Funds. The Trustees concluded that it has become increasingly difficult for
small funds to compete, especially because of operating costs which must be
incurred by each Fund. Among other things, the Trustees concluded that by
merging the Funds into a single fund, SST, significant economies of scale can be
achieved to reduce costs. In addition, by changing SST from an open-end
investment company to a closed-end investment company, greater financial
flexibility and investment latitude can be achieved as reserves of cash and
lower-yielding liquid securities would no longer be maintained to meet
redemptions.

Accordingly, the Trustees unanimously recommend that shareholders approve
the Merger as set forth in the Merger Agreement. This Agreement provides, among
other things, that the shareholders of each of the Funds must approve the
Merger. If the Merger is not approved, the Trustees will take such further
action as they, in their discretion, deem necessary or advisable.

THE MERGER

The following summary of the Merger Agreement is qualified in its entirety
by reference to the Merger Agreement, a copy of which is set forth in full as
Exhibit A to this Proxy Statement and Prospectus. The Merger Agreement
contemplates a reorganization whereby SIF, SAIF and STGF (the "Merging Funds")
will merge into SST, and SST will survive the Merger.

Shareholders of the Merging Funds will receive shares of SST determined by
dividing the net asset value of each of the Merging Fund's shares by the net
asset value of SST's shares as of the Valuation Date, which is defined in the
Merger Agreement as the business day preceding the Closing Date. In addition, on
the Valuation Date, SST will effect a reverse split so that each ten issued and
outstanding shares of SST will become one share.

The Merger will be effective ten days after all shareholder and regulatory
approvals have been received by the Funds. The Amended and Restated Trust
Indenture of SST will be the Trust Indenture of the Surviving Fund, and the
Trustees of SST will be the Trustees of the Surviving Fund.

The consummation of the Merger is subject to conditions set forth in the
Merger Agreement. Without limitation, it includes approval of the Merger by
shareholders of the Merging Funds and of SST, and ratification by shareholders
of SST of the Restated and Amended Trust Indenture of SST, which provides for
the change of SST from an open-end fund to a closed-end fund.

Notwithstanding approvals of shareholders of the Funds, the Merger may be
terminated at any time prior to the Closing: (a) by the mutual written consent
of all of the Funds, or (b) by either SST

<PAGE>

or the Merging Funds if (i) the other party fails to perform in any material
respect its agreements in the Merger Agreement required to be performed on or
prior to the Closing Date, (ii) SST or the Merging Funds, respectively,
materially breaches or shall have breached any of its representations,
warranties or covenants contained herein, or (iii) any other condition
precedent to the obligations of the terminating party has not been met and it
reasonably appears that it will not or cannot be met.

Termination of the Merger Agreement will end all obligations of the parties
thereto without liability except that any party in breach of the Merger
Agreement, upon demand, will reimburse the other party for all reasonable
out-of-pocket fees and expenses incurred in connection with the transactions
contemplated by the Merger Agreement, including legal, accounting and filing
fees.

Approval of the Merger will require the vote specified below in "Information
Concerning the Meetings--Record Date; Vote Required; Share Information." If the
Merger is not approved by the shareholders of the Funds, the Trustees of the
Funds will consider other possible courses of action.

TRUSTEE APPROVAL OF THE MERGER

At meetings held on May 2, 1997, the Trustees of SAIF, SAF, SIF and STGF,
including the Independent Trustees, unanimously approved the Merger and the
Merger Agreement, determined that the Merger is in the best interests of each of
the Funds and their shareholders, and resolved to recommend that shareholders
vote for approval of the Merger. The Trustees of SAF further resolved to change
the Fund's name to Steadman Security Trust upon the Merger, to change SST from
an open-end investment company to a closed-end investment company, to change
SST's fundamental investment policy from capital growth to current income, and
to recommend the latter changes to the shareholders of SST for their approval.
The Trustees further determined that the Merger would not result in dilution of
any shareholders' interest in any Fund.

In evaluating the Merger, the Trustees requested and reviewed materials
which included financial statements as well as other written information
regarding each of the Funds and their personnel, operations, and financial
condition. The Trustees also considered information with respect to the relative
historical performance of the Funds. In addition, the Trustees reviewed and
discussed the terms and provisions of the investment advisory agreements
pursuant to which SSC provides investment management services to the Funds. The
Trustees also reviewed the differences between open-end investment companies and
closed-end companies.

In making their determination to approve the Merger, the Trustees of the
Funds gave careful consideration to the following factors: the investment
objective of each of the Funds; the cost savings to each of the Funds; the
ability to use the resources of the Funds more effectively; the change from an
open-end investment company to a closed-end investment company; the potential
for increasing shareholder value; the potential for increasing the return on
investments; the terms and conditions of the Merger Agreement; and the fact that
the Merger will not qualify as a tax-deferred reorganization under the Code.
Also, the Merger would afford the shareholders of SST the continued capabilities
and resources of SSC in investment management and shareholder servicing. The
Trustees also considered the ability of shareholders of SST to purchase and sell
their shares on an established stock exchange or in the over-the-counter market.
Finally, all expenses of the

<PAGE>

Merger and the conversion of SST to a closed-end fund will be shared
proportionately by the Funds.

A. Potential Lower Operating Costs. Operating costs of SST as a
closed-end fund on a post-merger basis will be substantially reduced from the
aggregate cost of operating the four funds separately. The Merger will enable
SST to use its assets more effectively to increase shareholder value. Because
of the Merger and the resulting reduction in the number of shareholders'
accounts, Fund accounting fees, stock transfer costs, and other shareholder
service expenses will be significantly reduced. By converting to a closed-end
fund, daily determination of net asset values will be eliminated, as well as
the need for annual state securities registration. Based upon management's
analysis of the Funds, the Trustees believe that the aggregate annual
operating expenses of the four Funds, which amounted to approximately
$1,322,000 for the year ended June 30, 1997, would be reduced to $684,000 if
the Merger had taken place June 30, 1997. These savings will be achieved
principally in the following areas: shareholder servicing fees, professional
fees, expenses related to reports to shareholders, computer services and data
processing expenses, and custodian fees. Reduced expenses will, however, not
necessarily result in profitable operations for SST. See "Comparative Fee
Tables--Expenses of the Funds; Pro Forma Expenses." Furthermore, due to the
size of SST after the Merger, and the anticipated portfolio income, SST may
continue to suffer operating losses and will need to rely upon capital
appreciation of its portfolio securities to be profitable. There is no
assurance that the portfolio securities will have capital appreciation in a
sufficient amount to offset any operating losses, if the portfolio securities
have any capital appreciation at all.

B. Closed-End Investment Company. The newly merged fund, SST, will operate
as a closed-end investment company. Shares will be traded either on the Chicago
Stock Exchange, if accepted for listing, or in the over-the-counter market;
however, there can be no assurance that a market will develop for SST shares.
Management has been unable to locate a broker-dealer that will agree to make a
market in SST shares. This new status will eliminate the need for each of the
Funds to maintain reserves of cash and lower-yielding liquid assets to fund the
repurchase of shares as this right of redemption will no longer exist following
the Merger. Accordingly, greater resources will be available for long-term
investment consistent with the Fund's objectives and management's perception of
market conditions. SST will be able to invest with a longer term view without
being concerned about the possibility of liquidating at an inopportune time
solely to meet redemption requests thereby creating a higher return on
investments for SST. The shareholders will be able to purchase and sell their
shares in market transactions provided that a market develops and may incur a
brokerage cost on the sale of shares. However, shareholders will have the
opportunity to request redemption of their shares at net asset value during a
thirty-day period commencing on the fifth anniversary date of the Merger. Future
net asset value will likely differ from the net asset value shareholders would
receive if they redeemed shares prior to the Merger. As a closed-end investment
company, SST will have greater flexibility in utilizing its portfolio assets.
This versatility includes the ability to issue senior securities as permitted by
the 1940 Act, which will permit greater leveraging of the Fund's assets. There
is no assurance, however, that the use of such techniques will result in
increased performance by SST and as of the date hereof, SST has no intention of
issuing senior securities.

<PAGE>

C. Investment Policy. Three of the Funds have as their stated investment
policy the same objective: "capital appreciation." The fourth Fund, SIF, has the
investment objective of current income. The net assets of the four constituent
funds, as of June 30, 1997, ranged from approximately $345,000 (STGF) to
$972,000 (SAIF) to $1,646,000 (SIF) and $4,408,000 (SAF). By combining these
resources in a single fund and changing SST's primary investment objective from
capital appreciation to current income, the Trustees believe that the
shareholders will benefit from the greater resources available to enable a wider
range of investment and greater flexibility in managing this portfolio.

D. Federal Tax Aspects. The reverse stock split of SST will constitute a
recapitalization of SST, but the Merger will not qualify as a tax-deferred
reorganization for federal income tax purposes. SST and its shareholders will
not recognize gain or loss as a result of the exchange of SST shares for SST
shares in the reverse stock split. The Merger transaction will be treated for
federal income tax purposes as if SAIF, SIF and STGF had transferred all of
their assets to SST in a taxable transaction, had recognized all of the
built-in gains and losses on those assets, and had distributed SST shares to
their respective shareholders in liquidation. The Trustees believe that the
capital loss and net operating loss carryovers of SAIF, SIF and STGF will be
sufficient to offset any net gain of those entities recognized in the Merger.
The loss carryforwards of SAIF, SIF and STGF not utilized in the Merger will
expire, but SST, as the surviving single entity, will be able to utilize its
separate tax loss carryforwards after the Merger. Based upon the past
performance of the Funds, there is little likelihood that SST will be able to
utilize these tax benefits. SST and its shareholders will not recognize any
gain or loss as a result of the deemed asset sale and liquidation. The
shareholders of SAIF, SIF and STGF will be deemed to have exchanged their
SAIF, SIF and STGF shares for SST shares in a taxable transaction. Such
shareholders will recognize gain or loss equal to the difference between
their individual tax bases for the SAIF, SIF and STGF shares surrendered and
the fair market value of the SST shares received. Such gain or loss will be
capital for shareholders who hold their SAIF, SIF or STGF shares as capital
assets and will be long term or short term gain or loss depending upon their
individual holding periods for the shares surrendered. For many SAIF, SIF and
STGF shareholders, the result may be a tax loss rather than tax gain, but
each shareholder's gain or loss calculation must be performed individually
and shareholders are encouraged to consult their own tax advisor.

Based upon the foregoing considerations, the Trustees of each of the Funds,
including the Independent Trustees, unanimously approved the Merger and the
change of SST from an open-end investment company to a closed-end investment
company. They determined that the Merger is in the best interests of each of the
Funds and their shareholders. The Trustees further determined that the Merger
would not result in dilution of any shareholders' interest, and that by the
Merger, an increase in the asset base of SST should benefit the shareholders
because of the economies of scale available to a larger fund.

TAX ASPECTS OF THE MERGER

The following discussion summarizes certain of the material federal income
tax consequences of the Merger. It is intended to provide only a general summary
and does not include a complete

<PAGE>

analysis of all potential federal income tax consequences or consequences
that are contingent upon individual circumstances, such as the taxpayer being
subject to certain special provisions of the Internal Revenue Code of 1986,
as amended (the "Code"). This discussion does not address any aspects of
state, local, or foreign tax laws or any federal tax laws other than those
pertaining to income tax.

None of the Funds has requested a ruling from the Internal Revenue Service
(the "Service") with respect to any of the matters discussed in this summary. It
is unlikely that the Service would be willing to issue a ruling regarding the
Merger. However, the Funds have received an opinion letter from Manatt, Phelps &
Phillips, LLP, as "Tax Counsel" regarding certain material federal income tax
consequences of the Merger. This summary, however, is not an opinion of Tax
Counsel or tax advice and does not in any way constitute an assurance that the
federal income tax consequences discussed herein will be accepted by the Service
or the courts.

The opinion of Tax Counsel provides that the reverse stock split of SST will
constitute a recapitalization of SST, but the Merger will not qualify as a
tax-deferred reorganization for federal income tax purposes. SST and its
shareholders will not recognize gain or loss as a result of the exchange of SST
shares for SST shares in the reverse stock split. The Merger transaction will be
treated for federal income tax purposes as if SAIF, SIF and STGF had transferred
all of their assets to SST in a taxable transaction, had recognized all of the
built-in gains and losses on those assets, and had distributed SST shares to
their respective shareholders in liquidation. Capital loss and net operating
loss carryovers of SAIF, SIF and STGF may be utilized to offset any net gain of
those entities recognized in the Merger. SST and its shareholders will not
recognize any gain or loss as a result of the deemed asset sale and liquidation.
The shareholders of SAIF, SIF and STGF will be deemed to have exchanged their
SAIF, SIF and STGF shares for SST shares in a taxable transaction. Such
shareholders will recognize gain or loss equal to the difference between their
individual tax bases for the SAIF, SIF and STGF shares surrendered and the fair
market value of the SST shares received. Such gain or loss will be capital for
shareholders who hold their SAIF, SIF or STGF shares as capital assets and will
be long term or short term gain or loss depending upon their individual holding
periods for the shares surrendered. The loss carryforwards of SST will survive
the Merger for use in the post-Merger period, but the loss carryforwards of
SAIF, SIF and STGF will not. If the former holders of SAF represent less than
50% of the total ownership interests of SST after the Merger, the amount of the
above losses that may be used by SST in any one year will be limited. In
addition, other transactions subsequent to the Merger could result in a change
in ownership of SST (combined with the change resulting from the Merger) that
causes the loss limitation rules to apply. Whether any future events will cause
imposition of a restriction in tax loss utilization for SST cannot be predicted
at this point. Based on certain representations to Tax Counsel, the Merger
itself will not constitute an "ownership change" for SST within the meaning of
Section 382 of the Code.

The foregoing discussion of the expected federal income tax consequences of
the Merger and the opinion of Tax Counsel are based on current authorities. The
opinion of Tax Counsel has no binding effect or official status, and no
assurance can be given that the conclusions reached in the opinion would be
sustained by a court if contested by the Service. There is no assurance that
legislative or administrative changes or court decisions may not be forthcoming
that would significantly change these expected consequences. Any such changes
may or may not be retroactive

<PAGE>

with respect to transactions prior to the date of those changes. The opinion
of Tax Counsel is also based on certain factual assumptions and factual
representations to Tax Counsel by the Funds. The opinion of Tax Counsel could
change if such assumptions and representations proved to be inaccurate.

THE SUMMARY FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY. IT DOES NOT CONSTITUTE TAX ADVICE OR AN OPINION OF TAX
COUNSEL. EACH SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE
SPECIFIC TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT AND THE MERGER APPLICABLE
TO HIM OR HER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND
OTHER TAX LAWS.

CAPITALIZATION TABLE (UNAUDITED)

The table below sets forth the capitalization of the Funds and indicates the
pro forma combined capitalization of SST as of June 30, 1997 as if the Merger
had occurred on that date, the reverse split of ten for one had taken place, and
all shares held by the Shareholder States had been redeemed.

<TABLE>
<CAPTION>
SHARES SHARES
OUTSTANDING OUTSTANDING NET ASSET NET BOOK
BEFORE AFTER VALUE VALUE
NET ASSETS MERGER MERGER PER SHARE AFTER MERGER
---------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
SAIF............................................ $ 972,201 1,346,814 99,814 $ 0.72 --
SAF............................................. 4,408,088 5,768,038 515,935 0.76 --
SIF............................................. 1,646,009 1,928,493 181,370 0.85 --
STGF............................................ 344,784 510,385 37,776 0.68 --
SST Pro Forma................................... 6,280,514 -- 834,895 7.52 $ 7.52
</TABLE>

COMPARATIVE FEE TABLES

TRANSACTION CHARGES

Because each Fund is a no-load fund, shareholders are not required to pay
any sales charges or other fees in connection with the purchase of shares in any
of the Funds. Moreover, because there is no current Prospectus available for
SAIF, SIF or STGF, shares in these funds have not been offered or sold to the
public since May, 1988. Shares of SAF were available for purchase under a
Prospectus dated January 1, 1996 through October 31, 1996. It is expected that
shares of SST will be traded on the Chicago Stock Exchange, if SST's shares are
accepted for listing, or in the over-the-counter market; however, there can be
no assurance that a market will develop for shares of SST. Management has been
unable to locate a broker-dealer that will agree to make a market in SST shares.
If shares of SST are trade, shares may be purchased or sold in normal brokerage

<PAGE>

transactions with appropriate brokerage and other fees charged in connection
with such transactions.

EXPENSES OF THE FUNDS; PRO FORMA PROJECTED OPERATING EXPENSES

The Funds each pay a variety of expenses directly for management of their
assets, administration, distribution of their shares and other services; and
those expenses are reflected in the net asset value per share of each Fund.
The following calculations are based on the expenses of each Fund for the 12
months ended June 30, 1997. These amounts are shown as a percentage of the
average net assets of each Fund for such periods.

Pro Forma Fee Table for Shareholders
of SAIF, SAF, SIF and STGF
as of June 30, 1997 (Unaudited)

<TABLE>
<CAPTION>
PRO
FORMA
FOR
SAIF SAF SIF STGF SST
---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses................... -0- -0- -0- -0- -0-
Investment Advisory Fees........................... 1.00% 1.00% 1.00% 1.00% 1.00%
Custodian Fees..................................... 0.19% 0.14% 0.12% 0.32% 0.06%
Miscellaneous...................................... 30.25% 11.04% 14.69% 40.52% 14.83%
Annual Fund Operating Expenses (as a percentage of
average net assets at June 30, 1997) (1)......... 31.44% 12.18% 15.81% 41.84% 15.89%
Merger Expenses.................................... $ 38,605 $ 60,668 $ 14,075 $ 179,211 $ 392,559
---------- ---------- ---------- ---------- ------------
---------- ---------- ---------- ---------- ------------
Total Annual Operating Expenses (1)................ $ 329,294 $ 549,338 $ 268,716 $ 174,729 $ 1,076,794
---------- ---------- ---------- ---------- ------------
---------- ---------- ---------- ---------- ------------
</TABLE>

- ------------------------

(1) Including expenses relating to the Merger.

Based on management's analysis, the Trustees believe that the principal
aggregate operating expenses of the four Funds, which totaled approximately
$1,322,000 for the year ended June 30, 1997, would have been reduced by $684,235
to about $637,765 if the Merger had taken place on that date (excluding expenses
related to the Merger). The pro forma statement of SST is based on the following
assumptions: (1) assets of SST post-Merger are $6.3 million due to (a)
Shareholder States, which currently hold approximately $1.0 million of shares,
redeeming all shares then held and (b) the payment of cash in lieu of fractional
shares as a result of the 10 for 1 reverse stock split and no other shareholders
receiving cash in lieu of fractional shares resulting in a total reduction in
assets of SST of $40,000; (2) no other shareholders redeem their shares prior to
the Merger; (3) SSC has agreed to reduce shareholder servicing fees, which
include record management and transfer services, from $16.20 per account to
$10.00 per account, annually, or from an aggregate pre-Merger total of $302,006
to a post-Merger total of $186,423, resulting in annual savings of $115,583; (5)
salaries and employment benefits will be reduced from an aggregate pre-Merger
total of $338,099 to a post-Merger total of $275,000,

<PAGE>

resulting in savings of $63,099 because fewer employees will be needed after
the Merger; (6) professional fees (not including professional fees incurred
as a result of the Merger) were reduced from an aggregate pre-Merger total of
$114,715 to a post-Merger total of $30,000 based upon anticipated needs for
accounting, legal, and other professional services, resulting in savings of
$84,715; (7) the expense of preparing, printing, and mailing reports to
shareholders (including annual reports and semi-annual reports) will be
reduced from a pre-Merger total of $33,167 to a post-Merger total $8,000,
resulting in savings of $25,167 due to the reduction in the number of
shareholder accounts; (7) the expense for computer services, including
outside data processing services, will be reduced from an aggregate
pre-Merger total of $44,630 to a post-Merger total of $16,000 resulting in a
savings of $28,630 due to the decrease in the number of shareholder accounts
and the absence of a need to calculate net asset value on a daily basis; (8)
rental expense, which is reimbursed to SSC, will be reduced from an aggregate
pre-Merger total of $53,039 to a post-Merger total of $25,000, resulting in a
savings of $28,039 due to SSC agreeing to seek less reimbursement from SST
for rent expense; (9) trustees' fees and expenses will be reduced from an
aggregate pre-Merger total of $22,276 to a post-Merger total of $15,000
resulting in savings of $7,276 due to the fact that there will be one fund
instead of four paying trustees' fees; and (10) custodian's fees, which are
based both on the size of the fund and the number of transactions engaged in
by the fund, will be reduced from an aggregate pre-Merger total of $11,774 to
a post-Merger total of $4,000, resulting in savings of $7,774, due to an
agreement with the custodian to reduce the percentage the custodian will
charge based on the size of the SST after the Merger and the reduction in the
size of SST after the Merger due to the redemption by the Shareholder States
and the payment of cash in lieu of fractional shares following the 10 for 1
reverse stock split. In addition, an additional expense of $15,000 was added
as the estimated cost for listing SST's shares on the Chicago Stock Exchange,
subject to compliance with the listing requirements. Accordingly, the
foregoing $345,283 of adjustments to total annual operating expenses, which
do not include additional expenses related to the Merger, contributed to the
pro forma result for the combined entity as of June 30, 1997.

There can be no assurance that reductions in expenses outlined above will be
fully realized or will result in profitable operations for SST. Furthermore, due
to the size of SST after the Merger and the portfolio income anticipated to be
generated by SST after the Merger, it is anticipated that SST will have to rely
upon capital appreciation of its portfolio securities to be profitable. There is
no assurance that the portfolio securities will have capital appreciation in a
sufficient amount to offset any operating losses, if the portfolio securities
have any capital appreciation at all.

<PAGE>
EXAMPLE

To attempt to show the effect of these expenses on an investment over time,
the example shown below has been created. Assume that you make a $1,000
investment in any of the Funds or in the new merged fund and that the annual
return on Fund investments is 5% and that the operating expenses for each Fund
are the ones shown in the chart above for the 12 months ended June 30, 1997. If
you were to continue to hold your shares at the end of each period shown below,
your investment would incur the following expenses by the end of each period
shown:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SAIF......................................................................... $ 273 $ 621 $ 810 $ 984
SAF.......................................................................... 117 386 524 888
SIF.......................................................................... 150 402 603 943
STGF......................................................................... 341 693 833 917
Pro Forma SST................................................................ 141 383 579 925
</TABLE>

PRO FORMA FINANCIAL INFORMATION

The following unaudited pro forma financial statements give effect to the
Merger in a transaction which will be accounted for as a pooling of interests.
The unaudited pro forma statement of assets and liabilities and the pro forma
portfolio of investments are based on the individual balance sheets and
portfolios of investments of SAIF, SIF, STGF and SST (formerly SAF) appearing
elsewhere in this Registration Statement and has been prepared to reflect the
Merger as of June 30, 1997. The unaudited pro forma statements of operations and
statements of changes in net assets is based on the individual statements of
operations and statements of net assets of SAIF, SIF, STGF and SST, appearing
elsewhere in this Registration Statement, and combines the results of operations
and changes in net assets of SAIF, SIF, STGF and SST for the for the years ended
June 30, 1997 and 1996, as if the Merger had occurred at the beginning of each
respective period. The unaudited pro forma financial statements for 1996 should
be read in conjunction with the historical financial statements and notes
thereto of SAIF, SIF, STGF and SST included elsewhere in this Registration
Statement. The pro forma combined financial data is intended for informational
purposes only and is not necessarily indicative of the financial position,
portfolio of investments, or future results of operations and changes in net
assets of the combined entity or of the financial position or the results of
operations and changes in net assets of the combined entity that would have
actually occurred had the Merger been in effect as of the date or for the
periods presented.

29
<PAGE>
SURVIVING ENTITY
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997
(UNAUDITED)

<TABLE>
<CAPTION>
PRO FORMA
SAIF SIF STGF SAF ADJUSTMENTS COMBINED
----------- ----------- ----------- ----------- ---------------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in
securities, at
value--(cost:
$5,175,513)..... $ 955,375 $ 1,554,164 $ 343,375 $ 4,255,244 $ (548,100)(3j) $6,560,058
Cash and cash
equivalents..... 71,008 140,023 36,627 236,975 (40,000)(2) 42,163
548,100(3j)
(950,569)(3k)
Interest and
dividends
receivable...... 769 788 146 560 2,263
----------- ----------- ----------- ----------- ---------------- ----------
Total
assets...... $ 1,027,151 $ 1,694,974 $ 380,148 $ 4,492,779 $ (990,569) $6,280,514
----------- ----------- ----------- ----------- ---------------- ----------
LIABILITIES
Accounts payable
and accrued
expenses........ $ 54,950 $ 48,965 $ 35,364 $ 84,691 $ 100,000(3m) $ 323,970
Investment
advisory and
service fee
payable......... -- -- -- -- --
Other payable to
affiliate....... -- -- -- -- --
----------- ----------- ----------- ----------- ---------------- ----------
Total
liabilities... $ 54,950 $ 48,965 $ 35,364 $ 84,691 100,000 $ 323,970
----------- ----------- ----------- ----------- ---------------- ----------
NET ASSETS.......... $ 972,201 $ 1,646,009 $ 344,784 $ 4,408,088 $ (1,090,569) $6,280,514
----------- ----------- ----------- ----------- ---------------- ----------
----------- ----------- ----------- ----------- ---------------- ----------
NET ASSETS
Net assets consist
of:
Accumulated net
investment
loss............ $(4,224,215) $(1,930,939) $(2,836,044) $(5,168,868) $ 14,160,066(3l) --
(100,000)(3m)
Unrealized
appreciation of
investments..... 319,814 362,642 87,362 1,161,577 (1,931,395)(3l) --
Accumulated net
realized
losses.......... (951,213) (574,661) (390,993) (821,035) 2,737,901(3l) --
Capital paid in
less
distributions
since
inception....... 5,827,815 3,788,967 3,484,458 9,236,413 ($40,000)(2) --
(950,569)(3k)
(21,347,084)(3j)
Capital
stock--$0.001
par value; total
authorized
shares-unlimited;
834,895 shares
issued and
outstanding..... -- -- -- -- 6,280,514(3l) 6,280,514
----------- ----------- ----------- ----------- ---------------- ----------
Net assets.... $ 972,201 $ 1,646,009 $ 344,784 $ 4,408,088 $ (1,090,569) $6,280,514
----------- ----------- ----------- ----------- ---------------- ----------
----------- ----------- ----------- ----------- ---------------- ----------
NET ASSET VALUE PER
SHARE............. $ 0.72 $ 0.85 $ 0.68 $ 0.76 $ 7.52
----------- ----------- ----------- ----------- ----------
----------- ----------- ----------- ----------- ----------
SHARES
OUTSTANDING....... 1,346,814 1,928,493 510,386 5,768,038 (4,933,143)(2) 834,895
----------- ----------- ----------- ----------- ---------------- ----------
----------- ----------- ----------- ----------- ---------------- ----------
</TABLE>

See Notes To Pro Forma Financial Statements

30
<PAGE>

SURVIVING ENTITY
PRO FORMA PORTFOLIO OF INVESTMENTS
JUNE 30, 1997
(UNAUDITED)

<TABLE>
<CAPTION>
COMBINED TOTAL ADJUSTMENTS PRO FORMA COMBINED
------------------- ------------------------------ -------------------
<S> <C> <C> <C> <C> <C> <C>
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------- ---------- ---------- ------------- ------- ----------
COMMON STOCK--99.91%
Computer Communications
Equip.--4.25%
Cisco Systems (a)........... 4,500 $ 302,063 4,500 $ 302,063
Computer and Office
Equipment--4.02%
Champion Technology Holding
Ltd. (a).................. 100,000 62,000 100,000 62,000
Hewlett Packard............. 4,000 224,000 4,000 224,000
Electronic Computers--11.50%
Gateway 2000 (a)............ 8,000 259,500 8,000 259,500
Sun Microsystems (a)........ 15,000 558,270 15,000 558,270
Computer Storage
Devices--20.61%
Microsoft Corporation (a)... 9,000 1,137,375 9,000 1,137,375
Oracle Corporation (a)...... 6,500 327,438 6,500 327,438
Aircraft--4.85%
Boeing Corporation.......... 6,500 344,906 6,500 344,906
Motor Vehicles and Car
Bodies--9.62%
Ford Motors................. 10,000 377,500 10,000 377,500
General Motors Class "H'.... 5,300 306,075 5,300 306,075
Real Estate Investment
Trusts--0.87%
Capstead Mortgage........... 2,500 61,719 2,500 61,719
Semi-Conductor and Related
Devices--23.37%
Intel Corp. Warrants (a).... 14,000 1,421,000 (5,400)(3j) $ (548,100)(3j) 8,600 872,900
LSI Logic (a)............... 7,500 240,000 7,500 240,000
Telephone
Communications--17.23%
Lucent Technology........... 7,000 504,438 7,000 504,438
Worldcom Inc. (a)........... 22,500 720,000 22,500 720,000
Telephone and Telegraph
Apparatus--3.59%
Xylan Corporation (a)....... 15,000 255,000 15,000 255,000
------- ---------- ------- ------------ -------- ---------
Total Common Stocks
(Cost $5,112,487)...... 237,300 7,101,284 (5,400) (548,100) 231,900 6,553,184
------- ---------- ------- ------------ -------- ---------
CALL OPTIONS
PURCHASED--0.09%
LSI Logic, 4/11/97............ 2,500 4,688 2,500 4,688
Seagate Technology, 2/11/97... 5,000 2,186 5,000 2,186
------- ---------- ------- ------------ -------- ---------
Total Call Options
Purchased (Cost
$63,025)............... 7,500 6,874 7,500 6,874
------- ---------- ------- ------------ -------- ---------
Total Portfolio of Investments
(Cost $5,175,512)........... 244,800 $7,108,158 (5,400) $ (548,100) 239,400 $6,560,058
------- ---------- ---------- ------------- ------- ----------
------- ---------- ---------- ------------- ------- ----------
</TABLE>

(a) Non-income producing security.

See Notes To Pro Forma Financial Statements

31
<PAGE>

SURVIVING ENTITY
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
JUNE 30, 1997
(UNAUDITED)

<TABLE>
<CAPTION>
PRO FORMA
SAIF SIF STGF SAF ADJUSTMENTS COMBINED
---------- ----------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends............................ $ 20,974 $ 5,670 $ 5,957 $ 12,759 $ 45,360
Interest............................. 3,117 7,447 2,826 14,647 28,036
---------- ----------- ----------- ---------- ----------- ------------
TOTAL INCOME....................... $ 24,090 $ 13,117 $ 8,783 $ 27,405 -- $ 73,396
---------- ----------- ----------- ---------- ----------- ------------
EXPENSES
Shareholder servicing fee............ $ 149,345 $ 47,647 $ 68,155 $ 36,859 $(115,583)(3a) $ 186,423
Salaries and employee benefits....... 53,181 76,653 30,124 178,141 (63,099)(3b) 275,000
Professional fees.................... 38,211 26,956 29,169 20,379 (84,715)(3c) 30,000
Reports to shareholders.............. 11,909 6,169 8,271 6,818 (25,167)(3d) 8,000
Computer services.................... 8,322 8,662 7,882 19,764 (28,630)(3e) 16,000
Investment advisory fee.............. 10,521 17,117 4,109 45,410 77,157
Rent................................. 7,244 11,734 2,804 31,257 (28,039)(3f) 25,000
Trustees' fees and expenses.......... 5,944 5,744 5,744 4,844 (7,276)(3g) 15,000
Custodian fees....................... 1,966 2,050 1,322 6,447 (7,774)(3h) 4,000
Exchange fees........................ -- -- -- -- 15,000 (3i) 15,000
Merger expenses...................... 38,605 60,668 14,075 179,211 100,000 (3m) 392,559
Miscellaneous........................ 4,057 5,316 3,074 20,208 32,655
---------- ----------- ----------- ---------- ----------- ------------
TOTAL EXPENSES..................... $ 329,294 $ 268,716 $ 174,729 $ 549,338 $(245,283) $ 1,076,794
---------- ----------- ----------- ---------- ----------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized (loss) gain from
investment transactions............ $ 8,916 $ (185,331) $ (54,880) $ 306,022 $ 74,728
Change in unrealized
appreciation/(depreciation) of
investment......................... 300,735 418,152 38,748 683,263 1,400,000
---------- ----------- ----------- ---------- ----------- ------------
NET GAIN ON INVESTMENTS............ 309,651 232,821 (16,132) 949,285 -- 1,475,000
---------- ----------- ----------- ---------- ----------- ------------
Net increase (decrease) in net assets
resulting from operations.......... $ 4,447 $ (22,778) $ (182,078) $ 427,352 $ 245,283 $ 472,228
---------- ----------- ----------- ---------- ----------- ------------
---------- ----------- ----------- ---------- ----------- ------------
</TABLE>

See Notes To Pro Forma Financial Statements

32
<PAGE>

SURVIVING ENTITY
PRO FORMA STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
JUNE 30, 1997
(UNAUDITED)

<TABLE>
<CAPTION>
PRO FORMA
SAIF SIF STGF SAF ADJUSTMENTS COMBINED
----------- ------------ ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
from operations
Net investment loss.............. $ (305,204) $ (255,599) $ (165,946) $ (521,933) $ 245,283(3) $ (1,003,398)
Net realized gain (loss) from
investment transactions........ 8,916 (185,331) (54,880) 306,022 74,728
Change in unrealized
(depreciation) appreciation.... 300,735 418,152 38,748 643,263 1,400,898
----------- ------------ ----------- ------------ ----------- -------------
Net increase (decrease) in net
assets resulting from
operations..................... 4,447 (22,778) (182,078) 427,352 245,283 472,228
Decrease in net assets from trust
share transactions............... (40,054) (94,680) (15,546) (600,756) (990,569)(2)(3k) (1,741,605)
----------- ------------ ----------- ------------ ----------- -------------
Net decrease in net assets......... (35,607) (117,458) (197,624) (173,404) (745,286) (1,269,377)
Net assets of beginning of
period........................... 1,007,808 1,763,467 542,407 4,581,491 7,895,173
----------- ------------ ----------- ------------ ----------- -------------
Net assets at end of period........ $ 972,201 $ 1,646,009 $ 344,784 $ 4,408,088 $(745,286) $ 6,625,798
----------- ------------ ----------- ------------ ----------- -------------
----------- ------------ ----------- ------------ ----------- -------------

</TABLE>

See Notes To Pro Forma Financial Statements

<PAGE>

SURVIVING ENTITY
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
JUNE 30, 1996
(UNAUDITED)

<TABLE>
<CAPTION>
PRO FORMA
SAIF SIF STGF SAF ADJUSTMENTS COMBINED
----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends........................... $ 1,270 $ 1,530 $ 855 $ 23,904 $ 27,559
Interest............................ 4,979 112,558 1,979 10,242 129,758
----------- ----------- ----------- ----------- ----------- ----------
TOTAL INCOME...................... $ 6,249 $ 114,088 $ 2,834 $ 34,146 $ 157,317
----------- ----------- ----------- ----------- ----------- ----------
EXPENSES
Shareholder servicing fee........... $ 160,315 $ 50,666 $ 72,446 $ 41,214 $(124,245)(4a) $ 200,396
Salaries and employee benefits...... 55,920 84,139 37,679 184,729 (87,467)(4b) 275,000
Professional fees................... 26,297 30,275 27,222 56,679 (110,473)(4c) 30,000
Reports to shareholders............. 10,841 5,149 7,472 6,383 (21,845)(4d) 8,000
Computer services................... 6,589 7,943 7,225 8,713 (14,470)(4e) 16,000
Investment advisory fee............. 12,209 21,259 6,870 51,706 92,044
Rent................................ 7,548 13,163 4,260 32,281 (32,252)(4f) 25,000
Trustees' fees and expenses......... 6,998 3,528 3,528 5,328 (4,382)(4g) 15,000
Custodian fees...................... 3,225 400 1,838 11,186 (12,649)(4h) 4,000
Exchange fees....................... 7,000 (4i) 7,000
Merger expenses..................... 392,559 392,559
Miscellaneous....................... 10,512 8,671 7,156 24,289 50,628
----------- ----------- ----------- ----------- ----------- ----------
TOTAL EXPENSES.................... $ 300,454 $ 225,193 $ 175,696 $ 422,508 $ (8,224) $1,115,627
----------- ----------- ----------- ----------- ----------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) from
investment transactions........... $ 73,821 $ 47,825 $ (129,743) $ 517,110 $ 509,013
Change in unrealized (depreciation)
appreciation of investment........ (10,496) (271,135) 84,018 (352,459) (550,072)
----------- ----------- ----------- ----------- ----------- ------------
NET GAIN (LOSS) ON INVESTMENTS.... 63,325 (223,310) (45,725) 164,651 -- (41,059)
----------- ----------- ----------- ----------- ----------- ------------
Net (decrease) in net assets resulting
from operations..................... $ (230,880) $ (334,415) $ (218,587) $ (223,711) $ 8,224 ($ 999,369)
----------- ----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ----------- ------------
</TABLE>

See Notes To Pro Forma Financial Statements

<PAGE>

SURVIVING ENTITY
PRO FORMA STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
JUNE 30, 1996
(UNAUDITED)

<TABLE>
<CAPTION>
PRO FORMA
SAIF SIF STGF SAF ADJUSTMENTS COMBINED
------------ ------------ ----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Decrease in net assets from
operations................... $ (294,205) $ (111,105) $ (172,862) $ (388,362) $ 8,224(4) $ (958,310)
Net investment loss.......... 73,821 47,825 (129,743) 517,110 509,013
Net realized gain (loss) from
investment transactions.... (10,496) (271,135) 84,018 (352,459) (550,072)
------------ ------------ ----------- ------------- ----------- ----------
Change in unrealized
(depreciation) appreciation
Net (decrease) increase in
net assets resulting from
operations................. (230,880) (334,415) (218,587) (223,711) 8,224 (999,369)
Decrease in net assets from
trust share transactions..... (102,199) (200,097) (37,546) (929,919) (990,569)(2)(4k) (2,260,330)
------------ ------------ ----------- ------------- ----------- ----------
Net decrease in net assets..... (333,079) (534,512) (256,133) (1,153,630) (982,344) (3,259,698)
Net assets of beginning of
period....................... 1,340,887 2,297,979 798,540 5,735,121 10,172,527
------------ ------------ ----------- ------------- ----------- ----------
Net assets at end of
period..................... $ 1,007,808 $ 1,763,467 $ 542,407 $ 4,581,491 $(982,344) $ 6,912,831
------------ ------------ ----------- ------------- ----------- ----------
------------ ------------ ----------- ------------- ----------- ----------
</TABLE>

See Notes To Pro Forma Financial Statements

<PAGE>

SURVIVING ENTITY
JUNE 30, 1997 AND JUNE 30, 1996
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)

1. BASIS OF PRESENTATION

The unaudited pro forma combined financial statements assume consummation of
the transaction described in this Registration Statement and, except as
described in Notes 3 and 4 hereto, no SAIF, SIF, STGF and SST (formerly SAF)
shares are redeemed.

The following unaudited pro forma financial statements give effect to the
Merger in a transaction which will be accounted for as a pooling of interests.
The unaudited pro forma statement of assets and liabilities and pro forma
portfolio of investments are based on the individual balance sheets and
portfolios of investments of SAIF, SIF, STGF and SST appearing elsewhere in this
Registration Statement and has been prepared to reflect the Merger as of June
30, 1997. The unaudited pro forma statements of operations and statements of
changes in net assets is based on the individual statements of operations and
statements of net assets of SAIF, SIF, STGF and SST, appearing elsewhere in this
Registration Statement, and combines the results of operations and changes in
net assets of SAIF, SIF, STGF and SST for the years ended June 30, 1997 and
1996, as if the merger had occurred at the beginning of each respective period.
The unaudited pro forma financial statements for 1996 should be read in
conjunction with the historical financial statements and notes thereto of SAIF,
SIF, STGF and SST included elsewhere in this Registration Statement. The pro
forma combined financial data is intended for informational purposes only and is
not necessarily indicative of the financial position, portfolio of investments,
or future results of operations and changes in net assets of the combined entity
that would have actually occurred had the merger been in effect as of the date
or for the periods presented.

2. SST REVERSE STOCK SPLIT

Immediately prior the merger SST will declare a reverse stock split of ten
shares to one share, so that each ten outstanding shares of SST will become one
share of SST (5,932,375 divided by 10 equals 593,238). Shareholders owning a
number of shares not equally divisible by 10 will receive cash in lieu of
fractional shares.

Shareholders of the merging funds (SAIF, SIF, and STGF) will be issued
shares of SST on a pro rata basis in exchange for their shares.

36
<PAGE>

SURVIVING ENTITY
JUNE 30, 1997 AND JUNE 30, 1996
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)

3. ADJUSTMENTS TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
AS OF JUNE 30, 1997 AND FOR THE YEAR THEN ENDED

<TABLE>
<S> <C>
(a) To record reduction in transfer agent fees from $16.20 per account annually to $10
per account annually.
(b) To record reduction in salaries and benefits to $275,000 annually.
(c) To record reduction in professional fees to $30,000 annually.
(d) To record reduction in reports to shareholders to $8,000 annually.
(e) To record reduction in computer services fees to $16,000 annually.
(f) To record reduction in rent to $25,000 annually.
(g) To record reduction in trustees fees and expenses to $15,000 annually.
(h) To record reduction in custodian fees to $4,000 annually.
(i) To record exchange fees expense of $15,000 annually.
(j) To record sale of investments to meet cash requirement to affect redemption.
(k) To record redemption of shares by Shareholder States.
(l) To record reclassification of equity accounts to affect conversion from open ended
funds to a closed end fund.
(m) To record estimated merger costs to be incurred.
</TABLE>

4. ADJUSTMENTS TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
AS OF JUNE 30, 1996 AND FOR THE YEAR THEN ENDED

<TABLE>
<S> <C>
(a) To record reduction in transfer agent fees from $16.20 per account annually to $10
per account annually.
(b) To record reduction in salaries and benefits to $275,000 annually.
(c) To record reduction in professional fees to $30,000 annually.
(d) To record reduction in reports to shareholders to $8,000 annually.
(e) To record reduction in computer services fees to $16,000 annually.
(f) To record reduction in rent to $25,000 annually.
(g) To record reduction in trustees fees and expenses to $15,000 annually.
(h) To record reduction in custodian fees to $4,000 annually.
(i) To record exchange fees expense of $7,000 annually.
(j) To record estimated merger costs to be incurred.
(k) To record redemption of shares by Shareholder States.
</TABLE>

5. REDEMPTION OF SHARES BY SHAREHOLDER STATES

In connection with the Funds agreement to allow for the redemption of shares
owned by the Shareholder States, the Funds anticipate the following redemptions
prior to the Merger: SAIF -290,000 shares; SIF--305,000 shares; STGF--83,000
shares; and SAF--1,234,000 shares.

37
<PAGE>

FORM OF ORGANIZATION OF THE FUNDS

Each Fund is a common law trust fund formed under a declaration of trust and
domiciled in the District of Columbia. SST (formerly SAF) was originally
organized under a Trust Indenture in the State of Missouri in 1939. It now
exists as a common law trust under the laws of the District of Columbia pursuant
to a Trust Indenture approved by shareholders on January 8, 1979. SAIF was
originally organized as a Delaware corporation on November 3, 1959. It now
exists as a common law trust under the laws of the District of Columbia pursuant
to a Trust Indenture approved by the shareholders on May 24, 1978. SIF was
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 a
Trust Indenture approved by the shareholders on May 11, 1979. STGF was
originally organized as a Delaware corporation in 1967. It now exists as a
common law trust under the laws of the District of Columbia pursuant to a Trust
Indenture approved by the shareholders on May 11, 1979.

Each of the Funds is operated as a non-diversified open-end investment
company; however, upon the effectiveness of the Merger, SST will change to a
closed-end investment company. None of the Funds is taxed for federal income tax
purposes under the special rules for electing and qualifying regulated
investment companies under Code Sections 851-855. All the Funds are taxed under
the normal federal income tax rules applicable to C corporations.

COMPARISON OF INVESTMENT OBJECTIVES,
POLICIES AND TECHNIQUES OF THE FUNDS

The investment objective of the SST is to maximize capital growth through
the utilization of a broad range of investment vehicles and techniques,
including but not limited to the purchase and sale of put and call options. SST
may also make substantial temporary defensive investments in high grade debt
securities of all types, U.S. government securities and repurchase agreements
when market conditions warrant, such as when a severe downturn in the stock
market is anticipated. Both SAIF and STGF have substantially similar investment
objectives. SIF has a different investment objective, which is to seek current
income. As a secondary objective, SIF seeks to maximize the total return but
only consistent with its primary objectives. Similar to the other Funds, SIF may
also make substantial temporary defensive investments in debt securities and
money market instruments when market conditions warrant. Upon the Merger, the
new investment objective of SST will be to seek current income as its principal
investment objective and secondarily to maximize the total return, but only to
the extent consistent with its primary objective.

In seeking to achieve their objectives, all of the Funds may use the
following investment vehicles, without limitation:

- Common stock of issuers of all kinds.

- Preferred stocks, warrants, and convertible securities.

<PAGE>

- Corporate bonds and debentures of all kinds; and debt securities issued or
guaranteed by the U.S. government of its agencies or instrumentalities
("U.S. government securities").

- Money market instruments (commercial paper, bank certificates of deposits,
and U.S. government securities).

In choosing portfolio investments, none of the Funds is restricted to any
particular criteria or quality standards except as expressly stated in this
Prospectus. With respect to equity investments, the investment advisor for
each Fund 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
defensive purposes), the advisor considers interest rate movements and may
choose investment grade instruments the yield of which exceeds that of
short-term U.S. Treasury securities.

Each 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 and sale of real
estate and related loans, borrowing to increase investment funds, short sales,
and lending portfolio securities. For a discussion of the characteristics and
risks of these vehicles and techniques, please refer to the Statement of
Additional Information. Each Fund may invest in these instruments and use these
techniques without limit, except as expressly stated in the Statement of
Additional Information.

The effect of such techniques can produce portfolio turnover rates of 100%
or more. The portfolio turnover for the year ended June 30, 1996 was 339% for
SAIF, 382% for SIF, 333% for STGF and 231% for SST. High portfolio turnover
(100% or more) increases brokerage costs and increases the likelihood of
short-term gains and losses.

The investment objective of each Fund may be changed by its Board of
Trustees without shareholder approval.

CONDENSED FINANCIAL INFORMATION
OF THE FUNDS

The following financial highlights of each of the Funds for the year ended
June 30, 1996 and the nine previous years have been audited and have been
derived from the audited financial statements of the Funds, which were audited
by Coopers & Lybrand L.L.P., independent certified public accountants, whose
reports thereon are included with each Fund's Form N-SAR filings, and are
available to shareholders upon request.

<PAGE>
FINANCIAL HIGHLIGHTS
SAIF
<TABLE>
<CAPTION>
FOR THE PERIOD
UNAUDITED FEBRUARY 1,
NINE MONTHS ENDED FOR THE YEAR 1995
ENDED THROUGH JUNE
MARCH 31, JUNE 30, 30,
-------------------- ------------- ---------------
1997 1996 1996 1995*
--------- --------- ------------- ---------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.......................... $ 0.72 $ 0.88 $ 0.88 $ 0.96

Net investment income (loss).................................. (.16) (.20) (.41) (.12)

Net realized and unrealized gain (loss) on investments........ .18 .10 .25 .04
--------- --------- ------ ---------------
Total from investment operations.............................. .02 (.10) (.16) (.08)

Dividends and distributions paid:

From net realized gain........................................ -- -- -- --

From net investment income.................................... -- -- -- --

From capital.................................................. -- -- -- --
--------- --------- ------ ---------------
Total distributions........................................... -- -- -- --
--------- --------- ------ ---------------
Net asset value, end of period.................................. $ 0.74 $ 0.78 $ 0.72 $ 0.88
--------- --------- ------ ---------------
--------- --------- ------ ---------------
Ratio/Supplemental Data: Total return (1)..................... 4.17%** (14.77)%** (18.48)% (20.01)%**
Net Assets, end of period (in thousands).................... $ 1,005 $ 1,111 $ 1,008 $ 1,341

Ratio of expenses to average net assets......................... 30.98%** 27.32%** 24.61% 24.62%**

Ratio of net investment income (loss) to average net assets..... (28.40)%** (26.89)%** (24.10)% (22.86)%**
Portfolio turnover............................................ 149%** 343%** 339% 617%**

FOR THE YEARS ENDED JANUARY 31,
--------------------------------------------------------------------

1995 1994 1993 1992 1991 1990 1989
------- -------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period...................... $1.65 $ 1.50 $ 1.54 $ 1.59 $ 1.94 $ 2.21 $ 2.24
Net investment income (loss).............................. (.26) (.24) (.19) (.20) (.19) (.19) (.11)
Net realized and unrealized gain (loss) on investments.... (.43) .39 .15 .15 (.16) (.08) .08
------- -------- -------- --------- --------- --------- ---------
Total from investment operations.......................... (.69) .15 (.04) (.05) (.35) (.27) (.03)
Dividends and distributions paid:
From net realized gain.................................... -- -- -- -- -- -- --
From net investment income................................ -- -- -- -- -- -- --
From capital.............................................. -- -- -- -- -- -- --
------- -------- -------- --------- --------- --------- ---------
Total distributions....................................... -- -- -- -- -- -- --
------- -------- -------- --------- --------- --------- ---------
Net asset value, end of period.............................. $0.96 $ 1.65 $ 1.50 $ 1.54 $ 1.59 $ 1.94 $ 2.21
------- -------- -------- --------- --------- --------- ---------
------- -------- -------- --------- --------- --------- ---------
Ratio/Supplemental Data: Total return (1).................(41.82)% 10.00% (2.60)% (3.14)% (18.04)% (12.22)% (1.34)%
Net Assets, end of period (in thousands)................$1,472 $ 2,627 $ 2,496 $ 2,648 $ 2,844 $ 3,691 $ 4,563
Ratio of expenses to average net assets..................... 17.69% 12.66% 14.83% 15.13% 13.75% 12.74% 9.37%
Ratio of net investment income (loss) to average net assets.(15.63) (11.40)% (13.52)% (13.13)% (10.25%) (8.75)% (4.84)%
Portfolio turnover........................................ 289% 134% 221% 460% 211% 258% 121%

1988 1987
--------- ---------
Per Share Operating Performance:
Net asset value, beginning of period.......................... $ 2.68 $ 2.89
Net investment income (loss).................................. (.12) (.14)
Net realized and unrealized gain (loss) on investments........ (.32) (.07)
--------- ---------
Total from investment operations.............................. (.44) (.21)
Dividends and distributions paid:
From net realized gain........................................ -- --
From net investment income.................................... -- --
From capital.................................................. -- --
--------- ---------
Total distributions........................................... -- --
--------- ---------
Net asset value, end of period.................................. $ 2.24 $ 2.68
--------- ---------
--------- ---------
Ratio/Supplemental Data: Total return (1)..................... (16.42)% (7.27)%
Net Assets, end of period (in thousands).................... $ 4,943 $ 6,480
Ratio of expenses to average net assets......................... 7.00% 6.26%
Ratio of net investment income (loss) to average net assets..... (3.64)% (3.39)%
Portfolio turnover............................................ 228% 420%
</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 Fund's fiscal year-end was changed to June 30.

** Annualized

<PAGE>

FINANCIAL HIGHLIGHTS
SAF
<TABLE>
<CAPTION>
UNAUDITED
NINE MONTHS ENDED FOR THE YEAR FOR THE PERIOD
ENDED OCTOBER 1, 1994
MARCH 31, JUNE 30, THROUGH JUNE 30,
-------------------- ------------- -----------------
1997 1996 1996 1995*
--------- --------- ------------- -----------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period................... $ 0.70 $ 0.73 $ 0.73 $ 0.72
--------- --------- ------ ------
Net investment income (loss)........................... (.06) (.05) (.17) (.03)

Net realized and unrealized gain (loss) on investments .07 .14 .04
--------- --------- ------ ------
Total from investment operations....................... .01 (.05) (.03) .01

Dividends and distributions paid:
From net realized gain................................. -- -- -- --
From net investment income............................. -- -- -- --
From capital........................................... -- -- -- --
--------- --------- ------ ------
Total distributions.................................... -- -- -- --
--------- --------- ------ ------
Net asset value, end of period............................. $ 0.71 $ 0.68 $ 0.70 $ 0.73
--------- --------- ------ ------
--------- --------- ------ ------
Ratio/Supplemental Data: Total return (1).............. 1.43%** (9.59)%** (4.38)% 1.85%**
Net Assets, end of period (in thousands)............. $ 4,227 $ 4,609 $ 4,581 $ 5,735
Ratio of expenses to average net assets.................... 12.19%** 8.80%** 8.14% 8.17%**
Ratio of net investment income (loss) to average net
assets................................................... (11.64)%** (8.08)%** (7.48)% (7.23)%**

Portfolio turnover..................................... 214%** 250%** 231% 505%**

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)........................... (.08) (.05) (.03) (.02) (.03) -- --
Net realized and unrealized gain (loss) on investments (.07) .28 -- (.12) (.24) .27 (.25)
------ --------- ------- -------- -------- -------- --------
Total from investment operations....................... (.15) .23 (.03) .10 (.27) .27 (.25)
Dividends and distributions paid:
From net realized gain................................. -- -- -- -- -- (.03) --
From net investment income............................. -- -- -- -- -- -- --
From capital........................................... -- -- -- -- -- -- (.06)
------ --------- ------- -------- -------- -------- --------
Total distributions.................................... -- -- -- -- -- (.03) (.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% (4.47)% 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)% (.24)% (.33)%
Portfolio turnover..................................... 241% 300% 301% 267% 86% 208% 367%

1987 1986
--------- ---------
Per Share Operating Performance:
Net asset value, beginning of period................... $ 0.85 $ 0.82
--------- ---------
Net investment income (loss)........................... .02 (.01)
Net realized and unrealized gain (loss) on investments .12 .11
--------- ---------
Total from investment operations....................... .14 .10
Dividends and distributions paid:
From net realized gain................................. (.06) (.07)
From net investment income............................. (.02) --
From capital........................................... -- --
--------- ---------
Total distributions.................................... (.08) (.07)
--------- ---------
Net asset value, end of period............................. $ 0.91 $ 0.85
--------- ---------
--------- ---------
Ratio/Supplemental Data: Total return (1).............. 15.83% 11.44%
Net Assets, end of period (in thousands)............. $ 20,662 $ 19,866
Ratio of expenses to average net assets.................... 3.06% 2.88%
Ratio of net investment income (loss) to average net
assets................................................... (2.13)% (0.82)%
Portfolio turnover..................................... 302% 375%
</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 Fund's fiscal year-end was changed to June 30.

** Annualized

<PAGE>
FINANCIAL HIGHLIGHTS
SIF
<TABLE>
<CAPTION>
UNAUDITED FOR THE YEAR FOR THE PERIOD
NINE MONTHS ENDED ENDED JANUARY 1, 1995
MARCH 31, JUNE 30, THROUGH JUNE 30,
-------------------- ------------- -----------------
1997 1996 1996 1995*
--------- --------- ------------- -----------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period........................ $ 0.86 $ 1.02 $ 1.02 $ 0.93
--------- --------- ------ -------
Net investment income (loss)................................ (.10) (.03) (.13) (.02)
Net realized and unrealized gain (loss) on investments...... .04 (.04) (.03) .11
--------- --------- ------ -------
Total from investment operations............................ (.06) (.07) (.16) .09
Dividends and distributions paid:
From net realized gain...................................... -- -- -- --
From net investment income.................................. -- -- -- --
From capital................................................ -- -- -- --
--------- --------- ------ -------
Total distributions............................................. -- -- -- --
--------- --------- ------ -------
Net asset value, end of period.................................. $ 0.80 $ 0.95 $ 0.86 $ 1.02
--------- --------- ------ -------
--------- --------- ------ -------
Ratio/Supplemental Data: Total return (1)................... (9.30)%** (8.82)%** (15.53)% 19.36%**
Net Assets, end of period (in thousands).................. $ 1,574 $ 1,990 $ 1,763 $ 2,298
Ratio of expenses to average net assets......................... 15.47%** 11.75%** 10.60% 10.54%**
Ratio of net investment income (loss) to average net assets..... (14.76)%** (4.91)%** (5.23)% (4.24)%**
Portfolio turnover.......................................... 146** 316%** 382% 226%**

FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------

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........................$1.42 $ 1.38 $ 1.49 $ 1.12 $ 1.32 $ 1.22 $ 1.32
----- --------- --------- --------- --------- --------- ------
Net investment income (loss)................................ (.08) (.06) (.09) (.06) (.09) (.08) --
Net realized and unrealized gain (loss) on investments...... (.41) .10 (.02) .43 (.11) .18 (.09)
----- --------- --------- --------- --------- --------- ------
Total from investment operations............................ (.49) .04 (.11) .37 (.20) .10 (.09)
Dividends and distributions paid:
From net realized gain...................................... -- -- -- -- -- -- --
From net investment income.................................. -- -- -- -- -- -- (.01)
From capital................................................ -- -- -- -- -- -- --
----- --------- --------- --------- --------- --------- ------
Total distributions............................................. -- -- -- -- -- -- (.01)
----- --------- --------- --------- --------- --------- ------
Net asset value, end of period..................................$0.93 $ 1.42 $ 1.38 $ 1.49 $ 1.12 $ 1.32 $ 1.22
----- --------- --------- --------- --------- --------- ------
----- --------- --------- --------- --------- --------- ------
Ratio/Supplemental Data: Total return (1)..................(34.51)% 2.89% (7.05)% 32.95% (15.15)% 8.13% (6.82)%
Net Assets, end of period (in thousands).................$2,159 $ 3,550 $ 3,791 $ 4,277 $ 3,530 $ 4,627 $ 4,812
Ratio of expenses to average net assets........................ 8.90% 6.48% 7.78% 7.88% 10.31% 8.95% 5.59%
Ratio of net investment income (loss) to average net assets.....(6.65)% (4.52) (6.09)% (5.08%) (7.27)% (6.15)% .13%
Portfolio turnover.......................................... 282% 179% 263% 245% 144% 165% 128%

1987 1986
--------- ---------
Per Share Operating Performance:
Net asset value, beginning of period........................ $ 1.61 $ 1.46
--------- ---------
Net investment income (loss)................................ .01 .06
Net realized and unrealized gain (loss) on investments...... (.30) .09
--------- ---------
Total from investment operations............................ (.29) .13
Dividends and distributions paid:
From net realized gain...................................... -- --
From net investment income.................................. -- --
From capital................................................ -- --
--------- ---------
Total distributions............................................. -- --
--------- ---------
Net asset value, end of period.................................. $ 1.32 $ 1.61
--------- ---------
--------- ---------
Ratio/Supplemental Data: Total return (1)................... (18.01)% 10.27%
Net Assets, end of period (in thousands).................. $ 5,659 $ 8,133
Ratio of expenses to average net assets......................... 4.32% 3.97%
Ratio of net investment income (loss) to average net assets..... .53% 1.84%
Portfolio turnover.......................................... 96% 129%
</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 Fund's fiscal year-end was changed to June 30.

** Annualized

42
<PAGE>

FINANCIAL HIGHLIGHTS
STGF
<TABLE>
<CAPTION>
FOR THE PERIOD
UNAUDITED FOR THE YEAR JANUARY 1, 1995
NINE MONTHS ENDED THROUGH JUNE
ENDED MARCH 31, JUNE 30, 30,
-------------------- ------------- ---------------
1997 1996 1996 1995*
--------- --------- ------------- ---------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period................. $ 1.02 $ 1.43 $ 1.43 $ 1.57
--------- --------- ------------- ---------------
Net investment income (loss)......................... (.24) (.24) (.58) (.22)
Net realized and unrealized gain (loss) on
investments.......................................... (.13) (.07) .17 .08
--------- --------- ------------- ---------------
Total from investment operations..................... (.37) (.31) (.41) (.14)
Dividends and distributions paid:
From net realized gain............................... -- -- -- --
From net investment income........................... -- -- -- --
From capital......................................... -- -- -- --
--------- --------- ------------- ---------------
Total distributions.................................. -- -- -- --
--------- --------- ------------- ---------------
Net asset value, end of period........................... $ 0.65 $ 1.12 $ 1.02 $ 1.43
--------- --------- ------------- ---------------
--------- --------- ------------- ---------------
Ratio/Supplemental Data: Total return (1)............ (48.04)%** (28.67)%** (28.29)% (17.84)%**
Net Assets, end of period (in thousands)........... $ 332 $ 599 $ 542 $ 799
Ratio of expenses to average net assets.................. 40.64%** 30.14%** 25.19% 22.28%**
Ratio of net investment income (loss) to average net
assets................................................. (38.41)%** (29.67)%** (24.78)% (20.90)%**
Portfolio turnover................................... 441%** 396%** 333% 615%**

FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
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.................$2.48 $ 2.69 $ 2.84 $ 2.21 $ 3.92 $ 3.03 $ 4.12
----- --------- -------- -------- -------- ------- --------
Net investment income (loss)......................... (.45) (.40) (.33) (.30) (.41) (.37) (.30)
Net realized and unrealized gain (loss) on
investments.......................................... (.46) .19 .18 .93 (1.30) 1.26 (.79)
----- --------- -------- -------- -------- ------- --------
Total from investment operations..................... (.91) (.21) (.15) .63 (1.71) .89 (1.09)
Dividends and distributions paid:
From net realized gain............................... -- -- -- -- -- -- --
From net investment income........................... -- -- -- -- -- -- --
From capital......................................... -- -- -- -- -- -- --
----- --------- -------- -------- -------- ------- --------
Total distributions.................................. -- -- -- -- -- -- --
----- --------- -------- -------- -------- ------- --------
Net asset value, end of period...........................$1.57 $ 2.48 $ 2.69 $ 2.84 $ 2.21 $ 3.92 $ 3.03
----- --------- -------- -------- -------- ------- --------
----- --------- -------- -------- -------- ------- --------
Ratio/Supplemental Data: Total return (1)...........(36.69)% (7.81)% (5.28)% 28.51% (43.62)% 29.37% (26.46)%
Net Assets, end of period (in thousands)........... $894 $ 1,467 $ 1,634 $ 1,786 $ 1,443 $ 2,675 $ 2,178
Ratio of expenses to average net assets..................16.34% 11.94% 13.33% 14.10% 14.97% 12.14% 9.90%
Ratio of net investment income (loss) to average net
assets................................................(14.79)% (11.38)% (12.45)% (11.70)% (12.60)% (9.97)% (8.55)%
Portfolio turnover................................... 274% 128% 157% 318% 184% 116% 164%

1987 1986
--------- ---------
Per Share Operating Performance:
Net asset value, beginning of period................. $ 4.48 $ 5.06
--------- ---------
Net investment income (loss)......................... (.27) (.33)
Net realized and unrealized gain (loss) on
investments.......................................... (.09) (.25)
--------- ---------
Total from investment operations..................... (.36) (.58)
Dividends and distributions paid:
From net realized gain............................... -- --
From net investment income........................... -- --
From capital......................................... -- --
--------- ---------
Total distributions.................................. -- --
--------- ---------
Net asset value, end of period........................... $ 4.12 $ 4.48
--------- ---------
--------- ---------
Ratio/Supplemental Data: Total return (1)............ (8.04)% (11.46)%
Net Assets, end of period (in thousands)........... $ 3,119 $ 3,779
Ratio of expenses to average net assets.................. 6.34% 5.81%
Ratio of net investment income (loss) to average net
assets................................................. (4.88)% (4.87)%
Portfolio turnover................................... 196% 197%
</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 Fund's fiscal year-end was changed to June 30.

** Annualized

<PAGE>

SAIF
Management's Discussion of
Performance of the Fund

During its fiscal year ended June 30, 1996, the Fund's net asset value per
share decreased 18.48%. The Fund experienced a net decrease in net assets from
operations of approximately $231,000 as a result of a net realized gain from
investment transactions of $74,000 offset by a net investment loss of $294,000
and unrealized depreciation of investments of $11,000.

Portfolio turnover during the year, although high, was about half of the
rate for the prior period and at year's end the Fund's portfolio consisted of
investments in segments of the computer industry, communications,
pharmaceutical, and radio and television equipment industries. The Fund
maintained an aggressive trading position with its assets almost fully invested
in equity securities most of the year. The Fund's net investment loss of
approximately $294,000 resulted from expenses after taking into account the
Fund's investment income from dividends and interest of approximately $6,000.
The Fund's primary goal is to maximize capital appreciation.

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.

SAF
Management's Discussion of
Performance of the Fund

During its fiscal year ended June 30, 1996, the Fund's net asset value per
share decreased 4.38%. The Fund experienced a net decrease in net assets from
operations of approximately $224,000, as a result of a net realized gain from
investment transactions of $517,000 offset by a net investment loss of $388,000
and unrealized depreciation of investments of $353,000.

Portfolio turnover during the year, although high, was less than half of the
rate for the prior period and at year's end the Fund's portfolio consisted of
investments in various segments of the computer industry, communications,
medical instruments, motor vehicles, oil & gas drilling, pharmaceutical, and
radio and television equipment industries. In addition, the Fund purchased call
options in the expectation that the Fund would benefit from rising prices in
these positions. The Fund maintained an aggressive trading position with its
assets almost fully invested in equity securities most of the year. The Fund's
net investment loss of approximately $388,000 resulted from expenses after

<PAGE>

taking into account the Fund's investment income from dividends and interest of
approximately $34,000. Realization of current income is secondary to the Fund's
pursuit of its primary goal of capital appreciation.

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 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.

SIF
Management's Discussion of
Performance of the Fund

During its fiscal year ended June 30, 1996, the Fund's net asset value per
share decreased 15.53%. The Fund experienced a net decrease in net assets from
operations of approximately $334,000 as a result of a net realized gain from
investment transactions of $48,000 offset by a net investment loss of $111,000
and unrealized depreciation of investments of $271,000.

Portfolio turnover during the year was higher than the rate for the prior
period as a result of positioning from U.S. Treasury Bonds to investments in
stocks of various segments of the computer industry, communications, and medical
instruments industries. The Fund maintained an aggressive trading position with
its assets almost fully invested in equity securities most of the year. The
Fund's net investment loss of approximately $111,000 resulted from expenses
after taking into account the Fund's investment income from dividends and
interest of approximately $114,000. Realization of capital appreciation is
secondary to the Fund's primary goal of current income.

<PAGE>

STGF
Management's Discussion of
Performance of the Fund

During its fiscal year ended June 30, 1996, the Fund's net asset value per
share decreased 28.29%. The Fund experienced a net decrease in net assets from
operations of approximately $219,000 as a result of a net realized loss from
investment transactions of $130,000 and a net investment loss of $173,000 offset
by unrealized appreciation of investments of $84,000.

Portfolio turnover during the year, although high, was about half of the
rate for the prior period and at year's end the Fund's portfolio consisted of
investments in the computer industry, communications, pharmaceutical, and radio
and television equipment industries. The Fund maintained an aggressive trading
position with its assets almost fully invested in equity securities most of the
year. The Fund's net investment loss of approximately $173,000 resulted from
expenses after taking into account the Fund's investment income from dividends
and interest of approximately $3,000. Realization of current income is secondary
to the Fund's pursuit of its primary goal of capital appreciation.

<PAGE>

SAIF Total Return vs S&P 500 Index

Comparison of change in the value of a $10,000 investment in the Fund
and the same investment in the S&P 500 Index for each
fiscal year from February 1, 1986 to January 1, 1996; February
1, 1995 to June 30, 1995; July 1, 1995 to June 30, 1996

[A GRAPH APPEARS HERE WITH THE FOLLOWING PLOTTING POINTS]
- --------------------------------------------------------------------------------
SAIF S&P
- --------------------------------------------------------------------------------
STATUS OF STATUS OF
$10,000 $10,000
PERIOD END PERCENT CHANGE INVESTMENT PERCENT CHANGE INVESTMENT
- --------------------------------------------------------------------------------
2/1/86.... --.-- $ 10,000 -- $ 10,000
1/31/87... (7.27) 9,273 33.87 13,387
1/31/88... (16.42) 7,750 (3.32) 12,943
1/31/89... (1.34) 7,646 20.07 15,541
1/31/90... (12.22) 6,712 14.46 17,788
1/31/91... (18.04) 5,501 8.40 19,282
1/31/92... (3.14) 5,328 22.69 23,657
1/31/93... (2.60) 5,189 10.58 26,160
1/31/94... 10.00 5,708 12.88 29,529
1/31/95... (41.82) 3,321 2.59 30,294
6/30/95... (8.33) 3,044 17.17 35,495
6/30/96... (18.48) 2,481 26.00 44,724
- --------------------------------------------------------------------------------

<PAGE>

SAF Total Return vs S&P 500 Index

Comparison of change in the value of a $10,000 investment in the Fund
and the same investment in the S&P 500 Index for each fiscal year
from October 1, 1985 to September 30, 1994; October 1, 1994 to June 30, 1995
and July 1, 1995 to June 30, 1996

[A GRAPH APPEARS HERE WITH THE FOLLOWING PLOTTING POINTS]
- --------------------------------------------------------------------------------
SAF S&P
- --------------------------------------------------------------------------------
STATUS OF STATUS OF
$10,000 $10,000
PERIOD END PERCENT CHANGE INVESTMENT PERCENT CHANGE INVESTMENT
- --------------------------------------------------------------------------------
10/1/85... --.-- $ 10,000 --.-- $ 10,000
9/30/86... 11.44 11,144 31.51 13,151
9/30/87... 15.83 12,908 43.27 18,841
9/30/88... (27.86) 9,312 (12.54) 16,478
9/30/89... 47.50 13,735 32.97 21,911
9/30/90... (32.27) 9,303 (9.23) 19,889
9/30/91... 17.51 10,932 31.17 26,088
9/30/92... (4.47) 10,443 11.05 28,971
9/30/93... 35.88 14,190 13.00 32,737
9/30/94... 17.24 16,636 3.68 33,942
6/30/95... 1.39 16,867 20.19 40,795
6/30/96... (4.38) 16,128 26.00 51,401
- --------------------------------------------------------------------------------

<PAGE>

SIF Total Return vs S&P 500 Index

Comparison of change in the value of a $10,000 investment in the Fund
and the same investment in the S&P 500 Index for each
fiscal year from January 1, 1986 to December 31, 1994;
January 1, 1995 to June 30, 1995
and July 1, 1995 to June 30, 1996

[A GRAPH APPEARS HERE WITH THE FOLLOWING PLOTTING POINTS]
- --------------------------------------------------------------------------------
SIF S&P
- --------------------------------------------------------------------------------
STATUS OF STATUS OF
$10,000 $10,000
PERIOD END PERCENT CHANGE INVESTMENT PERCENT CHANGE INVESTMENT
- --------------------------------------------------------------------------------
1/1/86.... --.-- $ 10,000 --.-- $ 10,000
12/31/86.. 10.27 11,027 18.56 11,856
12/31/87.. (18.01) 9,041 5.10 12,461
12/31/88.. (6.82) 8,424 16.61 14,530
12/31/89.. 8.13 9,109 31.69 19,135
12/31/90.. (15.04) 7,739 (3.10) 18,542
12/31/91.. 32.95 10,289 30.47 24,192
12/31/92.. (7.05) 9,564 7.62 26,035
12/31/93.. 2.89 9,840 10.08 28,660
12/31/94.. (34.51) 6,444 1.38 29,056
6/30/95... 9.68 7,068 20.21 34,928
6/30/96... (15.53) 5,970 26.00 44,010
- --------------------------------------------------------------------------------

<PAGE>
STGF Total Return vs S&P 500 Index

Comparison of change in the value of a $10,000 investment in the Fund
and the same investment in the S&P 500 Index for each fiscal year from
January 1, 1986 to December 31, 1994; January 1, 1995 to June 30, 1995
July 1, 1995 to June 30, 1996

[A GRAPH APPEARS HERE WITH THE FOLLOWING PLOTTING POINTS]

STGF S&P
------------------------------ ---------------------------
STATUS OF STATUS OF
$10,000 $10,000
PERIOD END PERCENT CHANGE INVESTMENT PERCENT CHANGE INVESTMENT
- ----------- --------------- ---------- -------------- ----------
1/1/86 --.-- $ 10,000 --.-- $ 10,000
12/31/86 (11.46) 8,854 18.56 11,856
12/31/87 (8.04) 8,142 5.10 12,461
12/31/88 (26.46) 5,988 16.61 14,530
12/31/89 29.37 7,747 31.69 19,135
12/31/90 (43.62) 4,368 (3.10) 18,542
12/31/91 28.51 5,613 30.47 24,192
12/31/92 (5.28) 5,317 7.62 26,035
12/31/93 (7.81) 4,902 10.08 28,660
12/31/94 (36.69) 3,103 1.38 29,056
6/30/95 (8.92) 2,826 20.21 34,928
6/30/96 (28.29) 2,026 26.00 44,010

50
<PAGE>

DESCRIPTION OF CAPITAL STRUCTURE OF THE FUNDS
AND SHAREHOLDER RIGHTS

Each 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 respective 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. 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 any 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. (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
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 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. Such
Fund will comply with these procedures.

SPECIAL PROVISIONS OF SST

Senior Securities. As a closed-end investment company, SST will have the
authority to issue senior securities, including preferred shares, subject to
the rules and regulations of the 1940 Act. The Trustees of the Fund have the
authority to issue such senior securities upon such terms and in such amounts
as they shall determine, subject to the 1940 Act. As of the date hereof, no
such senior securities have been issued by SST, and the Trustees have no
present intention of authorizing the issuance of senior securities.

Anti-Takeover Provisions. Certain provisions of the Amended and Restated
Trust Indenture of SST may be regarded as having an anti-takeover effect.
Although the Trustees are not aware of any effort that might be made to obtain
control of the Fund upon consummation of the Merger, the Trustees believe it is
appropriate to include certain provisions as part of the Fund's Amended and
Restated Trust Indenture. These provisions have the effect of virtually
precluding any type of takeover attempt not negotiated with the Trustees
pursuant to which shareholders might be offered a premium over prevailing market
prices. In addition, these provisions will have the

51
<PAGE>

effect of rendering it more difficult to remove a Trustee and may have the
effect of perpetuating the current management and investment advisor. The
Trustees, however, concluded that potential benefits of the provisions
outweigh possible disadvantages and that such provisions are in the best
interests of SST and the shareholders. The Trustees believe the adoption of
these provisions encourage potential acquirors to negotiate directly with the
Trustees, who the Trustees believe are in the best position to act on behalf
of all shareholders. Furthermore, the Trustees have the ability to waive
certain of these restrictions, provided that certain transactions are
approved by the Trustees prior to any person acquiring 10% or more of the
outstanding shares of SST.

The following discussion is a general summary of the material provisions of
the Amended and Restated Trust Indenture of SST, which may be deemed to have
such an "anti-takeover" effect. The description of these provisions is
necessarily general and reference should be made in each case to the complete
documents set forth in Exhibit B hereto.

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 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. Restrictions on Acquisitions of Shares of SST. The Amended and
Restated Trust Indenture provides that for a period of five years from the
effective date of the approval of the Merger, no person may acquire,
directly or indirectly, the beneficial ownership of more than 10% of the
Fund shares, unless such offer or acquisition shall have been approved in
advance by a two-thirds vote of the Fund's Continuing Trustees. In addition,
no shares beneficially owned in violation of the foregoing percentage
limitation, as determined by the Trustees, shall be entitled to vote in
connection with any matter submitted to shareholders for a vote. The
restriction on voting shares beneficially owned in violation of the
foregoing limitation is imposed automatically. In order to prevent the
imposition of such restriction, the

<PAGE>

Trustees must take affirmative action approving in advance a particular
offer to acquire or acquisition.

5. Approval of Certain Business Combinations. If an individual or other
entity, together with its affiliates, acquires 10% or more of the
outstanding shares of SST ("Related Person"), certain transactions with the
Related Person, as well as the decision to reclassify or recapitalize shares
of SST or dissolve or liquidate SST require the affirmative vote of either
(a) two-thirds of the Trustees who are not affiliated with the Related
Person and were Trustees prior to the date the Related Person became a
Related Person or (b) at least 80% of the outstanding shares of SST entitled
to vote and at least a majority of such outstanding shares not including
shares deemed beneficially owned by the Related Person.

Not redeeming your shares prior to the Merger will result in the above
anti-takeover provisions applying to all shareholders equally should the Merger
be consummated and the Amended and Restated Trust Indenture be approved by
shareholders of SST at the Meeting.

REDEMPTION OF SHARES PRIOR TO MERGER

Shareholders of the Funds do not have appraisal or other dissenter's rights
with respect to the Merger. Any Fund shareholder however may redeem his or her
shares prior to the closing date of the Merger at net asset value. The proceeds
will be paid by check within seven business days after receipt of a redemption
request.

The current redemption procedures are as follows:

Accounts without share certificates--A signed request (all joint owners must
sign) stating the amount to be withdrawn must be made to Steadman Security
Corporation, 1730 K Street, N.W., Washington, D.C. 20006. For amounts more
than $1,000, a "signature guarantee" will be necessary 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 a
shareholder or a shareholder's representative, and believed by SSC, as
Transfer Agent for the Fund, to be genuine will be acted upon. No Fund
nor the Transfer Agent will be liable for following unauthorized
instructions communicated by telephone that they reasonably believe to
be genuine. The Funds 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

53
<PAGE>

without share Certificates," above) and a written request that the
certificates be redeemed, must be submitted to SSC at the above address.

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 Securities and
Exchange Commission or such Exchange is closed for other than weekends and
holidays; or (b) as permitted by the Securities and Exchange Commission.

REDEMPTION OF SHARES AFTER MERGER

Shareholders of SST will have a one-time opportunity to redeem their SST
shares at net asset value during a thirty-day period commencing on the fifth
anniversary date of the Merger.

This one-time redemption procedure will be as follows:

On the fifth anniversary date of the Merger, SST will publish a notice
in a national newspaper of general circulation that all SST shareholders
shall have the right to redeem all or such portion of their shares of
SST as may be submitted to SST on or before the thirtieth day following
the date of publication of such notice. The purchase price for each such
share so redeemed will be the net asset value of the shares of SST
determined as of the close of business on the thirtieth day following
the date of publication of such notice, or if such day is a Saturday,
Sunday, or legal holiday, then such determination will be made as of the
close of the business on the first business day immediately preceding
such thirtieth day. Net asset value per share will be calculated by
determining the aggregate value of SST's assets less its total unpaid
liabilities as of such date, which amount will be divided by the total
number of SST shares then outstanding.

MARKET FOR SHARES OF SST

Currently SST Shares Are Not Traded In Any Market. As of June 30, 1997,
the pro forma net asset value of SST was $7.52 per share. Upon the
effectiveness of the Merger, SST will become a closed-end investment company,
and shares of SST will not be redeemable. It is expected

54
<PAGE>

that shares of SST will be traded either on the Chicago Stock Exchange, if
accepted for listing, or in the over-the-counter market; however, there can
be no assurance that a market will develop for shares of SST or if a market
develops, at what price SST shares may be bought or sold. Management has been
unable to locate a broker-dealer who will agree act as a market maker in SST
shares. It is anticipated that shares of SST will trade at a substantial
discount from their net asset value, which discount may be greater than the
discount at which shares of closed-end funds are normally traded.

The Trustees have the authority to use up to $500,000 of SST assets to
purchase SST shares in the open market, from time to time, in such amounts as
the Trustees determine to be in the best interests of the Fund. Such purchases
will be made at the market price for SST shares, which may be at a substantial
discount from net asset value.

MANAGEMENT OF THE FUNDS

Under the laws of the District of Columbia, the Trustees are responsible for
managing the business and affairs of the Funds. Each Fund has entered into an
investment advisory agreement (the "Advisory Agreement") with SSC (sometimes
referred to herein as the "Advisor") which has its principal offices at 1730 K
Street, N.W., Washington, D.C. 20006. Upon the effectiveness of the Merger, SSC
will continue to be the Advisor to SST.

All voting stock of SSC is owned by United Securities, Inc., a Maryland
corporation whose sole shareholders are two of Mr. Charles W. Steadman's adult
children, Carole S. Kinney and Charles T.W. Steadman, and Mrs. Consuelo M.
Steadman, Mr. Charles W. Steadman's wife. Mr. Steadman has a long-term
employment contract with the Advisor under which he may be deemed a control
person.

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 each Fund and is
responsible for overall management of its business affairs subject to
supervision of the Trustees. Charles W. Steadman, Chairman of the Board of
Trustees and President of each Fund, is primarily responsible for the day-to-day
management of the Funds' portfolios. He has been in mutual fund management for
the past 29 years as Chairman of the Board and President of Steadman Security
Corporation. 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 on all sums in excess thereof. The advisory fee is higher than
that paid by many other investment companies. SSC also receives certain other
fees, which are described in the Statement of Additional Information.

The Advisor also receives reimbursements from each Fund for salaries and
benefits of its employees who perform directly attributable functions to such
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,

55
<PAGE>

including registration; preparation of materials for Trustees' meetings;
legal and other administrative functions; and clerical assistance.

LEGAL PROCEEDINGS

The Funds are not parties to any material legal proceedings; however, the
Funds have been threatened with litigation to prevent consummation of the
Merger. In 1993 the Funds entered into a Settlement Agreement with approximately
47 states with respect to the recovery of shares and distributions owned by
persons who had allegedly abandoned these properties. The Settlement Agreement
provides among other things, that the Shareholder States will not request
redemption of their shares until February 14, 1998. The Shareholder States
currently own shares in the Funds, which as of March 31, 1997 had a net asset
value of approximately $1 million. The Shareholder States are represented by the
UPCH, which has advised the Funds that it does not believe the Merger should
take place because the UPCH believes that after the Merger SST shares will trade
at a substantial discount from net asset value, and the Shareholder States will
receive substantially less from the sale of their shares after the Merger than
if those shares were redeemed at net asset value. The UPCH told the Funds that
it is prepared to recommend to the Shareholder States that they commence
litigation to prevent the consummation of the Merger unless the restriction on
their ability to redeem shares of the Funds prior to February 14, 1998 is
removed. The Trustees believe that the delay and further expense which would
result from such potential litigation is not in the best interest of the
shareholders. Accordingly, the Funds have unconditionally agreed to remove the
restriction on the redemption of shares and to redeem prior to the Merger all of
the shares of the Funds owned by the Shareholder States upon their request. The
Shareholder States have no rights, priorities, or preferences over any other
shareholders of the Funds.

SELECTION OF INDEPENDENT AUDITORS

PROPOSAL NO. 2
(TO BE VOTED ON BY SHAREHOLDERS OF ALL FUNDS)

The Trustees of all of the Funds including a majority of the Trustees who
are not Interested Persons have selected the firm of Reznick Fedder &
Silverman as independent auditors to examine the financial statements of each
of the Funds for the current fiscal year and for SST after completion of the
Merger. The Trustees know of no direct or indirect financial interest of such
firm in the Funds. The firm of Coopers & Lybrand L.L.P., which had been the
independent auditors for the year ended June 30, 1996, advised the Trustees
on January 13, 1997 that they had resigned as auditor of the Funds. In its
letter of resignation, the firm of Coopers & Lybrand, L.L.P. stated that it
had no disagreements with the Funds' management concerning the scope of its
services to the Funds or with the Funds' accounting policies.

The selection of independent auditors is subject to the ratification or
rejection by the shareholders of each of the Funds. If the shareholders approve,
the firm of Reznick Fedder & Silverman will serve as the independent auditors of
each of the Funds until the next meeting of shareholders. Unless otherwise
indicated, signed proxies will be voted in favor of the

56
<PAGE>

ratification of the selection of such independent auditors. The Trustees
recommend that shareholders of the Funds for "FOR" proposal 2.

Representatives of Reznick Fedder & Silverman are expected to be present at
the Meeting and will have the opportunity to make a statement if they so desire
and to respond to questions from shareholders.

ELECTION OF TRUSTEES
OF
STEADMAN ASSOCIATED FUND

PROPOSAL NO. 3
(TO BE VOTED ON BY SHAREHOLDERS OF
STEADMAN ASSOCIATED FUND ONLY)

ELECTION OF TRUSTEES

Three Trustees have been nominated for election by the shareholders of SST.
Pursuant to the terms of the Amended and Restated Trust Indenture of SST,
Trustees shall be chosen for a term of unlimited duration, and shall hold office
until their successors shall be elected and qualified, provided that the term of
office will be terminated in the event of death, resignation, bankruptcy,
adjudicated incompetence or other incapacity to serve. The Trustees of SST
recommend that shareholders vote "FOR" the nominees being proposed.

Currently the Fund has four Trustees, one of whom, Paul F. Wagner, was
appointed by the remaining trustees October 14, 1992 to fill a vacancy. This is
the first shareholders meeting since that date, and accordingly the shareholders
are being asked to approve Mr. Wagner's appointment. Two additional persons have
been nominated to serve as Trustee, William Mark Crain and Richard O. Haase. It
is intended that all properly executed proxies will be voted (unless such
authority has been withheld in the proxy) in favor of the persons designated as
Trustees to be elected by the shareholders.

The Trustees of SST know of no reason why any of these nominees will be
unable to serve, but in the event of any such unavailability, the proxies
received will be voted for such substitute nominee or nominees as the Trustees
may recommend.
57

<PAGE>

Certain information concerning the Trustees and the nominees is set forth
below.

<TABLE>
<CAPTION>
SHARES OF
PRINCIPAL SST
OCCUPATION DURING BENEFICIALLY
PAST FIVE YEARS AND TRUSTEE OWNED AT
NAME AND ADDRESS AGE PUBLIC DIRECTORSHIPS SINCE APRIL 15, 1997
- ---------------------------------------- --- ---------------------------------------- ----------- ---------------
<C> <C> <S> <C> <C>
Paul A. Bowers, M.D. 85 Emeritus Professor, Obstetrics and
Gynecology, Jefferson Medical College
(ret.); Trustee of each of the Steadman
Funds 1978 -0-
William Mark Crain* 45 Professor of Economics and Research
Associate with the Center for Study of
Public Choice, George Mason University -- -0-
Richard O. Haase* 62 Vice President, Maiden, Haase & Smith, a
real estate valuation company -- -0-
Vice Admiral John T. Hayward USN (Ret.) 85 Vice Admiral, U.S.N. (ret.); Trustee of
each of the Steadman Funds 1973 -0-
Charles W. Steadman 82 Chairman of the Board and President of
Steadman Security Corporation and of
each of the Steadman Funds 1968 16,425
Paul F. Wagner* 78 Chairman, Wagner, Hines & Avery, Inc., a
Washington, D.C. public affairs firm,
Trustee of each of the Steadman Funds 1992 -0-
</TABLE>

- ------------------------

* Nominee for election.

COMMITTEE AND MEETINGS OF TRUSTEES

The Board of Trustees of SST acts as a committee of the whole, and
accordingly there are no special committees of the Board. During the fiscal year
ended June 30, 1997, the Trustees of the Fund held six meetings. All of the
Trustees then in office attended at least 80% of the total number of meetings of
the Trustees during such period.

INTERESTED PERSONS

SST considers Mr. Charles W. Steadman to be an "interested person" of the
Fund within the meaning of Section 2(a)(19) of the Investment Company Act as
a result of the position he holds with Steadman Security Corporation ("SSC"),
the Fund's investment adviser. Mr. Steadman is the Chairman and President of
the Fund.

COMPENSATION OF TRUSTEES

SSC, the investment adviser for SST, pays all compensation of all officers
of the Fund and all Trustees of the Fund who are affiliated with SSC. The Fund
pays each Trustee who is not

58
<PAGE>

affiliated with SSC a fee of $300 for each meeting
attended, together with such Trustee's actual out-of-pocket expenses relating to
attendance at meetings. These fees and expenses for the fiscal year ended June
30, 1997 totaled $4,844. After the Merger, the Trustees will continue to be
compensated at the same level.

OFFICERS OF SST

The Trustees of SST have elected the following persons as executive officers
of the Fund. The principal business address of each officer is 1730 K Street,
N.W., Washington, D.C. 20005. The following sets forth information concerning
each of these officers:

<TABLE>
<CAPTION>
TOTAL COMPENSATION*
--------------------------------
NAME AND PRINCIPAL
OCCUPATION
DURING THE PAST FIVE OFFICER
YEARS OFFICE AGE SINCE SALARY BONUS OTHER
- ----------------------------------- -------------------------- ------- ----------- --------- --------- ----------

<S> <C> <C> <C> <C> <C>
Charles W. Steadman President** 82 1968 $ 75,000 -0- -0-
Max Katcher Executive Vice President,
Treasurer and Secretary** 67 1972 $ 26,000 -0- -0-

</TABLE>

- ------------------------

* For the year ended June 30, 1997

** Upon consummation of the Merger, Mr. Steadman's annual salary to be paid by
SST will be $113,000 and Mr. Katcher's annual salary to be paid by SST will
be $60,000.

RATIFICATION OF AMENDED AND RESTATED
TRUST INDENTURE OF STEADMAN SECURITY TRUST,
DATED MAY 2, 1997

PROPOSAL NO. 4
(TO BE VOTED ON BY SHAREHOLDERS OF
STEADMAN ASSOCIATED FUND ONLY)

In connection with the proposed Merger, the Trustees of SST have amended and
restated the Trust Indenture of the Fund to provide among other things for the
change of the Fund's name from Steadman Associated Fund to Steadman Security
Trust and the change from an open-end investment company to a closed-end
investment company. A complete copy of the Amended and Restated Trust Indenture
of Steadman Security Trust with amendments through May 2, 1997 ("Amended and
Restated Trust Indenture") is set forth on Exhibit B to this Proxy Statement and
Prospectus. The shareholders of SST are being asked to ratify and confirm the
Amended and Restated Trust Indenture.

The following summary of the Amended and Restated Trust Indenture is
qualified in its entirety by reference to Exhibit B to this Proxy Statement and
Prospectus. For a discussion of the change from an open-end investment company
to a closed-end investment company, see "Difference Between Operations of SST as
an Open-End and Closed-End Investment Company."

<PAGE>

The Amended and Restated Trust Indenture incorporates all prior amendments
to the trust indenture which have taken place since it was previously adopted by
SST (or its predecessor fund) in 1939. The Amended and Restated Trust Indenture
reflects the change of SST from an open-end investment company to a closed-end
investment company and incorporates such other changes as are necessary to
operate SST as a closed-end investment company. In addition, the duration of the
Fund has been extended to February 23, 2034.

The Amended and Restated Trust Indenture eliminates the obligation of SST to
redeem outstanding shares of the funds as required of an open-end investment but
not required of a closed-end investment company. However, shareholders will have
a one-time opportunity to redeem their SST shares at net asset value during a
thirty-day period commencing on the fifth anniversary date of the Merger.

The Amended and Restated Trust Indenture also reflects the current fee
arrangements entered into with Steadman Security Corporation, SST's advisor.
Additionally, it permits SST's advisor to execute portfolio transactions for SST
through such entities as the advisor determines, in its discretion, will render
satisfactory service to SST at standard and/or negotiated commission rates. The
Amended and Restated Trust Indenture also reflects renaming of SST from the
Steadman Associated Fund to the Steadman Security Trust.

By ratifying the Amended and Restated Trust Indenture, shareholders are
voting to change the fundamental investment policy of SST from capital growth to
current income. Upon the receipt of shareholder approval, the fundamental
investment policy of the Fund will be changed to seek current income as its
primary objective. As its secondary objective, SST seeks to maximize total
return but only to the extent consistent with its primary objective.

By ratifying the Amended and Restated Trust Indenture, shareholders are
ratifying certain existing and proposed provisions of the Amended and Restated
SST Trust Indenture that help the Fund maintain its status as an independent,
publicly-owned investment company, and render a hostile takeover more difficult,
particularly the provisions relating to super majority voting in connection with
certain business combinations and the limitations imposed on the voting rights
of any investor who acquires more than 10% of SST's shares. These provisions
include unlimited terms for trustees, limitations on the ability of shareholders
to remove trustees, limitations on the calling of special meetings and
non-cumulative voting in the election of trustees. For a more detailed
discussion of these provisions and their effect on shareholder rights, see
"Description of Capital Structure of the Funds and Shareholders Rights--Special
Provisions of SST."

<PAGE>

INFORMATION CONCERNING THE MEETINGS

THE MEETINGS

The Meetings of the Funds will be held at Hotel, Washington, D.C.
2000? at 9:30 a.m., Washington, D.C. time, on , 1997 and any adjournments
thereof. At the Meetings, shareholders of the Funds will be asked to consider
and vote upon Proposal No. 1, approval of the Merger Agreement, and the
transactions contemplated thereby, and (b) ratification of the selection of
independent auditors for each Fund (Proposal No. 2), and in addition
shareholders of SST will be asked to (c) elect trustees (Proposal No. 3), and
(d) ratify the Amended and Restated Trust Indenture of SST, which includes the
change of SST from an open-end investment company to a closed-end investment
company and changing the Fund's fundamental investment policy from capital
growth to current income (Proposal No. 4).

RECORD DATE; VOTE REQUIRED; SHARE INFORMATION

The Trustees of each Fund have fixed the close of business on , 1997
as the record date (the "Record Date") for the determination of shareholders
entitled to notice of, and to vote at, the Meetings. Pursuant to the
requirements of the 1940 Act, the affirmative vote of a majority of the
outstanding shares of each of the Funds, voting separately, cast in person or by
proxy at the Meetings and entitled to vote at the Meetings is required for
approval of Proposal No. 1. Each shareholder of a Fund will be entitled to one
vote for each share held of record at the close of business on the Record Date.
Shareholders of each of the Funds will vote on the Merger and the Selection of
Independent Auditors. Only shareholders of SST will vote on the election of
Trustees of SST and the ratification of the Amended and Restated Trust
Indenture, including changing the fundamental investment policy of SST. Proposal
No. 2 requires the affirmative vote of a majority of the outstanding shares of
each of the Funds, voting separately, cast in person or by proxy at the
Meetings. Proposals No. 3 and No. 4 require the affirmative vote of a majority
of the outstanding shares of SST cast in person or by proxy at the Meetings.

At the close of business on the Record Date, there were shares of
SAIF, shares of SAF, shares of SIF and shares of STGF
issued and outstanding. The presence in person or by proxy of the holders of
33% of shares of each Fund constitutes a quorum for the transaction of
business at such Fund's Meeting. To the knowledge of the Trustees, as of the
Record Date, no person owned or record or beneficially more than 5% of the
outstanding shares of any Fund and no person could be deemed a "control
person" as defined in the 1940 Act.

In the event a quorum does not exist as to one or more of the Funds on the
date originally scheduled for its Meeting, or, subject to approval of the
Trustees, for other reasons, one or more adjournments of the Meetings may be
sought by the Trustees. Any adjournment would require a vote in favor of the
adjournment by the holders of a majority of the shares present at such Meeting
(or any adjournment thereof) in person or by proxy. The persons named as proxies
will vote all shares represented by proxies which they are required to vote in
favor of the a Proposal and all signed proxies to which no instruction on a
Proposal is given, in favor of an adjournment for the

<PAGE>

purpose of considering such Proposal at such adjourned meeting, and will vote
all shares which they are required to vote against the Proposal, against an
adjournment for the purpose of considering such Proposal at such adjourned
meeting.

PROXIES

The enclosed form of proxy, if properly executed and returned, will be voted
(or counted as an abstention or withheld from voting) in accordance with the
choices specified thereon, and will be included in determining whether there is
quorum to conduct the Meeting. Signed proxies for which no instruction is given
on a particular Proposal will be voted "FOR" the Proposal.

Shares owned of record by broker-dealers for the benefit of their customers
("street account shares") will be voted by the broker-dealer based on
instructions received from its customers. If no instructions are received, the
broker-dealer may, as record holder, vote such shares on the respective Proposal
in the same proportion as that broker-dealer votes street account shares for
which voting instructions were received in time to be voted ("broker
non-votes"). Abstentions will be counted as present for purposes of determining
a quorum, will be counted as a vote cast at the Meeting, and will have the same
effect as a vote against such Proposal. Broker non-votes will be counted as
present for determining a quorum but will not be counted as a vote cast. The
proxy may be revoked at any time prior to the voting thereof by: (i) writing to
the Secretary of the Fund at 1730 K Street, N.W., Washington, D.C. 20006; (ii)
attending the Meeting and voting in person; or (iii) signing and returning a new
proxy (if returned and received in time to be voted).

COSTS OF THE SOLICITATION AND THE REORGANIZATION

All expenses of this solicitation, including the cost of printing and
mailing this Proxy Statement and Prospectus to over 18,500 shareholders, will be
shared proportionately by the Funds, based upon the net asset value of each of
the Funds as of the date the Merger Agreement is signed. In addition to the
solicitation of proxies by mail, proxies may be solicited by officers and
employees of SSC, the Trust's investment adviser, personally or by telephone or
telegraph.

Expenses of the Merger and the conversion of SST to a closed-end fund will
be paid as set forth in the Merger Agreement. All out-of-pocket expenses of the
Funds associated with the Merger, including Fund accounting and transfer agent
expenses, printing, postage, and mailing expenses for over 18,500 shareholder
accounts, filing and application fees, and legal fees will be borne by the Funds
proportionately to each Fund's net asset value.

MISCELLANEOUS

FINANCIAL INFORMATION

Financial information as to SST and the other Funds is available without
charge upon written request to the Fund at 1730 K Street, N.W., Washington, D.C.
20006, and in its audited financial statements as of June 30, 1996 which are
included in the Statement of Additional Information.

62
<PAGE>
PUBLIC INFORMATION

SST is registered under the 1940 Act and is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended, and in
accordance therewith, files reports, proxy statements and other information with
the SEC. SIF, SAIF and STGF are also registered under the 1940 Act and are
required to file reports with the SEC under the 1940 Act. Proxy materials,
reports, and other information about SST, SIF, SAIF, and STGF which have been
filed with the SEC and are of public record, can be inspected and copied at
public reference facilities maintained by the SEC in Washington, D.C. and
certain of its regional offices, and copies of such materials can be obtained at
prescribed rates from the Public Reference Branch, Office of Consumer Affairs
and Information Services, SEC, 450 Fifth Street, N.W., Washington, D.C. 20549.
This registration statement, including all exhibits and schedules, and such
other information as may have been incorporated by reference herein, may also be
accessed electronically by means of the SEC's site on the World Wide Web at
http://www.sec.gov.

OTHER BUSINESS

The Trustees of the Funds know of no business other than the matters
specified above which will be presented at the Meetings. Since matters not known
at the time of the solicitation may come before the Meetings, the proxy as
solicited confers discretionary authority with respect to such matters as
properly come before the Meetings, including any adjournment or adjournments
thereof, and it is the intention of the persons named as attorneys-in-fact in
the proxy to vote this proxy in accordance with their judgment on such matters.

By Order of the Boards of Trustees
of
Steadman American Industry Fund
Steadman Associated Fund
Steadman Investment Fund
Steadman Technology and Growth Fund

Max Katcher, Secretary
July , 1997

<PAGE>

PART B: INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION

ITEM 10. COVER PAGE

STATEMENT OF ADDITIONAL INFORMATION

July ____ , 1997

STEADMAN SECURITY TRUST
(formerly the Steadman Associated Fund)

1730 K Street N.W.
Washington, D.C. 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 Steadman Security Trust (formerly
the Steadman Associated Fund) bearing the same date. Requests for copies of the
prospectus should be made by writing to Steadman Security 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 as having been authorized
by the Fund.

This Statement of Additional Information does not constitute an offer to
sell securities.

ITEM 11. TABLE OF CONTENTS

Table of Contents.........................Page No.

Investment Techniques .................... B-2
Options on Stock Indices.................. B-2
Portfolio Diversification................. B-3
Tax Status................................ B-3
Portfolio Turnover........................ B-4
Other Investment Techniques............... B-5
Performance Information .................. B-5
Trustees and Officers of the Fund......... B-5
Principal Shareholders.................... B-6
Investment Advisory and Transfer Agent
Fees.................................... B-6
Distribution Expense...................... B-8

B-1
<PAGE>
Portfolio Transactions and Brokerage
Commissions............................. B-8
Shareholder Investment Plan............... B-10
Independent Accountants B-10
Financial Statements and Related
Information............................. B-10

ITEM 12. ADDITIONAL INFORMATION ABOUT THE REGISTRANT.

ITEM 13. ADDITIONAL INFORMATION ABOUT THE COMPANY BEING ACQUIRED.

The following information relates to the Fund and the Other Funds being
merged into the Fund. Upon completion of the merger of the Fund and the Other
Funds, the Fund will become a close-end management investment company under the
name Steadman Security Trust. The Other Funds comprise the Steadman Investment
Fund, the Steadman American Industry Fund and the Steadman Technology and Growth
Fund.

INVESTMENT TECHNIQUES

The following information supplements and should be read in conjunction with
the section of the Fund's Prospectus entitled "Investment Policies, Objectives
and Techniques".

OPTIONS ON STOCK INDICES

Options on stock indices operate in much the same way as options on common
stock, except that the underlying instrument, rather than being a stock, is a
stock index such as the Standard & Poor's 500 Stock Index.

The Fund will utilize various investment techniques involving options on
stock market indices so as to enhance income. Call or put options may be
purchased or sold on these indices depending upon the market conditions as
viewed by the Advisor. The opportunity to realize a gain or loss on the
purchase or sale of an index option is based upon movements in the level of
prices in the stock market generally rather than changes in price of an
individual stock. Successful use of index option techniques is therefore
dependent upon the Advisor's ability to predict correctly movements in the
stock market in general or the index of underlying stocks in particular, and
this requires skills and techniques different from those involved in
predicting the price level change of individual stocks.

When purchasing a call on an index as an initial transaction, the maximum
gain is unlimited while the risk is limited to the amount of the premium paid
for the call. In selling a call on an. index as an initial transaction, the
maximum gain is the amount of the premium realized in the sale of the call
whereas the risk is not limited by the price of an underlying security. When
purchasing a put on an index as an initial transaction, the maximum gain is the
difference between the exercise price and zero while the risk is limited to the
amount of the premium paid for the put. In selling a put on an index as an
initial transaction, the maximum gain is the. amount of the premium realized in
the sale of the put whereas the risk is the difference between the exercise
price and zero.

B-2
<PAGE>

The Fund will cover call options on indexes by owning securities whose price
changes, in the opinion of the Advisor, are expected to be similar to those of
the index, or in such other manner as may be in accordance with the guidelines
established by the SEC with respect to coverage of options strategies.
Nevertheless, where the Fund covers a call option on an index through ownership
of securities, such securities may not match the composition of the index. In
that event, the Fund will not be fully covered and could be subject to risk of
loss in the event of adverse changes in the value of the index. The Advisor will
monitor and make appropriate adjustments to insure that the Fund is adequately
covered if the index and the underlying securities diverge.

The Fund will cover put options on indexes by segregating assets equal to
the option's exercise price, or in such other manner as may be in accordance
with the guidelines established by the SEC with respect to coverage of options
strategies.

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 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 Advisor determines that it is in the best interest of the
Fund to do so.

TAX STATUS

Currently, the Fund does not qualify as a regulated investment company
("RIC") taxable under the rules of Sections 851-855 of the Internal Revenue Code
of 1986, as amended (the "Code"). The Fund is taxed under the normal rules of
the Code applicable to C corporations. 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 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.

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 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

B-3
<PAGE>

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.

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.

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.

PORTFOLIO TURNOVER

Because the Fund may engage in short-term trading, its portfolio rates may
exceed 300%. High portfolio turnover (over 100%) may result in correspondingly
higher brokerage costs.

B-4
<PAGE>

OTHER INVESTMENT TECHNIQUES

The Fund's Trust Indenture provides that the Fund may, in the sole
discretion of the Advisor and to the maximum extent permissible by the
applicable laws and regulations, engage in all lawful investment
activities. Without limitation on any other investment activities, the Fund
reserves freedom of action to engage in the following types of activities
specified in Section (8)(b) of the Investment Company Act of 1940. (A) The Fund
may borrow money from a bank for either investment or emergency purposes
provided that such borrowing does not exceed 33 1/3% of the value of the Fund's
total assets, less its liabilities other than such borrowings; (B) The Fund may
issue senior securities to the extent the borrowing identified in (A) above
constitutes the issuance of senior securities; (C) 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; (D) 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; (E) The Fund may make both long and short-term loans to others,
including the purchase of non-publicly offered debt securities. 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 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.

PERFORMANCE INFORMATION

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 $1,000 (with all distributions reinvested) to
reach the value of that investment at the end of the periods. The Fund may 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
the shares of SST for the one year, five year, and ten year periods ended June
30, 1996 are (4.38%), 2.83%, and 4.55% respectively. The average annual total
rate of return for the Other Funds shares for the one year, five years, and ten
years periods ended June 30, 1996 are (18.48)%, (13.67)% and (12.52)%
respectively for SAIF, (15.53)%, (4.61)%, and (4.79)%, respectively for SIF, and
(28.29)%, (13.04)% and (14.11)% respectively for STGF.

TRUSTEES AND OFFICERS OF THE FUND

*CHARLES W. STEADMAN, Chairman of the Board of Trustees and President of the
fund; Chairman of the Board, President and Treasurer, Steadman Security
Corporation (SSC) and subsidiaries. Age 82.

PAUL A. BOWERS, M.D., Trustee, 9 Sandringham Road, Bala Cynwyd,
Pennsylvania; Retired from private medical practice and as a Professor,
Obstetrics and Gynecology, Jefferson Medical College, Philadelphia,
Pennsylvania. Age 84.

B-5
<PAGE>

JOHN T. HAYWARD, Trustee, 3 Barclay Square, Newport, Rhode Island, Vice
Admiral, U.S.N. (ret); Management Consultant; formerly Vice President,
General Dynamics Corporation, Washington, D.C. (aerospace manufacturing)
(1968-1974). Age 85.

PAUL F. WAGNER, Trustee, Chairman, Wagner, Hines & Avery, Inc. a Washington,
D.C. Public Affairs firm. Age 78.

MAX KATCHER, Executive Vice President, Secretary and Treasurer of the Fund,
Executive Vice President of SSC. Age 67.

E. JEAN BELLOSI, Assistant Secretary of the Fund, Secretary of SSC. Age 57.

*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, which Other Funds are proposed to be merged into the Fund.

The address of all of the officers of the Fund is 1730 K Street, NW,
Washington, DC 20006.

On June 30, 1997, the Trustees and Officers of the Fund, as a group
beneficially owned 16,434.691 shares in the Fund and 1,821.711 shares of the
Other Funds which is less than one percent of each of the Fund's equity
securities.

During the fiscal year ended June 30, 1997, the Fund paid $4,844 in fees and
expenses to all Trustees except Mr. Steadman who received no such fees or
expenses. Trustees are paid $300 per meeting attended, except Mr. Steadman.
During the fiscal year ended June 30, 1997, the Other Funds paid $17,432 in fees
and expenses to all Trustees except Mr. Steadman, who received no such fees or
expenses. The Other Funds Trustees are paid $300 per meetings attended, except
Mr. Steadman. Upon the merger into the Fund, the Trustees will be compensated at
the same level.

PRINCIPAL SHAREHOLDERS

On June 30, 1997, no person beneficially owned more than 5% of the then
outstanding shares of the Fund or each of the Other Funds.

INVESTMENT ADVISORY AND TRANSFER AGENT FEES

SSC 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 SSC. The fees for investment advisory
services arc 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.

B-6
<PAGE>

The Fund paid investment advisory fees during the fiscal year ended June 30,
1996, the fiscal period ended June 30, 1995*, and the fiscal year ended
September 30, 1994 as follows: 1996-$51,706; 1995-$41,902; and 1994-$74,029. The
Other Funds paid aggregate investment advisory fees during the fiscal year ended
June 30, 1996, the fiscal period ended June 30, 1995*, and in the case of SAIF,
the fiscal year ended January 31, 1994 and in the case of SIF and STGF, the
fiscal year ended December 31, 1994 as follows: $1996-$40,338; 1995-$20,833; and
1994-$59,119.

Under an agreement with the Fund which is contained in the approved minutes
of the Fund, SSC serves as Transfer and Dividend Disbursing Agent and Agent for
Administration of Shareholder Accounts (hereinafter "delegated services") for
the Fund and the Other Funds. 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 during the fiscal year ended June
30, 1996, the fiscal period ended June 30, 1995*, and the fiscal year ended
September 30, 1994 as follows: 1996-$41,214; 1995-$33,620; and 1994-$47,679. The
Other Funds paid aggregate fees for delegated services during the fiscal year
ended June 30, 1996, the fiscal period ended June 30, 1995*, and in the case of
SAIF the fiscal year ended January 31, 1994 and in the case of SIF and STGF, the
fiscal year ended December 31, 1994 as follows: 1996-$283,427; 1995-$135,292;
and 1994-$303,110.

The Fund and the Other Funds also reimbursed SSC 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 fiscal year ended June 30, 1996 of $184,729 and $177,738, respectively.

SSC 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 SSC 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 net asset value of the shares at any required valuation date; (iv) the fees
and expenses of the Trustees and,

- ------------------------
*The Funds' fiscal year was changed to June 30.

B-7
<PAGE>

contrary to most other funds, the fees of those Trustees who also may be
directors of the 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 Advisor
or its subsidiaries; (xiii) the fees of auditors; (xiv) the fees of legal
counsel; (xv) travel, entertainment, publication, telephone, telegraph, and
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 Advisor. The Other Funds have
similar agreements.

DISTRIBUTION EXPENSES

The Fund and the Other Funds pays all fees and expenses in connection with
registering their 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. Upon completion of
the merger of the Other Funds into the Fund, the Fund will be a close-end fund
and will not be offering fund shares on a regular basis except pursuant to a
dividend reinvestment plan, if offered by the Fund.

PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS

SSC 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 the facilities and services of a particular
broker or dealer. Subject to these into considerations, the Fund has authorized
SSC 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 Advisor. 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, SSC, as 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 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 SSC, and the brokerage commissions of such
other mutual funds may indirectly benefit the Fund. SSC 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 the Other
Funds, it is possible that at certain times the Fund and one or more of the
Other Funds managed by SSC or its subsidiaries will seek to

B-8
<PAGE>

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 the Fund and the Other Funds and at a prorated cost, if
feasible, and in the alternative on a rotating or other equitable basis. The
Advisor makes all such allocations. In some cases this arrangement could have
detrimental effect on the price or volume executed insofar as a particular
Fund is concerned.

The Fund's Investment Advisor, 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 Advisor 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 and Other Funds paid brokerage
as follows:

FUND OTHER FUNDS (2)
------------------------- -------------------------
BROKERAGE TRANSACTIONS BROKERAGE TRANSACTIONS
---------- ------------- ---------- -------------

06/30/96 $ 126,558 $ 22,887,207 $ 94,626 $ 15,689,513
06/30/95(1) $ 154,535 $ 33,592,600 $ 54,910 $ 9,660,951
09/30/94 $ 161,884 $ 31,907,181 $ 170,195 $ 27,232,365

(1) For the fiscal period October 1, 1994 through June 30, 1995
(2) Prior to June 30,1995, the fiscal years were:
SAIF--January 31; SIF and STGF--December 31.

During the Fund's fiscal year ended June 30, 1996, the Advisor directed
brokerage transactions and paid brokerage commissions as follows because of
research services provided by Reich & Co., Inc. of $32,500 on transactions of
$7,000,000. During the Other Funds' fiscal year ended June 30, 1996, the Advisor
directed brokerage transactions and paid brokerage commissions as follows
because of research services provided by Reich & Co., Inc. of $31,700 on
transactions of $5,601,700. Brokerage commissions were directed to Reich & Co.,
Inc. pursuant to an understanding that quotation services and devices would be
provided to the Advisor in exchange for these brokerage commissions.

B-9
<PAGE>

The following table details transaction amounts and commissions paid to
brokers during the last fiscal year for the Fund and the Other Funds as well as
the percentage of transactions and commissions as related to the total for the
Fund and the Other Funds.

FUND

<TABLE>
<CAPTION>
BROKER TRANSACTIONS % OF TOTAL COMMISSIONS % OF TOTAL
- ------------------------------------------------------------ ------------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Reich & Co.................................................. $ 17,558,532 76.7 $ 81,551 64.5
Dean Witter................................................. 4,696,238 20.5 33,207 26.2
Drexel Burnham.............................................. 162,813 0.7 500 0.4
Ryan Hartley & Lee.......................................... $ 469,625 2.1 11,300 8.9
------------- ----- ------------ -----
Totals...................................................... $ 22,887,208 100.0% $ 126,558 100.0%
------------- ----- ------------ -----
------------- ----- ------------ -----
</TABLE>

OTHER FUNDS

<TABLE>
<CAPTION>
BROKER TRANSACTIONS % OF TOTAL COMMISSIONS % OF TOTAL
- ------------------------------------------------------------ ------------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Reich & Co.................................................. $ 13,922,221 88.7% $ 79,078 83.6%
Dean Witter................................................. 1,499,629 9.6 10,914 11.5
Ryan Hartley & Lee, Inc..................................... 94,312 0.6 3,350 3.6
William Blair & Co.......................................... 91,975 0.6 1,074 1.1
Wertheim, Inc............................................... 81,375 0.5 210 0.2
------------- ----- ------------ -----
Totals...................................................... $ 15,689,512 100.0% $ 94,626 100.0%
------------- ----- ------------ -----
------------- ----- ------------ -----
</TABLE>

SHAREHOLDER INVESTMENT PLAN

Fund and the Other Funds currently have available a "Systematic Withdrawal"
plan which will be abolished upon the merger of the Other Funds into the Fund
which will become a closed-end management investment company.

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.

ITEM 14. FINANCIAL STATEMENTS.

FINANCIAL STATEMENTS AND RELATED INFORMATION

The Fund's Financial Statements and related notes for the fiscal year ended
June 30, 1996 follow:

B-10
<PAGE>

Financial Statements and information of the Fund and the Other Funds listed
below are included in part B hereof.

--Report of Independent Accountants, dated July 29, 1996, except for
Steadman Associated Fund for which the date is August 6, 1996.

--Portfolio of Investments, June 30, 1996.

--Statement of Assets and Liabilities, June 30, 1996.

--Statement of Operations, for the year ended June 30, 1996

-- Statements of Changes in Net Assets, for the year ended June 30, 1996,
for the period October 1, 1994 through June 30,1995 and the year ended
September 30, 1994.

--Financial Highlights, for the year ended June 30, 1996, for the period
October 1, 1994 through June 30, 1995 and for each of the four years ended
September 30.

--Notes to Financial Statements listed above.

The following documents have been previously filed with the Securities and
Exchange Commission and are incorporated herein by reference in response to this
Item 14:

Semi-annual Report to Shareholders on Form N-30D of the Steadman Associated
Fund dated December 31, 1996 (SEC file no. 811-00018).

Semi-annual Report to Shareholders on Form N-30D of the Steadman American
Industry Fund dated December 31, 1996 (SEC file no. 811-00855).

Semi-annual Report to Shareholders on Form N-30D of the Steadman Investment
Fund dated December 31, 1996 (SEC file no. 811-00747).

Semi-annual Report to Shareholders on Form N-30D of the Steadman Technology
and Growth Fund dated December 31, 1996 (SEC file no. 811-01542).

B-11

<PAGE>

STEADMAN ASSOCIATED FUND
1730 K Street, N.W.
Washington, D.C. 20006
1-800-424-8570
202-223-1000 Washington D.C. area

TRANSFER AGENT
Steadman Security Corporation
1730 K Street, N.W.
Washington, D.C. 20006

CUSTODIAN
Crestar Bank, N.A.
1445 New York Avenue, N.W.
Washington, D.C. 20005

INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
1800 M Street N.W.
Washington D.C. 20036

For more information about
STEADMAN ASSOCIATED FUND.
account information or daily
Net Asset Values, call:

Shareholder Services
1-800-424-8570
202-223-1000 Washington, D.C. area

STEADMAN

ASSOCIATED
FUND

ANNUAL
REPORT
JUNE 30, 1996

A STEADMAN NO-LOAD MUTUAL FUND

STEADMAN SECURITY
CORPORATION
[LOGO]
INVESTMENT ADVISER

<PAGE>

Fellow Shareholders:

The forces most dominant in present market behavior have continued to be a
low level of inflation and behavior of interest rates.

The economy generally is moving at a pace that is slowing. Although
employment levels remain high, there are indications that some of this can be
accounted for by a fact of two jobs among wage earners in many households. This
of course casts a question about the dependability of recent employment reports.
It also may support indications of there being a lesser rather than greater
likelihood that there will be an incentive for the Federal Reserve to initiate
any near term move to tighten money and raise rates.

These conditions suggest that the interest rates are going to decline.
Looking to the 30 year Treasury Bond for guidance we are beginning to see a
pattern of declining yield, of course with the Bond rising in price. We expect
this trend of declining interest rates to continue and bear with it very
favorable market consequences for your Fund.

Thank you for your confidence and continued support.

Sincerely,

/s/ Charles W. Steadman

Charles W. Steadman
Chairman of the Board of
Trustees and President

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
STEADMAN ASSOCIATED FUND

We have audited the accompanying statement of assets and liabilities of
Steadman Associated Fund, including the portfolio of investments, as of June 30,
1996, and the related statement of operations for the year ended, the statements
of changes in net assets for the year then ended and the periods October 1, 1994
through June 30, 1995, and October 1, 1993 through September 30, 1994, and the
financial highlights for the year ended June 30, 1996 and the period October 1,
1994 through June 30, 1995, and each of the four years ended September 30, 1994.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of June 30, 1996, by correspondence
with the custodian and broker. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Steadman Associated Fund as of June 30, 1996, the results of its operations, the
changes in its net assets, and the financial highlights for each of the
respective periods stated in the first paragraph, in conformity with generally
accepted accounting principles.

Coopers & Lybrand L.L.P.

Washington, D.C.
August 6, 1996

<PAGE>

STEADMAN ASSOCIATED FUND

PORTFOLIO OF INVESTMENTS
June 30, 1996

VALUE
SHARES (NOTE 1)
-------- ---------
COMMON STOCKS -- 96.6%

Communications Equipment -- 11.3%
Electronic Data Systems. . . . . . . . . . . . . . 2,000 $ 107,500
Motorola . . . . . . . . . . . . . . . . . . . . . 2,500 157,188
Precision Systems (a) . . . . . . . . . . . . . . 19,000 223,250
---------
Total Communications Equipment 487,938
---------

Computer Equipment -- 9.2%
Hewlett Packard. . . . . . . . . . . . . . . . . . 4,000 398,500
---------
Total Computer Equipment 398,500
---------

Computer Storage Equipment -- 12.0%
Iomega Corp. (a) . . . . . . . . . . . . . . . . . 4,000 116,000
Seagate Technology (a) . . . . . . . . . . . . . . 9,000 405,000
---------
Total Computer Storage Equipment 521,000
---------

Computer Systems -- 32.3%
Microsoft Corp. (a). . . . . . . . . . . . . . . . 7,500 900,937
Sun Microsystems (a) . . . . . . . . . . . . . . . 8,500 500,437
---------
Total Computer Systems 1,410,374
---------
Medical Instruments -- 1.9%
Boston Scientific (a). . . . . . . . . . . . . . . 1,800 81,000
---------
Total Medical Instruments 81,000
---------

Motor Vehicles -- 10.4%
General Motors "H".. . . . . . . . . . . . . . . . 7,500 450,938
---------
Total Motor Vehicles 450,938
---------

Oil & Gas Drilling -- 1.6%
Global Marine (a). . . . . . . . . . . . . . . . . 5,000 69,375
---------
Total Oil & Gas Drilling 69,375
---------

<PAGE>

STEADMAN ASSOCIATED FUND

PORTFOLIO OF INVESTMENTS
June 30, 1996

VALUE
SHARES (NOTE 1)
-------- ---------
Pharmaceutical -- 4.4%
Elan Corp. Warrants (a). . . . . . . . . . . . . . 2,500 59,687
Regeneron Pharmaceuticals (a). . . . . . . . . . . 7,500 130,313
---------
Total Pharmaceutical 190,000
---------

Radio & TV Equipment -- 6.0%
Geotek Communications, Inc. (a). . . . . . . . . . 7,500 102,656
Qualcomm Inc. (a). . . . . . . . . . . . . . . . . 3,000 159,375
---------
Total Radio & TV Equipment 262,031
---------

Semiconductor -- 7.5%
Intel Corp. Warrants (a) . . . . . . . . . . . . . . . 9,000 326,250
---------
Total Semiconductor 326,250
---------

Total Common Stocks (Cost $3,630,405). . . . . . . . . 4,188,406
---------

CALL OPTIONS PURCHASED -- 3.4%

Applied Materials, 1/17/97 at $30. . . . . . . . . . . 2,500 13,750
Applied Materials, 10/18/96 at $30 . . . . . . . . . . 1,500 6,000
American Tel. and Tel., 7/19/96 at $70 . . . . . . . . 20,000 1,250
IBM, 7/19/96 at $90. . . . . . . . . . . . . . . . . . 5,000 50,000
Iomega Corp., 11/15/96 at $30. . . . . . . . . . . . . 2,500 19,688
LAM Research, 12/20/96 at $25. . . . . . . . . . . . . 2,500 12,813
LSI Logic, 1/17/97 at $25. . . . . . . . . . . . . . . 2,500 13,750
Seagate Technology, 12/20/96 at $45. . . . . . . . . . 2,500 14,687
Sun Microsystems, 10/18/96 at $60. . . . . . . . . . . 2,500 15,625
---------
Total Call Options Purchased (Cost $187,250) . . . 147,563
---------
Total Portfolio of Investments (Cost $3,817,655) $ 4,335,969
---------
---------

(a) Non-income producing security.

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

<PAGE>

STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996

ASSETS:
Investments at value (Cost $3,817,655) (Note 1). . . . . . . $ 4,335,969
Cash and cash equivalents (Note 1). . . . . . . . . . . . . 314,978
Dividends receivable . . . . . . . . . . . . . . . . . . . . 1,860
Interest receivable. . . . . . . . . . . . . . . . . . . . . 449
Receivable for trust shares subscribed . . . . . . . . . . . 100
-----------
Total assets. . . . . . . . . . . . . . . . . . . . . . 4,653,356
-----------

LIABILITIES:
Payable for investments purchased. . . . . . . . . . . . . . 32,325
Accounts payable and accrued expenses. . . . . . . . . . . . 12,804
Investment advisory and service fees payable (Note 4). . . . 7,271
Other payable to affiliate (Note 4). . . . . . . . . . . 17,711
Payable for Trust shares redeemed. . . . . . . . . . . . . . 1,754
-----------
Total liabilities . . . . . . . . . . . . . . . . . . . 71,865
-----------

NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,581,491
-----------
-----------

NET ASSETS CONSIST OF:
Undistributed net investment loss. . . . . . . . . . . . . . $(4,646,935)
Unrealized appreciation of Investments . . . . . . . . . . . 518,314
Accumulated net realized losses from security transactions . (1,127,057)
Paid-in capital. . . . . . . . . . . . . . . . . . . . . . . 9,837,169
-----------
$9,837,169
-----------
-----------

NET ASSET VALUE, offering price and redemption price per share
($4,581,491 DIVIDED BY 6,580,298 shares of
no par value trust shares) . . . . . . . . . . . . . . . . $ .70
-----------
-----------

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

<PAGE>

STEADMAN ASSOCIATED FUND

STATEMENT OF OPERATIONS
for the year ended June 30, 1996

<S> <C> <C>
INVESTMENT INCOME:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 23,904
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,242
--------
Total income . . . . . . . . . . . . . . . . . . . . . . $ 34,146

EXPENSES:
Salaries and employee benefits (Note 4). . . . . . . . . . . . . 184,729
Investment advisory fee (Note 4) . . . . . . . . . . . . . . . . 51,706
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . 56,679
Shareholder servicing fee (Note 4) . . . . . . . . . . . . . . . 41,214
Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,281
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . 12,469
Blue Sky Registration Fees . . . . . . . . . . . . . . . . . . . 11,820
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . 11,186
Computer services. . . . . . . . . . . . . . . . . . . . . . . . 8,713
Reports to shareholders. . . . . . . . . . . . . . . . . . . . . 6,383
Trustees' fees and expenses (Note 4) . . . . . . . . . . . . . . 5,328
--------
Total expenses. . . . . . . . . . . . . . . . . . . . . . . 422,508
---------

Net investment loss . . . . . . . . . . . . . . . . . . . . (388,362)
---------

REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS (NOTES 1 AND 3):
Net realized gain from investment transactions . . . . . . . . . 517,110
Change in unrealized appreciation/(depreciation) of investments (352,459)
---------
Net gain on investments. . . . . . . . . . . . . . . . . . . . . 164,651
---------
Net decrease in net assets resulting from operations . . . . . . $(223,711)
---------
---------

</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

<PAGE>

STEADMAN ASSOCIATED FUND

STATEMENTS OF CHANGES IN NET ASSETS

For the period
For the year October 1, 1994 For the
ended June 30, through year ended
1996 June 30, 1995* September 30, 1994
----------------- ---------------- ------------------
<S> <C> <C> <C>
Decrease in net assets from operations:
Net investment loss. . . . . . . . . . . . . . . . . . . . . $ (388,362) $ (240,379) $ (450,758)
Net realized gain (loss) from investment transactions. . . . 517,110 (451,689) (1,192,478)
Change in unrealized appreciation/depreciation . . . . . . . (352,459) 689,335 232,086
---------- ---------- ----------
Net increase (decrease) in net assets resulting
from operations. . . . . . . . . . . . . . . . . . (223,711) (2,733) (1,411,150)
---------- ---------- ----------

Decrease in net assets from trust share transactions (Note 2). . (929,919) (568,786) (1,125,963)
---------- ---------- ----------
Increase (decrease) in net assets. . . . . . . . . . . . . . (1,153,630) (571,519) (2,537,113)

Net assets at beginning of period. . . . . . . . . . . . . . . . 5,735,121 6,306,640 8,843,753
---------- ---------- ----------

Net assets at end of period (including accumulated
net investment loss of $4,635,886, $4,247,524 and
- - $0 -, respectively . . . . . . . . . . . . . . . . . . . . . . $4,581,491 $ 5,735,121 $ 6,306,640
---------- ---------- ----------
---------- ---------- ----------

</TABLE>

* The Fund's fiscal year-end was changed to June 30.

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

<PAGE>

STEADMAN ASSOCIATED FUND

FINANCIAL HIGHLIGHTS

For the
period
October 1,
For the year 1994
ended through For the years ended September 30,
June 30 June 30,
---------- ---------- -------------------------------------------
1996 1995* 1994 1993 1992 1991
---------- ---------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period . . . . . . . $.73 $.72 $.87 $.64 $.67 $.57
---------- ---------- -------------------------------------------
Net investment loss . . . . . . . . . . . . . (.17) (.03) (.08) (.05) (.03) (.02)
Net realized and unrealized
gain (loss) on investments . . . . . . . . .14 .04 (.07) .28 - .12
---------- ---------- -------------------------------------------
Total from investment operations. . . . . . . (.03) .01 (.15) .23 (.03) .10
---------- ---------- -------------------------------------------
Net asset value, end of period . . . . . . . . . . $.70 $.73 $.72 $.87 $.64 $.67
---------- ---------- -------------------------------------------
---------- ---------- -------------------------------------------
Ratios/Supplemental Data:
Total return . . . . . . . . . . . . . . . . . . . (4.38) 1.85%** (17.24)% 35.9% (4.5)% 17.5%
Ratio of expenses to average net assets. . . . . . 8.14% 8.17%** 7.76% 5.79% 6.92% 7.16%
Ratio of net investment income (loss)
to average net assets . . . . . . . . . . . . (7.48)% (7.23)%** (6.09)% (4.63)% (5.14)% (3.29)%
Portfolio turnover rate. . . . . . . . . . . . . . 231% 505%** 241% 300% 301% 267%
Net assets, end of period (in thousands) . . . . . $4,581 $5,735 $6,307 $8,844 $7,254 $8,539

</TABLE>

* The Fund's fiscal year-end was changed to June 30.
** Annualized

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

<PAGE>

STEADMAN ASSOCIATED FUND

NOTES TO FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES
- -
Steadman Associated Fund (the Fund) is registered under the Investment
Company Act of 1940, as amended, as a non-diversified, open-end investment
company. During 1995, the Fund changed its fiscal year end from September 30 to
June 30.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies consistently followed by the Fund in the
preparation of its financial statements

CASH AND CASH EQUIVALENTS
Management defines cash equivalents as investments that mature in three
months or less. All cash and cash equivalents are invested in a single money
market fund maintained by the investment custodian.

SECURITY VALUATION
Investments in securities traded on a national securities exchange are valued
at the last reported sales price on the last business day of the period.
Investments for which no sale was reported on that date are valued at the mean
between the latest bid and asked prices.

SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are recorded on the trade date. Realized gains and
losses from security transactions are reported on an identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income and
expenses are recorded on the accrual basis.

Call options give the holder the right to purchase a security at a specified
price on a certain date. Risks arise from possible illiquidity of the options
market and from movements in security values. Options are reflected in the
accompanying Statement of Assets and Liabilities at market value.

INCOME TAXES
The Fund is subject to income taxes in years when it does not qualify as a
regulated investment company under subchapter M of the Internal Revenue Code.
The Fund accounts for income taxes using the liability method, whereby deferred
tax assets and liabilities arise from the tax effect of temporary differences
between the financial statement and taxes bases of assets and liabilities,
measured using presently enacted tax rates. If it is more likely than not that
some portion or all of a deferred tax asset will not be realized, a valuation
allowance is recognized.

<PAGE>

STEADMAN ASSOCIATED FUND

2. TRUST SHARES
The Trust Indenture does not specify a limit to the number of shares which
may be issued. Transactions in trust shares were as follows:

For the year For the period October 1, 1994 For the year
ended June 30, 1996 through June 30, 1995 ended September 30, 1994
------------------------- ------------------------- -------------------------
Shares Amount Shares Amount Shares Amount
---------- ---------- ---------- ---------- ---------- ----------

<S> <C> <C> <C> <C> <C> <C>
Shares sold. . . . . . . . . 269 $ 200 581 $ 413 -- 0 -- $ -- 0--
Shares redeemed. . . . . . . (1,295,786) (930,119) (845,933) (569,199) (1,426,814) (1,125.963)
---------- ---------- ---------- ----------- ----------- -----------
Net decrease. . . . . . . (1,295,517) $ (929,919) (845,352) $ (568,786) (1,426,814) $(1,125,963)
---------- ----------- -----------
---------- ----------- -----------

Shares outstanding:
Beginning of period . . . 7,875,815 8,721,167 10,147,981
---------- ---------- ----------
End of period . . . . . . 6,580,298 7,875,815 8,721,167
---------- ---------- ----------
---------- ---------- ----------

</TABLE>

3. PURCHASES AND SALES OF SECURITIES
During the year ended June 30, 1996, purchases and proceeds from sales of
investment securities aggregated $11,790,716 and $12,530,500, respectively.
Unrealized appreciation of investments aggregated $501,026 of which $648,718
related to gross unrealized appreciation where there is an excess of value over
tax cost and $147,692 related to gross unrealized depreciation where there is an
excess of tax cost over value.

4. INVESTMENT ADVISORY FEE AND TRANSACTIONS WITH AFFILIATES
Steadman Security Corporation (SSC), the affiliate, has provided advisory
services under an agreement which first became effective in 1972. On February
28, 1984, at the Annual Meeting of the shareholders, a new Investment Advisory
Agreement was approved. Under the new advisory agreement SSC will continue to
provide the same services it provided under the same terms and conditions of the
previous agreement. The agreement will continue in effect subject to the annual
approval by the Board of Trustees or by a majority of the outstanding voting
securities of the Fund. The fee for investment advisory services is based on 1%
of the first $35,000,000 of the average daily net assets of the Fund, 7/8 of 1 %
on the next $35,000,000 and 3/4 of 1% on all sums in excess thereof. In addition
to the investment advisory fee, SSC received fees from the Fund for the
performance of delegated services. (dividend disbursing agent and transfer
agent) as defined in the Trust Indenture, as amended. The fee for such services
was computed on the basis of the number of shareholder accounts calculated as of
the last business day of each month at $1.35 per accounts. SSC received
reimbursements from the Fund for the salaries and benefits of its employees who
perform functions other than investment advisory and shareholder service
functions for the Fund.

<PAGE>

STEADMAN ASSOCIATED FUND

Certain officers and trustees of the Fund are "affiliated persons" of the
Investment Advisor, as defined by the Investment Company Act of 1940.

5. FEDERAL INCOME TAXES
In the fiscal period ended June 30, 1996, the Fund did not meet asset
diversification requirements applicable to regulated investments companies.
Thus, the Fund did not qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code. However, the Fund had a net
investment loss for the fiscal period ended June 30, 1996, therefore no income
tax provision is required. A full valuation allowance has been provided for
deferred tax assets, totalling approximately $2,194,000 at June 30, 1996, which
arise principally from net operating loss carryforwards and capital loss
carryforwards available for income tax purposes.

For income tax purposes, the Fund has net operating loss carryforwards
approximating $4,647,000 which are available to offset future net operating
income in non-qualifying years, if any, which expire as follows: (2000)
$443,000; (2001) $499,000; (2003) $328,000; (2004) $476,000; (2005) $534,000;
(2006) $324,000; (2007) $381,000; (2008) $539,000; (2009) $437,000; (2010)
$287,000 and (2011) $401,000. Capital loss carryforwards aggregating
approximately $1,110,000 are available to offset future capital gains, if any
which expire as follows: (2001) $658,000 and (2000) $452,000.

<PAGE>

6. UNCLAIMED PROPERTY
In December 1989, the Fund and other Steadman Funds were contacted by the
Unclaimed Property Clearinghouse (the Clearinghouse), an association of some 45
member states organized to facilitate the collection for the states of unclaimed
property that is considered abandoned under the laws of the member states. The
Clearinghouse requested certain documents and information in order to determine
whether, and if so, to what extent its member states may assert claims for
abandoned accounts of the Fund's shareholders. On the basis of a review of the
documents and information provided in response to this request, the Special
Counsel for the Clearinghouse has informally asserted that the member states are
entitled to certain property of the Fund's shareholders. In addition, Steadman
Security Corporation holds certain unclaimed dividends of the Fund's
shareholders. In May 1991, the District of Columbia filed suit in the Superior
Court of the District of Columbia against the Fund, other Steadman Funds,
Steadman Security Corporation and its principal officer under the District of
Columbia Disposition of Unclaimed Property Act. Under this action the District
of Columbia sought possession and custody of the alleged abandoned property as
well as prejudgment interest, an unspecified amount of civil penalties, and
reimbursement for reasonable attorney's fees and costs. On March 25, 1993,
counsel for the District of Columbia, the Clearinghouse and the Fund executed a
settlement agreement, which involves no findings of any violations of law by the
Fund and other defendants. The Superior Court dismissed the suit as of November
30, 1993, although the terms of the settlement agreement do not call for
dismissal until after the closing of the agreement. The District of Columbia has
appealed the dismissal. In accordance with the settlement agreement, record
title to certain shares of the Fund and associated distributions were
transferred from the present shareholders of record to the members of the
Clearinghouse on the closing date, February 14, 1995. The shares will be
redeemed over a period of three years from this date. On May 9, 1995 the Court
of appeals dismissed the appeal.

<PAGE>

STEADMAN AMERICAN
INDUSTRY FUND
1730 K Street, N.W.
Washington, D.C. 20006
1-800-424-8570
202-223-1000 Washington D.C. area

TRANSFER AGENT
Steadman Security Corporation
1730 K Street, N.W.
Washington, D.C. 20006

CUSTODIAN
Crestar Bank, N.A.
1445 New York Avenue, N.W.
Washington, D.C. 20005

INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
1800 M Street N.W.
Washington D.C. 20036

FOR MORE INFORMATION ABOUT
STEADMAN AMERICAN INDUSTRY FUND,
account information or daily
Net Asset Values, call:

SHAREHOLDER SERVICES
1-800-424-8570
202-223-1000 Washington, D.C. area

STEADMAN
AMERICAN
INDUSTRY
FUND

ANNUAL
REPORT
June 30, 1996

A STEADMAN NO-LOAD MUTUAL FUND

STEADMAN SECURITY
CORPORATION
[LOGO]
Investment Adviser

<PAGE>

Fellow Shareholders:

The forces most dominant in present market behavior have continued to be a
low level of inflation and behavior of interest rates.

Thank you for your confidence and continued support.

Sincerely,

/s/ Charles W. Steadman
Charles W. Steadman
Chairman of the Board of
Trustees and President

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
STEADMAN AMERICAN INDUSTRY FUND

We have audited the accompanying statement of assets and liabilities of
Steadman American Industry Fund, including the portfolio of investments, as of
June 30, 1996, and the related statement of operations for the year then ended,
the statements of changes in net assets for the year then ended and the periods
February 1, 1995 through June 30, 1995, and February 1, 1994 through January 31,
1995 and the financial highlights for the year then ended and for the period
February 1, 1995 through June 30, 1995 and each of the four years ended January
31, 1995. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Steadman American Industry Fund as of June 30, 1996, the results of its
operations, the changes in its net assets, and the financial highlights for each
of the respective periods stated in the first paragraph, in conformity with
generally accepted accounting principles.

Coopers & Lybrand L.L.P.

Washington, D.C.
July 29, 1996

<PAGE>

STEADMAN AMERICAN INDUSTRY FUND

PORTFOLIO OF INVESTMENTS
June 30, 1996

Value
Shares (Note 1)
-------- ----------
<S> <C> <C>
COMMON STOCKS -- 100%
Communications Equipment -- 7.0%
Precision Systems (a) . . . . . . . . . . . . . . . . . 5,000 $ 58,750
--------
Total Communications Equipment 58,750
--------
Computer Peripherals -- 10.1%
Cisco Systems (a). . . . . . . . . . . . . . . . . . . . 1,500 84,938
--------
Total Computer Peripherals 84,938
--------
Computer Storage Equipment -- 21.4%
Seagate Technology (a) . . . . . . . . . . . . . . . . . 4,000 180,000
--------
Total Computer Storage Equipment 180,000
--------
Pharmaceutical -- 14.2%
Elan Corp. Warrants (a). . . . . . . . . . . . . . . . . 5,000 119,375
--------
Total Pharmaceutical 119,375
--------
Radio & TV Equipment -- 8.2%
Geotek Communications (a). . . . . . . . . . . . . . . . 5,000 68,437
--------
Total Radio & TV Equipment 68,437
--------
Semiconductor -- 32.4%
Intel Corp. Warrants (a).. . . . . . . . . . . . . . . . 7,500 271,875
--------
Total Semiconductor 271,875
--------
Telecom Services -- 6.7%
Champion Technology Holding Ltd. . . . . . . . . . . . . 100,000 56,500
--------
Total Telecom Services 56,500
--------
Total Portfolio of Investments (Cost $820,796) $839,875
--------
--------
</TABLE>

(a) Non-income producing security.

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

<PAGE>

STEADMAN AMERICAN INDUSTRY FUND

Statement of Assets and Liabilities
June 30, 1996

Assets:
Investments at value (Cost $820,796) (Note 1) . . . . . . . $ 839,875
Dividends receivable. . . . . . . . . . . . . . . . . . . . 120
Interest receivable . . . . . . . . . . . . . . . . . . . . 256
Cash and cash equivalents (Note 1) . . . . . . . . . . . . 200,513
-----------
Total assets . . . . . . . . . . . . . . . . . . . . . 1,040,764
-----------
Liabilities:
Accounts payable and accrued expenses . . . . . . . . . . . 14,013
Investment advisory and service fees payable (Note 4) . . . 13,523
Other payable to affiliate (Note 4) . . . . . . . . . . . . 4,956
Payable for Trust shares redeemed . . . . . . . . . . . . . 464
-----------
Total liabilities. . . . . . . . . . . . . . . . . . . 32,956
-----------

Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,007,808
-----------
-----------
Net assets consist of:
Accumulated net investment loss . . . . . . . . . . . . . . $(3,919,011)
Unrealized appreciation of investments. . . . . . . . . . . 19,079
Accumulated net realized losses plus distributions
from realized gains. . . . . . . . . . . . . . . . . . . . (960,129)
Capital paid in less distributions since inception . . . . 5,867,869
-----------
$ 1,007,808
-----------
-----------

Net asset value, offering price and redemption price per share
($1,007,808 DIVIDED BY 1,398,489 shares of no par value
trust shares) . . . . . . . . . . . . . . . . . . . . . . . $ .72
-----------
-----------

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

<PAGE>

STEADMAN AMERICAN INDUSTRY FUND

STATEMENT OF OPERATIONS
for the year ended June 30, 1996

Investment Income:
Dividends . . . . . . . . . . . . . . . . . . . . $ 1,270
Interest. . . . . . . . . . . . . . . . . . . . . 4,979
--------
Total income . . . . . . . . . . . . . . . $ 6,249
---------
Expenses:
Shareholder servicing fee (Note 4). . . . . . . . 160,315
Salaries and employee benefits (Note 4) . . . . . 55,920
Professional fees . . . . . . . . . . . . . . . . 26,297
Miscellaneous . . . . . . . . . . . . . . . . . . 10,512
Investment advisory fee (Note 4). . . . . . . . . 12,209
Reports to shareholders . . . . . . . . . . . . . 10,841
Rent . . . . . . . . . . . . . . . . . . . . . . 7,548
Trustees' fees and expenses (Note 4). . . . . . . 6,998
Computer services . . . . . . . . . . . . . . . . 6,589
Custodian fees. . . . . . . . . . . . . . . . . . 3,225
--------
Total expenses . . . . . . . . . . . . . . . 300,454
---------
Net investment loss . . . . . . . . . . . . . . . (294,205)
---------
Realized and Unrealized Gain (Loss) on Investments
(Notes 1 and 3):
Net realized gain from investment transactions. . 73,821
Change in unrealized appreciation/(depreciation)
of investments . . . . . . . . . . . . . . . . (10,496)
---------
Net gain on investments . . . . . . . . . . . . . 63,325
---------
Net decrease in net assets resulting from
operations. . . . . . . . . . . . . . . . . . . $(230,880)
---------
---------

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

<PAGE>

STEADMAN AMERICAN INDUSTRY FUND

STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>

For the period
For the year February 1, 1995 For the year
ended June 30, through June 30, ended January 31,
1996 1995* 1995
-------------- ---------------- ----------------
<S> <C> <C> <C>
Decrease in net assets from operations:
Net investment loss . . . . . . . . . . . . . . . . . . . . . . . . . $ (294,205) $ (131,469) $ (304,379)
Net realized gain (loss) from investment transactions . . . . . . . . 73,821 (69,865) (84,960)
Change in unrealized appreciation/depreciation. . . . . . . . . . . . (10,496) 91,916 (700,806)
----------- ----------- ------------
Net increase (decrease) in net assets resulting
from operations . . . . . . . . . . . . . . . . . . . . . . . . . . (230,880) (109,418) (1,090,145)

Decrease in net assets from trust share transactions (Note 2). . . . . . (102,199) (22,155) (64,452)
----------- ----------- ------------
Increase (decrease) in net assets. . . . . . . . . . . . . . . . . . . . (333,079) (131,573) 1,154,597

Net assets at beginning of period. . . . . . . . . . . . . . . . . . . . 1,340,887 1,472,460 2,627,057
----------- ----------- ------------
Net assets at end of period, including accumulated net
investment loss of $3,918,641, $3,624,436 and $3,018,368
respectively. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,007,808 $1,340,887 $1,472,460
----------- ----------- ------------
----------- ----------- ------------
</TABLE>

* The Fund's fiscal year-end was changed to June 30.

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

<PAGE>

STEADMAN AMERICAN INDUSTRY FUND

FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>

For the year For the period
ended February 1, 1995
June 30, through June 30, For the years ended January 31,
-------- ---------------- ---------------------------------------
1996 1995* 1995 1994 1993 1992
-------- ---------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period. . . . . . $.88 $.96 $1.65 $1.50 $1.54 $1.59
-------- -------- -------- -------- -------- --------
Net investment loss . . . . . . . . . . . . . . (.41) (.12) (.26) (.24) (.19) (.20)
Net realized and unrealized
gain (loss) on investments. . . . . . . . . .25 .04 (.43) .39 .15 .15
-------- -------- -------- -------- -------- --------
Total from investment operations. . . . . . (.16) (.08) (.69) .15 (.04) (.05)
-------- -------- -------- -------- -------- --------
Net asset value, end of period. . . . . . . . . $.72 $.88 $.96 $1.65 $1.50 $1.54
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Ratios/Supplemental Data:
Total return. . . . . . . . . . . . . . . . . . (18.48)% (20.01)%** (41.82)% 10.00% (2.60)% (3.14)%
Ratio of expenses to average net
assets . . . . . . . . . . . . . . . . . . . 24.61% 24.62%** 17.69% 12.66% 14.83% 15.13%
Ratio of net investment loss to average
net assets . . . . . . . . . . . . . . . . . (24.10)% (22.86)%** (15.63)% (11.40)% (13.52)% (13.13)%
Portfolio turnover rate . . . . . . . . . . . . 339% 617%** 289% 134% 221% 460%
Net assets, end of period (in thousands). . . . $1,008 $1,341 $1,472 $2,627 $2,496 $2,648
</TABLE>

* The Fund's fiscal year-end was changed to June 30.
** Annualized

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

<PAGE>

STEADMAN AMERICAN INDUSTRY FUND

NOTES TO FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

Steadman American Industry Fund (the Fund) is registered under the
Investment Company Act of 1940, as amended, as a non-diversified, open-end
investment company. During 1995, the Fund changed its fiscal year end from
January 31 to June 30.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates. The following is a
summary of significant accounting policies consistently followed by the Fund in
the preparation of its financial statements.

CASH AND CASH EQUIVALENTS

Management defines cash equivalents as investments that mature in
three months or less. All cash and cash equivalents are invested in a
single money market fund maintained by the investment custodian.

SECURITY VALUATION

Investments in securities traded on a national securities exchange are
valued at the last reported sales price on the last business day of the
period. Investments for which no sale was reported on that date are valued
at the mean between the latest bid and asked prices.

SECURITY TRANSACTIONS AND INVESTMENT INCOME

Security transactions are recorded on the trade date. Realized gains
and losses from security transactions are reported on an identified cost
basis. Dividend income is recorded on the ex-dividend date. Interest income
and expenses are recorded on the accrual basis.

INCOME TAXES

The Fund is subject to income taxes in years when it does not qualify
as a regulated investment company under subchapter M of the Internal
Revenue Code. The Fund accounts for income taxes using the liability
method, whereby deferred tax assets and liabilities arise from the tax
effect of temporary differences between the financial statement and tax
bases of assets and liabilities, measured using presently enacted tax
rates. If it is more likely than not that some portion or all of a
deferred tax asset will not be realized, a valuation allowance is
recognized.

<PAGE>

STEADMAN AMERICAN INDUSTRY FUND

2. TRUST SHARES

The Trust Indenture does not specify a limit to the number of shares which
may be issued. Transactions in trust shares were as follows:
<TABLE>
<CAPTION>

For the year For the period February 1, 1995 For the year
ended June 30, 1996 through June 30, 1995 ended January 31, 1995
------------------- -------------------------------- ----------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Shares sold. . . . . . . -- 0 -- $ -- 0 -- -- 0 -- $ -- 0 -- -- 0-- $ -- 0--
Shares redeemed. . . . . (117,686) (102,199) (24,096) (22,155) (51,912) (64,452)
--------- ---------- --------- --------- --------- ---------
Net decrease . . . . . (117,686) $(102,199) (24,096) $(22,155) (51,912) $(64,452)
---------- --------- ---------
---------- --------- ---------
Shares outstanding:
Beginning of period . 1,516,175 1,540,271 1,592,183
--------- --------- ---------
End of period . . . . 1,398,489 1,516,175 1,540,271
--------- --------- ---------
--------- --------- ---------
</TABLE>

3. PURCHASES AND SALES OF SECURITIES

During the year ended June 30, 1996, purchases and proceeds from sales of
investment securities aggregated $3,929,931 and $4,387,838, respectively.

Unrealized appreciation of investment aggregated $19,079 of which $51,388
related to gross unrealized appreciation in which market value exceeded tax cost
and $32,309 related to gross unrealized depreciation in which tax cost exceeded
market value.

4. INVESTMENT ADVISORY FEE AND TRANSACTIONS WITH AFFILIATES

Steadman Security Corporation (SSC), the affiliate, has provided advisory
services under an agreement which first became effective in 1972. On February
28, 1984, at the Annual Meeting of the shareholders, a new Investment Advisory
Agreement was approved. Under the new advisory agreement, SSC will continue to
provide the same services it provided under the same terms and conditions of the
previous agreement. The agreement will continue in effect subject to the annual
approval by the Board of Trustees or by a majority of the outstanding voting
securities of the Fund. The fee for investment advisory services is based on 1%
of the first $35,000,000 of the average daily net assets of the Fund, 7/8 of 1%
on the next $35,000,000 and 3/4 of 1% on all sums in excess thereof. In addition
to the investment advisory fee, SSC received fees from the Fund for the
performance of delegated services (dividend disbursing agent and transfer agent)
as defined in the Trust Indenture, as amended. The fee for such services was
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. SSC received
reimbursements from the Fund for the salaries and benefits of its employees who
perform functions other than investment advisory and shareholder service
functions for the Fund.

Certain officers and trustees of the Fund are "affiliated persons" of the
Investment Adviser, as defined by the Investment Company Act of 1940.

<PAGE>

STEADMAN AMERICAN INDUSTRY FUND

5. FEDERAL INCOME TAXES

In the fiscal year ended June 30, 1996, the Fund did not meet the asset
diversification requirements applicable to regulated investment companies. Thus,
the Fund did not qualify as a regulated investment company under Subchapter M of
the Internal Revenue Code. However, the Fund had a net investment loss in fiscal
1996, therefore no income tax provision is required. A full valuation allowance
was provided for deferred tax assets, totalling approximately $1,854,000 at June
30, 1996, which arise principally from net operating loss carryforwards and
capital carryforwards available for income tax purposes.

For income tax purposes, the Fund has net operating loss carryforwards
approximating $3,919,000 which are available to offset future net operating
income in non-qualifying years, if any, which expire as follows: (1999) $74,000;
(2000) $239,000; (2001) $139,000; (2002) $353,000; (2003) $371,000; (2004)
$235,000; (2005) $384,000; (2006) $365,000; (2007) $360,000; (2008) $335,000;
(2009) $322,000; (2010) $447,000 and (2011) $295,000. Capital loss carryforwards
aggregating approximately $960,000 are available to offset future capital gains,
if any, which expire as follows: (1997) $119,000; (1999) $771,000, and (2000)
$70,000.

<PAGE>

6. UNCLAIMED PROPERTY

In December 1989, the Fund and other Steadman Funds were contacted by the
Unclaimed Property Clearinghouse (the Clearinghouse), an association of some 45
member states organized to facilitate the collection for the states of unclaimed
property that is considered abandoned under the laws of the member states. The
Clearinghouse requested certain documents and information in order to determine
whether, and if so, to what extent its member states may assert claims for
abandoned accounts of the Fund's shareholders. On the basis of a review of the
documents and information provided in response to this request, the Special
Counsel for the Clearinghouse has informally asserted that the member states are
entitled to certain property of the Fund's shareholders. In addition, Steadman
Security Corporation holds certain unclaimed dividends of the Fund's
shareholders. In May 1991, the District of Columbia filed suit in the Superior
Court of the District of Columbia against the Fund, other Steadman Funds,
Steadman Security Corporation and its principal officer under the District of
Columbia Disposition of Unclaimed Property Act. Under this action the District
of Columbia sought possession and custody of the alleged abandoned property as
well as prejudgment interest, an unspecified amount of civil penalties, and
reimbursement for reasonable attorney's fees and costs. On March 25, 1993,
counsel for the District of Columbia, the Clearinghouse and the Fund executed a
settlement agreement, which involves no findings of any violations of law by the
Fund and other defendants. The Superior Court dismissed the suit as of November
30, 1993, although the terms of the settlement agreement do not call for
dismissal until after the closing of the agreement. The District of Columbia
appealed the dismissal. In accordance with the settlement agreement, record
title to certain shares of the Fund and associated distributions were
transferred from the present shareholders of record to the members of the
Clearinghouse on the closing date, February 14, 1995. The shares will be
redeemed over a period of three years from this date. On May 9, 1995, the Court
of Appeals dismissed the appeal.

<PAGE>

STEADMAN INVESTMENT FUND
1730 K Street, N.W.
Washington, D.C. 20006
1-800-424-8570
202-223-1000 Washington D.C. area

TRANSFER AGENT
Steadman Security Corporation
1730 K Street, N.W.
Washington, D.C. 20006

CUSTODIAN
Crestar Bank, N.A.
1445 New York Avenue, N.W.
Washington, D.C. 20005

INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P
1800 M Street N.W.
Washington D.C. 20005

For more information about
STEADMAN INVESTMENT FUND.
account information or daily
Net Asset Values, call:

Shareholder Services
1-800-424-8570
202-223-1000 Washington, D.C. area
Fellow Shareholders:

STEADMAN
Investment
Fund

ANNUAL
REPORT
June 30, 1996

A STEADMAN NO-LOAD MUTUAL FUND

STEADMAN SECURITY
[LOGO] CORPORATION

Investment Adviser

<PAGE>

Fellow Shareholders:

The forces most dominant in present market behavior have continued to be a
low level of inflation and behavior of interest rates.
The economy generally is moving at a pace that is slowing. Although
employment levels remain high, there are indications that some of this can be
accounted for by a fact of two jobs among wage earners in many households. This
of course casts a question about the dependability of recent employment reports.
It also may support indications of there being a lesser rather than greater
likelihood that there will be an incentive for the Federal Reserve to initiate
any near term move to tighten money and raise rates.
These conditions suggest that the interest rates are going to decline.
Looking to the 30 year Treasury Bond for guidance we are beginning to see a
pattern of declining yield, of course with the Bond rising in price. We expect
this trend of declining interest rates to continue and bear with it very
favorable market consequences for your Fund.
Thank you for your confidence and continued support.

Sincerely,

/s/ Charles W. Steadman

Charles W. Steadman
Chairman of the Board of
Trustees and President

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
STEADMAN INVESTMENT FUND

We have audited the accompanying statement of assets and liabilities of
Steadman Investment Fund, including the portfolio of investments, as of June 30,
1996, and the related statement of operations for the year ended June 30, 1996,
the statements of changes in net assets for the year then ended and the periods
January 1, 1995 through June 30, 1995, and January 1, 1994 through December 31,
1994 and the financial highlights for the year ended June 30, 1996 and the
period January 1, 1995 through June 30, 1995, and each of the four years ended
December 31, 1994. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Steadman Investment Fund as of June 30, 1996, the results of its operations, the
changes in its net assets, and the financial highlights for each of the
respective periods stated in the first paragraph, in conformity with generally
accepted accounting principles.

Coopers & Lybrand L.L.P.

Washington, D.C.
July 29, 1996

<PAGE>
STEADMAN INVESTMENT FUND
PORTFOLIO OF INVESTMENTS
June 30, 1996
<TABLE>
<CAPTION>

Value
Shares (Note 1)
---------- ------------
<S> <C> <C>
COMMON STOCK -- 100%

Communications Equipment -- 18.3%
Electronic Data Systems. . . . . . . . . . . . . . . 2,000 $ 107,500
Motorola, Inc. . . . . . . . . . . . . . . . . . . . 2,000 125,750
Precision Systems (a). . . . . . . . . . . . . . . . 5,000 58,750
----------
Total Communications Equipment 292,000
----------
Computer Equipment -- 6.2%
Hewlett-Packard. . . . . . . . . . . . . . . . . . . 1,000 99,625
----------
Total Computer Equipment 99,625
----------
Computer Peripherals -- 10.6%
Cisco Systems (a). . . . . . . . . . . . . . . . . . 3,000 169,875
----------
Total Computer Peripherals 169,875
----------
Computer Storage Equipment -- 13.3%
Iomega Corp. (a) . . . . . . . . . . . . . . . . . . 5,000 145,000
Seagate Technology (a) . . . . . . . . . . . . . . . 1,500 67,500
----------
Total Computer Storage Equipment 212,500
----------
Computer Systems Design -- 7.4%
Sun Microsystems (a) . . . . . . . . . . . . . . . . 2,000 117,750
----------
Total Computer Systems Design 117,750
----------
Medical Instruments -- 5.6%
Boston Scientific (a). . . . . . . . . . . . . . . . 2,000 90,000
----------
Total Medical Instruments 90,000
----------

</TABLE>

<PAGE>

STEADMAN INVESTMENT FUND

PORTFOLIO OF INVESTMENTS
June 30, 1996
<TABLE>
<CAPTION>

Value
Shares (Note 1)
---------- ------------
<S> <C> <C>
Motor Vehicles -- 9.4%
General Motors Class "H" . . . . . . . . . . . . . . 2,500 150,313
----------
Total Motor Vehicles 150,313
----------
Oil & Gas Drilling -- 8.7%
Global Marine (a). . . . . . . . . . . . . . . . . . 10,000 138,750
----------
Total Oil & Gas Drilling 138,750
----------
Pharmaceutical -- 8.1%
Regeneron Pharmaceutical (a) . . . . . . . . . . . . 7,500 130,312
----------
Total Pharmaceutical 130,312
----------
Radio and TV Equipment -- 4.3%
Geotek Communications, Inc. (a). . . . . . . . . . . 5,000 68,438
----------
Total Radio and TV Equipment 68,438
----------
Semiconductor -- 3.4%
Intel Corp. Warrants (a) . . . . . . . . . . . . . . 1,500 54,375
----------
Total Semiconductor 54,375
----------
Telephone Communications --4.7%
Lucent Technology. . . . . . . . . . . . . . . . . . 2,000 75,750
----------
Total Telephone Communications 75,750
----------

Total Portfolio of Investments (Cost $1,655,198) $ 1,599,688
----------
----------

</TABLE>

(a) Non-Income producing security

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS

<PAGE>

STEADMAN INVESTMENT FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996
<TABLE>

<S> <C>
Assets:
Investments at value (Cost $1,655,198) (Note 1). . . . . . . . . . . $ 1,599,688
Cash and cash equivalents (Note 1) . . . . . . . . . . . . . . . . . 261,004
Interest receivable . . . . . . . . . . . . . . . . . . . . . . . . 567
Dividends receivable . . . . . . . . . . . . . . . . . . . . . . . . 630
-----------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,861,889
-----------
Liabilities:
Accounts payable and accrued expenses. . . . . . . . . . . . . . . . 14,858
Investment advisory and service fees payable (Note 4). . . . . . . . 5,571
Other payable to affiliate (Note 4). . . . . . . . . . . . . . . . . 7,593
Payable for securities purchased . . . . . . . . . . . . . . . . . . 70,400
-----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . 98,422
-----------
Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,763,467
-----------
-----------
Net assets consist of:
Accumulated net investment loss. . . . . . . . . . . . . . . . . . . $(1,675,340)
Unrealized depreciation of investments . . . . . . . . . . . . . . . (55,510)
Accumulated net realized losses. . . . . . . . . . . . . . . . . . . (389,330)
Capital paid in less distributions since inception . . . . . . . . . 3,883,647
-----------
$ 1,763,467
-----------
-----------
Net asset value, offering price and redemption price per share
($1,763,467 DIVIDED BY 2,038,728 shares of no par value trust shares). . . $ .86
-----------
-----------

</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

<PAGE>

STEADMAN INVESTMENT FUND
STATEMENT OF OPERATIONS
for the year ended June 30, 1996
<TABLE>
<S> <C> <C>
Investment Income:
Dividends . . . . . . . . . . . . . . . . . . . . . . . $ 1,530
Interest. . . . . . . . . . . . . . . . . . . . . . . . 112,558
---------
Total income . . . . . . . . . . . . . . . . . . . . $ 114,088

Expenses:
Salaries and employee benefits (Note 4) . . . . . . . . 84,139
Shareholder servicing fee (Note 4). . . . . . . . . . . 50,666
Professional fees . . . . . . . . . . . . . . . . . . . 30,275
Investment advisory fee (Note 4). . . . . . . . . . . . 21,259
Miscellaneous . . . . . . . . . . . . . . . . . . . . . 8,671
Rent. . . . . . . . . . . . . . . . . . . . . . . . . . 13,163
Computer services . . . . . . . . . . . . . . . . . . . 7,943
Reports to shareholders . . . . . . . . . . . . . . . . 5,149
Trustees' fees and expenses (Note 4). . . . . . . . . . 3,528
Custodian fees. . . . . . . . . . . . . . . . . . . . . 400
---------
Total expenses. . . . . . . . . . . . . . . . . . . . 225,193
-----------

Net investment loss . . . . . . . . . . . . . . . . . (111,105)
-----------

Realized and Unrealized Gain (Loss) on Investments (Notes 1 and 3):
Net realized gain from investment transactions. . . . . 47,825
Change in unrealized appreciation/(depreciation) of investments (271,135)
-----------
Net loss on investments . . . . . . . . . . . . . . . (223,310)
-----------
Net decrease in net assets resulting from operations. $ (334,415)
-----------
-----------

</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

<PAGE>

STEADMAN INVESTMENT FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>

For the year For the period For the
ended June 30, January 1, 1995 year ended
1996 through June 30, 1995* December 31, 1994
---------------- ------------------- -----------------
<S> <C> <C> <C>
Increase (decrease) in net assets from operations:
Net investment loss. . . . . . . . . . . . . . . . . . . . . . $ (111,105) $ (46,958) $ (46,458)
Net realized gain (loss) from investment transactions. . . . . 47,825 (242,568) (194,587)
Change in unrealized depreciation/appreciation . . . . . . . . (271,135) 491,165 (779,305)
----------- ----------- -----------
Net increase (decrease) in net assets resulting
from operations . . . . . . . . . . . . . . . . . . . . . . . (334,415) 202,139 (1,160,720)

Decrease in net assets from trust share transactions (Note 2). . (200,097) (63,007) (230,035)
----------- ----------- -----------
Increase (decrease) in net assets. . . . . . . . . . . . . . . . (534,512) 139,132 (1,390,755)

Net assets at beginning of period. . . . . . . . . . . . . . . . 2,297,979 2,158,847 3,549,602
----------- ----------- -----------
Net assets at end of period (including accumulated net
investment loss of $1,679,999, $1,568,894
and $204,464 respectively) . . . . . . . . . . . . . . . . . . . $1,763,467 $2,297,979 $2,158,847
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

* The Fund's fiscal year-end was changed to June 30.

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

<PAGE>

STEADMAN INVESTMENT FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the year For the period
ended January 1, 1995 For the years ended December 31,
June 30, through June 30,
------------ ---------------- -------------------------------------
1996 1995* 1994 1993 1992 1991
------------ ---------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period . . . . . $1.02 $.93 $1.42 $1.38 $1.49 $1.12
------------ ---------------- -------------------------------------
Net investment loss. . . . . . . . . . . . . . (.13) (.02) (.08) (.06) (.09) (.06)
Net realized and unrealized
gain (loss) on investments. . . . . . . . . (.03) 11 .(.41) .10 .(.02) .43
------------ ---------------- -------------------------------------
Total from investment operations . . . (.16) .09 (.49) .04 (.11) .37
------------ ---------------- -------------------------------------
Net asset value, end of period . . . . . . . . $.86 $1.02 $ .93 $1.42 $1.38 $1.49
------------ ---------------- -------------------------------------
------------ ---------------- -------------------------------------
Ratios/Supplemental Data:
Total return . . . . . . . . . . . . . . . . . (15.53)% 19.36%** (34.51)% 2.89% (7.05)% 32.95%
Ratio of expenses to average net
assets. . . . . . . . . . . . . . . . . . . 10.60% 10.54%** 8.90% 6.48% 7.78% 7.88%
Ratio of net investment loss to average
net assets. . . . . . . . . . . . . . . . . (5.23)% (4.24)%** (6.65)% (4.52)% (6.09)% (5.08)%
Portfolio turnover rate. . . . . . . . . . . . 382% 226%** 282% 179% 263% 245%
Net assets, end of period (in thousands) . . . $1,763 $2,298 $2,159 $3,550 $3,781 $4,277

</TABLE>

*The Fund's fiscal year-end was changed to June 30.
**Annualized

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

<PAGE>

STEADMAN INVESTMENT FUND

NOTES TO FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES
Steadman Investment Fund (the Fund) is registered under the Investment Company
Act of 1940, as amended, as a non-diversified, open-end investment company.
During 1995, the Fund changed its fiscal year end from December 31 to June 30.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The following is a summary of
significant accounting policies consistently followed by the Fund in the
preparation of its financial statements.

SECURITY VALUATION
Investments in securities traded on a national securities exchange are
valued at the last reported sales price on the last business day of the
period. Investments for which no sale was reported on that date are valued at
the mean between the latest bid and asked prices.

INCOME TAXES
The Fund is subject to income taxes in years when it does not qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code.
The Fund accounts for income taxes using the liability method, whereby
deferred tax assets and liabilities arise from the tax effect of temporary
differences between the financial statement and tax bases of assets and
liabilities, measured using presently enacted tax rates. If it is more likely
than not that some portion or all of a deferred tax asset will not be
realized, a valuation allowance is recognized.

<PAGE>

STEADMAN INVESTMENT FUND

2. TRUST SHARES
The Trust Indenture does not specify a limit to the number of shares which
may be issued. Transactions in trust shares were as follows:

For the year For the period January 1 For the year
ended June 30, 1996 1995 through June 30, 1995 ended December 31, 1994
----------------------- -------------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Shares Amount Shares Amount Shares Amount
-------- -------- -------- -------- -------- --------
Shares sold. . . . . . . . . -- 0 -- $ -- 0 -- -- 0 -- $ -- 0 -- -- 0 -- $ -- 0--
Shares redeemed. . . . . . . (205,360) (200,097) (65,380) (63,007) (183,957) (230,035)
------- ---------- -------- ---------- --------- ---------
Net decrease. . . . . . . (205,360) $ (200,097) (65,380) $ (63,007) (183,957) $(230,035)
. . . . . . . . . . . . ========== ========== =========

Shares outstanding:
Beginning of period. . . 2,244,088 2,309,468 2,493,425
--------- --------- ---------
End of Period. . . . . . 2,038,728 2,244,088 2,309,468
--------- --------- ---------
--------- --------- ---------

</TABLE>

3. PURCHASES AND SALES OF SECURITIES
During the year ended June 30, 1996, purchases and sales proceeds of
investment securities aggregated $7,862,972 and $8,232,376, respectively.

The net unrealized depreciation of investments aggregated $55,510 of which
$75,670 related to gross unrealized appreciation where there is an excess of
value over tax cost and $131,180 related to gross unrealized depreciation of
investments where there is an excess of tax cost over value.

4. INVESTMENT ADVISORY FEE AND TRANSACTIONS WITH AFFILIATES
Steadman Security Corporation (SSC), the affilate, has provided investment
advisory services under an agreement which first became effective in 1972. On
February 28, 1984, at the Annual Meeting of the shareholders, a new Investment
Advisory Agreement was approved. Under the new advisory agreement SSC will
continue to provide the same services it provides under the same terms and
conditions of the previous agreement. The agreement will continue in effect
subject to the annual approval by the Board of Trustees or by a majority of the
outstanding voting securities of the Fund. The fee for investment advisory
services is based on 1% of the first $35,000,000 of the average daily net assets
of the Fund, 7/8 of 1% on the next $35,000,000 and 3/4 of 1% on all sums in
excess thereof. In addition to the investment advisory fee, SSC received fees
from the Fund for the performance of delegated services (dividend disbursing
agent and transfer agent) as defined in the Trust Indenture, as amended. The
fee for such services was 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. SSC received reimbursements from the Fund for the salaries and
benefits of its employees who perform functions other than investment advisory
and shareholder service functions for the Fund.

<PAGE>

Certain officers and trustees of the Fund are "affiliated persons" of the
Investment Adviser, as defined by the Investment Company Act of 1940.

5. FEDERAL INCOME TAXES
In the fiscal year June 30, 1996, the Fund did not meet the asset
diversification requirements applicable to regulated investment companies. Thus,
the Fund did not qualify as a regulated investment company under Subchapter M of
the Internal Revenue Code. However, the Fund had a net investment loss in the
fiscal period ended June 30, 1996, therefore no income tax provision is
required. A full valuation allowance has been provided for the deferred tax
assets, totalling approximately $784,000 at June 30, 1996, which arise
principally from net operating loss carryforwards and capital loss carryforwards
available for income tax purposes.

The Fund has net operating loss carryforwards approximating $1,675,000 which
are available to offset future net operating income in non-qualifying years, if
any, which expire as follows: (2004) $299,000; (2005) $304,000; (2006)
$222,000; (2007) $278,000; (2008) $217,000; (2009) $204,000; (2010) $46,000 and
(2011) 112,000. Capital loss carryforwards aggregating approximately $389,000
are available to offset future capital gains, if any, expiring as follows:
(1999) $147,000 and (2000) $243,000.

<PAGE>

6. UNCLAIMED PROPERTY

In December 1989, the Fund and other Steadman Funds were contacted by the
Unclaimed Property Clearinghouse (the Clearinghouse), an association of some 45
member states organized to facilitate the collection for the states of unclaimed
property that is considered abandoned under the laws of the member states. The
Clearinghouse requested certain documents and information in order to determine
whether, and if so, to what extent its member states may assert claims for
abandoned accounts of the Fund's shareholders. On the basis of a review of the
documents and information provided in response to this request, the Special
Counsel for the Clearinghouse has informally asserted that the member states are
entitled to certain property of the Fund's shareholders. In addition Steadman
Security Corporation holds certain unclaimed dividends of the Fund's
shareholders. In May 1991, the District of Columbia filed suit in the Superior
Court of the District of Columbia against the Fund, other Steadman Funds,
Steadman Security Corporation and its principal officer under the District of
Columbia Disposition of Unclaimed Property Act. Under this action the District
of Columbia sought possession and custody of the alleged abandoned property as
well as prejudgment interest, an unspecified amount of civil penalties, and
reimbursement for reasonable attorney's fees and costs. On March 25, 1993,
counsel for the District of Columbia, the Clearinghouse and the Fund executed a
settlement agreement, which involves no findings of any violations of law by
the Fund and other defendants. The Superior Court dismissed the suit as of
November 30, 1993, although the terms of the settlement agreement do not call
for dismissal until after the closing agreement. The District of Columbia
appealed the dismissal. In accordance with the settlement agreement, record
title to certain shares of the Fund and associated distributions were
transferred from the present shareholders of record to the members of the
Clearinghouse on the closing date, February 14, 1995. The shares will be
redeemed over a period of three years from this date. On May 9, 1995, the Court
of Appeals dismissed the appeal.

<PAGE>

STEADMAN TECHNOLOGY
AND GROWTH FUND
1730 K Street, N.W.
Washington, D.C. 20006
1-800-424-8570
202-223-1000 Washington D.C. area

TRANSFER AGENT
Steadman Security Corporation
1730 K Street, N.W.
Washington, D.C. 20006

CUSTODIAN
Crestar Bank, N.A.
1445 New York Avenue, N.W.
Washington, D.C. 20005

INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
1800 M Street, N.W.
Washington, D.C. 20036

For more information about
STEADMAN TECHNOLOGY AND GROWTH FUND,
account information or daily
Net Asset Values, call:

Shareholder Services
1-800-424-8570
202-223-1000 Washington, D.C. area

STEADMAN

TECHNOLOGY
AND GROWTH
FUND

ANNUAL
REPORT
June 30, 1996

A Steadman NO-LOAD Mutual Fund

STEADMAN SECURITY
CORPORATION
[LOGO]
Investment Adviser

<PAGE>

Fellow Shareholders:

The forces most dominant in present market behavior have continued to be a
low level of inflation and behavior of interest rates.

Thank you for your confidence and continued support.

Sincerely,

/s/ Charles W. Steadman
Charles W. Steadman
Chairman of the Board of
Trustees and President

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
STEADMAN TECHNOLOGY AND GROWTH FUND

We have audited the accompanying statement of assets and liabilities of
Steadman Technology and Growth Fund, including the portfolio of investments, as
of June 30, 1996, and the related statement of operations for the year then
ended, the statements of changes in net assets for the year then ended and the
periods January 1, 1995 through June 30, 1995, and January 1, 1994 through
December 31, 1994 and the financial highlights for the year ended June 30, 1996,
and the period January 1, 1995 through June 30, 1995, and each of the four years
ended December 31, 1994. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of June 30, 1996, by correspondence with the
custodian and broker. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Steadman Technology and Growth Fund as of June 30, 1996, the results of its
operations, the changes in its net assets, and the financial highlights for each
of the respective periods stated in the first paragraph, in conformity with
generally accepted accounting principles.

Coopers & Lybrand L.L.P.

Washington, D.C.
July 29, 1996

<PAGE>

STEADMAN TECHNOLOGY AND GROWTH FUND

PORTFOLIO OF INVESTMENTS
June 30, 1996

Value
Shares (Note 1)
------ --------
COMMON STOCKS -- 100%
Communications Equipment -- 6.9%
Precision Systems (a) . . . . . . . . . . . . . . 3,000 $ 35,250
--------
Total Communications Equipment 35,250
--------
Computer Storage Equipment -- 26.4%
Seagate Technology (a). . . . . . . . . . . . . . 3,000 135,000
--------
Total Computer Storage Equipment 135,000
--------
Pharmaceutical -- 43.1%
Elan Corp. Warrants (a) . . . . . . . . . . . . . 4,500 107,437
Regeneron Pharmaceuticals (a) . . . . . . . . . . 6,500 112,938
--------
Total Pharmaceutical 220,375
--------
Radio & TV Equipment -- 9.4%
Geotek Communications (a) . . . . . . . . . . . . 3,500 47,906
--------
Total Radio & TV Equipment 47,906
--------
Semiconductor -- 14.2%
Intel Corp. Warrants (a). . . . . . . . . . . . . 2,000 72,500
--------
Total Semiconductor 72,500
--------

Total Portfolio of Investments (Cost $462,417). . $511,031
--------
--------

(a) Non-income producing security

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

<PAGE>

STEADMAN TECHNOLOGY AND GROWTH FUND

STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996

<S> <C>
ASSETS:
Investments at value (Cost $462,417) (Note 1). . . . . . . . . . . $ 511,031
Cash and cash equivalents (Note 1). . . . . . . . . . . . . . . . 53,877
Interest receivable. . . . . . . . . . . . . . . . . . . . . . . . 131
-----------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . 565,039
-----------
LIABILITIES:
Accounts payable and accrued expenses. . . . . . . . . . . . . . . 13,050
Investment advisory and service fees payable (Note 4). . . . . . . 6,353
Other payable to affiliate (Note 4). . . . . . . . . . . . . . . . 3,229
-----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . 22,632
-----------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 542,407
-----------
-----------
Net assets consist of:
Accumulated net investment loss. . . . . . . . . . . . . . . . . . $(2,670,098)
Unrealized appreciation of investments . . . . . . . . . . . . . . 48,614
Accumulated net realized losses . . . . . . . . . . . . . . . . . (336,113)
Capital paid in less distributions since inception.. . . . . . . . 3,500,004
-----------
$ 542,407
-----------
-----------

NET ASSET VALUE, offering price and redemption price per share
($542,407 DIVIDED BY 529,419 shares of no par value trust
shares). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.02
-----------
-----------

</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

<PAGE>

STEADMAN TECHNOLOGY AND GROWTH FUND

STATEMENT OF OPERATIONS
for the year ended June 30, 1996

<S> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 855
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,979
------
Total income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,834

EXPENSES:
Shareholder servicing fee (Note 4). . . . . . . . . . . . . . . . . . . 72,446
Salaries and employee benefits (Note 4) . . . . . . . . . . . . . . . . 37,679
Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,222
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,156
Reports to shareholders . . . . . . . . . . . . . . . . . . . . . . . . 7,472
Computer services . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,225
Investment advisory fee (Note 4). . . . . . . . . . . . . . . . . . . . 6,870
Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,260
Trustees' fees and expenses (Note 4). . . . . . . . . . . . . . . . . . 3,528
Custodian fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,838
------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 175,696
----------

Net investment loss . . . . . . . . . . . . . . . . . . . . . . . . . . (172,862)
----------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTES 1 AND 3):
Net realized loss from investment transactions. . . . . . . . . . . . . (129,743)
Change in unrealized appreciation/(depreciation) of investments . . . . 84,018
----------
Net loss on investments . . . . . . . . . . . . . . . . . . . . . (45,725)
----------
Net decrease in net assets resulting from operations. . . . . . . $(218,587)
----------
----------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

<PAGE>

STEADMAN TECHNOLOGY AND GROWTH FUND

STATEMENTS OF CHANGES IN NET ASSETS

For the year For the period For the year
ended June 30, January 1, 1995 ended December
1996 through June 30,1995* 31, 1994
-------------- --------------------- --------------
<S> <C> <C> <C>
Decrease in net assets from operations:
Net investment loss. . . . . . . . . . . . . . . . . . . . . $(172,862) $(85,892) $ (174,615)
Net realized gain (loss) from investment transactions. . . . (129,743) (55,337) 15,713
Change in unrealized appreciation/depreciation . . . . . . . 84,018 59,947 (369,931)
---------- --------- -----------
Net decrease in net assets resulting
from operations. . . . . . . . . . . . . . . . . . (218,587) (81,282) (528,833)

Decrease in net assets from trust share transactions (Note 2). . . (37,546) (14,277) (44,346)
---------- --------- -----------
Decrease in net assets . . . . . . . . . . . . . . . . (256,133) (95,559) (573,179)

Net assets at beginning of period. . . . . . . . . . . . . . . . . 798,540 894,099 1,467,278
---------- --------- -----------
Net assets at end of period, including accumulated net
investment loss of $2,668,357, $2,495,495
and $2,284,399, respectively . . . . . . . . . . . . . . . . $542,407 $798,540 $ 894,099
---------- --------- -----------
---------- --------- -----------
</TABLE>

* The Fund's fiscal year-end was changed to June 30.

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

<PAGE>

STEADMAN TECHNOLOGY AND GROWTH FUND

FINANCIAL HIGHLIGHTS

For the For the period
year ended January 1, 1995
June 30, through June 30 For the years ended December 31,
---------- ---------------------------------------------------------
1996 1995 1994 1993 1992 1991
---------- ---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period. . . . $1.43 $1.57 $2.48 $2.69 $2.84 $2.21
---------- ---------------------------------------------------------
Net investment loss . . . . . . . . . . . . (.58) (.22) (.45) (.40) (.33) (.30)
Net realized and unrealized
gain (loss) on investments. . . . . . .. .17 08 (.46) .19 .18 .93
---------- ---------------------------------------------------------
Total from investment operations. . . . (.41) (.14) (.91) (.21) (.15) .63
---------- ---------------------------------------------------------
Net asset value, end of period. . . . . . . $1.02 $1.43 $1.57 $2.48 $2.69 $2.84
---------- ---------------------------------------------------------
---------- ---------------------------------------------------------
Ratios/Supplemental Data:
Total return. . . . . . . . . . . . . . . . (28.29)% (17.84)%** (36.69)% (7.81)% (5.28)% 28.51%
Ratio of expenses to average net
assets. . . . . . . . . . . . . . . . . 25.19% 22.28%** 16.34% 11.94% 13.33% 14.10%
Ratio of net investment loss
to average net assets . . . . . . . . . (24.78)% (20.90)%** (14.79)% (11.38)% (12.45)% (11.70)%
Portfolio turnover rate . . . . . . . . . . 333% 615%** 274% 128% 157% 318%
Net assets, end of period (in thousands). . $542 $799 $894 $1,467 $1,634 $1,786

</TABLE>

* The Fund's fiscal year-end was changed to June 30.
** Annualized

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

<PAGE>

STEADMAN TECHNOLOGY AND GROWTH FUND

NOTES TO FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

Steadman Technology and Growth Fund (the Fund) is registered under the
Investment Company Act of 1940, as amended, as a nondiversified, open-end
investment company. During 1995, the Fund changed its fiscal year end from
December 31 to June 30.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies consistently followed
by the Fund in the preparation of its financial statements.

CASH AND CASH EQUIVALENTS

SECURITY VALUATION

SECURITY TRANSACTIONS AND INVESTMENT INCOME

Security transactions are recorded on the trade date. Realized gains
and losses from security transactions are reported on an identified cost
basis. Dividend income is recorded on the ex-dividend date. Interest
income and expenses are recorded on the accrual basis.

INCOME TAXES

The Fund is subject to income taxes in years when it does not qualify
as a regulated investment company under Subchapter M of the Internal
Revenue Code. The Fund accounts for income taxes using the liability
method, whereby deferred tax assets and liabilities arise from the tax
effect of temporary differences between the financial statement and tax
bases of assets and liabilities, measured using presently enacted tax
rates. If it is more likely than not that some portion or all of a deferred
tax asset will not be realized, a valuation allowance is recognized.

<PAGE>

STEADMAN TECHNOLOGY AND GROWTH FUND

2. TRUST SHARES

The Trust Indenture does not specify a limit to the number of shares which
may be issued. Transactions in trust were as follows:

For the year For the period January 1, 1995 For the year ended
ended June 30, 1996 through June 30, 1995 December 31, 1994
----------------------- ------------------- --------------------
Shares Amount Shares Amount Shares Amount
--------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>

Shares sold. . . . . . . . . -- 0 -- $ -- 0 -- -- 0 -- $ -- 0 -- -- 0 -- $ -- 0 --
Shares redeemed. . . . . . . (29,474) (37,546) (9,910) (14,277) (22,286) (44,346)
---------- ----------- -------- ---------- -------- -----------
Net decrease . . . . . . . . (29,474) $ (37,546) (9,910) $ (14,277) (22,286) $ (44,346)
----------- ---------- -----------
----------- ---------- -----------
Shares outstanding:
Beginning of period. . . . . 558,893 568,803 591,089
------- ------- -------

End of period. . . . . . . . 529,419 558,893 568,803
------- ------- -------
------- ------- -------
</TABLE>

3. PURCHASES AND SALES OF SECURITIES

During the year ended June 30, 1996, purchases and proceeds from sales of
investment securities aggregated $2,259,821 and $2,531,447, respectively.

The net unrealized appreciation of investments aggregated $48,614 of which
$62,237 related to gross unrealized appreciation where there is an excess of
value over tax cost and $13,623 related to gross unrealized depreciation where
there is an excess of tax cost over value.

4. INVESTMENT ADVISORY FEE AND TRANSACTIONS WITH AFFILIATES

Steadman Security Corporation (SSC), the affiliate, has provided advisory
services under an agreement which first became effective in 1972. On February
28, 1984, at the Annual Meeting of the shareholders, a new Investment Advisory
Agreement was approved. Under the new advisory agreement, SSC will continue to
provide the same services it provided under the same terms and conditions of the
previous agreement. The agreement will continue in effect subject to the annual
approval by the Board of Trustees or by a majority of the outstanding voting
securities of the Fund. The fee for investment advisory services is based on 1%
of the first $35,000,000 of the average daily net assets of the Fund, 7/8 of 1%
on the next $35,000,000 and 3/4 of 1% on all sums in excess thereof. In
addition to the investment advisory fee, SSC received fees from the Fund for the
performance of delegated services (dividend disbursing agent and transfer agent)
as defined in the Trust Indenture, as amended. The fee for such services was
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. SSC received
reimbursements from the Fund for the salaries and benefits of its employees who
perform functions other than investment advisory and shareholder service
functions for the Fund.

<PAGE>

Certain officers and trustees of the Fund are "affiliated persons" of the
Investment Adviser, as defined by the Investment Company Act of 1940.

5. FEDERAL INCOME TAXES

In the fiscal year ended June 30, 1996, the Fund did not meet the asset
diversification requirements applicable to regulated investment companies. Thus,
the Fund did not qualify as a regulated investment company under Subchapter M of
the Internal Revenue Code. However, the Fund had a net investment loss in the
fiscal period ended June 30, 1996 and realized net capital losses in the fiscal
period ended June 30, 1996, therefore no income tax provision is required. A
full valuation allowance was provided throughout the fiscal period ended June
30, 1996 for deferred tax assets, totalling approximately $1,142,000 at June 30,
1996, which arise principally from net operating loss carryforwards and capital
loss carryforwards available for income tax purposes.

The Fund has net operating loss carryovers approximating $2,670,000 which
are available to offset future net operating income in non-qualifying years, if
any, which expire as follows: (1999) $111,000; (2000) $272,000; (2001) $264,000;
(2002) $252,000; (2003) $236,000; (2004) $240,000; (2005) $254,000; (2006)
$194,000; (2007) $212,000; (2008) $198,000; (2009) $177,000; (2010) $86,000 and
(2011) 174,000. Capital loss carryforwards aggregating approximately $336,000
are available to offset future capital gains, if any, which expire as follows:
(1997) $151,000; (2000) $55,000 and (2001) 130,000.

<PAGE>

6. UNCLAIMED PROPERTY

In December 1989, the Fund and other Steadman Funds were contacted by the
Unclaimed Property Clearinghouse (the Clearinghouse), an association of some
45 member states organized to facilitate the collection for the states of
unclaimed property that is considered abandoned under the laws of the member
states. The Clearinghouse requested certain documents and information in order
to determine whether, and if so, to what extent its member states may assert
claims for abandoned accounts of the Fund s shareholders. On the basis of a
review of the documents and information provided in response to this request,
the Special Counsel for the Clearinghouse has informally asserted that the
member states are entitled to certain property of the Fund s shareholders. In
addition, Steadman Security Corporation holds certain unclaimed dividends of
the Fund s shareholders. In May 1991, the District of Columbia filed suit in
the Superior Court of the District of Columbia against the Fund, other
Steadman Funds, Steadman Security Corporation and its principal officer under
the District of Columbia Disposition of Unclaimed Property Act. Under this
action the District of Columbia sought possession and custody of the alleged
abandoned property as well as prejudgment interest, an unspecified amount of
civil penalties, and reimbursement for reasonable attorney s fees and costs.
On March 25, 1993, counsel for the District of Columbia, the Clearinghouse and
the Fund executed a settlement agreement, which involves no findings of any
violations of law by the Fund and other defendants. The Superior Court
dismissed the suit as of November 30, 1993, although the terms of the
settlement agreement do not call for dismissal until after the closing of the
agreement. The District of Columbia appealed the dismissal. In accordance
with the settlement agreement, record title to certain shares of the Fund and
associaled distributions were transferred from the present shareholders of
record to the members of the Clearinghouse on the closing date, February 14,
1995. The shares will be redeemed over a period of three years from this date.
On May 9, 1995, the Court of Appeals dismissed the appeal.

<PAGE>

PART C: OTHER INFORMATION

ITEM 15. INDEMNIFICATION.

Section 5.3 of the Amended Restated Trust Indenture of Steadman Security
Trust and Declaration of Trust (the "Trust Agreement") of the Steadman
Associated Fund, which will be renamed the Steadman Security Trust (the "Fund"
or the "Registrant"), 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, 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.

In addition, the Agreement and Plan of Merger (the "Agreement") by and among
the Registrant, and the Steadman Investment Fund, the Steadman American Industry
Fund, and the Steadman Technology and Growth Fund (the "Other Funds") provides
at Section 14. Indemnification for, in certain circumstances, the
indemnification of the respective officers, directors, trustees, and
shareholders of the Other Funds. A copy of the Agreement is attached as Exhibit
4 to this Registration Statement.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be provided to directors, officers, or
controlling persons of the Registrant, the

C-1

<PAGE>

Registrant has been advised that in the opinion of the Securities and
Exchange Commission ("SEC"), such indemnification is against public policy as
expressed in the Act and, therefore, is unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.

ITEM 16. EXHIBITS:

<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1 Amended and Restated Trust Indenture of Steadman Associated Fund and Declaration of Trust
4 Agreement and Plan of Merger
5 Specimen share certificate*
6 Steadman Security Trust Amended and Restated Investment Advisory Agreement*
9 Custodian agreement and depository contract with Crestar Bank N.A.*
11.1 Opinion of Manatt, Phelps & Phillips, LLP as to the legality of the securities being registered*
11.2 Consent of Manatt, Phelps & Phillips, LLP*
12.1 Opinion of Manatt, Phelps & Phillips, LLP, regarding tax matters and consequences*
12.2 Consent of Coopers & Lybrand, L.L.P.**
16 Power of Attorney (reference is made to the signature page)*
99.1 Form of Proxies of Funds*
</TABLE>

- ------------------------

* Previously filed.
**To be filed by amendment.

C-2

<PAGE>

ITEM 17. UNDERTAKINGS

(1) The undersigned registrant agrees that prior to any public reoffering of
the securities registered through the use of a prospectus which is a part of
this registration statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act [17 CFR
230.145c], the reoffering prospectus will contain the information called for by
the applicable registration form for the reofferings by persons who may be
deemed underwriters, in addition to the information called for by the other
items of the applicable form.

(2) The undersigned registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each
post-effective amendment shall be deemed to be a new registration statement
for the securities offered therein, and the offering of the securities at
that time shall be deemed to be the initial bona fide offering of them.

C-3
<PAGE>
SIGNATURES

As required by the Securities Act of 1933, this Registration Statement has
been signed on behalf of the registrant, in the City of Washington, District of
Columbia, on the 25th day of July, 1997.

Steadman Security Trust
Registrant

/s/ CHARLES W. STEADMAN
-----------------------------------------
Charles W. Steadman, Trustee,
Chairman of the Board of Trustees and
President, Steadman Security Trust

As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.

(SIGNATURE) (TITLE) (DATE)
- ------------------------------ -------------------------- -------------------

/s/ CHARLES W. STEADMAN Chairman of the Board, July 25, 1997
- ------------------------------ President and Trustee
Charles W. Steadman Principal Executive
Officer

/s/ MAX KATCHER Executive Vice President July 25, 1997
- ------------------------------ Treasurer & Secretary
Max Katcher Principal Financial
Officer
Principal Accounting
Officer

/s/ PAUL A. BOWERS Trustee July 25, 1997
- ------------------------------
Paul A. Bowers*

/s/ JOHN T. HAYWARD Trustee July 25, 1997
- ------------------------------
John T. Hayward*

/s/ PAUL E. WAGER Trustee July 25, 1997
- ------------------------------
Paul E. Wagner*

- -------------------
* Signed pursuant to power of attorney.

<PAGE>

EXHIBIT 1
Amended and Restated Trust Indenture of Steadman Associated Fund
and Declaration of Trust

<PAGE>
EXHIBIT 1
AMENDED
AND
RESTATED TRUST INDENTURE OF
STEADMAN SECURITY TRUST
(formerly Steadman Associated Fund)
AND DECLARATION OF TRUST
WITH AMENDMENTS THROUGH
MAY 2, 1997
<PAGE>
TABLE OF CONTENTS

<TABLE>
<S> <C>
ARTICLE I The Trust--The Fund......................................................... 7
Section 1.1. Name................................................................... 7
Section 1.2. Location............................................................... 7
Section 1.3. Nature of the Fund..................................................... 7
Section 1.4. Definitions............................................................ 8

ARTICLE II Powers of Trustees......................................................... 9
Section 2.1. General................................................................ 9
Section 2.2. Investments............................................................ 9
Section 2.3. Legal Title............................................................ 10
Section 2.4. Taxes.................................................................. 10
Section 2.5. Delegation............................................................. 10
Section 2.6. Expenses............................................................... 10
Section 2.7. Deposits............................................................... 11
Section 2.8. Valuation.............................................................. 11
Section 2.9. Fiscal Year and Accounting Method...................................... 12
Section 2.10. Reserves.............................................................. 12
Section 2.11. Business Interests of Trustees and Others............................. 12
Section 2.12. Power to Contract..................................................... 13
Section 2.13. Insurance............................................................. 13
Section 2.14. Pension and Other Plans............................................... 13
Section 2.15. Dividends............................................................. 14
Section 2.16. Seal.................................................................. 14
Section 2.17. Charitable Contributions.............................................. 14
Section 2.18. Indemnification....................................................... 14
Section 2.19. Remedies.............................................................. 14
Section 2.20. Repurchase of Fund Shares............................................. 14
Section 2.21. Further Powers........................................................ 14
Section 2.22. Shareholders Lists.................................................... 15

ARTICLE III Advisor................................................................... 15
Section 3.1. Designation............................................................ 15
Section 3.2. Terms of Agreement..................................................... 15
Section 3.3. Substitution for Advisor............................................... 16
Section 3.4. Independence of Trustees............................................... 16
Section 3.5. Other Activities....................................................... 16

ARTICLE IV Investments................................................................ 16
Section 4.1. Statement of Investment Policy......................................... 16
</TABLE>

3
<PAGE>

<TABLE>
<S> <C>
Section 4.2 Other Investments....................................................... 17
Section 4.3 Option Activities....................................................... 17
Section 4.4 Restrictions............................................................ 17
Section 4.5. Portfolio Transactions................................................. 17

ARTICLE V Limitations of Liability.................................................... 17
Section 5.1. Liability to Third Persons............................................. 17
Section 5.2. Liability to Fund or to Shareholders................................... 17
Section 5.3. Indemnification........................................................ 17
Section 5.4. Surety Bonds........................................................... 18
Section 5.5. Apparent Authority..................................................... 18
Section 5.6. Recitals Regarding Liability; Insurance................................ 18

ARTICLE VI Shares and Other Securities................................................ 19
Section 6.1. Description of Shares.................................................. 19
Section 6.2. Certificates........................................................... 19
Section 6.3. Issuance of Securities................................................. 19
Section 6.4. Pooling of Funds....................................................... 20
Section 6.5 Acquisition of Fund Shares.............................................. 20
Section 6.6 Approval of Certain Business Combinations............................... 21

ARTICLE VII Record and Transfer of Shares............................................. 23
Section 7.1. Share Register; Holders of Record...................................... 23
Section 7.2. Transfer Agent......................................................... 23
Section 7.3. Blank Certificates..................................................... 23
Section 7.4. Change of Holder of Record............................................. 23
Section 7.5. Transfer of Shares..................................................... 24
Section 7.6. Limitation of Fiduciary Responsibility................................. 24
Section 7.7. Notices................................................................ 24
Section 7.8. Replacement of Certificates............................................ 25
Section 7.9. Designation of Beneficiary............................................. 25

ARTICLE VIII Characteristics of Securities............................................ 25
Section 8.1. General................................................................ 25
Section 8.2. Death of Shareholders.................................................. 25

ARTICLE IX Shareholders............................................................... 26
Section 9.1 Special Meetings........................................................ 26
Section 9.2. Notice of Meetings..................................................... 26
Section 9.3. Voting Rights of Shareholders.......................................... 26
Section 9.4. Record Date............................................................ 27
Section 9.5. Proxies................................................................ 27
Section 9.6. Reports................................................................ 27
</TABLE>

4
<PAGE>

<TABLE>
<S> <C>
Section 9.7 Notice for Nominations and Proposals.................................... 27

ARTICLE X Trustees.................................................................... 28
Section 10.1. Number and Qualification.............................................. 28
Section 10.2. Terms of Office: Election............................................. 28
Section 10.3. Resignation and Removal............................................... 29
Section 10.4. Vacancies............................................................. 29
Section 10.5. Meetings.............................................................. 30
Section 10.6. Officers.............................................................. 31
Section 10.7. By-laws............................................................... 31

ARTICLE XI Distributions to Shareholders.............................................. 31
Section 11.1. General............................................................... 31
Section 11.2. Retained Earnings..................................................... 31
Section 11.3. Sources of Distributions.............................................. 31
ARTICLE XII Amendment or Termination of Fund........................................ 32
Section 12.1. Amendment or Termination.............................................. 32
Section 12.2. Transfer to Successor................................................. 32

ARTICLE XIII Miscellaneous............................................................ 33
Section 13.1. Governing Law......................................................... 33
Section 13.2. Counterparts.......................................................... 33
Section 13.3. Reliance by Third Parties............................................. 33
Section 13.4. Provisions in Conflict With Laws or Regulations....................... 33
Section 13.5. Not In Derogation of Existing Rights.................................. 34
Section 13.6. Section Headings...................................................... 34

ARTICLE XIV Effective Date and Duration of Trust and Fund............................. 34
Section 14.1. Effective Date........................................................ 34
Section 14.2. This Instrument Supersedes............................................ 34
Section 14.3. Duration and Termination.............................................. 34

ARTICLE XV Shareholders' Acceptance................................................... 34
Section 15.1. Acceptance............................................................ 34
</TABLE>

5
<PAGE>
This Amended and Restated Trust Indenture of Steadman Associated Fund and
Declaration of Trust ("Instrument" herein) constitutes an Amendment of Trust
Indenture of Steadman Associated Fund supplemental to a certain Trust Indenture
dated 23rd February 1939, as amended or supplemented September 21, 1939, October
31, 1940, April 15, 1941, May 15, 1941, November 10, 1943, November 1, 1944,
August 29, 1950, September 1, 1951, March 26, 1954, March 7, 1955, July 1, 1957,
June 21, 1960, July 6, 1961, January 10, 1962, December 30, 1964, August 24,
1965, November 30, 1965, December 8, 1965, April 22, 1966, November 30, 1966,
June 13, 1967, August 30, 1967, June 12, 1969, December 31, 1969, December 31,
1970, April 15, 1971, December 30, 1971, December 29, 1972, February 15, 1974,
June 30, 1974, October 31, 1974, December 24, 1974 and December 29, 1978 is:

AMENDED AND RESTATED AS OF MAY 2, 1997 BY AND BETWEEN THE PARTIES, being,

(a) The Registered Holders ("Shareholders" herein) from time to time of
Shares of Steadman Associated Fund ("Fund" herein) as settlors of express
revocable trusts who became parties hereto by taking and holding their
respective Shares, and

(b) The Trustees being Charles W. Steadman, Paul A. Bowers, John T. Hayward,
and Paul F. Wagner (such persons so long as they shall continue in office in
accordance with the terms of this Instrument, and all other persons who at the
time in question have been duly elected or appointed as Trustees in accordance
with the provisions of this Instrument and are then in office are collectively
called the "Trustees" herein.)

RECITALS

The Fund is a common law trust within the meaning of Section 16(b) of the
Investment Company Act of 1940 and was organized as Associated Fund Trust in
1939. The Fund's name was changed in 1969 to Steadman Associated Fund and is
hereby changed upon the Effective Date of this amendment to the Steadman
Security Trust, which shall for all purposes of this document mean the "Fund".

The original Trust Indenture has been the subject of many amendments, and
the shareholders of the Fund will be requested to ratify and confirm this
Amended and Restated Trust Indenture, including the change of the Fund from an
open-end investment to a closed-end company.

It is in the best interests of the Fund and its Shareholders that the
certain Trust Indenture dated 23rd February 1939, as amended and supplemented,
be amended and restated to reflect the

6
<PAGE>
foregoing changes and such other changes as are necessary to operate as a
closed-end investment company.

NOW, THEREFORE, In consideration of the mutual covenants herein contained
and for other good and valuable consideration,

(a) The Parties amend that certain Restated Trust Indenture of Steadman
Associated Fund and Declaration of Trust and herein restate it as the Amended
and Restated Trust Indenture of Steadman Security Trust and Declaration of Trust
;

(b) The Trustees agree to be, bound by this Instrument; and

(c) THE TRUSTEES DO HEREBY DECLARE that they will hold as Trustees the Fund
and all Fund Property of every type and description which they may acquire now
or hereafter as Trustees, together with the proceeds thereof, in trust, to
manage, invest, reinvest, purchase and sell, exchange or otherwise dispose of
the same for the benefit of the Shareholders present and future and in the
manner and subject to the provisions as now shall be set forth in this
Instrument.

ARTICLE I
The Trust--The Fund

Section 1.1. Name. The name of the trust created by this Instrument shall be
Steadman Security Trust ("Fund" herein). So far as may be practicable, the
Trustees shall conduct the Fund's activities, execute all documents and sue or
be sued under this name. This name (and the word "Fund" or "Trust" wherever used
herein except where the context otherwise requires) shall refer to the Trustees
in their capacity as Trustees, and not individually or personally, and shall not
refer to the officers, agents, employees or Shareholders of the Fund or of the
Trustees. If the Trustees determine that the use of this name is not
practicable, legal or convenient, they may use any other designation or they may
adopt any other name for the Fund that they deem proper, and the Trust may hold
property and conduct its activities under such designation or name.

Section 1.2. Location. The principal office of the Fund shall be in the
District of Columbia, or in any other location the Trustees may select. The Fund
may have such other offices or places of business as the Trustees may from time
to time determine to be necessary or expedient.

Section 1.3. Nature of the Fund.

(a) The Fund shall be of the type commonly termed a common law trust within
the meaning of Section 16(b) of the Investment Company Act of 1940. The Fund is
not intended to be, shall not be deemed to be, and shall not be treated as a
general partnership, limited partnership, joint venture, corporation, joint
stock company or any other form of legal relationship. The

7
<PAGE>
Shareholders shall be beneficiaries, and their relationship to the Trustees
shall be solely in that capacity in accordance with the rights conferred upon
them hereunder.

(b) The Advisor shall have discretion with respect to whether the Fund
should qualify, from time to time, as a regulated investment company as that
term is defined in Subchapter M of the Internal Revenue Code of 1986, as
amended.

Section 1.4. Definitions. As used herein, the following terms have the
following meanings unless the context otherwise requires:

"Act" shall mean the Investment Company Act of 1940, as amended.

"Advisor" or "Investment Advisor" shall mean Steadman Security Corporation,
a Delaware corporation having its principal place of business in Washington,
D.C., and where applicable, as in but not limited to Article V, shall include
the directors, officers, employees and agents of the Advisor.

"Affiliate" shall have the same meaning as in the Act.

"Amended and Restated Trust Indenture of Steadman Security Trust and
Declaration of Trust" shall mean this Instrument as amended, restated or
modified from time to time. References herein to "Amendment of Trust Indenture
of Steadman Associated Fund", "Declaration of Trust", "Instrument", "hereof",
"herein", "hereunder", "Restated Trust Indenture of Steadman Associated Fund",
"Restated Trust Indenture", "Trust Indenture", "Trust" and "Fund" shall be
deemed to refer to this Instrument and shall not be limited to the particular
text, article or section in which such words appear.

"Committee" shall mean a group of any two or more Trustees which has been
designated as such by the Trustees and to whom duties or powers have been
delegated pursuant to Section 2.5.

"Effective Date" shall be as stated in Section 14.1.

"Fiscal Year" shall mean any fiscal period of the Fund for which an income
tax return is submitted to the Internal Revenue Service and which is treated by
the Internal Revenue Service as a reporting period.

"Fund Property" shall mean as of any particular time any and all property of
whatever nature, tangible or intangible, cash and securities of all kinds, which
are transferred, conveyed or paid to the Fund or the Trustees and all income,
profits and gains there from and which at such time is owned or held by, or for
the account of, the Fund or the Trustees.

8
<PAGE>
"Merger" shall mean the merger of Steadman American Industry Fund, Steadman
Investment Fund and Steadman Technology and Growth Fund into the Fund.

"Person" shall mean and include individuals, corporations, limited
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, business trusts or
other organizations, whether or not legal entities, and governments and agencies
and political subdivisions thereof.

"Securities" shall mean any stock, shares, voting trust certificates, bonds,
debentures, notes or other evidences of indebtedness, secured or unsecured,
convertible, subordinated or otherwise, or in general any instruments commonly
known as "securities" or any certificates of interest, shares or participations
in temporary or interim certificates for, or any right to subscribe to, purchase
or acquire any of the foregoing.

"Shareholders" shall mean as of any particular time all holders of record or
registered holders of outstanding Shares at such time.

"Shares" shall mean the shares of beneficial interest of the Fund described
in Section 6.1.

ARTICLE II
Powers of Trustees

Section 2.1. General. The Trustees shall have, without further
authorization, 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, free from any power or control on the part of the Shareholders,
except as may be required by law, with such powers of delegation as may be
permitted by this Instrument. The enumeration of any specific power or authority
herein shall not be construed as limiting the aforesaid powers or authority in
any respect.

Section 2.2. Investments. The Trustees shall have power to invest and
reinvest the Fund Property in such securities as they deem appropriate and
compatible for the fulfillment of the objectives of the Fund, and hold or retain
such securities or to sell them at such times and from time to time as they
shall in their absolute discretion determine.

In the exercise of their powers, the Trustees shall not be limited to
investing in obligations maturing before the possible termination of the Trust,
nor shall the Trustees be limited by any law now or hereafter in effect limiting
the investments which may be held or retained by trustees or other fiduciaries,
but they shall have full authority and power to make any and all investments
within the limitations of this Instrument as they, in their absolute discretion,
shall determine, and without liability for loss.

9
<PAGE>
Section 2.3. Legal Title. Legal title to all the Fund Property shall be
vested in the Trustees, as joint tenants or otherwise, and held by and
transferred to the Trustees, except that the Trustees shall have power to cause
legal title to any Fund Property to be held by or in the name of one or more of
the Trustees with suitable reference to their trustee status or in the name of
the Fund, or to the extent the Trustees deem such action to be in the best
interest of the Fund and its Shareholders, in the name of any other Person as
nominee on such terms, in such manner and with such powers as the Trustees may
determine, provided that if any Fund Property is held in the name of a nominee,
such nominee will hold that Fund Property for the exclusive benefit of the Fund.

Section 2.4. Taxes. The Trustees shall have power to pay all taxes or
assessments, of whatever kind or nature, imposed upon or against the Fund or the
Trustees in connection with the Fund Property or upon or against the Fund
Property or income or any part thereof, to settle and compromise disputed tax
liabilities and for the foregoing purposes to make such returns and do all such
other acts and things as may be deemed by the Trustees necessary or desirable.

Section 2.5. Delegation. The Trustees shall have power, consistent with
their continuing exclusive authority over the management of the Fund, the
conduct of its affairs and the management and disposition of Fund Property, to
delegate from time to time to such one or more of their number, to Committees,
to officers, employees and agents of the Fund or to the Advisor the doing of any
such things and the execution of such deeds or other instruments, either in the
name of the Fund or the names of the Trustees or as their attorney or attorneys
or otherwise, as the Trustees may from time to time deem expedient.

Section 2.6. Expenses. (a) The Trustees shall have power to incur and pay
any charges or expenses, which, in the opinion of the Trustees, are necessary or
incidental to or proper for carrying out any of the purposes of this Instrument,
to reimburse others for the payment therefor and to pay appropriate compensation
or fees out of the Fund Property to themselves as Trustees and to Persons with
whom the Fund has contracted or transacted business including the Advisor, its
subsidiaries and affiliated Persons. The Trustees shall fix the compensation of
all officers of the Fund and the Trustees. The Trustees shall receive reasonable
compensation for their general services as Trustees and officers hereunder. The
Trustees may also pay themselves on any one or more of themselves such
compensation for special services, including legal services, as they in good
faith deem reasonable and reimbursement for expenses reasonably incurred by them
or any one or more of them on behalf of the Fund.

(b) In addition to but without limitation upon the foregoing or any other
powers or authority of the Trustees, the Trustees shall pay on behalf of the
Fund all of the Fund's ordinary expenses of operation unless specifically
excepted, such expenses of operation including, but not being limited to the
following: (i) the expenses of maintaining its own books of account; (ii) the
expenses of maintaining one or more of its Custodians, Transfer Agents or
Dividend Disbursing Agents; (iii) the expenses of computing the net asset value
of shares of the Fund at any required valuation date; (iv) the fees and expenses
of its Trustees, including those Trustees who also may

10
<PAGE>
be Directors of the Advisor or its subsidiary, corporations or affiliated
Persons and the fees and expenses of the members of any Committee of the Fund
including any members who also may be Directors or officers or employees (or all
of these) of the Advisor, its subsidiaries or affiliated Persons, perform
services therefor and be compensated thereby; (v) the expenses of meetings of
its shareholders; (vi) the expenses of printing and mailing of all shareholder
reports and other required reports and documents provided shareholders including
but not being limited to the costs 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 existences; (xii) all or
part of the salaries of Fund officers and other employees who may also be
Directors or officers or employees (or all of these) of the Advisor, its
subsidiaries or affiliated Persons, perform services therefor and be compensated
thereby; (xiii) the fees of its auditors; (xiv) the fees of its legal counsel;
and (xv) all other ordinary expenses of operation. The Trustees also shall pay
all extraordinary expenses of whatever kind or nature, unless such expenses have
been specifically assumed by the Advisor or one of its affiliates.

Section 2.7. Deposits. The Trustees shall have power to select a custodian
for the physical holding of the Fund Property in compliance with the Act under
such terms and conditions as the Trustees in their sole and absolute discretion
shall deem to be appropriate. The Trustees shall also have power to deposit any
moneys or Securities included in the Fund Property with any one or more banks,
trust companies, state and federal savings and loan associations or other
banking or savings institutions, including any affiliate of the Advisor, whether
or not such deposits draw interest provided, however, that any such institution
shall qualify under applicable sections of the Act and all proper regulations
promulgated by the Securities and Exchange Commission. Such deposits shall be
subject to withdrawal in such manner as the Trustees determine, and the Trustees
shall have no responsibility for any loss which may occur by reason of the
failure of the bank, trust company state or federal savings and loan association
or other banking or savings institution with which the moneys or Securities have
been deposited.

Section 2.8. Valuation. (a) The Trustees shall have power to determine
conclusively, the value of any of the Fund Property and of any services,
Securities, assets or other consideration hereafter acquired or disposed of by
the Fund and to revalue the Fund Property.

(b) The Trustees or Advisor or an officer or officers or agent or agents of
the Fund designated from time to time for this purpose by the Trustees shall, at
any required valuation date, in order to properly administer the Fund, determine
the value of all the assets of the Fund at the close of trading on the New York
Stock Exchange on any day upon which such Exchange is open for unrestricted
trading or at such other times as the Trustees shall designate, and the value of
such assets so determined, less total liabilities of the Fund (exclusive of
capital stock and surplus) divided by the number of shares outstanding shall be
the net asset value of a share until a new net asset value is determined by the
Trustees or Advisor or such officers or agents. In determinations of net asset
value all Securities for which market quotations are available shall be
appraised at a price not less than the bid price and not greater than the asked
price prevailing at the time of

11
<PAGE>
valuation, and other Securities and assets shall be appraised at fair value, all
as determined in good faith by or under authority of the Trustees in accordance
with accounting principles generally accepted at the time. In determinations of
net asset value, treasury stock shall be treated as if it were unissued. When
net asset value is determined as of a time other than the close of unrestricted
trading on the New York Stock Exchange, the Trustees or Advisor or such officers
or agents may, but need not, determine such net asset value by adjusting the net
asset value determined as of the preceeding close of such Exchange in such
manner (based upon changes in the market prices of selected securities or
changes in market averages or on other standard and readily ascertainable market
data since such close) as the Trustees or Advisor or such officers or agents
deem adequate to reflect a fair approximate estimate of the probable change in
net asset value which has occurred since such close. In determining the net
asset value, the Trustees or Advisor or such officers or agents may include in
liabilities such reserves for taxes, estimated accrued expenses and
contingencies in accordance with accounting principles generally accepted at the
time as the Trustees or Advisor or such officers or agents may in its or their
best judgment deem fair and reasonable under the circumstances.

Section 2.9. Fiscal Year and Accounting Method. The Trustees shall have
power to determine the Fiscal Year for the Fund and the method or form in which
its accounts shall be kept and from time to time to change the Fiscal Year or
the method or form in which its accounts shall be kept.

Section 2.10. Reserves. The Trustees may set up reserves for taxes or other
contingent liabilities and may allocate thereto such portion of the assets of
the Fund as may be necessary. Any excess reserve so set up shall be returned to
the Fund on termination of the tax or other contingent liabilities. All reserves
shall be held by the Trustees.

Section 2.11. Business Interests of Trustees and Others. (a) Any Trustee,
officer, employee or agent of the Fund may, in his personal capacity, or in a
capacity of trustee, officer, director, stockholder, partner, member, Advisor or
employee of any Person have business interests and engage in business activities
in addition to those relating to the Fund, which interests and activities may be
similar to those of the Fund and may include the acquisition, syndication,
holding, management, operation or disposition, for his own account or for the
account of such Person, of interest in Securities. Each Trustee, officer,
employee and agent of the Fund and each of their respective affiliates shall be
free of any obligation to present to the Fund any investment opportunity which
comes to him in any capacity other than solely as Trustee, officer, employee or
agent of the Fund even if such opportunity is within the investment policies of
the Fund. Subject to the provisions of this Section, any Trustee, officer,
employee or agent of the Fund may be interested as Trustee, officer, director,
stockholder, partner, member, Advisor or employee or deal with or otherwise have
a direct or indirect interest in any Person who may deal with or be engaged to
render advice or services to the Fund and receive compensation from such Person
as well as compensation as Trustee, officer, employee or agent of the Fund or
otherwise hereunder, and none of the activities referred to in this paragraph
shall be deemed to conflict with his duties and power, as Trustee, officer,
employee or agent of the Fund.

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(b) Ownership of Securities of the Fund. Any Trustee, officer, employee or
agent of the Fund may acquire, own, hold and dispose of Securities for his
individual account and may exercise all rights of a holder of such Securities to
the same extent and in the same manner as if he were not a Trustee, officer,
employee or agent of the Fund, subject, however, to such regulations which the
Trustees by resolution from time to time may adopt.

Section 2.12. Power to Contract. Subject to Article III and Section 2.5 with
respect to delegation of authority by the Trustees, the Trustees shall have
power to appoint, employ or contract with any Person (including one or more of
themselves and any corporation, partnership or trust of which one or more of
them may be an affiliate) as the Trustees may deem necessary or desirable for
the transaction of the business of the Fund, including any Person who, under the
supervision of the Trustees, may among other things: obtain or furnish and
supervise the performance of ministerial functions in connection with the
administration of the Fund; serve as the Fund's investment and financial advisor
and consultant in connection with policy decisions made by the Trustees; furnish
reports to the Trustees and provide research, economic and statistical data in
connection with the Fund's investments and investment policies; act as a
consultant, borrower, lender, accountant, correspondent, technical advisor,
attorney, broker, investor, underwriter, corporate fiduciary, escrow agent,
depositor, custodian or agent for collection, insurer or insurance, agent,
transfer agent or registrar or paying agent in any capacity deemed by the
Trustees necessary or desirable; obtain services as may be required for other
activities relating to any of the Fund Property; investigate, select, and, on
behalf of the Fund, conduct relations with Persons acting in such capacities and
pay appropriate fees to, enter into appropriate contracts with, employ and
retain services performed or to be performed by any of them in connection with
the investments acquired, sold, or otherwise disposed of, or committed,
negotiated, or contemplated to be acquired, sold or otherwise disposed of, by
the Fund; substitute any other Person for any such Person; act as
attorney-in-fact or agent in the purchase or sale or other disposition of
investments; and assist in the performance of such ministerial functions
necessary in the management of the Fund as may be agreed upon with the Trustees
or officers of the Fund.

Section 2.13. Insurance. The Trustees shall have the power to purchase and
pay for entirely out of the Fund Property insurance policies insuring the Fund
Property against any and all risks and insuring the Trustees, officers,
employees, agents, investment advisors, including the Advisor, or independent
contractors of the Fund, individually or collectively, against all claims and
liabilities of every nature arising by reason of holding or having held any such
office or position by reason of any action alleged to have been taken or omitted
by the Fund or any such Person as Trustee, officer, employee, agent, investment
advisor, or independent contractor, including any action taken or omitted that
may be determined to constitute negligence whether or not the Fund would have
the power to indemnify, such Person against such liability.

Section 2.14. Pension and Other Plans. The Trustees shall have the power to
pay pensions for faithful service, as deemed appropriate by the Trustees, and to
adopt, establish and carry out pension and profit-sharing plans, share bonus,
option and purchase plans and savings,

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thrift and other retirement, incentive and benefit plans, trusts and provisions,
including the purchasing of life insurance and annuity contracts as a means of
providing such retirement and other benefits, for any or all of the Trustees,
officers, employees and agents of the Fund.

Section 2.15. Dividends. The Trustees shall have the power to declare and
pay dividends in cash, shares or otherwise, to make other distributions to
Shareholders, whether out of net income, accumulated-undistributed income,
paid-in capital or otherwise, and to establish a dividend and distribution
reinvestment plan or program or any plan or program similar thereto.

Section 2.16. Seal. The Trustees shall have the power to adopt and use a
seal for the Fund, but, unless otherwise required by the Trustees, the seal need
not be placed on, and its absence shall not impair the validity of any document,
instrument or other paper executed and delivered by or on behalf of the Fund.

Section 2.17. Charitable Contributions. The Trustees shall have power to
make donations, irrespective of benefit to the Fund, for the public welfare or
for community fund, hospital, charitable, religious education, scientific, civic
or similar purposes.

Section 2.18. Indemnification. In addition to the mandatory indemnification
provided for in Section 5.3, the Trustees shall 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 advisor, including the Advisor, any
underwriter of Securities of the Fund or any independent contractor, to such
extent as the Trustees shall determine.

Section 2.19. Remedies. Notwithstanding any provision in this Instrument,
when the Trustees deem that there is a significant risk that an obligor to the
Fund may default or is in default under the terms of any obligation to the Fund,
the Trustees shall have power to pursue any remedies permitted by law which, in
their sole judgment, are in the interests of the Fund, and the Trustees shall
have the power to enter into any investment, commitment or obligation of the
Fund resulting from the pursuit of such remedies or necessary or desirable to
dispose of property acquired in the pursuit of such remedies.

Section 2.20. Repurchase of Fund Shares. The Trustees shall have the power
to repurchase Fund shares, from time to time, in such amounts and at such prices
as they shall deem to be in the best interests of the Fund.

Section 2.21. Further Powers. The Trustees shall have power to do all such
other matters and things and execute all such instruments as they deem
necessary, proper or desirable in order to carry out, promote or advance the
interests of the Fund, although such matters or things are not specifically
mentioned herein. Any determination as to what is in the interests of the Fund
made by the Trustees, in good faith shall be conclusive. In construing the
provisions of this

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Instrument, the presumption shall be in favor of a grant of power to the
Trustees. The Trustees will not be required to obtain any court order to deal
with the Fund Property.

Section 2.22. Shareholders Lists. The Fund's shareholder list shall not be
furnished to any person except upon unanimous vote of the Trustees or when
required by applicable laws or regulations.

ARTICLE III
Advisor

Section 3.1. Designation. The Trustees shall maintain general supervision
over the investment policy of the Fund and the business of the Fund conducted by
officers, agents, employees, the Investment Advisor or independent contractors
of the Fund. The Trustees shall grant or delegate investment authority to the
Advisor, pursuant to the terms of Sections 2.5 and 2.12, or to any other Person
the services of which are obtained by the Advisor as the Trustees may, in their
sole discretion, deem necessary or desirable, without regard to whether such
authority is normally granted or delegated by trustees.

Section 3.2. Terms of Agreement. The Trustees have previously entered into
an agreement with the Advisor pursuant to the provisions of Section 3.1 which
shall provide that: (i) the Advisor shall be required to see its best efforts to
present a continuing and suitable investment program to the Fund which is
consistent with the investment policies and objectives of the Fund; (ii) the
Advisor furnish the Fund with investment research and advice and shall manage
and supervise the Fund's portfolio of investments; (iii) the Advisor in
performance of the foregoing shall furnish the Trustees with such information
and reports regarding the Securities in the Fund's portfolio and proposed
additions to the portfolio as the Advisor deems appropriate or as the Trustees
may reasonably request; (iv) the Advisor shall supervise the Fund's relations
with its Custodian, auditors and Governmental regulatory bodies and shall
furnish certain office space and certain secretarial and certain clerical
assistance necessary for the performance of the foregoing functions; (v) the
agreement shall include the provisions of Subsection 2.6(b); (vi) the Advisor
shall be paid a monthly management fee computed at the annual rate of 1% of the
first $35 million, 7/8 of 1% on the next $35 million and 3/4 of 1% on all sums
in excess thereof of the average daily net assets of the Fund on the first
business day of each month of its fiscal year, and "net assets" shall be
determined as in Section 2.8 (vii) the agreement shall have an initial term of
24 months and shall remain in effect thereafter for as long as the agreement is
approved annually by the Trustees, or by the majority vote of the Shareholders
in accordance with Section 15 of the Act; (viii) the agreement shall be
terminable without penalty at any time upon 60 days' written notice: (a) to the
Advisor during the original term or any renewal or extension thereof if a
majority of the Trustees, including a majority of those Trustees who are not
parties to the agreement or "interested persons", as defined in Section 2(a)(19)
of the Act, or a majority of the outstanding voting securities, shall in good
faith determine that the Advisor is not presenting a continuing and suitable
investment program consistent with the investment objectives and policies of the
Fund; (b) to the Fund by the Advisor; or (c) as otherwise provided in the Act;
and (ix) the

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<PAGE>
agreement may contain such other provisions as the Trustees shall determine in
their discretion are appropriate.

Section 3.3. Substitution for Advisor. If the Advisor ceases to serve
hereunder for whatever reason, the Trustees shall promptly select a Substitute
Advisor to provide such investment advisory services as the Trustees shall
determine in the place and stead of the Advisor and shall present to the
Shareholders as soon as practicable thereafter but not more than 90 days after
such selection has been made a proposal to approve such Substitute Advisor.
During the period between the cessation of service by the Advisor and the
approval of the Substitute Advisor by the Shareholders, the Trustees shall
perform the Advisor's duties with such assistance as they may determine to be
appropriate.

Section 3.4. Independence of Trustees. Not more than 60% of the total number
of Trustees may be affiliates of the Advisor, provided that if at any time the
percentage of all Trustees who are affiliates of the Advisor becomes more than
60% of the total number of Trustees then in office because of the death,
resignation, removal or change in affiliation of a Trustee who is not such an
affiliate, such requirement shall not be applicable for a period of 60 days
during which time a majority of all the Trustees then in office shall appoint a
sufficient number of other individuals as Trustees so that not more than 60% of
the total number of all Trustees then in office shall be affiliates of the
Advisor. The Trustees shall endeavor at all times to comply with this
requirement but the failure so to comply shall not affect the validity or
effectiveness of any action of the Trustees.

Section 3.5. Other Activities. The Advisor shall not be required to
administer the investment activities of the Fund as its sole and exclusive
function. The Advisor may deal with Persons with whom the Fund may do business
and may have other business interests and may engage in other activities of any
kind in addition to those relating to the activities to be performed by the
Advisor for the Fund, including rendering services and advice to other Persons
(whether or not such Persons are in competition with the Fund or are engaged in,
activities similar to those of the Fund) acting as a trustee and managing other
investments, including investments of the Advisor or any affiliate of the
Advisor. The Trustees may request the Advisor to engage in other activities
which complement the Fund's investments and to provide services for the Fund or
for other Persons who do business with the Fund, and the Advisor may receive
compensation or commissions therefor from the Fund or other Persons. The Advisor
may invest in any such particular investment opportunity for its own account or
offer, make available or recommend any such particular investment opportunity to
any Person.

ARTICLE IV
Investments

Section 4.1. Statement of Investment Policy. The 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
objective.

<PAGE>
Section 4.2 Other Investments. To the extent that the Fund has assets not
otherwise invested in accordance with Section 4.1, the Advisor may, at any time,
invest such assets in such investment as are determined by the Advisor to be in
the best interests of the Fund.

Section 4.3 Option Activities. The Advisor may, to the maximum extent
permissible under applicable laws and regulations, engage in any and all option
activities as it shall, from time to time determine to be appropriate and in the
best interests of the Fund's shareholders.

Section 4.4 Restrictions. The Fund may, in the sole discretion of the
Advisor and to the maximum extent permissible by applicable laws and
regulations, engage in all lawful investment activities.

Section 4.5. Portfolio Transactions. The Advisor is authorized to execute
portfolio transactions for the Fund through such entities as Advisor determines,
at its discretion, provided such entity renders satisfactory service at standard
and/or negotiated commission rates.

ARTICLE V
Limitations of Lability

Section 5.1. Liability to Third Persons. No Shareholder as such shall be
subject to any personal liability whatsoever, in tort contract or otherwise, to
any other Person or Persons in connection with the Fund Property or the affairs
of the Fund and no Trustee, Advisor, officer, employee or agent of the Fund
shall be subject to any personal liability whatsoever, in tort, contract or
otherwise, to any other Person or Persons in connection with the Fund Property
or the affairs of the Fund, nor for any taxes or other governmental charges in
respect to Fund Property or the income or profits therefrom or the transfer
thereof, except that arising from his bad faith, willful misconduct, gross
negligence or reckless disregard of his duties or for his failure to act in good
faith in the reasonable belief that his action was in the best interests of the
Fund; and all such other Persons shall look solely to the Fund Property for
satisfaction of claims of any nature arising in connection with the affairs of
the Fund. If any Shareholder, Trustee, Advisor, officer, employee or agent, as
such, of the Fund is made a party to any suit or proceeding to enforce any such
liability, he shall not on account thereof be held to any personal liability

Section 5.2. Liability to Fund or to Shareholders. No Trustee, Advisor,
officer, employee or agent of the Fund shall be liable to the Fund or to any
Shareholder, Trustee, Advisor, officer, employee or agent of the Fund for any
action or failure to act (including, without limitation, the failure to compel
in any way any former or acting Trustee to redress any breach of trust), except
for his own bad faith, willful misconduct, a gross negligence or reckless
disregard of his duties or for his failure to act in good faith in the
reasonable belief that his action was in the best interests of the Fund.

Section 5.3. Indemnification. The Fund shall indemnify each of its Trustees,
Advisors, officers, employees and agents (including any Person who serves at its
request as director, officer,

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<PAGE>
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 Advisor 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, Advisor, officer, employee or agent,
except with respect to 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, provided that as
to any matter disposed of by a compromise payment by such Trustee, Advisor,
officer, employee or agent, 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 be approved as in the best interests of
the Fund by a majority of the disinterested Trustees or the Fund shall have
received a written opinion of independent legal counsel to the effect that such
Trustee, Advisor, officer, employee or agent appears to have acted in good faith
in the reasonable belief that his action was in the best interests of the Fund.
The rights accruing to any Trustee, Advisor, officer, employee or agent under
these provisions shall not exclude any other right to which he may be lawfully
entitled, provided that no Trustee, Advisor, officer, employee or agent may
satisfy any right of indemnity or reimbursement granted herein or to which he
may be otherwise entitled except out of Fund Property, and no Shareholder shall
be personally liable to any Person with respect to any claim for indemnity or
reimbursement or otherwise. The Trustees may make advance payments in connection
with indemnification under this Section, provided that the indemnified Trustee,
advisor, officer, employee or agent shall have given a written undertaken to
reimburse the Fund in the event it is subsequently determined that he is not
entitled to such indemnification.

Section 5.4. Surety Bonds. No Trustee shall, as such, be obligated to give
any bond or surety or other security for the performance of any of his duties,
except as may be required by applicable law.

Section 5.5. Apparent Authority. No purchaser, lender, transfer agent,
registrar, warrant agent, dividend disbursing agent or other Person dealing with
the Trustees or Advisor or any officer, employee or agent of the Fund shall be
bound to make any inquiry concerning the validity of any transaction purporting
to be made by the Trustees or Advisor or by such officer, employee or agent or
make inquiry concerning or be liable for the application of money or property
paid, loaned or delivered to or on the order of the Trustees or Advisor, or such
officer, employee or agent.

Section 5.6. Recitals Regarding Liability; Insurance. Any written instrument
creating an obligation of the Fund shall be conclusively taken to have been
executed or done by a Trustee or Advisor or an officer, employee or agent of the
Fund only in his capacity as a Trustee or Advisor or an officer, employee or
agent of the Fund. Any written instrument creating an obligation of the

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<PAGE>
Fund shall refer to this Instrument and shall contain a recital to the effect
that the obligations thereunder are not personally binding upon, nor shall
resort be had to the private property of any of the Trustees, Shareholders,
Advisor, officers, employees or agents of the Fund, but the Fund Property or a
specific portion thereof only shall be bound, and may contain any further
recital which the Trustees deem appropriate but the omission of such recital
shall not operate to impose personal liability on any of the Trustees,
Shareholders, Advisor, officers, employees or agents of the Fund. The Trustees
shall, at all times, maintain insurance for the protection of the Fund Property,
the Trustees, the Advisor, officers, employees and agents of the Fund in such
amount as the Trustees shall deem adequate to cover all foreseeable tort
liability to the extent such insurance is available at reasonable rates.

ARTICLE VI
Shares and Other Securities

Section 6.1. Description of Shares. The interests of the Shareholders
hereunder shall be divided into Shares, all of one class. The number of Shares
authorized hereunder for issuance by the Trustees shall be unlimited. Ownership
of Shares may be evidenced by certificates. All Shares shall have equal non-
cumulative voting, distribution, liquidation and other rights, shall be fully
paid and non-assessable upon issuance and shall have no preference, conversion,
exchange or pre-emptive rights.

Section 6.2. Certificates. Every Shareholder shall be entitled to receive a
certificate, provided, however, that the physical issuance and delivery of a
certificate to a Shareholder shall not be required except by written request of
the Shareholder. Certificates shall be in such form as the Trustees shall from
time to time approve, specifying the number of Shares held by such Shareholder.
Certificates shall be entitled "Certificate of Steadman Security Trust". No
change shall be made in the certificates which would impair any rights of the
Shareholders in certificates theretofore outstanding. Unless otherwise
determined by the Trustees, such certificates shall be signed by the Chairman of
the Trustees or the President and the Secretary of the Fund. Such signatures may
be facsimile signatures. There shall be filed with the transfer agent a copy of
the form of certificate so approved by the Trustees, certified by the Chairman,
the President or the Secretary, and such form shall continue to be used unless
and until the Trustees approve some other form.

Section 6.3. Issuance of Securities. The Trustees in their discretion may
from time to time, without vote of the Shareholders, issue Securities of the
Fund in addition to the then issued and outstanding Securities of the Fund and
Securities of the Fund held in the treasury, to such party or parties, for such
payment, property, services or other consideration, at such time or times, and
on such terms as the Trustees may determine and may in such manner acquire other
assets, real, personal or mixed tangible or intangible, and no prior offering
thereof to any of the holders of Securities of the Fund need be made.

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<PAGE>
Section 6.4. Pooling of Funds. The Shareholders authorize the pooling and/or
commingling of funds and investments in the manner herein provided and agree
that their sole interest shall be in their proportionate share of the Fund
Property. The Fund shall determine the proportionate share of each Shareholder
in the fund as herein provided.

Section 6.5 Acquisition of Fund Shares

(a) Acquisition of Fund Shares Prohibition. From and after the effective
date of the approval by the FundShareholders to convert the Fund from an
open-end investment company to a closed-end investment company, no person shall
directly or indirectly offer to acquire or acquire the beneficial ownership of
more than 10% of the Fund Shares, unless such offer or acquisition shall have
been approved in advance by a two-thirds vote of the Continuing Trustees, as
defined in Section 6.6. In addition, notwithstanding any provision to the
contrary in this Trust Indenture, where any person directly or indirectly
acquires beneficial ownership of more than 10% of the Fund Shares in violation
of this Section 6.5, the securities beneficially owned in excess of 10% shall
not be counted as Shares entitled to vote, shall not be voted by any person or
counted as voting Shares in connection with any matter submitted to the
Shareholders for a vote, and shall not be counted as outstanding for purposes of
determining a quorum or the affirmative vote necessary to approve any matter
submitted to the Shareholders for a vote.

(b) Definitions. The term "person" means an individual, a group acting in
concert, a corporation, a partnership, an association, a joint stock company, a
trust, an unincorporated organization or similar company, a syndicate or any
other group acting in concert formed for the purpose of acquiring, holding,
voting or disposing of securities of the Fund. The term "acquire" includes every
type of acquisition, whether effected by purchase, exchange, operation of law or
otherwise. The term group "acting in concert" includes (a) knowing participation
in a joint activity or conscious parallel action towards a common goal whether
or not pursuant to an express agreement, and (b) a combination or pooling of
voting or other interest in the Fund's outstanding Shares for a common purpose,
pursuant to any contract, understanding, relationship, agreement or other
arrangement, whether written or otherwise. The term "beneficial ownership" shall
have the meaning defined in Rule 13d-3 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended, as in effect on the date
of filing of this Trust Indenture.

(c) Exclusion for Trustees, Officers, Employees and Certain Proxies. The
restrictions contained in this Section 6.5 shall not apply to (i) any
underwriter or member of an underwriting or selling group involving a public
sale or resale of securities of the Fund provided, however, that upon completion
of the sale or resale of such securities, no such underwriter or member of such
selling group is a beneficial owner of more than 10% of the Fund Shares or (ii)
any proxy granted to one or more Continuing Trustees, as defined in Section 6.6,
by a Shareholder of the Fund. In addition, the Continuing Trustees of the Fund,
the officers and employees of the Fund or any entities organized or established
by the Fund acting in such capacity shall not be deemed to be a group with
respect to their beneficial ownership of voting stock of the Fund solely by
virtue of

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<PAGE>
their being trustees, officers or employees of the Fund. Notwithstanding the
foregoing, no trustee, officer or employee of the Fund or group of any of them
shall be exempt from the provisions of this Section 6.5 should any such person
or group become a beneficial owner of more than 10% of the Fund Shares.

(d) Determinations. A majority of the Continuing Trustees, as defined in
Section 6.6, shall have the power to construe and apply the provisions of this
Section 6.5 and to make all determinations necessary or desirable to implement
such provisions, including but not limited to matters with respect to (i) the
number of Shares beneficially owned by any person; (ii) whether a person has an
agreement, arrangement or understanding with another as to the matters referred
to in the definition of beneficial ownership; (iii) the application of any other
definition or operative provision of this Section 6.5 to the given facts; or
(iv) any other matter relating to the applicability or effect of this Section
6.5. Any constructions, applications or determinations made by the Continuing
Trustees pursuant to this Section 6.5 in good faith and on the basis of such
information and assistance as was then reasonably available for such purpose
shall be conclusive and binding upon the Fund and its Shareholders.

Section 6.6 Approval of Certain Business Combinations. The Shareholder vote
required to approve Business Combinations (as hereinafter defined) shall be as
set forth in this Section 6.6. (a) (1) Except as otherwise expressly provided in
this Section 6.6, the affirmative vote of the holders of (i) at least 80% of the
outstanding Shares entitled to vote thereon, and (ii) at least a majority of the
outstanding Shares entitled to vote thereon, not including Shares deemed
beneficially owned by a Related Person (as hereinafter defined), shall be
required in order to authorize any of the following:

(a) any merger or consolidation of the Fund with or into a Related
Person (as hereinafter defined);

(b) any sale, lease, exchange, transfer or other disposition, including
without limitation, a mortgage or any other capital device, of all or any
Substantial Part (as hereinafter defined) of the assets of the Fund to a
Related Person:

(d) any sale, lease, exchange, transfer or other disposition of all or
any Substantial Part of the assets of a Related Person to the Fund;

(e) the issuance of any securities of the Fund to a Related Person;

(f) the acquisition by the Fund of any securities of a Related Person;

21
<PAGE>
(g) any reclassification of the Shares of the Fund, or any
recapitalization involving Shares of the Fund;

(h) any agreement, contract or other arrangement providing for any of
the transactions described in this Section 6.6; and

(i) the adoption of any plan or proposal for liquidation or dissolution
of the Fund.

(2) Such affirmative vote shall be required notwithstanding any other
provision of this Trust Indenture, any provision of law, or any agreement
with any regulatory agency or national securities exchange which might
otherwise permit a lesser vote or no vote.

(3) The term "Business Combination" as used in this Section 6.6 shall
mean any transaction which is referred to in any one or more of subparagraphs
A(1)(a) through (i) above.

(b) The provisions of paragraph (a) shall not be applicable to any
particular Business Combination and such Business Combination shall require only
such affirmative vote as is required by any other provision of this Trust
Indenture, any provision of law, or any agreement with any regulatory agency or
national securities exchange, if the Business Combination shall have been
approved by a two-thirds vote of the Continuing Trustees (as hereinafter
defined); provided, however, that such approval shall only be effective if
obtained at a meeting at which a Continuing Trustee (as hereinafter defined) is
present.

(1) The term "Related Person" shall mean and include (a) any individual,
corporation, partnership or other person or entity which together with its
"affiliates" (as that term is defined in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended),
"beneficially owns" (as that term is defined in Rule 13d-3 of the General Rules
and Regulations under the Securities Exchange Act of 1934, as amended) in the
aggregate 10% or more of the outstanding Fund Shares; and (b) any "affiliate"
(as that term is defined in Rule 12b-2 under the Securities Exchange Act of
1934, as amended) of any such individual, corporation, partnership or other
person or entity. Without limitation, any Fund Shares which any Related Person
has the right to acquire pursuant to any agreement, or upon exercise of
conversion rights, warrants or options, or otherwise, shall be deemed
"beneficially owned" by such Related Person.

(2) The term "Substantial Part" shall mean more than 25% of the total
assets of the Fund, as of the end of its most recent fiscal year ending prior to
the time the determination is made.

(3) The term "Continuing Trustee" shall mean Trustees of the Fund who is
unaffiliated with the Related Person and was a Trustee prior to the time that
the Related Person

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<PAGE>
became a Related Person, and any successor of a Continuing Trustee who is
unaffiliated with the Related Person and is recommended to succeed a Continuing
Trustee by a majority of Continuing Trustees then on the board.

(4) The term "Continuing Trustee Quorum" shall mean two-thirds of the
Continuing Trustees capable of exercising the powers conferred on them.

ARTICLE VII
Record and Transfer of Shares

Section 7.1. Share Register; Holders of Record. A register shall be kept by
or on behalf of the Trustees, under the direction of the Trustees, which shall
contain the names and addresses of the Shareholders and the number of Shares
held by them respectively, and the numbers of the certificates, if any,
representing such Shares and a record of all transfers thereof. Only
Shareholders whose Shares are recorded on such register shall be entitled to
vote or to receive distributions or otherwise to exercise or enjoy the rights of
Shareholders, all subject to the provisions of Section 9.4. No shareholders
shall be entitled to receive any distribution or to have notice given to him as
provided herein until he has given his address to a transfer agent or such other
officer or agent of the Fund as shall keep the register for entry thereon.

Section 7.2. Transfer Agent. The Trustees shall employ Steadman Security
Corporation ("SSC") as transfer and dividend disbursing agent ("Agent") upon
such terms and conditions as the Trustees in their judgment may deem to be
suitable and shall pay to the Agent such fees and expenses for such services as
the Trustees determine to be appropriate in addition to fees and expenses paid
to the Advisor for any other services it performs. The Agent may keep the
register and record therein the original issues and transfers of Shares and
countersign certificates for Shares issued to the persons entitled thereto. The
Agent shall perform the duties usually performed by transfer agents and
registrars of certificates of stock in a corporation except as modified by the
Trustees. If SSC declines or is unable to provide this service, the Trustees
shall employ another organization.

Section 7.3. Blank Certificates. In accordance with the usual custom of
corporations having a transfer agent, signed certificates for Shares in blank
may be deposited with any transfer agent of the Fund, to be used by such
transfer agent in accordance with authority, conferred upon it as occasion may
require, and in so doing the signers of such certificates shall not be
responsible for any loss resulting therefrom.

Section 7.4. Change of Holder of Record. Any person becoming entitled to any
Shares in consequence of the death, bankruptcy or insolvency of any Shareholder
or otherwise by operation of law shall be recorded as the holder of record upon
production of such proper evidence of ownership as the Fund or its transfer
agent may prescribe and delivery of any existing certificate to the Trustees or
the transfer agent of the Fund. Until this condition immediately foregoing is
satisfied, the holder of record shall be deemed to be the Shareholder for all
purposes hereof, and

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the Fund, the Trustees, any officer or agent of the Fund and any transfer agent
or registrar for the Fund shall not be affected by any notice of such death,
bankruptcy, insolvency, or other event except where a designation of beneficiary
has been made and is unrevoked as of the death of the Shareholder.

Section 7.5. Transfer of Shares. Shares shall be transferable on the records
of the Fund (other than by operation of law) only by the record holder thereof
or by his agent duly authorized in writing upon delivery to the Fund or a
transfer agent of the Fund (a) of the certificate or certificates therefor, if
any, with all transfer tax stamps affixed or duly provided for, properly
endorsed or accompanied by a duly executed instrument or instruments of
transfer, or (b) the production of such other proper evidence of ownership as
the Fund or its transfer agent may prescribe together with such evidence of the
genuineness of each such endorsement, execution and authorization and of other
matters as may reasonably be required by the Fund or its transfer agent. The
Trustees or the transfer agent shall not assume any responsibility for the
validity or propriety of any assignment or direction and shall be fully
protected in relying on any signature believed to be genuine and to have been
made by the proper person. Upon such delivery the transfer shall be recorded on
the register of the Fund provided that the Fund shall not be required to effect
the transfer of fractional interests in Shares. Until such record is made, the
Shareholder of record shall be deemed to be the holder of such Shares for all
purposes hereof, and the Trustees, the Trust, any transfer agent or registrar or
any officer or agent of the Fund shall not be affected by any notice of the
proposed transfer. This Section and Section 7.4 are subject in all respects to
the provisions of Section 9.4.

Section 7.6. Limitation of Fiduciary Responsibility. The Trustees shall not,
nor shall the Shareholders or any officer, transfer agent or other agent of the
Fund, be bound to see to the execution of any trust, expressed, implied or
constructive, or of any charge, pledge, security interest or equity to which any
of the Shares or any interest therein are subject, or to ascertain or inquire
whether any sale or transfer of any Shares or interest therein by any
Shareholder or his personal representative is authorized by such trust, charge,
pledge, security interest or equity, or to recognize any Person as having any
interest therein except the Persons recorded as such Shareholders. The receipt
of the Person in whose name any Share is recorded or, if such Share is recorded
in the names of more than one Person, the receipt of each such Person or of the
duly authorized agent of each such Person, shall be a sufficient discharge for
all money, Securities and other property payable, issuable or deliverable in
respect of such Share and from all liability to see to the proper application
thereof.

Section 7.7. Notices. Any notice to which Shareholders hereunder may be
entitled and any shall be deemed duly served or given if mailed, postage
prepaid, addressed to Shareholders of record at their last known post office
addresses as recorded on the Share register provided for in Section 7.1.

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<PAGE>
Section 7.8. Replacement of Certificates. In case of the loss, mutilation or
destruction of any for Shares hereunder the Trustees may issue or cause to be
issued a new certificate on such terms as they may deem fit.

Section 7.9. Designation of Beneficiary. A Shareholder may at any time
designate as beneficiary any person or persons (hereinafter called the
"Beneficiary") whose interest in the Fund shall be contingent upon such
beneficiary or beneficiaries surviving such Shareholder, and whose interests may
at any time be revoked by the Shareholder without the consent of such
Beneficiary by notice in writing to the Trustees.

The transfer by a Shareholder of his interest or any part thereof in the
Fund shall operate to revoke any prior designation of any Beneficiary to the
extent of such transfer.

Such designation shall be in form satisfactory to the Trustees and shall
contain the name and address of such Beneficiary, and shall be registered by the
Trustees on the Shareholder's account. The Trustees shall make no charge for the
initial designation, but all subsequent designations shall be registered upon
payment to the Trustees of a fee of One Dollar ($1.00).

The Shareholder agrees for himself, his legal representative, executors,
administrators. heirs, and assigns that upon his death the recognition by the
Trustees of the Beneficiary last designated and unrevoked as the person entitled
to the Shareholder's interest in the Fund shall be a complete discharge to the
Trustees in respect of such interest.

ARTICLE VIII
Characteristics of Securities

Section 8.1. General. The ownership of the Fund Property of every
description and the right to conduct any business described herein are vested
exclusively in the Trustees, and the Shareholders shall have no interests
therein other than the beneficial interest conferred by their Shares, and they
shall have no right to call for any partition or division of any property,
profits, rights or interests of the Fund, nor can they be called upon to share
or assume any losses of the Fund or suffer an assessment of any kind by virtue
of their ownership of Shares. The Shares shall be personal property having only
the rights set forth in this Instrument and in the certificates for the Shares.

Section 8.2. Death of Shareholders. The death of a Shareholder during the
continuance of the Fund shall not terminate the Fund or give such Shareholder's
legal representative a right to an accounting, or to take any action in the
courts or otherwise against other Shareholders, the Trustees or the Fund
Property, but shall only entitle the legal representative of the deceased
Shareholder to become the Shareholder upon compliance with Section 7.4.

Section 8.3. Redemption of Shares. Option of Shareholder. Upon the fifth
anniversary date of the Merger, as defined in Section 1.4, the Trustees shall
publish a notice in a national

25
<PAGE>
newspaper of general circulation informing Shareharlders of the right to redeem
all or any part of their Shares. For a period of thirty days commencing on the
date of publication of the notice, a Shareholder may redeem all or any part of
his Shares at net asset value as defined in Section 2.8, determined as of the
close of business on the thirtieth day following the publication of such notice,
or if such day is a Saturday, Sunday, or legal holiday, then such determination
will be made on the first business day immediately preceding such thirtieth day.

ARTICLE IX
Shareholders

Section 9.1 Special Meetings. (a) Special meetings of' the Shareholders
shall be called when required by applicable laws or regulations and may be
called at any time by a majority of the Trustees, and shall be called by the
Chairman upon written request of Shareholders holding in the aggregate not less
than 90% of the outstanding Shares having voting rights. Any such request shall
specify the purpose or purposes for which such meeting is to be called. No other
business not stated in the notice of the meeting shall be considered at such
meeting. Any such meeting shall be held in the District of Columbia or in such
other place within or without the District of Columbia as the Chairman shall
designate.

(b) Quorum. The holders of 33% of the outstanding shares present in person
or by proxy shall constitute a quorum at any meeting except as may be otherwise
required by the Act or by applicable law.

Section 9.2. Notice of Meetings. Notice of all meetings of the Shareholders,
stating the time, place and purposes of the meeting, shall be given by the
Trustees by mail to each Shareholder at his registered address mailed at least
10 days and not more than 60 days before the meeting. Any adjourned meeting may
be held as adjourned without further notice.

Section 9.3. Voting Rights of Shareholders. The Shareholders shall be
entitled to vote only upon (a) election of Trustees as provided in Sections 10.1
and 10.2; (b) removal and election of Trustees as provided in Sections 10.3 and
10.4; (c) amendment of this Instrument or termination of the Fund as provided in
Section 12.1; (d) termination as provided in Section 3.2 of any agreement
entered into pursuant to Section 3.1; (e) upon such other matters as may be
required by the Act; and (f) to the same extent as the shareholders of a
business corporation, as to whether or not a court action, proceeding or claim
should be brought or maintained derivatively or as a class action on behalf of
the Fund or its Shareholders. Except with respect to the foregoing matters
specified in this Section, on which the specified Shareholders' vote shall
determine the Trustees' action, no action taken by the Shareholders at any
meeting shall in any way bind the Trustees.

Each Shareholder entitled to vote in accordance with this Instrument shall
be entitled to one vote for each full Share outstanding, and entitled to vote
held by such Shareholder.

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<PAGE>
Fractional Shares shall not be entitled to vote. When a quorum is present at any
meeting of Shareholders, the vote of the holders of a majority of the Shares
entitled to vote present in person or by proxy at such meeting shall decide any
question upon which Shareholders are entitled to vote present in person or by
proxy at such meeting shall decide any question upon which Shareholders are
entitled to vote, except as expressly provided otherwise in this Instrument.

Section 9.4. Record Date. For the purpose of determining the Shareholders
who are entitled to vote or act at any meeting or any adjournment thereof, or
who are entitled to participate in any dividend or distribution or for the
purpose of any other action, the Trustees may fix a date not less than 10 nor
more than 60 days prior to the date of any meeting of Shareholders or dividend
payment or other action as a record date for the determination of Shareholders
entitled to vote at such meeting or any adjournment thereof or to receive any
dividend or to be treated as Shareholders of record for purposes of such other
action.

Section 9.5. Proxies. At any meeting of Shareholders, any holder of Shares
entitled to vote there at may vote by proxy, provided that no proxy shall be
voted at any meeting unless it shall have been placed on file with the Secretary
of the Fund or with such other officer or agent of the Fund as the Secretary may
direct, for verification prior to the time at which such vote shall be taken.
Pursuant to a resolution of a majority of the Trustees, proxies may be solicited
in the name of one or more Trustees or one or more of the officers of the Fund.
A proxy purporting to be executed by or on behalf of a Shareholder shall be
deemed valid unless challenged at or prior to its exercise and the burden of
proving invalidity shall rest on the challenger.

Section 9.6. Reports. The Trustees shall cause to be prepared after the end
of the first full Fiscal Year and after the end of each succeeding Fiscal Year a
report containing audited financial statements, including a balance sheet and
statements of income and accumulated undistributed income. realized gain or loss
on investments, and changes in financial position of the Fund, prepared in
conformity with generally accepted accounting principles, together with a report
of independent accountants on such financial statements based on an examination
of the books and records of the Fund made in accordance with generally accepted
auditing standards. A signed copy of such reports shall be filed with the
Trustees as soon as practicable after the close of the period covered thereby.
Copies of such reports shall be mailed to all Shareholders.

Section 9.7 Notice for Nominations and Proposals. (a) Nominations for the
election of Trustees and proposals for any new business to be taken up at any
meeting of Shareholders may be made by the Trustees of the Fund or by any
Shareholder of the Fund entitled to vote generally in the election of Trustees.
In order for a Shareholder of the Fund to make any such nominations and/or
proposals, he or she shall give notice thereof in writing, delivered or mailed
by first class United States mail, postage prepaid, to the Secretary of the Fund
not less than thirty days nor more than sixty days prior to the date of any such
meeting; provided, however, that if less than forty days notice of the meeting
is given to Shareholders, such written notice shall be delivered or mailed, as
prescribed, to the Secretary of the Fund not later

27
<PAGE>
than the close of business on the tenth day following the day on which notice of
the meeting was mailed to Shareholders. Each such notice given by a Shareholder
with respect to nominations for the election of Trustees shall set forth (i) the
name, age, business address and, if known, residence address of each nominee
proposed in such notice; (ii) the principal occupation or employment of each
such nominee; and (iii) the number of the Fund Shares which are beneficially
owned by each such nominee. In addition, the Shareholder making such nomination
shall promptly provide any other information reasonably requested by the Fund.

(b) Each such notice given by a Shareholder to the Secretary with respect to
business proposals to be brought before a meeting shall set forth in writing as
to each matter: (i) a brief description of the business desired to be brought
before the meeting and the reasons for conducting such business at the meeting;
(ii) the name and address, as they appear on the Fund's books, of the
Shareholder proposing such business; (iii) the number of Fund Shares which are
beneficially owned by the Shareholder; and (iv) any material interest of the
Shareholder in such business. Notwithstanding anything in this Trust Indenture
to the contrary, no new business shall be conducted at the meeting except in
accordance with the procedures set forth in this Trust Indenture.

(c) The Chairman of the meeting of Shareholders may, if the facts warrant,
determine and declare to such meeting that a nomination or proposal was not made
in accordance with the foregoing procedure, and, if he should so determine, he
shall so declare to the meeting and the defective nomination or proposal shall
be disregarded and laid over for action at the next succeeding special or annual
meeting of the Shareholders taking place thirty days or more thereafter. This
provision shall not require the holding of any adjourned or special meeting of
Shareholders for the purpose of considering such defective nomination or
proposal.

ARTICLE X
Trustees

Section 10.1. Number and Qualification. The number of Trustees shall not be
less than one (1) nor more than fifteen (15). No reduction in the number of
Trustees shall have the effect of removing any Trustee from office prior to the
expiration of his term. A Trustee shall be an individual at least 21 years of
age who is not under legal disability. Trustees may, but not need, own shares or
other securities of the Fund. The Trustees, in their capacity as Trustees, shall
not be required to devote any specific portion of their time to the business and
affairs of the Fund.

Section 10.2. Terms of Office: Election. The Trustees shall be chosen for a
term of unlimited duration. Trustees shall hold office until their successors
shall be elected and qualified, provided that the term of office of a Trustee
shall terminate and a vacancy shall occur in the event of the death,
resignation, bankruptcy, adjudicated incompetence or other incapacity to
exercise the duties of the office or the removal of a trustee. Election of
Trustees at shareholder meetings shall be by the affirmative vote of the holders
of at least a majority of the Shares present

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<PAGE>
in person or by proxy at such meetings. The election of any Trustee other than
an individual who was servicing as a Trustee immediately prior to such elections
pursuant to this Section shall not become effective unless and until such person
shall have in writing accepted his election and agreed to be bound by the terms
of this Instrument. There shall be no cumulative voting by Shareholders in the
election of Trustees of the Fund.

Section 10.3. Resignation and Removal. Any Trustee may resign his trust
(without need for prior or subsequent accounting) by an instrument in writing
signed by him and delivered or mailed to the Chairman of the Trustees, the
President or the Secretary of the Fund, and such resignation shall be effective
upon such delivery or at a later date according to the terms of such instrument.
Any or all of the Trustees may be removed, with or without cause, by action of
90% of the remaining Trustees at a meeting duly called. No natural person shall
serve as Trustee after the holders of record of not less than two-thirds of the
outstanding shares of the Fund have declared that he be removed from that office
either by declaration, in writing, filed with the custodian of the securities of
the Fund or by votes cast in person or by proxy at meeting called for that
purpose. The Trustees will promptly call meeting of shareholders for the purpose
of voting upon the question of removal of any such Trustee or Trustees when
requested to do so by the record holders of not less than 10% of the outstanding
shares. Upon the resignation or removal of a Trustee, or his otherwise ceasing
to be a Trustee, he shall execute and deliver such documents as the remaining
Trustees shall require for the purpose of conveying to the Fund or the remaining
Trustees any Fund Property held in the name of the resigning or removed Trustee,
and by the acceptance of his appointment or election as Trustee he shall
delegate to any other of the Trustees his power of attorney to execute such
documents on his behalf. Upon the incapacity or death of any Trustee, his legal
representative shall execute and deliver on his behalf such documents as the
remaining Trustees shall require as provided in the preceding sentence.

Section 10.4. Vacancies. Whenever a vacancy shall occur, until such vacancy
is filled the Trustees or Trustee continuing in office, regardless of their
number, shall have all the powers granted to the Trust-ees and shall discharge
all the duties imposed upon the Trustees by this Instrument. No such vacancy
shall operate to annul or terminate this Instrument or to revoke any existing
agency created pursuant to the terms of this Instrument, and title to any Fund
Property held in the name of any Trustee alone, jointly with one or more of the
other Trustees or otherwise, shall, in the event of the death, resignation,
bankruptcy, adjudicated incompetence or other incapacity to exercise the duties
of the office or the removal of such Trustee vest in the continuing or surviving
Trustees without necessity of any further act or conveyance.

In the case of any vacancy occurring other than by reason of increase in the
number of Trustees, the holders of at least a majority of the Shares present in
person or by proxy at a meeting of Shareholders or a majority of the Trustees
continuing in office acting in a meeting of Trustees or by written instrument or
instruments, may elect or appoint an individual having the qualifications
described in Section 10.1 to fill such vacancy. In the case of any vacancy
created by an increase in the number of Trustees, a majority of the Trustees
continuing in office acting in a meeting of Trustees or by written instrument or
instruments may appoint an individual having the

29
<PAGE>
qualifications described in Section 10.1 to fill such vacancy. Upon the
effectiveness of any election or appointment made as provided in this Section,
the Fund Property shall vest in such new Trustee jointly with the continuing or
surviving Trustees without the necessity of any further act or conveyance,
provided that no such election or appointment shall become effective unless or
until the new Trustee shall have accepted, in writing, his election or
appointment and agreed to be bound by the terms of this Instrument.

Section 10.5. Meetings. Meetings of the Trustees shall be held from time to
time, either within or without the District of Columbia, upon the call of the
Chairman of the Trustees, the President, the Secretary of the Fund or any two
Trustees. Notice of any meeting shall be mailed or otherwise given not less than
24 hours before the meeting but may be waived, in writing, by any Trustee either
before or after such meeting. The attendance of a Trustee at a meeting shall
constitute a waiver of notice of such meeting except where a Trustee attends a
meeting for the express purpose of objecting to the transaction of any business
on the ground that the meeting has not been lawfully called or convened.

A quorum for all meetings of the Trustees shall be a majority of the
Trustees. Any Trustee present shall be counted for the purpose of determining
whether a quorum exists and shall be entitled to vote on any proposed action of
the Trustees notwithstanding that such Trustee may be a party to or an affiliate
of a person (other than the Fund) who is a party to a transaction to which the
Fund is also a party, or may be otherwise interested in the proposed action.

Unless specifically provided otherwise in this Instrument, any action of the
Trustees may be taken at a meeting by vote of a majority of the Trustees present
(a quorum being present) or without a meeting by written consent of a majority
of the Trustees given before or after such action is taken.

Any Committee may act with or without a meeting. A quorum for all meetings
of any Committee shall be a majority of the members thereof. Unless specifically
provided otherwise in this instrument, any action of any Committee may be taken
at a meeting by vote of a majority of the members present (a quorum being
present) or without a meeting by written consent of a majority of the members
given before or after such action is taken. All or any one or more Trustees may
participate in a meeting, of the Trustees or any Committee thereof by conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and participation in a meeting
pursuant to such means of communication shall constitute presence in person at
such meeting. The minutes of any meeting of the Trustees held by telephone shall
be prepared in the same manner as a meeting of the Trustees held in person.

Any agreement, deed, lease or other instrument or writing executed by one or
more of the Trustees or by any authorized Person shall be valid and binding upon
the Trustees and upon the Fund when it is authorized or ratified by action of
the Trustees as provided in this Instrument.

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<PAGE>
Section 10.6. Officers. The Trustees shall annually elect from among their
number a Chairman of the Trustees, who shall be the principal executive officer
of the Fund. The Trustees shall elect or appoint or shall authorize the Chairman
to appoint a President, a Treasurer and a Secretary. The Trustees may elect or
appoint or may authorize the Chairman of the Trustees to appoint a Vice-Chairman
of the Trustees, a Controller, one or more Assistant Treasurers and Assistant
Secretaries and such other officers or agents who shall have such powers, duties
and responsibilities, as the Trustees may deem advisable. Two or more offices
may be held by the same person.

Section 10.7. By-laws. The Trustees may adopt and from time to time amend or
repeal By-laws for the conduct of the business of the Fund and such By-laws may
define the duties of the officers, agents, employees and representatives of the
Fund.

ARTICLE XI
Distributions to Shareholders

Section 11.1. General. The Trustees may from time to time declare and pay to
the Shareholders, in proportion to their respective ownership of Shares out of
the net income accumulated undistributed income, paid-in capital or otherwise
out of assets in the hands of the Trustees such dividends or other distributions
as they may deem proper. The declaration and payment of such dividends or other
distributions and determination of net income, accumulated undistributed income
or paid-in capital available for dividends or other distributions and other
purposes shall lie wholly in the discretion of the Trustees, and no Shareholder
shall be entitled to receive or be paid any dividends or to receive any
distribution except as determined by the Trustees in the exercise of said
discretion. The Trustees may also distribute to the Shareholders. in proportion
to their respective ownership of Shares, additional Shares in such manner and on
such terms as they may deem proper.

Section 11.2. Retained Earnings. Except as provided in Section 11.1, the
Trustees may retain from net income such amounts as they may deem necessary to
pay the debts and expenses of the Fund, to meet obligations of the Fund, to
establish reserves, or as they may deem desirable to use in the conduct of its
affairs or to retain for future requirements or extensions of the business of
the Fund.

Section 11.3. Sources of Distributions. Any distributions to Shareholders
shall be accompanied by a statement in writing advising the Shareholders of the
source of the funds so distributed so that distribu-tions of ordinary income
return of capital and capital gains income will be clearly distinguished. If the
source of funds so distributed has not been determined, the communication shall
so state, in which event the statement of the source of funds shall be forwarded
to Shareholders promptly after the close of the Fiscal Year in which such
distributions were made.

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<PAGE>
ARTICLE XII
Amendment or Termination of Fund

Section 12.1. Amendment or Termination. The provision of this Instrument may
be amended or altered (except as to the limitations of personal liability of the
shareholders and Trustees and the prohibition of assessments upon shareholders)
only by the affirmative vote of a majority of the Trustees. Such amendment or
termination shall be effective when a certificate shall have been signed and
acknowledged by the Chairman, Secretary or Trustee, that such action was taken
at a meeting duly called and held in accordance with and by the affirmative vote
required by this Instrument. Upon the termination of the Fund pursuant to this
Section:

(a) the Fund shall carry on no business except for the purpose of winding up
its affairs;

(b) the Trustees shall proceed to wind up the affairs of the Fund and all of
the powers of the Trustees under this Instrument shall continue until the
affairs of the Fund shall have been wound up, in-cluding the power to fulfill or
discharge the contracts of the Fund, collect its assets, sell, convey, assign,
exchange, transfer or otherwise dispose of all or any part of the remaining Fund
Property to one or more persons at public or private sale for consideration
which may consist in whole or in part of cash, securities or other property of
any kind, discharge or pay its liabilities, and do all other acts appropriate to
liquidate its business, provided that any plan or program for the sale,
conveyance, assignment, exchange, transfer or other disposition of all or
substantially all of the Fund Property in one or a series of transactions shall
require approval by affirmative vote of not less than a majority of all
outstanding Shares entitled to vote; and

(c) after paying or adequately providing for the payment of all liabilities,
and upon receipt of such releases, indemnities and refunding agreements as their
deem necessary for their protection, the Trustees may distribute the remaining
Fund Property, in cash or in kind or partly each, among the Shareholders
according to their respective rights.

Section 12.2. Transfer to Successor. Anything contained herein or otherwise
to the contrary notwithstanding, the Trustees upon affirmative majority vote may
(a) select any entity, be it a corporation, association, trust or other kind of
organization, or organize any such kind of entity to take over the Fund Property
and carry on the affairs of the Fund; (b) merge the Fund into or sell, convey
and transfer the Fund Property to any such entity for such consideration and
upon terms and conditions without limitation as they in their discretion deem
suitable; and, (c) take such other action they may in their discretion deem
either necessary or appropriate to accomplish or implement any action taken
hereunder.

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<PAGE>
ARTICLE XIII
Miscellaneous

Section 13.1. Governing Law. This Instrument is delivered by the Trustees in
the District of Columbia and with reference to the laws thereof, and the rights
of all parties and the validity, construction and effect of every provision
hereof shall be subject to and construed according, to the laws of the District
of Columbia.

Section 13.2. Counterparts. This Instrument may be simultaneously executed
in several counterparts, each of which so executed shall be deemed to be an
original, and such counterparts, together, shall constitute one and the same
instrument and shall be sufficiently evidenced by any original counterpart.

Section 13.3. Reliance by Third Parties. Any certificate executed by the
Chairman or President or Secretary or Assistant Secretary certifying to (a) the
number or identity of the Trustees or Shareholders; (b) the due authorization of
the execution of any instrument or writing; (c) the form of any vote passed at a
meeting of the Trustees or Shareholders; (d) the fact that the number of the
Trustees or Shareholders present at any meeting or executing any written
instrument satisfies the requirements of this Instrument; (e) the form of any
By-law adopted by or the identity of any officers elected or appointed by the
Trustees; or (f) the existence of non-existence of any fact or facts which in
any manner relate to the affairs of the Fund, shall be conclusive evidence as to
the matters so certified in favor of any person dealing with the Trustees or any
of them and the successors of such person.

Section 13.4. Provisions in Conflict With Laws or Regulations. (a) The
provisions of this Instrument are severable and if the Trustees shall determine
that any one or more of such provisions are in conflict with applicable federal
or state laws and regulations, such conflicting provisions shall be deemed never
to have constituted a part of this Instrument, provided that such determination
by the Trustees shall not affect or impair any of the remaining provisions of
this Instrument or render invalid or improper any action taken or omitted
(including, but not limited to, the election of Trustees) prior to such
determination. Such determination shall become effective when a certificate is
signed by the Chairman, President or Secretary setting forth any such
determination and reciting that it was duly adopted by the Trustees. The
Trustees shall not be liable for failure to make any determination under this
Section. Nothing in this Section shall in any way limit or affect the right of
the Trustees or the Shareholders to amend this Instrument.

(b) If any provisions of this Instrument shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect or render invalid or unenforceable such provision in any other
jurisdiction or any other provision of this Instrument in any jurisdiction.

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<PAGE>
Section 13.5. Not In Derogation of Existing Rights. Nothing herein shall
operate in derogation of any substantive rights, privileges, duties or
liabilities with respect to the Shares issued and outstanding prior to the
Effective Date of this Instrument.

Section 13.6. Section Headings. Section headings have been inserted for
convenience only and are not a part of this Instrument.

ARTICLE XIV
Effective Date and Duration of Trust and Fund

Section 14.1. Effective Date. This Instrument and the Trust herein shall
become effective -immediately upon all affirmative vote of not less than
two-thirds of a majority of the Shares then outstanding, and entitled to vote as
required by the Act and upon the signing of a certificate by the Chairman or
Secretary setting forth the fact of such affirmative vote and the date thereof
which date shall be the "Effective Date".

Section 14.2. This Instrument Supersedes. On and after the Effective Date,
this Instrument shall supersede the Trust Indenture dated February 23, 1939 and
all amendments and supplements thereto and the Fund and all matters pertaining
thereto shall be governed by this Instrument.

Section 14.3. Duration and Termination. The Fund shall terminate on February
23, 2034, unless the date of termination shall be extended and changed to a
later date or unless terminated earlier by the affirmative vote of a majority of
Trustees.

ARTICLE XV
Shareholders' Acceptance

Section 15.1. Acceptance. Shareholders holding shares after the Effective
Date of this Instrument shall be deemed to have accepted this instrument and the
terms and conditions contained herein and shall be bound hereby, nothing herein
contained to the contrary notwithstanding.

<PAGE>

EXHIBIT 4

Agreement and Plan Of Merger

<PAGE>

EXHIBIT 4

AGREEMENT AND PLAN OF MERGER

This Agreement and Plan of Merger ("Agreement") is made as of the 2nd day of
May, 1997, by and among Steadman Associated Fund, a common law trust organized
under the laws of the District of Columbia ("Fund") and Steadman Investment
Fund, Steadman American Industry Fund and Steadman Technology and Growth Fund,
each of which is a common law trust organized under the laws of the District of
Columbia (collectively, the "Other Funds"). Upon completion of the transactions
set forth in this Agreement, the Steadman Associated Fund will change its name
to the Steadman Security Trust ("Fund").

The reorganizations ("Reorganizations") will consist of the mergers of the
Other Funds with and into the Fund ("Merger") and the issuance by the Fund in
each transaction of shares of beneficial interest of the Fund ("shares") to be
distributed contemporaneously with the Closing Date (as defined in Section 3.1
below), to the shareholders of the Other Funds as provided herein, all upon the
terms and conditions hereinafter set forth in this Agreement.

In consideration of the premises and of the covenants and agreements
hereinafter set forth, the parties hereto covenant and agree as follows:

I. THE REORGANIZATIONS OF THE OTHER FUNDS

1.1 Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, on the Closing Date,
each of the Other Funds will merge with and into the Fund, and the Fund, as
the survivor of the Merger, will in exchange therefor on the Closing Date as
set forth in paragraph 3.1 issue to the shareholders of the Other Funds the
number of shares of the Fund, including fractional Fund shares, determined by
dividing the value of each of the Other Funds shares computed in the manner
and as of the time and date set forth in paragraph 2.1, by the net asset
value per share of the Fund, computed in the manner and as of the time and
date set forth in paragraph 2.2. Such transactions shall take place at the
closing provided for in paragraph 3.1 ("Closing").

1.2 Copies of all books and records of or pertaining to the Other Funds,
including those in connection with its obligations under the "Investment
Company Act of 1940", as amended, (the "1940 Act"), the Code, State blue sky
laws or otherwise in connection with this Agreement, will promptly after the
Closing be delivered to officers of the Fund or their designee. The Fund and
its advisor, Steadman Security Corporation ("Steadman") shall have access to
such books and records upon reasonable request during normal business hours.

2. THE CALCULATION

2.1 The net asset value of each of the Other Fund's shares shall be the
net asset value per share computed at the close of trading on the New York
Stock Exchange on the business day

<PAGE>

preceding the Closing Date (such time and date being hereinafter called the
"Valuation Date"), using the valuation procedures set forth in each of the
Other Fund's Trust Indenture.

2.2 The net asset value of each share of the Fund shall be the net asset
value per share computed on the Valuation Date, using the valuation
procedures set forth in the Fund's Trust Indenture.

2.3 The Fund shall effectuate a reverse split of each share of the Fund
which is issued and outstanding on the Valuation Date so that for each ten
Fund shares issued and outstanding there shall be issued one Fund share.

2.4 All computations of value shall be made by Steadman in accordance
with its regular practice in pricing the Fund and the Other Funds. The Fund
shall cause Steadman to deliver to the Fund and the Other Funds a copy of its
valuation reports at the Closing.

2.5 The number of Fund shares (including fractional shares, if any) to be
issued hereunder shall be determined by dividing the net asset value of each
of the shares of the Other Funds determined in accordance with paragraph 2.1
by the net asset value of a Fund share determined in accordance with
paragraph 2.2 as effected by the reverse stock split of the Fund shares
effectuated pursuant to paragraph 2.3. Fractional shares shall not be issued
and the net asset value of any Fund fractional shares required to be issued
pursuant to paragraphs 2.3 and 2.5 shall be paid in cash to each Fund
shareholder and Other Funds shareholders.

3. THE MERGER

3.1 Upon the effectiveness of the Merger, the Other Funds shall be merged
with and into the Fund, pursuant to the laws of the District of Columbia,
which shall be the survivor from and after the effective time of the Merger,
and which is sometimes hereinafter referred to as the "surviving fund," and
which shall continue to exist as said surviving fund under the name Steadman
Security Trust. The separate existence of each of the Other Funds, which are
hereinafter sometimes referred to as the "terminating funds," shall cease at
the Closing Date in accordance with the provisions of Section 4.1.

3.2 The Amended and Restated Trust Indenture of the Fund and Declaration
of Trust with amendments through May 2, 1997 ("Fund Trust Indenture") as now
in force and effect, and as the same may be amended and restated, shall
continue to be the Trust Indenture of the surviving fund, and shall continue
in full force and effect until further amended and changed in the manner
prescribed therein.

3.3 The Trustees in office of the Fund at the Closing Date shall be the
Trustees of the surviving fund.

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<PAGE>

3.4 Each issued share of a terminating fund shall, at the Closing Date,
be converted into shares of the surviving fund. The issued shares of the Fund
shall not be converted or exchanged in any manner, but each such share which
is issued and outstanding as of Closing Date shall continue to represent one
issued share of the surviving Fund.

4. CLOSING AND CLOSING DATE

4.1 The Closing Date hereunder (the "Closing Date") shall be ten days
after all shareholder and regulatory approvals to effectuate the Merger have
been received by the Fund and the Other Funds (or such other day and time as
may be mutually agreed upon in writing). The Closing shall be held in a
location mutually agreeable to all the parties hereto. All acts taking place
at the Closing shall be deemed to take place simultaneously as of 9:00 a.m.
Eastern time on the Closing Date unless otherwise agreed by the parties.

4.2 In the event that on the Valuation Date (a) the New York Stock
Exchange shall be closed to trading or trading thereon shall be restricted or
(b) trading or the reporting of trading on such Exchange or elsewhere shall
be disrupted so that in the judgment of both the Fund and the Other Funds,
accurate appraisal of the value of the net assets of the Fund or the Other
Funds is impracticable, the Valuation Date shall be postponed until the first
business day after the day when trading shall have been fully resumed without
restriction or disruption and reporting shall have been restored.

4.3 The Other Funds shall deliver to the Fund or its designee (a) at the
Closing a list, certified by its Secretary, of the names, addresses and
taxpayer identification number, of the Other Funds Shareholders (the "Other
Funds Shareholders") and the number of outstanding Other Funds shares owned
by each such shareholder, all as of the Valuation Date, and (b) as soon as
practicable after the Closing all original documentation (including Internal
Revenue Service forms, certificates, certifications and correspondence)
relating to the Other Funds Shareholders taxpayer identification numbers and
their liability for or exemption from back-up withholding. The Fund shall
issue and deliver a confirmation evidencing delivery of Fund shares to be
credited on the Closing Date to the Other Funds Shareholders or provide
evidence reasonably satisfactory to the Other Funds Shareholders that such
Fund shares have been credited to Other Funds Shareholders account on the
books of the Fund. At the Closing each party shall deliver to the other such
other documents or instruments as such other party or its counsel may
reasonably request to effect the consummation of the transactions
contemplated by the Agreement.

5. COVENANTS OF THE FUND AND THE OTHER FUNDS.

5.1 The Fund will operate its business in the ordinary course between the
date hereof and the Closing Date.

5.2 The Fund has prepared and filed with the Securities and Exchange
Commission ("Commission") a registration statement on Form N-14 under the
Securities Act of 1933, as

-3-

<PAGE>

amended ("1933 Act"), and will prepare and file with the Commission any
amendments thereto, relating to the Fund shares to be issued to the Other
Funds Shareholders pursuant to the Merger ("Registration Statement"). The
Other Funds will provide the Fund with the Proxy Materials as described in
paragraph 5.3 below, for inclusion in the Registration Statement. The Other
Funds will further provide the Fund with such other information and documents
relating to the Other Funds as are reasonably necessary for the preparation
of the Registration Statement.

5.3 The Fund and the Other Funds will call a meeting of their
shareholders to consider and act upon the Merger, including this Agreement,
and take all other action necessary to obtain approval of the transactions
contemplated herein. The Fund and the Other Funds will prepare, with such
assistance from each other as may be mutually agreed to, the notice of
meeting, form of proxy and proxy statement and prospectus (collectively
"Proxy Materials") to be used in connection with such meetings provided that
the Fund will furnish the Other Funds with a current effective prospectus
relating to the Fund shares for inclusion in the Proxy Materials and with
such other information relating to the Fund as is reasonably necessary for
the preparation of the Proxy Materials. The Fund will include in its Proxy
Materials for approval by its shareholders the change in the classification
of the Fund from an open-end investment company to a closed-end investment
company, including the elimination by the Fund of the right to issue and have
outstanding redeemable Fund shares.

5.4 Prior to the Closing Date, the Other Funds will assist the Fund in
obtaining such information as the Fund reasonably requests concerning the
beneficial ownership of the shares of the Other Funds.

5.5 Subject to the provisions of this Agreement, the Fund and the Other
Funds will each take, or cause to be taken, all action, and do or cause to be
done, all things reasonably necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement.

5.6 As promptly as practicable after the Closing Date, the Other Funds
shall furnish or cause to be furnished to the Fund, such information as the
Fund reasonably requests to enable the Fund to determine the Other Funds
gains or losses resulting from the Reorganizations for federal income tax
purposes and such other tax information that the Fund may reasonably request.

5.7 As promptly as practicable after the Closing Date, the Other Funds
shall prepare and file all federal and other tax returns and reports of the
Other Funds required by law to be filed with respect to all periods ending
through and after the Closing Date but not theretofore filed.

5.8 The Fund agrees to use all reasonable efforts to obtain the approvals
and authorizations required by the 1933 Act, the 1940 Act and such of the
state Blue Sky and securities laws as it may deem appropriate in order to
continue its operations after the Closing Date.

-4-

<PAGE>

6. REPRESENTATIONS AND WARRANTIES

6.1 The Fund represents and warrants to the Other Funds as follows:

(a) The Fund is a common law trust, established under the Fund Trust
Indenture, a copy of which has been furnished to the Other Funds, and is
validly existing and in good standing under the laws of the District of
Columbia, and has the power and authority to own its properties and to
carry on its business as it is now conducted.

(b) The Fund is a duly registered, open-end, management investment
company, and its registration with the Commission as an investment
company under the 1940 Act and the registration of its shares under the
1933 Act are in full force and effect.

(c) All of the issued and outstanding shares of each class of the Fund
have been offered and sold in compliance in all material respects with
applicable registration requirements of the 1933 Act and state securities
laws. Shares of each class of the Fund are registered in all
jurisdictions in which they are required to be registered under state
securities laws and other laws, and said registrations, including any
periodic reports or supplemental filings, are complete and current, all
fees required to be paid have been paid, and the Fund is not subject to
any stop order and is fully qualified to sell its shares in each state in
which its shares have been registered.

(d) The current prospectus and statement of additional information of the
Fund conform in all material respects to the applicable requirements of
the 1933 Act and the 1940 Act and the regulations thereunder and do not
include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.

(e) At the Closing Date, the Fund will have title to the Fund's assets,
subject to no liens, security interests or other encumbrances except
those incurred in the ordinary course of business.

(f) The Fund is not, and the execution, delivery and performance of this
Agreement will not result, in a material violation of any provision of
the Fund Trust Indenture or of any material agreement, indenture,
instrument, contract, lease or other undertakings to which the Fund is a
party or by which it is bound.

(g) No material litigation or administrative proceeding or investigation
of or before any court or governmental body is presently pending or, to
its knowledge, threatened against the Fund or any of its properties or
assets, except as previously disclosed in writing to the Other Funds. The
Fund knows of no facts that might form the basis for the institution of
such proceedings and is not a party to or subject to the provisions of
any order, decree or

-5-

<PAGE>

judgment of any court or governmental body which materially and adversely
affects, or is reasonably likely to materially and adversely affect, its
business or its ability to consummate the transactions contemplated
herein.

(h) The Statement of Assets and Liabilities, Statement of Operations and
Statement of Changes in Net Assets as of June 30, 1996 (audited) of the
Fund examined by Coopers & Lybrand L.L.P. (a copy of which has been
furnished to the Other Funds), fairly present, in all material respects,
the financial condition of the Fund as of such date in conformity with
generally accepted accounting principles consistently applied, and as of
such date there were no known liabilities of the Fund (contingent or
otherwise) not disclosed therein that would be required in conformity
with generally accepted accounting principles to be disclosed therein.

(i) All issued and outstanding Fund shares are, and at the Closing
Date will be, duly and validly issued and outstanding, fully paid and
non-assessable with no personal liability attaching to the ownership
thereof.

(j) The Fund has the power to enter into this Agreement and carry out its
obligations hereunder. The execution, delivery and performance of this
Agreement have been duly authorized by all necessary action of the Fund
Trustees on the part of the Fund, subject only to shareholder approval,
and this Agreement constitutes a valid and binding obligation of the Fund
enforceable in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws
relating to or affecting creditors rights and to general equity
principles.

(k) The Fund shares to be issued and delivered to the Other Funds, for
the account of the Other Funds Shareholders, pursuant to the terms of
this Agreement will at the Closing Date have been duly authorized and,
when so issued and delivered, will be duly and validly issued Fund
shares, and will be fully paid and non-assessable with no personal
liability attaching to the ownership thereof and no shareholder of the
Fund will have any preemptive right or right of subscription or purchase
in respect thereof.

(l) Since June 30, 1996, there has not been (i) any material adverse
change in the Fund's financial condition, assets, liabilities or business
other than changes occurring in the ordinary course of business, or that
have been approved by shareholders of the Fund or (ii) any incurrence by
the Fund of any indebtedness except indebtedness incurred in the ordinary
course of business. For the purposes of this subparagraph, neither a
decline in net asset value per share of the Fund nor the redemption of
Fund shares by Fund shareholders, shall constitute a material adverse
change.

(m) All material Federal and other tax returns and reports of the Fund
required by law to have been filed, have been filed, and all Federal and
other taxes shown as due or required to be shown as due on said returns
and reports have been paid or provision has been made

-6-

<PAGE>

for the payment thereof, and to the best of the Fund's knowledge no such
return is currently under audit and no assessment has been asserted with
respect to such returns.

(n) For each of the last three taxable years of its operation, the Fund
has not met the requirements of Subchapter M of the Code for
qualification and treatment as a regulated investment company.

(o) On the Closing Date, the Fund will be a diversified investment
company within the meaning of Code Section 368(a)(2)(F)(ii) and proposed
Treasury Regulations Section 1.368-4(c)(3).

(p) Since June 30, 1996, there has been no change by the Fund in
accounting methods, principles, or practices, including those required by
generally accepted accounting principles, except as disclosed in writing
to the Other Funds or as set forth in the financial statements of the
Fund covering such period.

(q) The information furnished or to be furnished by the Fund for use in
registration statements, proxy materials and other documents which may be
necessary in connection with the transactions contemplated hereby shall
be accurate and complete in all material respects and shall comply in all
material respects with Federal securities and other laws and regulations
applicable thereto.

(r) The Proxy Statement and Prospectus to be included in the Registration
Statement (only insofar as it relates to the Fund) will, on the effective
date of the Registration Statement and on the Closing Date, not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which such statements were
made, not materially misleading.

6.2 Each of the Other Funds represents and warrants to the Fund with
respect to the specific transaction in the Merger relevant to such Other Fund
as follows:

(a) The Other Funds are common law trusts, validly existing and in good
standing under the laws of the District of Columbia, and each of the
Other Funds has the power and authority to own its properties and to
carry on its business as it is now conducted. Copies of the respective
Restated Trust Indentures and Declarations of Trust of the Other Funds
have been furnished to the Fund.

(b) Each of the Other Funds is a duly registered, open-end, management
investment company, and its registration with the Commission as an
investment company under the 1940 Act and the registration of its shares
under the 1933 Act are in full force and effect.

-7-

<PAGE>

(c) All of the issued and outstanding shares of each of the Other Funds
have been offered and sold in compliance in all material respects with
applicable registration requirements of the 1933 Act and state securities
laws. However, shares of the Other Funds are not currently offered for
sale to the public, and there is no current prospectus available for any
of the Other Funds.

(d) At the Closing Date, each of the Other Funds will have title to their
assets, subject to no liens, security interests or other encumbrances
except those incurred in the ordinary course of business.

(e) Each of the Other Funds is not, and the execution, delivery and
performance of this Agreement will not result, in a material violation of
any provision of each of the Other Funds Declaration of Trust or of any
material agreement, indenture, instrument, contract, lease or other
undertakings to which each of the Other Funds is a party or by which it
is bound.

(f) No material litigation or administrative proceeding or investigation
of or before any court or governmental body is presently pending or, to
its knowledge, threatened against each of the Other Funds or any of its
properties or assets, except as previously disclosed in writing to the
Fund. Each of the Other Funds knows of no facts that might form the basis
for the institution of such proceedings and is not a party to or subject
to the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects, or is
reasonably likely to materially and adversely affect, its business or its
ability to consummate the transactions contemplated herein.

(g) The Statements of Assets and Liabilities, Statements of Operations
and Statements of Changes in Net Assets as of June 30, 1996 (audited) of
each of the Other Funds examined by Coopers & Lybrand L.L.P. (copies of
which has been furnished to the Fund), fairly present, in all material
respects, the financial condition of each of the Other Funds as of such
date in conformity with generally accepted accounting principles
consistently applied, and as of such date there were no known liabilities
of each of the Other Funds (contingent or otherwise) not disclosed
therein that would be required in conformity with generally accepted
accounting principles to be disclosed therein.

(h) All issued and outstanding shares of each of Other Funds are, and at
the Closing Date will be, duly and validly issued and outstanding, fully
paid and non-assessable with no personal liability attaching to the
ownership thereof.

(i) Each of the Other Funds has the power to enter into this Agreement
and carry out its obligations hereunder. The execution, delivery and
performance of this Agreement have been duly authorized by all necessary
action of the Trustees on the part of each of the Other Funds, subject to
shareholder approval, and this Agreement constitutes a valid and binding
obligation of each of the Other Funds enforceable in accordance with its
terms,

-8-

<PAGE>

subject as to enforcement, to bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors rights and
to general equity principles.

(j) The Other Funds shares to be issued and delivered to the Fund, for
the account of the Other Funds Shareholders, pursuant to the terms of
this Agreement will at the Closing Date have been duly authorized and,
when so issued and delivered, will be duly and validly issued Other Funds
shares, and will be fully paid and non-assessable with no personal
liability attaching to the ownership thereof and no shareholder of the
Other Funds will have any preemptive right or right of subscription or
purchase in respect thereof.

(k) Since June 30, 1996, there has not been (i) any material adverse
change in each of the Other Funds' financial condition, assets,
liabilities or business other than changes occurring in the ordinary
course of business, or that have been approved by shareholders of each of
the Other Funds or (ii) any incurrence by each of the Other Funds of any
indebtedness except indebtedness incurred in the ordinary course of
business. For the purposes of this subparagraph, neither a decline in net
asset value per share of each of the Other Funds nor the redemption of
Other Funds shares by Other Funds Shareholders, shall constitute a
material adverse change.

(l) All material Federal and other tax returns and reports of each of the
Other Funds required by law to have been filed, have been filed, and all
Federal and other taxes shown as due or required to be shown as due on
said returns and reports have been paid or provision has been made for
the payment thereof, and to the best of each of the Other Funds'
knowledge no such return is currently under audit and no assessment has
been asserted with respect to such returns.

(m) For each of the last three taxable years of its operation, each of
the Other Funds has not met the requirements of Subchapter M of the Code
for qualification and treatment as a regulated investment company, except
for Steadman Investment Fund which did meet the requirements for the year
ended June 30, 1995.

(n) On the Closing Date, each of the Other Funds will be a diversified
investment company within the meaning of Code Section 368(a)(2)(F)(ii)
and proposed Treasury Regulations Section 1.368-4(c)(3).

(o) Since June 30, 1996, there has been no change by each of the Other
Funds in accounting methods, principles, or practices, including those
required by generally accepted accounting principles, except as disclosed
in writing to the Fund or as set forth in the financial statements of
each of the Other Funds covering such period.

(p) The information furnished or to be furnished by each of the Other
Funds for use in registration statements, proxy materials and other
documents which may be necessary in connection with the transactions
contemplated hereby shall be accurate and complete in all material
respects and shall comply in all

-9-
<PAGE>

material respects with Federal securities and other laws and regulations
applicable thereto.

(q) The Proxy Statement and Prospectus to be included in the Registration
Statement (only insofar as it relates to each of the Other Funds) will, on the
effective date of the Registration Statement and on the Closing Date, not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which such statements were made, not materially
misleading.

6.3 Steadman represents and warrants to the Fund and the Other Funds
as follows:

(a) To the best knowledge of Steadman after due inquiry, as of the Closing
Date no violation of applicable federal, state and local statute, law or
regulation, exists that individually, or in the aggregate, would have a material
adverse effect on the business or operations of the Fund or the Other Funds.

(b) To the best knowledge of Steadman after due inquiry, assuming
fulfillment of the conditions precedent to the consummation of the Merger, the
Fund and the Other Funds have the right, power, legal capacity and authority to
enter into the Reorganizations contemplated by this Agreement.

(c) To the best knowledge of Steadman after due inquiry, as of the
Closing Date, the Fund and the Other Funds are in compliance with their
investment objectives, policies and restrictions as described in the current
prospectus and statement of additional information of the Fund or in their
most recent Forms N-1A, filed under the 1940 Act by the Other Funds.

(d) To the best knowledge of Steadman after due inquiry, as of the Closing
Date there are no outstanding breaches by the Fund or the Other Funds of any
agreement, indenture, instrument contract lease or other undertaking to which
they are a party, or by which they are bound (other than any breaches that
individually or in the aggregate would not have a material adverse effect on the
Fund or the Other Funds).

(e) To the best knowledge of Steadman upon due inquiry, there are no
unresolved or outstanding shareholder claims or inquiries related to the Fund or
the Other Funds and there will be no such claims or inquiries as of the Closing
Date other than as disclosed by Steadman in writing to Fund or the Other Funds
prior to the Closing Date.

(f) Steadman is not aware of any threatened or pending litigation,
administrative proceeding, investigation, examination or inquiry of or before
any court or governmental body relating to the Fund or the Other Funds or any of
their properties or assets which, if adversely determined, would materially and

<PAGE>

adversely affect the Fund or the Other Funds business or ability to consummate
the transactions herein contemplated.

(g) Steadman is not aware of any outstanding or threatened private claims or
litigation relating to the Fund or the Other Funds. Steadman knows of no facts
that might form the basis for such proceedings.

(h) Except as previously disclosed to the Fund or the Other Funds in
writing, and except as have been fully corrected, there have been no
miscalculations of the net asset value of the Fund or the Other Funds during the
twelve-month period preceding the Closing Date and all such calculations have
been done in accordance with the provisions of Rule 2a4 under the 1940 Act.

(i) There are no claims, levies or liabilities for corporate, excise, income
or other federal, state or local taxes outstanding or threatened against the
Fund or the Other Funds, other than those reflected in its most recent audited
financial statements. Steadman knows of no facts that might form the basis for
such proceedings.

(j) To the best knowledge of Steadman after due inquiry, there have been no
material adverse changes in the Fund or the Other Funds financial condition,
assets, liabilities or business, other than those reflected in their most recent
audited financial statements and all liabilities of the Fund or the Other Funds
(contingent and otherwise) known to Steadman have been reported in writing to
the Fund or the Other Funds prior to the date of this Agreement and prior to the
Closing Date. A reduction in net assets due to shareowner redemptions will not
be deemed to be a material adverse change.

7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE OTHER FUNDS

The obligations of Other Funds to consummate the transactions provided for
herein shall be subject, at its election, to the performance by Fund of all the
obligations to be performed by it hereunder on or before the Closing Date and,
in addition thereto, the following conditions:

7.1 All representations and warranties of the Fund contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transac-tions contemplated
by this Agreement, as of the Closing Date with the same force and effect as
if made on and as of the Closing Date.

7.2 The Fund shall have delivered to Other Funds a certificate executed in
Fund's name by Fund's President or Vice President and Treasurer or Secretary,
in a form reasonably satisfactory to Other Funds and dated as of the Closing
Date, to the effect that the representations and warranties of the Fund made
in this Agreement are true and correct at and as of the Closing Date, except
as they may be affected by the transactions contemplated by this Agreement,
and as to such other matters as Other Funds shall reasonably request;

<PAGE>

7.3 The Fund Shareholders shall have voted to change the Fund from an
open-end investment company to a closed-end investment company.

7.4 Each of the Fund and Other Funds shallhave received a favorable
opinion from Manatt, Phelps & Phillips, LLP, counsel to the Fund and the
Other Funds, dated as of the Closing Date, covering the following points:

That (a) Fund and each of the Other Funds are common law trusts
organized and existing under the laws of the District of Columbia, and each
has the power to own all of its properties and assets and to carry on its
business as presently conducted; (b) The Fund is a duly registered,
closed-end, management investment company and, to the knowledge of such
counsel, its registration with the Commission as an investment company under
the 1940 Act is in full force and effect; (c) this Agreement has been duly
authorized, executed and delivered by the Fund and the Other Funds, and
assuming due authorization, execution and delivery of this Agreement by the
Fund and the Other Funds, including approval by the shareholders of the Fund
and the Other Funds Shareholders, is a valid and binding obligation of the
Fund and the Other Funds enforceable against the Fund and the Other Funds in
accordance with its terms, subject as to enforcement, to bankruptcy,
insolvency, reorganization, moratorium and other laws relating to or
affecting creditors rights and to general equity principles; (d) the Fund's
shares to be issued to the Other Funds Shareholders as provided by this
Agreement are duly authorized and upon delivery of such shares to the Other
Funds Shareholders will be validly issued and outstanding and fully paid and
non-assessable and no shareholder of Fund has any preemptive rights to
subscription or purchase in respect thereof; (e) the execution and delivery
of this Agreement did not, and the consummation of the transactions
contemplated hereby will not, violate the Fund's or the Other Funds'
Declaration of Trust or any provision of any material agreement (known to
such counsel) to which the Fund or the Other Funds are a party or by which
they are bound or, to the knowledge of such counsel, result in the
acceleration of any material obligation or the imposition of any material
penalty under any agreement, judgment or decree to which the Fund or the
Other Funds are a party or by which they are bound; (f) to the knowledge of
such counsel, no consent, approval, authorization or order of any court or
governmental authority of the United States or any state is required for the
consummation by the Fund or the Other Funds of the transactions contemplated
herein, except such as have been obtained under the 1933 Act , the
Securities Exchange Act of 1934, as amended (the "1934 Act") and the 1940
Act and such as may be required under state securities laws; (g) as they
relate to the Fund or the Other Funds, as they case may be, the descriptions
in the Proxy Materials of statutes, legal and governmental proceedings and
contracts and other documents, if any, are accurate in all material respects
and fairly present the information required to be shown; (h) such counsel
does not know of any legal or governmental proceedings, as they relate to
the Fund or the Other Funds, existing on or before the date of mailing of
the Proxy Materials or the Closing Date that are required to be described in
the Registration Statement or in any documents that are required to be filed
as exhibits to the Registration Statement that are

<PAGE>

not described as required; and (i) to the best knowledge of such counsel,
no material litigation or administrative proceedings or investigation of or
before any court or governmental body is presently pending or overtly
threatened as to the Fund or the Other Funds or any of their properties or
assets and neither the Fund nor the Other Funds are a party to or subject
to the provisions of any order, decree or judgment of any court or
governmental body that materially and adversely affects its business, other
than as previously disclosed in the Registration Statement.

7.5 All actions taken by the Fund and the Other Funds in connection
with the transactions contemplated by this Agreement and all documents
incidental thereto shall be satisfactory in form and substance to counsel
for the Fund and the Other Funds.

7.6 As of the Closing Date, there shall be no material change in the
investment objective, policies and restrictions nor any increase in the
investment management fees or sales loads of the Fund from those described in
the Prospectus and Statement of Additional Information of the Fund dated
January 1, 1996, except as may have been approved by shareholders of the Fund
and, except for the changes contemplated by this Agreement, including,
without limitation, the change of the Fund from an open-end management
investment company to a closed-end management investment company in
accordance with the requirements of the 1940 Act.

8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE FUND

The obligations of the Fund to complete the transactions provided for herein
shall be subject, at its election, to the performance by Other Funds of all the
obligations to be performed by it hereunder on or before the Closing Date and,
in addition thereto, the following conditions:

8.1 All representations and
warranties of the Other Funds, and Steadman contained in this Agreement shall be
true and correct in all material respects as of the date hereof and, except as
they may be affected by the transactions contemplated by this Agreement, as of
the Closing Date with the same force and effect as if made on and as of the
Closing Date.

8.2 The Other Funds shall have delivered to the Fund a statement
of Other Funds Assets and its liabilities, together with a list of Other Funds'
securities and other assets showing the respective adjusted bases and holding
periods thereof for income tax purposes, as of the Closing Date, certified by
the President of each of the Other Funds.

8.3 The Other Funds shall have
delivered to the Fund at the Closing a certificate executed in Other Funds' name
by the President or Vice President and the Treasurer or Secretary of Other
Funds, in form and substance satisfactory to the Fund and dated as of the
Closing Date, to the effect that the representations and warranties of the Other
Funds, on behalf of the Other Funds, made in this Agreement are true and correct
at and as of the Closing Date, except as they may be affected by the
transactions contemplated by this Agreement, and as to such other matters as
Fund

<PAGE>

shall reasonably request. Such a certificate shall also be delivered to
Fund as executed by Steadman with respect to its representations and warranties
made in paragraph 6.3.

8.4 The Fund shall have received at the Closing a
favorable opinion dated as of the Closing Date set forth in Section 7.4 of this
Agreement.

8.5 Between the date hereof and the Closing Date, the Other Funds
shall provide the Fund and its representatives reasonable access during regular
business hours and upon reasonable notice to the books and records relating to
the Other Funds, including without limitation the books and records of the Other
Funds, as the Fund may reasonably request. All such information obtained by the
Fund and its representatives shall be held in confidence and may not be used for
any purpose other than in connection with the transaction contemplated hereby.
In the event that the transaction contemplated by this Agreement is not
consummated, Fund and its representatives will promptly return to the Other
Funds all documents and copies thereof with respect to the Other Funds obtained
from the Other Funds during the course of such investigation.

8.6 The OtherFunds shall have delivered to Fund, pursuant to paragraph
6.2(g), copies of the most recent financial statements of the Other Funds
certified by Coopers & Lybrand, L.L.P.

8.7 On the Closing Date, the Other Funds Assets shall include no assets
that the Fund, by reason of charter limitations or otherwise, may not
properly acquire.

8.8 All actions taken by the Other Funds in connection with
the transactions contemplated by the Agreement and all documents incidental
thereto shall be reasonably satisfactory in form and substance to the Fund
and its counsel.

8.9 The filing of the Registration Statement shall have been
approved by the Trustees of the Fund.

9. FURTHER CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE FUND AND THE OTHER
FUNDS.

The obligations of the Other Funds and the Fund hereunder are each subject
to the further conditions that on or before the Closing Date.

9.1 This Agreement
and the transactions contemplated herein shall have been approved by the
requisite vote of the holders of the outstanding shares of the Fund and the
Other Funds and certified copies of the resolutions evidencing such approval
shall have been delivered to the Fund and the Other Funds.

9.2 On the Closing Date, no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with,
this Agreement or the transactions contemplated herein.

<PAGE>

9.3 All consents of other parties and all other consents,
orders and permits of federal, state and local regulatory authorities (including
those of the Commission and of state Blue Sky and securities authorities,
including "no-action" positions or any exemptive orders from such federal and
state authorities) deemed necessary by the Fund or the Other Funds to permit
consummation, in all material respects, of the transactions contemplated herein
shall have been obtained, except where failure to obtain any such consent, order
or permit would not involve risk of a material adverse effect on the assets or
properties of the Fund or the Other Funds.

9.4 The Registration Statement on Form N-14 shall
have become effective under the 1933 Act, no stop orders suspending the
effectiveness thereof shall have been issued and, to the best knowledge of the
parties hereto, no investigation or proceeding for that purpose shall have been
instituted or be pending, threatened or contemplated under the 1933 Act.

9.5 The parties shall have received an opinion from Manatt, Phelps &
Phillips, LLP, based upon such representations as such firm shall reasonably
request, addressed to the Fund and the Other Funds, which opinion may be
relied upon by the shareholders of the Fund and the Other Funds, regarding
the material federal income tax aspects of the Reorganizations in form and
content reasonably acceptable to the Fund and the Other Funds.

10. BROKERAGE FEES AND EXPENSES

10.1 The Fund and the Other Funds each represents and warrants to the other
that there are no brokers or finders entitled to receive any payments in
connection with the transactions provided for herein.

10.2 The Fund and each of
the Other Funds shall bear the expenses incurred in connection with entering
into and carrying out the provisions of this Agreement, on a pro-rata basis
based upon net asset value at the Valuation Date (all of which expenses shall be
deducted from the respective funds net assets values as of such date) including
legal, accounting and Commission registration fees and Blue Sky expenses.

11. ENTIRE AGREEMENT: SURVIVAL OF WARRANTIES

11.1 The Fund and the Other
Funds agree that no party has made any representation, warranty or covenant not
set forth herein and that this Agreement constitutes the entire agreement
between the parties.

11.2 The representations, warranties and covenants
contained in this Agreement or in any document delivered pursuant hereto or in
connection herewith shall not survive the consummation of the transactions
contemplated herein.

<PAGE>

12. TERMINATION

12.1 This Agreement may be terminated and the transactions contemplated
hereby may be abandoned at any time prior to the Closing:

(a) by the mutual written consent of the Fund and the Other Funds, by
notice to the other, without liability to the terminating party on account
of such termination (providing the termination party is not otherwise in
default or in breach of this Agreement) if the Closing shall not have
occurred on or before September 30, 1997; or

(b) by either the Fund or the Other Funds, in writing without liability
of the terminating party on account of such termination (provided the
terminating party is not otherwise in material default or breach of the
Agreement), if (i) the other party shall fail to perform in any material
respect its agreements contained herein required to be performed on or prior
to the Closing Date, (ii) the Fund or the Other Funds, respectively,
materially breaches or shall have breached any of its representations,
warranties or covenants contained herein, (iii) the Fund shareholders or the
Other Funds' shareholders fail to approve the Agreement, or (iv) any other
condition herein expressed to be precedent to the obligations of the
terminating party has not been met and it reasonably appears that it will
not or cannot be met.

12.2 (a) Termination of this Agreement pursuant to
paragraphs 12.1(a) shall terminate all obligations of the parties hereunder
and there shall be no liability for damages on the part of the Fund or the
Other Funds or the trustees, directors or officers of the Fund or the Other
Funds to any other party or its trustees, directors or officers.

(b) Termination of this Agreement pursuant to paragraph 12.1(b) shall
terminate all obligations of the parties hereunder and there shall be no
liability for damages on the part of the Fund, the Other Funds or Steadman
to any other party or its trustees, directors or officers, except that any
party in breach of this Agreement shall, upon demand, reimburse the
non-breaching party or parties for all reasonable out-of-pocket fees and
expenses incurred in connection with the transactions contemplated by this
Agreement, including legal, accounting and filing fees.

13. AMENDMENTS

This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized trustees of the Fund
and the Other Funds; provided, however, that following the meeting of the Fund
and the Other Funds Shareholders pursuant to paragraph 5.3, no such amendment
may have the effect of changing the provisions for determining the number of
Fund shares to be issued to the Other Funds Shareholders under this Agreement to
the detriment of such Shareholders without their further approval.

<PAGE>

14. INDEMNIFICATION

14.1 The Fund will indemnify and hold harmless, the Other Funds and their
respective trustees, directors, officers and shareholders against any and all
claims to the extent such claims are based upon, arise out of or relate to any
untruthful or inaccurate representations made by the Fund in this Agreement or
any breach by the Fund of any warranty or any failure to perform or comply with
any of its obligations, covenants, conditions or agreements set forth in this
Agreement.

14.2 Steadman will indemnify and hold harmless the Fund and the Other
Funds and their respective trustees, officers and shareholders against any and
all claims to the extent such claims are based upon, arise out of or relate to
any untruthful or inaccurate representation made by the Other Funds in this
Agreement or any breach by the Other Funds of any warranty or any failure by
Other Funds to perform or comply with any of its obligations, covenants,
conditions or agreements set forth in this Agreement.

14.3 As used in this
section 14, the word "claim" means any and all liabilities, obligations, losses,
damages, deficiencies, demands, claims, penalties, assessments, judgments,
actions, proceedings and suits of whatever kind and nature and all costs and
expenses (including, without limitation, reasonable attorneys' fees).

14.4Promptly after the receipt by any party (the "Indemnified Party"), of
notice of any claim by a third party which may give rise to indemnification
hereunder, the Indemnified Party shall notify the party against whom a claim
for indemnification may be made hereunder (the "Indemnifying Party"), in
reasonable detail of the nature and amount of the claim. The Indemnifying
Party shall be entitled to assume, at its sole cost and expense (unless it is
subsequently determined that the Indemnifying Party did not have the
obligation to indemnify the Indemnified Party under such circumstances), and
shall have sole control of the defense and settlement of such action or
claim; provided, however, that:

(a) the Indemnified Party shall be entitled to participate in the
defense of such claim and, in connection therewith, to employ counsel at its
own expense; and

(b) without the prior written consent of the Indemnified Party which
shall not be unreasonably withheld, the Indemnifying Party shall not consent
to the entry of any judgment or enter into any settlement that requires any
action other than the payment of money.

In the event the Indemnifying Party elects to assume control of the defense
of any such action in accordance with the foregoing provisions, (i) the
Indemnifying Party shall not be liable to Indemnified Party for any legal fees,
costs and expenses incurred by the Indemnified Party in connection with the
defense thereof arising after the date the Indemnifying Party

<PAGE>

elects to assume control of such defense and (ii)Indemnified Party shall
fully cooperate with the Indemnifying Party in such defense. If the
Indemnifying Party does not assume control of the defense of such claim in
accordance with the foregoing provisions, the Indemnified Party shall have
the right to defend such claim, in which case the Indemnifying Party shall
pay all reasonable costs and expenses of such defense plus interest on the
cost of defense from the date paid at a rate equal to the prime commercial
rate of interest as in effect from time to time at Crestar Bank. The
Indemnified Party shall conduct such defense in good faith and shall have the
right to settle the matter with the prior written consent of the Indemnifying
Party which shall not be reasonably withheld.

15. NOTICES

Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by prepaid
telegraph, telecopy, certified mail or overnight express courier addressed to
the Fund or the Other Funds at 1730 K Street, N.W., Suite 904 Washington, D.C.,
with a copy to Steadman at 1730 K Street, N.W., Suite 904, Washington, D.C. and
to Manatt, Phelps & Phillips at 1501 M Street, N.W., Suite 700, Washington, D.C.
20005.

16. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF LIABILITY

16.1 The article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.

16.2 This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original.

16.3 ThisAgreement shall be governed by and construed in accordance with
the laws of the District of Columbia.

16.4 This Agreement shall bind and inure to the benefit of
the parties hereto and their respective successors and assigns, but no
assignment or transfer hereof or of any rights or obligations hereunder shall be
made by any party without the written consent of the other parties. Except as
provided in the following sentence, nothing herein expressed or implied is
intended or shall be construed to confer upon or give any person, firm or
corporation, other than the parties hereto and their respective successors and
assigns, any rights or remedies under or by reason of this Agreement.

<PAGE>

IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its duly authorized officer.

STEADMAN SECURITY TRUST
(formerly Steadman Associated Fund)

By:/s/ Charles W. Steadman
-------------------------------
Charles W. Steadman
Chairman and President

STEADMAN SECURITY CORPORATION

By:/s/ Charles W. Steadman
----------------------------------
Charles W. Steadman
Chairman and President

STEADMAN INVESTMENT FUND

By:/s/ Charles W. Steadman
-------------------------------
Charles W. Steadman
Chairman and President

STEADMAN AMERICAN INDUSTRY FUND

By:/s/ Charles W. Steadman
-------------------------------
Charles W. Steadman
Chairman and President

STEADMAN TECHNOLOGY AND
GROWTH FUND

By:/s/ Charles W. Steadman
-------------------------------
Charles W. Steadman
Chairman and President