<PAGE>
As filed with the Securities and Exchange Commission on January 31, 1997
Securities Act File No. 333-________
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. __ 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>
<TABLE>
<CAPTION>
CALCULATION OF THE REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933:
- ------------------------------------------------------------------------------------------------------------------------------------
Proposed Maximum
Title of Securities Amount Being Proposed Maximum Aggregate Offering Amount of Registration
Being Registered Registered(1) Offering Price Per Unit Price(2) Fee (3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Common Law 836,469 $4.13 $3,454,617 $1191.25
Trust
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents the maximum additional number of shares to be issued in exchange
for shares of Steadman Investment Fund, Steadman American Industry Fund, and
Steadman Technology and Growth Fund (the "Acquired Funds"), pursuant to the
Agreement and Plan of Merger dated as of January 28, 1997, between the
Registrant and the Acquired Funds.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(d) under the Securities Act of 1933 based on the market
value of the assets of the Acquired Funds calculated in accordance with the
method used in calculating the daily offering price on January 27, 1997, a date
within 15 days prior to the filing of this Registration Statement.
(3) Previously paid by wire transfer to the designated lockbox of the Securities
and Exchange Commission in Pittsburgh, Pennsylvania.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
STEADMAN ASSOCIATED FUND
REGISTRATION STATEMENT ON FORM N-14
CROSS REFERENCE SHEET
N-14 Location in
Item No. Registration Statement
-------- ----------------------
Part A: Information Required
in Prospectus/Proxy Statement
- -----------------------------
1. Beginning of Registration Cover Page; Cross Reference Sheet
Statement and Outside Front Cover
Page of Prospectus
2. Beginning and Outside Back Cover Table of Contents
Page of 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; Appendix 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 Investment
Being Acquired 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
<PAGE>
N-14 Location in
Item No. Registration Statement
-------- ----------------------
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 Item 12. Additional Information
the 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
<PAGE>
STEADMAN AMERICAN INDUSTRY FUND
STEADMAN ASSOCIATED FUND
STEADMAN INVESTMENT FUND
STEADMAN TECHNOLOGY AND GROWTH FUND
February ___, 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, SST WILL OPERATE AS A SINGLE
CLOSED-END FUND.
CONSOLIDATION OF THE FOUR FUNDS WILL PROVIDE AN OPPORTUNITY FOR YOU TO
BENEFIT FROM THE LOWER OPERATING EXPENSES RESULTING FROM THE ECONOMIES INHERENT
IN THE LARGER, CLOSED-END FUND.
THE TRUSTEES OF EACH OF THE FOUR FUNDS UNANIMOUSLY RECOMMEND SHAREHOLDER
APPROVAL OF THIS MERGER PROPOSAL.
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
February __, 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?.
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 five shares of SST issued and
outstanding will be converted into one Fund 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, SST will become a closed-end investment company.
THE REORGANIZATION WILL RESULT IN SIGNIFICANT COST SAVINGS AND OTHER
ECONOMIES AND WILL PROVIDE SHAREHOLDERS WITH IMPORTANT BENEFITS:
1. LOWER OPERATING COSTS. Operating costs of the Funds will be
reduced substantially from the costs of operating four funds functioning
separately. The merger will enable SST to use its assets more efficiently and
increase shareholder value. Fund accounting, stock transfer costs and other
shareholder services 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, reports to shareholders, computer services and custodian fees. A study by
management of the Funds estimated that SST operating expenses will be
approximately $650,000 lower annually than the total expenses of the current
four Funds.
2. LOWER EXPENSE RATIO. The Trustees expect the merger to reduce
the expense ratio of SST and increase its capacity for growth. However, there
can be no assurance that reductions in expenses will result in profitable
operations for SST.
<PAGE>
3. IMPROVED PORTFOLIO MANAGEMENT FLEXIBILITY. After the merger, SST
will operate as a closed-end investment company. 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. Shares of closed-end
funds have no right of redemption. They are bought and sold in market
transactions. Consequently, liquid reserves no longer will be needed to finance
share redemptions as with open-end funds. Greater resources will be available
for long-term investments consistent with the SST'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 some
investments at an inopportune time solely to redeem fund shares.
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 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.
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.
<PAGE>
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 that 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 of which is currently an open-end, investment company (together
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
(the "Meetings"), for the following purposes:
1. FOR THE SHAREHOLDERS OF ALL OF THE FUNDS: To consider and act upon a
proposal to approve the Agreement and Plan of Merger dated as of
January 28, 1997 (the "Merger Agreement") by and among SAIF, SAF, SIF
and STGF whereby SAIF, SIF and STGF will merge into SAF (the
"Merger"), which fund will be renamed Steadman Security Trust ("SST")
and change to a closed-end investment fund; and
2. SOLELY FOR THE SHAREHOLDERS OF SAF:
(a) To elect four Trustees for terms of unlimited duration;
(b) To consider and act upon a proposal to ratify and confirm the
Amended and Restated Trust Indenture of SST as of January 28,
1997, which provides, among other things, for the change from an
open-end to a closed-end investment company; and
(c) To consider and act upon a proposal to ratify the selection of
Reznick Fedder & Silverman to serve as independent auditors of
SST.
3. To act upon such other matters as may properly come before the
Meetings or any adjournments thereof.
<PAGE>
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
February __, 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.
WE URGE YOU TO SIGN, DATE AND MAIL THE ENCLOSED PROXY PROMPTLY.
By Order of the Boards of Trustees
Max Katcher, Secretary
February __, 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 IN 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 fund, the
Steadman Associated Fund ("SAF"), whose name will change to Steadman Security
Trust ("SST"). It also proposes to change SST from an open-end to a closed-end
investment company. 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. 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.
The number of shares of SST issued to shareholders of SAIF, SIF and STGF
will be determined on the basis of the 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 five to one so that each five outstanding shares of SST will
become one share of the SST. The value of the new 5-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 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. LOWER OPERATING COSTS. Operating costs of the Funds will be
reduced substantially from the costs of operating four funds functioning
separately. The merger will enable SST to use its assets more efficiently and
increase shareholder value. Fund accounting, stock transfer costs and other
shareholder services 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, reports to shareholders, computer services and custodian fees. A study by
management of the Funds estimated that SST operating expenses will be
approximately $650,000 lower annually than the total expenses of the current
four Funds.
B. LOWER EXPENSE RATIO. The Trustees expect the merger to reduce
the expense ratio of SST and increase its capacity for growth. However, there
can be no assurance that reductions in expenses will result in profitable
operations for SST.
1
<PAGE>
C. IMPROVED PORTFOLIO MANAGEMENT FLEXIBILITY. After the merger, SST
will operate as a closed-end investment company, whose shares will be traded in
the over-the-counter market; however, there can be no assurance that a market
will develop for shares of SST. Shares of closed-end funds have no right of
redemption. They are bought and sold through markets for fund shares.
Consequently, liquid reserves no longer will be needed to finance share
redemptions as with open-end funds. Greater resources will be available for
long-term investments consistent with the SST'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 some
investments at an inopportune time solely to redeem fund shares.
D. TAX ASPECTS. The five 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. 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
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.
To the extent that the former holders of SAF represent less than 50% of the
total assets 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
amount 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.
3. WHO IS PAYING THE EXPENSES OF THE MERGER?
Each of the Funds will bear its proportionate share of the expenses of the
Merger.
2
<PAGE>
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, Gordon T. Getsinger 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.
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 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. 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.
3
<PAGE>
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.
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 being furnished to shareholders of
the 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 Meetings of
Shareholders of each of the Funds to 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"). Each of the Funds is currently a non-
diversified, registered open-end investment company. It is expected that this
Proxy Statement and Prospectus will be mailed to shareholders of the Funds on or
about February __, 1997.
At the Meetings, shareholders of the Funds will be asked to consider and
vote upon approval of the Agreement and Plan of Merger, dated as of January 28,
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
SST will change from an open-end investment company to a closed-end investment
company. 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 five 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 of SST will constitute a tax-free
recapitalization of SST, but the Merger transaction will not qualify as a tax
deferred reorganization for federal income tax purposes with respect to SAIF,
SIF, STGF or their respective shareholders. See "Approval of the Merger--Tax
Aspects of the Merger."
1
<PAGE>
To simplify references herein, SAF in most cases will generally be referred
to herein as Steadman Security Trust (or "SST") which will be its post-merger
name.
As of the date of this Prospectus, SST had _________ shares of a single
class issued and outstanding pursuant to an Amended and Restated Trust
Indenture, dated January 28, 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.
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. This latter objective will become the new
investment objective of SST upon the Merger. 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 concisely sets forth 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
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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 February __, 1997.
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TABLE OF CONTENTS
PROXY STATEMENT AND PROSPECTUS
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. . . . . . . . . . . . . . . . . . . . . . 9
Investment Objectives and Policies. . . . . . . . . . . . . . . . . . . .10
Investment Advisory Fee . . . . . . . . . . . . . . . . . . . . . . . . .10
Purchases of Shares in the Funds. . . . . . . . . . . . . . . . . . . . .10
Redemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
PRINCIPAL RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Investment Management Techniques. . . . . . . . . . . . . . . . . . . . .11
Non-Diversified Status. . . . . . . . . . . . . . . . . . . . . . . . . .11
Closed-End Investment Company - No Redemption Rights. . . . . . . . . . .12
Borrowing-Issuance of Senior Securities . . . . . . . . . . . . . . . . .12
Expense Ratios; Performance of the Funds. . . . . . . . . . . . . . . . .12
Utilization of Tax Loss Carry Forwards. . . . . . . . . . . . . . . . . .13
Non-Qualification of Merger for Tax Deferral. . . . . . . . . . . . . . .13
Non-Qualification as a Regulated Investment Company for Tax Purposes. . .13
DIFFERENCE BETWEEN OPERATIONS OF SST AS AN OPEN-END AND CLOSED-END
INVESTMENT COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Amendment to SST Declaration of Trust . . . . . . . . . . . . . . . . . .14
Acquisition and Disposition of Shares . . . . . . . . . . . . . . . . . .14
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Determination of Net Asset Value. . . . . . . . . . . . . . . . . . . . .15
Portfolio Management. . . . . . . . . . . . . . . . . . . . . . . . . . .16
Blue Sky Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . .16
Senior Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
APPROVAL OF THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Background. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Trustee Approval of the Merger. . . . . . . . . . . . . . . . . . . . . .18
Tax Aspects of the Merger . . . . . . . . . . . . . . . . . . . . . . . .20
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CAPITALIZATION TABLE (UNAUDITED) . . . . . . . . . . . . . . . . . . . . . . .22
COMPARATIVE FEE TABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
Transaction Charges . . . . . . . . . . . . . . . . . . . . . . . . . . .22
Expenses of the Funds; Pro Forma Expenses . . . . . . . . . . . . . . . .22
Example . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
FORM OF ORGANIZATION OF THE FUNDS. . . . . . . . . . . . . . . . . . . . . . .24
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND TECHNIQUES OF THE FUNDS. . .24
CONDENSED FINANCIAL INFORMATION OF THE FUNDS . . . . . . . . . . . . . . . . .25
DESCRIPTION OF CAPITAL STRUCTURE OF THE FUNDS AND SHAREHOLDER RIGHTS . . . . .37
Special Provisions of SST . . . . . . . . . . . . . . . . . . . . . . . .37
Over-the-Counter Market . . . . . . . . . . . . . . . . . . . . . . . . .39
MANAGEMENT OF THE FUNDS. . . . . . . . . . . . . . . . . . . . . . . . . . . .39
LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
ELECTION OF TRUSTEES OF STEADMAN ASSOCIATED FUND . . . . . . . . . . . . . . .41
Election of Trustees. . . . . . . . . . . . . . . . . . . . . . . . . . .41
Committee and Meetings of Trustees. . . . . . . . . . . . . . . . . . . .42
Interested Persons. . . . . . . . . . . . . . . . . . . . . . . . . . . .42
Compensation of Trustees. . . . . . . . . . . . . . . . . . . . . . . . .42
Officers of SST . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
RATIFICATION OF AMENDED AND RESTATED TRUST INDENTURE OF STEADMAN
SECURITY TRUST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
SELECTION OF INDEPENDENT AUDITORS. . . . . . . . . . . . . . . . . . . . . . .44
INFORMATION CONCERNING THE MEETINGS. . . . . . . . . . . . . . . . . . . . . .44
The Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
Record Date; Vote Required; Share Information . . . . . . . . . . . . . .44
Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
Costs of the Solicitation and the Reorganization. . . . . . . . . . . . .45
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MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . .46
Public Information. . . . . . . . . . . . . . . . . . . . . . . . . . . .46
OTHER BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
Exhibit A--Agreement and Plan of Merger, dated as of January 28, 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 January 28, 1997.
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AGREEMENT AND PLAN OF MERGER
SYNOPSIS
The following is a synopsis of certain information contained in or
incorporated by reference in this Proxy Statement and Prospectus. It presents
key considerations for shareholders of SAIF, SAF, SIF and STGF to assist them 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) will 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").
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 that shareholder's 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 proposed Merger provides that immediately prior to the effective
date of the Merger SST will effect a reverse stock split so that each five
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. 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
costs of operating the four funds functioning separately. The merger will
enable SST to use its assets more efficiently and increase shareholder value.
Fund accounting, stock transfer costs and other shareholder services will be
reduced significantly. By converting to a closed-end fund, SEC requirements for
daily
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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, reports to shareholders, computer
services and custodian fees. A study by management of the Funds estimated that
SST operating expenses will be approximately $650,000 lower annually than the
total expenses of the current four Funds.
SECOND, the Trustees expect the merger to reduce the expense ratio of SST
and increase its capacity for growth. However, there can be no assurance that
reductions in expenses will result in profitable operations for SST.
THIRD, after the merger, SST will operate as a closed-end investment
company. 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. Shares of closed-end funds have no right of redemption.
They are bought and sold in market transactions. Consequently, liquid reserves
no longer will be needed to finance share redemptions as with open-end funds.
Greater resources will be available for long-term investments consistent with
the SST'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 some investments at an inopportune time solely to
redeem fund shares.
FOURTH, The reverse stock split of SST will constitute a recapitalization
of SST, but the Merger will not qualify as a tax-deferred organization 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. 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. To
the extent that the former holders of SAF represent less than 50% of the total
assets 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
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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 amount 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 and entitled to vote at the Meeting. 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 to a closed-end investment company.
Accordingly, if the Merger is approved by the requisite vote of shareholders of
the Funds, SST will be a closed-end investment company. Whereas open-end
investment companies issue redeemable securities, which can be surrendered at
any time in exchange for their proportionate value of the net assets of the
fund, the shares of a closed-end fund are not redeemable, but they may be
purchased or sold in market transactions. 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
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a tax loss rather than a tax gain, but each shareholder's gain or loss
calculation must be performed individually.
INVESTMENT OBJECTIVES AND POLICIES
Three of the Funds (SAIF, STGF and SST) share a common investment
objective, which is 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 investment 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 Merger, the latter objective
will become the new investment objective of SST as SST will be the surviving
Fund. All of the Funds employ the same investment management techniques.
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 which declines on additional assets as the Fund
increases its asset base, 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 sums in excess
thereof. Upon the 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.
REDEMPTIONS
Prior to the closing date of the Merger, shares of each Fund may be
redeemed at their respective net asset values per share 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
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shares of SST may be redeemed. 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.
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.
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 than normal
portfolio turn-over (100% or more), 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; and 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. As a secondary objective, SST will seek 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 the assets of SST that may be invested in the 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"), and thus, unlike
many mutual funds, it is not restricted by certain diversification requirements
imposed by the Code. Since a relatively high percentage of SST's assets may be
invested in the obligations of a limited number of issuers, some of which may be
within the same economic sector, SST's portfolio will be more susceptible to any
single economic, political or regulatory occurrence than the portfolio
securities of a diversified investment company.
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CLOSED-END INVESTMENT COMPANY - NO REDEMPTION RIGHTS
As a closed-end investment company SST will not redeem any of its
outstanding shares. 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. Shares of closed-end investment companies frequently
trade at a discount from net asset value. The shares of SST have never traded
publicly. Therefore, SST cannot predict whether its shares will in the future
trade at a premium above or at a discount from net asset value; and if the
shares do trade at a discount, the extent of such discount. The risk of its
shares trading at a discount is a risk separate from the risk of a decline in
net asset value.
BORROWING-ISSUANCE OF SENIOR SECURITIES
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. Were such borrowings to be made, they 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 the 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 which is
stock, SST may not declare any dividends (other than a dividend payable in
common stock) or make any cash distributions to its shareholders if, after the
distribution, there would be less than 300% asset coverage of that senior
security. 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 paid on the borrowings will cause the net income per share
and the net asset value per share of the SST's shares to be greater than would
otherwise be the case. On the other hand, if the investment performance of the
additional securities purchased fails to cover their cost (including any
interest paid on the money borrowed) to SST, then the 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; PERFORMANCE OF THE FUNDS
Although the Merger will create economies which will reduce the operating
costs of the Funds, SST will still have a relatively high ratio of expenses to
average net assets because of its relatively small size when compared to larger
funds. The historical performance of each of the Funds during the past ten
years has been less than the results of the S&P 500 Index for the same period.
(See "Management's Discussion of Performance of the Funds.") There can be no
assurance that as a result of the Merger, the performance of SST will differ
substantially from its past performance.
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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. To the extent that the former holders of SAF
represent less than 50% of the total assets 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 amount 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.
NON-QUALIFICATION OF MERGER FOR TAX DEFERRAL
Shareholders of SAIF, SIF and STGF will have a fully taxable exchange when
they surrender their SAIF, SIF and STGF 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 upon the unique circumstances of that shareholder regarding
factors such as share basis, holding period, and income, gain, loss or
deductions for that shareholder in the year of the exchange that may be wholly
unrelated to the Merger. While it is anticipated that many SAIF, SIF and STGF
shareholders may recognize tax losses in the exchange, some SAIF, SIF or STGF
shareholders may have net income as a result of the exchange. In addition, if
the exchange creates a recognized capital loss for a shareholder, that
shareholder may be subjected to restrictions on utilization of that recognized
capital loss.
NON-QUALIFICATION AS A REGULATED INVESTMENT COMPANY FOR TAX PURPOSES
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 the surviving entity to utilize certain
loss carryforwards, the surviving entity will not be able to take advantage of
certain potentially favorable tax rules applicable to electing qualified
regulated investment companies.
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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 redeemable 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 charged by the fund. This has
been the way all of 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, thus
operating with a relatively fixed capitalization. Because of their status as
open-end investment companies, the Funds 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:
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.
ACQUISITION AND DISPOSITION OF SHARES
Currently, none of the four Funds is making a continuous offering of its
shares which is standard procedure for open-end funds. Closed-end funds do not
continuously offer their shares. As a closed-end fund, SST will not be making
a continuous offering of its shares. The shareholders
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<PAGE>
would thereby lose the theoretical benefit of an expanding pool of money from
the sale of additional shares, which SST would have to invest. As a practical
matter, however, SST has no principal underwriter, does not, and has not,
actively marketed its securities over the last several years and in reality has
very infrequently sold new shares. The Trustees of the Funds believe that the
burden of costs (a) to determine a daily net asset value and (b) to keep the
Funds' securities registered for sales in a continuous offering with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
and under the "Blue Sky" or state securities laws, of the several states in
which the Funds have been active in the past, outweighs the theoretical
advantage of an increasing pool of investment capital. The reality is that the
investment capital base of the Funds is static, which is the hallmark of a true
closed-end investment company.
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 its shares at current net asset value or
at such 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 and
unless shares are admitted to trading on a securities exchange or some other
arranged and regular trading market develops, shareholders may be unable to
dispose of their shares easily or at all. In addition, even if a market should
develop, the price at which such shares would trade may be affected by market
forces which would establish a price at a premium or, as is often the case, a
discount from net asset value.
It is expected that shares of SST will be traded in the over-the-counter
market should the Fund be converted to a closed-end fund; however, there can be
no assurance that a market will develop for shares of SST. Shareholders wishing
to sell shares in SST after conversion would be able to sell in market
transactions. If the shares of SST were to trade at a discount from net end
value, there is no way of predicting the extent of that discount at this time.
VOTING RIGHTS
The voting rights of holders of shares of common stock of SST will not
change if SST converts to a closed-end fund. See "Description of Capital
Structure of the Funds and Shareholder Rights."
DETERMINATION OF NET ASSET VALUE
Currently, as an open-end fund, SST determines its per share net asset
value on each business day. If SST were to convert to a closed-end fund, there
would no longer be a need to compute daily net asset value, and this cost
savings will benefit SST.
15
<PAGE>
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. Also, there would be an elimination of the need to maintain cash
reserves, or cash equivalents, in order to meet redemptions as they arise. 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, SST has kept a prudent portion of its portfolio liquid to meet
redemptions. By changing to a closed-end status, SST will be able to more
efficiently use such portfolio funds. Likewise, SST will be able to invest with
a longer-term view by not having to be concerned about the possibility of
liquidating a position at an inopportune moment solely to meet redemption
requests.
BLUE SKY RESTRICTIONS
As an open-end fund, SST is required to register its shares of common stock
under applicable state securities, or "Blue Sky" laws. Upon conversion 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 there is an asset coverage
of at least 300% 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 issue preferred stock.
This ability to issue senior securities gives closed-end investment companies
more flexibility than open-end funds in "leveraging" their stockholders'
investments. However, SST has no present intention of issuing any class of
senior security.
APPROVAL OF THE MERGER
PROPOSAL NO. 1
(TO BE VOTED ON BY SHAREHOLDERS OF ALL FUNDS)
BACKGROUND
The Trustees of the Funds reviewed the operations of each Fund with a view
to determining how best to reduce the 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 the operating costs which must
be incurred by each Fund. Among other things, the Trustees concluded that by
merging the Funds
16
<PAGE>
into a single fund, SST, significant economies of scale can be achieved to
reduce costs. 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 liquid reserves would no longer have to be maintained for
shareholders who exercise their right of redemption.
Accordingly, the Trustees have unanimously adopted and recommend to the
shareholders of the Funds for their approval, the Merger as set forth in the
Merger Agreement. The Merger Agreement provides, among other things, that as a
condition to the consummation of the Merger, all 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
description of the Merger Agreement set forth below is a summary only.
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 of its shares so that
each five 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 the conditions set forth in
the Merger Agreement including without limitation the approval of the Merger by
the shareholders of the Merging Funds and of SST and the ratification by the
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 the approvals of the 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 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.
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<PAGE>
Termination of the Merger Agreement will terminate all obligations of the
parties thereto without liability except that any party in breach of the Merger
Agreement will, upon demand, reimburse the non-breaching 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 January 28, 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
and to change SST from an open-end investment company to a closed-end investment
company and to recommend the latter change 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 efficiently; the change from an
open-end investment company to a closed-end investment company; the potential
for increasing shareholder value; 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 the area of investment
management and shareholder servicing. The shareholders of SST will be able to
purchase and sell their shares on an established stock exchange. Finally, all
expenses of the Merger will be shared proportionately by the Funds.
A. 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, 1996, ranged from
18
<PAGE>
approximately $.5 million (STGF) to $1 million (SAIF) to $1.8 million (SIF) and
$4.6 million (SAF). By combining these resources in a single fund and changing
SST's primary investment objective from capital appreciation to 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.
B. OPERATING COSTS. Operating costs of the Funds will be
substantially reduced if they are merged into SST. This will enable SST to use
its assets more efficiently to increase shareholder value. Fund accounting,
stock transfer costs and other shareholder services 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 $1,130,000 for the year ended June 30, 1996 would be
reduced to $480,000 if the Merger had taken place at June 30, 1996. These
savings will be achieved principally in the following areas: shareholder
servicing fees, professional fees, reports to shareholders, computer services
and custodian fees. However, there can be no assurance that reductions in
expenses will result in profitable operations for SST. See "Comparative Fee
Tables--Expenses of the Funds; Pro Forma Expenses." Fuirthermore, 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.
C. CLOSED-END INVESTMENT COMPANY. The newly merged fund, SST, will
operate as a closed-end investment company. 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. This will eliminate the
need for maintaining liquid reserves to fund the repurchase of shares when
shareholders exercise their right of redemption, as this right of redemption
will no longer exist for SST 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. The
shareholders will be able to purchase and sell their shares in market
transactions. As a closed-end investment company, SST will have greater
flexibility in utilizing its portfolio assets including 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.
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
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<PAGE>
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. 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.
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 and 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 analysis of all the potential federal
income tax consequences or consequences that may vary with or are contingent
upon, individual circumstances, such as the taxpayer's 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.
Tax Counsel has advised the Funds that, in its opinion, the legal issues
discussed in this federal income tax summary are correct in all material
respects. However, the summary itself 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.
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<PAGE>
In the opinion of Tax Counsel, 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 sh ares 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. To the extent that
the former holders of SAF represent less than 50% of the total assets of SST
after the Merger, the amount of the above losses which 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 the ownership of SST (combined with the
change resulting from the Merger) that causes the amount 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. The Merger 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.
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 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 MERGER APPLICABLE TO HIM OR HER, INCLUDING
THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER TAX LAWS.
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CAPITALIZATION TABLE (UNAUDITED)
The table below sets forth the capitalization of the Funds and indicates
the pro forma combined capitalization of SST as of January 27, 1997 as if the
Merger had occurred on that date, and the reverse split of five for one had
taken place.
Net
Book
Shares Net Asset Value
Shares After Value After
Net Assets Outstanding Merger Per Share Merger
---------- ----------- ------ --------- ------
SAIF 1,189,478 1,366,133 288,112 .87 --
SAF 5,023,559 6,078,693 1,215,739 .83 --
SIF 1,860,401 1,992,384 450,578 .93 --
STGF 403,694 515,746 97,779 .78 --
SST Pro Forma 8,477,132 --- 2,052,208 .83 4.13
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, since 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 in the over-the-counter market; however, there can
be no assurance that a market will develop for shares of SST. Shares of SST may
be purchased or sold in normal brokerage transactions with appropriate fees
charged in connection with such transactions.
EXPENSES OF THE FUNDS; PRO FORMA 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, 1996. These amounts are shown as a percentage of the average net
assets of each class of shares of such periods.
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<PAGE>
Pro Forma Fee Table for Shareholders
of SAIF, SAF, SIF and STGF
as of June 30, 1996 (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-
Annual Fund Operating Expenses 24.61 8.14 10.60 25.19 8.00
(as a percentage of average net
assets at June 30, 1996)
Investment Advisory Fees 1.00 1.00 1.00 1.00 1.00
Custodian Fees .26 .22 .02 .26 .01
Miscellaneous 23.35 6.92 9.58 23.93 6.99
Total Annual Operating Expenses $300,454 $422,508 $225,193 $175,696 $480,000
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
EXAMPLE
Based on management's analysis, the Trustees believe that the principal
aggregate annual operating expenses of the four Funds, which amounted to
approximately $1.2 million for the year ended June 30, 1996, would have been
reduced to $480,000 had the Merger taken place. However, there can be no
assurance that reductions in expenses 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.
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 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, 1996. 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:
1 year 3 years 5 years 10 years
------ ------- ------- --------
SAIF $222 $544 $752 $1,004
SAF 80 233 376 697
SIF 103 292 461 806
STGF 226 551 758 1,004
Pro Forma SST 79 229 371 690
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<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, SST
will have current income as its principal investment objective and capital
appreciation as its secondary objective, 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.
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<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 ended June 30 have been 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.
25
<PAGE>
FINANCIAL HIGHLIGHTS
SAIF
<TABLE>
<CAPTION>
Unaudited For the year For the period
Three Months Ended ended February 1, 1995
September 30, June 30, through June 30,
------------------------ ------------------------------
1996 1995 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) (.05) (.06) (.41) (.12)
Net realized and unrealized gain (loss) on investments .06 .09 .25 .04
--------- --------- --------- ---------
Total from investment operations .01 .03 (.16) (.08)
Dividends and distributions paid:
From net realized gain - - - - - - - -
From net investment income - - - - - - - -
From capital - - - - - - - -
--------- --------- --------- ---------
Total distributions - - - - - - - -
--------- --------- --------- ---------
Net asset value, end of period $ 0.73 $ 0.91 $ 0.72 $ 0.88
--------- --------- --------- ---------
--------- --------- --------- ---------
Ratio/Supplemental Data: Total return (1) 5.56** 13.64** (18.48)% (20.01)%**
Net Assets, end of period (in thousands) $1,011.00 $1,368.00 $1,008.00 $1,341.00
Ratio of expenses to average net assets 25.52%** 23.10%** 24.61% 24.62%**
Ratio of net investment income (loss)
to average net assets (24.49)%** (22.59)%** (24.10)% (22.86)%**
Portfolio turnover 425%** 556%** 339% 617%**
<CAPTION>
For the years ended January 31,
---------------------------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
<S> <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
Net investment income (loss) (.26) (.24) (.19) (.20) (.19)
Net realized and unrealized gain (loss) on
investments (.43) .39 .15 .15 (.16)
--------- --------- --------- --------- ---------
Total from investment operations (.69) .15 (.04) (.05) (.35)
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
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Ratio/Supplemental Data:
Total return (1) (41.82)% 10.00% (2.60)% (3.14)% (18.04)%
Net Assets, end of period (in thousands) $1,472.00 $2,627.00 $2,496.00 $2,648.00 $2,844.00
Ratio of expenses to average net assets 17.69% 12.66% 14.83% 15.13% 13.75%
Ratio of net investment income (loss)
to average net assets (15.63)% (11.40)% (13.52)% (13.13)% (10.25%)
Portfolio turnover 289% 134% 221% 460% 211%
<CAPTION>
For the years ended January 31,
------------------------------------------------------
1990 1989 1988 1987
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 2.21 $ 2.24 $ 2.68 $ 2.89
Net investment income (loss) (.19) (.11) (.12) (.14)
Net realized and unrealized gain (loss) on investments (.08) .08 (.32) (.07)
--------- ---------- --------- ---------
Total from investment operations (.27) (.03) (.44) (.21)
Dividends and distributions paid:
From net realized gain - - - - - - - -
From net investment income - - - - - - - -
From capital - - - - - - - -
--------- ---------- --------- ---------
Total distributions - - - - - - - -
--------- ---------- --------- ---------
Net asset value, end of period $ 1.94 $ 2.21 $ 2.24 $ 2.68
--------- ---------- --------- ---------
--------- ---------- --------- ---------
Ratio/Supplemental Data:
Total return (1) (12.22)% (1.34)% (16.42)% (7.27)%
Net Assets, end of period (in thousands) $3,691.00 $4,563.00 $4,943.00 $6,480.00
Ratio of expenses to average net assets 12.74% 9.37% 7.00% 6.26%
Ratio of net investment income (loss)
to average net assets (8.75)% (4.84)% (3.64)% (3.39)%
Portfolio turnover 258% 121% 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.
26
<PAGE>
FINANCIAL HIGHLIGHTS
SAF
<TABLE>
<CAPTION>
Unaudited For the year For the period
Three Months Ended ended October 1, 1994
September 30, June 30, through June 30,
------------------------ ------------------------------
1996 1995 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) (.02) (.02) (.17) (.03)
Net realized and unrealized gain (loss) on investments .01 .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 $ 0.69 $ 0.78 $ 0.70 $ 0.73
--------- --------- --------- ---------
--------- --------- --------- ---------
Ratio/Supplemental Data: Total return (1) (5.71)%** 27.40%** (4.38)% 1.85%**
Net Assets, end of period (in thousands) $4,470.00 $5,914.00 $4,581.00 $5,735.00
Ratio of expenses to average net assets 8.13%** 9.31%** 8.14% 8.17%**
Ratio of net investment income (loss)
to average net assets (7.18)%** (8.30)%** (7.48)% (7.23)%**
Portfolio turnover 526%** 348%** 231% 505%**
<CAPTION>
For the years ended September 30,
---------------------------------------------------------------------
1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
<S> <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
--------- --------- --------- --------- ---------
Net investment income (loss) (.08) (.05) (.03) (.02) (.03)
Net realized and unrealized gain (loss) on investments (.07) .28 - - .12 (.24)
--------- --------- --------- --------- ---------
Total from investment operations (.15) .23 (.03) .10 (.27)
Dividends and distributions paid:
From net realized gain - - - - - - - - - -
From net investment income - - - - - - - - - -
From capital - - - - - - - - - -
--------- --------- --------- --------- ---------
Total distributions - - - - - - - - - -
--------- --------- --------- --------- ---------
Net asset value, end of period $ 0.72 $ 0.87 $ 0.64 $ 0.67 $ 0.57
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Ratio/Supplemental Data: Total return (1) (17.24)% 35.88% (4.47)% 17.51% (32.27)%
Net Assets, end of period (in thousands) $6,307.00 $8,844.00 $7,254.00 $8,539.00 $8,392.00
Ratio of expenses to average net assets 7.76% 5.79% 6.92% 7.16% 6.08%
Ratio of net investment income (loss)
to average net assets (6.09)% (4.63)% (5.14)% (3.29)% (4.54)%
Portfolio turnover 241% 300% 301% 267% 86%
<CAPTION>
For the years ended September 30,
-------------------------------------------------------
1989 1988 1987 1986
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 0.60 $ 0.91 $ 0.85 $ 0.82
---------- ----------- ----------- ----------
Net investment income (loss) - - - - .02 (.01)
Net realized and unrealized gain (loss) on investments .27 (.25) .12 .11
---------- ----------- ----------- ----------
Total from investment operations .27 (.25) .14 .10
Dividends and distributions paid:
From net realized gain (.03) - - (.06) (.07)
From net investment income - - - - (.02) - -
From capital - - (.06) - - - -
---------- ----------- ----------- ----------
Total distributions (.03) (.06) (.08) (.07)
---------- ----------- ----------- ----------
Net asset value, end of period $ 0.84 $ 0.60 $ 0.91 $ 0.85
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
Ratio/Supplemental Data: Total return (1) 47.50% (27.86)% 15.83% 11.44%
Net Assets, end of period (in thousands) $16,035.00 $13,572.00 $20,662.00 $19,866.00
Ratio of expenses to average net assets 6.65% 4.10% 3.06% 2.88%
Ratio of net investment income (loss)
to average net assets (.24)% (.33)% (2.13)% (0.82)%
Portfolio turnover 208% 367% 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.
27
<PAGE>
FINANCIAL HIGHLIGHTS
SIF
<TABLE>
<CAPTION>
Unaudited For the year For the period
Three Months Ended ended January 1, 1995
September 30, June 30, through June 30,
------------------------ ------------------------------
1996 1995 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) (.02) - - (.13) (.02)
Net realized and unrealized gain (loss) on investments .02 - - (.03) .11
--------- --------- --------- ---------
Total from investment operations - - - - (.16) .09
Dividends and distributions paid:
From net realized gain - - - - - - - -
From net investment income - - - - - - - -
From capital - - - - - - - -
--------- --------- --------- ---------
Total distributions - - - - - - - -
--------- --------- --------- ---------
Net asset value, end of period $ 0.86 $ 1.02 $ 0.86 $ 1.02
--------- --------- --------- ---------
--------- --------- --------- ---------
Ratio/Supplemental Data: Total return (1) -0- -0- (15.53)% 19.36%**
Net Assets, end of period (in thousands) $1,738.00 $2,257.00 $1,763.00 $2,298.00
Ratio of expenses to average net assets 11.56%** 8.89%** 10.60% 10.54%**
Ratio of net investment income (loss)
to average net assets (10.52)%** (2.03)%** (5.23)% (4.24)%**
Portfolio turnover 342%** 84%** 382% 226%**
<CAPTION>
For the years ended December 31,
---------------------------------------------------------------------
1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
<S> <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
--------- --------- --------- --------- ---------
Net investment income (loss) (.08) (.06) (.09) (.06) (.09)
Net realized and unrealized gain (loss) on investments (.41) .10 (.02) .43 (.11)
--------- --------- --------- --------- ---------
Total from investment operations (.49) .04 (.11) .37 (.20)
Dividends and distributions paid:
From net realized gain - - - - - - - - - -
From net investment income - - - - - - - - - -
From capital - - - - - - - - - -
--------- --------- --------- --------- ---------
Total distributions - - - - - - - - - -
--------- --------- --------- --------- ---------
Net asset value, end of period $ 0.93 $ 1.42 $ 1.38 $ 1.49 $ 1.12
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Ratio/Supplemental Data: Total return (1) (34.51)% 2.89% (7.05)% 32.95% (15.04)%
Net Assets, end of period (in thousands) $2,159.00 $3,550.00 $3,791.00 $4,277.00 $3,530.00
Ratio of expenses to average net assets 8.90% 6.48% 7.78% 7.88% 10.31%
Ratio of net investment income (loss)
to average net assets (6.65)% (4.52)% (6.09)% (5.08%) (7.27)%
Portfolio turnover 282% 179% 263% 245% 144%
<CAPTION>
For the years ended December 31,
------------------------------------------------------
1989 1988 1987 1986
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 1.22 $ 1.32 $ 1.61 $ 1.46
--------- ---------- ---------- ---------
Net investment income (loss) (.08) - - .01 .06
Net realized and unrealized gain (loss) on investment .18 (.09) (.30) .09
--------- ---------- ---------- ---------
Total from investment operations .10 (.09) (.29) .15
Dividends and distributions paid:
From net realized gain - - - - - - - -
From net investment income - - (.01) - - - -
From capital - - - - - - - -
--------- ---------- ---------- ---------
Total distributions - - (.01) - - - -
--------- ---------- ---------- ---------
Net asset value, end of period $ 1.32 $ 1.22 $ 1.32 $ 1.61
--------- ---------- ---------- ---------
--------- ---------- ---------- ---------
Ratio/Supplemental Data: Total return (1) 8.13% (6.82)% (18.01)% 10.27%
Net Assets, end of period (in thousands) $4,627.00 $4,812.00 $5,659.00 $8,133.00
Ratio of expenses to average net assets 8.95% 5.59% 4.32% 3.97%
Ratio of net investment income (loss)
to average net assets (6.15)% .13% .53% 1.84%
Portfolio turnover 165% 128% 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.
28
<PAGE>
FINANCIAL HIGHLIGHTS
STGF
<TABLE>
<CAPTION>
Unaudited For the year For the period
Three Months Ended ended January 1, 1995
September 30, June 30, through June 30,
------------------------ ------------------------------
1996 1995 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) (.07) (.07) (.58) (.22)
Net realized and unrealized gain (loss) on investments (.09) .19 .17 .08
--------- --------- --------- ---------
Total from investment operations (.16) .12 (.41) (.14)
Dividends and distributions paid:
From net realized gain - - - - - - - -
From net investment income - - - - - - - -
From capital - - - - - - - -
--------- --------- --------- ---------
Total distributions - - - - - - - -
--------- --------- --------- ---------
Net asset value, end of period $ 0.86 $ 1.55 $ 1.02 $ 1.43
--------- --------- --------- ---------
--------- --------- --------- ---------
Ratio/Supplemental Data: Total return (1) (62.75)%** 33.57%** (28.29)% (17.84)%**
Net Assets, end of period (in thousands) $ 451.00 $ 861.00 $ 542.00 $ 799.00
Ratio of expenses to average net assets 29.64%** 18.79%** 25.19% 22.28%**
Ratio of net investment income (loss)
to average net assets (28.47)%** (18.31)%** (24.78)% (20.90)%**
Portfolio turnover 715%** 333%** 333% 615%**
<CAPTION>
For the years ended December 31,
---------------------------------------------------------------------
1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
<S> <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
--------- --------- --------- --------- ---------
Net investment income (loss) (.45) (.40) (.33) (.30) (.41)
Net realized and unrealized gain (loss) on investments (.46) .19 .18 .93 (1.30)
--------- --------- --------- --------- ---------
Total from investment operations (.91) (.21) (.15) .63 (1.71)
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
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Ratio/Supplemental Data: Total return (1) (36.69)% (7.81)% (5.28)% 28.51% (43.62)%
Net Assets, end of period (in thousands) $ 894.00 $1,467.00 $1,634.00 $1,786.00 $1,443.00
Ratio of expenses to average net assets 16.34% 11.94% 13.33% 14.10% 14.97%
Ratio of net investment income (loss)
to average net assets (14.79)% (11.38)% (12.45)% (11.70)% (12.60)%
Portfolio turnover 274% 128% 157% 318% 184%
<CAPTION>
For the years ended December 31,
------------------------------------------------------
1989 1988 1987 1986
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 3.03 $ 4.12 $ 4.48 $ 5.06
--------- --------- --------- ---------
Net investment income (loss) (.37) (.30) (.27) (.33)
Net realized and unrealized gain (loss) on investments 1.26 (.79) (.09) (.25)
--------- ---------- ---------- ---------
Total from investment operations .89 (1.09) (.36) (.58)
Dividends and distributions paid:
From net realized gain - - - - - - - -
From net investment income - - - - - - - -
From capital - - - - - - - -
--------- ---------- ---------- ---------
Total distributions - - - - - - - -
--------- ---------- ---------- ---------
Net asset value, end of period $ 3.92 $ 3.03 $ 4.12 $ 4.48
--------- ---------- ---------- ---------
--------- ---------- ---------- ---------
Ratio/Supplemental Data: Total return (1) 29.37% (26.46)% (8.04)% (11.46)%
Net Assets, end of period (in thousands) $2,675.00 $2,178.00 $3,119.00 $3,779.00
Ratio of expenses to average net assets 12.14% 9.90% 6.34% 5.81%
Ratio of net investment income (loss)
to average net assets (9.97)% (8.55)% (4.88)% (4.87)%
Portfolio turnover 116% 164% 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 was changed to June 30.
** Annualized.
29
<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 & TV 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 excluding 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 & TV 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 excluding 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.
30
<PAGE>
From time to time the Fund may quote its total return in advertisements or
in reports or other communications to shareholders. A mutual fund's total
return is a measurement of the overall change in value, including changes in
share price and assuming reinvestment of all distributions, of an investment in
the fund. Cumulative total return shows the fund's performance over a specific
period of time. Average annual total return is the average annual compounded
return that would have produced the same cumulative total return if the fund's
performance had been constant over the entire period. The returns shown are
based on historical results and are not intended to indicate future performance.
The investment return and principal value of an investment in the fund will
fluctuate 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 excluding 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.
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.
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
31
<PAGE>
$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
& TV 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
excluding 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.
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.
32
<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 31, 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
- -------------------------------------------------------------------------
33
<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
- ----------------------------------------------------------------------
34
<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
- ------------------------------------------------------------------------------
35
<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
- ---------------------------------------------------------------------------
36
<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.
Each share has one vote, 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' meeting. 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 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 anti-takeover provisions. While the
Trustees of SST are not aware of any effort that mights be made to obtain
control of the Fund upon completion of the Merger, the Trustees believe that it
is appropriate to include certain provisions as part of the Fund's Amended and
Restated Trust Indenture, which may have the effect of discouraging a future
takeover attempt which is not approved by the Trustees but which individual
shareholders may deem to be in their best interests or in which shareholders may
receive a substantial premium for their shares over then current market prices.
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.
37
<PAGE>
1. TRUSTEES. Trustees are chosen for a term of unlimited duration.
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 the written request of shareholders holding in the
aggregate not less than ninety percent (90%) of the outstanding shares
having voting rights. The Trustees will promply 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 effectively means that the holders of a majority of the
shares voted at a meeting of shareholders may, if they so choose, elect all
Trustees to be selected at that meeting, thus precluding minority
shareholder representation among the Trustees.
4. RESTRICTIONS ON ACQUISITIONS OF SHARES OF SST. The Amended and
Restated Trust Indenture provides that from and after the effective date of
the approval of the Merger, no person may acquire, directly or indirectly,
the beneficial ownership of more than 5% 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 Trustees must take affirmative action approving in advance
a particular offer to acquire or acquisition.
REDEMPTION OF SHARES PRIOR TO MERGER. Shareholders of the Funds do not
have appraisal or other dissenter's rights with respect to the Proposal.
However, any Fund shareholder may redeem his or her shares prior to the closing
date of the Merger at the net asset value next calculated after the request has
been received and found to be in good order, and the proceeds will be paid by
check within seven days after receipt of a redemption request. The 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 over $1,000 it will be necessary to obtain a "signature guarantee"
from a commercial bank or trust company. Signature guarantees shall be
accepted from all eligible guarantor institutions, which include domestic
banks, brokers, dealers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and savings
associations.
INSTANT LIQUIDITY (BY TELEPHONE) - Any amount may be withdrawn by telephone
by calling 1-(800)-424-8570 on any business day if telephone withdrawals
have been previously authorized on the Investment Application. Telephone
instructions from any person representing himself or herself to be 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
38
<PAGE>
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 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.
OVER-THE-COUNTER MARKET
Currently SST shares are not traded in any market. As of January 13, 1997,
the net asset value of SST was $.80 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 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 OF THE FUNDS
Under the laws of the District of Columbia, the Trustees of the Fund 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, 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
39
<PAGE>
supervision for the Funds. Under the terms of the Advisory Agreement, the
Advisor manages the investments of each Funds and is responsible for overall
management of the business affairs of each Fund subject to the 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 functions directly attributable to such
Fund other than investment advisory and shareholder service functions. 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; the internal audit of the Fund's books, transactions, and daily
pricing; compliance with SEC regulation, including registration; preparation of
materials for Trustees' meetings; legal and other administrative functions; and
clerical assistance related to the above.
LEGAL PROCEEDINGS
The Funds are not parties to any material legal proceedings.
40
<PAGE>
ELECTION OF TRUSTEES
OF
STEADMAN ASSOCIATED FUND
PROPOSAL NO. 2
(TO BE VOTED ON BY SHAREHOLDERS OF
STEADMAN ASSOCIATED FUND ONLY)
ELECTION OF TRUSTEES
Four 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.
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. Three additional persons
have been nominated to serve as Trustee, William Mark Crain , Gordon T.
Getsinger 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.
Certain information concerning the Trustees and the nominees is set forth
below.
<TABLE>
<CAPTION>
PRINCIPAL SHARES
OCCUPATION DURING OF SST
PAST FIVE YEARS AND TRUSTEE BENEFICIALLY OWNED AT
NAME AND ADDRESS AGE PUBLIC DIRECTORSHIPS SINCE NOVEMBER 15, 1996
- ---------------- ---- ---------------------- ----- -----------------
<S> <C> <C> <C> <C>
Paul A. Bowers, M.D. 85 Emeritus Professor, Obstetrics
and Gynecology, 1978 -0-
Jefferson Medical College
(ret.); Trustee of each of
the Steadman Funds
William Mark Crain* 45 Professor of Economics and Research -- -0-
Associate with the Center for
Study of Public Choice,
George Mason University
Gordon T. Getsinger* 75 -- -0-
Consultant to each of the Steadman
Funds
Richard O. Haase* 62 Vice Prsident, Maiden, Haase & Smsith, --- -0-
a real estate valuation company
Vice Admiral John T.
Hayward USN (Ret.) 85 Vice Admiral, U.S.N. (ret.); Trustee 1973 -0-
of each of the Steadman Funds
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Charles W. Steadman 82 Chairman of the Board and President 1968 16,425
of Steadman Security Corporation and
of each of the Steadman Funds
Paul F. Wagner* 78 Chairman, Wagner, Hines & Avery, Inc., 1992 -0-
a Washington, D.C. public affairs firm,
Trustee of each of the Steadman Funds
</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, 1996, the Trustees of the Fund held five 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 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, 1996 totaled $5,328. 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 OFFICER
DURING THE PAST FIVE YEARS OFFICE AGE SINCE SALARY BONUS OTHER
- ----------------------------- ------ --- ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Charles W. Steadman President** 82 1968 $75,000 -0- -0-
Max Katcher Executive Vice 67 1972 $26,000 -0- -0-
President,
Treasurer and
Secretary**
</TABLE>
*For the year ended June 30, 1996
**Upon the Merger, Mr. Steadman's annual salary will be increased to $105,000
and Mr. Katcher's annual salary will be increased to $50,000.
42
<PAGE>
RATIFICATION OF AMENDED AND RESTATED
TRUST INDENTURE OF STEADMAN SECURITY TRUST,
DATED JANUARY 28, 1997
PROPOSAL NO. 3
(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 January 28, 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."
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.
The Amended and Restated Trust Indenture eliminates the requirement of
computing the net asset value of shares of SST on a daily basis and instead
provides for such computation at any required valuation date in order to
properly operate and administer SST. 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.
The Amended and Restated Trust Indenture also reflect 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.
The investment objective of the Fund has been changed to seek current
income as its primary objective and capital apprecaition as its secondary
objective, but only to the extent consistent with its primary objective.
The duration of the Fund has been extended to February 23, 2034.
Certain anti-takeover provisions have been added as more fully described in
"Description of Capital Structure of the Funds and Shareholder Rights--Special
Provisions of SST."
43
<PAGE>
SELECTION OF INDEPENDENT AUDITORS
PROPOSAL NO. 4
(TO BE VOTED ON BY SHAREHOLDERS OF
STEADMAN ASSOCIATED FUND ONLY)
The Trustees of SST 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 SST for the current
fiscal year and thereafter. The Trustees know of no direct or indirect
financial interest of such firm in SST. 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 SST. If the shareholders approve, the firm of
Reznick Fedder & Silverman will serve as the independent auditors of SST until
the next meeting of shareholders. Unless a contrary specification is made, the
accompanying proxy will be voted in favor of the ratification of the selection
of such independent auditors.
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.
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 approval of the Merger Agreement, and the transactions
contemplated thereby, and in addition shareholders of SST will be asked to (a)
elect trustees, (b) ratify the Amendment 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 (c) ratify the selection of independent
auditors for SST.
RECORD DATE; VOTE REQUIRED; SHARE INFORMATION
The Trustees of each Fund have fixed the close of business on February __,
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.
Only shareholders of the Funds will vote on the Merger. Only shareholders of
SST will vote on the election of Trustees of SST, the ratification of the
Amended and Restated Trust Indenture and the Selection of Independent Auditors
for SST.
44
<PAGE>
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 a
majority 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 respective Proposal, in favor of an adjournment, and will
vote all shares which they are required to vote against the respective Proposal,
against an adjournment.
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. If a shareholder executes and returns a proxy
but fails to indicate how the votes should be cast, the proxy will be voted in
favor of the respective 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 and broker non-votes will be counted as present for
purposes of determining a quorum and will have the same effect as a vote against
such Proposal. 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, 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 will be paid as set forth in the Merger Agreement.
All out-of-pocket expense of the Funds associated with the Merger, including
Fund, accounting and transfer agent expenses, legal fees and tax opinion will be
borne by the Funds proportionately.
45
<PAGE>
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.
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 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.
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
February __, 1997
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PART B: INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
Item 10. Cover Page
STATEMENT OF ADDITIONAL INFORMATION
January 31, 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-5
Other Investment Techniques . . . . . . . . . . . . . B-5
Performance Information . . . . . . . . . . . . . . . B-5
Trustees and Officers of the Fund . . . . . . . . . . B-6
Principal Shareholders. . . . . . . . . . . . . . . . B-7
Investment Advisory and Transfer Agent Fees . . . . . B-7
Distribution Expense. . . . . . . . . . . . . . . . . B-8
Portfolio Transactions and Brokerage Commissions. . . B-8
Shareholder Investment Plan . . . . . . . . . . . . . B-10
Independent Accountants . . . . . . . . . . . . . . . B-11
Financial Statements and Related Information. . . . . B-11
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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.
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.
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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 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.
49
<PAGE>
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.
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
50
<PAGE>
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 Fund shares 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.
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, Hincs & Avary, 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.
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<PAGE>
On September 30, 1996, 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, 1996, the Fund paid $5,328 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, 1996, the Other Funds paid $14,054 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 September 30, 1996, 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.
The Fund paid investment advisory fees during the last three fiscal years
ended as follows: June 30, 1996, $51,706, June 30, (1995)* $41,902; (1994)
$74,029. The Other Funds paid aggregate investment advisory fees during the
last three fiscal years ended as follows: June 30, 1996, $40,338; June 30
(1995)* $20,833; (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 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 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) $283,427, (1995) $135,292 and
(1994) $303,110.
*The Funds' fiscal year was changed to June 30.
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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, 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, 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
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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 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
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understanding that quotation services and devices would be provided to the
Advisor in exchange for these brokerage commissions.
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
- -----
Broker Transactions % of Total Commissions % of Total
- ------ ------------ ---------------------- ----------
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 .7 500 .4
Ryan Hartley
& Lee $ 469,625 2.1 11,300 8.9
-----------------------------------------------------------
Totals $ 22,887,208 100.0% $126,558 100.0%
-----------------------------------------------------------
-----------------------------------------------------------
Other Funds
- -----------
Broker Transactions % of Total Commissions % of Total
- ------ ------------ ---------------------- ----------
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 .6 3,350 3.6
William Blair
&Co. 91,975 .6 1,074 1.1
Wertheim, Inc. 81,375 .5 210 .2
------------ ------ --------- -----
Totals $ 15,689,512 100.0% $ 94,626 100.0%
------------ --------------------------- -------------
------------ --------------------------- -------------
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:
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Financial Statements and information of the Fund and the Other Funds listed
below are included in part B hereof.
--Report of Independent Accountants, dated 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.
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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 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
57
<PAGE>
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:
Number Description
------ -----------
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)
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.
58
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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 31st day of January, 1997.
Steadman Security Trust
Registrant
/s/ Charles W. Steadman
-------------------------------------
Charles W. Steadman, Trustee,
Chairman of the Board of Trustees and
President, Steadman Security Trust
We the undersigned trustees and officers of Steadman Associated Fund do
hereby severally constitute and appoint Charles W. Steadman our true and lawful
attorney and agent, to do any and all things and acts in our names in the
capacities indicated below and to execute all instruments for us and in our
names in the capacities indicated below which said Charles W. Steadman may deem
necessary or advisable to enable Steadman Associated Fund to comply with the
Securities Act of 1933, as amended, and any rules, regulations, and requirements
of the Securities and Exchange Commission, in connection with the registration
statement on Form N-14 relating to the offering of share interests in Steadman
Associated Fund, including specifically but not limited to, power and authority
to sign for us or any of us in our names in the capacities indicated below the
registration statement and any and all amendments (including post-effective
amendments) thereto; and we hereby ratify and confirm all that Charles W.
Steadman shall do or cause to be done by virtue hereof.
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, January 31, 1997
- ------------------------ President and Trustee
Charles W. Steadman Principal Executive Officer
/s/ Max Katcher Executive Vice President,
- ------------------------ Treasurer & Secretary January 31, 1997
Max Katcher Principal Financial Officer
Principal Accounting Officer
<PAGE>
/s/ Paul A. Bowers
- ------------------------
Paul A. Bowers
Trustee January 31, 1997
/s/ John T. Hayward
- ------------------------
John T. Hayward
Trustee January 31, 1997
/s/ Paul E. Wagner
- ------------------------
Paul E. Wagner Trustee January 31, 1997
<PAGE>
EXHIBIT 1
Amended and Restated Trust Indenture of Steadman Associated Fund and
Declaration of Trust
<PAGE>
AMENDED
AND
RESTATED TRUST INDENTURE OF
STEADMAN SECURITY TRUST
(formerly Steadman Associated Fund)
AND DECLARATION OF TRUST
WITH AMENDMENTS THROUGH
JANUARY 28, 1997
<PAGE>
TABLE OF CONTENTS
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 . . . . . . . . . . . . . . . . . . . . .9
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. FURTHER POWERS . . . . . . . . . . . . . . . . . . 14
Section 2.21. RESTRICTION ON INVESTMENT . . . . . . . . . . . . 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
2
<PAGE>
ARTICLE IV
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.1. STATEMENT OF INVESTMENT POLICY. . . . . . . . . . . 16
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: FUND AS DISTRIBUTOR . . . . 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. . . . . . . . . . . . . . . . . 24
Section 7.4. CHANGE OF HOLDER OF RECORD. . . . . . . . . . . . . 24
Section 7.5. TRANSFER OF SHARES. . . . . . . . . . . . . . . . . 24
Section 7.6. LIMITATION OF FIDUCIARY RESPONSIBILITY. . . . . . . 25
Section 7.7. NOTICES . . . . . . . . . . . . . . . . . . . . . . 25
Section 7.8. REPLACEMENT OF CERTIFICATES . . . . . . . . . . . . 25
Section 7.9. DESIGNATION OF BENEFICIARY. . . . . . . . . . . . . 25
ARTICLE VIII
Characteristics of Securities. . . . . . . . . . . . . . . . . . 26
Section 8.1. GENERAL . . . . . . . . . . . . . . . . . . . . . . 26
3
<PAGE>
Section 8.2. DEATH OF SHAREHOLDERS . . . . . . . . . . . . . . . 26
ARTICLE IX
Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 9. 1 SPECIAL MEETINGS. . . . . . . . . . . . . . . . . . 26
Section 9.2. NOTICE OF MEETINGS. . . . . . . . . . . . . . . . . 27
Section 9.3. VOTING RIGHTS OF SHAREHOLDERS . . . . . . . . . . . 27
Section 9.4. RECORD DATE . . . . . . . . . . . . . . . . . . . . 27
Section 9.5. PROXIES . . . . . . . . . . . . . . . . . . . . . . 27
Section 9.6. REPORTS . . . . . . . . . . . . . . . . . . . . . . 28
Section 9.7 NOTICE FOR NOMINATIONS AND PROPOSALS . . . . . . . . 28
ARTICLE X
Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 10.1. NUMBER AND QUALIFICATION . . . . . . . . . . . . . 29
Section 10.2. TERMS OF OFFICE: ELECTION . . . . . . . . . . . . 29
Section 10.3. REGISTRATION AND REMOVAL. . . . . . . . . . . . . 29
Section 10.4. VACANCIES . . . . . . . . . . . . . . . . . . . . 30
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 . . . . . . . . . . . . . . . . 32
Section 11.3. SOURCES OF DISTRIBUTIONS . . . . . . . . . . . . . 32
ARTICLE XII
Amendment or Termination of Fund . . . . . . . . . . . . . . . . 32
Section 12.1. AMENDMENT OR TERMINATION . . . . . . . . . . . . 32
Section 12.2. TRANSFER TO SUCCESSOR. . . . . . . . . . . . . . . 33
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. . 34
Section 13.5. NOT IN DEROGATION OF EXISTING RIGHTS . . . . . . . 34
Section 13.6. SECTION HEADINGS . . . . . . . . . . . . . . . . . 34
4
<PAGE>
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 . . . . . . . . . . . . . . . . . . . . 35
Section 15.1. ACCEPTANCE . . . . . . . . . . . . . . . . . . . . 35
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 January 28, 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>
"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.
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
9
<PAGE>
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 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
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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 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
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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.
(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
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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, thrift and other retirement, incentive
and benefit plans, trusts and provisions, including the
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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. 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 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 2.21. 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.
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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 and, 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 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
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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 at least
60% of the total number of all Trustees then in office shall again not 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 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 the Fund's efforts in pursuing its primary goal of capital
appreciation.
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.
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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 Liability
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, 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
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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 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
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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.
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.
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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 5% 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 5% of the Fund Shares in violation
of this Section 6.5, the securities beneficially owned in excess of 5% 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 5% 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 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 5% of the
Fund Shares.
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(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 thisu 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:
(c) any merger or consolidation of a Related Person with or into the
Fund;
(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;
(g) any reclassification of the Shares of the Fund, or any
recapitalization involving Shares of the Fund; and
(h) any agreement, contract or other arrangement providing for any of
the transactions described in this Section 6.6.
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(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 (h) 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.
(c) For the purposes of this Section 6.6 the following definitions apply:
(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 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.
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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 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 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
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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.
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.
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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.
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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.
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 the Chairman or by a majority of the Trustees with a
casting vote by the Chairman. 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. As used herein, vote is defined as an
affirmative vote necessary in order for a particular matter to carry. 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. Special meetings of the Shareholders shall be called when
required by applicable laws or regulations and may be called at any time by the
Chairman or by a majority of Trustees with a casting vote by the Chairman. 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.
As used herein 'casting vote' is defined as an affirmative vote necessary in
order for a particular matter to carry. Any such request shall specify the
purpose for which such meeting is to be called. No other business not stated in
the notice shall be considered at such meeting. Any such meeting shall be held
in the District of Columbia or such other place within or without the District
of Columbia as the Chairman shall designate.
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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
field by such Shareholder. 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
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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 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.
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(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 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. REGISTRATION 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
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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 Trustees 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 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
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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.
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 of. the Trustees 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
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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 distributions 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.
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 Chairman or upon the affirmative vote of a majority of
the Trustees with a casting vote by the Chairman. As used herein 'casting vote'
is defined as an affirmative vote necessary for a particular matter to carry.
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, including 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
32
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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 Chairman, or the Trustees upon affirmative
majority vote with a casting vote by the Chairman as defined in Section 12.1 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.
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
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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.
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
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earlier by the Chairman or by an affirmative vote of a majority of Trustees
with a casting vote by the Chairman. As used herein casting vote is defined as
an affirmative vote necessary in order for a particular matter to carry.
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.
IN WITNESS WHEREOF, the Parties have executed this Amended and Restated
Trust Indenture of Steadman Security Trust and Declaration of Trust as of the
day and year first above written.
ATTEST: STEADMAN SECURITY TRUST
By: /s/ Charles W. Steadman
-----------------------------
WITNESS: TRUSTEES:
/s/ Charles W. Steadman
---------------------------------
Charles W. Steadman, TRUSTEE
WITNESS:
/s/ Paul A. Bowers
---------------------------------
Paul A. Bowers, Trustee
WITNESS:
/s/ John T. Hayward
---------------------------------
John T. Hayward, Trustee
WITNESS:
/s/ Paul F. Wagner
---------------------------------
Paul F. Wagner, Trustee
35
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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 28th day
of January, 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").
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 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.
<PAGE>
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 five 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 November 1, 1996 ("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.
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.
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<PAGE>
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 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 4.3 below, for inclusion in the Registration Statement.
The Other Funds
3
<PAGE>
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 any net gain or loss
recognized by the Other Funds as a result of the Merger and any tax loss
carryovers of the Other Funds available to offset any net gain recognized by the
Other Funds as a result of the Merger.
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.
6. REPRESENTATIONS AND WARRANTIES
6.1 The Fund represents and warrants to the Other Funds as follows:
4
<PAGE>
(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 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.
5
<PAGE>
(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 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.
6
<PAGE>
(n) On the Closing Date, the Fund will not 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 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.
(p) 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.
(q) 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.
(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.
7
<PAGE>
(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, 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
8
<PAGE>
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) On the Closing Date, each of the Other Funds will not 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).
(n) 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.
(o) 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 material respects with Federal securities and other
laws and regulations applicable thereto.
(p) 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:
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(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 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.
10
<PAGE>
(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 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.
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;
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 shall have 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 duly
organized, validly existing and in good standing 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
11
<PAGE>
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 has been 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 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 of 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 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.
12
<PAGE>
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 31, 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 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 7.3 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
13
<PAGE>
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 Other Funds 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.
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.
14
<PAGE>
9.5 The parties shall have received an opinion from Manatt, Phelps &
Phillips (based on 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 Shareholders concerning the
anticipated material federal income tax consequences of the transactions
provided for herein to the Fund, the Other Funds, and their respective
shareholders.
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.
15
<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 February 29, 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 (or, as to a termination pursuant to
paragraph 12.1 (c) (v), in breach of the Acquisition 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. For the purposes of this paragraph 12.2(b), the non-
fulfillment of the condition set forth in paragraph 9.1 shall not be deemed
a breach entitling a party to reimbursement of expenses and 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
16
<PAGE>
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.
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).
14.4 Promptly 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.
17
<PAGE>
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 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 This Agreement 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. A shareholder of the Other Funds
who becomes a shareholder of the Fund on the Closing Date and continues to be a
shareholder of the Fund, shall be entitled to the benefits and may enforce the
provisions of paragraph 4.9 hereof except insofar as paragraph 4.9 relates to
18
<PAGE>
the election of trustees; and the persons designated in paragraphs 13.1 and 13.2
hereof shall be entitled to the benefits and may enforce the provisions of
section 13 hereof.
19
<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
20
<PAGE>
EXHIBIT 5
Specimen share certificate
<PAGE>
EXHIBIT 5
VERIFICATION OF DATE OF THIS
CERTIFICATE NO. CERTIFICATE NUMBER CERTIFICATE NUMBER OF SHARES
- --------------- ------------------ ------------ ----------------
|
|
- --------------- ------------------ ------------ ----------------
WHOLE FRACTIONAL
CERTIFICATE OF
STEADMAN SECURITY TRUST
A COMMON LAW TRUST
THIS IS TO CERTIFY THAT
-----------------
CUSIP 857814 10 7
-----------------
is the owner of the above-stated number of shares of beneficial interest in
Steadman Security Trust, a common law trust existing pursuant to a certain
indenture of trust dated February 23, 1939, as amended, by and between
Associated Fund Management Corporation, a Missouri corporation, The National
Bank of Washington (D.C.) as successor trustee, and the registered shareholders
of Steadman Security Trust, as settlors of express revocable trusts, who become
parties thereto. The interest represented hereby is transferable only on the
books of the Fund by the holder hereof in person or by attorney upon surrender
of this certificate properly endorsed. This certificate is not valid until
countersigned by the Transfer Agent.
In witness whereof Associated Fund Management Corporation,
by its authorized officers has issued and executed this
certificate.
Seal
1939
ASSISTANT SECRETARY PRESIDENT
<PAGE>
DESIGNATION OF BENEFICIARY
This certifies that the registered holder named in this certificate has, by
appropriate application and designation, named
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
whose address is
---------------------------------------------------------------
as beneficiary of this certificate. If said beneficiary shall survive the
registered holder of this certificate, said designation not having been revoked,
upon the death of said registered shareholder, said beneficiary shall be
entitled to all of the rights and interests evidenced by such certificate.
The above designation has been registered this ____day of _________, 19 __.
ASSOCIATED FUND MANAGEMENT CORPORATION
By
------------------------------------------
Authorized Officer
TRANSFER OF INTEREST
FOR VALUE RECEIVED, the undersigned, the registered holder of the within
certificate, does hereby transfer to
- --------------------------------------------------------------------------------
whose address is
---------------------------------------------------------------
all of his right, title and interest in and to Steadman Security Trust evidenced
by this certificate, subject to all terms, conditions and agreements under which
this certificate is issued, and requests and authorizes the transfer of the
shares represented by this certificate to the transferee hereof.
Executed this ____ day of __________, 19__.
-------------------------------------
-------------------------------------
Registered Holder(s)
Signature(s) Guaranteed by
- ------------------------------------------
(Note: The signature(s) of the registered holder(s) on the above "Transfer of
Interest" must correspond with the name appearing on the face of this
certificate. Such signature(s) must be guaranteed by a commercial bank or trust
company or a member firm of the New York Stock Exchange. Any applicable stamp
taxes shall be paid by the investor.)
<PAGE>
Countersigned
STEADMAN SECURITY CORPORATION
Washington, D.C.
By
AUTHORIZED OFFICER
<PAGE>
EXHIBIT 6
Steadman Security Trust Amended amd
Restated Investment Advisory Agreement
<PAGE>
EXHIBIT 6
STEADMAN SECURITY TRUST
INVESTMENT ADVISORY AGREEMENT
INVESTMENT ADVISORY AGREEMENT made on this 28th day of January, 1997 by and
between the Trustees ("Trustees" herein) of STEADMAN SECURITY TRUST (formerly,
the Steadman Associated Fund), a common law trust ("Fund" herein), and STEADMAN
SECURITY CORPORATION, a Delaware corporation.
WHEREAS, The Fund has been organized as an investment company and desires
to employ its capital by investing and reinvesting the same in securities as
provided in the Amended and Restated Trust Indenture of the STEADMAN SECURITY
TRUST and the Declaration of Trust with amendments through January 28, 1997
("Trust Indenture" herein), and
WHEREAS, The Fund desires to avail itself of the experience, sources of
information, advice, assistance and certain facilities available to the Advisor
and to have the Advisor perform for it various advisory, statistical, accounting
and clerical services; and
WHEREAS, The Advisor is willing to furnish such advice, facilities and
services on the terms and conditions hereinafter set forth:
NOW, THEREFORE, In consideration of the mutual covenants herein contained,
it is agreed that:
1. (a) The Advisor, subject to the direction of the Trustees, shall
provide the Fund with investment research and advice and shall manage and
supervise the Fund's portfolio of investments. In performing this function, the
Advisor shall (i) use 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) furnish the Fund 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 Fund may reasonably
request; (iii) supervise the Fund's relations with its Custodian, auditors and
governmental regulatory bodies; and (iv) shall furnish certain office space and
certain secretarial and clerical assistance necessary for the performance of the
foregoing functions.
(b) The Fund shall pay all of its 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, and dividend disbursing agents; (iii) the expenses of
computing, at any required valuation date, the net asset value of shares of the
Fund; (iv) the fees and expenses of its Trustees, including those Trustees who
also may be Directors of the Advisor or its subsidiary corporations, 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, and who perform services
therefor and are compensated thereby; (v) the expenses of meetings of its
shareholders; (vi) the expenses of printing and mailing
<PAGE>
of all shareholder reports and other required reports and documents provided
shareholders, including, but not being limited to, 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 (or all of
these) of the Advisor, its subsidiaries or affiliated persons, and who perform
services therefor and are compensated thereby; (xiii) the fees of its auditors;
(xiv) the fees of its legal counsel; (xv) travel entertainment, publications,
telephone, telegraph, office space rent; and, (xvi) all other ordinary expenses
of operation. The Fund 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.
(c) When officers or employees of the Advisor, its subsidiaries or
affiliated persons perform duties for the Fund other than those duties required
by Section 1(a) and those duties required of a transfer agent, the Fund shall
reimburse the Advisor for the performance of such duties or may, with the
consent of the Advisor, pay those officers or employees directly.
2. (a) The Advisor shall be paid monthly a fee computed on the first
business day of each month of the Fund's fiscal year at the following annual
rates: 1% of the first $35,000.000, 7/8 of 1% on the next $35,000,000 and 3/4 of
1% on all sum in excess thereof as compensation for its services as specified in
subparagraph 1(a) herein;
(b) For the purpose of determining fees payable to the Advisor, the value
of net assets shall be computed in the manner specified in Section 2.8 of the
Trust Indenture.
3. The Advisor shall allocate brokerage commissions on portfolio
transactions for the Fund among such brokers and/or dealers who provide
investment information, provide services to the Fund or to the Advisor in its
capacity as investment advisor or distributor of the Steadman investment
companies, collectively, or who sell shares of the Fund, if and in the manner
permitted by applicable law or regulation; provided, however, that such brokers
or dealers render satisfactory service at standard commission rates, subject, in
any event, to the Fund's obtaining favorable prices and executions of orders,
consistent with the various services provided.
4. The Advisor may act as investment advisor to one or more other
investment companies. If, while so acting, it appears that the purchase or sale
of securities of the same issuer is advantageous to the Fund and such other
investment companies and is consistent with the investment objectives of the
Fund and such other companies, and if such purchases or sales should be executed
at approximately the same time, each will be executed on a proportionate basis
if feasible, and in the alternative, on a rotating or other equitable basis.
5. The Advisor assumes no responsibility under this Agreement other than
to render the services called for hereunder in good faith, and shall not be
responsible for any action of the Fund in following or declining to follow any
advice or recommendations of the Advisor. The
2
<PAGE>
Advisor shall not be liable for any error of judgment or mistake of law or for
any loss suffered by the Fund in connection with matters to which this Agreement
relates except for it loss resulting from willful misfeasance, bad faith or
gross negligence on the part of the Advisor in the performance of its duties
under this Agreement.
6. Nothing in this Agreement shall limit or restrict the right of any
Director, officer or employee of the Advisor who may also be a Trustee, officer
or other employee of the Fund to engage in any other business or to devote his
time and attention in part to the management or other aspects of any other
business, whether of a similar or dissimilar nature, nor limit or restrict the
right of the Advisor to engage in any other business or to render services of
any kind to any other corporation, firm, individual or association. Trustees
and employees of the Fund are, therefore, specifically permitted to serve from
time to time as directors, officers and employees of other corporations
including the Advisor and subsidiaries, other companies which it may acquire, or
with which it may merge or consolidate, and other investment companies which the
Advisor may organize or sponsor.
7. This Agreement shall become effective when approved by vote of a
majority of the outstanding voting securities of the Fund, as defined in Section
2(a)(42) of the Investment Company Act of 1940, and may be amended by similar
approval.
8. This Agreement may be terminated at any time in accordance with the
provisions of Section 3.2 of the Trust Indenture.
9. This Agreement shall remain in effect for a period of two years from
the date of execution, and shall continue in effect thereafter only so long as
it is specifically approved annually by the Trustees, including the vote of a
majority thereof who are not parties to the Agreement or "interested persons",
as defined in Section 2(a)(19) of the Investment Company Act of 1940 of any such
party, cast in person at a meeting called for the purpose of voting on such
approval, or by the vote of the holders of a majority, as so defined, of the
outstanding voting securities of the Fund and by the vote of a majority of the
Trustees who are not parties to the Agreement or "interested persons", as so
defined, of any such party, cast in person at a meeting called for the purpose
of voting on such approval.
10. The Trust Indenture is incorporated herein by reference and this
Agreement shall be governed thereby and interpreted in a manner consistent
therewith.
11. Notices to the Advisor shall be addressed to Steadman Security
Corporation, 1730 K Street, Northwest, Washington, D.C. 20006; notices to the
Fund shall be addressed to Steadman Security Trust, 1730 K Street, Northwest,
Washington, D.C. 20006.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers thereunto duly authorized:
STEADMAN SECURITY TRUST
Attest:
By
- -------------------------------- ---------------------------------
Charles W. Steadman
Chairman and President of the Trust
STEADMAN SECURITY CORPORATION
Attest:
By
- -------------------------------- -----------------------------------
Executive Vice President-Investments
and Secretary
4
<PAGE>
EXHIBIT 9
Custodian agreement and depository
contract with Crestar Bank N.A.
<PAGE>
CRESTAR BANK, N.A.
CUSTODY SERVICE AGREEMENT
AGREEMENT, dated this 1st day of May , 1996, between STEADMAN
ASSOCIATED FUND (the "Owner") and CRESTAR BANK, N.A. a national banking
institute (the "Bank").
In consideration of the mutual promises and agreements contained herein,
the parties agree as follows:
A. BANK'S OBLIGATIONS:
1. SAFEKEEPING OF SECURITIES
a. The Bank shall accept the Owner's securities from time to time
upon instructions described in Paragraph C-3 below;
b. The Bank shall hold, register or dispose of the Owner's
securities from time to time upon instructions described in
Paragraph C-3 below;
c. The Bank shall periodically provide to the Owner a report of
holdings and transaction notices.
d. For the purpose of audits by agents of the Owner or the Bank or
as required by regulatory authorities, the Bank shall verify the
Owner's holdings as of a specified date.
2. COLLECTION OF PRINCIPAL AND INCOME
a. The Bank shall collect and credit principal, interest and other
income to the Owner's custody account with the Bank on payable
date unless specified otherwise on Attachment A attached hereto;
b. Notwithstanding the foregoing, all payments of principal or
income are credited to the Owner's account subject to final
collection and charge back, if subsequently dishonored;
c. The Bank shall use its best efforts to collect securities and
other property at maturity and at dates of call for payment, but
assumes no responsibility for its failure to do so, except for
losses resulting from its gross negligence or willful misconduct.
The Bank shall not be obligated to institute or participate in
any legal proceedings related to collection of securities or
property.
<PAGE>
3. CORPORATE ACTIONS
a. The Bank shall notify the Owner of all corporate actions of which
the Bank has actual knowledge and act upon instructions described
in Paragraph C-3 below for redemption, tender offer, warrant,
subscription right, merger, consolidation, reorganization or
recapitalization, or any similar corporate action affecting the
securities;
b. For purposes of this Agreement, the Bank shall be deemed to have
actual knowledge only of actions of which it receives notice from
the Owner or its agent, the issuer or its agent, or as published
in the sources the Bank, in its sole discretion, deems advisable
to review from time to time. Notwithstanding the foregoing, the
Bank shall be deemed to have actual knowledge of a put only if it
receives written notice of the put from the Owner or its agent no
earlier than 30 days and no later than 5 days prior to the
expiration of the window period;
c. The Bank, when providing notice of such corporate actions to the
Owner, shall state the Bank's action deadline required to meet
any deadlines established by the issuer of the securities, and
the Bank shall have no duty to act with respect to such corporate
actions unless it has full and timely actual knowledge and
receives written instruction from the Owner, both in time to act
before the action deadline set by the Bank;
d. Funds or assets resulting from any corporate action will be
credited on a timely basis upon receipt by the Bank.
4. PROXY MATERIALS
a. The Bank shall forward, or have its agent forward, to the Owner
all properly-executed proxies, proxy-soliciting materials and
annual reports with respect to securities in the Owner's
safekeeping account;
b. Notwithstanding the foregoing, the Bank shall have no duty to
forward such materials if the Owner permits the company issuing
such securities to forward such materials to the Owner;
c. The Bank shall have no responsibility to vote any proxies with
respect to any securities in the Owner's Custody Service Account.
5. DELIVERY/RECEIPT OF SECURITIES
a. The Bank shall receive or deliver securities, either with or
without payment, upon the Owner's instructions as described in
Paragraph C-3 below;
2
<PAGE>
b. The Bank shall notify the Bank's agent to accept the receipt or
delivery if the transaction so requires;
c. Upon theoretical settlement date, the Bank shall record the
credit or debit in the Owner's Custody Service Account. If there
are insufficient funds in the Owner's Custody Service Account to
settle purchases, thereby creating an overdraft, the Account will
be subject to additional charges by the Bank;
d. The Bank shall exchange temporary certificates for definitive
certificates when appropriate.
6. SIGNING AUTHORITY
a. The Bank shall execute on behalf of the Owner any declaration,
affidavit, certificate of ownership or other documents required
with respect to coupons, registered interest, dividends or other
income, and any endorsement, assignment or other instrument of
transfer of securities or other document that disposes of
property in the Owner's Custody Service Account, in accordance
with the Owner's instructions as described in Paragraph C-3
below;
b. Such execution shall include, but not be limited to, signing such
documents as attorney-in-fact for the Owner or signing the
Owner's name and guaranteeing the signature in the Bank's name;
c. The Bank shall supply the Owner's taxpayer identification number
upon request.
7. CASH REINVESTMENT
a. The Bank shall provide automatic reinvestment of daily cash
balances above $1.00;
b. Such investments shall be in money market funds or short-term
investments from the list of such investments maintained by the
Bank and selected by the Owner;
c. After paying all commissions or expenses chargeable to such
investments, including but not limited to the Bank's sweep fee,
the Bank shall collect and remit the net income therefrom as
provided in Paragraph A-2 above.
3
<PAGE>
B. OWNER'S OBLIGATION:
1. PURCHASES AND SALES
a. The Owner shall initiate, or have its agent initiate, all
purchases, sales or transfers of securities held hereunder,
2. INSTRUCTIONS TO BANK
a. The Owner shall issue, or have its agent issue, to the Bank
instructions in accordance with the Bank's delivery instructions
as described in Paragraph C-3 below for delivery, registration or
transfer of securities, or for action upon any redemption, tender
offer, call, warrant, subscription right, merger, consolidation,
reorganization, recapitalization or any similar corporate action
affecting the securities;
b. The Owner agrees to instruct the Bank regarding corporate
actions, including but not limited to puts, of which the Bank
does not have actual knowledge as defined in Paragraph A-3 above
and of which Owner or its agent has or reasonably should have
knowledge;
c. Any instructions requiring the Bank to act shall be delivered to
the Bank no later than 11:00 a.m. on the date action is to be
taken as requested by the Owner;
d. The Owner shall indemnify and hold the Bank harmless for all
losses, claims, actions and expenses resulting from failure to so
inform the Bank, regardless of whether the Bank attempts to honor
instructions given by the Owner after the deadline stated above.
3. BANK COMPENSATION
a. The Owner shall compensate the Bank for its custody services in
accordance with the Bank's published fee schedule in effect at
the time such services are rendered;
b. If any security transaction for the Owner's Custody Service
Account is negotiated through the Bank's investment or brokerage
department or separate subsidiary, such department or subsidiary
shall be entitled to charge the Owner an amount equal to the
usual commission for such transaction, in addition to the Bank's
fee for custody services hereunder.
4
<PAGE>
4. INDEMNITY
a. The Owner shall reimburse, indemnify and hold the Bank harmless
for and from any liability, loss, claim, damage or expense that
may arise or to which the Bank may be subjected by reason of (i)
execution of documents referred to in Paragraph A-6 above, (ii)
following any instructions given by the Owner as described in
Paragraph C-3 below, (iii) complying with any state or federal
law or regulation or (iv) failure of the Owner to assume its or
its agents' obligations hereunder, but not for any loss or
liability due to the Bank's own negligence.
5. INVESTMENT ADVISOR
a. If desired, the Owner shall designate an investment advisor by
completing Attachment B hereto;
b. The Owner shall inform any investment advisor or investment
manager acting for the Owner of the duties of the parties hereto.
6. SECURITIES' CONFIRMATION AND COMMUNICATIONS
a. The Owner understands and acknowledges that federal regulations
require the Bank to (i) provide the Owner with confirmations of
security transactions at no additional cost within five business
days after receipt by the Bank unless the Bank is released from
this obligation by the Owner and (ii) disclose the Owner's name,
address and share position to companies issuing securities held
in the account unless the Owner objects in writing to such
disclosure;
b. Until further written notice to the Bank, the Owner does not
(i) request security confirmations more frequently than provided
by the Bank in the Owner's periodic account statement, and
(ii) authorize release of the Owner's account information to
companies issuing securities in its account.
C. GENERAL PROVISIONS:
1. LIABILITY
a. The Bank assumes no obligation to review the securities and other
property at any time held in the Owner's Custody Service Account,
or to advise or recommend to the Owner the purchase, retention,
sale, exchange or deposit, in reorganization or otherwise, of any
securities or other property held pursuant to this Agreement;
5
<PAGE>
b. The Bank shall not be liable or responsible for or on account of
any act or omission of any broker or other agent designated by
the Owner;
c. Notwithstanding anything herein to the contrary, the Bank shall
have no liability to the Owner or any third party for special,
indirect or consequential damages, including lost profits or loss
of business, incurred as a result of the Bank's action or failure
to act under this Agreement.
2. REGISTRATION AND LOCATION OF SECURITIES
a. All securities held by the Bank under this Agreement may be
registered and held in the name of the Bank or its agent, or the
nominee name of either;
b. The Bank, in its discretion, is hereby authorized to maintain
portions of the securities in a correspondent bank or banks;
c. The Bank will be responsible for the safekeeping of all
securities registered in nominee or bearer form and held by other
banking institutions at the Bank's request;
d. The Bank is further authorized to use the Federal Reserve book-
entry system and the facilities of a qualified central depository
for all or any portion of the Owner's securities;
e. Notwithstanding anything herein to the contrary, at all times the
Owner shall remain beneficial owner of the securities, and the
securities shall be held separate and apart from the Bank's own
assets.
3. AUTHORIZED REPRESENTATIVES
a. The Bank may act under this Agreement, without liability, upon
written instructions given by an authorized representative
designated on Attachment C or any amendment thereto, or upon oral
instructions received by the Bank from an individual purporting
to be an authorized representative of the Owner, without further
confirmation of the sender's identity or authority;
b. The Owner assumes all risk and responsibility for any action
taken by the Bank in good faith reliance on such instructions,
including the obligation to institute and participate in any
related legal proceeding. Not withstanding the above owner
assumes and shall have no responsibility for any negligent action
taken by the Bank or its agents.
6
<PAGE>
4. AMENDMENT AND TERMINATION
a. This Agreement may be amended in writing at any time as mutually
agreed upon by the parties and may be terminated upon thirty
days' prior written notice by either party;
b. Upon termination, all assets held under this Agreement shall be
delivered as the Owner designates in writing; provided all fees
and expenses due the Bank shall have been paid to it, and the
Owner or the Owner's agent shall have executed a receipt for
delivery of the Owner's assets.
5. SITUS AND ENFORCEABILITY
a. This Agreement and its attachments constitutes the entire
Agreement between the parties, shall be binding on and inure to
the benefit of the successors of each party, shall be governed by
Virginia law and may be executed in more than one counterpart,
each of which shall be deemed to be an original;
b. The parties acknowledge that all corporate action necessary to
enter into this Agreement has been duly taken;
c. No failure or delay by either party hereunder shall operate as a
waiver of a right, power or privilege, nor shall any single or
partial exercise of such right, power or privilege;
d. The finding that any provision of this Agreement is void or
unenforceable shall not affect the validity or enforceability of
the remaining provisions hereof.
6. NOTICES
a. All notices shall be given by personal delivery or by first class
mail, to the Owner's address of record least on file with the
Bank or to the Bank's last known address, as the case may be.
7. ADDITIONAL SERVICES
a. If, at any time during the term of this Agreement, a separate
agreement related to the Owner's Custody Service Account is
executed by the Bank and the Owner, including but not limited to
a Securities Lending Agreement and an On-Line Access Agreement,
such agreement shall become an attachment hereto and shall
thereafter be deemed to be incorporated herein by reference;
b. To the extent this Agreement may contain provisions that conflict
with the provisions of the incorporated agreement, the
incorporated agreement shall be controlling.
7
<PAGE>
8. ASSIGNABILITY
a. This Agreement shall not be assigned or transferred by either
party without the prior written consent of the other party,
except that either party may assign its rights, duties and
obligations hereunder without such consent to any parent,
subsidiary or affiliate corporation.
WITNESS the following signatures:
CRESTAR BANK, N.A.
By: /s/------------------------
-----------------------------------------
Date: April 11, 1996
-----------------------------------------
STEADMAN ASSOCIATED FUND
By: /s/ Max Katcher
-----------------------------------------
Title: Treasurer
-----------------------------------------
Date: April 11, 1996
-----------------------------------------
8
<PAGE>
ATTACHMENT A
SCHEDULE OF INCOME COLLECTION
The following sets forth the responsibilities of the Bank to the Owner with
respect to the collection and crediting of income accrued and paid on the
Securities.
All income accrued and paid on Securities of Owner will be credited, except as
noted below, to the Custody Service Account on payable date. The following
exceptions are agreed:
a. All mortgage-backed securities credited on payable date plus two (2)
days.
b. All floating rate obligations credited on receipt date plus two (2)
days.
c. All income on private placements credited on receipt date plus one (1)
day.
d. All income on receivable backed issues credited on receipt plus two
(2) days.
SCHEDULE OF PRINCIPAL COLLECTION
The following sets forth the responsibilities of the Bank to the Owner with
respect to the collection and crediting of principal of called, tendered, or
matured securities:
a. Proceeds of matured and called securities will be credited on payable
date.
b. Proceeds of tendered (put) securities will be credited on receipt date
plus two (2) days.
c. Proceeds of periodic payments of mortgage-backed securities will be
credited on payable date plus two (2) days.
9
<PAGE>
ATTACHMENT B
INVESTMENT ADVISOR DESIGNATION
In accordance with Paragraph B-5 of the Custody Service Agreement dated
______________ 19__, the Owner hereby appoints________________________ and
________________________ as the authorized Investment Advisors for the
Owner's Custody Service Account. This appointment will allow representatives
of the advisor to act as designated agents for the Owner until their authority
is rescinded in writing.
STEADMAN ASSOCIATED FUND
By:
-----------------------------------------
Title:
-----------------------------------------
Date:
-----------------------------------------
10
<PAGE>
ATTACHMENT C
AUTHORIZED REPRESENTATIVES
In accordance with Paragraph C-3 of the attached Custody Service Agreement
dated April 11 , 1996, we as individual owners, or as authorized officers of
the corporate owner of securities, hereby appoint the following individuals
as our designated representatives and authorize each of them to give
directions to Crestar Bank, N.A. regarding the Owner's assets, and to receive
information on our behalf:
Charles W. Steadman
- -------------------------------------------------------------------------------
Max Katcher
- -------------------------------------------------------------------------------
E. Jean Bellosi
- -------------------------------------------------------------------------------
Kathleen S. Styers
- -------------------------------------------------------------------------------
Crestar Bank, N.A. is authorized to accept directions from and provide
information to any of these persons with respect to our account until we notify
the Bank in writing to the contrary.
STEADMAN ASSOCIATED FUND
By: /s/ Max Katcher
----------------------------------
Title: Treasurer
---------------------------------
Date: April 11, 1996
---------------------------------
11
<PAGE>
EXHIBIT 11.1
Opinion of Manatt, Phelps & Phillips, LLP
as to the legality of the securities being registered
<PAGE>
[LETTERHEAD]
January 28, 1997
Board of Trustees
Steadman Associated Fund
1730 K Street, N.W.
Washington, D.C. 20006
Re: Registration Statement Under the Securities Act of 1933
-------------------------------------------------------
Ladies and Gentlemen:
Pursuant to an Agreement and Plan of Merger dated January 28, 1997 (the
"Agreement"), Steadman American Industry Fund, Steadman Investment Fund, and
Steadman Technology and Growth Fund (collectively, the "Merging Funds") will
merge with and into Steadman Associated Fund, which fund will be renamed
Steadman Security Trust (the "Fund"). We have acted as counsel for the Fund in
connection with the offer to exchange shares of the Merging Funds for shares
(the "Shares") of the Fund being registered by means of a Registration Statement
on Form N-14. Each fund is a common law trust organized under the laws of the
District of Columbia.
We have examined such documents, records, and matters of law as we have
deemed necessary for purposes of this opinion. We have also obtained from
officers of the Fund such advice as we considered necessary for the purposes of
this opinion and insofar as our opinion is based on matters of fact upon which
conclusions of law are expressed, we have relied upon such advice.
Based on the foregoing, we are of the opinion that the Shares of the Fund
covered by the aforesaid Registration Statement will, when issued in accordance
with the terms of the Agreement in exchange for shares of the Merging Funds, be
validly issued, fully paid, and non-assessable Shares of the Fund.
This opinion is given as of the date hereof and we assume no obligation to
advise you of changes that may hereafter be brought to our attention.
Very Truly Yours,
/s/ Manatt, Phelps & Phillips, LLP
Manatt, Phelps & Phillips, LLP
<PAGE>
EXHIBIT 11.2
Consent of Manatt, Phelps & Phillips, LLP
<PAGE>
[LETTERHEAD]
January 31, 1997
Board of Trustees
Steadman Associated Fund
1730 K Street, N.W.
Washington, D.C. 20006
Re: Registration Statement Under the Securities Act of 1933
-------------------------------------------------------
Ladies and Gentlemen:
We hereby consent to the filing of our opinion dated January 28, 1997
regarding the legality of the securities being registered as an exhibit to the
Registration Statement on Form N-14 which is being filed by the Steadman
Associated Fund (the "Fund") in connection with the registration of the shares
of the Fund under the Securities Act of 1933, as amended.
We also hereby consent to the filing of our opinion dated January 28, 1997
regarding the tax consequences of the merger of Steadman American Industry Fund,
Steadman Investment Fund, and Steadman Technology and Growth Fund with and into
the Fund as an exhibit to the aforementioned Registration Statement and to the
reference to our firm in the proxy statement and prospectus related to this
opinion.
Very truly yours,
/s/ Manatt, Phelps & Phillips, LLP
Manatt, Phelps & Phillips, LLP
<PAGE>
EXHIBIT 12.1
Opinion of Manatt, Phelps & Phillips, LLP,
regarding tax matters and consequences
<PAGE>
[LETTERHEAD]
January 28, 1997
Boards of Directors
Steadman American Industry Fund,
Steadman Investment Fund,
Steadman Technology and Growth Fund, and
Steadman Associated Fund
1730 K Street, N.W.
Washington, D.C. 20006
RE: CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE
MERGERS OF STEADMAN AMERICAN INDUSTRY FUND,
STEADMAN INVESTMENT FUND, AND STEADMAN TECHNOLOGY
AND GROWTH FUND WITH AND INTO STEADMAN ASSOCIATED
FUND AND CERTAIN RELATED TRANSACTIONS
------------------------------------------------------------
Ladies and Gentlemen:
In accordance with your request, we provide the following analysis and
opinions relating to certain federal income tax consequences of the transactions
whereby Steadman American Industry Fund ("SAIF"), Steadman Investment Fund
("SIF"), and Steadman Technology and Growth Fund ("STGF") will merge with and
into Steadman Associated Fund. Steadman Associated Fund shall be the surviving
entity in these transactions and will change its name to Steadman Security
Trust. Although the aforementioned transactions involve three entity
combinations, they are integrated transactions carried out pursuant to a common
plan and will be referred to for convenience as the "Merger." Prior to the
Merger, Steadman Security Trust will engage in a reverse stock split so that
each five outstanding shares of Steadman Security Trust will become one share of
Steadman Security Trust (the "reverse stock split").
It is our understanding that the operative terms of the Merger and the
reverse stock split are set forth in the Agreement and Plan of Merger dated as
of January 28, 1997, by and among SAIF, SIF, STGF and Steadman Associated Fund
and related documents (the "Agreement") and that certain proxy statement being
filed by the parties to the Merger with the Securities and Exchange Commission
in connection with the Merger on or about the date of this letter, including all
attachments, exhibits and appendices thereto (the "Proxy Statement"). For
purposes of this opinion letter, we assume that all the operative facts and all
material transactions and agreements related to the Merger and the reverse stock
split are and will be as described in the Agreement and
<PAGE>
Board of Directors
January 28, 1997
Page 2
the Proxy Statement. Our opinions are also based upon the facts set forth in
certain written representations to us from SAIF, SIF, STGF and Steadman
Associated Fund in a letter of even date herewith.
The facts contained in the above-referenced documents are incorporated
herein by reference as the operative facts underlying the tax opinions set forth
herein. One of our key assumptions for purposes of this letter is that the
facts set forth in those documents are accurate now and at consummation of the
Merger and the reverse stock split and are otherwise true, complete and correct.
Any change or inaccuracy in such facts may adversely affect our opinions.
We have acted as special counsel to SAIF, SIF, STGF and Steadman
Associated Fund in connection with the Merger and the reverse stock split and
are rendering these opinions at their request. In rendering these opinions, we
have examined such documents, laws, regulations and other legal matters as we
have considered necessary or appropriate for purposes of the opinions expressed
herein. We have not made any independent investigation in rendering these
opinions other than as described herein, nor have we been requested to do so.
Our opinions are based upon the Internal Revenue Code of 1986, as
amended (the "Code"), as of the date hereof and currently applicable Treasury
Regulations promulgated under the Code, published administrative positions of
the Internal Revenue Service ("IRS") in revenue rulings and revenue procedures,
and judicial decisions. Such legal authorities are all subject to change,
either prospectively or retroactively. No assurance can be provided as to the
effect of any such change upon our opinions.
The opinions set forth herein have no binding effect on the IRS or the
courts. No assurance can be given that, if contested, a court would agree with
the opinions set forth herein. The opinions set forth herein represent rather
our best legal judgment as to the likely outcome of the issues addressed herein
if such issues were litigated.
In the case of transactions as complex as the Merger and the reverse
stock split, many federal, state, local and foreign income and other tax
consequences may arise. We have been asked only to address the issues
specifically set forth below concerning the material federal income tax effects
of the Merger and the reverse stock split. No opinion is expressed regarding
any other issues.
This letter is being issued solely for the benefit of SAIF, SIF, STGF
and Steadman Associated Fund and their current shareholders. It may not be
relied upon by any other person without our prior written consent.
<PAGE>
Board of Directors
January 28, 1997
Page 3
Subject to the foregoing, our opinions regarding the Merger and the
reverse stock split are as follows:
The reverse stock split will constitute a recapitalization of Steadman
Associated Fund within the meaning of Section 368(a)(1)(E) of the Code. The
exchange of shares of Steadman Associated Fund for other shares of Steadman
Associated Fund in the reverse stock split will not cause the recognition of
gain or loss to Steadman Associated Fund or its shareholders.
The Merger will not qualify as a tax-deferred reorganization for
federal income tax purposes under Section 368(a) of the Code. The Merger
transaction will be treated for federal income tax purposes as if SAIF, SIF and
STGF transferred all of their assets to Steadman Associated Fund in a taxable
transaction, recognized all of the built-in gains and losses on those assets,
and distributed Steadman Associated Fund shares to their respective shareholders
in liquidation. See Revenue Ruling 69-6, 1969-1 C.B. 104. Capital loss and net
operating loss carryovers of SAIF, SIF and STGF respectively may be utilized to
offset any net gain of those entities recognized in the Merger. Steadman
Associated Fund 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 Steadman Associated Fund 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 Steadman Associated Fund
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 Steadman Associated Fund will survive the
Merger for use in the post-Merger period, but the loss carryforwards of SAIF,
SIF and STGF will not. The Merger will not constitute an "ownership change" for
Steadman Associated Fund within the meaning of Section 382 of the Code.
We believe that the tax discussion in the Proxy Statement accurately
sets forth the material federal income tax consequences of the Merger and the
reverse stock split. We hereby consent to reference to this opinion letter in
the Proxy Statement and the furnishing of a copy of this opinion letter to the
Securities and Exchange Commission in connection with the Proxy Statement.
Very truly yours,
/s/ Manatt, Phelps & Phillips, LLP
Manatt, Phelps & Philips, LLP
<PAGE>
EXHIBIT 12.2
CONSENT OF COOPERS & LYBRAND, L.L.P.
<PAGE>
DISCUSSION DRAFT
For review purposes only
CONSENT OF INDEPENDENT ACCOUNTANTS
----------
To the Board of Trustees of
Steadman Security Trust
We consent to the includion in the Registration Statement of Steadman
Security Trust on Form N-14 (File Number 811-00018) of our reports dated July
29, 1996, except for Steadman Associated Fund which is August 6, 1996, on our
audits of the financial statements and financial highlights of Steadman
Associated Fund, Steadman Investment Fund, Steadman American Industry Fund and
Steadman Technology and Growth Fund which reports are referenced in the
"Condensed Financial Information of the Funds" which is included in the
Registration Statement.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
October 15, 1996
