<PAGE>
As filed with the Securities and Exchange Commission on September 29, 1997
Securities Act File No. 333-20889
Investment Company Act File No. 811-00018
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. 4 Post-Effective Amendment No._______
(Check Appropriate Box of Boxes)
STEADMAN ASSOCIATED FUND
------------------------
(Exact Name of Registration as Specified in its Charter)
(202) 223-1000
------------------------
(Area Code and Telephone Number)
1730 K Street, N.W.
Washington, D.C. 20006
------------------------------------------------------------
(Address of Principal Executive Offices, including Zip Code)
Max Katcher
Steadman Associated Fund
1730 K Street, N.W.
Washington, D.C. 20006
---------------------------------------
(Name and Address of Agent for Service)
Copies to:
Peter R. Gilbert, Esq.
Manatt, Phelps & Phillips, LLP
1501 M Street, N.W., Suite 700
Washington, D.C. 20005
---------------------------------------
(Name and Address of Agent for Service)
Approximate date of proposed public offering: As soon as practicable after
the Registration Statement has been declared effective under the Securities Act
of 1933.
<PAGE>
STEADMAN ASSOCIATED FUND
REGISTRATION STATEMENT ON FORM N-14
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-14 LOCATION IN
ITEM NO. REGISTRATION STATEMENT
- ------------------------------------------------------------- ------------------------------------------------------------
<C> <S>
Part A: Information Required
in Prospectus/ Proxy Statement
1. Beginning of Registration Statement Cover Page; Cross Reference Sheet
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; Exhibit A
5. Information about the Registrant Synopsis; Comparison of Investment
Objectives, Policies and Techniques of the
Funds; Principal Risk Factors; Legal
Proceedings; Miscellaneous.
6. Information about the Company Being Acquired Synopsis; Comparison of Investment
Objectives, Policies and Techniques of the
Funds; Principal Risk Factors;
Miscellaneous.
7. Voting Information Synopsis; Approval of the Merger;
Information concerning the Meetings.
8. Interest of Certain Persons and Experts Not Applicable.
9. Additional Information Required for Not Applicable.
Reoffering by Persons Deemed to be
Underwriters
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
N-14 LOCATION IN
ITEM NO. REGISTRATION STATEMENT
- ------------------------------------------------------------- ------------------------------------------------------------
<C> <S>
Part B: Information Required in
Statement of Additional Information
10. Cover Page Cover Page
11. Table of Contents Item 11. Table of Contents
12. Additional Information about the Item 12. Additional Information about the
Registrant Registrant
13. Additional Information about the Item 13. Additional about the about the
Company Being Acquired. Company Being Acquired.
14. Financial Statements Item 14. Financial Statements
Part C: Other Information
15. Indemnification Item 15. Indemnification
16. Exhibits Item 16. Exhibits
17. Undertakings Item 17. Undertakings
</TABLE>
<PAGE>
STEADMAN AMERICAN INDUSTRY FUND
STEADMAN ASSOCIATED FUND
STEADMAN INVESTMENT FUND
STEADMAN TECHNOLOGY AND GROWTH FUND
SEPTEMBER __, 1997
DEAR SHAREHOLDER:
ENCLOSED IS A PROXY STATEMENT AND PROSPECTUS AND A MORE DETAILED SHAREHOLDER
LETTER CONCERNING THE PROPOSED MERGER OF STEADMAN AMERICAN INDUSTRY FUND
("SAIF"), STEADMAN INVESTMENT FUND ("SIF"), AND STEADMAN TECHNOLOGY AND GROWTH
FUND ("STGF") INTO STEADMAN ASSOCIATED FUND ("SAF"), WHICH WILL BE RENAMED
STEADMAN SECURITY TRUST ("SST")
THE MERGER WILL BE ACCOMPLISHED BY EXCHANGING SAIF, SIF, AND STGF SHARES ON
A PRO RATA BASIS FOR SHARES OF SST. THEREAFTER, FOLLOWING THE APPROVAL OF THE
SST SHAREHOLDERS AT THE MEETING, SST WILL OPERATE AS A SINGLE OPEN-END FUND.
CONSOLIDATION OF THE FOUR FUNDS WILL POTENTIALLY RESULT IN LOWER OPERATING
EXPENSES. A MANAGEMENT ANALYSIS ESTIMATES THAT MERGING THE FOUR FUNDS INTO ONE
FUND SHOULD PERMIT THE FUNDS, WHEN MERGED, TO REDUCE AGGREGATE ANNUAL OPERATING
COSTS FROM ABOUT $1,338,000 TO $700,000. EVEN THOUGH THE MERGER WILL NOT ENSURE
THAT THE COMBINED SST WILL BE PROFITABLE, THE TRUSTEES BELIEVE IT HAS A BETTER
OPPORTUNITY FOR EARNINGS THAN CONTINUING WITH FOUR FUNDS SEPARATELY. THE
TRUSTEES ANTICIPATE THAT AFTER THE MERGER, OPERATING EXPENSES MAY EXCEED INCOME
AND IN ORDER TO OPERATE PROFITABLY, SST WILL HAVE TO RELY UPON CAPITAL
APPRECIATION, IF ANY.
POSSIBLE REDUCTION IN FUND SIZE--THE COMBINED ASSETS OF THE FUNDS MAY
CONTINUE TO SHRINK AFTER THE MERGER BECAUSE THE TRUSTEES ANTICIPATE THAT SST'S
OPERATING EXPENSES MAY EXCEED SST'S INCOME. IN ADDITION, SHOULD SHAREHOLDERS
INCREASE THE AMOUNT OF REQUESTS TO REDEEM SHARES ABSENT THE SALE OF NEW SHARES,
THE NET ASSETS OF SST MAY CONTINUE TO SHRINK. SHOULD THE NET ASSETS OF SST
BECOME TOO SMALL TO SUSTAIN SST, THE FUND MAY HAVE TO BE LIQUIDATED.
SHAREHOLDERS WHO DO NOT WISH TO PARTICIPATE IN THE MERGER CAN EITHER REDEEM
THEIR SHARES OR VOTE "NO" ON THE ENCLOSED PROXY.
THE TRUSTEES OF EACH OF THE FOUR FUNDS UNANIMOUSLY RECOMMEND SHAREHOLDER
APPROVAL OF THIS MERGER PROPOSAL AND THE RATIFICATION OF THE SELECTION OF
REZNICK FEDDER & SILVERMAN, P.C. TO SERVE AS INDEPENDENT AUDITORS TO EXAMINE THE
FINANCIAL STATEMENTS OF EACH OF THE FUNDS FOR THE CURRENT FISCAL YEAR AND SST
AFTER COMPLETION OF THE
<PAGE>
MERGER. THE SST TRUSTEES ALSO UNANIMOUSLY RECOMMEND THAT THE SST SHAREHOLDERS
ELECT THE PERSONS NOMINATED TO SERVE AS TRUSTEES, AND RATIFY AND CONFIRM THE
AMENDED AND RESTATED TRUST INDENTURE OF SST INCLUDING CHANGING SST'S
FUNDAMENTAL INVESTMENT POLICY.
PLEASE REVIEW THE ATTACHED MATERIALS CAREFULLY AND RETURN YOUR PROXY AS SOON
AS POSSIBLE.
FOR THE BOARD OF TRUSTEES
OF
STEADMAN AMERICAN INDUSTRY FUND
STEADMAN ASSOCIATED FUND
STEADMAN INVESTMENT FUND
STEADMAN TECHNOLOGY AND GROWTH FUND
Charles W. Steadman
Chairman of the Boards of Trustees
and President
<PAGE>
To the Shareholders of:
STEADMAN AMERICAN INDUSTRY FUND
STEADMAN ASSOCIATED FUND
STEADMAN INVESTMENT FUND
STEADMAN TECHNOLOGY AND GROWTH FUND
September __, 1997
Dear Shareholder:
We are pleased to invite you to the Special Meetings of Shareholders of
Steadman American Industries Fund, Steadman Associated Fund, Steadman Investment
Fund and Steadman Technology and Growth Fund. The meetings are scheduled to be
held on , 1997, at 9:30 a.m., Washington, D.C. time, at Hotel,
Washington, D.C. 2000? (the "Special Meetings").
At the Special Meetings, you will be asked to consider and approve a very
important proposal. Subject to shareholder approval, Steadman American Industry
Fund, Steadman Investment Fund and Steadman Technology and Growth Fund (the
"Merging Funds") will merge into Steadman Associated Fund, which will be renamed
the "Steadman Security Trust" ("SST"). Immediately prior to the Merger, SST will
effect a reverse stock split so that each ten shares of SST will be converted
into one SST share. Shareholders of the Merging Funds will receive shares of SST
on a pro rata basis in exchange for their shares of the Merging Funds.
Possible Reduction in Fund Size--The combined assets of the Funds may
continue to shrink after the merger because the Trustees anticipate that SST's
operating expenses may exceed SST's income. In addition, should shareholders
increase the amount of requests to redeem shares absent the sale of new shares,
the net assets of SST may continue to shrink. Should the net assets of SST
become too small to sustain SST, the Fund may have to be liquidated.
THE REORGANIZATION WILL PROVIDE SHAREHOLDERS WITH POTENTIAL ECONOMIES:
1. Potential Lower Operating Costs. Operating costs of SST on a post-merger
basis will be reduced substantially from the aggregate expense of operating the
Merging Funds and SST separately. The merger will enable SST to use its assets
more effectively. Because of the Merger and the resulting reduction in the
number of shareholder accounts, Fund accounting fees, stock transfer costs, and
other shareholder service expenses will be reduced significantly. Management of
the Funds believes that annual operating costs will be reduced principally in
the following areas: shareholder servicing fees, professional fees, expenses
related to reports to shareholders, computer services and data processing
expenses, and custodian fees. Management estimates that SST's annual operating
expenses will be approximately $700,000 or about $638,000 lower than current
total expenses of the four Funds. The estimated reduction in operating costs
cannot guarantee profitable operation of SST.
2. Expense Ratio. The Trustees expect the pro forma expense ratio of SST
<PAGE>
after the merger to be lower than the expense ratios of the four Funds. There
can be no assurance that reductions in expenses will result in profitable
operations for SST.
3. 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 of 1986, as amended. 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. Based upon the past
performance of the Funds, there is little likelihood that SST will be able to
utilize these tax benefits.
The attached Joint Proxy Statement and Prospectus has been prepared to give
you detailed information about this reorganization.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN YOUR PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE SO THAT YOUR VOTE
WILL BE COUNTED.
We appreciate your continued support and confidence in our funds.
FOR THE BOARDS OF TRUSTEES
OF
STEADMAN AMERICAN INDUSTRY FUND
STEADMAN ASSOCIATED FUND
STEADMAN INVESTMENT FUND
STEADMAN TECHNOLOGY AND GROWTH FUND
Charles W. Steadman
Chairman of the Boards of Trustees
and President
<PAGE>
STEADMAN AMERICAN INDUSTRY FUND
STEADMAN ASSOCIATED FUND
STEADMAN INVESTMENT FUND
STEADMAN TECHNOLOGY AND GROWTH FUND
1730 K Street, N.W.
Washington, D.C. 20006
1-800-424-8570
NOTICE OF SPECIAL MEETINGS OF SHAREHOLDERS
To Be Held , 1997
To the Shareholders:
Notice is hereby given of Special Meetings of the Shareholders of Steadman
American Industry Fund ("SAIF"), Steadman Associated Fund ("SAF"), Steadman
Investment Fund ("SIF") and Steadman Technology and Growth Fund ("STGF"), each
currently an open-end investment company (collectively, the "Funds"). The
meetings will be held at Hotel, Washington, D.C. 2000?, at 9:30 a.m.,
Washington, D.C. time, on , 1997, and any adjournments thereof (the
"Meetings"), for the following purposes:
1. FOR THE SHAREHOLDERS OF ALL OF THE FUNDS:
(a) To consider and act upon a proposal to approve the Agreement and
Plan of Merger dated as of May 2, 1997, as amended ,
1997 (the "Merger Agreement"), by and among SAIF, SAF, SIF and
STGF whereby SAIF, SIF and STGF will merge into SAF (the
"Merger"), which will be renamed Steadman Security Trust ("SST");
and
(b) To consider and act upon a proposal to ratify the selection of
Reznick Fedder & Silverman, P.C. as independent auditors of each
Fund and SST after the Merger.
2. SOLELY FOR THE SHAREHOLDERS OF SAF:
(a) To elect three Trustees for terms of unlimited duration; and
(b) To consider and act upon a proposal to ratify and confirm the
Amended and Restated Trust Indenture of SST as of May 2, 1997,
which provides, among other things, for the change of SST's
fundamental investment policy from primarily capital growth and
secondarily current income to primarily current income and
secondarily to maximize total return.
<PAGE>
Execution of a proxy in the form enclosed also permits the proxy holders to
vote, in their discretion, upon such other matters that may come before the
Meeting or any adjournment thereof. As of the date of mailing, the Trustees of
the Funds are not aware of any other matters that may come before the Meeting.
The Merger is more fully described in the accompanying Proxy Statement and
Prospectus. A copy of the Merger Agreement is attached as Exhibit A thereto.
Shareholders of record of SAIF, SAF, SIF and STGF at the close of business on
, 1997 are entitled to notice of, and to vote at, the Meetings. Please
read the Proxy Statement and Prospectus carefully before telling us, through
your proxy or in person, how you wish your shares to be voted. The Trustees of
each of SAIF, SAF, SIF and STGF unanimously recommend a vote in favor of the
Merger and for ratification of the selection of Reznick Fedder & Silverman, P.C.
as independent auditors to examine the financial statements of each of the Funds
for the current fiscal year and for SST after the completion of the Merger. The
Trustees of SST also unanimously recommend that SST shareholders elect the
persons nominated to serve as Trustees, and ratify and confirm the Amended and
Restated Trust Indenture of SST and the change in SST's fundamental investment
policy.
WE URGE YOU TO SIGN, DATE AND MAIL THE ENCLOSED PROXY PROMPTLY.
BY ORDER OF THE BOARDS OF TRUSTEES,
MAX KATCHER, SECRETARY
September __, 1997
YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES YOU OWN
Please indicate your voting instructions on the enclosed proxy card; please
date and sign the card and return it in the envelope provided. If you sign,
date, and return the proxy card but give no voting instructions, your shares
will be voted "FOR" each applicable proposal noticed above. In order to avoid
the additional expense and delay of further solicitation, we ask your
cooperation in mailing your proxy card promptly so that a quorum may be ensured.
Unless proxy cards submitted by corporations and partnerships are signed by the
appropriate persons as indicated in the voting instructions on the proxy card,
such proxy cards cannot be voted.
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE PROPOSED MERGER
1. What is the Merger?
The Merger proposes to combine four separate funds into a single investment
company, the Steadman Associated Fund ("SAF"), whose name will change to
Steadman Security Trust ("SST").
The number of shares of SST issued to shareholders of SAIF, SIF and STGF
will be determined on the basis of relative net asset values of SST and each of
the other funds. Immediately prior to the merger, SST will declare a reverse
stock split of ten to one so that each ten outstanding shares of SST will become
one share of SST. The value of the new 10-to-1 shares of SST issued to
shareholders of the other funds as a result of the Merger will be equal to the
value of shares they held in the other funds on the day before the closing date
of the Merger. Shareholders of SST will continue to hold the same number of
shares before and after the Merger.
2. What are the reasons for the Merger?
After a detailed study of the operations of SAIF, SAF, SIF, and STGF, the
Trustees concluded that the Merger would create substantial cost savings and
other economies and would provide shareholders with important benefits:
A. Potential Lower Operating Costs. Operating costs of SST on a post-merger
basis will be reduced substantially from the aggregate costs of operating four
funds separately. The Merger will enable SST to use its assets more effectively
and increase shareholder value by providing a larger pool of funds for
investment. Because of the Merger and the resulting reduction in the number of
shareholder accounts, Fund accounting fees, stock transfer costs, and other
shareholder service expenses will be reduced significantly. The Trustees believe
that aggregate annual operating costs will be reduced principally in the
following areas: shareholder servicing fees, professional fees, expenses related
to reports to shareholders, computer services and data processing fees, and
custodian fees. Management estimates that SST annual operating expenses will be
about $700,000 or $638,000 lower than total expenses of the current four Funds,
approximately $1,338,000. The estimated reduction in operating expenses cannot
guarantee profitable operation of SST.
B. Expense Ratio. The annual operating expenses for each of the Funds as a
percentage of average net assets at June 30, 1997 were as follows: SAIF-31.07%,
SAF- 12.42%, SIF- 16.47%, and STGF- 41.46%. If the Merger had taken place on
June 30, 1997, the Trustees believe that as a result of anticipated savings, the
pro forma combined expense ratio of SST would have been 11.27% of net assets at
that date. There can be no assurance that reductions in aggregate expenses will
result in profitable operations, and it is anticipated that operating expenses
of SST after the Merger may exceed net operating income of SST before taking
into account capital appreciation, if any.
C. Tax Aspects. The ten to one reverse stock split of SST will be a
recapitalization of SST for federal income tax purposes, but the Merger will not
qualify as a tax-deferred reorganization under the Internal Revenue Code of
1986, as amended (the "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
1
<PAGE>
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 SST shares they
receive in the exchange. For many SAIF, SIF and STGF shareholders, the result
may be a tax loss rather than a tax gain, but each shareholder's gain or loss
calculation must be performed individually and shareholders are encouraged to
consult with their own tax advisor. SAIF, SIF and STGF will be treated for
federal income tax purposes as if they had transferred all of their assets to
SST in a taxable transaction, had recognized all of the built-in gains 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 $5,192,000 of net
operating losses and a maximum of $804,000 of capital loss carryovers will be
available to be used by SST based upon June 30, 1997 financial statements. If
the former holders of SAF represent less than 50% of the total ownership
interests of SST after the Merger, the amount of the above losses which may be
used by SST in any one year will be limited by Section 382 of the Code. In
addition, other transactions subsequent to the Merger could result in a change
in the ownership of SST (combined with the change resulting from the Merger)
that causes the loss limitation rules to apply. Assuming that the Merger
occurred on June 30, 1997 and that the former holders of SAF represent less than
50% of the total ownership interests of SST after the Merger, the amount of the
above net operating losses and capital loss carryovers that could be used in
future periods would be limited to approximately $300,000 annually. Whether
any future events will cause imposition of a restriction in tax loss
utilization for SST cannot be predicted at this point. Based upon the past
performance of the Funds, there is little likelihood that SST will be able to
utilize these tax benefits in full.
3. Who is paying the expenses of the Merger?
Each of the Funds will bear its proportionate share of the expenses of the
Merger of the Funds. It is anticipated that the expenses of the Merger, which
include, but are not limited to, legal and accounting fees and expenses,
printing, postage, and mailing expenses for over 17,000 shareholder accounts,
state blue-sky and SEC filing fees, and expenses relating to electronic filing
with the SEC will approximate $393,000, which will lower the net asset value of
SST by that sum upon consummation of the Merger.
4. Who will serve as Trustees of SST?
Charles W. Steadman, Dr. Paul A. Bowers and Vice Admiral John T. Hayward USN
(Ret.) will continue to serve as Trustees along with Paul F. Wagner, William
Mark Crain and Richard O. Haase, who have been nominated for election at the
shareholders' meeting.
5. Who will serve as Investment Advisor to SST?
Steadman Security Corporation is the current investment advisor to each of
the funds. It will serve as the investment advisor to SST.
2
<PAGE>
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. Will this Merger result in any tax liability to any of the funds or to me
as a shareholder?
The Merger will not qualify as a tax-deferred reorganization for federal
income tax purposes. The transaction will be treated for federal income tax
purposes as if SAIF, SIF and STGF had transferred all of their assets to SST in
a taxable transaction, had recognized all built-in gains and losses on those
assets, and had distributed SST shares to their respective shareholders in
liquidation. The Trustees believe that the capital loss and net operating loss
carryovers of SAIF, SIF and STGF will be sufficient to offset any net gain of
those entities recognized in the Merger. SST and its shareholders will not
recognize any gain or loss as a result of the deemed asset sale. The
shareholders of SAIF, SIF and STGF will be deemed to have exchanged their SAIF,
SIF and STGF shares for SST shares in a taxable transaction. Such shareholders
will recognize gain or loss equal to the difference between their individual tax
bases for the SAIF, SIF and STGF shares surrendered and the fair market value of
SST shares received. Such gain or loss will be capital for shareholders who hold
their SAIF, SIF or STGF shares as capital assets and will be long term or short
term gain or loss depending upon their individual holding periods for the shares
surrendered. For many SAIF, SIF and STGF shareholders, the result may be a tax
loss rather than a tax gain, but each shareholder's gain or loss calculation
must be determined individually.
Shareholders of the funds should consult their tax advisors regarding the
effect, if any, of the Merger in light of their individual circumstances.
Because the foregoing discussion 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.
8. When can I redeem my shares?
Shareholders may redeem their shares in each of the Funds at net asset value
at any time by following Fund procedures. Call 1-800-424-8570 to redeem your
shares or for more information pertaining to the redemption of your shares.
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.
3
<PAGE>
STEADMAN AMERICAN INDUSTRY FUND
STEADMAN ASSOCIATED FUND
STEADMAN INVESTMENT FUND
STEADMAN GROWTH AND TECHNOLOGY FUND
- ------------------------------------------------------------------------------
1730 K Street, N.W. 1-800-424-8570
Washington, D.C. 20006 202-233-1000
PROXY STATEMENT
AND
PROSPECTUS
This Proxy Statement and Prospectus is furnished to shareholders of Steadman
American Industry Fund ("SAIF"), Steadman Associated Fund ("SAF"), Steadman
Investment Fund ("SIF") and Steadman Growth and Technology Fund ("STGF")
(individually referred to herein as "Fund" and collectively referred to as
"Funds") in connection with the solicitation by the Board of Trustees of each of
the Funds ("Trustees") of proxies to be used at Special Shareholders' Meetings.
The meetings will be held at ___________ Hotel, Washington, D.C. 2000? at
9:30 a.m., Washington, D.C. time, on _______________, 1997, as well as any
adjournments thereof (the "Meetings"). Each of the Funds is currently a
non-diversified, registered open-end investment company. This Proxy Statement
and Prospectus will be mailed to shareholders of the Funds on or about
September __, 1997.
At the Meetings, shareholders will be asked to consider and vote upon
approval of the Agreement and Plan of Merger, dated as of May 2, 1997, as
amended ____________, 1997 (the "Merger Agreement"), by and among SAIF, SAF,
SIF and STGF (the "Merger"). The Merger Agreement provides for the merger of
SAIF, SIF and STGF with and into SAF, which will be renamed Steadman Security
Trust ("SST") and with the approval of SST shareholders which will be sought
at the Meeting, SST will change its fundamental investment policy from
primarily capital growth and secondarily current income to primarily current
income and secondarily to maximize total return. As originally drafted, the
Merger Agreement provided as a condition to the closing that SAF would
convert to a closed-end fund. The Trustees of the Funds have amended the
Merger Agreement to remove this condition. As a result of the proposed
Merger, each shareholder of SAIF, SIF and STGF will receive that number of
SST shares equal in value to that shareholder's pro rata interest in the net
assets transferred to SST, as of the Valuation Date (as defined in the Merger
Agreement). The proposed Merger provides that immediately prior to the
effective date of the Merger, SST will effect a reverse split of its shares
so that each ten shares issued and outstanding will be converted to one share
of the Fund. The shareholders of SAF, which will become SST, will continue to
hold the same number of shares before and after the Merger. The reverse stock
split will constitute a tax-free recapitalization of SST, but the Merger will
not qualify as a tax deferred reorganization for federal income tax purposes
for SAIF, SIF, STGF, or their respective shareholders. See "Approval of the
Merger--Tax Aspects of the Merger."
1
<PAGE>
POSSIBLE REDUCTION IN FUND SIZE--THE COMBINED ASSETS OF THE FUNDS MAY
CONTINUE TO SHRINK AFTER THE MERGER BECAUSE THE TRUSTEES ANTICIPATE THAT
SST'S OPERATING EXPENSES MAY EXCEED SST'S INCOME. IN ADDITION, SHOULD
SHAREHOLDERS INCREASE THE AMOUNT OF REQUESTS TO REDEEM SHARES ABSENT THE SALE
OF NEW SHARES, THE NET ASSETS OF SST MAY CONTINUE TO SHRINK. SHOULD THE NET
ASSETS OF SST BECOME TOO SMALL TO SUSTAIN SST, THE FUND MAY HAVE TO BE
LIQUIDATED.
To simplify references herein, SAF in most cases will generally be referred
to as 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 May 2, 1997 ("Trust Indenture").
It is anticipated that operating expenses of SST after the Merger may exceed
net operating income of the Fund before taking into account capital
appreciation, if any.
The primary investment objective of three of the Funds, SAIF, STGF and SST,
is substantially the same--capital growth through the utilization of a broad
range of investment vehicles and techniques including, but not limited to, the
purchase and sale of put and call options. The realization of current income is
secondary to each Fund's efforts in pursuing its goal of capital appreciation.
However, the current primary objective of the fourth Fund, SIF, is to seek
current income, and secondarily to maximize total return but only consistent
with its primary objective. Upon the consummation of the Merger, the new
investment policy of SST will be to seek current income and secondarily to
maximize the total return but only to the extent consistent with the primary
objective. All of the Funds currently employ the same investment management
techniques. See "Investment Objectives and Policies."
In addition, pursuant to the borrowing policy of SAF, SAF may borrow from
banks for investment purposes. This borrowing, which is a speculative technique
known as leveraging, generally will be unsecured, and is subject to the
requirements of the 1940 Act. Following the Merger, the borrowing policy of the
Fund will not change. Open-end investment companies are not permitted to issue
senior securities. For a more detailed discussion of the Fund's borrowing
policy, see "Principal Risk Factors--Borrowing Policy."
SST has filed with the Securities and Exchange Commission (the "SEC") a
Registration Statement on Form N-14 (the "Registration Statement") relating to
the registration of shares of SST to be offered to the shareholders of SAIF, SIF
and STGF pursuant to the Merger Agreement. This Proxy Statement and Prospectus
relating to the Merger also constitutes a Prospectus of SST filed as part of
such Registration Statement. Information contained or incorporated by reference
herein relating to SST has been prepared by and is the responsibility of SST.
Information contained or incorporated by reference herein relating to the SAIF,
SIF or STGF has been prepared by and is the responsibility of the respective
Fund.
This Proxy Statement and Prospectus sets forth certain information about SST
and the other
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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, 1997 for each of the Funds: SAIF, SAF, SIF and STGF.
Investors are advised to read and retain this Proxy Statement and Prospectus
for future reference.
A Statement of Additional Information, dated the date of this Prospectus,
relating to the proposed transactions described in this Proxy Statement and
Prospectus, has been filed with the SEC and is incorporated by reference herein.
Copies of this Statement of Additional Information may be obtained without
charge by contacting Steadman Security Corporation ("SSC") at 1730 K Street,
N.W., Washington, D.C. 20006 or calling SSC toll free at 1-800-424-8570.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This Proxy Statement and Prospectus is dated September __, 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
Tax Consequences of the Merger........................................... 9
Investment Objectives and Policies....................................... 9
Investment Advisory Fee.................................................. 10
Purchases of Shares in the Funds......................................... 10
PRINCIPAL RISK FACTORS.................................................... 10
Performance of the Funds................................................. 10
Redemption by States..................................................... 11
Lack of Shareholder Participation in Certain Governance Matters;
Restrictions on Acquisition............................................. 11
Absence of Dividends..................................................... 12
Investment Management Techniques......................................... 12
Non-Diversified Status................................................... 13
Borrowing Policy......................................................... 13
Operating Costs.......................................................... 14
Utilization of Tax Loss Carry Forwards................................... 14
Non-Qualification of Merger for Tax Deferral............................. 14
Non-Qualification as a Regulated Investment Company for Tax Purposes..... 15
Lack of Ability to Increase Net Assets through Share Sales............... 15
APPROVAL OF THE MERGER.................................................... 15
Background............................................................... 15
The Merger............................................................... 16
Trustee Approval of the Merger........................................... 17
Tax Aspects of the Merger................................................ 19
CAPITALIZATION TABLE (UNAUDITED).......................................... 20
COMPARATIVE FEE TABLES.................................................... 20
Transaction Charges...................................................... 21
Expenses of the Funds; Pro Forma Projected Operating Expenses............ 21
Example.................................................................. 23
PRO FORMA FINANCIAL INFORMATION........................................... 23
FORM OF ORGANIZATION OF THE FUNDS......................................... 30
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COMPARISON OF INVESTMENT OBJECTIVES,
POLICIES AND TECHNIQUES OF THE FUNDS..................................... 30
CONDENSED FINANCIAL INFORMATION
OF THE FUNDS............................................................. 31
SAIF
Management's Discussion of
Performance of the Fund............................................. 36
SAF
Management's Discussion of
Performance of the Fund............................................. 36
SIF
Management's Discussion of
Performance of the Fund............................................. 37
STGF
Management's Discussion of
Performance of the Fund............................................. 38
DESCRIPTION OF CAPITAL STRUCTURE OF THE FUNDS
AND SHAREHOLDER RIGHTS................................................... 43
Special Provisions of SST................................................ 43
Redemption of Shares..................................................... 44
MANAGEMENT OF THE FUNDS................................................... 45
LEGAL PROCEEDINGS......................................................... 46
SELECTION OF INDEPENDENT AUDITORS......................................... 46
ELECTION OF TRUSTEES
OF STEADMAN ASSOCIATED FUND.............................................. 47
Election of Trustees..................................................... 47
Committee and Meetings of Trustees....................................... 48
Interested Persons....................................................... 48
Compensation of Trustees................................................. 48
Officers of SST.......................................................... 49
RATIFICATION OF AMENDED AND RESTATED
TRUST INDENTURE OF STEADMAN SECURITY TRUST............................... 49
INFORMATION CONCERNING THE MEETINGS....................................... 51
The Meetings............................................................. 51
Record Date; Vote Required; Share Information............................ 51
Proxies.................................................................. 52
Costs of the Solicitation and the Reorganization......................... 52
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MISCELLANEOUS............................................................. 52
Financial Information.................................................... 52
Public Information....................................................... 53
OTHER BUSINESS............................................................ 53
PART B: INFORMATION REQUIRED IN A STATEMENT OF
ADDITIONAL INFORMATION................................................... B-1
PART C: OTHER INFORMATION................................................. C-1
Exhibit A--Agreement and Plan of Merger, dated as of May 2, 1997, as amended
____________, 1997, by and among Steadman American Industry Fund,
Steadman Investment Fund, Steadman Growth and Technology Fund and
Steadman Security Trust
Exhibit B--Amended and Restated Trust Indenture of Steadman Security Trust
(formerly, Steadman Associated Fund) and Declaration of Trust with
Amendments through May 2, 1997.
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AGREEMENT AND PLAN OF MERGER
SYNOPSIS
Following is a synopsis of certain information contained in or incorporated
by reference in this Proxy Statement and Prospectus. It presents key
considerations to assist shareholders of SAIF, SAF, SIF and STGF in determining
whether to approve the Merger. This synopsis is only a summary and is qualified
in its entirety by the more detailed information contained in or incorporated by
reference in this Proxy Statement and Prospectus and the Exhibits hereto.
Shareholders should carefully review this Proxy Statement and Prospectus and the
Exhibits hereto in their entirety.
PARTIES TO THE MERGER
Each of the Funds, SAIF, SIF, STGF, and SST, is a common law trust,
domiciled in the District of Columbia. Each is currently a non-diversified
open-end investment company.
THE MERGER
The Merger Agreement provides for the merger of SAIF, SIF and STGF into SAF,
which will be named SST. Each shareholder of SAIF, SIF and STGF will receive
that number of SST shares equal in value to his pro rata interest in the net
assets transferred to SST as of the Valuation Date (as defined in the Merger
Agreement). Cash will be paid in lieu of fractional shares. The Merger Agreement
provides that immediately prior to the effective date of the Merger SST will
effect a reverse stock split so that each ten shares issued and outstanding will
be converted into one share of the Fund.
The Trustees of each Fund, including Trustees who are not "interested
persons" of the Fund (the "Independent Trustees"), as that term is defined in
the 1940 Act, have concluded that the Merger is in the best interests of each of
the Funds and their shareholders. They also believe that the interests of
existing shareholders will not be diluted as a result of the Merger except for
expenses of the Merger, which will be shared proportionately by the Funds. The
Trustees unanimously recommend approval of the Merger by the shareholders of
each Fund.
The Trustees' recommendation is based on the following conclusions:
First, operating costs of the Funds will be reduced substantially from the
aggregate costs of operating the four funds functioning separately. However, it
is anticipated that operating expenses of SST after the Merger may exceed net
operating income of the Fund before taking into account capital appreciation, if
any. The Merger may enable SST to use its assets more effectively and increase
shareholder value by providing a larger pool of funds for investment. Fund
professional fees, stock transfer costs, and other shareholder service expenses
will be reduced significantly. The Trustees believe that aggregate annual
operating costs will be reduced principally in the following areas: shareholder
servicing fees, professional fees, expenses related to reports to shareholders,
computer services and data processing expenses, and custodian fees. Management
of the Funds estimates that SST annual operating expenses will be approximately
$700,000 which is $638,000 lower than total aggregate expenses of the current
four Funds. The estimated reduction in operating
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expenses cannot guarantee profitable operation of SST.
Second, the annual operating expenses for each of the Funds as a
percentage of average net assets at June 30, 1997 were as follows:
SAIF-31.07%, SAF-12.42%, SIF- 16.47% and STGF-41.46%. If the Merger had taken
place on June 30, 1997, the Trustees believe that as a result of anticipated
savings, the pro forma combined expense ratio of SST would have been 11.27%.
There can be no assurance, however, that reductions in expenses will result
in profitable operations, and it is anticipated that operating expenses of
SST after the Merger may exceed net operating income of SST before taking
into account capital appreciation, if any.
Third, the reverse stock split of SST will constitute a recapitalization
of SST, but the Merger will not qualify as a tax-deferred reorganization
under the Internal Revenue Code of 1986, as amended (the "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 SST shares they receive in the
exchange. For many SAIF, SIF and STGF shareholders, the result may be a tax
loss rather than a tax gain, but each shareholder's gain or loss calculation
must be determined individually and shareholders are encouraged to consult
their own tax advisor. SAIF, SIF and STGF will be treated for federal income
tax purposes as if they had transferred all of their assets to SST in a
taxable transaction, had recognized all of the built-in gains and losses on
those assets, and had then liquidated. SAIF, SIF and STGF will be able to
offset any net gain from this deemed asset sale with their respective capital
loss and net operating loss carryovers. The Trustees anticipate that there
will be sufficient loss carryovers to offset any net gain recognized by SAIF,
SIF or STGF in the Merger. SST will not recognize any gain or loss as a
result of the deemed asset sale, nor will its shareholders. Any capital loss
and net operating loss carryovers of SAIF, SIF and STGF not used to offset
their net gain in the Merger will expire. SST, as the surviving single
entity, will be able to utilize its separate tax loss carryforwards against
ordinary income and capital gains to eliminate or reduce SST's post-merger
taxable income. Management estimates that after the Merger, a maximum of
$5,192,000 of net operating losses and a maximum of $804,000 of capital loss
carryovers will be available to be used by SST based upon June 30,1997
financial statements. If the former holders of SAF represent less than 50% of
the total ownership interests of SST after the Merger, the amount of the
above losses which may be used by SST in any one year will be limited by
Section 382 of the Code. In addition, other transactions subsequent to the
Merger could result in a change in the ownership of SST (combined with the
change resulting from the Merger) that causes the loss limitation rules to
apply. Assuming that the Merger occurred on June 30, 1997 and that the former
holders of SAF represent less than 50% of the total ownership interests of
SST after the Merger, the amount of the above net operating losses and
capital loss carryovers that could be used in future periods would be limited
to approximately $300,000 annually. Whether any future events will cause
imposition of a restriction in tax loss utilization for SST cannot be
predicted at this point. Based upon the past performance of the Funds, there
is little likelihood that SST will be able to utilize these tax benefits in
full. 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.
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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 Meetings. The Trustees of each Fund recommend a vote "FOR" the
Merger. See "Information Concerning the Meetings--Record Date; Vote Required;
Share Information."
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 SST shares received. Such gain or loss will be capital for
shareholders who hold their SAIF, SIF or STGF shares as capital assets and will
be long term or short term gain depending upon their individual holding periods
for the shares surrendered. For many SAIF, SIF and STGF shareholders, the result
may be a tax loss rather than a tax gain, but each shareholder's gain or loss
calculation must be performed individually and shareholders are encouraged to
consult with their own tax advisor.
INVESTMENT OBJECTIVES AND POLICIES
Three of the Funds (SAIF, STGF and SST) share a common investment objective,
which is capital growth through the use of a broad range of investment vehicles
and techniques including, but not limited to, purchase and sale of put and call
options. The realization of current income is secondary to each Fund's efforts
in pursuing its goal of capital appreciation. The current primary investment
objective of the fourth Fund, SIF, however, is to seek current income, and
secondarily to maximize total return consistent with its primary objective. Upon
the consummation of the Merger, the new investment objective of SST will be to
seek current income and secondarily to maximize the total return but only to the
extent consistent with its primary objective. All of the Funds employ the same
investment management techniques. For a discussion of the changes in the
investment portfolio as a result of the change in investment policy, see
"Ratification of Amended and Restated Trust Indenture of Steadman Security
Trust."
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."
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INVESTMENT ADVISORY FEE
Each Fund obtains investment management services from the same investment
advisor, SSC, pursuant to substantially similar investment advisory agreements.
A management fee is payable to the investment advisor monthly and is computed on
the net asset value of the Fund. Each Fund pays a management fee at the annual
rate of 1% of the first $35 million of net assets, 0.875% of the next $35
million and $0.75% on all assets more than $70 million. Upon effectiveness of
the Merger, SSC will continue to provide investment advisory services to SST
pursuant to its existing Investment Advisory Agreement.
None of the Funds has a separate service and/or distribution plan pursuant
to Rule 12b-1 under the 1940 Act.
PURCHASES OF SHARES IN THE FUNDS
SAIF, SIF and STGF have not accepted new subscriptions for shares since May,
1988. Shares of SAF were available for purchase under a Prospectus dated
January, 1996 through October 31, 1996. The Trustees of SST intend to explore
the possibility of adopting a new plan of distribution to offer new shares after
the Merger. Should SST decide to undertake the sale of new shares, SST will
incur addition costs to keep Fund securities registered for sale 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 states in
which the Fund determines to sell. No assurance can be given that SST will offer
new shares, or that if offered, SST will be able to sell new shares.
PRINCIPAL RISK FACTORS
In evaluating whether to approve the Merger, shareholders should carefully
consider the following summary of risk factors relating to SST in addition to
the other information set forth in this Proxy Statement and Prospectus.
PERFORMANCE OF THE FUNDS
The historical performance of each of the Funds during the past ten years
has been substantially less than the performance of the Standard & Poor's 500
Stock Index for the same period. (See "Management's Discussion of Performance of
the Funds").
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The following table shows performance of each Fund (which does not include
reinvestment of distributions).
PER SHARE PERCENTAGE
NET ASSET INCREASE
FUND BEGINNING DATE PRICE ENDING DATE VALUE (DECREASE)
- ---- -------------- ----- ----------- --------- ----------
[S] [C] [C] [C] [C] [C]
SAIF 2/1/86 $2.89 06/30/97 $0.72 (75.0%)
SAF 10/1/86 $0.82 06/30/97 $0.76 (7.3%)
SIF 1/1/86 $1.46 06/30/97 $0.85 (41.8%)
STGF 1/1/86 $5.06 06/30/97 $0.68 (86.6%)
From January 1, 1986, through June 30, 1997, the Standard & Poor's 500 Stock
Index increased by 341% from 202.83 to 895.20 (which does not include the
reinvestment of dividends). Except for (a) SAF which paid a dividend in 1986,
1987, and 1989 and made a capital distribution in 1988 and (b) SIF which paid a
dividend in 1988, none of the Funds paid dividends or made distributions to
shareholders during those years. There can be no assurance that as a result of
the Merger, performance of SST will differ from past performance of the Funds.
For comparisons of financial information after the Merger, the historical
financial information of SIF will be used as SIF will be deemed the surviving
Fund for accounting purposes.
REDEMPTION BY STATES
In 1993, the Funds entered into a Settlement Agreement with approximately 47
states with respect to the recovery of shares and distributions owned by persons
who had allegedly abandoned these properties. The Settlement Agreement provides
among other things, that forty-three of these jurisdictions ("Shareholder
States") will not request redemption of their shares until February 14, 1998.
The Shareholder States currently own shares in the Funds, which have a net asset
value of approximately $1 million. The Shareholder States are represented by the
Unclaimed Property Clearing House ("UPCH"). In July 1997, at the request of the
UPCH, the Funds unconditionally agreed to remove the restriction on the
redemption of shares and to redeem prior to the Merger all of the shares of the
Funds owned by the Shareholder States upon their request. The Shareholder States
do not have any rights, priorities, or preferences regarding redemption of Fund
shares that differ from any other shareholder of the Funds. If all the
Shareholder States redeem all of their shares, the net asset value of SST after
the Merger would be reduced by approximately $1 million. This reduction in net
assets, absent an corresponding reduction in expenses, would result in an
increase in the expense ratio of the Fund.
Lack of Shareholder Participation in Certain Governance Matters; Restrictions
on Acquisition
Certain existing provisions of the Amended and Restated SST Trust Indenture
help maintain the continuity and stability of the Fund. An existing provision of
the trust indenture of SAF permits the Trustees to not issue shares to a person
if such issuance would cause the
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person to become an "affiliated person" of the Fund within the meaning of
Section 2 of the 1940 Act. This provision generally gives the Trustees the
ability to limit the amount of SAF shares owned at any one time by any one
person to 5% of SAF shares. The Amended and Restated Trust Indenture of SST
retains this provision. Additional provisions include unlimited terms for
trustees, limitations on the ability of shareholders to remove trustees,
limitations on the calling of special meetings, and non-cumulative voting in
the election of trustees. See "Description of Capital Structure of the Funds
and Shareholders Rights--Special Provisions of SST."
These provisions render removal of trustees, management, and the
investment advisor more difficult. The Trustees, however, concluded that
potential benefits of the provisions outweigh possible disadvantages. They
believe such provisions encourage the trustees, management, and the
investment advisor to consider the long-term prospects of the Fund as well as
the short term. Not redeeming your shares prior to the Merger will result in
the above provisions applying to all shareholders should the Merger be
consummated and the Amended and Restated Trust Indenture be approved by
shareholders of SST at the Meeting.
ABSENCE OF DIVIDENDS
SAIF and STGF have not paid a dividend or made a capital distribution for at
least ten years. SAF has not paid a dividend or made a capital distribution
since 1989 and SIF has not paid a dividend or made a capital distribution since
1988. See "Condensed Financial Information of the Funds." Following the Merger
of the Funds, SST does not anticipate paying any cash dividends or distributions
in the foreseeable future.
INVESTMENT MANAGEMENT TECHNIQUES
An investment in SST involves greater risk than an investment in many other
mutual funds because the investment objectives and policies of SST afford
management wide possible latitude in choosing investment vehicles and
techniques. This latitude is greater than that afforded many other investment
companies. Many of the vehicles and techniques--including but not limited to
option activities, investment in foreign securities, borrowing to increase
investment funds, and short-selling--are highly specialized and involve
significant risks. For a full discussion of the risks attendant to particular
investments and techniques, please refer to the Statement of Additional
Information. Use of such techniques may also produce higher (100% or more) than
normal portfolio turn-over which will generate additional brokerage commissions
and expenses for SST. Moreover, SST is not restricted from making investments in
real estate, precious metals, oil and gas limited partnerships, or commodities
and commodities contracts (including futures contracts), all of which are
considered speculative. Currently, SST and two of the Funds, SAIF and STGF,
share the same investment objective and techniques; while SIF's principal
objective is different--to seek current income rather than capital growth--all
four Funds use the same investment techniques. Upon completion of the Merger,
the primary investment objective of SST will change to seek current income and
secondarily to maximize the total return, but only to the extent consistent with
its primary objective. For a discussion of the changes in the investment
portfolio following the Merger as a result of the change in investment policy,
see "Ratification of Amended and Restated Trust Indenture of Steadman Security
Trust."
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NON-DIVERSIFIED STATUS
The classification of SST as a "non-diversified" investment company means
that the proportion of assets of SST that may be invested in securities of a
single issuer is not limited by the 1940 Act. A "diversified investment company"
is required by the Investment Company Act of 1940 generally to invest, with
respect to 75% of its total assets, not more than 5% of such assets in the
securities of a single issuer. Moreover, SST has not elected to conduct its
operations so as to qualify as a "regulated investment company" for purposes of
the Code. Thus, unlike many mutual funds, it is not restricted by certain
diversification requirements imposed by the Code. A relatively high percentage
of SST's assets may be invested in obligations of a limited number of issuers,
some of which may be within the same economic sector. Therefore, SST's portfolio
will be more susceptible to any single economic, political, or regulatory
occurrence than the portfolio securities of a diversified investment company.
BORROWING POLICY
The Fund's borrowing policy will not change as a result of the Merger. SAF's
current borrowing policy is that SAF may borrow from banks for investment
purposes. This borrowing, which is a speculative technique known as leveraging,
generally will be unsecured, except to the extent SAF enters into reverse
repurchase agreements described below. The 1940 Act required SAF to maintain
continuous asset coverage (that is, total assets including borrowings, less
liabilities exclusive of borrowings) of 300% of the amount borrowed. If the 300%
asset coverage should decline as a result of market fluctuations or other
reasons, SAF is required to sell some of its portfolio holdings within three
days to reduce the debt and restore the 300% asset coverage, even though it may
be disadvantageous from an investment standpoint to sell securities at that
time. Leveraging may exaggerate the effect on net asset value of any increase or
decrease in the market value of SAF's portfolio. Money borrowed for leveraging
will be subject to interest costs which may or may not be recovered by
appreciation of the securities purchased. SAF also may be required to maintain
minimum average balances in connection with such borrowing or to pay a
commitment or other fee to maintain a line of credit; either of these
requirements would increase the cost of borrowing over the stated interest rate.
Among the forms of borrowing in which SAF may engage is the entry into
reverse repurchase agreements with members of the New York Stock Exchange (or
subsidiaries thereof), members of the Federal Reserve System, recognized primary
U.S. government securities dealers or institutions which the Adviser has
determined to be of comparable creditworthiness. These transactions involve the
transfer by SAF of an underlying debt instrument in return for cash proceeds
based on a percentage of the value of the security. SAF retains the right to
receive interest and principal payments on the security. At an agreed upon
future date, SAF repurchases the security at principal, plus accrued interest.
In certain types of agreements, there is no agreed-upon repurchase date and
interest payments are calculated daily, often based on the prevailing overnight
repurchase rate. SAF will maintain in a segregated custodial account cash, cash
equivalents or U.S. government securities or other high quality liquid debt
securities at least equal to the aggregate amount of its reverse repurchase
obligations, plus accrued interest, in certain cases, in accordance with
releases promulgated by the Securities and Exchange Commission. The Securities
and Exchange Commission views reverse repurchase transactions as collateralized
borrowings by
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SAF. These agreements, which are treated as if reestablished each day, are
expected to provide SAF with a flexible borrowing tool. As an open-end
investment company, SAF is prohibited from issuing senior securities.
OPERATING COSTS
The Merger will create economies that will substantially reduce operating
costs of the four Funds, but SST will still have a high ratio of expenses to
average net assets relative to other funds because of its small size. It is
anticipated that operating expenses of SST after the Merger may exceed net
operating income of the Fund before taking into account capital appreciation, if
any. The result may be continuing operating losses.
UTILIZATION OF TAX LOSS CARRY FORWARDS
Although SST will be able to use its existing net operating loss and
capital loss carryforwards each year against income earned by SST, there can
be no assurance that sufficient income will be earned to utilize in their
entirety the loss carryforwards which are available, as the ability to use
certain loss carryforwards will expire on specific dates in the future. In
addition, the Merger is not a tax-deferred reorganization for federal income
tax purposes. As a result, the loss carryforwards of SAIF, SIF and STGF will
not be available to offset SST income after the Merger. Management estimates
that after the Merger, a maximum of $5,192,000 of net operating losses and a
maximum of $804,000 of capital loss carryovers will be available to be used
by SST based upon June 30, 1997 financial statements. If the former holders
of SAF represent less than 50% of the total ownership interests of SST after
the Merger, the amount of the above losses which may be used by SST in any
one year will be limited by Section 382 of the Code. In addition, other
transactions subsequent to the Merger could result in a change in the
ownership of SST (combined with the change resulting from the Merger) that
causes the loss limitation rules to apply. Assuming that the Merger occurred
on June 30, 1997 and that the former holders of SAF represent less than 50%
of the total ownership interests of SST after the Merger, the amount of the
above net operating losses and capital loss carryovers that could be used in
future periods would be limited to approximately $300,000 annually. Whether
any future events will cause imposition of a restriction in tax loss
utilization for SST cannot be predicted at this point. Based upon the past
performance of the Funds, there is little likelihood that SST will be able to
utilize these tax benefits in full.
NON-QUALIFICATION OF MERGER FOR TAX DEFERRAL
Shareholders of SAIF, SIF, and STGF will have a fully taxable exchange when
they surrender their shares in exchange for SST shares. Their individual gain or
loss will be measured by the difference between the tax bases of their SAIF, SIF
and STGF shares they surrender and the fair market value of SST shares they
receive. Each shareholder's computation of gain or loss will depend on his
specific circumstances regarding factors such as share basis, holding period,
and income, gain, loss or deductions in the year of the exchange which may be
wholly unrelated to the Merger. Although many SAIF, SIF and STGF shareholders
may recognize tax losses in the exchange, some shareholders may have net income
as a result of the exchange. In addition, if the exchange creates a recognized
capital loss for a shareholder, the shareholder may be subjected to restrictions
on use of that recognized capital loss. Shareholders are encouraged to consult
their own
14
<PAGE>
tax advisor regarding the individual tax consequences of the transactions
described in this Proxy Statement and Prospectus.
Non-Qualification as a Regulated Investment Company for Tax Purposes
SST, the entity surviving the Merger, is not expected to qualify for special
federal income tax rules applicable to electing qualified regulated investment
companies. While this factor permits SST to utilize certain loss carryforwards,
it will not be able to take advantage of certain potentially favorable tax rules
applicable to electing qualified regulated investment companies.
LACK OF ABILITY TO INCREASE NET ASSETS THROUGH SHARE SALES
All of the Funds are currently registered as open-end investment companies
under the 1940 Act. Open-end investment companies issue redeemable securities.
The holders of these securities have the right to surrender, effectively at any
time, all, or any part of their shares in the open-end fund and obtain their
proportionate share of the value of the fund's net assets (sometimes referred to
as the "net asset value") less any redemption fee. This has been the way the
Funds have operated since their inception.
Currently, none of the four Funds continuously offers its shares, even
though continuously offering shares is standard procedure for open-end funds.
Shareholders thereby lose the possible benefit of an expanding pool of money
from the sale of additional shares, which SST as an open-end fund would have to
invest. As a practical matter, however, SST has no principal underwriter. It
does not, and has not, actively marketed its securities over the past several
years, and infrequently sold new shares. The Trustees of SST intend to explore
the possibility of adopting a new plan of distribution to offer new shares after
the Merger. Should SST decide to undertake the sale of new shares, SST will
incur addition costs to keep Fund securities registered for sale 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 states in
which the Fund determines to sell. No assurance can be given that SST will offer
new shares, or that if offered, SST will be able to sell new shares.
Currently, the investment base of the Funds is generally static although the
Funds frequently receive requests for small redemptions. Should shareholders
increase the amount of requests to redeem shares after the Merger, and should
SST be unable to sell new shares, the net assets of SST may continue to shrink.
Should the net assets of SST become too small to sustain SST, the Fund may have
to be liquidated.
15
<PAGE>
APPROVAL OF THE MERGER
PROPOSAL NO. 1
(TO BE VOTED ON BY SHAREHOLDERS OF ALL FUNDS)
BACKGROUND
The Trustees of the Funds reviewed operations of each Fund with a view to
determining how best to reduce costs of operation, increase asset value and
enhance investment opportunities while preserving the investment objectives of
the Funds. The Trustees concluded that it has become increasingly difficult for
small funds to compete, especially because of operating costs which must be
incurred by each Fund. Among other things, the Trustees concluded that by
merging the Funds into a single fund, SST, significant economies of scale can be
achieved to reduce costs.
Accordingly, the Trustees unanimously recommend that shareholders approve
the Merger as set forth in the Merger Agreement. This Agreement provides, among
other things, that the shareholders of each of the Funds must approve the
Merger. If the Merger is not approved, the Trustees will take such further
action as they, in their discretion, deem necessary or advisable.
THE MERGER
The following summary of the Merger Agreement is qualified in its entirety
by reference to the Merger Agreement, a copy of which is set forth in full as
Exhibit A to this Proxy Statement and Prospectus. The Merger Agreement
contemplates a reorganization whereby SIF, SAIF and STGF (the "Merging Funds")
will merge into SST, and SST will survive the Merger.
Shareholders of the Merging Funds will receive shares of SST determined by
dividing the net asset value of each of the Merging Fund's shares by the net
asset value of SST's shares as of the Valuation Date, which is defined in the
Merger Agreement as the business day preceding the Closing Date. In addition, on
the Valuation Date, SST will effect a reverse split so that each ten issued and
outstanding shares of SST will become one share.
The Merger will be effective ten days after all shareholder and regulatory
approvals have been received by the Funds. The Amended and Restated Trust
Indenture of SST will be the Trust Indenture of the surviving Fund, and the
Trustees of SST will be the Trustees of the surviving Fund.
The consummation of the Merger is subject to conditions set forth in the
Merger Agreement. Without limitation, the conditions include approval of the
Merger by shareholders of the Merging Funds and of SST, and ratification by
shareholders of SST of the Restated and Amended Trust Indenture of SST, which
provides for the change in the investment policy of SST.
Notwithstanding approvals of shareholders of the Funds, the Merger may be
terminated at any time prior to the Closing: (a) by the mutual written consent
of all of the Funds, or (b) by either SST 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
16
<PAGE>
Merging Funds, respectively, materially breaches or shall have breached any
of its representations, warranties or covenants contained in the Merger
Agreement, or (iii) any other condition precedent to the obligations of the
terminating party has not been met and it reasonably appears that it will not
or cannot be met.
Termination of the Merger Agreement will end all obligations of the parties
thereto without liability except that any party in breach of the Merger
Agreement, upon demand, will reimburse the other party for all reasonable
out-of-pocket fees and expenses incurred in connection with the transactions
contemplated by the Merger Agreement, including legal, accounting and filing
fees.
Approval of the Merger will require the vote specified below in "Information
Concerning the Meetings--Record Date; Vote Required; Share Information." If the
Merger is not approved by the shareholders of the Funds, the Trustees of the
Funds will consider other possible courses of action.
TRUSTEE APPROVAL OF THE MERGER
At meetings held on May 2, 1997, the Trustees of SAIF, SAF, SIF and STGF,
including the Independent Trustees, unanimously approved the Merger and the
Merger Agreement, determined that the Merger is in the best interests of each of
the Funds and their shareholders, and resolved to recommend that shareholders
vote for approval of the Merger. The Trustees of SAF further resolved to change
the Fund's name to Steadman Security Trust upon the Merger, to change SST's
fundamental investment policy from primarily capital growth and secondarily
current income to primarily current income, and secondarily to maximize total
return, and to recommend the latter changes to the shareholders of SST for their
approval. The Trustees further determined that the Merger would not result in
dilution of any shareholders' interest in any Fund.
In evaluating the Merger, the Trustees requested and reviewed materials
which included financial statements as well as other written information
regarding each of the Funds and their personnel, operations, and financial
condition. The Trustees also considered information with respect to the relative
historical performance of the Funds. In addition, the Trustees reviewed and
discussed the terms and provisions of the investment advisory agreements
pursuant to which SSC provides investment management services to the Funds.
In making their determination to approve the Merger, the Trustees of the
Funds gave careful consideration to the following factors: the investment
objective of each of the Funds; the cost savings to each of the Funds; the
ability to use the resources of the Funds more effectively; the potential for
increasing shareholder value; the potential for increasing the return on
investments; the terms and conditions of the Merger Agreement; and the fact that
the Merger will not qualify as a tax-deferred reorganization under the Code.
Also, the Merger would afford the shareholders of SST the continued capabilities
and resources of SSC in investment management and shareholder servicing.
A. Potential Lower Operating Costs. Operating costs of SST on a post-merger
basis will be substantially reduced from the aggregate cost of operating the
four funds separately. The Merger will enable SST to use its assets more
effectively to increase shareholder value by providing a larger pool of funds
for investment. Because of the Merger and the resulting reduction in the number
of shareholders' accounts, Fund accounting fees, stock transfer costs, and
17
<PAGE>
other shareholder service expenses will be significantly reduced. 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
$1,338,000 for the year ended June 30, 1997, would be reduced to
approximately $700,000 if the Merger had taken place June 30, 1997. These
savings will be achieved principally in the following areas: shareholder
servicing fees, professional fees, expenses related to reports to
shareholders, computer services and data processing expenses, and custodian
fees. Reduced expenses will, however, not necessarily result in profitable
operations for SST. See "Comparative Fee Tables--Expenses of the Funds; Pro
Forma Expenses." Furthermore, due to the size of SST after the Merger, and
the anticipated portfolio income, SST may continue to suffer operating losses
and will need to rely upon capital appreciation of its portfolio securities
to be profitable. There is no assurance that the portfolio securities will
have capital appreciation in a sufficient amount to offset any operating
losses, if the portfolio securities have any capital appreciation at all.
B. Investment Policy. Three of the Funds have as their stated investment
policy the same objective: primarily capital appreciation. The fourth Fund, SIF,
has the primary investment objective of current income. The net assets of the
four constituent funds, as of June 30, 1997, ranged from approximately $348,000
(STGF) to $976,000 (SAIF) to $1,634,000 (SIF) and $4,397,000 (SAF). By combining
these resources in a single fund with pro forma net assets at June 30, 1997 of
$6,264,560 (assuming redemptions by the Shareholder States) and changing SST's
primary investment objective from capital appreciation to current income, the
Trustees believe that the shareholders will benefit from the greater resources
available to enable a wider range of investment and greater flexibility in
managing this portfolio.
C. Federal Tax Aspects. The reverse stock split of SST will constitute a
recapitalization of SST, but the Merger will not qualify as a tax-deferred
reorganization for federal income tax purposes. SST and its shareholders will
not recognize gain or loss as a result of the exchange of SST shares for SST
shares in the reverse stock split. The Merger transaction will be treated for
federal income tax purposes as if SAIF, SIF and STGF had transferred all of
their assets to SST in a taxable transaction, had recognized all of the built-in
gains and losses on those assets, and had distributed SST shares to their
respective shareholders in liquidation. The Trustees believe that the capital
loss and net operating loss carryovers of SAIF, SIF and STGF will be sufficient
to offset any net gain of those entities recognized in the Merger. The loss
carryforwards of SAIF, SIF and STGF not utilized in the Merger will expire, but
SST, as the surviving single entity, will be able to utilize its separate tax
loss carryforwards after the Merger. Based upon the past performance of the
Funds, there is little likelihood that SST will be able to utilize these tax
benefits. SST and its shareholders will not recognize any gain or loss as a
result of the deemed asset sale and liquidation. The shareholders of SAIF, SIF
and STGF will be deemed to have exchanged their SAIF, SIF and STGF shares for
SST shares in a taxable transaction. Such shareholders will recognize gain or
loss equal to the difference between their individual tax bases for the SAIF,
SIF and STGF shares surrendered and the fair market value of SST shares
received. Such gain or loss will be capital for shareholders who hold their
SAIF, SIF or STGF shares as capital assets and will be long term or short term
gain or loss depending upon their individual holding periods for the shares
surrendered. For many SAIF, SIF and STGF shareholders, the result may be a tax
loss rather than tax gain, but each shareholder's gain or loss calculation must
be performed individually and shareholders are encouraged to consult their own
tax advisor.
18
<PAGE>
Based upon the foregoing considerations, the Trustees of each of the Funds,
including the Independent Trustees, unanimously approved the Merger. They
determined that the Merger is in the best interests of each of the Funds and
their shareholders. The Trustees further determined that the Merger would not
result in dilution of any shareholders' interest, and that because of 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 potential federal income tax
consequences or consequences that are contingent upon individual circumstances,
such as the taxpayer being subject to certain special provisions of the Code.
This discussion does not address any aspects of state, local, or foreign tax
laws or any federal tax laws other than those pertaining to income tax.
None of the Funds has requested a ruling from the Internal Revenue
Service (the "Service") with respect to any of the matters discussed in this
summary. It is unlikely that the Service would be willing to issue a ruling
regarding the Merger. However, the Funds have received an opinion letter from
Manatt, Phelps & Phillips, LLP, as "Tax Counsel" regarding certain material
federal income tax consequences of the Merger. This summary, however, is not
an opinion of Tax Counsel or tax advice and does not in any way constitute an
assurance that the federal income tax consequences discussed herein will be
accepted by the Service or the courts.
The opinion of Tax Counsel provides that the reverse stock split of SST will
constitute a recapitalization of SST, but the Merger will not qualify as a
tax-deferred reorganization for federal income tax purposes. SST and its
shareholders will not recognize gain or loss as a result of the exchange of SST
shares for SST shares in the reverse stock split. The Merger transaction will be
treated for federal income tax purposes as if SAIF, SIF and STGF had transferred
all of their assets to SST in a taxable transaction, had recognized all of the
built-in gains and losses on those assets, and had distributed SST shares to
their respective shareholders in liquidation. Capital loss and net operating
loss carryovers of SAIF, SIF and STGF may be utilized to offset any net gain of
those entities recognized in the Merger. SST and its shareholders will not
recognize any gain or loss as a result of the deemed asset sale and liquidation.
The shareholders of SAIF, SIF and STGF will be deemed to have exchanged their
SAIF, SIF and STGF shares for SST shares in a taxable transaction. Such
shareholders will recognize gain or loss equal to the difference between their
individual tax bases for the SAIF, SIF and STGF shares surrendered and the fair
market value of SST shares received. Such gain or loss will be capital for
shareholders who hold their SAIF, SIF or STGF shares as capital assets and will
be long term or short term gain or loss depending upon their individual holding
periods for the shares surrendered. The loss carryforwards of SST will survive
the Merger for use in the post-Merger period, but the loss carryforwards of
SAIF, SIF and STGF will not. If the former holders of SAF represent less than
50% of the total ownership interests of SST after the Merger, the amount of the
above losses that may be used by SST in any one year will be limited. In
addition, other transactions subsequent to the Merger could result in a change
in ownership of SST (combined with the change resulting from the Merger) that
causes the loss limitation rules to apply. Whether any future events will cause
imposition of a restriction in tax loss utilization for SST cannot
19
<PAGE>
be predicted at this point. Based on certain representations to Tax Counsel,
the Merger itself will not constitute an "ownership change" for SST within
the meaning of Section 382 of the Code.
The foregoing discussion of the expected federal income tax consequences of
the Merger and the opinion of Tax Counsel are based on current authorities. The
opinion of Tax Counsel has no binding effect or official status, and no
assurance can be given that the conclusions reached in the opinion would be
sustained by a court if contested by the Service. There is no assurance that
legislative or administrative changes or court decisions may not be forthcoming
that would significantly change these expected consequences. Any such changes
may or may not be retroactive with respect to transactions prior to the date of
those changes. The opinion of Tax Counsel is also based on certain factual
assumptions and factual representations to Tax Counsel by the Funds. The opinion
of Tax Counsel could change if such assumptions and representations proved to be
inaccurate.
THE SUMMARY FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY. IT DOES NOT CONSTITUTE TAX ADVICE OR AN OPINION OF TAX
COUNSEL. EACH SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE
SPECIFIC TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT AND THE MERGER APPLICABLE
TO HIM OR HER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND
OTHER TAX LAWS.
20
<PAGE>
CAPITALIZATION TABLE (UNAUDITED)
The table below sets forth the capitalization of the Funds and indicates the
pro forma combined capitalization of SST as of June 30, 1997 as if the Merger
had occurred on that date, the reverse split of ten for one had taken place, and
all shares held by the Shareholder States had been redeemed.
<TABLE>
<CAPTION>
SHARES SHARES
OUTSTANDING OUTSTANDING NET ASSET
BEFORE AFTER VALUE
NET ASSETS MERGER MERGER PER SHARE
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SAIF..................................................... $ 976,097 1,346,814 N/A $ 0.72
SAF...................................................... 4,396,984 5,768,032 N/A 0.76
SIF...................................................... 1,633,890 1,928,494 N/A 0.85
STGF..................................................... 348,158 510,386 N/A 0.68
SST Pro Forma(1)(2)...................................... 6,264,560 N/A 772,392 8.11
</TABLE>
- ------------------------
(1) Gives effect to the redemption of approximately $1.0 million of shares by
the Shareholder States.
(2) Gives effect to the 10 to 1 reverse stock split. At June 30, 1997, 100,565
shares, 453,395 shares, 180,199 shares, and 38,223 shares of SST would have
been issued to the holders of shares of SAIF, SAF, SIF, and STGF,
respectively, as a result of the Merger.
COMPARATIVE FEE TABLES
TRANSACTION CHARGES
Because each Fund is a no-load fund, shareholders are not required to pay
any sales charges or other fees in connection with the purchase of shares in any
of the Funds. Moreover, because there is no current Prospectus available for
SAIF, SIF or STGF, shares in these funds have not been offered or sold to the
public since May, 1988. Shares of SAF were available for purchase under a
Prospectus dated January 1, 1996 through October 31, 1996.
EXPENSES OF THE FUNDS; PRO FORMA PROJECTED OPERATING EXPENSES
The Funds each pay a variety of expenses directly for management of their
assets, administration, distribution of their shares and other services; and
those expenses are reflected in the net asset value per share of each Fund. The
following calculations are based on the expenses of each Fund for the year ended
June 30, 1997. These amounts are shown as a percentage of the average net assets
of each Fund for such periods.
21
<PAGE>
PRO FORMA FEE TABLE FOR SHAREHOLDERS
OF SAIF, SAF, SIF AND STGF
AS OF JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
FOR
SAIF SAF SIF STGF SST
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses............... -0- -0- -0- -0- -0-
Investment Advisory Fees....................... 1.00% 1.00% 1.00% 1.00% 1.00%
Custodian Fees................................. 0.20% 0.14% 0.12% 0.30% 0.06%
Miscellaneous.................................. 0.86% 0.51% 0.57% 1.71% 0.78%
Annual Fund Operating Expenses (as a percentage
of average net assets at June 30, 1997)...... 31.07% 12.42% 16.47% 41.46% 11.27%(1)
Merger Expenses................................ $ 34,493 $ 164,490 $ 54,392 $ 12,515 N/A
---------- ---------- ---------- ---------- -----------
---------- ---------- ---------- ---------- -----------
Total Annual Operating Expenses................ $ 325,398 $ 561,692 $ 280,048 $ 171,210 $ 700,238(1)
---------- ---------- ---------- ---------- -----------
---------- ---------- ---------- ---------- -----------
</TABLE>
- ------------------------
(1) Excludes expenses relating to the Merger.
Based on management's analysis, the Trustees believe that the principal
aggregate operating expenses of the four Funds, which totaled approximately
$1,338,000 for the year ended June 30, 1997, would have been reduced by $638,000
to about $700,000 if the Merger had taken place on that date (excluding expenses
related to the Merger). The pro forma statement of SST is based on the following
assumptions: (1) assets of SST post-Merger are $6.3 million due to (a)
Shareholder States, which currently hold approximately $1.0 million of shares,
redeeming all shares then held and (b) the payment of cash in lieu of fractional
shares as a result of the 10 for 1 reverse stock split and no other shareholders
receiving cash in lieu of fractional shares resulting in a total reduction in
assets of SST of $40,000; (2) no other shareholders redeem their shares prior to
the Merger; (3) as a result of the decrease in the number of shareholder
accounts from a pre-merger total of approximately 17,000 accounts to a
post-Merger total of approximately 10,000 accounts, annual shareholder servicing
fees, which include record management and transfer services, will be reduced
from an aggregate pre-Merger total of $302,006 to a post-Merger total of
$186,423, resulting in annual savings of $115,583; (5) salaries and employment
benefits will be reduced from an aggregate pre-Merger total of $338,098 to a
post-Merger total of $275,000, resulting in savings of $63,098 because fewer
employees will be needed after the Merger; (6) professional fees (not including
professional fees incurred as a result of the Merger) were reduced from an
aggregate pre-Merger total of $169,400 to a post-Merger total of $30,000 based
upon anticipated needs for accounting, legal, and other professional services,
resulting in savings of $139,400; (7) the expense of preparing, printing, and
mailing reports to shareholders (including annual reports and semi-annual
reports) will be reduced from a pre-Merger total of $33,649 to a post-Merger
total $8,000, resulting in savings of $25,649 due to the reduction in the number
of shareholder accounts; (7) the expense for computer services, including
outside data processing services, will be reduced from an aggregate pre-Merger
total of $16,776 to a post-Merger total of $16,000 resulting in a savings of
$776 due to the decrease in the number of shareholder accounts and the absence
of a need to
22
<PAGE>
calculate net asset value on a daily basis; (8) rental expense, which is
reimbursed to SSC, will be reduced from an aggregate pre-Merger total of $53,039
to a post-Merger total of $25,000, resulting in a savings of $28,039 due to SSC
agreeing to seek less reimbursement from SST for rent expense, because SSC will
have fewer employees and reduced space requirements; (9) trustees' fees and
expenses will be reduced from an aggregate pre-Merger total of $21,901 to a
post-Merger total of $15,000 resulting in savings of $6,901 due to the fact that
there will be one fund instead of four paying trustees' fees; and (10)
custodian's fees, which are based both on the size of the fund and the number of
transactions engaged in by the fund, will be reduced from an aggregate
pre-Merger total of $11,774 to a post-Merger total of $4,000, resulting in
savings of $7,774 due to an agreement with the custodian to reduce the
percentage the custodian will charge based on the size of SST after the Merger
and the reduction in the size of SST after the Merger due to the redemption by
the Shareholder States and the payment of cash in lieu of fractional shares
following the 10 for 1 reverse stock split. In addition, an additional expense
of $15,000 was added as the estimated cost for registering SST's shares under
state blue sky laws, subject to compliance with each state's registration
requirements. Accordingly, the foregoing $387,220 of adjustments to total annual
operating expenses, which do not include additional expenses related to the
Merger, contributed to the pro forma result for the combined entity as of
June 30, 1997.
There can be no assurance that reductions in expenses outlined above
will be fully realized or will result in profitable operations for SST.
Furthermore, due to the size of SST after the Merger and the portfolio income
anticipated to be generated by SST after the Merger, it is anticipated that
SST will have to rely upon capital appreciation of its portfolio securities
to be profitable. There is no assurance that the portfolio securities will
have capital appreciation in a sufficient amount to offset any operating
losses, if the portfolio securities have any capital appreciation at all. For
comparisons of financial information after the Merger, the historical
financial information of SIF will be used as SIF will be deemed to be the
surviving Fund for accounting purposes.
23
<PAGE>
EXAMPLE
To attempt to show the effect of these expenses on an investment over time,
the example shown below has been created. Assume that you make a $1,000
investment in any of the Funds or in the new merged fund and that the annual
return on Fund investments is 5% and that the operating expenses for each Fund
are the ones shown in the chart above for the 12 months ended June 30, 1997. If
you were to continue to hold your shares at the end of each period shown below,
your investment would incur the following expenses by the end of each period
shown:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SAIF................................................ $ 270 $ 618 $ 808 $ 986
SAF................................................. 120 333 516 866
SIF................................................. 155 414 617 953
STGF................................................ 339 691 834 920
Pro Forma SST....................................... 109 307 482 830
</TABLE>
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial statements give effect to the
Merger in a transaction which will be accounted for as a pooling of interests
with SIF as the accounting survivor. The unaudited pro forma statement of assets
and liabilities and the pro forma portfolio of investments are based on the
individual balance sheets and portfolios of investments of SAIF, SIF, STGF, and
SST (formerly SAF) appearing elsewhere in this Registration Statement and has
been prepared to reflect the Merger as of June 30, 1997. The unaudited pro forma
statement of operations is based on the individual statements of operations of
SAIF, SIF, STGF, and SST, appearing elsewhere in this Registration Statement,
and combines the results of operations of SAIF, SIF, STGF, and SST for the for
the years ended June 30, 1997, as if the Merger had occurred at the beginning of
the fiscal year ended June 30, 1997. The unaudited pro forma financial
statements for 1997 should be read in conjunction with the historical financial
statements and notes thereto of SAIF, SIF, STGF and SST included elsewhere in
this Registration Statement. The pro forma combined financial data is intended
for informational purposes only and is not necessarily indicative of the
financial position, portfolio of investments, or future results of operations of
the combined entity that would have actually occurred had the Merger been in
effect as of the date or for the periods presented.
24
<PAGE>
SURVIVING ENTITY
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
SAIF SIF STGF SAF ADJUSTMENTS COMBINED
----------- ----------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in securities, at value-- (cost:
$5,175,514)................................... $ 955,375 $ 1,554,164 $ 343,375 $4,255,244 $ (548,100)(3j) $6,560,058
Cash and cash equivalents....................... 70,678 139,235 36,482 235,550 (40,000)(2) 39,476
548,100 (3j)
(950,569)(3k)
Due from affiliate.............................. 3,896 -- 3,519 3,896 11,311
----------- ----------- ----------- ---------- ------------ ----------
Interest and dividends receivable............... 1,099 788 145 1,985 4,017
----------- ----------- ----------- ---------- ------------ ----------
Total assets................................ $ 1,031,048 $ 1,694,187 $ 383,521 $4,496,675 $ (990,569) $6,614,862
----------- ----------- ----------- ---------- ------------ ----------
LIABILITIES
Accounts payable and accrued expenses........... $ 54,660 $ 34,903 $ 29,044 $ 87,142 $ 100,000 (3m) $ 305,749
Investment advisory and service fee payable..... -- 1,358 286 3,712 5,356
Miscellaneous payable........................... -- -- 354 4,175 4,529
----------- ----------- ----------- ---------- ------------ ----------
Payable for Trust shares redeemed............... 291 8,801 -- 1,693 10,785
----------- ----------- ----------- ---------- ------------ ----------
Other payable to affiliate...................... -- 15,235 5,679 2,969 23,883
----------- ----------- ----------- ---------- ------------ ----------
Total liabilities........................... $ 54,951 $ 60,297 $ 35,363 $ 99,691 $ 100,000 $ 350,302
----------- ----------- ----------- ---------- ------------ ----------
NET ASSETS........................................ $ 976,097 $ 1,633,890 $ 348,158 $4,396,984 $ (1,090,569) $6,264,560
----------- ----------- ----------- ---------- ------------ ----------
----------- ----------- ----------- ---------- ------------ ----------
Net assets consist of:
Accumulated net investment loss................. $(4,220,318) $(1,943,059) $(2,832,669) $(5,181,222) $14,277,268 (3l) --
(100,000)(3m)
Unrealized appreciation of investments.......... 319,814 362,642 87,362 1,162,826 (1,932,644)(3l) --
Accumulated net realized losses................. (951,213) (574,661) (390,993) (821,035) 2,737,902 (3l) --
Capital paid in less distributions since
inception..................................... 5,827,814 3,788,968 3,484,458 9,236,415 (40,000)(2)
(950,569)(3k)
(21,347,086)(3j)
-- -- -- -- 6,264,560 (3l) 6,264,560
----------- ----------- ----------- ----------- ----------- ----------
Net assets.................................. $ 976,097 $ 1,633,890 $ 348,158 $ 4,396,984 $(1,090,569) $6,264,560
----------- ----------- ----------- ----------- ----------- ----------
----------- ----------- ----------- ----------- ----------- ----------
NET ASSET VALUE PER SHARE....................... $ 0.72 $ 0.85 $ 0.68 $ 0.76 $ 8.11
----------- ----------- ----------- ----------- ----------
----------- ----------- ----------- ----------- ----------
SHARES OUTSTANDING.............................. 1,346,814 1,928,494 510,386 5,768,032 (4,995,640)(2) 772,392
----------- ----------- ----------- ----------- ----------- ----------
----------- ----------- ----------- ----------- ----------- ----------
</TABLE>
See Notes To Pro Forma Financial Statements
25
<PAGE>
SURVIVING ENTITY
PRO FORMA SCHEDULE OF INVESTMENTS
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SAIF SIF
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
COMMON STOCK--SAIF, SIF, STGF-100%, SAF-99.8%
Computer Communications Equip.--SAIF-7%, SIF-15.1%
Cisco Systems (a)...................................... 1,000 $ 67,125 3,500 $ 234,937
Computer and Office Equipment--SAIF-6.5%, SAF-5.3%
Champion Technology Holding Ltd. (a)................... 100,000 62,000 -- --
Hewlett Packard........................................ -- -- -- --
Electronic Computers--SIF-16.8%, SAF-6.1%
Gateway 2000 (a)....................................... -- -- -- --
Sun Microsystems (a)................................... -- -- 7,000 260,530
Computer Storage Devices--SAIF-10.5%, SIF-8.1%, SAF-29.1%
Microsoft Corporation (a).............................. -- -- -- --
Oracle Corporation (a)................................. 2,000 100,750 2,500 125,937
Aircraft--SAF-8.1%
Boeing Corporation..................................... -- -- -- --
Motor Vehicles and Car Bodies--SAIF-19.8%, SIF-8.6%,
SAF-8.5%
Ford Motors............................................ 5,000 188,750 -- --
General Motors Class "H"............................... -- -- 2,300 132,825
Real Estate Investment Trusts--STGF-17.9%
Capstead Mortgage...................................... -- -- -- --
Semi-Conductor and Related Devices--SAIF-47.8%,
SIF-16.3%, STGF-29.6%, SAF-19.9%
Intel Corp. Warrants (a)............................... 4,500 456,750 2,500 253,750
LSI Logic (a).......................................... -- -- -- --
Telephone Communications--SIF-10.3%, STGF-52.5%,
SAF-11.3%
Lucent Technology...................................... -- -- 3,000 216,185
Worldcom Inc. (a)...................................... 2,500 80,000 5,000 160,000
Telephone and Telegraph Apparatus--SIF-10.9%, SAF-2.0%
Xylan Corporation (a).................................. -- -- 10,000 170,000
----------- ----------- ----------- -----------
Total Common Stocks (Cost: SAIF-$635,561,
SIF-$1,191,522, STGF-$256,013, SAF-$3,029,393) 114,100 899,575 35,800 $1,554,164
----------- ----------- ----------- -----------
CALL OPTIONS PURCHASED--SAIF, SIF, STGF-0%,
SAF-0.2%
LSI Logic, 10/18/97.................................... -- -- -- --
Seagate Technology, 9/20/97............................ -- -- -- --
----------- ----------- ----------- -----------
Total Call Options Purchased (Cost:
SAF-$63,025)................................... -- -- -- --
----------- ----------- ----------- -----------
Total Portfolio of Investments (Cost: SAIF-$635,561,
SIF-$1,191,522, STGF-$256,013, SAF-$3,092,418)......... 114,100 $ 899,575 35,800 $1,554,164
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
<CAPTION>
STGF SAF
---------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------- ----------- -----------
<S> <C> <C> <C> <C>
COMMON STOCK--SAIF, SIF, STGF-100%, SAF-99.8%
Computer Communications Equip.--SAIF-7%, SIF-15.1%
Cisco Systems (a)...................................... -- -- -- --
Computer and Office Equipment--SAIF-6.5%, SAF-5.3%
Champion Technology Holding Ltd. (a)................... -- -- -- --
Hewlett Packard........................................ -- -- 4,000 224,000
Electronic Computers--SIF-16.8%, SAF-6.1%
Gateway 2000 (a)....................................... -- -- 8,000 259,500
Sun Microsystems (a)................................... -- -- 8,000 297,750
Computer Storage Devices--SAIF-10.5%, SIF-8.1%, SAF-29.1%
Microsoft Corporation (a).............................. -- -- 9,000 1,137,375
Oracle Corporation (a)................................. -- -- 2,000 100,750
Aircraft--SAF-8.1%
Boeing Corporation..................................... -- -- 6,500 344,906
Motor Vehicles and Car Bodies--SAIF-19.8%, SIF-8.6%,
SAF-8.5%
Ford Motors............................................ -- -- 5,000 188,750
General Motors Class "H"............................... -- -- 3,000 173,250
Real Estate Investment Trusts--STGF-17.9%
Capstead Mortgage...................................... 2,500 61,719 -- --
Semi-Conductor and Related Devices--SAIF-47.8%,
SIF-16.3%, STGF-29.6%, SAF-19.9%
Intel Corp. Warrants (a)............................... 1,000 101,500 6,000 609,000
LSI Logic (a).......................................... -- -- 7,500 240,000
Telephone Communications--SIF-10.3%, STGF-52.5%,
SAF-11.3%
Lucent Technology...................................... 2,500 180,156 1,500 108,094
Worldcom Inc. (a)...................................... -- -- 15,000 480,000
Telephone and Telegraph Apparatus--SIF-10.9%, SAF-2.0%
Xylan Corporation (a).................................. -- -- 5,000 85,000
----- ----------- ----------- -----------
Total Common Stocks (Cost: SAIF-$635,561,
SIF-$1,191,522, STGF-$256,013, SAF-$3,029,393) 6,000 343,375 75,500 4,248,375
----- ----------- ----------- -----------
CALL OPTIONS PURCHASED--SAIF, SIF, STGF-0%,
SAF-0.2%
LSI Logic, 10/18/97.................................... -- -- 2,500 4,688
Seagate Technology, 9/20/97............................ -- -- 5,000 2,181
----- ----------- ----------- -----------
Total Call Options Purchased (Cost:
SAF-$63,025)................................... -- -- 7,500 6,869
----- ----------- ----------- -----------
Total Portfolio of Investments (Cost: SAIF-$635,561,
SIF-$1,191,522, STGF-$256,013, SAF-$3,092,418)......... 6,000 $ 343,375 83,000 $ 4,255,244
----- ----------- ----------- -----------
----- ----------- ----------- -----------
</TABLE>
(a) Non-income producing security.
See Notes To Pro Forma Financial Statements
26
<PAGE>
SURVIVING ENTITY
PRO FORMA SCHEDULE OF INVESTMENTS (CONT.)
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
COMBINED TOTAL ADJUSTMENTS
------------------------ ------------------------
<S> <C> <C> <C> <C>
SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- -----------
COMMON STOCK--99.91%
Computer Communications Equip.--4.25%
Cisco Systems (a)................................................. 4,500 $ 302,062
Computer and Office Equipment--4.02%
Champion Technology Holding Ltd. (a).............................. 100,000 62,000
Hewlett Packard................................................... 4,000 224,000
Electronic Computers--11.50%
Gateway 2000 (a).................................................. 8,000 259,500
Sun Microsystems (a).............................................. 15,000 558,280
Computer Storage Devices--20.61%
Microsoft Corporation (a)......................................... 9,000 1,137,375
Oracle Corporation (a)............................................ 6,500 327,437
Aircraft--4.85%
Boeing Corporation................................................ 6,500 344,906
Motor Vehicles and Car Bodies--9.62%
Ford Motors....................................................... 10,000 377,500
General Motors Class "H".......................................... 5,300 306,075
Real Estate Investment Trusts--0.87%
Capstead Mortgage................................................. 2,500 61,719
Semi-Conductor and Related Devices--23.37%
Intel Corp. Warrants (a).......................................... 14,000 1,421,000 (5,400)(3j) $(548,100)(3j)
LSI Logic (a)..................................................... 7,500 240,000
Telephone Communications--17.23%
Lucent Technology................................................. 7,000 504,438
Worldcom Inc. (a)................................................. 22,500 720,000
Telephone and Telegraph Apparatus--3.59%
Xylan Corporation (a)............................................. 15,000 255,000
----------- ----------- -------- -----------
Total Common Stocks (Cost $5,112,489)....................... 237,300 7,101,289 (5,400) (548,100)
----------- ----------- -------- -----------
CALL OPTIONS PURCHASED--0.09%
LSI Logic, 10/18/97............................................... 2,500 4,688
Seagate Technology, 9/20/97....................................... 5,000 2,181
----------- ----------- -------- -----------
Total Call Options Purchased (Cost $63,025)................. 7,500 6,869
----------- ----------- -------- -----------
Total Portfolio of Investments (Cost $5,175,514).................... 244,800 $7,108,158 (5,400) $(548,100)
----------- ----------- -------- -----------
----------- ----------- -------- -----------
<CAPTION>
PRO FORMA COMBINED
------------------------
<S> <C> <C>
SHARES AMOUNT
----------- -----------
COMMON STOCK--99.91%
Computer Communications Equip.--4.25%
Cisco Systems (a)................................................. 4,500 $ 302,062
Computer and Office Equipment--4.02%
Champion Technology Holding Ltd. (a).............................. 100,000 62,000
Hewlett Packard................................................... 4,000 224,000
Electronic Computers--11.50%
Gateway 2000 (a).................................................. 8,000 259,500
Sun Microsystems (a).............................................. 15,000 558,280
Computer Storage Devices--20.61%
Microsoft Corporation (a)......................................... 9,000 1,137,375
Oracle Corporation (a)............................................ 6,500 327,437
Aircraft--4.85%
Boeing Corporation................................................ 6,500 344,906
Motor Vehicles and Car Bodies--9.62%
Ford Motors....................................................... 10,000 377,500
General Motors Class "H".......................................... 5,300 306,075
Real Estate Investment Trusts--0.87%
Capstead Mortgage................................................. 2,500 61,719
Semi-Conductor and Related Devices--23.37%
Intel Corp. Warrants (a).......................................... 8,600 872,900
LSI Logic (a)..................................................... 7,500 240,000
Telephone Communications--17.23%
Lucent Technology................................................. 7,000 504,435
Worldcom Inc. (a)................................................. 22,500 720,000
Telephone and Telegraph Apparatus--3.59%
Xylan Corporation (a)............................................. 15,000 255,000
----------- -----------
Total Common Stocks (Cost $5,112,489)....................... 231,900 6,553,189
----------- -----------
CALL OPTIONS PURCHASED--0.09%
LSI Logic, 10/18/97............................................... 2,500 4,688
Seagate Technology, 9/20/97....................................... 5,000 2,181
----------- -----------
Total Call Options Purchased (Cost $63,025)................. 7,500 6,869
----------- -----------
Total Portfolio of Investments (Cost $5,175,514).................... 239,400 $6,560,05
----------- -----------
----------- -----------
</TABLE>
- ------------------------
(a) Non-income producing security.
SEE NOTES TO PRO FORMA FINANCIAL STATEMENTS
27
<PAGE>
SURVIVING ENTITY
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SAIF SIF STGF SAF ADJUSTMENTS
--------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
<CAPTION>
PRO FORMA
COMBINED
-----------
<S> <C>
INVESTMENT INCOME
Dividends.................................................... $ 20,973 $ 5,670 $ 5,957 $ 12,759
Interest..................................................... 3,117 6,659 2,682 14,646
--------- --------- --------- --------- -------------
Total income........................................... $ 24,090 $ 12,329 $ 8,639 $ 27,405 --
--------- --------- --------- --------- -------------
EXPENSES
Shareholder servicing fee.................................... $ 149,345 $ 47,647 $ 68,155 $ 36,859 $(115,583)(3a)
Salaries and employee benefits............................... 49,285 87,965 26,604 174,244 (63,098)(3b)
Professional fees............................................ 42,448 33,357 30,854 62,741 (139,400)(3c)
Reports to shareholders...................................... 12,026 6,416 8,389 6,818 (25,649)(3d)
Computer services............................................ 3,655 3,992 3,212 5,917 (776)(3e)
Investment advisory fee...................................... 10,521 17,117 4,109 45,410 77,157
Rent......................................................... 7,244 11,734 2,804 31,257 (28,039)(3f)
Trustees' fees and expenses.................................. 5,944 5,619 5,619 4,719 (6,901)(3g)
Custodian fees............................................... 1,955 2,050 1,322 6,447 (7,774)(3h)
Registration fees............................................ -- -- -- -- 15,000 (3i)
Merger expenses.............................................. 34,493 54,392 12,515 164,490 126,669 (3m)
(392,559)(3m)
Miscellaneous................................................ 8,482 9,759 7,627 22,790
--------- --------- --------- --------- -------------
Total expenses......................................... $ 325,398 $ 280,048 $ 171,210 $ 561,692 $(638,110)
--------- --------- --------- --------- -------------
Net investment loss.......................................... (301,308) (267,719) (162,571) (534,287)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized (loss) gain from investment transactions........ $ 8,916 $(185,331) $ (54,880) $ 306,022
Change in unrealized appreciation/(depreciation) of
investment................................................. 300,735 418,153 38,748 644,512
--------- --------- --------- --------- -------------
Net gain (loss) on investments............................... 309,651 232,822 (16,132) 950,534 --
Net increase (decrease) in net assets resulting from
operations................................................. $ 8,343 $ (34,897) $(178,703) $ 416,247 $ 638,110
--------- --------- --------- --------- -------------
--------- --------- --------- --------- -------------
<CAPTION>
Dividends.................................................... $ 45,359
Interest..................................................... 27,104
-----------
Total income........................................... $ 72,463
-----------
EXPENSES
Shareholder servicing fee.................................... $ 186,423
Salaries and employee benefits............................... 275,000
Professional fees............................................ 30,000
Reports to shareholders...................................... 8,000
Computer services............................................ 16,000
Investment advisory fee......................................
Rent......................................................... 25,000
Trustees' fees and expenses.................................. 15,000
Custodian fees............................................... 4,000
Registration fees............................................ 15,000
Merger expenses.............................................. --
Miscellaneous................................................ 48,658
-----------
Total expenses......................................... $ 700,238
-----------
Net investment loss.......................................... (627,775)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized (loss) gain from investment transactions........ $ 74,727
Change in unrealized appreciation/(depreciation) of
investment................................................. 1,402,148
-----------
Net gain (loss) on investments............................... 1,476,875
Net increase (decrease) in net assets resulting from
operations................................................. $ 849,100
-----------
-----------
</TABLE>
See Notes To Pro Forma Financial Statements
28
<PAGE>
SURVIVING ENTITY
JUNE 30, 1997
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited pro forma combined financial statements assume consummation
of the transaction described in this Registration Statement and, except as
described in Notes 3 and 4 hereto, no SAIF, SIF, STGF and SST (formerly SAF)
shares are redeemed. For comparisons of financial information after the
Merger, the historical financial information of SIF will be used as SIF will
be deemed the surviving Fund for accounting purposes.
The following unaudited pro forma financial statements give effect to the
Merger in a transaction which will be accounted for as a pooling of interests
with SIF as the accounting survivor. The unaudited pro forma statement of
assets and liabilities and pro forma portfolio of investments are based on
the individual balance sheets and portfolios of investments of SAIF, SIF,
STGF, and SST appearing elsewhere in this Registration Statement and has been
prepared to reflect the Merger as of June 30, 1997. The unaudited pro forma
statement of operations is based on the individual statements of operations
of SAIF, SIF, STGF, and SST, appearing elsewhere in this Registration
Statement, and combines the results of operations of SAIF, SIF, STGF, and SST
for the year ended June 30, 1997, as if the merger had occurred at the
beginning of the fiscal year ended June 30, 1997. The unaudited pro forma
financial statements should be read in conjunction with the historical
financial statements and notes thereto of SAIF, SIF, STGF, and SST included
elsewhere in this Registration Statement. The pro forma combined financial
data is intended for informational purposes only and is not necessarily
indicative of the financial position, portfolio of investments, or future
results of operations of the combined entity that would have actually
occurred had the merger been in effect as of the date or for the periods
presented.
2. SST REVERSE STOCK SPLIT
Immediately prior to the merger SST will declare a reverse stock split of
ten shares to one share, so that each ten outstanding shares of SST will become
one share of SST (5,768,032 divided by 10 equals 577,803). Shareholders owning a
number of shares not equally divisible by 10 will receive cash in lieu of
fractional shares.
Shareholders of the merging funds (SAIF, SIF, and STGF) will be issued
shares of SST on a pro rata basis in exchange for their shares.
29
<PAGE>
SURVIVING ENTITY
JUNE 30, 1997
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
3. ADJUSTMENTS TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS AS OF JUNE 30, 1997
AND FOR THE YEAR THEN ENDED
(a) To record reduction in transfer agent fees to $186,423 annually.
(b) To record reduction in salaries and benefits to $275,000 annually.
(c) To record reduction in professional fees to $30,000 annually.
(d) To record reduction in reports to shareholders to $8,000 annually.
(e) To record reduction in computer services fees to $16,000 annually.
(f) To record reduction in rent to $25,000 annually.
(g) To record reduction in trustees fees and expenses to $15,000 annually.
(h) To record reduction in custodian fees to $4,000 annually.
(i) To record registration fees expense of $15,000 annually.
(j) To record sale of investments to meet cash requirement to affect
redemption.
(k) To record redemption of shares by Shareholder States.
(l) To record reclassification of equity accounts as a result of Merger.
(m) To record estimated Merger costs to be incurred.
4. REDEMPTION OF SHARES BY SHAREHOLDER STATES
In connection with the Funds agreement to allow for the redemption of
shares owned by the Shareholder States, the Funds anticipate the following
redemptions prior to the Merger: SAIF -290,000 shares; SIF -305,000 shares;
STGF--83,000 shares; and SAF--1,234,000 shares.
30
<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; and, upon the effectiveness of the Merger, SST will operate as an
open-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 corporations under
Subchapter C of the Code.
COMPARISON OF INVESTMENT OBJECTIVES,
POLICIES AND TECHNIQUES OF THE FUNDS
The investment objective of 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 primary investment objective,
which is to seek current income. As a secondary objective, SIF seeks to
maximize the total return but only consistent with its primary objectives.
Similar to the other Funds, SIF may also make substantial temporary defensive
investments in debt securities and money market instruments when market
conditions warrant. Upon the Merger, the new investment objective of SST will
be to seek current income as its principal investment objective and
secondarily to maximize the total return, but only to the extent consistent
with its primary objective. For a discussion of the changes in the investment
portfolio as a result of the change in investment policy, see "Ratification
of Amended and Restated Trust Indenture of Steadman Security Trust."
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.
* 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
31
<PAGE>
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, 1997 was
128% for SAIF, 138% for SIF, 350% for STGF, and 193% 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, 1997 have been audited and have been derived from the audited
financial statements of the Funds, which were audited by Reznick Fedder &
Silverman, P.C., independent certified public accountants, whose reports
thereon are included with each Fund's Form N-SAR filings, and are available
to shareholders upon request. The year ended June 30, 1996 and the eight
previous years have been audited and have been derived from the audited
financial statements of the Funds, which were audited by Coopers & Lybrand
L.L.P., independent certified public accountants, whose reports thereon are
included with each Fund's Form N-SAR filings, and are available to
shareholders upon request.
32
<PAGE>
FINANCIAL HIGHLIGHTS
SAIF
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEARS ENDED FEBRUARY 1, 1995
JUNE 30, THROUGH JUNE 30,
------------------------- ----------------
<S> <C> <C> <C>
1997 1996 1995*
---------- ----------- ----------------
Per Share Operating
Performance:
Net asset value, beginning
of period................. $ 0.72 $ 0.88 $ 0.96
Net investment income
(loss).................... (.33) (.41) (.12)
Net realized and unrealized
gain (loss) on
investments............... .33 .25 .04
---------- ----------- -----------
Total from investment
operations................ -- (.16) (.08)
Dividends and distributions
paid:
From net realized gain...... -- -- --
From net investment income.. -- -- --
From capital................ -- -- --
---------- ----------- ---------
Total distributions......... -- -- --
---------- ----------- ---------
Net asset value, end of
period...................... $ 0.72 $ 0.72 $ 0.88
---------- ----------- -----------
---------- ----------- -----------
Ratio/Supplemental Data:
Total return (1).......... 0.56 (18.58)% (20.01)%**
Net Assets, end of period
(in thousands).......... $ 976 $ 1,008 $ 1,341
Ratio of expenses to average
net assets.................. 31.07%** 24.61% 24.62%**
Ratio of net investment income
(loss) to average net
assets...................... (28.77)%** (24.10)% (22.86)%**
Portfolio turnover.......... 128%** 339% 617%**
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991 1990 1989 1988
------- ------- -------- ------- ------- ------- ------ -------
Per Share Operating
Performance:
Net asset value, beginning
of period................. $ 1.65 $ 1.50 $ 1.54 $ 1.59 $ 1.94 $ 2.21 $ 2.24 $ 2.68
Net investment income
(loss).................... (.26) (.24) (.19) (.20) (.19) (.19) (.11) (.12)
Net realized and unrealized
gain (loss) on
investments............... (.43) .39 .15 .15 (.16) (.08) .08 (.32)
------- ------- -------- ------- ------- ------- ------ -------
Total from investment
operations................ (.69) .15 (.04) (.05) (.35) (.27) (.03) (.44)
Dividends and distributions
paid:
From net realized gain...... -- -- -- -- -- -- -- --
From net investment income.. -- -- -- -- -- -- -- --
From capital................ -- -- -- -- -- -- -- --
------- ------- -------- ------- ------- ------- ------ -------
Total distributions......... -- -- -- -- -- -- -- --
------- ------- -------- ------- ------- ------- ------ -------
Net asset value, end of
period...................... $ 0.96 $ 1.65 $ 1.50 $ 1.54 $ 1.59 $ 1.94 $ 2.21 $ 2.24
------- ------- -------- ------- ------- ------- ------ -------
------- ------- -------- ------- ------- ------- ------ -------
Ratio/Supplemental Data:
Total return (1).......... (41.82)% 10.00% (2.60)% (3.14)% (18.04)% (12.22)% (1.34)% (16.42)%
Net Assets, end of period
(in thousands).......... $1,472 $2,627 $2,496 $2,648 $2,844 $3,691 $4,563 $4,943
Ratio of expenses to average
net assets.................. 17.69% 12.66% 14.83% 15.13% 13.75% 12.74% 9.37% 7.00%
Ratio of net investment income
(loss) to average net
assets...................... (15.63)% (11.40)% (13.52)% (13.13)% (10.25%) (8.75)% (4.84)% (3.64)%
Portfolio turnover.......... 289% 134% 221% 460% 211% 258% 121% 228%
</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.
33
<PAGE>
FINANCIAL HIGHLIGHTS
SAF
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEARS ENDED OCTOBER 1, 1994
JUNE 31, THROUGH JUNE 30,
--------------------- ----------------
<S> <C> <C> <C>
1997 1996 1995*
------- ------- -----------------
Per Share Operating
Performance:
Net asset value, beginning
of period................. $ 0.70 $ 0.73 $ 0.72
------- ------- ------------
Net investment income
(loss).................... (.11) (.17) (.03)
Net realized and unrealized
gain (loss) on
investments............... .17 .14 .04
------- ------- ------------
Total from investment
operations................ .06 (.03) .01
Dividends and distributions
paid:
From net realized gain...... -- -- --
From net investment
income.................... -- -- --
From capital................ -- -- --
------- ------- ------------
Total distributions......... -- -- --
------- ------- ------------
Net asset value, end of
period...................... $ 0.76 $ 0.70 $ 0.73
------- ------- ------------
------- ------- ------------
Ratio/Supplemental Data:
Total return (1).......... 8.89% (4.38)% 1.85%**
Net Assets, end of period
(in thousands).......... $ 4,397 $ 4,581 $ 5,735
Ratio of expenses to average
net assets.................. 12.42% 8.14% 8.17%**
Ratio of net investment income
(loss) to average net
assets...................... (11.82)% (7.48)% (7.23)%**
Portfolio turnover.......... 193%* 231% 505%**
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 1993 1992 1991 1990 1989 1988
------- ------- -------- ------- ------- ------- ------
Per Share Operating
Performance:
Net asset value, beginning
of period................. $ 0.87 $ 0.64 $ 0.67 $ 0.57 $ 0.84 $ 0.60 $ 0.91
------- ------- -------- ------- ------- ------- ------
Net investment income
(loss).................... (.08) (.05) (.03) (.02) (.03) -- --
Net realized and unrealized
gain (loss) on
investments............... (.07) .28 -- .12 (.24) .27 (.25)
------- ------- -------- ------- ------- ------- ------
Total from investment
operations................ (.15) .23 (.03) .10 (.27) .27 (.25)
Dividends and distributions
paid:
From net realized gain...... -- -- -- -- -- (.03) --
From net investment
income.................... -- -- -- -- -- -- --
From capital................ -- -- -- -- -- -- (.06)
------- ------- -------- ------- ------- ------- ------
Total distributions......... -- -- -- -- -- (.03) (.06)
------- ------- -------- ------- ------- ------- ------
Net asset value, end of
period...................... $ 0.72 $ 0.87 $ 0.64 $ 0.67 $ 0.57 $ 0.84 $ 0.60
------- ------- -------- ------- ------- ------- ------
------- ------- -------- ------- ------- ------- ------
Ratio/Supplemental Data:
Total return (1).......... (17.24)% 35.88% (4.50)% 17.51% (32.27)% 47.50% (27.86)%
Net Assets, end of period
(in thousands).......... $ 6,307 $ 8,844 $ 7,254 $ 8,539 $ 8,392 $16,035 $13,572
Ratio of expenses to average
net assets.................. 7.76% 5.79% 6.92% 7.16% 6.08% 6.65% 4.10%
Ratio of net investment income
(loss) to average net
assets...................... (6.09)% (4.63)% (5.14)% (3.29)% (4.54)% (.24)% (.33)%
Portfolio turnover.......... 241% 300% 301% 267% 86% 208% 367%
</TABLE>
- ----------------------------------------
(1) Total return on the changes in net value of a share during the period and
assumes reinvestment of distributions at net asset value.
* The Fund's fiscal year-end was changed to June 30.
34
<PAGE>
FINANCIAL HIGHLIGHTS
SIF
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEARS ENDED JANUARY 1, 1995
JUNE 30, THROUGH JUNE 30,
--------------------- -----------------
<S> <C> <C> <C>
1997 1996 1995*
------- -------- -----------------
Per Share Operating
Performance:
Net asset value, beginning
of period................. $ 0.86 $ 1.02 $ 0.93
------- -------- -----------------
Net investment income
(loss).................... (.03) (.13) (.02)
Net realized and unrealized
gain (loss) on
investments............... .02 (.03) .11
------- ------- -----------------
Total from investment
operations................ (.01) (.16) .09
Dividends and distributions
paid:
From net realized gain...... -- -- --
From net investment
income.................... -- -- --
From capital................ -- -- --
------- -------- ------------------
Total distributions......... -- -- --
------- -------- ------------------
Net asset value, end of
period.................. $ 0.85 $ 0.86 $ 1.02
------- -------- ------------------
------- -------- ------------------
Ratio/Supplemental Data:
Total return (1).......... (2.05)% (15.53)% 19.36%**
Net Assets, end of period
(in thousands).......... $ 1,634 $ 1,763 $ 2,298
Ratio of expenses to average
net assets.................. 16.47% 10.60% 10.54%**
Ratio of net investment income
(loss) to average net
assets...................... (15.75)% (5.23)% (4.24)%**
Portfolio turnover............ 138 382% 226%**
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 1993 1992 1991 1990 1989 1988
------- ------- -------- ------- ------- ------- ------
Per Share Operating
Performance:
Net asset value, beginning
of period................. $ 1.42 $ 1.38 $ 1.49 $ 1.12 $ 1.32 $ 1.22 $ 1.32
------- ------- -------- ------- ------- ------- ------
Net investment income
(loss).................... (.08) (.06) (.09) (.06) (.09) (.08) --
Net realized and unrealized
gain (loss) on
investments............... (.41) .10 (.02) .43 (.11) .18 (.09)
------- ------- -------- ------- ------- ------- ------
Total from investment
operations................ (.49) .04 (.11) .37 (.20) .10 (.09)
Dividends and distributions
paid:
From net realized gain...... -- -- -- -- -- -- --
From net investment
income.................... -- -- -- -- -- -- (.01)
From capital................ -- -- -- -- -- -- --
------- ------- -------- ------- ------- ------- ------
Total distributions......... -- -- -- -- -- -- (.01)
------- ------- -------- ------- ------- ------- ------
Net asset value, end of
period.................. $ 0.93 $ 1.42 $ 1.38 $ 1.49 $ 1.12 $ 1.32 $ 1.22
------- ------- -------- ------- ------- ------- ------
------- ------- -------- ------- ------- ------- ------
Ratio/Supplemental Data:
Total return (1).......... (34.51)% 2.89% (7.05)% 32.95% (15.15)% 8.13% (6.82)%
Net Assets, end of period
(in thousands).......... $ 2,159 $ 3,550 $ 3,791 $ 4,277 $ 3,530 $ 4,627 $4,812
Ratio of expenses to average
net assets.................. 8.90% 6.48% 7.78% 7.88% 10.31% 8.95% 5.59%
Ratio of net investment income
(loss) to average net
assets...................... (6.65)% (4.52)% (6.09)% (5.08%) (7.27)% (6.15)% .13%
Portfolio turnover............ 282% 179% 263% 245% 144% 165% 128%
</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
35
<PAGE>
FINANCIAL HIGHLIGHTS
STGF
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEARS ENDED JANUARY 1, 1995
JUNE 30, THROUGH JUNE 30,
--------------------- ----------------
<S> <C> <C> <C>
1997 1996 1995*
------- -------- ----------------
Per Share Operating
Performance:
Net asset value, beginning
of period................. $ 1.02 $ 1.43 $ 1.57
------- --------- ----------------
Net investment income
(loss).................... (.50) (.58) (.22)
Net realized and unrealized
gain (loss) on
investments............... .16 .17 .08
------- --------- ----------------
Total from investment
operations................ (.34) (.41) (.14)
Dividends and distributions
paid:
From net realized gain...... -- -- --
From net investment
income.................... -- -- --
From capital................ -- -- --
------- ---------- ----------------
Total distributions......... -- -- --
------- ---------- ----------------
Net asset value, end of
period...................... $ 0.68 $ 1.02 $ 1.43
------- ---------- -----------------
------- ---------- -----------------
Ratio/Supplemental Data:
Total return (1).......... (33.42)% (28.29)% (17.84)%**
Net Assets, end of period
(in thousands).......... $ 348 $ 542 $ 799
Ratio of expenses to average
net assets.................. 41.46% 25.19% 22.28%**
Ratio of net investment income
(loss) to average net
assets...................... 39.37% (24.78)% (20.90)%**
Portfolio turnover.......... 350%** 333%** 615%**
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 1993 1992 1991 1990 1989 1988
------- ------- -------- ------- ------- ------- ------
Per Share Operating
Performance:
Net asset value, beginning
of period................. $ 2.48 $ 2.69 $ 2.84 $ 2.21 $ 3.92 $ 3.03 $ 4.12
------- ------- -------- ------- ------- ------- ------
Net investment income
(loss).................... (.45) (.40) (.33) (.30) (.41) (.37) (.30)
Net realized and unrealized
gain (loss) on
investments............... (.46) .19 .18 .93 (1.30) 1.26 (.79)
------- ------- -------- ------- ------- ------- ------
Total from investment
operations................ (.91) (.21) (.15) .63 (1.71) .89 (1.09)
Dividends and distributions
paid:
From net realized gain...... -- -- -- -- -- -- --
From net investment
income.................... -- -- -- -- -- -- --
From capital................ -- -- -- -- -- -- --
------- ------- -------- ------- ------- ------- ------
Total distributions......... -- -- -- -- -- -- --
------- ------- -------- ------- ------- ------- ------
Net asset value, end of
period...................... $ 1.57 $ 2.48 $ 2.69 $ 2.84 $ 2.21 $ 3.92 $ 3.03
------- ------- -------- ------- ------- ------- ------
------- ------- -------- ------- ------- ------- ------
Ratio/Supplemental Data:
Total return (1).......... (36.69)% (7.81)% (5.28)% 28.51% (43.62)% 29.37% (26.46)%
Net Assets, end of period
(in thousands).......... $ 894 $ 1,467 $ 1,634 $ 1,786 $ 1,443 $ 2,675 $2,178
Ratio of expenses to average
net assets.................. 16.34% 11.94% 13.33% 14.10% 14.97% 12.14% 9.90%
Ratio of net investment income
(loss) to average net
assets...................... (14.79)% (11.38)% (12.45)% (11.70)% (12.60)% (9.97)% (8.55)%
Portfolio turnover.......... 274% 128% 157% 318% 184% 116% 164%
</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.
36
<PAGE>
SAIF
Management's Discussion of
Performance of the Fund
During its fiscal year ended June 30, 1997, the Fund's net asset value
per share did not change. The Fund experienced a net increase in net assets
from operations of approximately $8,000 as a result of a net realized gain
from investment transactions of $9,000 offset by a net investment loss of
$301,000 and unrealized appreciation of investments of $300,000.
Portfolio turnover during the year, although high, was about one-third of
the rate for the prior period and at year's end the Fund's portfolio
consisted of investments in segments of the computer, communications, and
motor vehicle 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 $301,000 resulted from
expenses after taking into account the Fund's investment income from
dividends and interest of approximately $24,000. 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, 1997, the Fund's net asset value
per share increased 8.89%. The Fund experienced a net increase in net assets
from operations of approximately $416,000, as a result of a net realized gain
from investment transactions of $306,000 offset by a net investment loss of
$534,000 and unrealized appreciation of investments of $644,000.
Portfolio turnover during the year, although high, was less than the rate
for the prior period and at year's end the Fund's portfolio consisted of
investments in various segments of the computer, communications, aircraft,
motor vehicles, mail order, and semiconductor 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
37
<PAGE>
$534,000 resulted from expenses after taking into account the Fund's
investment income from dividends and interest of approximately $27,000.
Realization of current income is secondary to the Fund's pursuit of its
primary goal of capital appreciation.
From time to time the Fund may quote its total return in advertisements
or in reports or other communications to shareholders. A mutual fund's total
return is a measurement of the overall change in value, including changes in
share price and assuming reinvestment of all distributions, of an investment
in the fund. Cumulative total return shows the fund's performance over a
specific period of time. Average annual total return is the average annual
compounded return that would have produced the same cumulative total return
if the fund's performance had been constant over the entire period. The
returns shown are based on historical results and are not intended to
indicate future performance. The investment return and principal value of an
investment in the fund will fluctuate that an investor's shares when redeemed
may be worth more or less than their original cost. Average annual returns,
which differ from actual year-to-year esults, 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, 1997, the Fund's net asset value
per share decreased 2.05%. The Fund experienced a net decrease in net assets
from operations of approximately $35,000 as a result of a net realized loss
from investment transactions of $185,000 and a net investment loss of
$268,000 offset by unrealized appreciation of investments of $418,000.
Portfolio turnover during the year, although high, was about one third of
the rate for the prior period as a result of maintaining the profile of
investments in stocks of various segments of the computer, communications,
and motor vehicle 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 $268,000 resulted
from expenses after taking into account the Fund's investment income from
dividends and interest of approximately $12,000. 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.
38
<PAGE>
STGF
Management's Discussion of
Performance of the Fund
During its fiscal year ended June 30, 1997, the Fund's net asset value
per share decreased 33.42%. The Fund experienced a net decrease in net assets
from operations of approximately $179,000 as a result of a net realized loss
from investment transactions of $55,000 and a net investment loss of $163,000
offset by unrealized appreciation of investments of $39,000.
Portfolio turnover during the year, although high, was about the same as
the rate for the prior period and at year's end the Fund's portfolio
consisted of investments in the semiconductor, communications, and real
estate 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 $163,000 resulted from expenses
after taking into account the Fund's investment income from dividends and
interest of approximately $9,000. 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.
39
<PAGE>
SAIF
Total Return vs. S&P 500 Index
February 1, 1987 to January 31, 1995,
February 1, 1995 to June 30, 1995,
July 1, 1995 to June 30, 1996, and
July 1, 1996 to June 30, 1997
[A GRAPH WITH THE FOLLOWING PLOTTING POINTS APPEARS ON THIS PAGE]
<TABLE>
<CAPTION>
SAIF S&P 500
------------------------------ -----------------------
<S> <C> <C> <C> <C>
STATUS OF STATUS OF
PERIOD PERCENT $10,000 PERCENT $10,000
ENDED CHANGE INVESTMENT CHANGE INVESTMENT
- --------- -------------- -------------- --------- ------------
2/1/87 -- $ 10,000 -- $ 10,000
1/31/88 (16.42) 8,358 (33.20) 9,668
1/31/89 (1.34) 8,248 20.07 11,608
1/31/90 (12.22) 7,240 14.46 13,287
1/31/91 (18.04) 5,934 8.40 14,403
1/31/92 (3.14) 5,748 22.69 17,671
1/31/93 (2.60) 5,599 10.58 19,541
1/31/94 10.00 6,159 12.88 22,058
1/31/95 (41.82) 3,583 2.59 22,629
6/30/95 (8.33) 3,285 17.17 26,514
6/30/96 (18.48) 2,678 26.00 33,408
6/30/97 .56 2,693 34.69 44,997
</TABLE>
40
<PAGE>
SAF
Total Return vs. S&P 500 Index
October 1, 1986 to September 30, 1994
October 1, 1994 to June 30, 1995, and
July 1, 1995 to June 30, 1997
[A GRAPH WITH THE FOLLOWING PLOTTING POINTS APPEARS ON THIS PAGE]
<TABLE>
<CAPTION>
SAF S&P 500
---------------------------- ----------------------
<S> <C> <C> <C> <C>
STATUS OF STATUS OF
PERIOD PERCENT $10,000 PERCENT $10,000
ENDED CHANGE INVESTMENT CHANGE INVESTMENT
- --------- --------------- ----------- --------- -----------
10/1/86 -- $ 10,000 -- $ 10,000
9/30/87 15.83 11,583 43.27 14,327
9/30/88 (27.86) 8,356 (12.54) 12,530
9/30/89 47.50 12,325 32.97 16,662
9/30/90 (32.27) 8,348 (9.23) 15,124
9/30/91 17.51 9,809 31.17 19,838
9/30/92 (4.47) 9,371 11.05 22,030
9/30/93 35.88 12,733 13.00 24,894
9/30/94 (17.24) 10,538 3.68 25,810
6/30/95 1.39 10,684 20.19 31,021
6/30/96 (4.38) 10,216 26.00 39,087
6/30/97 8.89 11,124 34.69 52,647
</TABLE>
41
<PAGE>
SIF
Total Return vs. S&P 500 Index
February 1, 1987 to December 31, 1994,
January 1, 1995 to June 30, 1995, and
July 1, 1995 to June 30, 1997
[A GRAPH WITH THE FOLLOWING PLOTTING POINTS APPEARS ON THIS PAGE]
<TABLE>
<CAPTION>
SIF S&P 500
--------------------------- ----------------------
<S> <C> <C> <C> <C>
STATUS OF STATUS OF
PERIOD PERCENT $10,000 PERCENT $10,000
ENDED CHANGE INVESTMENT CHANGE INVESTMENT
- --------- -------------- ----------- --------- -----------
1/1/87 -- $ 10,000 -- $ 10,000
12/31/87 (18.01) 8,199 5.10 10,510
12/31/88 (6.82) 7,640 16.61 12,256
12/31/89 8.13 8,261 31.69 16,140
12/31/90 (15.15) 7,009 (3.10) 15,640
12/31/91 32.95 9,310 30.47 20,406
12/31/92 (7.05) 8,654 7.62 21,961
12/31/93 2.89 8,904 10.08 24,175
12/31/94 (34.51) 5,831 1.38 24,508
6/30/95 9.68 6,395 20.21 29,461
6/30/96 (15.53) 5,402 26.00 37,121
6/30/97 (2.05) 5,291 34.69 49,999
</TABLE>
42
<PAGE>
STGF
Total Return vs. S&P 500 Index
January 1, 1987 to December 31, 1994,
January 1, 1995 to June 30, 1995, and
July 1, 1995 to June 30, 1997
[A GRAPH WITH THE FOLLOWING PLOTTING POINTS APPEARS ON THIS PAGE]
<TABLE>
<CAPTION>
STGF S&P 500
---------------------------- ------------------------
<S> <C> <C> <C> <C>
STATUS OF STATUS OF
PERIOD PERCENT $10,000 PERCENT $10,000
ENDED CHANGE INVESTMENT CHANGE INVESTMENT
- --------- -------------- ----------- ----------- -----------
1/1/87 -- $ 10,000 -- $ 10,000
12/31/87 (8.04) 9,196 5.10 10,510
12/31/88 (26.46) 6,763 16.61 12,256
12/31/89 29.37 8,949 31.69 16,140
12/31/90 (43.62) 4,933 (3.10) 15,640
12/31/91 28.51 6,339 30.47 20,406
12/31/92 (5.28) 6,004 7.62 21,961
12/31/93 (7.81) 5,535 10.08 24,175
12/31/94 (36.69) 3,504 1.38 24,508
6/30/95 (8.92) 3,191 20.21 29,461
6/30/96 (28.29) 2,288 26.00 37,l21
6/30/97 (33.42) 1,523 34.69 49,999
</TABLE>
43
<PAGE>
DESCRIPTION OF CAPITAL STRUCTURE OF THE FUNDS
AND SHAREHOLDER RIGHTS
Each Fund is organized as a common law trust under the laws of the
District of Columbia and has outstanding only one class of shares of
beneficial interest. All shareholders have equal voting rights, and all
shares participate equally in dividends and other distributions by the
respective Fund, and in the residual assets of such Fund in the event of
liquidation. Fractional shares have the same rights proportionately as do
full shares. Shares of the Funds have no preemptive rights and no conversion
or subscription rights. The Funds do not hold regularly scheduled annual
shareholders' meetings. Special meetings are called when required by
applicable laws and regulations. No shareholder of any Fund shall be subject
to any liability to any person in connection with the property or affairs of
any such Fund.
In addition, the governing documents of the Funds contain several other
provisions relating to shareholders' rights that are uncommon to most other
mutual funds including: (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
The following discussion is a general summary of the material provisions
of the Amended and Restated Trust Indenture of SST. The description of these
provisions is necessarily general and reference should be made in each case
to the complete documents set forth in Exhibit B hereto.
1. Election and Removal of Trustees. Trustees are chosen for a term
of unlimited duration. Trustees may only be removed by a vote of 90% of the
remaining Trustees or a vote of two-thirds of the shareholders.
2. Meetings of Shareholders. Special meetings of the Shareholders may
be called at any time by the Chairman or by a majority of the Trustees, and
shall be called upon written request of shareholders holding in the
aggregate not less than ninety percent (90%) of the outstanding shares
having voting rights. The Trustees shall promptly call a meeting of
shareholders for the purpose of voting upon the question of removal of
Trustees when requested to do so by the record holders of not less than
10% of the outstanding shares of the
44
<PAGE>
Fund.
3. Absence of Cumulative Voting. The Amended and Restated Trust
Indenture provides that there shall not be cumulative voting by
shareholders for the election of Trustees. The absence of cumulative
voting rights means that holders of a majority of the shares voted at a
meeting of shareholders may, if they so choose, elect all Trustees to
be selected, thus precluding minority shareholder representation among
the Trustees. Other than a provision of the Act requiring every
shareholder to have equal voting power, no provision of the Act
requires cumulative voting.
4. Possible Limitation on Acquisition. An existing provision of the
trust indenture of SAF permits the Trustees to limit the amount of SAF
shares owned at any one time by any one person to 5% of SAF shares. The
Amended and Restated Trust Indenture of SST retains this provision as a
means to allow the Trustees to prevent a person from becoming an
affiliated person within the meaning of Section 2 of the Investment
Company Act. There is no provision of the Act that limits the
percentage ownership one person may have in an open-end investment
company.
Not redeeming your shares prior to the Merger will result in the above
provisions applying to all shareholders should the Merger be consummated and
the Amended and Restated Trust Indenture be approved by shareholders of SST
at the Meeting.
REDEMPTION OF SHARES
Shareholders of the Funds do not have appraisal or other dissenter's rights
with respect to the Merger. However, shareholders of the Funds may redeem their
shares at any time before or after the closing date of the Merger at net asset
value. The proceeds will be paid by check within five business days after
receipt of a redemption request.
The redemption procedures of SST will not change as a result of the Merger.
The current redemption procedures are as follows:
Accounts without share certificates--A signed request (all joint owners
must sign) stating the amount to be withdrawn must be made to Steadman
Security Corporation, 1730 K Street, N.W., Washington, D.C. 20006. For
amounts more than $1,000, a "signature guarantee" will be necessary
from a commercial bank or trust company. Signature guarantees shall be
accepted from all eligible guarantor institutions, which include
domestic banks, brokers, dealers, credit unions, national securities
exchanges, registered securities associations, clearing agencies and
savings associations.
Instant Liquidity (by telephone)--Any amount may be withdrawn by
telephone by calling 1-800-424-8570 on any business day if telephone
withdrawals have been previously authorized on the Investment
Application. Telephone instructions from any person representing
himself or herself to be a shareholder or a shareholder's
representative, and believed by SSC, as Transfer Agent for the Fund, to
be genuine will be acted upon. No Fund
45
<PAGE>
nor the Transfer Agent will be liable for following unauthorized
instructions communicated by telephone that they reasonably believe
to be genuine. The Funds will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine.
Accounts with share certificates--The signed share certificates (all
joint owners must sign) together with a "signature guarantee" from an
eligible guarantor institution (see "Accounts 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 five business 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.
MANAGEMENT OF THE FUNDS
Under the laws of the District of Columbia, the Trustees are responsible for
managing the business and affairs of the Funds. Each Fund has entered into an
investment advisory agreement (the "Advisory Agreement") with SSC (sometimes
referred to herein as the "Advisor") which has its principal offices at 1730 K
Street, N.W., Washington, D.C. 20006. Upon the effectiveness of the Merger, SSC
will continue to be the Advisor to SST.
All voting stock of SSC is owned by United Securities, Inc., a Maryland
corporation whose sole shareholders are two of Mr. Charles W. Steadman's
adult children, Carole S. Kinney and Charles T.W. Steadman, and Mrs. Consuelo
M. Steadman, Mr. Charles W. Steadman's wife. Mr. Steadman has a long-term
employment contract with the Advisor under which he may be deemed a control
person.
Since commencing business through its predecessor, William Allen Steadman &
Company, in 1932, the Advisor has principally engaged in the business of
providing continuous investment supervision for the Funds. Under the terms of
the Advisory Agreement, the Advisor manages the
46
<PAGE>
investments of each Fund and is responsible for overall management of its
business affairs subject to supervision of the Trustees. Charles W. Steadman,
Chairman of the Board of Trustees and President of each Fund, is primarily
responsible for the day-to-day management of the Funds' portfolios. He has
been in mutual fund management for the past 29 years as Chairman of the Board
and President of Steadman Security Corporation. As compensation for its
services, each Fund pays to the Advisor a monthly advisory fee at the annual
rate of 1% of the first $35,000,000 of the average daily net asset value of
the Fund, 7/8 of 1% on the next $35,000,000 and 3/4 of 1% on all sums in
excess thereof. The advisory fee is higher than that paid by many other
investment companies. SSC also receives certain other fees, which are
described in the Statement of Additional Information.
The Advisor also receives reimbursements from each Fund for salaries and
benefits of its employees who perform directly attributable functions to such
Fund other than investment advisory and shareholder services. These functions
include: fund accounting, reviewing the Fund's internal financial reports;
coordinating the editing, printing and mailing of reports to the Fund's
shareholders; internal audit of the Fund's books, transactions, and daily
pricing; compliance with SEC regulation, including registration; preparation
of materials for Trustees' meetings; legal and other administrative
functions; and clerical assistance.
LEGAL PROCEEDINGS
The Funds are not parties to any material legal proceedings; however, the
Funds have been threatened with litigation to prevent consummation of the
Merger. In 1993, the Funds entered into a Settlement Agreement with
approximately 47 states with respect to the recovery of shares and
distributions owned by persons who had allegedly abandoned these properties.
The Settlement Agreement provides among other things, that the Shareholder
States will not request redemption of their shares until February 14, 1998.
The Shareholder States currently own shares in the Funds, which as of June
30, 1997 had a net asset value of approximately $1 million. The Shareholder
States are represented by the UPCH. In July 1997, at the request of the UPCH,
the Funds unconditionally agreed to remove the restriction on the redemption
of shares and to redeem prior to the Merger all of the shares of the Funds
owned by the Shareholder States upon their request. The Shareholder States
have no rights, priorities, or preferences over any other shareholders of the
Funds.
SELECTION OF INDEPENDENT AUDITORS
PROPOSAL NO. 2
(TO BE VOTED ON BY SHAREHOLDERS OF ALL FUNDS)
The Trustees of all of the Funds including a majority of the Trustees who
are not Interested Persons have selected the firm of Reznick Fedder & Silverman,
P.C. as independent auditors to examine the financial statements of each of the
Funds for the current fiscal year and for SST after completion of the Merger.
The Trustees know of no direct or indirect financial interest of such firm in
the Funds. The firm of Coopers & Lybrand L.L.P., which had been the independent
auditors for the year ended June 30, 1996, advised the Trustees on January 13,
1997 that they had resigned as auditor of the Funds. In its letter of
resignation, the firm of Coopers & Lybrand, L.L.P. stated that it had no
disagreements with the Funds' management concerning the scope of its services to
the Funds
47
<PAGE>
or with the Funds' accounting policies.
The selection of independent auditors is subject to the ratification or
rejection by the shareholders of each of the Funds. If the shareholders approve,
the firm of Reznick Fedder & Silverman, P.C. will serve as the independent
auditors of each of the Funds until the next meeting of shareholders. Unless
otherwise indicated, signed proxies will be voted in favor of the ratification
of the selection of such independent auditors. The Trustees recommend that
shareholders of the Funds vote "FOR" proposal 2.
Representatives of Reznick Fedder & Silverman, P.C. are expected to be
present at the Meeting and will have the opportunity to make a statement if they
so desire and to respond to questions from shareholders.
ELECTION OF TRUSTEES
OF
STEADMAN ASSOCIATED FUND
PROPOSAL NO. 3
(TO BE VOTED ON BY SHAREHOLDERS OF
STEADMAN ASSOCIATED FUND ONLY)
ELECTION OF TRUSTEES
Three Trustees have been nominated for election by the shareholders of SST.
Pursuant to the terms of the Amended and Restated Trust Indenture of SST,
Trustees shall be chosen for a term of unlimited duration, and shall hold office
until their successors shall be elected and qualified, provided that the term of
office will be terminated in the event of death, resignation, bankruptcy,
adjudicated incompetence or other incapacity to serve. The Trustees of SST
recommend that shareholders vote "FOR" the nominees being proposed.
Currently, the Fund has four Trustees, one of whom, Paul F. Wagner, was
appointed by the remaining trustees October 14, 1992 to fill a vacancy. This is
the first shareholders meeting since that date, and accordingly the shareholders
are being asked to approve Mr. Wagner's appointment. Two additional persons have
been nominated to serve as Trustees, William Mark Crain and Richard O. Haase. It
is intended that all properly executed proxies will be voted (unless such
authority has been withheld in the proxy) in favor of the persons designated as
Trustees to be elected by the shareholders.
The Trustees of SST know of no reason why any of these nominees will be
unable to serve, but in the event of any such unavailability, the proxies
received will be voted for such substitute nominee or nominees as the Trustees
may recommend.
48
<PAGE>
Certain information concerning the Trustees and the nominees is set forth
below.
<TABLE>
<CAPTION>
SHARES OF
PRINCIPAL SST
OCCUPATION DURING BENEFICIALLY
PAST FIVE YEARS AND TRUSTEE OWNED AT
NAME AND ADDRESS AGE PUBLIC DIRECTORSHIPS SINCE APRIL 15, 1997
- ---------------------------------------- --- ---------------------------------------- ----------- ---------------
<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
Richard O. Haase* 62 Vice President, Maiden, Haase & Smith, -- -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
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, 1997, the Trustees of the Fund held six meetings. All of the
Trustees then in office attended at least 80% of the total number of meetings of
the Trustees during such period.
INTERESTED PERSONS
SST considers Mr. Charles W. Steadman to be an "interested person" of the
Fund within the meaning of Section 2(a)(19) of the Investment Company Act as
a result of the position he holds with Steadman Security Corporation ("SSC"),
the Fund's investment adviser. Mr. Steadman is the Chairman and President of
the Fund.
COMPENSATION OF TRUSTEES
SSC, the investment adviser for SST, pays all compensation of all officers
of the Fund and all Trustees of the Fund who are affiliated with SSC. The Fund
pays each Trustee who is not
49
<PAGE>
affiliated with SSC a fee of $300 for each meeting attended, together with
such Trustee's actual out-of-pocket expenses relating to attendance at
meetings. These fees and expenses for the fiscal year ended June 30, 1997
totaled $4,844. After the Merger, the Trustees will continue to be
compensated at the same level.
OFFICERS OF SST
The Trustees of SST have elected the following persons as executive officers
of the Fund. The principal business address of each officer is 1730 K Street,
N.W., Washington, D.C. 20005. The following sets forth information concerning
each of these officers:
<TABLE>
<CAPTION>
TOTAL COMPENSATION*
----------------------------
<S> <C> <C> <C> <C> <C> <C>
NAME AND PRINCIPAL OCCUPATION OFFICER
DURING THE PAST FIVE YEARS OFFICE AGE SINCE SALARY BONUS OTHER
- ---------------------------------- ---------------------------- --- --------- --------- ------- -------
Charles W. Steadman............... President** 82 1968 $ 75,000 -0- -0-
Executive Vice President,
Max Katcher....................... Treasurer and Secretary** 67 1972 $ 26,000 -0- -0-
</TABLE>
- ------------------------
* For the year ended June 30, 1997
** Upon consummation of the Merger, Mr. Steadman's annual salary to be paid by
SST will be $113,000 and Mr. Katcher's annual salary to be paid by SST will
be $60,000, which amounts equal the aggregate salaries of Mr. Steadman and
Mr. Katcher for services currently provided to the four Funds individually.
RATIFICATION OF AMENDED AND RESTATED
TRUST INDENTURE OF STEADMAN SECURITY TRUST,
DATED MAY 2, 1997
PROPOSAL NO. 4
(TO BE VOTED ON BY SHAREHOLDERS OF
STEADMAN ASSOCIATED FUND ONLY)
In connection with the proposed Merger, the Trustees of SST have amended and
restated the Trust Indenture of the Fund to provide among other things for the
change of the Fund's name from Steadman Associated Fund to Steadman Security
Trust and the change in the Fund's investment policy. A complete copy of the
Amended and Restated Trust Indenture of Steadman Security Trust with amendments
through May 2, 1997 ("Amended and Restated Trust Indenture") is set forth on
Exhibit B to this Proxy Statement and Prospectus. The 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. The shareholders of SST are
being asked to ratify and confirm the Amended and Restated Trust Indenture.
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 in the investment policy of SST and incorporates such other
changes as are necessary to operate SST on a post-merger
50
<PAGE>
basis. In addition, the duration of the Fund has been extended to February
23, 2034.
The Amended and Restated Trust Indenture also reflects the current fee
arrangements entered into with Steadman Security Corporation, SST's advisor.
Additionally, it permits SST's advisor to execute portfolio transactions for
SST through such entities as the advisor determines, in its discretion, will
render satisfactory service to SST at standard and/or negotiated commission
rates. The Amended and Restated Trust Indenture also reflects renaming of SST
from the Steadman Associated Fund to the Steadman Security Trust.
By ratifying the Amended and Restated Trust Indenture, shareholders are also
voting to change the fundamental investment policy of SST from primarily capital
growth and secondarily current income to primarily current income and
secondarily to maximize total return.
The current investment policy of SAF states that the primary investment
objective of the Fund is capital growth. In addition, the realization of current
income is a secondary objective of the Fund as long as the secondary objective
does not conflict with the primary objective. As a result of this investment
objective, 96.6% of the investment portfolio of SAF consisted of common stock.
Following the ratification of the Amended and Restated Trust Indenture by
shareholders of SAF, which will include an amendment to the investment policy of
the Fund, the investment policy will be primarily to seek current income and
secondarily to maximize total return.
As a result of the change in the investment policy of the Fund to primarily
current income and secondarily to maximize total return, the Fund will
reorganize its investment portfolio. As part of this reorganization,
substantially all of the current investments the Fund will be sold and the Fund
intends to invest in higher yielding securities, including common stocks and
bonds. To the extent that the Fund has gains from the sale of its investments
that cannot be offset with net operating losses, the Fund will incur taxable
income. To the extent the Fund has losses from the sale of investments, the
losses will be added to, and may be subject to the same restrictions as, the net
operating loss carryforwards that the Fund has accumulated to date. There can be
no assurance, however, that the reorganization of the investment portfolio will
provide a sufficient yield so as to result in profitable operations, and it is
anticipated that operating expenses of SST after the Merger may exceed net
operating income before taking into account capital appreciation, if any
By ratifying the Amended and Restated Trust Indenture, shareholders are
ratifying certain existing provisions of the Amended and Restated SST Trust
Indenture that help the Fund maintain continuity and stability. An existing
provision of the trust indenture of SAF permits the Trustees to not issue shares
to a person if such issuance would cause the person to become an "affiliated
person" of the Fund within the meaning of Section 2 of the 1940 Act. This
provision generally gives the Trustees the ability to limit the amount of SAF
shares owned at any one time by any one person to 5% of SAF shares. The Amended
and Restated Trust Indenture of SST retains this provision. Additional
provisions include unlimited terms for trustees, limitations on the ability of
shareholders to remove trustees, limitations on the calling of special meetings
and non-cumulative voting in the election of trustees. For a more detailed
discussion
51
<PAGE>
of these provisions and their effect on shareholder rights, see "Description
of Capital Structure of the Funds and Shareholders Rights--Special Provisions
of SST."
INFORMATION CONCERNING THE MEETINGS
THE MEETINGS
The Meetings of the Funds will be held at ________ Hotel, Washington, D.C.
2000? at 9:30 a.m., Washington, D.C. time, on ______, 1997 and any adjournments
thereof. At the Meetings, shareholders of the Funds will be asked to consider
and vote upon Proposal No. 1, approval of the Merger Agreement, and the
transactions contemplated thereby, and (b) ratification of the selection of
independent auditors for each Fund (Proposal No. 2), and in addition
shareholders of SST will be asked to (a) elect trustees (Proposal No. 3) and (b)
ratify the Amended and Restated Trust Indenture of SST, which includes the
change of SST's fundamental investment policy from primarily capital growth and
secondarily current income to primarily current income and secondarily to
maximize total return (Proposal No. 4).
RECORD DATE; VOTE REQUIRED; SHARE INFORMATION
The Trustees of each Fund have fixed the close of business on _________,
1997 as the record date (the "Record Date") for the determination of
shareholders entitled to notice of, and to vote at, the Meetings. Pursuant to
the requirements of the 1940 Act, the affirmative vote of a majority of the
outstanding shares of each of the Funds, voting separately, in person or by
proxy at the Meetings and entitled to vote at the Meetings is required for
approval of Proposal No. 1. Each shareholder of a Fund will be entitled to
one vote for each share held of record at the close of business on the Record
Date. Shareholders of each of the Funds will vote on the Merger and the
Selection of Independent Auditors. Only shareholders of SST will vote on the
election of Trustees of SST and the ratification of the Amended and Restated
Trust Indenture, including changing the fundamental investment policy of SST.
Proposal No. 2 requires the affirmative vote of a majority of the shares of
each of the Funds, voting separately, cast in person or by proxy at the
Meetings. Proposals No. 3 and No. 4 require the affirmative vote of a
majority of the shares of SST cast in person or by proxy at the Meetings.
At the close of business on the Record Date, there were ______ shares of
SAIF, ______ shares of SAF, _____ shares of SIF and _____ shares of STGF issued
and outstanding. The presence in person or by proxy of the holders of 33% of
shares of each Fund constitutes a quorum for the transaction of business at such
Fund's Meeting. To the knowledge of the Trustees, as of the Record Date, no
person owned of 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
52
<PAGE>
represented by proxies which they are required to vote in favor of a Proposal
and all signed proxies to which no instruction on a Proposal is given, in
favor of an adjournment for the purpose of considering such Proposal at such
adjourned meeting, and will vote all shares which they are required to vote
against the Proposal, against an adjournment for the purpose of considering
such Proposal at such adjourned meeting.
PROXIES
The enclosed form of proxy, if properly executed and returned, will be
voted (or counted as an abstention or withheld from voting) in accordance with
the choices specified thereon, and will be included in determining whether there
is a quorum to conduct the Meeting. Signed proxies for which no instruction is
given on a particular Proposal will be voted "FOR" the Proposal.
Shares owned of record by broker-dealers for the benefit of their customers
("street account shares") will be voted by the broker-dealer based on
instructions received from its customers. If no instructions are received, the
broker-dealer may, as record holder, vote such shares on the respective Proposal
in the same proportion as that broker-dealer votes street account shares for
which voting instructions were received in time to be voted ("broker
non-votes"). Abstentions will be counted as present for purposes of determining
a quorum, will be counted as a vote cast at the Meeting, and with respect to
Proposal 1, will have the same effect as a vote against such Proposal. Broker
non-votes will be counted as present for determining a quorum but will not be
counted as a vote cast. The proxy may be revoked at any time prior to the voting
thereof by: (i) writing to the Secretary of the Fund at 1730 K Street, N.W.,
Washington, D.C. 20006; (ii) attending the Meeting and voting in person; or
(iii) signing and returning a new proxy (if returned and received in time to be
voted).
COSTS OF THE SOLICITATION AND THE REORGANIZATION
All expenses of this solicitation, including the cost of printing and
mailing this Proxy Statement and Prospectus to over 17,000 shareholders, will
be shared proportionately by the Funds, based upon the net asset value of
each of the Funds as of the date the Merger Agreement is signed. In addition
to the solicitation of proxies by mail, proxies may be solicited by officers
and employees of SSC, the Trust's investment adviser, personally or by
telephone or telegraph.
Expenses of the Merger will be paid as set forth in the Merger Agreement.
All out-of-pocket expenses of the Funds associated with the Merger, including
Fund accounting and transfer agent expenses, printing, postage, and mailing
expenses for over 17,000 shareholder accounts, filing and application fees, and
legal fees will be borne by the Funds proportionately to each Fund's net asset
value.
MISCELLANEOUS
FINANCIAL INFORMATION
Financial information as to SST and the other Funds is available without
charge upon written request to the Fund at 1730 K Street, N.W., Washington, D.C.
20006, and in its audited financial
53
<PAGE>
statements as of June 30, 1997 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 have been
filed with the SEC and are of public record, can be inspected and copied at
public reference facilities maintained by the SEC in Washington, D.C. and
certain of its regional offices, and copies of such materials can be obtained at
prescribed rates from the Public Reference Branch, Office of Consumer Affairs
and Information Services, SEC, 450 Fifth Street, N.W., Washington, D.C. 20549.
This registration statement, including all exhibits and schedules, and such
other information as may have been incorporated by reference herein, may also be
accessed electronically by means of the SEC's site on the World Wide Web at
http://www.sec.gov.
OTHER BUSINESS
The Trustees of the Funds know of no business other than the matters
specified above which will be presented at the Meetings. Since matters not known
at the time of the solicitation may come before the Meetings, the proxy as
solicited confers discretionary authority with respect to such matters as
properly come before the Meetings, including any adjournment or adjournments
thereof, and it is the intention of the persons named as attorneys-in-fact in
the proxy to vote this proxy in accordance with their judgment on such matters.
By Order of the Boards of Trustees
of
Steadman American Industry Fund
Steadman Associated Fund
Steadman Investment Fund
Steadman Technology and Growth Fund
Max Katcher, Secretary
September ___, 1997
54
<PAGE>
PART B: INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
ITEM 10. Cover Page
STATEMENT OF ADDITIONAL INFORMATION
September __, 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>
<CAPTION>
TABLE OF CONTENTS PAGE NO.
------------------------------------------------------ -----------
<S> <C>
Investment Techniques................................. B-2
Options on Stock Indices B-2
Portfolio Diversification............................. B-3
Tax Status............................................ B-3
Portfolio Turnover.................................... B-4
Other Investment Techniques........................... B-5
Performance Information............................... B-5
Trustees and Officers of the Fund..................... B-5
Principal Shareholders................................ B-6
Investment Advisory and Transfer Agent Fees........... B-6
</TABLE>
B-1
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE NO.
------------------------------------------------------ -----------
<S> <C>
Distribution Expense.................................. B-8
Portfolio Transactions and Brokerage Commissions...... B-8
Shareholder Investment Plan........................... B-10
Independent Accountants............................... B-10
Financial Statements and Related Information.......... B-10
</TABLE>
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 be an open-end management investment company under the name
Steadman Security Trust. The Other Funds comprise the Steadman Investment Fund,
the Steadman American Industry Fund and the Steadman Technology and Growth Fund.
INVESTMENT TECHNIQUES
The following information supplements and should be read in conjunction with
the section of the Fund's Prospectus entitled "Investment Policies, Objectives
and Techniques".
OPTIONS ON STOCK INDICES
Options on stock indices operate in much the same way as options on common
stock, except that the underlying instrument, rather than being a stock, is a
stock index such as the Standard & Poor's 500 Stock Index.
The Fund will utilize various investment techniques involving options on
stock market indices so as to enhance income. Call or put options may be
purchased or sold on these indices depending upon the market conditions as
viewed by the Advisor. The opportunity to realize a gain or loss on the
purchase or sale of an index option is based upon movements in the level of
prices in the stock market generally rather than changes in price of an
individual stock. Successful use of index option techniques is therefore
dependent upon the Advisor's ability to predict correctly movements in the
stock market in general or the index of underlying stocks in particular, and
this requires skills and techniques different from those involved in
predicting the price level change of individual stocks.
When purchasing a call on an index as an initial transaction, the maximum
gain is unlimited while the risk is limited to the amount of the premium paid
for the call. In selling a call on an index as an initial transaction, the
maximum gain is the amount of the premium realized in the sale of the call
whereas the risk is not limited by the price of an underlying security. When
purchasing a put on an index as an initial transaction, the maximum gain is
the difference between the exercise price and zero while the risk is limited
to the amount of the premium paid for the put. In selling a put on an index
as an initial transaction, the maximum gain is the amount of the premium
realized in the sale of the put whereas the risk is the difference between
the exercise price and zero.
B-2
<PAGE>
The Fund will cover call options on indices by owning securities whose price
changes, in the opinion of the Advisor, are expected to be similar to those of
the index, or in such other manner as may be in accordance with the guidelines
established by the SEC with respect to coverage of options strategies.
Nevertheless, where the Fund covers a call option on an index through ownership
of securities, such securities may not match the composition of the index. In
that event, the Fund will not be fully covered and could be subject to risk of
loss in the event of adverse changes in the value of the index. The Advisor will
monitor and make appropriate adjustments to insure that the Fund is adequately
covered if the index and the underlying securities diverge.
The Fund will cover put options on indices 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.
PORTFOLIO CONCENTRATION
The current concentration policy of SAF, as well as the other Funds, states
that it is not the policy of the Fund to invest 25% or more of the value of its
total assets in any one industry. However, when securities of a given industry
come to constitute 25% or more of the value of the Fund's total assets by reason
of changes in value of either the concentrated securities or other securities,
the excess need not be sold. Following the Merger, SST will have the same
concentration policy. As of June 30, 1997, SAF, STGF, and SAIF were concentrated
in certain industries in violation of their concentration policies. All of the
Funds are currently in compliance with their concentration policy.
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
corporate tax rules under Subchapter C of the Code. It is anticipated that
such tax status as a non-RIC shall continue indefinitely.
In the event the Fund qualifies as a RIC in the future, distributions of
any taxable net
B-3
<PAGE>
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.
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
B-4
<PAGE>
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 conditions and the economic environment in which
the Fund must operate. Thus it is not practical to predict the extent to
which the Fund will or may engage in such activities. The Fund intends to
engage in these activities to the maximum extent permissible under applicable
laws and regulations when, in the judgment of the Advisor such activities
appear to be beneficial to the Fund and its shareholders. Accordingly, the
risks involved in an investment in the Fund may be greater than the risks
generally associated with many other mutual funds.
PERFORMANCE INFORMATION
The Fund will calculate its total rate of return for certain periods by
determining the average annual compounded rates of return over these periods
that would cause an investment of $1,000 (with all distributions reinvested)
to reach the value of that investment at the end of the periods. The Fund may
also calculate total rates of return which represent aggregate performance
over a period or year-by-year performance. The average annual total rate of
return for the shares of SST for the one year, five year, and ten year
periods ended June 30, 1997 are 8.89%, 2.21%, and 1.00% 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, 1997 are 0.56%,
(13.06)%, and (11.83)%,
B-5
<PAGE>
respectively for SAIF, (2.05)%, (9.76)%, and (5.88)%, respectively for SIF,
and (33.42)%, (22.84)%, and (16.41)%, 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, Hines & Avery, Inc., a
Washington, D.C. Public Affairs firm. Age 80.
MAX KATCHER, Executive Vice President, Secretary and Treasurer of the
Fund, Executive Vice President of SSC. Age 67.
E. JEAN BELLOSI, Assistant Secretary of the Fund, Secretary of SSC. Age
57.
- ------------------------
* Interested person as defined by Section 2(a)(19) of the Investment Company
Act.
The Trustees and officers hold the same positions relative to the Other
Funds, which Other Funds are proposed to be merged into the Fund.
The address of all of the officers of the Fund is 1730 K Street, NW,
Washington, DC 20006.
On June 30, 1997, the Trustees and Officers of the Fund, as a group
beneficially owned 16,434.691 shares in the Fund and 1,821.711 shares of the
Other Funds which is less than one percent of each of the Fund's equity
securities.
During the fiscal year ended June 30, 1997, the Fund paid $4,844 in fees
and expenses to all Trustees except Mr. Steadman who received no such fees or
expenses. Trustees are paid $300 per meeting attended, except Mr. Steadman.
During the fiscal year ended June 30, 1997, the Other Funds paid $17,432 in
fees and expenses to all Trustees except Mr. Steadman, who received no such
fees or expenses. The Other Funds Trustees are paid $300 per meetings
attended, except Mr. Steadman. Upon the merger into the Fund, the Trustees
will be compensated at the same level.
PRINCIPAL SHAREHOLDERS
B-6
<PAGE>
On June 30, 1997, no person beneficially owned more than 5% of the then
outstanding shares of the Fund or each of the Other Funds.
INVESTMENT ADVISORY AND TRANSFER AGENT FEES
SSC provides investment advisory services under an agreement which continues
in effect subject to annual approval by the Trustees or by a majority of the
outstanding voting securities of the Fund, provided that in either event, the
continuance is also approved by a majority of the Trustees who are not
"interested persons" of the Fund or of SSC. The fees for investment advisory
services arc computed as follows: 1% of the first $35,000,000 of net assets, 7/8
of 1% of the next $35,000,000 and 3/4 of 1% of all sums in excess thereof.
The Fund paid investment advisory fees during the fiscal years ended
June 30, 1997 and 1996, the fiscal period ended June 30, 1995*, and the fiscal
year ended September 30, 1994 as follows: 1997-$45,410; 1996-$51,706;
1995-$41,902; and 1994-$74,029. The Other Funds paid aggregate investment
advisory fees during the fiscal years ended June 30, 1997 and 1996, the fiscal
period ended June 30, 1995*, and in the case of SAIF, the fiscal year ended
January 31, 1994 and in the case of SIF and STGF, the fiscal year ended
December 31, 1994 as follows: 1997-$31,747; $1996-$40,338; 1995-$20,833; and
1994-$59,119.
Under an agreement with the Fund which is contained in the approved
minutes of the Fund, SSC serves as Transfer and Dividend Disbursing Agent and
Agent for Administration of Shareholder Accounts (hereinafter "delegated
services") for the Fund and the Other Funds. The fee for such services is
computed on the basis of the number of shareholder accounts calculated as of
the last business day of each month at $1.35 per account, per month. This
agreement is embodied in resolutions by the Trustees. The last increase in
fee amount was made on May 21,1986 (effective retroactive to May 1, 1986) and
renewed annually by the Trustees since that date.
The Fund paid fees for delegated services during
the fiscal year ended June 30, 1997 and 1996, the fiscal period ended June 30,
1995*, and the fiscal year ended September 30, 1994 as follows: 1997-$36,859;
1996-$41,214; 1995-$33,620; and 1994-$47,679. The Other Funds paid aggregate
fees for delegated services during the fiscal year ended June 30, 1997 and 1996,
the fiscal period ended June 30, 1995*, and in the case of SAIF the fiscal year
ended January 31, 1994 and in the case of SIF and STGF, the fiscal year ended
December 31, 1994 as follows: 1997-$265,147; 1996-$283,427; 1995-$135,292; and
1994-$303,110.
The Fund and the Other Funds also reimbursed SSC for salaries and fringe
benefits, including payroll taxes and group insurance, of its employees who
perform functions other than investment advisory and shareholder services during
the fiscal year ended June 30, 1997 of $174,244 and $163,854, respectively.
SSC assumes no responsibility under the Agreement other than to render the
services called
- ---------------------------------
*The Funds' fiscal year was changed to June 30.
B-7
<PAGE>
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, and office space rent; and
(xvi) all other ordinary expenses of operation. The Fund also will pay all
extraordinary expenses of whatever kind unless such expenses have been
specifically assumed by the Advisor. The Other Funds have similar agreements.
DISTRIBUTION EXPENSES
The Fund and the Other Funds pay all fees and expenses in connection with
registering their shares under federal and state securities laws; preparing,
printing, and mailing their prospectuses and reports to shareholders; and
issuing shares, including expenses of confirming purchase orders. Upon
completion of the merger of the Other Funds into the Fund, the Fund will not
be offering fund shares on a regular basis except pursuant to a dividend
reinvestment plan, if offered by the Fund. Depending on the performance of
the Fund and other considerations, the Trustees intend to examine the
possibility of offering additional Fund shares in the future.
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 considerations, the Fund
has authorized SSC to place a portion of such business on a principal or
agency basis with eligible brokers who have provided statistical, quote and
research material to the Advisor. Research services include written
B-8
<PAGE>
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 a 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:
<TABLE>
<CAPTION>
FUND OTHER FUNDS(2)
-------------------------- ---------------------------
BROKERAGE TRANSACTIONS BROKERAGE TRANSACTIONS
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
06/30/97 $ 88,713 $ 16,916,669 $ 53,591 $ 9,835,742
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
</TABLE>
- ------------------------
(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, 1997, the Advisor directed
brokerage
B-9
<PAGE>
transactions and paid brokerage commissions as follows because of
research services provided by Reich & Co., Inc. of $31,000 on transactions of
$6.0 million. During the Other Funds' fiscal year ended June 30, 1997, the
Advisor directed brokerage transactions and paid brokerage commissions as
follows because of research services provided by Reich & Co., Inc. of $18,000 on
transactions of $3.4 million. Brokerage commissions were directed to Reich &
Co., Inc. pursuant to an understanding that quotation services and devices would
be provided to the Advisor in exchange for these brokerage commissions.
The following table details transaction amounts and commissions paid to
brokers during the last fiscal year for the Fund and the Other Funds as well
as the percentage of transactions and commissions as related to the total for
the Fund and the Other Funds.
Fund
<TABLE>
<CAPTION>
BROKER TRANSACTIONS % OF TOTAL COMMISSIONS % OF TOTAL
- --------------------------------- ------------- ---------------- ------------ -----------
<S> <C> <C> <C> <C>
Reich & Co., Inc................. $ 14,866,281 87.88% $ 78,081 88.02%
Dean Witter...................... 2,023,138 11.96 10,132 11.42
Ryan Hartley & Lee, Inc.......... 27,250 0.16 500 0.56
------------- ---------------- ------------ -----
Totals........................... $ 16,916,669 100.00% $ 88,713 100.00%
------------- ---------------- ------------ -----
------------- ---------------- ------------ -----
</TABLE>
OTHER FUNDS
<TABLE>
<CAPTION>
BROKER TRANSACTIONS % OF TOTAL COMMISSIONS % OF TOTAL
- ---------------------------------- ------------ ---------------- ------------ -----------
<S> <C> <C> <C> <C>
Reich & Co., Inc.................. $ 8,436,804 85.78% $ 44,511 83.06%
Dean Witter....................... 1,398,938 14.22 9,080 16.94
------------ ---------------- ------------ -----
Totals............................ $ 9,835,742 100.00% $ 53,591 100.00%
------------ ---------------- ------------ -----
------------ ---------------- ------------ -----
</TABLE>
SHAREHOLDER INVESTMENT PLAN
The 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.
INDEPENDENT ACCOUNTANTS
Reznick Fedder & Silverman, P.C., 4520 East West Highway, Bethesda,
Maryland 20814, has been selected as the independent accountants for the Fund
and provides audit and tax service.
B-10
<PAGE>
ITEM 14. Financial Statements.
FINANCIAL STATEMENTS AND RELATED INFORMATION
The Fund's Financial Statements and related notes for the fiscal year
ended June 30, 1997 follow:
Financial Statements and information of the Fund and the Other Funds
listed below are included in part B hereof.
- -- Independent Auditors' Report of Reznick Fedder & Silverman, P.C.,
dated July 25, 1997.
- -- Report of Independent Accountants, Cooper& Lybrand L.L.P., dated
July 29, 1996, except for Steadman Associated Fund for which the date is
August 6, 1996.
- -- Portfolio of Investments, June 30, 1997.
- -- Statement of Assets and Liabilities, June 30, 1997.
- -- Statement of Operations, for the year ended June 30, 1997.
- -- Statements of Changes in Net Assets, for the years ended June 30, 1997
and 1996.
- -- Financial Highlights, for the years ended June 30, 1997 and 1996, for the
period October 1, 1994 through June 30, 1995, and each of the three years
in the period ended September 30, 1994 for the Steadman Associated Fund;
for the years ended June 30, 1997 and 1996, for the period February 1, 1995
through June 30, 1995, and each of the three years in the period ended
January 31, 1995 for the Steadman American Industry Fund; and for the years
ended June 30, 1997 and 1996, for the period January 1, 1995 through
June 30, 1995, and each of the three years in the period ended December 31,
1994 for the Steadman Investment Fund and the Steadman Technology and
Growth Fund.
- -- Notes to Financial Statements listed above.
B-11
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholder and Board of
Trustees of Steadman American Industry Fund
We have audited the accompanying statement of assets and liabilities of
Steadman American Industry Fund, including the portfolio of investments, as of
June 30, 1997, and the related statements of operations, changes in net assets
and the financial highlights for the year then ended. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit. The statement of changes in net assets
for the year ended June 30, 1996 and the financial highlights for the year ended
June 30, 1996 and the period February 1, 1995 through June 30, 1995 and each of
the three years in the period ended January 31, 1995 were audited by other
auditors whose report, dated August 6, 1996, expressed an unqualified opinion on
the statement of changes in net assets and those financial highlights.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of June 30, 1997, by correspondence with the
custodian and/or broker. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Steadman American Industry Fund as of June 30, 1997, the results of its
operations, the changes in its net assets, and the financial highlights for the
year then ended, in conformity with generally accepted accounting principles.
Reznick Fedder & Silverman
Bethesda, Maryland
July 25, 1997
<PAGE>
[Letterhead of Coopers & Lybrand]
REPORT OF INDEPENDENT ACCOUNTANTS
-------------
To the Board of Trustees of
Steadman American Industry Fund
We have audited the statement of changes in net assets for the year ended
June 30, 1996 and the financial highlights for the year ended June 30, 1996, the
five months ended June 30, 1995, and each of the three years in the period ended
January 31, 1995 of the Steadman American Industry Fund (the "Fund"). This
financial statement and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on this financial
statement and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards required that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statement and financial highlights referred to
above present fairly, in all material respects, the changes in net assets for
the year ended June 30, 1996 and the financial highlights of the Fund for each
of the respective periods stated in the first paragraph in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
July 29, 1996
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997
<TABLE>
<S> <C>
Assets
Investments at value (cost $635,561) (note 1)................................ $ 955,375
Dividends receivable......................................................... 769
Interest receivable.......................................................... 330
Cash and cash equivalents (note 1)........................................... 70,678
Due from affiliate........................................................... 3,896
----------
Total assets............................................................ 1,031,048
----------
Liabilities
Accounts payable and accrued expenses........................................ 54,660
Payable for trust shares redeemed............................................ 291
----------
Total liabilities....................................................... 54,951
----------
NET ASSETS.............................................................. $ 976,097
----------
----------
Net assets consist of
Accumulated net investment loss.............................................. $(4,220,318)
Unrealized appreciation of investments....................................... 319,814
Accumulated net realized losses plus distributions from realized gains....... (951,213)
Capital paid in less distributions since inception........................... 5,827,814
----------
$ 976,097
----------
----------
Net asset value, offering price and redemption price per share
($976,097/1,346,814 shares of no par value trust shares)................... $ 0.72
----------
----------
</TABLE>
The accompying notes are an integral part of the financial statements
-3-
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended June 30,
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Increase (decrease) in net assets from operations
Net investment loss..................................................................... $ (301,308) $ (294,205)
Net realized gain from investment transactions.......................................... 8,916 73,821
Change in unrealized appreciation/(depreciation) of
investments........................................................................... 300,735 (10,496)
---------- ----------
Net increase (decrease) in net assets resulting
from operations....................................................... 8,343 (230,880)
Decrease in net assets from trust share transactions (note 2).............................. (40,054) (102,199)
---------- ----------
Decrease in net assets.................................................................. (31,711) (333,079)
Net assets at beginning of period.......................................................... 1,007,808 1,340,887
---------- ----------
Net assets at end of period, (including accumulated net investment loss of $4,219,949
and $3,918,641)....................................................................... $ 976,097 1,007,808
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements
-4-
<PAGE>
STATEMENT OF OPERATIONS
For the year ended June 30, 1997
<TABLE>
<S> <C> <C>
Investment Income
Dividends......................................................................... $ 20,973
Interest.......................................................................... 3,117
---------
Total income................................................................ $ 24,090
Expenses
Shareholder servicing fee (note 4)................................................ 149,345
Salaries and employee benefits (note 4)........................................... 49,285
Professional fees................................................................. 42,448
Proposed merger expense (note 7).................................................. 34,493
Miscellaneous..................................................................... 8,482
Investment advisory fee (note 4).................................................. 10,521
Reports to shareholders........................................................... 12,026
Rent.............................................................................. 7,244
Trustees' fees and expenses (note 4).............................................. 5,944
Computer services................................................................. 3,655
Custodian fees.................................................................... 1,955
---------
Total expenses............................................................. 325,398
---------
Net investment loss........................................................ (301,308)
---------
Realized and Unrealized Gain (Loss) on Investments (note 1 and 3)
Net realized loss from investment transactions.................................... 8,916
Change in unrealized appreciation/(depreciation) of investments................... 300,735
---------
Net gain on investments..................................................... 309,651
---------
Net increase in net assets resulting from operations........................ $ 8,343
---------
---------
</TABLE>
The accompanying notes are an integral part of the financial statements
-5-
<PAGE>
PORTFOLIO OF INVESTMENTS
June 30, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
---------- ---------
<S> <C> <C>
COMMON STOCKS--100%
Computer peripherals--7.0%
Cisco System (a)........................................................................ 1,000 $ 67,125
---------
Total computer peripherals...................................................... 67,125
---------
Computer software--10.5%
Oracle Corp. (a)........................................................................ 2,000 100,750
---------
Total Computer Software......................................................... 100,750
---------
Motor vehicles--19.8%
Ford motors............................................................................. 5,000 188,750
---------
Total motor vehicles............................................................ 188,750
---------
Semiconductor--47.8%
Intel Corp. warrants (a)................................................................ 4,500 456,750
---------
Total semiconductor............................................................. 456,750
Telecom services--6.5%
Champion Technology Holding Ltd......................................................... 100,000 62,000
---------
Total telecom services.......................................................... 62,000
---------
Telephone services--8.4%
Worldcom Inc. (a)....................................................................... 2,500 80,000
---------
Total telephone services........................................................ 80,000
---------
Total Portfolio of Investment (Cost $635,561)........................................ $ 955,375
----------
----------
</TABLE>
(a) Non-income producing security
The accompanying notes are an integral part of the financial statements
-6-
<PAGE>
STEADMAN AMERICAN INDUSTRY FUND
FINANCIAL HIGHLIGHTS
June 30, 1997
<TABLE>
<CAPTION>
FOR PERIOD
FOR THE FOR THE YEAR FEBRUARY 1,
YEAR ENDED ENDED 1995 THROUGH
JUNE 30, JUNE 30, JUNE 30, FOR THE YEAR ENDED JANUARY 31,
----------------- ----------------- ----------------- --------- --------- ---------
1997 1996 1995* 1995 1994 1993
----------------- ----------------- ----------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Per share operating
performance:
Net asset value, beginning of
period..................... $ 0.72 $ 0.88 $ 0.96 $ 1.65 $ 1.50 $ 1.54
----------------- ----------------- ----------------- --------- --------- ---------
Net investment loss.......... (0.33) (0.41) (0.12) (0.26) (0.24) (0.19)
Net realized and unrealized
gain (loss) on
investments................ 0.33 0.25 0.04 (0.43) 0.39 0.15
----------------- ----------------- ----------------- --------- --------- ---------
Total from investment
operations................. -- (0.16) (0.08) (0.69) 0.15 (0.04)
----------------- ----------------- ----------------- --------- --------- ---------
Net asset value, end of
period..................... $ 0.72 $ 0.72 $ 0.88 $ 0.96 $ 1.65 $ 1.50
----------------- ----------------- ----------------- --------- --------- ---------
----------------- ----------------- ----------------- --------- --------- ---------
Ratios/Supplemental Data:
Total return................. (56.00)% (18.48)% (20.01)%** (41.82)% 10.00% (2.60)%
Ratio of expenses to average
net assets................. 31.07% 24.61% 24.62%** 17.69% 12.66% 14.83%
Ratio of net investment loss
to average net assets...... (28.77)% (24.10)% (22.86)%** (15.63)% (11.40)% (13.52)%
Portfolio turnover rate...... 128 339% 617%** 289% 134% 221%
Net assets, end of period (in
thousands)................. $ 976 $ 1,008 $ 1,341 $ 1,472 $ 2,627 $ 2,496
</TABLE>
* The Fund's fiscal year-end was changed to June 30.
** Annualized
The accompanying notes are an integral part of the financial statements
-7-
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
Steadman American Industry Fund (the Fund) is registered under the
Investment Company Act of 1940, as amended, as a nondiversified, open-end
investment company.
The preparation of financial statements is conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements.
CASH AND CASH EQUIVALENTS
Management defines cash equivalents as investments that mature in three
months or less when acquired. All cash and cash equivalents are invested in a
single money market fund maintained by the investment custodian.
SECURITY VALUATION
Investments in securities traded on a national securities exchange are
valued at the last reported sales price on the last business day of the period.
Investment for which no sale was reported on that date are valued at the mean
between the latest bid and asked prices.
SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are recorded on the trade date. Realized gains and
losses from security transactions are reported on an identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income and
expenses are recorded on the accrual basis.
INCOME TAXES
The Fund is subject to income taxes in years when it does not qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code.
The Fund accounts for income taxes using the liability method, whereby deferred
tax assets and liabilities arise from the tax effect of temporary differences
between the financial statement and tax bases of assets and liabilities,
measured using presently enacted tax rates. If it is more likely than not that
some portion or all of a deferred tax asset will not be realized, a valuation
allowance is recognized.
-8-
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 1997
NOTE 2 -- TRUST SHARES
The Trust Indenture does not specify a limit to the number of shares which
may be issued. Transactions in trust shares were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
JUNE 30, 1997 JUNE 30, 1996
---------------------- -----------------------
<S> <C> <C> <C> <C>
SHARES AMOUNT SHARES AMOUNT
---------- ---------- ---------- -----------
Shares sold.................................................... -- $ -- -- $ --
Shares redeemed................................................ (51,675) (40,054) (117,686) (102,199)
---------- ---------- ---------- -----------
Net decrease................................................... (51,675) $ (40,054) (117,686) $ (102,199)
---------- -----------
---------- -----------
Shares outstanding
Beginning of period.......................................... 1,398,489 1,516,175
---------- ----------
End of period................................................ 1,346,814 1,398,489
---------- ----------
---------- ----------
</TABLE>
NOTE 3 -- PURCHASES AND SALES OF SECURITIES
During the year ended June 30, 1997, purchases and proceeds from sales of
investment securities aggregated $1,271,367 and $1,466,133, respectively.
Unrealized appreciation of investments aggregated $319,814 of which $645,239
related to gross unrealized appreciation in which value exceed tax cost and
$325,425 related to gross unrealized depreciation in which tax cost exceeded
market value.
NOTE 4 -- INVESTMENT ADVISORY FEE AND TRANSACTIONS WITH AFFILIATES
Steadman Security Corporation (SSC), an affiliate, has provided advisory
services under an agreement which first become effective in 1972. On February
28, 1984, at the Annual Meeting of the shareholders, a new Investment Advisory
Agreement was approved. Under the new advisory agreement, SSC will continue to
provide the same services it provided under the same terms and condition of the
previous agreement. The agreement will continue in effect subject to the annual
approval of the Board of Trustees or by a majority of the outstanding voting
securities of the Fund. The fee for investment advisory services is based on 1%
of the first $35,000,000 of the average daily net assets of the Fund, 7/8 of 1%
on the next $35,000,000 and 3/4 of 1% on all sums in excess thereof. In addition
to the investment advisory fee, SSC received shareholder
-9-
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 1997
NOTE 4 -- INVESTMENT ADVISORY FEE AND TRANSACTIONS WITH AFFILIATES
(Continued)
servicing fees from the Fund for the performance of delegated services
(dividend disbursing agent and transfer agent) as defined in the Trust
Indenture, as amended. The fee for such services was computed on the basis of
the number of shareholder accounts calculated as of the last business day of
each month at $1.35 per account. SSC received reimbursements from the Fund
for the salaries and benefits of its officers and employees who performed
functions other than investment advisory and shareholder service functions
for the Fund.
Certain officers and trustees of the Fund are "affiliated persons" of the
Investment Adviser, as defined by the Investment Company Act of 1940.
NOTE 5 -- FEDERAL INCOME TAXES
In the fiscal year ended June 30, 1997, the Fund did not meet the asset
diversification requirements applicable to regulated investment companies. Thus,
the Fund did not qualify as regulated investment company under Subchapter M of
the Internal Revenue Code. However, the Fund had a net investment loss in the
fiscal year ended June 30, 1997, therefore no income tax provision is required.
A full valuation allowance was provided for deferred tax assets, totaling
approximately $1,971,000 at June 30, 1997, which arise principally from net
operating loss carryforwards and capital carryforwards available for income tax
purposes.
For income tax purposes, the Fund has net operating loss carryovers
approximating $4,235,000 which are available to offset future net operating
income in non-qualifying years, if any, which expire as follows: (1999)$74,000;
(2000) $239,000; (2001) $139,000; (2002) $353,000; (2003) $371,000; (2004)
$235,000; (2005) $384,000; (2006) $365,000; (2007) $360,000; (2008) $335,000;
(2009) $322,000; (2010) $447,000 (2011) $295,000 and (2012) $316,000. Capital
loss carryforwards aggregating approximately $951,000 are available to offset
future capital gains, it any, which expire as follows: (1997) $110,000; (1999)
$771,000; and (2000) $70,000.
-10-
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONTINUED
JUNE 30, 1997
NOTE 6 -- EXPIRATION OF SHAREHOLDER STATES REDEMPTION RESTRICTION
In 1993 the Fund entered into a Settlement Agreement with approximately 47
states (the "Shareholder States") with respect to the recovery of shares and
distributions owned by persons who had allegedly abandoned these properties. The
Settlement Agreement provides among other things, that the Shareholders States
will not request redemption of their shares until February 14, 1998. The
Shareholder States currently own 22% of shares in the Fund. In July 1997, the
Fund agreed to remove this restriction and allow Shareholder States to redeem
shares upon request.
NOTE 7 -- PROPOSED MERGER
During 1997, management proposed a merger of Steadman American Industry
Fund, Steadman Investment Fund, and Steadman Technology and Growth Fund with and
into the Steadman Associated Fund, which will change to a close-end investment
company whose name will change to Steadman Security Trust (SST). In connection
with the merger, SST will amend its investment objective to primarily seek
current income and secondarily to maximize total return. Following the proposed
merger, fund shares no longer will be sold or redeemed by SST on a request
basis, but may be sold to other investors in market transactions. The costs
associated with the proposed merger are allocated to all the funds based on the
respective net asset values of the funds. The proposed merger requires approval
by the share-holders. A Registration Statement of Form N-14 is pending SEC
regulatory approval and the proposed merger requires the approval of the
Shareholders of all of the funds.
-11-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Trustees of
Steadman Associated Fund
We have audited the accompanying statement of assets and liabilities of
Steadman Associated Fund, including the portfolio of investments, as of June
30, 1997, and the related statements of operations, changes in net assets and
the financial highlights for the year then ended. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit. The statement of changes in net
assets for the year ended June 30, 1996 and the financial highlights for the
year ended June 30, 1996 and the period October 1, 1994 through June 30, 1995
and each of the three years in the period ended September 30, 1994 were
audited by other auditors whose report, dated August 6, 1996, expressed an
unqualified opinion on the statement of changes in net assets and those
financial highlights.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned as of June 30, 1997,
by correspondence with the custodian and/or broker. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Steadman Associated Fund as of June 30, 1997, the results of its
operations, the changes in its net assets, and the financial highlights for
the year then ended, in conformity with generally accepted accounting
principles.
Reznick Fedder & Silverman
Bethesda, Maryland
July 25, 1997
<PAGE>
[Letterhead of Coopers & Lybrand]
REPORT OF INDEPENDENT ACCOUNTANTS
------------------
To the Board of Trustees of
Steadman Associated Fund
We have audited the statement of changes in net assets for the year ended
June 30, 1996 and the financial highlights for the year ended June 30, 1996,
the nine months ended June 30, 1995, and each of the three years in the
period ended September 30, 1994 of the Steadman Associated Fund (the "Fund").
This financial statement and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on this
financial statement and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards required that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statement and financial highlights referred
to above present fairly, in all material respects, the changes in net assets
for the year ended June 30, 1996 and the financial highlights of the Fund for
each of the respective periods stated in the first paragraph in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
August 6, 1996
<PAGE>
PORTFOLIO OF INVESTMENTS
June 30, 1997
<TABLE>
<CAPTION>
Shares Value
(note 1)
---------- ----------------
<S> <C> <C>
COMMON STOCKS--99.8%
Aircraft--8.1%
Boeing Co. (a).................................................... 6,500 $ 344,906
----------------
Total Aircraft............................................... 344,906
----------------
Computer Equipment--5.3%
Hewlett Packard................................................... 4,000 224,000
----------------
Total Computer Equipment..................................... 224,000
----------------
Computer Software--29.1%............................................
Microsoft Corp. (a)............................................... 9,000 1,137,375
Oracle Corp. (a).................................................. 2,000 100,750
----------------
Total Computer Software...................................... 1,238,125
----------------
Computer Switching--2.0%
Xylan Corp. (a)................................................... 5,000 85,000
----------------
Total Computer Switching..................................... 85,000
----------------
Computer Systems Design--7.0%
Sun Microsystems (a).............................................. 8,000 297,750
----------------
Total Computer Systems Design................................ 297,750
----------------
Mail Order Houses--6.1%
Gateway 2000 (a).................................................. 8,000 259,500
----------------
Total Mail Order Houses...................................... 259,500
----------------
Motor Vehicles--8.5%
Ford Motor Co..................................................... 5,000 188,750
General Motors "H"................................................ 3,000 173,250
----------------
Total Motor Vehicles......................................... 362,000
----------------
</TABLE>
(continued)
-3-
<PAGE>
PORTFOLIO OF INVESTMENTS - CONTINUED
June 30, 1997
(a) Non-income producing security.
<TABLE>
<CAPTION>
Value
Shares (note 1)
--------- ------------
<S> <C> <C>
Semiconductor--19.9%
Intel Corp. Warrants (a).............................................................. 6,000 609,000
LSI Logic (a)......................................................................... 7,500 240,000
------------
Total Semiconductor............................................................... 849,000
------------
Telcom Mfg.--2.5%
Lucent Technologies................................................................... 1,500 108,094
------------
Total Telecom Mfg................................................................. 108,094
------------
Telephone Services--11.3%
Worldcom Inc. (a)..................................................................... 15,000 480,000
------------
Total Telephone Services.......................................................... 480,000
------------
Total Common Stocks (Cost $3,029,393)............................................. 4,248,375
------------
CALL OPTIONS PURCHASED--.2%
LSI Logic, 10/18/97 at $40............................................................ 2,500 4,688
Seagate Technology, 9/20/97 at $47.50................................................. 5,000 2,181
------------
Total Call Options Purchased (Cost $63,025)....................................... 6,869
------------
Total Portfolio of Investments (Cost $3,092,418).................................. $ 4,255,244
------------
------------
</TABLE>
(a) Non-income producing security.
The accompanying notes are an integral part of the financial statements
-4-
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997
<TABLE>
<S> <C>
Assets
Investments at value (Cost $3,092,418)(note 1).............................. $ 4,255,244
Cash and cash equivalents (note 1).......................................... 235,550
Dividends receivable........................................................ 560
Interest receivable......................................................... 1,425
Due from affiliate.......................................................... 3,896
-----------
Total assets.............................................................. 4,496,675
-----------
Liabilities
Accounts payable and accrued expenses....................................... 87,142
Investment advisory and service fees payable (note 4)....................... 3,712
Other payable to affiliate (note 4)......................................... 2,969
Payable for trust shares redeemed........................................... 1,693
Miscellaneous payable....................................................... 4,175
-----------
Total liabilities......................................................... 99,691
-----------
Net Assets................................................................ $ 4,396,984
-----------
-----------
Net assets consist of
Undistributed net investment loss........................................... $(5,181,222)
Unrealized appreciation of investments...................................... 1,162,826
Accumulated net realized losses from security transactions.................. (821,035)
Paid-in capital............................................................. 9,236,415
-----------
$ 4,396,984
-----------
-----------
Net asset value, offering price and redemption price per share ($4,396,984
DIVIDED BY 5,768,032 shares of no par value trust shares)..................... $ 0.76
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements
-5-
<PAGE>
STATEMENT OF OPERATIONS
For the year ended June 30, 1997
<TABLE>
<S> <C> <C>
Investment Income
Dividends.............................................................. $ 12,759
Interest............................................................... 14,646
---------
Total income..................................................... $ 27,405
---------
Expenses
Salaries and employee benefits (note 4)................................ 174,244
Investment advisory fee (note 4)....................................... 45,410
Professional fees...................................................... 62,741
Proposed merger expense (note 7)....................................... 162,690
Shareholder servicing fee (note 4)..................................... 36,859
Rent................................................................... 31,257
Miscellaneous.......................................................... 22,790
Blue Sky Registration Fees............................................. 1,800
Custodian fees......................................................... 6,447
Computer services...................................................... 5,917
Reports to shareholders................................................ 6,818
Trustees' fees and expenses (note 4)................................... 4,719
---------
Total expenses................................................... 561,692
---------
Net investment loss.............................................. (534,287)
---------
Realized and Unrealized Gain/(Loss) on Investments (notes 1 and 3)
Net realized gain from investment transactions......................... 306,022
Change in unrealized appreciation/(depreciation) of investments........ 644,512
---------
Net gain on investments................................................ 950,534
---------
Net increase in net assets resulting from operations................... $ 416,247
---------
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
-6-
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended June 30,
<TABLE>
<CAPTION>
1997 1996
------------ -------------
<S> <C> <C>
Increase/(decrease) in net assets from operations
Net investment loss................................................................ $ (534,287) $ (388,362)
Net realized gain from investment transactions..................................... 306,022 517,110
Change in unrealized appreciation/(depreciation) of investments.................... 644,512 (352,459)
------------ -------------
Net increase (decrease) in net assets resulting from operations.................. 416,247 (223,711)
------------ -------------
Decrease in net assets from trust share transactions (note 2)........................ (600,754) (929,919)
------------ -------------
Decrease in net assets............................................................... (184,507) (1,153,630)
Net assets at beginning of period.................................................... 4,581,491 5,735,121
------------ -------------
Net assets at end of period (including accumulated net investment loss of $5,170,173
and $4,635,886).................................................................... $ 4,396,984 $ 4,581,491
------------ -------------
------------ -------------
</TABLE>
The accompanying notes are an integral part of the financial statements
-7-
<PAGE>
Steadman Associated Fund
Financial Highlights
June 30, 1997
<TABLE>
<CAPTION>
For the year For the year For the year
ended ended ended For the years ended September 30,
June 30, June 30, June 30, ------------------------------------
1997 1996 1995* 1994 1993 1992
-------------- ------------- ------------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of
period....................... $ .70 $ .73 $ .72 $ .87 $ .64 $ .67
-------------- ------------- ------------- ---------- ---------- ---------
Net investment loss............ (.11) (.17) (.03) (.08) (.05) (.03)
Net realized and unrealized
gain (loss) on
investments................ .17 .14 .04 (.07) .28 --
-------------- ------------- ------------- ---------- ---------- ---------
Total from investment
operations................. .06 (.03) .01 (.15) .23 (.03)
-------------- ------------- ------------- ---------- ---------- ---------
Net asset value end of period.... $ .76 $ .70 $ .73 $ .72 $ .87 $ .64
-------------- ------------- ------------- ---------- ---------- ---------
-------------- ------------- ------------- ---------- ---------- ---------
Ratios/Supplemental Data:
Total return................... 8.89% (4.38) 1.85%** (17.24)% 35.9% (4.5)%
Ratio of expenses to average
net assets................... 12.42% 8.14% 8.17%** 7.76% 5.79% 6.92%
Ratio of net investment loss to
average net assets........... (11.82)% (7.48)% (7.23)%** (6.09)% (4.63)% (5.14)%
Portfolio turnover rate........ 193% 231% 505%** 241% 300% 301%
Net assets, end of period (in
thousands)................... $ 4,397 $ 4,581 $ 5,735 $ 6,307 $ 8,844 $ 7,254
</TABLE>
* The Fund's fiscal year-end was changed to June 30.
** Annualized
The accompanying notes are an integral part of the financial statements
-8-
<PAGE>
Steadman Associated Fund
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
Steadman Association Fund (the Fund) is registered under the Investment
Company Act of 1940, as amended, as a non-diversified, open-end
investment company. The Fund has not been accepting new subscriptions for
shares since November 1996.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those
estimates. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements.
Cash and Cash Equivalents
Management defines cash equivalents as investments that mature in three
months or less when acquired. All cash and cash equivalents are invested
in a single money market fund maintained by the investment custodian.
Security Valuation
Investments in securities traded on a national securities exchange are
valued at the last reported sales price on the last business day of the
period. Investments for which no sale was reported on that date are
valued at the mean between the latest bid and asked prices.
Security Transactions and Investment Income
Security transactions are recorded on the trade date. Realized gains and
losses from security transactions are reported on an identified cost
basis. Dividend income is recorded on the ex-dividend date. Interest
income and expenses are recorded on the accrual basis.
Call options give the holder the right to purchase a security at a
specified price on a certain date. Risks arise from possible illiquidity
of the options market and from movements in security values. Options are
reflected in the accompanying Statement of Assets and Liabilities at
market value.
-9-
<PAGE>
Steadman Associated Fund
NOTES TO FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1997
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES (continued)
Income Taxes
The Fund is subject to income taxes in years when it does not qualify as
a regulated investment company under Subchapter M of the Internal Revenue
Code. The Fund accounts for income taxes using the liability method,
whereby deferred tax assets and liabilities arise from the tax effect of
temporary differences between the financial statement and tax bases of
assets and liabilities, measured using presently enacted tax rates. If it
is more likely than not that some portion or all of a deferred tax asset
will not be realized, a valuation allowance is recognized.
NOTE 2--TRUST SHARES
The Trust Indenture does not specify a limit to the number of shares
which may be issued. Transactions in trust shares were as follows:
<TABLE>
<CAPTION>
For the year ended For the year ended
June 30, 1997 June 30, 1996
----------------------- ------------------------
<S> <C> <C> <C> <C>
Shares Amount Shares Amount
---------- ----------- ----------- -----------
Shares sold.................................................. 609 $ 400 269 $ 200
Shares redeemed.............................................. (812,875) (601,154) (1,295,786) (930,119)
---------- ----------- ----------- -----------
Net decrease................................................. (812,266) $ (600,754) (1,295,517) $ (929,919)
----------- -----------
----------- -----------
Shares outstanding
Beginning of period........................................ 6,580,298 7,875,815
---------- -----------
End of period.............................................. 5,768,032 6,580,298
---------- -----------
---------- -----------
</TABLE>
NOTE 3--PURCHASES AND SALES OF SECURITIES
During the year ended June 30, 1997, purchases and proceeds from sales of
investment securities aggregated $8,273,172 and $9,171,210, respectively.
Unrealized appreciation of investments aggregated $1,162,826 of which
$2,830,668 related to gross unrealized appreciation where there is an
excess of value over tax cost and $1,667,842 related to gross unrealized
depreciation where there is an excess of tax cost over value.
-10-
<PAGE>
Steadman Associated Fund
NOTES TO FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1997
NOTE 4--INVESTMENT ADVISORY FEE AND TRANSACTIONS WITH AFFILIATES
Steadman Security Corporation (SSC), an affiliate, has provided advisory
services under an agreement which first became effective in 1972. On
February 28, 1984, at the Annual Meeting of the shareholders, a new
Investment Advisory Agreement was approved. Under the new advisory
agreement, SSC will continue to provide the same services it provides
under the same terms and conditions of the previous agreement. The
agreement will continue in effect subject to the annual approval by the
Board of Trustees or by a majority of the outstanding voting securities
of the Fund. The fee for investment advisory services is based on 1% of
the first $35,000,000 of the average daily net assets of the Fund, 7/8 of
1% on the next $35,000,000 and 3/4 of 1% on all sums in excess thereof.
In addition to the investment advisory fee, SSC received shareholder
servicing fees from the Fund for the performance of delegated services
(dividend disbursing agent and transfer agent) as defined in the Trust
Indenture, as amended. The fee for such services was computed on the
basis of the number of shareholder accounts calculated as of the last
business day of each month at $1.35 per account. SSC received
reimbursements from the Fund for the salaries and benefits of its
officers and employees who performed functions other than investment
advisory and shareholder service functions for the Fund.
Certain officers and trustees of the Fund are "affiliated persons" of the
Investment Advisor, as defined by the Investment Company Act of 1940.
NOTE 5--FEDERAL INCOME TAXES
In the fiscal year ended June 30, 1997, the Fund did not meet the asset
diversification requirements applicable to regulated investment
companies. Thus, the Fund did not qualify as a regulated investment
company under Subchapter M of the Internal Revenue Code. However, the
Fund had a net investment loss in the fiscal year ended June 30, 1997,
therefore no income tax provision is required. A full valuation allowance
has been provided for deferred tax assets, totaling approximately
$2,288,000 at June 30, 1997, which arise principally from net operating
loss carryforwards and capital loss carryforwards available for income
tax purposes.
For income tax purposes, the Fund has net operating loss carryforwards
approximating $5,192,000 which are available to offset future net
operating income in non-qualifying years, if any, which expire as
follows: (2000) $443,000; (2001) $499,000; (2003) $328,000; (2004)
$476,000; (2005) $534,000; (2006) $324,000; (2007) $381,000; (2008)
$539,000; (2009) $437,000; (2010) $287,000 (2011) $401,000 and (2012)
$543,000. Capital loss carryforwards aggregating approximately $804,000
are available to offset future capital gains, if any, which expire as
follows: (2001) $452,000 and (2000) $352,000.
-11-
<PAGE>
Steadman Associated Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997
NOTE 6--EXPIRATION OF SHAREHOLDER STATES REDEMPTION RESTRICTION
In 1993 the Fund entered into a Settlement Agreement with approximately
47 states (the "Shareholder States") with respect to the recovery of
shares and distributions owned by persons who had allegedly abandoned
these properties. The Settlement Agreement provides among other things,
that the Shareholder States will not request redemption of their shares
until February 14, 1998. The Shareholder States currently own 9% of
shares in the Fund. In July 1997, the Fund agreed to remove this
restriction and allow Shareholder States to redeem shares upon request.
NOTE 7--PROPOSED MERGER
During 1997, management proposed a merger of Steadman American Industry
Fund, Steadman Investment Fund, and Steadman Technology and Growth Fund
with and into the Steadman Associated Fund, which will change to a
close-end investment company whose name will change to Steadman Security
Trust (SST). In connection with the merger, SST will amend its investment
objective to primarily seek current income and secondarily to maximize
total return. Following the proposed merger, fund shares no longer will
be sold or redeemed by SST on a request basis, but may be sold to other
investors in market transactions. The costs associated with the proposed
merger are allocated to all the funds based on the respective net asset
values of the funds. The proposed merger requires approval by the
shareholders. A Registration Statement of Form N-14 is pending SEC
regulatory approval and the proposed merger requires the approval of the
Shareholders of all of the funds.
-12-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Trustees of
Steadman Investment Fund
We have audited the accompanying statement of assets and liabilities of
Steadman Investment Fund, including the portfolio of investments, as of June 30,
1997, and the related statements of operations, changes in net assets and the
financial highlights for the year then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit. The statement of changes in net assets
for the year ended June 30, 1996 and the financial highlights for the year ended
June 30, 1996 and the period January 1, 1995 through June 30, 1995 and each of
the three years in the period ended December 31, 1994 were audited by other
auditors whose report, dated August 6, 1996, expressed an unqualified opinion on
the statement of changes in net assets and those financial highlights.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of June 30, 1997, by correspondence with the
custodian and/or broker. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Steadman Investment Fund as of June 30, 1997, the results of its
operations, the changes in its net assets, and the financial highlights for the
year then ended, in conformity with generally accepted accounting principles.
Reznick Fedder & Silverman
Bethesda, Maryland
July 25, 1997
<PAGE>
[Letterhead of Coopers & Lybrand]
REPORT OF INDEPENDENT ACCOUNTANTS
------------
To the Board of Trustees of
Steadman Investment Fund
We have audited the statement of changes in net assets for the year ended
June 30, 1996 and the financial highlights for the year ended June 30, 1996,
the five months ended June 30, 1995, and each of the three years in the
period ended January 31, 1995 of the Steadman Investment Fund (the "Fund").
This financial statement and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on this
financial statement and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards required that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statement and financial highlights referred to
above present fairly, in all material respects, the changes in net assets for
the year ended June 30, 1996 and the financial highlights of the Fund for each
of the respective periods stated in the first paragraph in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
July 29, 1996
<PAGE>
PORTFOLIO OF INVESTMENTS
June 30, 1997
Value
SHARES (NOTE 1)
------ ----------
COMMON STOCKS--100%
Computer Peripherals--15.1%
Cisco Systems (a)................................ 3,500 $ 234,937
----------
Total Computer Peripherals..................... 234,937
----------
Computer Software--8.1%
Oracle Corp. (a).................................. 2,500 125,937
----------
Total Computer Software........................ 125,937
----------
Computer Switching--10.9%
Xylan Corp. (a)................................... 10,000 170,000
----------
Total Computer Switching....................... 170,000
----------
Computer Systems Design--16.8%
Sun Microsystems (a).............................. 7,000 260,530
----------
Total Computer Systems Design.................. 260,530
----------
Motor Vehicles--8.6%
General Motors "H"................................ 2,300 132,825
----------
Total Motor Vehicles........................... 132,825
----------
Telecom Mfg.--13.9%
Lucent Technologies (a)........................... 3,000 216,185
----------
Total Telecom Mfg.............................. 216,185
----------
Semiconductor--16.3%
Intel Corp. Warrants (a).......................... 2,500 253,750
----------
Total Semiconductor............................ 253,750
----------
Telephone Services--10.3%
Worldcom Inc. (a)................................. 5,000 160,000
----------
Total Telephone Services....................... 160,000
----------
Total Portfolio of Investments (Cost $1,191,522) $1,554,164
----------
----------
- ------------------------
(a) Non-income producing security.
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997
Assets
Investments at value (Cost $1,191,522)(note 1)............ $ 1,554,164
Cash and cash equivalents (note 1)........................ 139,235
Interest receivable....................................... 788
-----------
Total assets........................................... 1,694,187
-----------
Liabilities
Accounts payable and accrued expenses..................... 34,903
Investment advisory and service fees payable (note 4)..... 1,358
Other payable to affiliate (note 4)....................... 15,235
Payable for trust shares redeemed......................... 8,801
-----------
Total liabilities...................................... 60,297
-----------
Net Assets............................................. $ 1,633,890
-----------
-----------
Net assets consist of
Accumulated net investment loss........................... $(1,943,059)
Unrealized appreciation of investments.................... 362,642
Accumulated net realized losses........................... (574,661)
Capital paid in less distributions since inception........ 3,788,968
-----------
$ 1,633,890
-----------
-----------
Net asset value, offering price and redemption price per
share
($1,633,890 = 1,928,494 shares of no par value trust
shares)................................................... $ 0.85
-----------
-----------
The accompanying notes are an integral part of the financial statements
-4-
<PAGE>
STATEMENT OF OPERATIONS
For the year ended June 30, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
Investment Income
Dividends........................................................... $ 5,670
Interest............................................................ 6,659
-------
Total income..................................................... $ 12,329
---------
Expenses
Salaries and employee benefits (note 4)............................. 87,965
Shareholder servicing fee (note 4).................................. 47,647
Professional fees................................................... 33,357
Proposed merger expense (note 7).................................... 54,392
Investment advisory fee (note 4).................................... 17,117
Miscellaneous....................................................... 9,759
Rent................................................................ 11,734
Computer services................................................... 3,992
Reports to shareholders............................................. 6,416
Trustees' fees and expenses (note 4)................................ 5,619
Custodian fees...................................................... 2,050
-------
Total expenses................................................... 280,048
---------
Net investment loss.............................................. (267,719)
---------
Realized and Unrealized Gain/(Loss) on Investments (notes 1 and 3)
Net realized loss from investment transactions...................... (185,331)
Change in unrealized appreciation/(depreciation) of investments..... 418,153
---------
Net gain on investments............................................. 232,822
---------
Net decrease in net assets resulting from operations................ $ (34,897)
---------
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
-5-
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the year ended June 30,
<TABLE>
<CAPTION>
1997 1996
----------- ------------
<S> <C> <C>
Increase/(decrease) in net assets from operations
Net investment loss.............................................. $ (267,719) $ (111,105)
Net realized (loss) gain from investment transactions............ (185,331) 47,825
Change in unrealized appreciation/(depreciation)
of investments.................................................. 418,153 (271,135)
---------- ----------
Net decrease in net assets resulting
from operations.............................................. (34,897) (334,415)
---------- ----------
Decrease in net assets from trust share transactions (note 2)..... (94,680) (200,097)
---------- ----------
Decrease in net assets........................................... (129,577) (534,512)
Net assets at beginning of period................................. 1,763,467 2,297,979
---------- ----------
Net assets at end of period (including accumulated
net investment loss of $1,947,718 and $1,679,999)................ $1,633,890 $1,763,467
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
-6-
<PAGE>
STEADMAN INVESTMENT FUND
FINANCIAL HIGHLIGHTS
June 30, 1997
<TABLE>
<CAPTION>
FOR THE
PERIOD
JANUARY 1,
FOR THE FOR THE YEAR 1995 FOR THE YEAR ENDED DECEMBER 31,
YEAR ENDED ENDED THROUGH
JUNE 30, JUNE 30, JUNE 30, -------------------------------
1997 1996 1995* 1994 1993 1992
------------- -------------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of
period................................... $ .86 $ 1.02 $ .93 $ 1.42 $ 1.38 $ 1.49
--------- ---------- -------- -------- ------- ---------
Net investment loss....................... (.03) (.13) (.02) (.08) (.06) (.09)
Net realized and unrealized
gain (loss) on
investments............................ .02 (.03) .11 (.41) .10 (.02)
--------- ---------- -------- -------- ------- ---------
Total from investment
operations............................. .01 (.16) .09 (.49) .04 (.11)
--------- ---------- -------- -------- ------- ---------
Net asset value end of period............. $ .85 $ .86 $ 1.02 $ .93 $ 1.42 $ 1.38
--------- ---------- -------- -------- ------- ---------
--------- ---------- -------- -------- ------- ---------
Ratios/Supplemental Data:
Total return............................. (2.05)% (15.53)% 19.36%** (34.51)% 2.89% (7.05)%
Ratio of expenses to average
net assets.............................. 16.47% 10.60% 10.54%** 8.90% 6.48% 7.78%
Ratio of net investment loss to
average net assets....................... (15.75)% (5.23)% (4.24)%** (6.65)% (4.52)% (6.09)%
Portfolio turnover rate................... 138% 382% 226%** 282% 179% 263%
Net assets, end of period
(in thousands)........................... $ 1,634 $ 1,763 $ 2,298 $ 2,159 $ 3,550 $ 3,781
</TABLE>
- ------------------------
* The Fund's fiscal year-end was changed to June 30.
** Annualized
The accompanying notes are in integral part of the financial statements.
-7-
<PAGE>
STEADMAN INVESTMENT FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
Steadman Investment Fund (the Fund) is registered under the Investment
Company Act of 1940, as amended, as a non-diversified, open-end investment
company.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates. The following is a summary
of significant accounting policies consistently followed by the Fund in the
preparation of its financial statements.
CASH AND CASH EQUIVALENTS
Management defines cash equivalents as investments that mature in three months
or less when acquired. All cash and cash equivalents are invested in a single
money market fund maintained by the investment custodian.
SECURITY VALUATION
Investments in securities traded on a national securities exchange are valued
at the last reported sales price on the last business day of the period.
Investments for which no sale was reported on that date are valued at the mean
between the latest bid and asked prices.
SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are recorded on the trade date. Realized gains and losses
from security transactions are reported on an identified cost basis. Dividend
income is recorded on the ex-dividend date. Interest income and expenses are
recorded on the accrual basis.
-8-
<PAGE>
STEADMAN INVESTMENT FUND
NOTES TO FINANCIAL STATEMENTS--CONTINUED
June 30, 1997
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES (Continued)
INCOME TAXES
The Fund is subject to income taxes in years when it does not qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code.
The Fund accounts for income taxes using the liability method, whereby deferred
tax assets and liabilities arise from the tax effect of temporary differences
between the financial statement and tax bases of assets and liabilities,
measured using presently enacted tax rates. If it is more likely than not that
some portion or all of a deferred tax asset will not be realized, a valuation
allowance is recognized.
NOTE 2--TRUST SHARES
The Trust Indenture does not specify a limit to the number of shares which
may be issued. Transactions in trust shares were as follows:
FOR THE YEAR ENDED FOR THE YEAR ENDED
JUNE 30, 1997 JUNE 30, 1996
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- -----------
Shares sold............... -- $ -- -- $ --
Shares redeemed........... (110,234) (94,680) (205,360) (200,097)
--------- ---------- --------- -----------
Net decrease.............. (110,234) $ (94,680) (205,360) $ (200,097)
---------- -----------
---------- -----------
Shares outstanding
Beginning of period...... 2,038,728 2,244,088
--------- ---------
End of period............ 1,928,494 2,038,728
--------- ---------
--------- ---------
NOTE 3--PURCHASES AND SALES OF SECURITIES
During the year ended June 30, 1997, purchases and sales proceeds from
investment securities aggregated $2,176,772 and $2,455,118, respectively.
The net unrealized appreciation of investments aggregated $362,642 of which
$800,241 related to gross unrealized appreciation where there is an excess of
value over tax cost and $437,599 related to gross unrealized depreciation of
investments where there is an excess of tax cost over value.
-9-
<PAGE>
STEADMAN INVESTMENT FUND
NOTES TO FINANCIAL STATEMENTS--CONTINUED
June 30, 1997
NOTE 4--INVESTMENT ADVISORY FEE AND TRANSACTIONS WITH AFFILIATES
Steadman Security Corporation (SSC), an affiliate, has provided advisory
services under an agreement which first became effective in 1972. On
February 28, 1984, at the Annual Meeting of the shareholders, a new Investment
Advisory Agreement was approved. Under the new advisory agreement, SSC will
continue to provide the same services it provides under the same terms and
conditions of the previous agreement. The agreement will continue in effect
subject to the annual approval by the Board of Trustees or by a majority of
the outstanding voting securities of the Fund. The fee for investment advisory
services is based on 1% of the first $35,000,000 of the average daily net
assets of the Fund, 7/8 of 1% on the next $35,000,000 and 3/4 of 1% on all
sums in excess thereof. In addition to the investment advisory fee, SSC
received shareholder servicing fees from the Fund for the performance of
delegated services (dividend disbursing agent and transfer agent) as defined
in the Trust Indenture, as amended. The fee for such services was computed on
the basis of the number of shareholder accounts calculated as of the last
business day of each month at $1.35 per account. SSC received reimbursements
from the Fund for the salaries and benefits of its officers and employees who
performed functions other than investment advisory and shareholder service
functions for the Fund.
Certain officers and trustees of the Fund are "affiliated persons" of the
Investment Advisor, as defined by the Investment Company Act of 1940.
NOTE 5--FEDERAL INCOME TAXES
In the fiscal year ended June 30, 1997, the Fund did not meet the asset
diversification requirements applicable to regulated investment companies.
Thus, the Fund did not qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code. However, the Fund had a net
investment loss in the fiscal year ended June 30, 1997, therefore no income
tax provision is required. A full valuation allowance has been provided for
deferred tax assets, totaling approximately $958,000 at June 30, 1997, which
arise principally from net operating loss carryforwards and capital loss
carryforwards available for income tax purposes.
The Fund has net operating loss carryforwards approximating $1,946,000 which
are available to offset future net operating income in non-qualifying years, if
any, which expire as follows: (2004) $299,000; (2005) $304,000;
(2006) $222,000; (2007) $278,000; (2008) $217,000; (2009) $204,000;
(2010) $40,000 (2011) $112,000 and (2012) $270,000. Capital loss carryforwards
aggregating approximately $575,000 are available to offset future capital
gains, if any, which expire as follows: (1999) $147,000; (2000) $243,000 and
(2003) $185,000.
-10-
<PAGE>
STEADMAN INVESTMENT FUND
NOTES TO FINANCIAL STATEMENTS--CONTINUED
June 30, 1997
NOTE 6--EXPIRATION OF SHAREHOLDER STATES REDEMPTION RESTRICTION
In 1993 the Fund entered into a Settlement Agreement with approximately 47
states (the "Shareholder States") with respect to the recovery of shares and
distributions owned by persons who had allegedly abandoned these properties.
The Settlement Agreement provides among other things, that the Shareholder
States will not request redemption of their shares until February 14, 1998. The
Shareholder States currently own 16% of shares in the Fund. In July 1997, the
Fund agreed to remove this restriction and allow Shareholder States to redeem
shares upon request.
NOTE 7--PROPOSED MERGER
During 1997, management proposed a merger of Steadman American Industry Fund,
Steadman Fund, and Steadman Technology and Growth Fund with and into the
Steadman Associated Fund, which will change to a close-end investment company
whose name will change to Steadman Security Trust (SST). In connection with the
merger, SST will amend its investment objective to primarily seek current
income and secondarily to maximize total return. Following the proposed merger,
fund shares no longer will be sold or redeemed by SST on a request basis, but
may be sold to other investors in market transactions. The costs associated
with the proposed merger are allocated to all the funds based on the respective
net asset values of the funds. The proposed merger requires approval by the
shareholders. A Registration Statement of Form N-14 is pending SEC regulatory
approval and the proposed merger requires the approval of the Shareholders of
all of the funds.
-11-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholder and Board of Trustees of
Steadman Technology and Growth Fund
We have audited the accompanying statement of assets and liabilities of
Steadman Technology and Growth Fund, including the portfolio of investments,
as of June 30, 1997, and the related statements of operations, changes in net
assets and the financial highlights for the year then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit. The statement of
changes in net assets for the year ended June 30, 1996 and the financial
highlights for the year ended June 30, 1996 and the period January 1, 1995
through June 30, 1995 and each of the three years in the period ended
December 31, 1994 were audited by other auditors whose report, dated August
6, 1996, expressed an unqualified opinion on the statement of changes in net
assets and those financial highlights.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of June 30, 1997, by
correspondence with the custodian and/or broker. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Steadman Technology and Growth Fund as of June 30, 1997, the
results of its operations, the changes in its net assets, and the financial
highlights for the year then ended, in conformity with generally accepted
accounting principles.
Reznick Fedder & Silverman
Bethesda, Maryland
July 25, 1997
<PAGE>
[Letterhead of Coopers & Lybrand]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of
Steadman Technology and Growth Fund
We have audited the statement of changes in net assets for the year ended
June 30, 1996 and the financial highlights for the year ended June 30, 1996,
the five months ended June 30, 1995, and each of the three years in the
period ended January 31, 1995 of the Steadman Technology and Growth Fund (the
"Fund"). This financial statement and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on this financial statement and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards required that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statement and financial highlights referred
to above present fairly, in all material respects, the changes in net assets
for the year ended June 30, 1996 and the financial highlights of the Fund for
each of the respective periods stated in the first paragraph in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
July 29, 1996
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997
Assets
Investments at value (cost $256,013) (note 1)............ $ 343,375
Cash and cash equivalents (note 1)....................... 36,482
Interest receivable...................................... 145
Miscellaneous receivable................................. 3,519
------------
Total assets........................................... 383,521
------------
Liabilities
Accounts payable and accrued expenses.................... 29,044
Miscellaneous payable.................................... 354
Investment advisory and service fees payable (note 4).... 286
Other payable to affiliate (note 4)...................... 5,679
------------
Total liabilities...................................... 35,363
------------
NET ASSETS............................................. $ 348,158
------------
------------
Net assets consist of
Accumulated net investment loss.......................... $(2,832,669)
Unrealized appreciation of investments................... 87,362
Accumulated net realized losses.......................... (390,993)
Capital paid in less distributions since inception....... 3,484,458
------------
$ 348,158
------------
------------
Net asset value, offering price and redemption price per
share ($348,158/510,386 shares of no par value trust
shares).................................................. $ 0.68
------------
------------
The accompanying notes are an integral part of the financial statements
-3-
<PAGE>
STATEMENT OF OPERATIONS
For the year ended June 30, 1997
Investment Income
Dividends $ 5,957
Interest 2,682
--------
Total income $ 8,639
Expenses
Shareholder servicing fee (note 4) 68,155
Salaries and employee benefits (note 4) 26,604
Professional fees 30,854
Proposed merger expense (note 7) 12,515
Miscellaneous 7,627
Reports to shareholders 8,389
Computer services 3,212
Investment advisory fee (note 4) 4,109
Rent 2,804
Trustees' fees and expenses (note 4) 5,619
Custodian fees 1,322
--------
Total expenses 171,210
----------
Net investment loss (162,571)
----------
Realized and Unrealized Gain (Loss) on
Investments
Net realized loss from investment transactions (54,880)
Change in unrealized appreciation/(depreciation)
of investments 38,748
----------
Net loss on investments (16,132)
----------
Net decrease in net assets resulting from
operations $(178,703)
----------
----------
The accompanying notes are an integral part of the financial statements
-4-
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended June 30,
1997 1996
---------- ----------
Decrease in net assets from operations:
Net investment loss............................ $(162,571) $(172,862)
Net realized loss from investment transactions. (54,880) (129,743)
Change in unrealized appreciation/
(depreciation) of Investments................ 38,748 84,018
---------- ----------
Net decrease in net assets resulting from
operations............................... (178,703) (218,587)
Decrease in net assets from trust share
transactions (Note 2).......................... (15,546) (37,546)
---------- ----------
Decrease in net assets......................... (194,249) (256,133)
Net assets at beginning of period................ 542,407 798,540
---------- ----------
Net assets at end of period, (including
accumulated net Investment loss of $2,830,928
and $2,668,357)................................ $ 348,158 542,407
---------- ----------
---------- ----------
The accompanying notes are an integral part of the financial statements
-5-
<PAGE>
PORTFOLIO OF INVESTMENTS
June 30, 1997
VALUE
SHARES (NOTE 1)
------ --------
COMMON STOCKS--100%
R.E.I.T.--17.9%
Capstead Mortgage......................... 2,500 $ 61,719
--------
Total R.E.I.T......................... 61,719
--------
Semiconductor--29.6%
Intel Corp. Warrants (a).................. 1,000 101,500
--------
Total Semiconductor................... 101,500
--------
Telecom Mfg--52.5%
Lucent Technologies....................... 2,500 180,156
--------
Total Telecom Mfg..................... 180,156
--------
Total Portfolio of Investment (Cost
$256,013)............................... $343,375
--------
--------
(a) Non-income producing security
The accompanying notes are an integral part of the financial statements
-6-
<PAGE>
STEADMAN TECHNOLOGY AND GROWTH FUND
FINANCIAL HIGHLIGHTS
June 30, 1997
<TABLE>
<CAPTION>
FOR PERIOD
FOR THE FOR THE YEAR JANUARY 1,
YEAR ENDED ENDED 1995 THROUGH FOR THE YEAR ENDED DECEMBER 31,
JUNE 30, JUNE 30, JUNE 30, -------------------------------
1,997 1,996 1995* 1994 1993 1992
----------- ------------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance:
Net asset value, beginning of period........... $ 1.02 $ 1.43 $ 1.57 $ 2.48 $ 2.69 $ 2.84
----------- ------------- ------------ --------- --------- ---------
Net investment loss............................ (0.50) (0.58) (0.22) (0.45) (0.40) (0.33)
Net realized and unrealized gain (loss) on
investments.................................. 0.16 0.17 0.08 (0.46) 0.19 0.18
----------- ------------- ------------ --------- --------- ---------
Total from investment operations............... (0.34) (0.41) (0.14) (0.91) (0.21) (0.15)
----------- ------------- ------------ --------- --------- ---------
Net asset value, end of period................. $ 0.68 $ 1.02 $ 1.43 $ 1.57 $ 2.48 $ 2.69
----------- ------------- ------------ --------- --------- ---------
----------- ------------- ------------ --------- --------- ---------
Ratios/Supplemental Data:
Total return................................... (33.42)% (28.29)% (17.84)%** (36.69)% (7.81)% (5.28)%
Ratio of expenses to average net assets........ 41.46% 25.19% 22.28%** 16.34% 11.94% 13.33%
Ratio of net investment loss to average net
assets....................................... 39.37% (24.78)% (20.90)%** (14.79)% (11.38)% (12.45)%
Portfolio turnover rate........................ 350% 333% 615%** 274% 128% 157%
Net assets, end of period (in Thousands)....... $ 348 $ 542 $ 799 $ 894 1,467 $ 1,634
</TABLE>
- ------------------------
* The fund's fiscal year-end was changed to June 30
** Annualized
The accompanying notes are an integral part of the financial statements
-7-
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
Steadman Technology and Growth Fund (the Fund) is registered under the
Investment Company Act of 1940, as amended, as a nondiversified, open-end
investment company.
The preparation of financial statements is conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements.
CASH AND CASH EQUIVALENTS
Management defines cash equivalents as investments that mature in three
months or less when acquired. All cash and cash equivalents are invested in a
single money market fund maintained by the investment custodian.
SECURITY VALUATION
Investments in securities traded on a national securities exchange are
valued at the last reported sales price on the last business day of the
period. Investment for which no sale was reported on that date are valued at
the mean between the latest bid and asked prices.
SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are recorded on the trade date. Realized gains and
losses from security transactions are reported on an identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income and
expenses are recorded on the accrual basis.
INCOME TAXES
The Fund is subject to income taxes in years when it does not qualify as
a regulated investment company under Subchapter M of the Internal Revenue
Code. The Fund accounts for income taxes using the liability method, whereby
deferred tax assets and liabilities arise from the tax effect of temporary
differences between the financial statement and tax bases of assets and
liabilities, measured using presently enacted tax rates. If it is more likely
than not that some portion or all of a deferred tax asset will not be
realized, a valuation allowance is recognized
-8-
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONTINUED
JUNE 30, 1997
NOTE 2--TRUST SHARES
The Trust Indenture does not specify a limit to the number of shares
which may be issued. Transactions in trust were as follows:
FOR THE YEAR ENDED FOR THE YEAR ENDED
JUNE 30, 1997 JUNE 30, 1996
--------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
-------- ---------- -------- ---------
Shares sold.............. -- $ -- -- $ --
Shares redeemed.......... (19,033) (15,546) (29,474) (37,546)
-------- ---------- -------- ---------
Net decrease............. (19,033) $(15,546) (29,474) $(37,546)
---------- ---------
---------- ---------
Shares outstanding
Beginning of period.... 529,419 558,893
-------- --------
End of period.......... 510,386 529,419
-------- --------
-------- --------
NOTE 3--PURCHASES AND SALES OF SECURITIES
During the year ended June 30, 1997, purchases and proceeds from sales of
investment securities aggregated $1,294,470 and $1,446,015, respectively.
The net unrealized appreciation of investments aggregated $87,362 of
which $227,706 related to gross unrealized appreciation where there is an
excess of value over tax cost and $140,344 related to gross unrealized
depreciation where there is an excess of tax cost over value.
NOTE 4--INVESTMENT ADVISORY FEE AND TRANSACTIONS WITH AFFILIATES
Steadman Security Corporation (SSC), an affiliate, has provided advisory
services under an agreement which first become effective in 1972. On February
28, 1984, at the Annual Meeting of the shareholders, a new Investment
Advisory Agreement was approved. Under the new advisory agreement, SSC will
continue to provide the same services it provided under the same terms and
condition of the previous agreement. The agreement will continue in effect
subject to the annual approval of the Board of Trustees or by a majority of
the outstanding voting securities of the Fund. The fee for investment
advisory services is based on 1% of the first $35,000,000 of the average
daily net assets of the Fund, 7/8 of 1% on the next $35,000,000 and 3/4 of 1%
on all sums in excess thereof. In addition to the investment advisory fee,
SSC received shareholder
-9-
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONTINUED
JUNE 30, 1997
NOTE 4--INVESTMENT ADVISORY FEE AND TRANSACTIONS WITH AFFILIATES (Continued)
servicing fees from the Fund for the performance of delegated services
(dividend disbursing agent and transfer agent) as defined in the Trust
Indenture, as amended. The fee for such services was computed on the basis of
the number of shareholder accounts calculated as of the last business day of
each month at $1.35 per account. SSC received reimbursements from the Fund
for the salaries and benefits of its officers and employees who performed
functions other than investment advisory and shareholder service functions
for the Fund.
Certain officers and trustees of the Fund are "affiliated persons" of the
Investment Adviser, as defined by the Investment Company Act of 1940.
NOTE 5--FEDERAL INCOME TAXES
In the fiscal year ended June 30, 1997, the Fund did not meet the asset
diversification requirements applicable to regulated investment companies.
Thus, the Fund did not qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code. However, the Fund had a net
investment loss in the fiscal year ended June 30, 1997 and realized net
capital losses in the fiscal year ended June 30, 1997, therefore no income
tax provision is required. A full valuation allowance was provided throughout
the fiscal year ended June 30, 1997 for deferred tax assets, totaling
approximately $1,229,000 at June 30, 1997, which arise principally from net
operating loss carryforwards and capital loss carryforwards available for
income tax purposes.
The Fund has net operating loss carryovers approximating $2,837,000 which
are available to offset future net operating income in nonqualifying years,
if any, which expire as follows: (1999)$111,000; (2000) $272,000; (2001)
$264,000; (2002) $252,000; (2003) $236,000; (2004) $240,000; (2005) $254,000;
(2006) $194,000; (2007) $212,000; (2008) $198,000; (2009) $177,000; (2010)
$86,000; (2011) $174,000; (2012) $167,000. Capital loss carryforwards
aggregating approximately $391,000 are available to offset future capital
gains, it any, which expire as follows: (1997) $151,000; (2000) $55,000;
(2001) $130,000 and (2002) $55,000.
-10-
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONTINUED
JUNE 30, 1997
NOTE 6--EXPIRATION OF SHAREHOLDER STATES REDEMPTION RESTRICTION
In 1993 the Fund entered into a Settlement Agreement with approximately
47 states (the "Shareholder States") with respect to the recovery of shares
and distributions owned by persons who had allegedly abandoned these
properties. The Settlement Agreement provides among other things, that the
Shareholders States will not request redemption of their shares until
February 14, 1998. The Shareholder States currently own 16% of shares in the
Fund. In July 1997, the Fund agreed to remove this restriction and allow
Shareholder States to redeem shares upon request.
NOTE 7--PROPOSED MERGER
During 1997, management proposed a merger of Steadman American Industry
Fund, Steadman Investment Fund, and Steadman Technology and Growth Fund with
and into the Steadman Associated Fund, which will change to a close-end
investment company whose name will change to Steadman Security Trust (SST).
In connection with the merger, SST will amend its investment objective to
primarily seek current income and secondarily to maximize total return.
Following the proposed merger, fund shares no longer will be sold or redeemed
by SST on a request basis, but may be sold to other investors in market
transactions. The costs associated with the proposed merger are allocated to
all the funds based on the respective net asset values of the funds. The
proposed merger requires approval by the shareholders. A Registration
Statement of Form N-14 is pending SEC regulatory approval and the proposed
merger requires the approval of the Shareholders of all of the funds.
-11-
<PAGE>
PART C: OTHER INFORMATION
Item 15. Indemnification.
Section 5.3 of the Amended Restated Trust Indenture of Steadman
Security Trust and Declaration of Trust (the "Trust Agreement") of the
Steadman Associated Fund, which will be renamed the Steadman Security Trust
(the "Fund" or the "Registrant"), provides that the Fund shall indemnify
each of its trustees, advisors, officers, employees, and agents (including
any person who serves at the request of the Fund as a director, officer,
partner, trustee or the like of another organization in which the Fund has
any interest as a shareholder, creditor or otherwise) against all
liabilities and expenses, including amounts paid in satisfaction of
judgments, in compromise, as fines or penalties and as counsel fees,
reasonably incurred by such person in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or
criminal, in which the person may be involved or with which the person may
be threatened, while acting as a trustee or advisor, or as an officer,
employee, or agent of the Fund or the trustees, or thereafter, by reason of
the person being or having been a trustee, advisor, officer, employee or
agent. However, indemnification shall not be available with respect to any
matter as to which such person has been adjudicated to have acted in bad
faith or with willful misconduct or reckless disregard of such person's
duties or gross negligence or not to have acted in good faith in the
reasonable belief that such person's action was in the best interest of the
Fund. If the matter is disposed of by a compromise payment, pursuant to a
consent decree or otherwise, no indemnification either for said payment or
for any other expenses shall be provided unless such compromise shall have
been approved as in the best interests of the Fund by a majority of the
disinterested trustees or the Fund has received a written opinion of
independent legal counsel to the effect that the person to be indemnified
appears to have acted in good faith in the reasonable belief that such
person's action was in the best interests of the fund. A provision of this
section of the Trust Agreement also provides that the Trust Agreement is
not the sole means of indemnification and that the Fund may indemnify
persons as provided by applicable law.
The District of Columbia Code does not contain a provision relating to
the indemnification of trustees, officers, employees, or agents of a trust.
However, under general common law trust principles, a trustee is normally
entitled to reimbursement from the trust for all necessary and reasonable
expenditures made in the execution of the trust if the trustee acted in
good faith for the benefit of the trust. However, under common law trust
principles, property of the trust cannot be used to reimburse the trustee
for losses or expenses incurred by the trustee, unless the trustee has
exercised good faith and common prudence.
In addition, the Agreement and Plan of Merger (the "Agreement") by and
among the Registrant, and the Steadman Investment Fund, the Steadman
American Industry Fund, and the Steadman Technology and Growth Fund (the
"Other Funds") provides at Section 14. Indemnification for, in certain
circumstances, the indemnification of the respective officers, directors,
trustees, and shareholders of the Other Funds. A copy of the Agreement is
attached as Exhibit 4 to this Registration Statement.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Act"), may be provided to
directors, officers, or controlling persons of the Registrant, the
<PAGE>
Registrant has been advised that in the opinion of the Securities and
Exchange Commission ("SEC"), such indemnification is against public policy
as expressed in the Act and, therefore, is unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 16. Exhibits:
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.
12.3 Consent of Reznick Fedder & Silverman, P.C.
16 Power of Attorney (reference is made to the signature
page)*
99.1 Form of Proxies of Funds*
_____________________
*Previously filed.
**To be filed by amendment.
<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.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement
has been signed on behalf of the registrant, in the City of Washington,
District of Columbia, on the 25th day of September, 1997.
Steadman Security Trust
Registrant
/s/ Charles W. Steadman
-----------------------------------
Charles W. Steadman, Trustee,
Chairman of the Board of Trustees and
President, Steadman Security Trust
As required by the Securities Act of 1933, this Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated.
(Signature) (Title) (Date)
/s/ Charles W. Steadman Chairman of the Board, September 25, 1997
- ------------------------- President and Trustee
Charles W. Steadman Principal Executive Officer
/s/ Max Katcher Executive Vice President September 25, 1997
- ------------------------- Treasurer & Secretary
Max Katcher Principal Financial Officer
Principal Accounting Officer
/s/ Paul A. Bowers Trustee September 25, 1997
- -------------------------
Paul A. Bowers*
/s/ John T. Hayward Trustee September 25, 1997
- -------------------------
John T. Hayward*
/s/ Paul E. Wager Trustee September 25, 1997
- --------------------------
Paul E. Wagner*
_______________________________
*Signed pursuant to power of attorney.
<PAGE>
EXHIBIT 1
Amended and Restated Trust Indenture of Steadman Associated Fund
and Declaration of Trust
<PAGE>
EXHIBIT 1
AMENDED
AND
RESTATED TRUST INDENTURE OF
STEADMAN SECURITY TRUST
(formerly Steadman Associated Fund)
AND DECLARATION OF TRUST
WITH AMENDMENTS THROUGH
MAY 2, 1997
<PAGE>
TABLE OF CONTENTS
ARTICLE I The Trust - The Fund.............................................7
Section 1.1. Name.....................................................7
Section 1.2. Location.................................................7
Section 1.3. Nature of the Fund.......................................7
Section 1.4. Definitions..............................................8
ARTICLE II Powers of Trustees..............................................9
Section 2.1. General..................................................9
Section 2.2. Investments..............................................9
Section 2.3. Legal Title.............................................10
Section 2.4. Taxes...................................................10
Section 2.5. Delegation..............................................10
Section 2.6. Expenses................................................10
Section 2.7. Deposits................................................11
Section 2.8. Valuation...............................................11
Section 2.9. Fiscal Year and Accounting Method.......................12
Section 2.10. Reserves................................................12
Section 2.11. Business Interests of Trustees and Others...............12
Section 2.12. Power to Contract.......................................13
Section 2.13. Insurance...............................................13
Section 2.14. Pension and Other Plans.................................13
Section 2.15. Dividends...............................................14
Section 2.16. Seal....................................................14
Section 2.17. Charitable Contributions................................14
Section 2.18. Indemnification.........................................14
Section 2.19. Remedies................................................14
Section 2.20. Further Powers..........................................14
Section 2.21. Restriction on Investment...............................15
Section 2.22. Shareholders Lists......................................15
ARTICLE III Advisor........................................................15
Section 3.1. Designation.............................................15
Section 3.2. Terms of Agreement......................................15
Section 3.3. Substitution for Advisor................................16
Section 3.4. Independence of Trustees................................16
Section 3.5. Other Activities........................................16
ARTICLE IV Investments.....................................................16
Section 4.1. Statement of Investment Policy..........................17
-2-
<PAGE>
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.........................................18
Section 5.4. Surety Bonds............................................18
Section 5.5. Apparent Authority......................................18
Section 5.6. Recitals Regarding Liability; Insurance.................19
ARTICLE VI Shares and Other Securities....................................19
Section 6.1. Description of Shares...................................19
Section 6.2. Certificates............................................19
Section 6.3. Issuance of Securities..................................19
Section 6.4. Pooling of Funds........................................20
ARTICLE VII Record and Transfer of Shares.................................20
Section 7.1. Share Register; Holders of Record.......................20
Section 7.2. Transfer Agent..........................................20
Section 7.3. Blank Certificates......................................20
Section 7.4. Change of Holder of Record..............................20
Section 7.5. Transfer of Shares......................................21
Section 7.6. Limitation of Fiduciary Responsibility..................21
Section 7.7. Notices.................................................21
Section 7.8. Replacement of Certificates.............................22
Section 7.9. Designation of Beneficiary..............................22
ARTICLE VIII Characteristics of Securities................................22
Section 8.1. General.................................................22
Section 8.2. Death of Shareholders...................................22
ARTICLE IX Shareholders....................................................23
Section 9.1. Special Meetings........................................23
Section 9.2. Notice of Meetings......................................23
Section 9.3. Voting Rights of Shareholders...........................23
Section 9.4. Record Date.............................................24
Section 9.5. Proxies.................................................24
Section 9.6. Reports.................................................24
Section 9.7. Notice for Nominations and Proposals....................24
-3-
<PAGE>
ARTICLE X Trustees.........................................................25
Section 10.1. Number and Qualification................................25
Section 10.2. Terms of Office: Election...............................25
Section 10.3. Resignation and Removal.................................26
Section 10.4. Vacancies...............................................26
Section 10.5. Meetings................................................27
Section 10.6. Officers................................................27
Section 10.7. By-laws.................................................28
ARTICLE XI Distributions to Shareholders..................................28
Section 11.1. General.................................................28
Section 11.2. Retained Earnings.......................................28
Section 11.3. Sources of Distributions................................28
ARTICLE XII Amendment or Termination of Fund..............................28
Section 12.1. Amendment or Termination................................28
Section 12.2. Transfer to Successor...................................29
ARTICLE XIII Miscellaneous.................................................29
Section 13.1. Governing Law...........................................29
Section 13.2. Counterparts............................................29
Section 13.3. Reliance by Third Parties...............................30
Section 13.4. Provisions in Conflict With Laws or Regulations.........30
Section 13.5. Not In Derogation of Existing Rights....................30
Section 13.6. Section Headings........................................30
ARTICLE XIV Effective Date and Duration of Trust and Fund.................30
Section 14.1. Effective Date..........................................30
Section 14.2. This Instrument Supersedes..............................31
Section 14.3. Duration and Termination................................31
ARTICLE XV Shareholders' Acceptance.......................................31
Section 15.1. Acceptance..............................................31
-4-
<PAGE>
This Amended and Restated Trust Indenture of Steadman Associated Fund
and Declaration of Trust ("Instrument" herein) constitutes an Amendment of
Trust Indenture of Steadman Associated Fund supplemental to a certain Trust
Indenture dated 23rd February 1939, as amended or supplemented September
21, 1939, October 31, 1940, April 15, 1941, May 15, 1941, November 10,
1943, November 1, 1944, August 29, 1950, September 1, 1951, March 26, 1954,
March 7, 1955, July 1, 1957, June 21, 1960, July 6, 1961, January 10,
1962, December 30, 1964, August 24, 1965, November 30, 1965, December 8,
1965, April 22, 1966, November 30, 1966, June 13, 1967, August 30, 1967,
June 12, 1969, December 31, 1969, December 31, 1970, April 15, 1971,
December 30, 1971, December 29, 1972, February 15, 1974, June 30, 1974,
October 31, 1974, December 24, 1974 and December 29, 1978 is:
AMENDED AND RESTATED AS OF MAY 2, 1997 BY AND BETWEEN THE
PARTIES, being,
(a) The Registered Holders ("Shareholders" herein) from time to
time of Shares of Steadman Associated Fund ("Fund" herein) as settlors of
express revocable trusts who became parties hereto by taking and holding
their respective Shares, and
(b) The Trustees being Charles W. Steadman, Paul A. Bowers, John T.
Hayward, and Paul F. Wagner (such persons so long as they shall continue in
office in accordance with the terms of this Instrument, and all other persons
who at the time in question have been duly elected or appointed as Trustees
in accordance with the provisions of this Instrument and are then in office
are collectively called the "Trustees" herein.)
RECITALS
The Fund is a common law trust within the meaning of Section
16(c) of the Investment Company Act of 1940, as amended, 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 name of the Fund to Steadman Security Trust and the change in the
Fund's fundamental investment policy from primarily capital growth and
secondarily current income to primarily current income and secondarily to
maximize total return.
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
-5-
<PAGE>
foregoing changes and such other changes as are deemed necessary by the
Trustees for the operations of the Fund.
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(c) of the Investment Company Act of 1940,
as amended. 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
-6-
<PAGE>
relationship. The 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 therefrom and which at such time
is owned or held by, or for the account of, the Fund or the Trustees.
-7-
<PAGE>
"Merger" shall mean the merger of Steadman American Industry
Fund, Steadman Investment Fund and Steadman Technology and Growth Fund into
the Fund.
"Person" shall mean and include individuals, corporations,
limited partnerships, general partnerships, joint stock companies, joint
ventures, associations, companies, trusts, banks, trust companies, business
trusts or other organizations, whether or not legal entities, and
governments and agencies and political subdivisions thereof.
"Securities" shall mean any stock, shares, voting trust
certificates, bonds, debentures, notes or other evidences of indebtedness,
secured or unsecured, convertible, subordinated or otherwise, or in general
any instruments commonly known as "securities" or any certificates of
interest, shares or participations in temporary or interim certificates for,
or any right to subscribe to, purchase or acquire any of the foregoing.
"Shareholders" shall mean as of any particular time all holders of
record or registered holders of outstanding Shares at such time.
"Shares" shall mean the shares of beneficial interest of the Fund
described in Section 6.1.
ARTICLE II
Powers of Trustees
Section 2.1. General. The Trustees shall have, without further
authorization, full, exclusive and absolute power, control and authority
over the Fund Property and the business of the Fund to the same extent as
if the Trustees were the sole and absolute owners of the Fund Property and
business in their own right, free from any power or control on the part of
the Shareholders, except as may be required by law, with such powers of
delegation as may be permitted by this Instrument. The enumeration of any
specific power or authority herein shall not be construed as limiting the
aforesaid powers or authority in any respect.
Section 2.2. Investments. The Trustees shall have power to
invest and reinvest the Fund Property in such securities as they deem
appropriate and compatible for the fulfillment of the objectives of the
Fund, and hold or retain such securities or to sell them at such times and
from time to time as they shall in their absolute discretion determine.
In the exercise of their powers, the Trustees shall not be limited
to investing in obligations maturing before the possible termination of the
Trust, nor shall the Trustees be limited by any law now or hereafter in
effect limiting the investments which may be held or retained by trustees or
other fiduciaries, but they shall have full authority and power to make any
and all investments within the limitations of this Instrument as they, in
their absolute discretion, shall determine, and without liability for loss.
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Section 2.3. Legal Title. Legal title to all the Fund Property
shall be vested in the Trustees, as joint tenants or otherwise, and held by
and transferred to the Trustees, except that the Trustees shall have power to
cause legal title to any Fund Property to be held by or in the name of one or
more of the Trustees with suitable reference to their trustee status or in
the name of the Fund, or to the extent the Trustees deem such action to be in
the best interest of the Fund and its Shareholders, in the name of any other
Person as nominee on such terms, in such manner and with such powers as the
Trustees may determine, provided that if any Fund Property is held in the
name of a nominee, such nominee will hold that Fund Property for the
exclusive benefit of the Fund.
Section 2.4. Taxes. The Trustees shall have power to pay all taxes
or assessments, of whatever kind or nature, imposed upon or against the Fund
or the Trustees in connection with the Fund Property or upon or against the
Fund Property or income or any part thereof, to settle and compromise
disputed tax liabilities and for the foregoing purposes to make such returns
and do all such other acts and things as may be deemed by the Trustees
necessary or desirable.
Section 2.5. Delegation. The Trustees shall have power, consistent
with their continuing exclusive authority over the management of the Fund,
the conduct of its affairs, and the management and disposition of Fund
Property, to delegate from time to time to such one or more of their number,
to Committees, to officers, employees and agents of the Fund or to the
Advisor the doing of any such things and the execution of such deeds or other
instruments, either in the name of the Fund or the names of the Trustees or
as their attorney or attorneys or otherwise, as the Trustees may from time to
time deem expedient.
Section 2.6. Expenses. (a) The Trustees shall have power to incur
and pay any charges or expenses, which, in the opinion of the Trustees, are
necessary or incidental to or proper for carrying out any of the purposes of
this Instrument, to reimburse others for the payment therefor and to pay
appropriate compensation or fees out of the Fund Property to themselves as
Trustees and to Persons with whom the Fund has contracted or transacted
business including the Advisor, its subsidiaries and affiliated Persons. The
Trustees shall fix the compensation of all officers of the Fund and the
Trustees. The Trustees shall receive reasonable compensation for their
general services as Trustees and officers hereunder. The Trustees may also
pay themselves on any one or more of themselves such compensation for special
services, including legal services, as they in good faith deem reasonable and
reimbursement for expenses reasonably incurred by them or any one or more of
them on behalf of the Fund.
(b) In addition to but without limitation upon the foregoing or any
other powers or authority of the Trustees, the Trustees shall pay on behalf
of the Fund all of the Fund's ordinary expenses of operation unless
specifically excepted, such expenses of operation including, but not being
limited to the following: (i) the expenses of maintaining its own books of
account; (ii) the expenses of maintaining one or more of its Custodians,
Transfer Agents or Dividend Disbursing Agents; (iii) the expenses of
computing the net asset value of shares of the Fund at any required valuation
date; (iv) the fees and expenses of its Trustees, including those Trustees
who also may
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be Directors of the Advisor or its subsidiary, corporations or affiliated
Persons and the fees and expenses of the members of any Committee of the Fund
including any members who also may be Directors or officers or employees (or
all of these) of the Advisor, its subsidiaries or affiliated Persons, perform
services therefor and be compensated thereby; (v) the expenses of meetings of
its shareholders; (vi) the expenses of printing and mailing of all
shareholder reports and other required reports and documents provided
shareholders including but not being limited to the costs of printing and
mailing prospectuses to shareholders; (vii) taxes of any kind assessed
against the Fund; (viii) interest and commissions; (ix) Securities and
Exchange Commission registration fees; (x) state registration fees; (xi) the
expenses of trust existences; (xii) all or part of the salaries of Fund
officers and other employees who may also be Directors or officers or
employees (or all of these) of the Advisor, its subsidiaries or affiliated
Persons, perform services therefor and be compensated thereby; (xiii) the
fees of its auditors; (xiv) the fees of its legal counsel; and (xv) all other
ordinary expenses of operation. The Trustees also shall pay all
extraordinary expenses of whatever kind or nature, unless such expenses have
been specifically assumed by the Advisor or one of its affiliates.
Section 2.7. Deposits. The Trustees shall have power to select a
custodian for the physical holding of the Fund Property in compliance with
the Act under such terms and conditions as the Trustees in their sole and
absolute discretion shall deem to be appropriate. The Trustees shall also
have power to deposit any moneys or Securities included in the Fund Property
with any one or more banks, trust companies, state and federal savings and
loan associations or other banking or savings institutions, including any
affiliate of the Advisor, whether or not such deposits draw interest
provided, however, that any such institution shall qualify under applicable
sections of the Act and all proper regulations promulgated by the Securities
and Exchange Commission. Such deposits shall be subject to withdrawal in
such manner as the Trustees determine, and the Trustees shall have no
responsibility for any loss which may occur by reason of the failure of the
bank, trust company state or federal savings and loan association or other
banking or savings institution with which the moneys or Securities have been
deposited.
Section 2.8. Valuation. (a) The Trustees shall have power to
determine conclusively, the value of any of the Fund Property and of any
services, Securities, assets or other consideration hereafter acquired or
disposed of by the Fund and to revalue the Fund Property.
(b) The Trustees or Advisor or an officer or officers or agent or
agents of the Fund designated from time to time for this purpose by the
Trustees shall, at any required valuation date, in order to properly
administer the Fund, determine the value of all the assets of the Fund at the
close of trading on the New York Stock Exchange on any day upon which such
Exchange is open for unrestricted trading or at such other times as the
Trustees shall designate, and the value of such assets so determined, less
total liabilities of the Fund (exclusive of capital stock and surplus)
divided by the number of shares outstanding shall be the net asset value of a
share until a new net asset value is determined by the Trustees or Advisor or
such officers or agents. In determinations of net asset value, all
Securities for which market quotations are available shall be appraised at a
price not less than the bid price and not greater than the asked price
prevailing at the time of
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valuation, and other Securities and assets shall be appraised at fair value,
all as determined in good faith by or under authority of the Trustees in
accordance with accounting principles generally accepted at the time. In
determinations of net asset value, treasury stock shall be treated as if it
were unissued. When net asset value is determined as of a time other than
the close of unrestricted trading on the New York Stock Exchange, the
Trustees or Advisor or such officers or agents may, but need not, determine
such net asset value by adjusting the net asset value determined as of the
preceding close of such Exchange in such manner (based upon changes in the
market prices of selected securities or changes in market averages or on
other standard and readily ascertainable market data since such close) as the
Trustees or Advisor or such officers or agents deem adequate to reflect a
fair approximate estimate of the probable change in net asset value which has
occurred since such close. In determining the net asset value, the Trustees
or Advisor or such officers or agents may include in liabilities such
reserves for taxes, estimated accrued expenses and contingencies in
accordance with accounting principles generally accepted at the time as the
Trustees or Advisor or such officers or agents may in its or their best
judgment deem fair and reasonable under the circumstances.
Section 2.9. Fiscal Year and Accounting Method. The Trustees shall
have power to determine the Fiscal Year for the Fund and the method or form
in which its accounts shall be kept and from time to time to change the
Fiscal Year or the method or form in which its accounts shall be kept.
Section 2.10. Reserves. The Trustees may set up reserves for taxes
or other contingent liabilities and may allocate thereto such portion of the
assets of the Fund as may be necessary. Any excess reserve so set up shall
be returned to the Fund on termination of the tax or other contingent
liabilities. All reserves shall be held by the Trustees.
Section 2.11. Business Interests of Trustees and Others. (a) Any
Trustee, officer, employee or agent of the Fund may, in his personal
capacity, or in a capacity of trustee, officer, director, stockholder,
partner, member, Advisor or employee of any Person have business interests
and engage in business activities in addition to those relating to the Fund,
which interests and activities may be similar to those of the Fund and may
include the acquisition, syndication, holding, management, operation or
disposition, for his own account or for the account of such Person, of
interest in Securities. Each Trustee, officer, employee and agent of the
Fund and each of their respective affiliates shall be free of any obligation
to present to the Fund any investment opportunity which comes to him in any
capacity other than solely as Trustee, officer, employee or agent of the Fund
even if such opportunity is within the investment policies of the Fund.
Subject to the provisions of this Section, any Trustee, officer, employee or
agent of the Fund may be interested as Trustee, officer, director,
stockholder, partner, member, Advisor or employee or deal with or otherwise
have a direct or indirect interest in any Person who may deal with or be
engaged to render advice or services to the Fund and receive compensation
from such Person as well as compensation as Trustee, officer, employee or
agent of the Fund or otherwise hereunder, and none of the activities referred
to in this paragraph shall be deemed to conflict with his duties and power,
as Trustee, officer, employee or agent of the Fund.
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(b) Ownership of Securities of the Fund. Any Trustee, officer,
employee or agent of the Fund may acquire, own, hold and dispose of
Securities for his individual account and may exercise all rights of a holder
of such Securities to the same extent and in the same manner as if he were
not a Trustee, officer, employee or agent of the Fund, subject, however, to
such regulations which the Trustees by resolution from time to time may adopt.
Section 2.12. Power to Contract. Subject to Article III and Section
2.5 with respect to delegation of authority by the Trustees, the Trustees
shall have power to appoint, employ or contract with any Person (including
one or more of themselves and any corporation, partnership or trust of which
one or more of them may be an affiliate) as the Trustees may deem necessary
or desirable for the transaction of the business of the Fund, including any
Person who, under the supervision of the Trustees, may among other things:
obtain or furnish and supervise the performance of ministerial functions in
connection with the administration of the Fund; serve as the Fund's
investment and financial advisor and consultant in connection with policy
decisions made by the Trustees; furnish reports to the Trustees and provide
research, economic and statistical data in connection with the Fund's
investments and investment policies; act as a consultant, borrower, lender,
accountant, correspondent, technical advisor, attorney, broker, investor,
underwriter, corporate fiduciary, escrow agent, depositor, custodian or agent
for collection, insurer or insurance, agent, transfer agent or registrar or
paying agent in any capacity deemed by the Trustees necessary or desirable;
obtain services as may be required for other activities relating to any of
the Fund Property; investigate, select, and, on behalf of the Fund, conduct
relations with Persons acting in such capacities and pay appropriate fees to,
enter into appropriate contracts with, employ and retain services performed
or to be performed by any of them in connection with the investments
acquired, sold, or otherwise disposed of, or committed, negotiated, or
contemplated to be acquired, sold or otherwise disposed of, by the Fund;
substitute any other Person for any such Person; act as attorney-in-fact or
agent in the purchase or sale or other disposition of investments; and assist
in the performance of such ministerial functions necessary in the management
of the Fund as may be agreed upon with the Trustees or officers of the Fund.
Section 2.13. Insurance. The Trustees shall have the power to
purchase and pay for entirely out of the Fund Property insurance policies
insuring the Fund Property against any and all risks and insuring the
Trustees, officers, employees, agents, investment advisors, including the
Advisor, or independent contractors of the Fund, individually or
collectively, against all claims and liabilities of every nature arising by
reason of holding or having held any such office or position by reason of any
action alleged to have been taken or omitted by the Fund or any such Person
as Trustee, officer, employee, agent, investment advisor, or independent
contractor, including any action taken or omitted that may be determined to
constitute negligence whether or not the Fund would have the power to
indemnify, such Person against such liability.
Section 2.14. Pension and Other Plans. The Trustees shall have the
power to pay pensions for faithful service, as deemed appropriate by the
Trustees, and to adopt, establish and carry out pension and profit-sharing
plans, share bonus, option and purchase plans and savings,
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thrift and other retirement, incentive and benefit plans, trusts and
provisions, including the purchasing of life insurance and annuity contracts
as a means of providing such retirement and other benefits, for any or all of
the Trustees, officers, employees and agents of the Fund.
Section 2.15. Dividends. The Trustees shall have the power to
declare and pay dividends in cash, shares or otherwise, to make other
distributions to Shareholders, whether out of net income,
accumulated-undistributed income, paid-in capital or otherwise, and to
establish a dividend and distribution reinvestment plan or program or any
plan or program similar thereto.
Section 2.16. Seal. The Trustees shall have the power to adopt and
use a seal for the Fund, but, unless otherwise required by the Trustees, the
seal need not be placed on, and its absence shall not impair the validity of
any document, instrument or other paper executed and delivered by or on
behalf of the Fund.
Section 2.17. Charitable Contributions. The Trustees shall have
power to make donations, irrespective of benefit to the Fund, for the public
welfare or for community fund, hospital, charitable, religious education,
scientific, civic or similar purposes.
Section 2.18. Indemnification. In addition to the mandatory
indemnification provided for in Section 5.3, the Trustees shall have power to
the extent permitted by law to indemnify or enter into agreements with
respect to indemnification with any Person with whom the Fund has dealings,
including without limitation any investment advisor, including the Advisor,
any underwriter of Securities of the Fund or any independent contractor, to
such extent as the Trustees shall determine.
Section 2.19. Remedies. Notwithstanding any provision in this
Instrument, when the Trustees deem that there is a significant risk that an
obligor to the Fund may default or is in default under the terms of any
obligation to the Fund, the Trustees shall have power to pursue any
remedies permitted by law which, in their sole judgment, are in the
interests of the Fund, and the Trustees shall have the power to enter into
any investment, commitment or obligation of the Fund resulting from the
pursuit of such remedies or necessary or desirable to dispose of property
acquired in the pursuit of such remedies.
Section 2.20. 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. Restriction on Investment. The Trustees shall have
the power to restrict investment in the Fund so that any one person can, at
any given time, own no more than
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5% of the Fund's shares. The Trustees shall have the power to restrict
investment in the Fund so that no person or affiliated group of persons may
be permitted to acquire such shares in the Fund to make them as "affiliated
person" of the Fund as that term is defined in Section 2(a) of the Act.
Section 2.22. Shareholders Lists. The Fund's shareholder list
shall not be furnished to any person except upon unanimous vote of the
Trustees or when required by applicable laws or regulations.
ARTICLE III
Advisor
Section 3.1. Designation. The Trustees shall maintain general
supervision over the investment policy of the Fund and the business of the
Fund conducted by officers, agents, employees, the Investment Advisor or
independent contractors of the Fund. The Trustees shall grant or delegate
investment authority to the Advisor, pursuant to the terms of Sections 2.5
and 2.12, or to any other Person the services of which are obtained by the
Advisor as the Trustees may, in their sole discretion, deem necessary or
desirable, without regard to whether such authority is normally granted or
delegated by trustees.
Section 3.2. Terms of Agreement. The Trustees have previously
entered into an agreement with the Advisor pursuant to the provisions of
Section 3.1 which shall provide that: (i) the Advisor shall be required to
see its best efforts to present a continuing and suitable investment program
to the Fund which is consistent with the investment policies and objectives
of the Fund; (ii) the Advisor furnish the Fund with investment research and
advice and shall manage and supervise the Fund's portfolio of investments;
(iii) the Advisor in performance of the foregoing shall furnish the Trustees
with such information and reports regarding the Securities in the Fund's
portfolio and proposed additions to the portfolio as the Advisor deems
appropriate or as the Trustees may reasonably request; (iv) the Advisor shall
supervise the Fund's relations with its Custodian, auditors and Governmental
regulatory bodies and shall furnish certain office space and certain
secretarial and certain clerical assistance necessary for the performance of
the foregoing functions; (v) the agreement shall include the provisions of
Subsection 2.6(b); (vi) the Advisor shall be paid a monthly management fee
computed at the annual rate of 1% of the first $35 million, 7/8 of 1% on the
next $35 million and 3/4 of 1% on all sums in excess thereof of the average
daily net assets of the Fund on the first business day of each month of its
fiscal year, and "net assets" shall be determined as in Section 2.8; (vii)
the agreement shall have an initial term of 24 months and shall remain in
effect thereafter for as long as the agreement is approved annually by the
Trustees, or by the majority vote of the Shareholders in accordance with
Section 15 of the Act; (viii) the agreement shall be terminable without
penalty at any time upon 60 days' written notice: (a) to the Advisor during
the original term or any renewal or extension thereof if a majority of the
Trustees, including a majority of those Trustees who are not parties to the
agreement or "interested persons", as defined in Section 2(a)(19) of the Act,
or a majority of the outstanding voting securities, shall in good faith
determine that the Advisor is not presenting a
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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 after such selection has been made a proposal to approve such
Substitute Advisor. During the period between the cessation of service by
the Advisor and the approval of the Substitute Advisor by the Shareholders,
the Trustees shall perform the Advisor's duties with such assistance as they
may determine to be appropriate.
Section 3.4. Independence of Trustees. Not more than 60% of the
total number of Trustees may be affiliates of the Advisor, provided that if
at any time the percentage of all Trustees who are affiliates of the Advisor
becomes more than 60% of the total number of Trustees then in office because
of the death, resignation, removal or change in affiliation of a Trustee who
is not such an affiliate, such requirement shall not be applicable for a
period of 60 days during which time a majority of all the Trustees then in
office shall appoint a sufficient number of other individuals as Trustees so
that not more than 60% of the total number of all Trustees then in office
shall be affiliates of the Advisor. The Trustees shall endeavor at all times
to comply with this requirement but the failure so to comply shall not affect
the validity or effectiveness of any action of the Trustees.
Section 3.5. Other Activities. The Advisor shall not be required to
administer the investment activities of the Fund as its sole and exclusive
function. The Advisor may deal with Persons with whom the Fund may do
business and may have other business interests and may engage in other
activities of any kind in addition to those relating to the activities to be
performed by the Advisor for the Fund, including rendering services and
advice to other Persons (whether or not such Persons are in competition with
the Fund or are engaged in, activities similar to those of the Fund) acting
as a trustee and managing other investments, including investments of the
Advisor or any affiliate of the Advisor. The Trustees may request the
Advisor to engage in other activities which complement the Fund's investments
and to provide services for the Fund or for other Persons who do business
with the Fund, and the Advisor may receive compensation or commissions
therefor from the Fund or other Persons. The Advisor may invest in any such
particular investment opportunity for its own account or offer, make
available or recommend any such particular investment opportunity to any
Person.
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ARTICLE IV
Investments
Section 4.1. Statement of Investment Policy. The Investment
Objective of the Fund is to seek current income. As a secondary objective,
the Fund seeks to maximize the total return but only to the extent consistent
with its primary objective.
Section 4.2 Other Investments. To the extent that the Fund has
assets not otherwise invested in accordance with Section 4.1, the Advisor
may, at any time, invest such assets in such investment as are determined by
the Advisor to be in the best interests of the Fund.
Section 4.3 Option Activities. The Advisor may, to the maximum
extent permissible under applicable laws and regulations, engage in any and
all option activities as it shall, from time to time determine to be
appropriate and in the best interests of the Fund's shareholders.
Section 4.4 Restrictions. The Fund may, in the sole discretion of
the Advisor and to the maximum extent permissible by applicable laws and
regulations, engage in all lawful investment activities.
Section 4.5. Portfolio Transactions. The Advisor is authorized to
execute portfolio transactions for the Fund through such entities as Advisor
determines, at its discretion, provided such entity renders satisfactory
service at standard and/or negotiated commission rates.
ARTICLE V
Limitations of 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
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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 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 undertaking 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,
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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 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
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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.
ARTICLE VII
Record and Transfer of Shares
Section 7.1. Share Register; Holders of Record. A register shall be
kept by or on behalf of the Trustees, under the direction of the Trustees,
which shall contain the names and addresses of the Shareholders and the
number of Shares held by them respectively, and the numbers of the
certificates, if any, representing such Shares and a record of all transfers
thereof. Only Shareholders whose Shares are recorded on such register shall
be entitled to vote or to receive distributions or otherwise to exercise or
enjoy the rights of Shareholders, all subject to the provisions of Section
9.4. No shareholders shall be entitled to receive any distribution or to
have notice given to him as provided herein until he has given his address to
a transfer agent or such other officer or agent of the Fund as shall keep the
register for entry thereon.
Section 7.2. Transfer Agent. The Trustees shall employ Steadman
Security Corporation ("SSC") as transfer and dividend disbursing agent
("Agent") upon such terms and conditions as the Trustees in their judgment
may deem to be suitable and shall pay to the Agent such fees and expenses for
such services as the Trustees determine to be appropriate in addition to fees
and expenses paid to the Advisor for any other services it performs. The
Agent may keep the register and record therein the original issues and
transfers of Shares and countersign certificates for Shares issued to the
persons entitled thereto. The Agent shall perform the duties usually
performed by transfer agents and registrars of certificates of stock in a
corporation except as modified by the Trustees. If SSC declines or is unable
to provide this service, the Trustees shall employ another organization.
Section 7.3. Blank Certificates. In accordance with the usual
custom of corporations having a transfer agent, signed certificates for
Shares in blank may be deposited with any transfer agent of the Fund, to be
used by such transfer agent in accordance with authority, conferred upon it
as occasion may require, and in so doing the signers of such certificates
shall not be responsible for any loss resulting therefrom.
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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
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.
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Section 7.7. Notices. Any notice to which Shareholders hereunder
may be entitled and any communication 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 certificate for Shares hereunder the
Trustees may issue or cause to be issued a new certificate on such terms as
they may deem fit.
Section 7.9. Designation of Beneficiary. A Shareholder may at
any time designate as beneficiary any person or persons (hereinafter called
the "Beneficiary") whose interest in the Fund shall be contingent upon such
beneficiary or beneficiaries surviving such Shareholder, and whose interests
may at any time be revoked by the Shareholder without the consent of such
Beneficiary by notice in writing to the Trustees.
The transfer by a Shareholder of his interest or any part thereof in
the Fund shall operate to revoke any prior designation of any Beneficiary to
the extent of such transfer.
Such designation shall be in form satisfactory to the Trustees and
shall contain the name and address of such Beneficiary, and shall be
registered by the Trustees on the Shareholder's account. The Trustees shall
make no charge for the initial designation, but all subsequent designations
shall be registered upon payment to the Trustees of a fee of One Dollar
($1.00).
The Shareholder agrees for himself, his legal representative,
executors, administrators, heirs, and assigns that upon his death the
recognition by the Trustees of the Beneficiary last designated and unrevoked
as the person entitled to the Shareholder's interest in the Fund shall be a
complete discharge to the Trustees in respect of such interest.
ARTICLE VIII
Characteristics of Securities
Section 8.1. General. The ownership of the Fund Property of every
description and the right to conduct any business described herein are vested
exclusively in the Trustees, and the Shareholders shall have no interests
therein other than the beneficial interest conferred by their Shares, and
they shall have no right to call for any partition or division of any
property, profits, rights or interests of the Fund, nor can they be called
upon to share or assume any losses of the Fund or suffer an assessment of any
kind by virtue of their ownership of Shares. The Shares shall be personal
property having only the rights set forth in this Instrument and in the
certificates for the Shares.
Section 8.2. Death of Shareholders. The death of a Shareholder
during the continuance of the Fund shall not terminate the Fund or give such
Shareholder's legal representative a right to an accounting, or to take any
action in the courts or otherwise against other Shareholders, the
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Trustees or the Fund Property, but shall only entitle the legal
representative of the deceased Shareholder to become the Shareholder upon
compliance with Section 7.4.
Section 8.3. Redemption of Shares. Option of Shareholder. 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).
ARTICLE IX
Shareholders
Section 9.1. Special Meetings. (a) Special meetings of' the
Shareholders shall be called when required by applicable laws or regulations
and may be called at any time by a majority of the Trustees, and shall be
called by the Chairman upon written request of Shareholders holding in the
aggregate not less than 90% of the outstanding Shares having voting rights.
Any such request shall specify the purpose or purposes for which such meeting
is to be called. No other business not stated in the notice of the meeting
shall be considered at such meeting. Any such meeting shall be held in the
District of Columbia or in such other place within or without the District of
Columbia as the Chairman shall designate.
(b) Quorum. The holders of 33% of the outstanding shares present in
person or by proxy shall constitute a quorum at any meeting except as may be
otherwise required by the Act or by applicable law.
Section 9.2. Notice of Meetings. Notice of all meetings of the
Shareholders, stating the time, place and purposes of the meeting, shall be
given by the Trustees by mail to each Shareholder at his registered address
mailed at least 10 days and not more than 60 days before the meeting. Any
adjourned meeting may be held as adjourned without further notice.
Section 9.3. Voting Rights of Shareholders. The Shareholders shall be
entitled to vote only upon (a) election of Trustees as provided in Sections
10.1 and 10.2; (b) removal and election of Trustees as provided in Sections
10.3 and 10.4; (c) amendment of this Instrument or termination of the Fund
as provided in Section 12.1; (d) termination as provided in Section 3.2 of
any agreement entered into pursuant to Section 3.1; (e) upon such other
matters as may be required by the Act; and (f) to the same extent as the
shareholders of a business corporation, as to whether or not a court
action, proceeding or claim should be brought or maintained derivatively or
as a class action on behalf of the Fund or its Shareholders. Except with
respect to the foregoing matters specified in this Section, on which the
specified Shareholders' vote shall determine the Trustees' action, no
action taken by the Shareholders at any meeting shall in any way bind the
Trustees.
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Each Shareholder entitled to vote in accordance with this Instrument
shall be entitled to one vote for each full Share outstanding, and entitled
to vote held by such Shareholder. 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, except as expressly provided otherwise in this
Instrument.
Section 9.4. Record Date. For the purpose of determining the
Shareholders who are entitled to vote or act at any meeting or any
adjournment thereof, or who are entitled to participate in any dividend or
distribution or for the purpose of any other action, the Trustees may fix a
date not less than 10 nor more than 60 days prior to the date of any meeting
of Shareholders or dividend payment or other action as a record date for the
determination of Shareholders entitled to vote at such meeting or any
adjournment thereof or to receive any dividend or to be treated as
Shareholders of record for purposes of such other action.
Section 9.5. Proxies. At any meeting of Shareholders, any holder of
Shares entitled to vote there at may vote by proxy, provided that no proxy
shall be voted at any meeting unless it shall have been placed on file with
the Secretary of the Fund or with such other officer or agent of the Fund as
the Secretary may direct, for verification prior to the time at which such
vote shall be taken. Pursuant to a resolution of a majority of the Trustees,
proxies may be solicited in the name of one or more Trustees or one or more
of the officers of the Fund. A proxy purporting to be executed by or on
behalf of a Shareholder shall be deemed valid unless challenged at or prior
to its exercise and the burden of proving invalidity shall rest on the
challenger.
Section 9.6. Reports. The Trustees shall cause to be prepared after
the end of the first full Fiscal Year and after the end of each succeeding
Fiscal Year a report containing audited financial statements, including a
balance sheet and statements of income and accumulated undistributed income
realized gain or loss on investments, and changes in financial position of
the Fund, prepared in conformity with generally accepted accounting
principles, together with a report of independent accountants on such
financial statements based on an examination of the books and records of the
Fund made in accordance with generally accepted auditing standards. A signed
copy of such reports shall be filed with the Trustees as soon as practicable
after the close of the period covered thereby. Copies of such reports shall
be mailed to all Shareholders.
Section 9.7. Notice for Nominations and Proposals. (a) Nominations
for the election of Trustees and proposals for any new business to be taken
up at any meeting of Shareholders may be made by the Trustees of the Fund or
by any Shareholder of the Fund entitled to vote generally in the election of
Trustees. In order for a Shareholder of the Fund to make any such
nominations and/or proposals, he or she shall give notice thereof in writing,
delivered or mailed by first class United States mail, postage prepaid, to
the Secretary of the Fund not less than thirty days nor more than sixty days
prior to the date of any such meeting; provided, however, that if less than
forty days notice of the meeting is given to Shareholders, such written
notice shall be delivered or mailed, as prescribed, to the Secretary of the
Fund not later than the close of business on the tenth
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day following the day on which notice of the meeting was mailed to
Shareholders. Each such notice given by a Shareholder with respect to
nominations for the election of Trustees shall set forth (i) the name, age,
business address and, if known, residence address of each nominee proposed in
such notice; (ii) the principal occupation or employment of each such
nominee; and (iii) the number of the Fund Shares which are beneficially owned
by each such nominee. In addition, the Shareholder making such nomination
shall promptly provide any other information reasonably requested by the Fund.
(b) Each such notice given by a Shareholder to the Secretary with
respect to business proposals to be brought before a meeting shall set forth
in writing as to each matter: (i) a brief description of the business
desired to be brought before the meeting and the reasons for conducting such
business at the meeting; (ii) the name and address, as they appear on the
Fund's books, of the Shareholder proposing such business; (iii) the number of
Fund Shares which are beneficially owned by the Shareholder; and (iv) any
material interest of the Shareholder in such business. Notwithstanding
anything in this Trust Indenture to the contrary, no new business shall be
conducted at the meeting except in accordance with the procedures set forth
in this Trust Indenture.
(c) The Chairman of the meeting of Shareholders may, if the facts
warrant, determine and declare to such meeting that a nomination or proposal
was not made in accordance with the foregoing procedure, and, if he should so
determine, he shall so declare to the meeting and the defective nomination or
proposal shall be disregarded and laid over for action at the next succeeding
special or annual meeting of the Shareholders taking place thirty days or
more thereafter. This provision shall not require the holding of any
adjourned or special meeting of Shareholders for the purpose of considering
such defective nomination or proposal.
ARTICLE X
Trustees
Section 10.1. Number and Qualification. The number of Trustees
shall not be less than one (1) nor more than fifteen (15). No reduction in
the number of Trustees shall have the effect of removing any Trustee from
office prior to the expiration of his term. A Trustee shall be an
individual at least 21 years of age who is not under legal disability.
Trustees may, but need not, 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
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serving as a Trustee immediately prior to such elections pursuant to this
Section shall not become effective unless and until such person shall have in
writing accepted his election and agreed to be bound by the terms of this
Instrument. There shall be no cumulative voting by Shareholders in the
election of Trustees of the Fund.
Section 10.3. Resignation and Removal. Any Trustee may resign
his trust (without need for prior or subsequent accounting) by an
instrument in writing signed by him and delivered or mailed to the Chairman
of the Trustees, the President or the Secretary of the Fund, and such
resignation shall be effective upon such delivery or at a later date
according to the terms of such instrument. Any or all of the Trustees may
be removed, with or without cause, by action of 90% of the remaining
Trustees at a meeting duly called. No natural person shall serve as
Trustee after the holders of record of not less than two-thirds of the
outstanding shares of the Fund have declared that he be removed from that
office either by declaration, in writing, filed with the custodian of the
securities of the Fund or by votes cast in person or by proxy at a meeting
called for that purpose. The Trustees will promptly call a meeting of
shareholders for the purpose of voting upon the question of removal of any
such Trustee or Trustees when requested to do so by the record holders of
not less than 10% of the outstanding shares. Upon the resignation or
removal of a Trustee, or his otherwise ceasing to be a Trustee, he shall
execute and deliver such documents as the remaining Trustees shall require
for the purpose of conveying to the Fund or the remaining Trustees any Fund
Property held in the name of the resigning or removed Trustee, and by the
acceptance of his appointment or election as Trustee he shall delegate to
any other of the Trustees his power of attorney to execute such documents
on his behalf. Upon the incapacity or death of any Trustee, his legal
representative shall execute and deliver on his behalf such documents as
the remaining Trustees shall require as provided in the preceding sentence.
Section 10.4. Vacancies. Whenever a vacancy shall occur, until
such vacancy is filled the Trustees or Trustee continuing in office,
regardless of their number, shall have all the powers granted to the
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
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election or appointment made as provided in this Section, the Fund Property
shall vest in such new Trustee jointly with the continuing or surviving
Trustees without the necessity of any further act or conveyance, provided
that no such election or appointment shall become effective unless or until
the new Trustee shall have accepted, in writing, his election or appointment
and agreed to be bound by the terms of this Instrument.
Section 10.5. Meetings. Meetings of the Trustees shall be held from
time to time, either within or without the District of Columbia, upon the
call of the Chairman of the Trustees, the President, the Secretary of the
Fund or any two Trustees. Notice of any meeting shall be mailed or otherwise
given not less than 24 hours before the meeting but may be waived, in
writing, by any Trustee either before or after such meeting. The attendance
of a Trustee at a meeting shall constitute a waiver of notice of such meeting
except where a Trustee attends a meeting for the express purpose of objecting
to the transaction of any business on the ground that the meeting has not
been lawfully called or convened.
A quorum for all meetings of the Trustees shall be a majority of the
Trustees. Any Trustee present shall be counted for the purpose of
determining whether a quorum exists and shall be entitled to vote on any
proposed action of the Trustees notwithstanding that such Trustee may be a
party to or an affiliate of a person (other than the Fund) who is a party to
a transaction to which the Fund is also a party, or may be otherwise
interested in the proposed action.
Unless specifically provided otherwise in this Instrument, any
action of the Trustees may be taken at a meeting by vote of a majority of the
Trustees present (a quorum being present) or without a meeting by written
consent of a majority of the Trustees given before or after such action is
taken.
Any Committee may act with or without a meeting. A quorum for all
meetings of any Committee shall be a majority of the members thereof. Unless
specifically provided otherwise in this instrument, any action of any
Committee may be taken at a meeting by vote of a majority of the members
present (a quorum being present) or without a meeting by written consent of a
majority of the members given before or after such action is taken. All or
any one or more Trustees may participate in a meeting, of the Trustees or any
Committee thereof by conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each
other and participation in a meeting pursuant to such means of communication
shall constitute presence in person at such meeting. The minutes of any
meeting of the Trustees held by telephone shall be prepared in the same
manner as a meeting of the Trustees held in person.
Any agreement, deed, lease or other instrument or writing executed
by one or more of the Trustees or by any authorized Person shall be valid and
binding upon the Trustees and upon the Fund when it is authorized or ratified
by action of the Trustees as provided in this Instrument.
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Section 10.6. Officers. The Trustees shall annually elect from
among their number a Chairman of the Trustees, who shall be the principal
executive officer of the Fund. The Trustees shall elect or appoint or shall
authorize the Chairman to appoint a President, a Treasurer and a Secretary.
The Trustees may elect or appoint or may authorize the Chairman of the
Trustees to appoint a Vice-Chairman of the Trustees, a Controller, one or
more Assistant Treasurers and Assistant Secretaries and such other officers
or agents who shall have such powers, duties and responsibilities, as the
Trustees may deem advisable. Two or more offices may be held by the same
person.
Section 10.7. By-laws. The Trustees may adopt and from time to time
amend or repeal By-laws for the conduct of the business of the Fund and
such By-laws may define the duties of the officers, agents, employees and
representatives of the Fund.
ARTICLE XI
Distributions to Shareholders
Section 11.1. General. The Trustees may from time to time declare
and pay to the Shareholders, in proportion to their respective ownership of
Shares out of the net income accumulated undistributed income, paid-in
capital or otherwise out of assets in the hands of the Trustees such
dividends or other distributions as they may deem proper. The declaration
and payment of such dividends or other distributions and determination of net
income, accumulated undistributed income or paid-in capital available for
dividends or other distributions and other purposes shall lie wholly in the
discretion of the Trustees, and no Shareholder shall be entitled to receive
or be paid any dividends or to receive any distribution except as determined
by the Trustees in the exercise of said discretion. The Trustees may also
distribute to the Shareholders. in proportion to their respective ownership
of Shares, additional Shares in such manner and on such terms as they may
deem proper.
Section 11.2. Retained Earnings. Except as provided in Section
11.1, the Trustees may retain from net income such amounts as they may deem
necessary to pay the debts and expenses of the Fund, to meet obligations of
the Fund, to establish reserves, or as they may deem desirable to use in the
conduct of its affairs or to retain for future requirements or extensions of
the business of the Fund.
Section 11.3. Sources of Distributions. Any distributions to
Shareholders shall be accompanied by a statement in writing advising the
Shareholders of the source of the funds so distributed so that 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.
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ARTICLE XII
Amendment or Termination of Fund
Section 12.1. Amendment or Termination. The provision of this
Instrument may be amended or altered (except as to the limitations of
personal liability of the shareholders and Trustees and the prohibition of
assessments upon shareholders) only by the affirmative vote of a majority of
the Trustees. Such amendment or termination shall be effective when a
certificate shall have been signed and acknowledged by the Chairman,
Secretary or Trustee, that such action was taken at a meeting duly called and
held in accordance with and by the affirmative vote required by this
Instrument. Upon the termination of the Fund pursuant to this Section:
(a) the Fund shall carry on no business except for the purpose of
winding up its affairs;
(b) the Trustees shall proceed to wind up the affairs of the Fund
and all of the powers of the Trustees under this Instrument shall continue
until the affairs of the Fund shall have been wound up, 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 consist in whole or in part of cash, securities
or other property of any kind, discharge or pay its liabilities, and do all
other acts appropriate to liquidate its business, provided that any plan or
program for the sale, conveyance, assignment, exchange, transfer or other
disposition of all or substantially all of the Fund Property in one or a
series of transactions shall require approval by affirmative vote of not less
than a majority of all outstanding Shares entitled to vote; and
(c) after paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and refunding
agreements as their deem necessary for their protection, the Trustees may
distribute the remaining Fund Property, in cash or in kind or partly each,
among the Shareholders according to their respective rights.
Section 12.2. Transfer to Successor. Anything contained herein or
otherwise to the contrary notwithstanding, the Trustees upon affirmative
majority vote may (a) select any entity, be it a corporation, association,
trust or other kind of organization, or organize any such kind of entity to
take over the Fund Property and carry on the affairs of the Fund; (b) merge
the Fund into or sell, convey and transfer the Fund Property to any such
entity for such consideration and upon terms and conditions without
limitation as they in their discretion deem suitable; and, (c) take such
other action they may in their discretion deem either necessary or
appropriate to accomplish or implement any action taken hereunder.
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ARTICLE XIII
Miscellaneous
Section 13.1. Governing Law. This Instrument is delivered by the
Trustees in the District of Columbia and with reference to the laws
thereof, and the rights of all parties and the validity, construction and
effect of every provision hereof shall be subject to and construed
according to the laws of the District of Columbia.
Section 13.2. Counterparts. This Instrument may be simultaneously
executed in several counterparts, each of which so executed shall be deemed
to be an original, and such counterparts, together, shall constitute one and
the same instrument and shall be sufficiently evidenced by any original
counterpart.
Section 13.3. Reliance by Third Parties. Any certificate executed
by the Chairman or President or Secretary or Assistant Secretary certifying
to (a) the number or identity of the Trustees or Shareholders; (b) the due
authorization of the execution of any instrument or writing; (c) the form of
any vote passed at a meeting of the Trustees or Shareholders; (d) the fact
that the number of the Trustees or Shareholders present at any meeting or
executing any written instrument satisfies the requirements of this
Instrument; (e) the form of any By-law adopted by or the identity of any
officers elected or appointed by the Trustees; or (f) the existence of
non-existence of any fact or facts which in any manner relate to the affairs
of the Fund, shall be conclusive evidence as to the matters so certified in
favor of any person dealing with the Trustees or any of them and the
successors of such person.
Section 13.4. Provisions in Conflict With Laws or Regulations. (a)
The provisions of this Instrument are severable and if the Trustees shall
determine that any one or more of such provisions are in conflict with
applicable federal or state laws and regulations, such conflicting provisions
shall be deemed never to have constituted a part of this Instrument, provided
that such determination by the Trustees shall not affect or impair any of the
remaining provisions of this Instrument or render invalid or improper any
action taken or omitted (including, but not limited to, the election of
Trustees) prior to such determination. Such determination shall become
effective when a certificate is signed by the Chairman, President or
Secretary setting forth any such determination and reciting that it was duly
adopted by the Trustees. The Trustees shall not be liable for failure to
make any determination under this Section. Nothing in this Section shall in
any way limit or affect the right of the Trustees or the Shareholders to
amend this Instrument.
(b) If any provisions of this Instrument shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any
manner affect or render invalid or unenforceable such provision in any other
jurisdiction or any other provision of this Instrument in any jurisdiction.
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<PAGE>
Section 13.5. Not In Derogation of Existing Rights. Nothing herein
shall operate in derogation of any substantive rights, privileges, duties or
liabilities with respect to the Shares issued and outstanding prior to the
Effective Date of this Instrument.
Section 13.6. Section Headings. Section headings have been inserted
for convenience only and are not a part of this Instrument.
ARTICLE XIV
Effective Date and Duration of Trust and Fund
Section 14.1. Effective Date. This Instrument and the Trust herein
shall become effective immediately upon the affirmative vote of not less than
two-thirds of a majority of the Shares then outstanding, and entitled to vote
as required by the Act and upon the signing of a certificate by the Chairman
or Secretary setting forth the fact of such affirmative vote and the date
thereof which date shall be the "Effective Date."
Section 14.2. This Instrument Supersedes. On and after the
Effective Date, this Instrument shall supersede the Trust Indenture dated
February 23, 1939 and all amendments and supplements thereto and the Fund and
all matters pertaining thereto shall be governed by this Instrument.
Section 14.3. Duration and Termination. The Fund shall terminate on
February 23, 2034, unless the date of termination shall be extended and
changed to a later date or unless terminated earlier by the affirmative vote
of a majority of Trustees.
ARTICLE XV
Shareholders' Acceptance
Section 15.1. Acceptance. Shareholders holding shares after the
Effective Date of this Instrument shall be deemed to have accepted this
instrument and the terms and conditions contained herein and shall be bound
hereby, nothing herein contained to the contrary notwithstanding.
<PAGE>
EXHIBIT 4
Agreement and Plan of Merger
<PAGE>
EXHIBIT 4
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger ("Agreement") is made as of the 2nd day
of May, 1997, by and among Steadman Associated Fund, a common law trust
organized under the laws of the District of Columbia ("Fund") and Steadman
Investment Fund, Steadman American Industry Fund and Steadman Technology and
Growth Fund, each of which is a common law trust organized under the laws of
the District of Columbia (collectively, the "Other Funds"). Upon completion
of the transactions set forth in this Agreement, the Steadman Associated Fund
will change its name to the Steadman Security Trust ("Fund").
The reorganizations ("Reorganizations") will consist of the mergers of
the Other Funds with and into the Fund ("Merger") and the issuance by the
Fund in each transaction of shares of beneficial interest of the Fund
("shares") to be distributed contemporaneously with the Closing Date (as
defined in Section 3.1 below), to the shareholders of the Other Funds as
provided herein, all upon the terms and conditions hereinafter set forth in
this Agreement.
In consideration of the premises and of the covenants and agreements
hereinafter set forth, the parties hereto covenant and agree as follows:
I. THE REORGANIZATIONS OF THE OTHER FUNDS
1.1 Subject to the terms and conditions herein set forth and on the
basis of the representations and warranties contained herein, on the Closing
Date, each of the Other Funds will merge with and into the Fund, and the
Fund, as the survivor of the Merger, will in exchange therefor on the Closing
Date as set forth in paragraph 3.1 issue to the shareholders of the Other
Funds the number of shares of the Fund determined by dividing the value of
each of the Other Funds shares computed in the manner and as of the time and
date set forth in paragraph 2.1, by the net asset value per share of the
Fund, computed in the manner and as of the time and date set forth in
paragraph 2.2. Such transactions shall take place at the closing provided for
in paragraph 3.1 ("Closing").
1.2 Copies of all books and records of or pertaining to the Other Funds,
including those in connection with its obligations under the Investment
Company Act of 1940, as amended (the "1940 Act"), the Code, State blue sky
laws or otherwise in connection with this Agreement, will promptly after the
Closing be delivered to officers of the Fund or their designee. The Fund and
its advisor, Steadman Security Corporation ("Steadman") shall have access to
such books and records upon reasonable request during normal business hours.
2. THE CALCULATION
2.1 The net asset value of each of the Other Fund's shares shall be the
net asset value per share computed at the close of trading on the New York
Stock Exchange on the business day
<PAGE>
preceding the Closing Date (such time and date being hereinafter called the
"Valuation Date") using the valuation procedures set forth in each of the
Other Fund's Trust Indenture.
2.2 The net asset value of each share of the Fund shall be the net asset
value per share computed on the Valuation Date, using the valuation
procedures set forth in the Fund's Trust Indenture.
2.3 The Fund shall effectuate a reverse split of each share of the Fund
which is issued and outstanding on the Valuation Date so that for each ten
Fund shares issued and outstanding 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 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 adjusted to reflect the
reverse stock split of the Fund shares effectuated pursuant to paragraph 2.3.
Fractional shares shall not be issued and the net asset value of any Fund
fractional shares required to be issued pursuant to paragraphs 2.3 and 2.5
shall be paid in cash to each Fund shareholder and Other Funds Shareholders.
3. THE MERGER
3.1 Upon the effectiveness of the Merger, the Other Funds shall be
merged with and into the Fund, pursuant to the laws of the District of
Columbia, which shall be the survivor from and after the effective time of
the Merger, and which is sometimes hereinafter referred to as the "surviving
fund," and which shall continue to exist as said surviving fund under the
name Steadman Security Trust. The separate existence of each of the Other
Funds, which are hereinafter sometimes referred to as the "terminating
funds," shall cease at the Closing Date in accordance with the provisions of
Section 4.1.
3.2 The Amended and Restated Trust Indenture of the Fund and Declaration
of Trust with amendments through May 2, 1997 ("Fund Trust Indenture") as now
in force and effect, and as the same may be amended and restated, shall
continue to be the Trust Indenture of the surviving fund, and shall continue
in full force and effect until further amended and changed in the manner
prescribed therein.
3.3 The Trustees in office of the Fund at the Closing Date shall be the
Trustees of the surviving fund.
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<PAGE>
3.4 Each issued share of a terminating fund shall, at the Closing Date,
be converted into shares of the surviving fund. The issued shares of the
Fund shall not be converted or exchanged in any manner, but each such share
which is issued and outstanding as of Closing Date shall continue to
represent one issued share of the surviving Fund.
4. CLOSING AND CLOSING DATE
4.1 The Closing Date hereunder (the "Closing Date") shall be ten days
after all shareholder and regulatory approvals to effectuate the Merger have
been received by the Fund and the Other Funds (or such other day and time as
may be mutually agreed upon in writing). The Closing shall be held in a
location mutually agreeable to all the parties hereto. All acts taking place
at the Closing shall be deemed to take place simultaneously as of 9:00 a.m.
Eastern time on the Closing Date unless otherwise agreed by the parties.
4.2 In the event that on the Valuation Date (a) the New York Stock
Exchange shall be closed to trading or trading thereon shall be restricted or
(b) trading or the reporting of trading on such Exchange or elsewhere shall
be disrupted so that in the judgment of both the Fund and the Other Funds,
accurate appraisal of the value of the net assets of the Fund or the Other
Funds is impracticable, the Valuation Date shall be postponed until the first
business day after the day when trading shall have been fully resumed without
restriction or disruption and reporting shall have been restored.
4.3 The Other Funds shall deliver to the Fund or its designee (a) at the
Closing a list, certified by its Secretary, of the names, addresses and
taxpayer identification number, of the Other Funds Shareholders (the "Other
Funds Shareholders") and the number of outstanding Other Funds shares owned
by each such shareholder, all as of the Valuation Date, and (b) as soon as
practicable after the Closing all original documentation (including Internal
Revenue Service forms, certificates, certifications and correspondence)
relating to the Other Funds Shareholders taxpayer identification numbers and
their liability for or exemption from back-up withholding. The Fund shall
issue and deliver a confirmation evidencing delivery of Fund shares to be
credited on the Closing Date to the Other Funds Shareholders or provide
evidence reasonably satisfactory to the Other Funds Shareholders that such
Fund shares have been credited to Other Funds Shareholders account on the
books of the Fund. At the Closing each party shall deliver to the other such
other documents or instruments as such other party or its counsel may
reasonably request to effect the consummation of the transactions
contemplated by the Agreement.
5. COVENANTS OF THE FUND AND THE OTHER FUNDS.
5.1 The Fund will operate its business in the ordinary course between
the date hereof and the Closing Date.
5.2 The Fund has prepared and filed with the Securities and Exchange
Commission ("Commission") a registration statement on Form N-14 under the
Securities Act of 1933, as
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<PAGE>
amended ("1933 Act"), and will prepare and file with the Commission any
amendments thereto, relating to the Fund shares to be issued to the Other
Funds Shareholders pursuant to the Merger ("Registration Statement"). The
Other Funds will provide the Fund with the Proxy Materials as described in
paragraph 5.3 below, for inclusion in the Registration Statement. The Other
Funds will further provide the Fund with such other information and documents
relating to the Other Funds as are reasonably necessary for the preparation
of the Registration Statement.
5.3 The Fund and the Other Funds will call a meeting of their
shareholders to consider and act upon the Merger, including this Agreement,
and take all other action necessary to obtain approval of the transactions
contemplated herein. The Fund and the Other Funds will prepare, with such
assistance from each other as may be mutually agreed to, the notice of
meeting, form of proxy and proxy statement and prospectus (collectively
"Proxy Materials") to be used in connection with such meetings provided that
the Fund will furnish the Other Funds with a current effective prospectus
relating to the Fund shares for inclusion in the Proxy Materials and with
such other information relating to the Fund as is reasonably necessary for
the preparation of the Proxy Materials. The Fund will include in its Proxy
Materials for approval by its shareholders the change of the name of the Fund
to the Steadman Security Trust and the change in its fundemental investment
policy from primarily capital growth and secondarily current income to
primarily current income and secondarily to maximize total return.
5.4 Prior to the Closing Date, the Other Funds will assist the Fund in
obtaining such information as the Fund reasonably requests concerning the
beneficial ownership of the shares of the Other Funds.
5.5 Subject to the provisions of this Agreement, the Fund and the Other
Funds will each take, or cause to be taken, all action, and do or cause to be
done, all things reasonably necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement.
5.6 As promptly as practicable after the Closing Date, the Other Funds
shall furnish or cause to be furnished to the Fund, such information as the
Fund reasonably requests to enable the Fund to determine the Other Funds
gains or losses resulting from the Reorganizations for federal income tax
purposes and such other tax information that the Fund may reasonably request.
5.7 As promptly as practicable after the Closing Date, the Other Funds
shall prepare and file all federal and other tax returns and reports of the
Other Funds required by law to be filed with respect to all periods ending
through and after the Closing Date but not theretofore filed.
5.8 The Fund agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act and such
of the state Blue Sky and securities laws as it may deem appropriate in order
to continue its operations after the Closing Date.
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<PAGE>
6. REPRESENTATIONS AND WARRANTIES
6.1 The Fund represents and warrants to the Other Funds as follows:
(a) The Fund is a common law trust, established under the Fund Trust
Indenture, a copy of which has been furnished to the Other Funds, and
is validly existing and in good standing under the laws of the
District of Columbia, and has the power and authority to own its
properties and to carry on its business as it is now conducted.
(b) The Fund is a duly registered, open-end, management investment
company, and its registration with the Commission as an investment
company under the 1940 Act and the registration of its shares under
the 1933 Act are in full force and effect.
(c) All of the issued and outstanding shares of each class of the
Fund have been offered and sold in compliance in all material respects
with applicable registration requirements of the 1933 Act and state
securities laws. Shares of each class of the Fund are registered in
all jurisdictions in which they are required to be registered under
state securities laws and other laws, and said registrations,
including any periodic reports or supplemental filings, are complete
and current, all fees required to be paid have been paid, and the Fund
is not subject to any stop order and is fully qualified to sell its
shares in each state in which its shares have been registered.
(d) The current prospectus and statement of additional information of
the Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the regulations
thereunder and do not include any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(e) At the Closing Date, the Fund will have title to the Fund's
assets, subject to no liens, security interests or other encumbrances
except those incurred in the ordinary course of business.
(f) The Fund is not, and the execution, delivery and performance of
this Agreement will not result, in a material violation of any
provision of the Fund Trust Indenture or of any material agreement,
indenture, instrument, contract, lease or other undertakings to which
the Fund is a party or by which it is bound.
(g) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently
pending or, to its knowledge, threatened against the Fund or any of
its properties or assets, except as previously disclosed in writing to
the Other Funds. The Fund knows of no facts that might form the basis
for the institution of such proceedings and is not a party to or
subject to the provisions of any order, decree or
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<PAGE>
judgment of any court or governmental body which materially and
adversely affects, or is reasonably likely to materially and adversely
affect, its business or its ability to consummate the transactions
contemplated herein.
(h) The Statement of Assets and Liabilities, Statement of Operations
and Statement of Changes in Net Assets as of June 30, 1996 (audited)
of the Fund examined by Coopers & Lybrand L.L.P. (a copy of which has
been furnished to the Other Funds), fairly present, in all material
respects, the financial condition of the Fund as of such date in
conformity with generally accepted accounting principles consistently
applied, and as of such date there were no known liabilities of the
Fund (contingent or otherwise) not disclosed therein that would be
required in conformity with generally accepted accounting principles
to be disclosed therein.
(i) All issued and outstanding Fund shares are, and at the
Closing Date will be, duly and validly issued and outstanding,
fully paid and non-assessable with no personal liability
attaching to the ownership thereof.
(j) The Fund has the power to enter into this Agreement and carry out
its obligations hereunder. The execution, delivery and performance of
this Agreement have been duly authorized by all necessary action of
the Fund Trustees on the part of the Fund, subject only to shareholder
approval, and this Agreement constitutes a valid and binding
obligation of the Fund enforceable in accordance with its terms,
subject as to enforcement, to bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors rights
and to general equity principles.
(k) The Fund shares to be issued and delivered to the Other Funds,
for the account of the Other Funds Shareholders, pursuant to the terms
of this Agreement will at the Closing Date have been duly authorized
and, when so issued and delivered, will be duly and validly issued
Fund shares, and will be fully paid and non-assessable with no
personal liability attaching to the ownership thereof and no
shareholder of the Fund will have any preemptive right or right of
subscription or purchase in respect thereof.
(l) Since June 30, 1996, there has not been (i) any material adverse
change in the Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of
business, or that have been approved by shareholders of the Fund or
(ii) any incurrence by the Fund of any indebtedness except
indebtedness incurred in the ordinary course of business. For the
purposes of this subparagraph, neither a decline in net asset value
per share of the Fund nor the redemption of Fund shares by Fund
shareholders, shall constitute a material adverse change.
(m) All material Federal and other tax returns and reports of the
Fund required by law to have been filed, have been filed, and all
Federal and other taxes shown as due or required to be shown as due on
said returns and reports have been paid or provision has been made
-6-
<PAGE>
for the payment thereof, and to the best of the Fund's knowledge no
such return is currently under audit and no assessment has been
asserted with respect to such returns.
(n) For each of the last three taxable years of its operation, the
Fund has not met the requirements of Subchapter M of the Code for
qualification and treatment as a regulated investment company.
(o) On the Closing Date, the Fund will be a diversified investment
company within the meaning of Code Section 368(a)(2)(F)(ii) and
proposed Treasury Regulations Section 1.368-4(c)(3).
(p) Since June 30, 1996, there has been no change by the Fund in
accounting methods, principles, or practices, including those required
by generally accepted accounting principles, except as disclosed in
writing to the Other Funds or as set forth in the financial statements
of the Fund covering such period.
(q) The information furnished or to be furnished by the Fund for use
in registration statements, proxy materials and other documents which
may be necessary in connection with the transactions contemplated
hereby shall be accurate and complete in all material respects and
shall comply in all material respects with Federal securities and
other laws and regulations applicable thereto.
(r) The Proxy Statement and Prospectus to be included in the
Registration Statement (only insofar as it relates to the Fund) will,
on the effective date of the Registration Statement and on the Closing
Date, not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which
such statements were made, not materially misleading.
6.2 Each of the Other Funds represents and warrants to the Fund with
respect to the specific transaction in the Merger relevant to such Other
Fund as follows:
(a) The Other Funds are common law trusts, validly existing and in
good standing under the laws of the District of Columbia, and each of
the Other Funds has the power and authority to own its properties and
to carry on its business as it is now conducted. Copies of the
respective Restated Trust Indentures and Declarations of Trust of the
Other Funds have been furnished to the Fund.
(b) Each of the Other Funds is a duly registered, open-end, management
investment company, and its registration with the Commission as an
investment company under the 1940 Act and the registration of its shares
under the 1933 Act are in full force and effect.
-7-
<PAGE>
(c) All of the issued and outstanding shares of each of the Other Funds
have been offered and sold in compliance in all material respects with
applicable registration requirements of the 1933 Act and state securities
laws. However, shares of the Other Funds are not currently offered for
sale to the public, and there is no current prospectus available for any
of the Other Funds.
(d) At the Closing Date, each of the Other Funds will have title to
their assets, subject to no liens, security interests or other
encumbrances except those incurred in the ordinary course of business.
(e) Each of the Other Funds is not, and the execution, delivery and
performance of this Agreement will not result, in a material violation of
any provision of each of the Other Funds Declaration of Trust or of any
material agreement, indenture, instrument, contract, lease or other
undertakings to which each of the Other Funds is a party or by which it
is bound.
(f) No material litigation or administrative proceeding or investigation
of or before any court or governmental body is presently pending or, to
its knowledge, threatened against each of the Other Funds or any of its
properties or assets, except as previously disclosed in writing to the
Fund. Each of the Other Funds knows of no facts that might form the
basis for the institution of such proceedings and is not a party to or
subject to the provisions of any order, decree or judgment of any court
or governmental body which materially and adversely affects, or is
reasonably likely to materially and adversely affect, its business or its
ability to consummate the transactions contemplated herein.
(g) The Statements of Assets and Liabilities, Statements of Operations
and Statements of Changes in Net Assets as of June 30, 1996 (audited) of
each of the Other Funds examined by Coopers & Lybrand L.L.P. (copies of
which has been furnished to the Fund), fairly present, in all material
respects, the financial condition of each of the Other Funds as of such
date in conformity with generally accepted accounting principles
consistently applied, and as of such date there were no known liabilities
of each of the Other Funds (contingent or otherwise) not disclosed
therein that would be required in conformity with generally accepted
accounting principles to be disclosed therein.
(h) All issued and outstanding shares of each of Other Funds are, and at
the Closing Date will be, duly and validly issued and outstanding, fully
paid and non-assessable with no personal liability attaching to the
ownership thereof.
(i) Each of the Other Funds has the power to enter into this Agreement
and carry out its obligations hereunder. The execution, delivery and
performance of this Agreement have been duly authorized by all necessary
action of the Trustees on the part of each of the Other Funds, subject to
shareholder approval, and this Agreement constitutes a valid and binding
obligation of each of the Other Funds enforceable in accordance with its
terms,
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<PAGE>
subject as to enforcement to bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors rights and
to general equity principles.
(j) The Other Funds shares to be issued and delivered to the Fund, for
the account of the Other Funds Shareholders, pursuant to the terms of
this Agreement will at the Closing Date have been duly authorized and,
when so issued and delivered, will be duly and validly issued Other Funds
shares, and will be fully paid and non-assessable with no personal
liability attaching to the ownership thereof and no shareholder of the
Other Funds will have any preemptive right or right of subscription or
purchase in respect thereof.
(k) Since June 30, 1996, there has not been (i) any material adverse
change in each of the Other Funds' financial condition, assets,
liabilities or business other than changes occurring in the ordinary
course of business, or that have been approved by shareholders of each of
the Other Funds or (ii) any incurrence by each of the Other Funds of any
indebtedness except indebtedness incurred in the ordinary course of
business. For the purposes of this subparagraph, neither a decline in
net asset value per share of each of the Other Funds nor the redemption
of Other Funds shares by Other Funds Shareholders, shall constitute a
material adverse change.
(l) All material Federal and other tax returns and reports of each of
the Other Funds required by law to have been filed, have been filed, and
all Federal and other taxes shown as due or required to be shown as due
on said returns and reports have been paid or provision has been made for
the payment thereof, and to the best of each of the Other Funds'
knowledge no such return is currently under audit and no assessment has
been asserted with respect to such returns.
(m) For each of the last three taxable years of its operation, each of
the Other Funds has not met the requirements of Subchapter M of the Code
for qualification and treatment as a regulated investment company, except
for Steadman Investment Fund which did meet the requirements for the year
ended June 30, 1995.
(n) On the Closing Date, each of the Other Funds will be a diversified
investment company within the meaning of Code Section 368(a)(2)(F)(ii)
and proposed Treasury Regulations Section 1.368-4(c)(3).
(o) Since June 30, 1996, there has been no change by each of the Other
Funds in accounting methods, principles, or practices, including those
required by generally accepted accounting principles, except as disclosed
in writing to the Fund or as set forth in the financial statements of
each of the Other Funds covering such period.
(p) The information furnished or to be furnished by each of the Other
Funds for use in registration statements, proxy materials and other
documents which may be necessary in connection with the transactions
contemplated hereby shall be accurate and complete in all
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<PAGE>
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 each of the Other
Funds) will, on the effective date of the Registration Statement and on
the Closing Date, not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
such statements were made, not materially misleading.
6.3 Steadman represents and warrants to the Fund and the Other Funds as
follows:
(a) To the best knowledge of Steadman after due inquiry, as of the
Closing Date no violation of applicable federal, state and local statute,
law or regulation, exists that individually, or in the aggregate, would
have a material adverse effect on the business or operations of the Fund
or the Other Funds.
(b) To the best knowledge of Steadman after due inquiry, assuming
fulfillment of the conditions precedent to the consummation of the
Merger, the Fund and the Other Funds have the right, power, legal
capacity and authority to enter into the Reorganizations contemplated by
this Agreement.
(c) To the best knowledge of Steadman after due inquiry, as of the
Closing Date, the Fund and the Other Funds are in compliance with their
investment objectives, policies and restrictions as described in the
current prospectus and statement of additional information of the Fund or
in their most recent Forms N-1A, filed under the 1940 Act by the Other
Funds.
(d) To the best knowledge of Steadman after due inquiry, as of the
Closing Date there are no outstanding breaches by the Fund or the Other
Funds of any agreement, indenture, instrument contract lease or other
undertaking to which they are a party, or by which they are bound (other
than any breaches that individually or in the aggregate would not have a
material adverse effect on the Fund or the Other Funds).
(e) To the best knowledge of Steadman upon due inquiry, there are no
unresolved or outstanding shareholder claims or inquiries related to the
Fund or the Other Funds and there will be no such claims or inquiries as
of the Closing Date other than as disclosed by Steadman in writing to
Fund or the Other Funds prior to the Closing Date.
(f) Steadman is not aware of any threatened or pending litigation,
administrative proceeding, investigation, examination or inquiry of or
before any court or governmental body relating to the Fund or the Other
Funds or any of their properties or assets which, if
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<PAGE>
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.
(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;
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7.3 The Fund Shareholders shall have voted to approve the Merger.
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 organized
and existing under the laws of the District of Columbia, and each has the
power to own all of its properties and assets and to carry on its
business as presently conducted; (b) The Fund is a duly registered,
open-end, management investment company and, to the knowledge of such
counsel, its registration with the Commission as an investment company
under the 1940 Act is in full force and effect; (c) this Agreement has
been duly authorized, executed and delivered by the Fund and the Other
Funds, and assuming due authorization, execution and delivery of this
Agreement by the Fund and the Other Funds, including approval by the
shareholders of the Fund and the Other Funds Shareholders, is a valid and
binding obligation of the Fund and the Other Funds enforceable against
the Fund and the Other Funds in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium and
other laws relating to or affecting creditors rights and to general
equity principles; (d) the Fund's shares to be issued to the Other Funds
Shareholders as provided by this Agreement are duly authorized and upon
delivery of such shares to the Other Funds Shareholders will be validly
issued and outstanding and fully paid and non-assessable and no
shareholder of Fund has any preemptive rights to subscription or purchase
in respect thereof; (e) the execution and delivery of this Agreement did
not, and the consummation of the transactions contemplated hereby will
not, violate the Fund's or the Other Funds' Declaration of Trust or any
provision of any material agreement (known to such counsel) to which the
Fund or the Other Funds are a party or by which they are bound or, to the
knowledge of such counsel, result in the acceleration of any material
obligation or the imposition of any material penalty under any agreement,
judgment or decree to which the Fund or the Other Funds are a party or by
which they are bound; (f) to the knowledge of such counsel, no consent,
approval, authorization or order of any court or governmental authority
of the United States or any state is required for the consummation by the
Fund or the Other Funds of the transactions contemplated herein, except
such as have been obtained under the 1933 Act , the Securities Exchange
Act of 1934, as amended (the "1934 Act") and the 1940 Act and such as may
be required under state securities laws; (g) as they relate to the Fund
or the Other Funds, as they case may be, the descriptions in the Proxy
Materials of statutes, legal and governmental proceedings and contracts
and other documents, if any, are accurate in all material respects and
fairly present the information required to be shown; (h) such counsel
does not know of any legal or governmental proceedings, as they relate to
the Fund or the Other Funds, existing on or before the date of mailing of
the Proxy Materials or the Closing Date that are required to be described
in the Registration Statement or in any documents that are required to be
filed as exhibits to the Registration Statement that are not described as
required; and (i) to the best knowledge of such counsel, no material
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litigation or administrative proceedings or investigation of or before
any court or governmental body is presently pending or overtly threatened
as to the Fund or the Other Funds or any of their properties or assets
and neither the Fund nor the Other Funds are a party to or subject to the
provisions of any order, decree or judgment of any court or governmental
body that materially and adversely affects its business, other than as
previously disclosed in the Registration Statement.
7.5 All actions taken by the Fund and the Other Funds in connection with
the transactions contemplated by this Agreement and all documents incidental
thereto shall be satisfactory in form and substance to counsel for the Fund
and the Other Funds.
7.6 As of the Closing Date, there shall be no material change in the
investment objective, policies and restrictions nor any increase in the
investment management fees or sales loads of the Fund from those described in
the Prospectus and Statement of Additional Information of the Fund dated
January 1, 1996, except as may have been approved by shareholders of the Fund
and, except for the changes contemplated by this Agreement, including,
without limitation, the change of the Fund from an open-end management
investment company to a closed-end management investment company in
accordance with the requirements of the 1940 Act.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE FUND
The obligations of the Fund to complete the transactions provided for
herein shall be subject, at its election, to the performance by Other Funds
of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following conditions:
8.1 All representations and warranties of the Other Funds, and Steadman
contained in this Agreement shall be true and correct in all material
respects as of the date hereof and, except as they may be affected by the
transactions contemplated by this Agreement, as of the Closing Date with the
same force and effect as if made on and as of the Closing Date.
8.2 The Other Funds shall have delivered to the Fund a statement of
Other Funds Assets and its liabilities, together with a list of Other Funds'
securities and other assets showing the respective adjusted bases and holding
periods thereof for income tax purposes, as of the Closing Date, certified by
the President of each of the Other Funds.
8.3 The Other Funds shall have delivered to the Fund at the Closing a
certificate executed in Other Funds' name by the President or Vice President
and the Treasurer or Secretary of Other Funds, in form and substance
satisfactory to the Fund and dated as of the Closing Date, to the effect that
the representations and warranties of the Other Funds, on behalf of the Other
Funds, made in this Agreement are true and correct at and as of the Closing
Date, except as they may be affected by the transactions contemplated by this
Agreement, that the Other Funds Shareholders have voted to approve the
Merger, and as to such other matters as Fund shall
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reasonably request. Such a certificate shall also be delivered to Fund as
executed by Steadman with respect to its representations and warranties made
in paragraph 6.3.
8.4 The Fund shall have received at the Closing a favorable opinion
dated as of the Closing Date set forth in Section 7.4 of this Agreement.
8.5 Between the date hereof and the Closing Date, the Other Funds shall
provide the Fund and its representatives reasonable access during regular
business hours and upon reasonable notice to the books and records relating
to the Other Funds, including without limitation the books and records of the
Other Funds, as the Fund may reasonably request. All such information
obtained by the Fund and its representatives shall be held in confidence and
may not be used for any purpose other than in connection with the transaction
contemplated hereby. In the event that the transaction contemplated by this
Agreement is not consummated, Fund and its representatives will promptly
return to the Other Funds all documents and copies thereof with respect to
the Other Funds obtained from the Other Funds during the course of such
investigation.
8.6 The 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 an independent public accountant.
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.
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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.
9.5 The parties shall have received an opinion from Manatt, Phelps &
Phillips, LLP, based upon such representations as such firm shall reasonably
request, addressed to the Fund and the Other Funds, regarding the material
federal income tax aspects of the Reorganizations in form and content
reasonably acceptable to the Fund and the Other Funds.
10. BROKERAGE FEES AND EXPENSES
10.1 The Fund and the Other Funds each represents and warrants to the
other that there are no brokers or finders entitled to receive any payments
in connection with the transactions provided for herein.
10.2 The Fund and each of the Other Funds shall bear the expenses
incurred in connection with entering into and carrying out the provisions of
this Agreement, on a pro-rata basis based upon net asset value at the
Valuation Date (all of which expenses shall be deducted from the respective
funds net assets values as of such date) including legal, accounting and
Commission registration fees and Blue Sky expenses.
11. ENTIRE AGREEMENT: SURVIVAL OF WARRANTIES
11.1 The Fund and the Other Funds agree that no party has made any
representation, warranty or covenant not set forth herein and that this
Agreement constitutes the entire agreement between the parties.
11.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection
herewith shall not survive the consummation of the transactions contemplated
herein.
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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 December 31, 1997; or
(b) by either the Fund or the Other Funds, in writing without liability
of the terminating party on account of such termination (provided the
terminating party is not otherwise in material default or breach of the
Agreement), if (i) the other party shall fail to perform in any material
respect its agreements contained herein required to be performed on or
prior to the Closing Date, (ii) the Fund or the Other Funds,
respectively, materially breaches or shall have breached any of its
representations, warranties or covenants contained herein, (iii) the Fund
shareholders or the Other Funds' shareholders fail to approve the
Agreement, or (iv) any other condition herein expressed to be precedent
to the obligations of the terminating party has not been met and it
reasonably appears that it will not or cannot be met.
12.2 (a) Termination of this Agreement pursuant to paragraphs 12.1(a)
shall terminate all obligations of the parties hereunder and there shall
be no liability for damages on the part of the Fund or the Other Funds or
the trustees, directors or officers of the Fund or the Other Funds to any
other party or its trustees, directors or officers.
(b) Termination of this Agreement pursuant to paragraph 12.1(b) shall
terminate all obligations of the parties hereunder and there shall be no
liability for damages on the part of the Fund, the Other Funds or
Steadman to any other party or its trustees, directors or officers,
except that any party in breach of this Agreement shall, upon demand,
reimburse the non-breaching party or parties for all reasonable
out-of-pocket fees and expenses incurred in connection with the
transactions contemplated by this Agreement, including legal, accounting
and filing fees.
13. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized trustees of the Fund
and the Other Funds; provided, however, that following the meeting of the
Fund and the Other Funds Shareholders pursuant to paragraph 5.3, no such
amendment may have the effect of changing the provisions for determining the
number of Fund shares to be issued to the Other Funds Shareholders under this
Agreement to the detriment of such Shareholders without their further
approval.
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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.
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
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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.
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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
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EXHIBIT 12.2
Consent of Coopers & Lybrand L.L.P.
<PAGE>
[LETTERHEAD OF COOPERS & LYBRAND]
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of
Steadman Associated Fund
We consent to the inclusion in this Registration Statement of Steadman
Associated Fund on Form N-14 (File No. 333-20889) of our reports dated July
29, 1996 for Steadman American Industry Fund, Steadman Investment Fund and
Steadman Technology and Growth Fund and August 6, 1996 for Steadman
Associated Fund, on our audits of the statement of changes in net assets and
financial highlights of Steadman Associated Fund, Steadman American Industry
Fund, Steadman Investment Fund and Steadman Technology and Growth Fund, which
are included in the Registration Statement. We also consent to the reference
to our firm under the caption "Condensed Financial Information of the Funds".
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
September 26, 1997
<PAGE>
EXHIBIT 12.3
Consent of Reznick Fedder & Silverman, P.C.
<PAGE>
[LETTERHEAD OF REZNICK FEDDER & SILVERMAN, P.C.]
Consent of Independent Accountants
We hereby consent to the incorporation by reference in this pre-effective
Amendment No. 4 Registration Statement on Form N-14 (File No. 333-20889) of
our reports dated July 25, 1997, related to the financial statements of
Steadman American Industry Fund, Steadman Associated Fund, Steadman
Investment Fund and Steadman Technology and Growth Fund as of June 30, 1997
and for the year then ended.
/S/ REZNICK FEDDER & SILVERMAN, P.C.
Bethesda, Maryland
September 24, 1997
