<PAGE>
As filed with the Securities and Exchange Commission on May 6, 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. 2 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
- ------------------------------------ ------------------------------------
<S> <C>
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; Difference
Between Operations of SST as an
Open-End and Closed-End Investment
Company; Exhibit A
5. Information about the Registrant Synopsis; Comparison of Investment
Objectives, Policies and Techniques
of the Funds; Principal Risk
Factors; Legal Proceedings;
Miscellaneous.
6. Information about the Company Being Synopsis; Comparison of Investment
Acquired Objectives, Policies and Techniques
of the Funds; Principal Risk
Factors; Miscellaneous.
7. Voting Information Synopsis; Approval of the Merger;
Information concerning the Meetings.
8. Interest of Certain Persons and Not Applicable.
Experts
9. Additional Information Required for Not Applicable.
Reoffering by Persons Deemed to be
Underwriters
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
N-14 LOCATION IN
ITEM NO. REGISTRATION STATEMENT
- ------------------------------------ ------------------------------------
<S> <C>
Part B: Information Required in
Statement of Additional Information
10. Cover Page Cover Page
11. Table of Contents Item 11. Table of Contents
12. Additional Information about the Item 12. Additional Information
Registrant about the Registrant
13. Additional Information about the Item 13. Additional Information
Company Being Acquired about the Company Being Acquired.
14. Financial Statements Item 14. Financial Statements
Part C: Other Information
15. Indemnification Item 15. Indemnification
16. Exhibits Item 16. Exhibits
17. Undertakings Item 17. Undertakings
</TABLE>
<PAGE>
STEADMAN AMERICAN INDUSTRY FUND
STEADMAN ASSOCIATED FUND
STEADMAN INVESTMENT FUND
STEADMAN TECHNOLOGY AND GROWTH FUND
JUNE , 1997
DEAR SHAREHOLDER:
ENCLOSED IS A PROXY STATEMENT AND PROSPECTUS AND A MORE DETAILED
SHAREHOLDER LETTER CONCERNING A PROPOSED MERGER OF: STEADMAN AMERICAN INDUSTRY
FUND ("SAIF"), STEADMAN INVESTMENT FUND ("SIF"), AND STEADMAN TECHNOLOGY AND
GROWTH FUND ("STGF") INTO STEADMAN ASSOCIATED FUND, WHICH WILL BE RENAMED
STEADMAN SECURITY TRUST ("SST")
THE MERGER WILL BE ACCOMPLISHED BY EXCHANGING SAIF, SIF AND STGF SHARES
ON A PRO RATA BASIS FOR SHARES OF SST. THEREAFTER, SST WILL OPERATE AS A
SINGLE CLOSED-END FUND.
CONSOLIDATION OF THE FOUR FUNDS WILL RESULT IN LOWER OPERATING EXPENSES.
A MANAGEMENT ANALYSIS ESTIMATES THAT MERGING THE FOUR OPEN-END FUNDS INTO ONE
CLOSED-END FUND SHOULD PERMIT THE FUNDS, WHEN MERGED, TO REDUCE ANNUAL
OPERATING COSTS FROM ABOUT $1,124,000 TO $480,000. 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. SHARES OF THE NEW SST WOULD BE TRADED IN THE OPEN MARKET.
SHAREOWNERS SHOULD UNDERSTAND THAT A CLOSED-END FUND PROVIDES NO RIGHT OF
REDEMPTION OF INDIVIDUAL SHARES AT NET ASSET VALUE AS DO OPEN-END FUNDS, AND
THEY MAY SUFFER SUBSTANTIAL LOSSES UPON THE SALE OF THEIR SHARES IN THE OPEN
MARKET. SST, HOWEVER, WILL PROVIDE SHAREHOLDERS WITH THE ONE-TIME OPPORTUNITY
TO REDEEM THEIR SHARES AT NET ASSET VALUE FOR A THIRTY-DAY PERIOD, COMMENCING
ON THE FIFTH ANNIVERSARY DATE OF THE MERGER. SHAREHOLDERS SHOULD READ THE
ENCLOSED PROXY STATEMENT AND PROSPECTUS CAREFULLY, PAYING PARTICULAR
ATTENTION TO FUND EXPENSES, FUND PERFORMANCE AND THE MARKET FOR SST SHARES
AFTER THE MERGER.
SHAREOWNERS WHO DO NOT WISH TO PARTICIPATE IN THE MERGER CAN EITHER REDEEM
THEIR SHARES OR VOTE "NO" ON THE ENCLOSED PROXY.
<PAGE>
THE TRUSTEES OF EACH OF THE FOUR FUNDS UNANIMOUSLY RECOMMEND SHAREHOLDER
APPROVAL OF THIS MERGER PROPOSAL.
PLEASE REVIEW THE ATTACHED MATERIALS CAREFULLY AND RETURN YOUR PROXY AS
SOON AS POSSIBLE.
FOR THE BOARD OF TRUSTEES
OF
STEADMAN AMERICAN INDUSTRY FUND
STEADMAN ASSOCIATED FUND
STEADMAN INVESTMENT FUND
STEADMAN TECHNOLOGY AND GROWTH FUND
Charles W. Steadman
Chairman of the Boards of Trustees
and President
<PAGE>
To the Shareholders of:
STEADMAN AMERICAN INDUSTRY FUND
STEADMAN ASSOCIATED FUND
STEADMAN INVESTMENT FUND
STEADMAN TECHNOLOGY AND GROWTH FUND
June , 1997
Dear Shareholder:
We are pleased to invite you to the Special Meetings of Shareholders of
Steadman American Industries Fund, Steadman Associated Fund, Steadman Investment
Fund and Steadman Technology and Growth Fund. The meetings are scheduled to be
held on , 1997, at 9:30 a.m., Washington, D.C. time, at Hotel,
Washington, D.C. 2000?.
At these Special Meetings, you will be asked to consider and approve a
very important proposal. Subject to shareholder approval, Steadman American
Industry Fund, Steadman Investment Fund and Steadman Technology and Growth Fund
(the "Merging Funds") will merge into Steadman Associated Fund, which will be
renamed the "Steadman Security Trust" ("SST"). Immediately prior to the Merger,
SST will effect a reverse stock split so that each ten shares of SST will be
converted into one SST share after the reverse split. Shareholders of the
Merging Funds will receive shares of SST on a pro rata basis in exchange for
their shares of the Merging Funds. Upon the completion of the merger, SST will
become a closed-end investment company.
THE REORGANIZATION WILL PROVIDE SHAREHOLDERS WITH CERTAIN ECONOMIES:
1. Lower Operating Costs. Operating costs of the merged Fund will be
reduced substantially from the expense of operating four funds separately. The
merger will enable SST to use its assets more efficiently. Fund accounting,
stock transfer costs and other shareholder services will be reduced
significantly. By converting to a closed-end fund, SEC requirements for daily
determination and reporting of net asset values will be eliminated, as well as
the need for annual securities registration with the states. Management of the
Funds believes that annual operating costs will be reduced principally in the
following areas: shareholder servicing fees, professional fees, reports to
shareholders, computer services and custodian fees. Management estimates that
SST's annual operating expenses will be approximately $480,000 or about $644,000
lower than current total expenses of the four Funds. The estimated reduction in
operating costs cannot guarantee profitable operation of SST.
2. Lower Expense Ratio. The Trustees expect the merger to reduce the
expense ratio of SST and increase its capacity for growth. However, there can be
no assurance that reductions in expenses will result in profitable operations
for SST.
<PAGE>
3. Improved Portfolio Management Flexibility After the merger, SST will
operate as a closed-end investment company whose shares are bought and sold in
market transactions. Stockholders will not have a right of redemption except
during a thirty-day period commencing on the fifth anniversary date of the
Merger. Accordingly, reserves will not have to be set aside to redeem shares as
with open-end funds. SST managers will have greater flexibility in the use of
Fund assets. They will be able to invest with a longer term view without being
concerned by the possibility of liquidating some investments at an inopportune
time solely to redeem fund shares. It is contemplated that SST shares will be
traded in the over-the-counter market although there can be no assurance that a
market will develop for SST shares. Closed-end funds typically trade at
substantial discounts from their net asset values. Consequently, SST
shareholders could suffer substantial losses if they elect to sell their shares
when the SST market price is below net asset value.
4. Tax Aspects. The reverse stock split will constitute a recapitalization
of SST for tax purposes, but the merger will not qualify as a tax-deferred
reorganization under the Internal Revenue Code. Shareholders of SAIF, SIF and
STGF will recognize gain or loss equal to the difference between the tax bases
of their SAIF, SIF or STGF shares surrendered by them in the merger and the fair
market value of the SST shares they receive in the exchange. In many cases, the
result may be a tax loss rather than a tax gain, but each shareholder must
calculate individually their own gain or loss. Such gain or loss will be capital
gain or loss for shareholders who hold their SAIF, SIF or STGF shares as capital
assets and will be long term or short term gain or loss depending upon their
individual holding periods for the shares surrendered. SST and its shareholders
will not 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.
<PAGE>
We appreciate your continued support and confidence in our funds.
FOR THE BOARDS OF TRUSTEES
OF
STEADMAN AMERICAN INDUSTRY FUND
STEADMAN ASSOCIATED FUND
STEADMAN INVESTMENT FUND
STEADMAN TECHNOLOGY AND GROWTH FUND
Charles W. Steadman
Chairman of the Boards of Trustees
and President
<PAGE>
STEADMAN AMERICAN INDUSTRY FUND
STEADMAN ASSOCIATED FUND
STEADMAN INVESTMENT FUND
STEADMAN TECHNOLOGY AND GROWTH FUND
1730 K Street, N.W.
Washington, D.C. 20006
1-800-424-8570
NOTICE OF SPECIAL MEETINGS OF SHAREHOLDERS
To Be Held ____________, 1997
To the Shareholders:
Notice is hereby given of Special Meetings of the Shareholders of
Steadman American Industry Fund ("SAIF"), Steadman Associated Fund ("SAF"),
Steadman Investment Fund ("SIF") and Steadman Technology and Growth Fund
("STGF"), each is currently an open-end, investment company (together the
"Funds"). The meetings will be held at ______________ Hotel, Washington, D.C.
2000?, at 9:30 a.m., Washington, D.C. time, on ________, 1997, and any
adjournments thereof (the "Meetings"), for the following purposes:
1. FOR THE SHAREHOLDERS OF ALL OF THE FUNDS: To consider and act upon a
proposal to approve the Agreement and Plan of Merger dated as of May 2,
1997 (the "Merger Agreement") by and among SAIF, SAF, SIF and STGF
whereby SAIF, SIF and STGF will merge into SAF (the "Merger"), which
will be renamed Steadman Security Trust ("SST") and change to a
closed-end investment fund; and
2. SOLELY FOR THE SHAREHOLDERS OF SAF:
(a) To elect three Trustees for terms of unlimited duration;
(b) To consider and act upon a proposal to ratify and confirm the
Amended and Restated Trust Indenture of SST as of May 2, 1997, which
provides, among other things, for the change from an open-end to a
closed-end investment company; and
(c) To consider and act upon a proposal to ratify the selection of
Reznick Fedder & Silverman as independent auditors of SST.
3. To act upon such other matters as may properly come before the Meetings
or any adjournments thereof.
<PAGE>
The Merger is more fully described in the accompanying Proxy Statement
and Prospectus. A copy of the Merger Agreement is attached as Exhibit A thereto.
Shareholders of record of SAIF, SAF, SIF and STGF at the close of business on
__________, 1997 are entitled to notice of, and to vote at, the Meetings. Please
read the Proxy Statement and Prospectus carefully before telling us, through
your proxy or in person, how you wish your shares to be voted. The Trustees of
each of SAIF, SAF, SIF and STGF unanimously recommend a vote in favor of the
Merger.
WE URGE YOU TO SIGN, DATE AND MAIL THE ENCLOSED PROXY PROMPTLY.
BY ORDER OF THE BOARDS OF TRUSTEES,
Max Katcher, Secretary
June __, 1997
YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES YOU OWN
Please indicate your voting instructions on the enclosed proxy card;
please date and sign the card and return it in the envelope provided. If you
sign, date, and return the proxy card but give no voting instructions, your
shares will be voted "FOR" each applicable proposal noticed above. In order to
avoid the additional expense and delay of further solicitation, we ask your
cooperation in mailing your proxy card promptly so that a quorum may be ensured.
Unless proxy cards submitted by corporations and partnerships are signed by the
appropriate persons as indicated in the voting instructions on the proxy card,
such proxy cards cannot be voted.
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE PROPOSED MERGER
1. What is the Merger?
The Merger proposes to combine four separate funds into a single
closed-end investment company, the Steadman Associated Fund ("SAF"), whose name
will change to Steadman Security Trust ("SST"). Fund shares no longer will be
sold or redeemed by SST on a request basis, but will be sold to other investors
in market transactions. Management expects SST shares will be traded in the
over-the-counter market; although it cannot ensure that a market will develop
for these shares. Additionally, SST shareholders who wish to sell their shares
may suffer losses from the Fund's net asset value upon their sale in the
over-the-counter market due to the discount from net asset value at which
closed-end funds usually trade, and the potential limited market for Fund
shares, if any. Shareholders will have a one-time opportunity to redeem their
shares at net asset value during a thirty-day period, commencing on the fifth
anniversary date of the Merger.
The number of shares of SST issued to shareholders of SAIF, SIF and STGF
will be determined on the basis of relative net asset values of SST and each of
the other funds. Immediately prior to the merger, SST will declare a reverse
stock split of ten to one so that each ten outstanding shares of SST will become
one share of the SST. The value of the new 10-to-1 shares of SST issued to
shareholders of the other funds as a result of the Merger will be equal to the
value of shares they held in the other funds on the day before the closing date
of the Merger. Shareholders of SST will continue to hold the same number of
shares before and after the Merger.
2. What are the reasons for the Merger?
After a detailed study of the operations of SAIF, SAF, SIF and STGF, the
Trustees concluded that the Merger would create substantial cost savings and
other economies and would provide shareholders with important benefits:
A. Lower Operating Costs. Operating costs of the Funds will be
reduced substantially from the costs of operating four funds separately. The
Merger will enable SST to use its assets more efficiently and increase
shareholder value. Fund accounting, stock transfer costs and other shareholder
services will be reduced significantly. By converting to a closed-end fund, SEC
requirements for daily determination of net asset values will be eliminated,
as well as the need for annual securities registration with the states. The
Trustees believe that annual operating costs will be reduced principally in
the following areas: shareholder servicing fees, professional fees, reports
to shareholders, computer services and custodian fees. Management estimates
that SST annual operating expenses will be about $480,000 or $644,000 lower
than total expenses of the current four Funds, approximately $1,124,000. The
estimated reduction in operating expenses cannot guarantee profitable
operation of SST.
1
<PAGE>
B. Lower Expense Ratio. The Trustees expect the Merger to reduce the
expense ratio of SST. There can be no assurance, however, that reductions in
expenses will result in profitable operations.
C. Improved Portfolio Management Flexibility. After the merger, SST
will operate as a closed-end investment company, whose shares will be traded
in the over-the-counter market; however, there can be no assurance that a
market will develop for shares of SST. It is also anticipated that shares of
SST will trade at a substantial discount from the Fund's net asset value. As
a result, Fund shareholders may suffer substantial losses if they elect to
sell Fund shares in the over-the-counter market. Shares of closed-end funds
have no right of redemption; they are bought and sold through markets for
fund shares. Consequently, liquid reserves no longer will be needed to
finance share redemptions as with open-end funds. Greater resources will be
available for long-term investments consistent with the SST's objectives and
management's perception of market conditions. SST will be able to invest
with a longer term view without being concerned about the possibility of
liquidating some investments at an inopportune time solely to redeem fund
shares. SST will provide shareholders with a one-time opportunity to redeem
their shares at net asset value during a thirty-day period commencing on
the fifth anniversary date of the Merger.
D. Tax Aspects. The ten to one reverse stock split of SST will be a
recapitalization of SST for federal income tax purposes, but the Merger will
not qualify as a tax-deferred reorganization under the Internal Revenue
Code. SST and its shareholders will not recognize gain or loss as a result
of the exchange of SST shares for SST shares in the reverse stock split.
Shareholders of SAIF, SIF and STGF will recognize gain or loss equal to the
difference between the tax bases of their SAIF, SIF or STGF shares
surrendered by them in the Merger and the fair market value of the SST
shares they receive in the exchange. For many SAIF, SIF and STGF
shareholders, the result may be a tax loss rather than a tax gain, but each
shareholder's gain or loss calculation must be performed individually. SAIF,
SIF and STGF will be treated for federal income tax purposes as if they had
transferred all of their assets to SST in a taxable transaction, had
recognized all of the built-in gains and losses on those assets, and had
then liquidated. SAIF, SIF and STGF will be able to offset any net gain from
this deemed asset sale with their respective capital loss and net operating
loss carryovers. The Trustees anticipate that there will be sufficient loss
carryovers to offset any net gain recognized by SAIF, SIF or STGF in the
Merger. SST will not recognize any gain or loss as a result of the deemed
asset sale, nor will its shareholders. Any capital loss and net operating
loss carryovers of SAIF, SIF and STGF not used to offset their net
recognized gain in the Merger will expire. SST, as the surviving single
entity, will be able to utilize its separate tax loss carryforwards against
ordinary income and capital gains to eliminate or reduce SST's post-Merger
taxable income. Management estimates that after the Merger, a maximum of
$4,648,795 of net operating losses and a maximum of $1,109,769 of capital
loss carryovers will be available to be used by SST based upon June 30,1996
financial statements. To the extent that the former holders of SAF represent
less than 50% of the total assets of SST after the Merger, the amount of the
above losses which may be used by SST in any one year will be limited to
$258,396. In addition, other transactions subsequent to the Merger could
result in a change in the ownership of SST (combined with the change
resulting from the Merger) that causes the amount loss limitation rules to
apply. Whether any future events will cause imposition of a restriction in
2
<PAGE>
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.
3. Who is paying the expenses of the Merger?
Each of the Funds will bear its proportionate share of the expenses of
the Merger. It is anticipated that the expenses of the Merger will approximate
$ , which will lower the net asset value of SST by that sum upon
conclusion of the Merger.
4. Who will serve as Trustees of SST?
Charles W. Steadman, Dr. Paul A. Bowers and Vice Admiral John T. Hayward
USN (Ret.) will continue to serve as Trustees along with Paul F. Wagner, William
Mark Crain and Richard O. Haase, who have been nominated for election at the
shareholders' meeting.
5. Who will serve as Investment Advisor to SST?
Steadman Security Corporation is the current investment advisor to each
of the funds. It will serve as the investment advisor to SST.
6. Where can I get further information about SST?
Call SST at 1-800-424-8570. The Steadman Security Corporation will be
pleased to furnish any additional information that you want.
7. After the Merger, whom do I get in touch with about my new SST account or
to initiate a transaction?
Once the Merger is effective, you will be a shareholder of SST. You will
be able to initiate a transaction to buy or sell shares through your
representative at your registered broker-dealer, as it is expected that shares
of SST will be traded in the over-the-counter market; however, there can be no
assurance that a market will develop for shares of SST.
8. Will this Merger result in any tax liability to any of the funds or to me
as a shareholder?
The Merger will not qualify as a tax-deferred reorganization for federal
income tax purposes. The transaction will be treated for federal income tax
purposes as if SAIF, SIF and STGF had transferred all of their assets to SST in
a taxable transaction, had recognized all built-in gains and losses on those
assets, and had distributed SST shares to their respective shareholders in
liquidation. The Trustees believe that the capital loss and net operating loss
carryovers of SAIF, SIF and STGF will be sufficient to offset any net gain of
those entities recognized in the Merger. SST and its shareholders will not
recognize any gain or loss as a result of the deemed asset sale. The
shareholders of SAIF, SIF and STGF will be deemed to have exchanged their SAIF,
SIF and STGF shares for SST shares in a taxable transaction. Such shareholders
will recognize gain or loss equal to the difference between their individual tax
3
<PAGE>
bases for the SAIF, SIF and STGF shares surrendered and the fair market value of
the SST shares received. Such gain or loss will be capital for shareholders who
hold their SAIF, SIF or STGF shares as capital assets and will be long term or
short term gain or loss depending upon their individual holding periods for the
shares surrendered. For many SAIF, SIF and STGF shareholders, the result may be
a tax loss rather than a tax gain, but each shareholder's gain or loss
calculation must be determined individually.
Shareholders of the funds should consult their tax advisors regarding the
effect, if any, of the Merger in light of their individual circumstances. Since
the foregoing relates only to federal income tax consequences of the Merger,
shareholders should also consult their tax advisors as to state and local tax
consequences, if any.
9. When can I redeem my shares?
Shareholders may redeem their shares in each of the Funds at net asset
value at any time prior to the completion of the Merger by following Fund
procedures. Once the Merger is completed shareholders will have a one-time
opportunity to redeem their shares at net asset value during a thirty-day
period commencing on the fifth anniversay date of the Merger.
Shareholders are directed to read the accompanying Proxy Statement and
Prospectus for further information about the Merger and related matters.
Additional information about SST is set forth in its accompanying Proxy
Statement and Prospectus.
4
<PAGE>
STEADMAN AMERICAN INDUSTRY FUND
STEADMAN ASSOCIATED FUND
STEADMAN INVESTMENT FUND
STEADMAN GROWTH AND TECHNOLOGY FUND
1730 K Street, N.W. 1-800-424-8570
Washington, D.C. 20006 202-233-1000
PROXY STATEMENT
AND
PROSPECTUS
This Proxy Statement and Prospectus is furnished to shareholders of Steadman
American Industry Fund ("SAIF"), Steadman Associated Fund ("SAF"), Steadman
Investment Fund ("SIF") and Steadman Growth and Technology Fund ("STGF")
(individually referred to herein as "Fund" and collectively referred to as
"Funds") in connection with the solicitation by the Board of Trustees of each
of the Funds ("Trustees") of proxies to be used at Special Shareholders'
Meetings. The meetings will be held at Hotel, Washington, D.C. 2000? at
9:30 a.m., Washington, D.C. time, on , 1997, as well as any
adjournments thereof (the "Meetings"). Each of the Funds is currently a
non-diversified, registered open-end investment company. This Proxy Statement
and Prospectus will be mailed to shareholders of the Funds on or about
June , 1997.
At the Meetings, shareholders will be asked to consider and vote upon
approval of the Agreement and Plan of Merger, dated as of May 2, 1997 (the
"Merger Agreement") by and among SAIF, SAF, SIF and STGF (the "Merger"). The
Merger Agreement provides for the merger of SAIF, SIF and STGF with and into
SAF, which will be renamed Steadman Security Trust ("SST"); SST will change
from an open-end investment company to a closed-end investment company. As a
result of the proposed Merger, each shareholder of SAIF, SIF and STGF will
receive that number of SST shares equal in value to that shareholder's pro
rata interest in the net assets transferred to SST, as of the Valuation Date
(as defined in the Merger Agreement). The proposed Merger provides that
immediately prior to the effective date of the Merger, SST will effect a
reverse split of its shares so that each 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."
To simplify references herein, SAF in most cases will generally be
referred to as Steadman Security Trust (or "SST") which will be its
post-merger name.
1
<PAGE>
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"). The Trust Indenture provides for the
issuance of an unlimited number of shares. The Merger Agreement contemplates
as a condition precedent to the effectiveness of the Merger that the
shareholders of SST will approve the change of SST from an open-end
investment company to a closed-end investment company. Accordingly, the
shares to be issued upon the effectiveness of the Merger will not be
"redeemable securities" as defined in Section 2(a)(32) of the Investment
Company Act of 1940, as amended (the "1940 Act"). Shareholders will be able
to purchase and sell shares of SST in market transactions through their
representative at their registered broker/dealer. There are no assurances
that an adequate and liquid market for Fund shares will develop upon
consummation of the Merger and to date, the Fund's management has been unable
to obtain broker dealers who will agree to act as market makers for Fund
shares. Further, it is anticipated that Fund shares will sell at a
substantial discount from their net asset value. As a result, shareholders
who wish to sell shares of SST after the Merger could suffer substantial
losses and possibly may not be able to sell their shares unless an
appropriate market develops. Also, they may only be able to sell such shares
at a greater discount than the discounts at which most closed-end fund shares
are sold.
The primary investment objective of three of the Funds, SAIF, STGF and
SST, is substantially the same--capital growth through the utilization of a
broad range of investment vehicles and techniques including, but not limited
to, the purchase and sale of put and call options. The realization of current
income is secondary to each fund's efforts in pursuing its goal of capital
appreciation. However, the current primary objective of the fourth Fund, SIF,
is to seek current income, and secondarily to maximize total return but only
consistent with its primary objective. This latter objective will become the
new investment objective of SST upon the Merger. All of the Funds currently
employ the same investment management techniques. See "Investment Objectives
and Policies."
SST has filed with the Securities and Exchange Commission (the "SEC") a
Registration Statement on Form N-14 (the "Registration Statement") relating
to the registration of shares of SST to be offered to the shareholders of
SAIF, SIF and STGF pursuant to the Merger Agreement. This Proxy Statement and
Prospectus relating to the Merger also constitutes a Prospectus of SST filed
as part of such Registration Statement. Information contained or incorporated
by reference herein relating to SST has been prepared by and is the
responsibility of SST. Information contained or incorporated by reference
herein relating to the SAIF, SIF or STGF has been prepared by and is the
responsibility of the respective Fund.
This Proxy Statement and Prospectus sets forth certain information about
SST and the other Funds that a prospective investor should know before voting
on the Merger. The following documents are available without charge upon
written request to Steadman Security Company, 1730 K Street, N.W.,
Washington, D.C. 20006 or by calling the following toll free number
1-800-424-8570: Annual Reports, dated June 30, 1996 for each of the Funds:
SAIF, SAF, SIF and STGF.
Investors are advised to read and retain this Proxy Statement and
Prospectus for future reference.
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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 June , 1997.
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TABLE OF CONTENTS
PROXY STATEMENT AND PROSPECTUS
AGREEMENT AND PLAN OF MERGER...................................... 7
SYNOPSIS.......................................................... 7
Parties to the Merger.......................................... 7
The Merger..................................................... 7
Change to a Closed-End Fund.................................... 9
Tax Consequences of the Merger................................. 9
Investment Objectives and Policies............................. 10
Investment Advisory Fee........................................ 10
Purchases of Shares in the Funds............................... 10
Redemptions.................................................... 11
PRINCIPAL RISK FACTORS............................................ 11
Performance of the Funds....................................... 11
Market For Shares of SST After the Merger...................... 12
Proposal in Response to Request on States' Behalf.............. 12
Anti-Takeover Provisions....................................... 13
Absence of Dividends........................................... 13
Investment Management Techniques............................... 13
Non-Diversified Status......................................... 14
Closed-End Investment Company--No Redemption Rights............ 14
Borrowing-Issuance of Senior Securities........................ 14
Expense Ratios................................................. 15
Utilization of Tax Loss Carry Forwards......................... 15
Non-Qualification of Merger for Tax Deferral................... 15
Non-Qualification as a Regulated Investment Company for
Tax Purposes................................................... 16
DIFFERENCE BETWEEN OPERATIONS OF SST AS AN OPEN-END AND
CLOSED-END INVESTMENT COMPANY.................................. 16
Amendment to SST Declaration of Trust.......................... 16
Acquisition and Disposition of Shares.......................... 17
Voting Rights.................................................. 18
Determination of Net Asset Value............................... 18
Portfolio Management........................................... 18
Blue Sky Restrictions.......................................... 18
Senior Securities.............................................. 18
APPROVAL OF THE MERGER............................................ 19
Background..................................................... 19
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The Merger..................................................... 19
Trustee Approval of the Merger................................. 20
Tax Aspects of the Merger...................................... 22
CAPITALIZATION TABLE (UNAUDITED).................................. 24
COMPARATIVE FEE TABLES............................................ 24
Transaction Charges............................................ 24
Expenses of the Funds; Pro Forma Projected Operating Expenses.. 24
Example........................................................ 26
PRO FORMA FINANCIAL INFORMATION................................... 27
FORM OF ORGANIZATION OF THE FUNDS................................. 36
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND
TECHNIQUES OF THE FUNDS....................................... 36
CONDENSED FINANCIAL INFORMATION OF THE FUNDS...................... 37
SAIF--Management's Discussion of Performance of the Fund....... 42
SAF--Management's Discussion of Performance of the Fund........ 42
SIF--Management's Discussion of Performance of the Fund........ 43
STGF--Management's Discussion of Performance of the Fund....... 44
DESCRIPTION OF CAPITAL STRUCTURE OF THE FUNDS AND
SHAREHOLDER RIGHTS............................................. 49
Special Provisions of SST...................................... 49
Redemption of Shares After Merger.............................. 51
Over-the-Counter Market........................................ 52
MANAGEMENT OF THE FUNDS........................................... 52
LEGAL PROCEEDINGS................................................. 53
ELECTION OF TRUSTEES OF STEADMAN ASSOCIATED FUND.................. 54
Election of Trustees........................................... 54
Committee and Meetings of Trustees............................. 55
Interested Persons............................................. 55
Compensation of Trustees....................................... 55
Officers of SST................................................ 56
RATIFICATION OF AMENDED AND RESTATED TRUST INDENTURE OF
STEADMAN SECURITY TRUST........................................ 56
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SELECTION OF INDEPENDENT AUDITORS................................. 57
INFORMATION CONCERNING THE MEETINGS............................... 58
The Meetings................................................... 58
Record Date; Vote Required; Share Information.................. 58
Proxies........................................................ 59
Costs of the Solicitation and the Reorganization............... 59
MISCELLANEOUS..................................................... 59
Financial Information.......................................... 59
Public Information............................................. 60
OTHER BUSINESS.................................................... 60
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, 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; however, a required condition of the Merger is
that the shareholders of SAF (which will become SST) must approve its change
from an open-end investment company to a closed-end investment company. After
this change, the SST shares will not be "redeemable securities" as that term
is defined in the Investment Company Act of 1940, as amended (the "1940
Act"). As a result, shareholders of SST after the Merger will be able to
liquidate their investment through sales in the over-the-counter market, if a
market develops. However, SST will provide shareholders with a one-time
opportunity to redeem their shares at net asset value during a thirty-day
period commencing on the fifth anniversary date of the Merger. There can be
no assurance that a market will develop or at what price Fund shareholders
would be able to liquidate their investment in SST.
THE MERGER
The Merger Agreement provides for the merger of SAIF, SIF and STGF into
SAF, which will be named SST. Each shareholder of SAIF, SIF and STGF will
receive that number of SST shares equal in value to his pro rata interest in
the net assets transferred to SST as of the Valuation Date (as defined in the
Merger Agreement). Cash will be paid in lieu of fractional shares. The Merger
Agreement provides that immediately prior to the effective date of the Merger
SST will effect a reverse stock split so that each ten shares issued and
outstanding will be converted into one share of the Fund.
The Trustees of each Fund, including Trustees who are not "interested
persons" of the Fund (the "Independent Trustees"), as that term is defined in
the 1940 Act, have concluded that the Merger is in the best interests of each
of the Funds and their shareholders. They also believe that the interests of
existing shareholders will not be diluted as a result of the Merger except
for merger expenses, 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:
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First, operating costs of the Funds will be reduced substantially from
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.
The Merger will enable SST to use its assets more efficiently and increase
shareholder value. Fund accounting, stock transfer costs and other
shareholder services will be reduced significantly. By converting to a
closed-end fund, SEC requirements for daily determination of net asset values
will be eliminated, as well as the need for annual securities registration
with the states. The Trustees believe that annual operating costs will be
reduced principally in the following areas: shareholder servicing fees,
professional fees, reports to shareholders, computer services and custodian
fees. Management of the Funds estimates that SST annual operating expenses
will be approximately $480,000 which is $650,000 lower than total expenses of
the current four Funds. The estimated reduction in operating expenses cannot
guarantee profitable operation of SST.
Second, the Trustees expect the merger to reduce the expense ratio of
SST and increase its capacity for growth. However, there can be no assurances
that reduction in the expense ratio will result in profitable operations.
Third, after the Merger, SST will operate as closed-end investment
company with shares traded in the over-the-counter market--if a market
develops. Consequently, liquid reserves no longer will be needed to finance
share redemptions as with open-end funds. Greater resources will be available
for long-term investments consistent with SST's objectives and management's
perception of market conditions. SST will be able to invest with a longer
term view without being concerned about the possibility of liquidating some
investments at an inopportune time solely to redeem fund shares. If a market
in SST shares develops, shareholders should realize that closed-end funds
usually trade at a discount from net asset value, and SST shares may trade at
even a greater discount than other closed-end funds. Fund shareholders may
suffer substantial losses if they elect to liquidate their investment in SST.
Except for the thirty-day period commencing on the fifth anniversary date of
the Merger, SST shares will have no right of redemption, as Fund shares are
bought and sold in market transactions.
Fourth, The reverse stock split of SST will constitute a
recapitalization of SST, but the Merger will not qualify as a tax-deferred
reorganization under the Internal Revenue Code. SST and its shareholders will
not recognize any gain or loss as a result of the exchange of SST shares for
SST shares in the reverse stock split. Shareholders of SAIF, SIF and STGF
will recognize gain or loss equal to the difference between the tax bases of
their SAIF, SIF or STGF shares surrendered by them in the Merger and the fair
market value of the SST shares they receive in the exchange. For many SAIF,
SIF and STGF shareholders, the result may be a tax loss rather than a tax
gain, but each shareholder's gain or loss calculation must be determined
individually. 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.
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Any capital loss and net operating loss carryovers of SAIF, SIF and STGF not
used to offset their net gain in the Merger will expire. SST, as the
surviving single entity, will be able to utilize its separate tax loss
carryforwards against ordinary income and capital gains to eliminate or
reduce SST's post-merger taxable income. Management estimates that after the
Merger, a maximum of $4,648,795 of net operating losses and a maximum of
$1,109,769 of capital loss carryovers will be available to be used by SST
based upon June 30,1996 financial statements. To the extent that the former
holders of SAF represent less than 50% of the total assets of SST after the
Merger, the amount of the above losses which may be used by SST in any one
year will be limited to $258,396. In addition, other transactions subsequent
to the Merger could result in a change in the ownership of SST (combined with
the change resulting from the Merger) that causes the amount loss limitation
rules to apply. Whether any future events will cause imposition of a
restriction in tax loss utilization for SST cannot be predicted at this
point. See "Approval of the Merger-- Trustees Approval of the Merger" and
"Tax Aspects of the Merger." If the Merger is not approved by the
shareholders of each of the Funds, the Funds will continue in existence, and
the Trustees of each Fund will determine whether to pursue alternative
actions.
Approval of the Merger will require the affirmative vote of a majority
of the outstanding shares of each Fund, voting separately, represented in
person or by proxy at the Meeting, and entitled to vote at the Meeting. See
"Information Concerning the Meetings--Record Date; Vote Required; Share
Information."
CHANGE TO A CLOSED-END FUND
Each of the Funds is currently registered as an open-end investment
company under the 1940 Act. The shareholders of SAF (which will be renamed
SST) are being asked to approve the change to a closed-end investment
company. Accordingly, if the Merger is approved, SST will be a closed-end
investment company. Open-end investment companies issue redeemable
securities, which can be surrendered at any time in exchange for their
proportionate value of net assets. The shares of a closed-end fund are not
redeemable, but they may be purchased or sold in market transactions. SST
will provide shareholders with the opportunity to redeem their shares at net
asset value during a thirty-day period commencing on the fifth anniversary
date of the Merger. See "Difference between the Operations of SST as an
Open-End and Closed-End Investment Company."
TAX CONSEQUENCES OF THE MERGER
The reverse stock split of SST will constitute a tax-free
recapitalization of SST, but the Merger will not qualify as a tax-deferred
reorganization for federal income tax purposes. The transaction will be
treated for federal income tax purposes as if SAIF, SIF and STGF had
transferred all of their assets to SST in a taxable transaction, had
recognized all of the built-in gains and losses on those assets, and had
distributed SST shares to their respective shareholders in liquidation. The
Trustees believe that the capital loss and net operating loss carryovers of
SAIF, SIF and STGF will be sufficient to offset any net gain of those
entities recognized in the Merger. Loss carryforwards of SAIF, SIF and STGF
not utilized in the Merger will expire, but SST will be able to use its
separate loss carryforwards after the Merger. SST and its shareholders will
not recognize any gain or loss as a result of the deemed asset sale and
liquidation. The shareholders of SAIF, SIF and STGF will be deemed to have
exchanged their SAIF, SIF and STGF shares for SST shares in a taxable
transaction. Such shareholders will recognize gain or loss equal to the
difference between their individual tax bases for the SAIF, SIF and STGF
shares surrendered and the fair market value of the SST shares received. Such
gain or loss will be capital for shareholders who hold their SAIF, SIF or
STGF shares as capital assets and will be long term or short term gain
depending upon their individual holding periods for the shares surrendered.
For many SAIF, SIF and STGF shareholders, the result may be a tax loss rather
than a tax gain, but each shareholder's gain or loss calculation must be
performed individually.
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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 Merger, the latter
objective will become the new investment objective of SST as the surviving
Fund. All of the Funds employ the same investment management techniques.
Shareholders of the Funds should consider these similarities and
differences in investment objectives and policies of the Funds. See
"Comparison of Investment Objectives and Techniques of the Funds."
INVESTMENT ADVISORY FEE
Each Fund obtains investment management services from the same
investment advisor, Steadman Security Corporation ("SSC"), pursuant to
substantially similar investment advisory agreements. A management fee is
payable to the investment advisor monthly and is computed on the net asset
value of the Fund. Each Fund pays a management fee 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.
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REDEMPTIONS
Prior to the closing date of the Merger, shares of each Fund may be
redeemed at their respective net asset values calculated after the redemption
order is received and accepted. Upon completion of the Merger and the change
of SST to a closed-end investment company, no shares of SST may be redeemed.
It is expected that shares of SST will be traded in the over-the-counter
market; however, there can be no assurance that a market will develop for
shares of SST. Moreover, if shares of SST are traded in the over-the-counter
market, it is anticipated that shares of SST will trade at a substantial
discount from their net asset value, which discount will be greater than the
discount applicable to shares of most closed-end funds. Shareholders will
have a one-time opportunity to redeem their SST shares at net asset value
during a thirty-day period commencing on the fifth anniversary date of the
Merger.
PRINCIPAL RISK FACTORS
In evaluating whether to approve the Merger, shareholders should
carefully consider the following summary of risk factors relating to SST in
addition to the other information set forth in this Proxy Statement and
Prospectus.
PERFORMANCE OF THE FUNDS
The historical performance of each of the Funds during the past ten
years has been substantially less than the performance of the S&P 500 index
for the same period. (See "Management's Discussion of Performance of the
Funds").
The following table shows performance of each Fund over recent years.
PER SHARE PERCENTAGE
NET ASSET INCREASE
FUND BEGINNING DATE PRICE ENDING DATE VALUE (DECREASE)
- ---- -------------- ----- ----------- --------- ----------
SAIF 2/1/86 $2.89 4/15/97 $0.69 (76%)
SAF 10/1/86 $0.82 4/15/97 $0.70 (15%)
SIF 1/1/86 $1.46 4/15/97 $0.76 (48%)
STGF 1/1/86 $5.06 4/15/97 $0.61 (88%)
From January 1, 1986, through April 15, 1997, the S&P 500 Index
increased by 272% from 202.83 to 754.72. Except for (a) SAF which paid a
dividend in 1986, 1987 and 1989 and made a capital distribution in 1988 and
(b) SIF which paid a dividend in 1988, none of the Funds paid dividends or
made distributions to shareholders during those years. There can be no
assurance that as a result of the Merger, performance of the SST will differ
from past performance of the Funds.
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MARKET FOR SHARES OF SST AFTER THE MERGER
The market for shares of SST after the Merger will be substantially
affected by conditions beyond the control of the Fund's management. Due to
the small size of SST after the Merger (approximately $6.8 million in net
asset value as of April 15, 1997), it is anticipated that there will be a
limited market for SST shares if a market develops at all. The size of SST is
expected to be further reduced by about $1,000,000 if all of the States
holding shares of the Funds reach an agreement with the Funds to remove all
restrictions on the redemption of such shares and seek redemption prior to
the Merger. (See "Risk Factors--Proposal in Response to Request on States'
Behalf.") Furthermore, because of the limitations imposed on the (a) voting
rights of an investor who acquires more than 10% of SST's shares and (b) the
ability of SST to engage in certain business transactions if an investor
acquires more than 10% of the Fund's shares without the required trustee and
shareholder approvals, an additional discount may be applied by the
marketplace to the value of the Funds' shares. (See "Description of Capital
Structure of the Funds and Shareholder Rights--Special Provisions of SST.")
As a result, due to a change from an open-end fund to a closed-end fund,
shareholders of SST after the Merger likely will not be able to liquidate
their investment in SST at net asset value but might suffer substantial
losses if they elect to liquidate their shares, and might, in fact, be unable
to sell their shares if an active trading market does not develop.
PROPOSAL IN RESPONSE TO REQUEST ON STATES' BEHALF
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 thirty-three of these
jurisdictions ("Shareholder States") will not request redemption of their
shares until February 14, 1998. The Shareholder States currently own shares
in the Funds, which have a net asset value of approximately $1 million. The
Shareholder States are represented by the Unclaimed Property Clearing House
("UPCH"), which has advised the Funds that it does not believe the Merger
should take place because the UPCH believes that after the Merger SST shares
will trade at a substantial discount from net asset value, and the
Shareholder States will receive substantially less from the sale of their
shares after the Merger than if those shares were redeemed at net asset
value. The UPCH told the Funds that it is prepared to recommend to the
Shareholder States that they commence litigation to prevent the consummation
of the Merger unless the restriction on their ability to redeem shares of the
Funds prior to February 14, 1998 is removed. The Trustees believe that the
delay and further expense which would result from such potential litigation
is not in the best interest of the shareholders. Accordingly, the Funds told
the UPCH that they would agree to amend the Settlement Agreement to remove
the restriction on the redemption of shares prior to the effectiveness of the
Merger; provided that (a) the Merger is approved by the requisite vote of the
Funds' shareholders; and (b) the Shareholder States agree, among other
things, to vote their shares for approval of the Merger and in support of the
Trustees' recommendations with respect to other matters that arise at the
special shareholders' meetings and to release the Funds from any liability
related to such states' ownership of shares of the Funds. At the present time
no formal agreement has been reached with the Shareholder States; however,
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if one is reached and if all the Shareholder States redeem all of their
shares, the net asset value of SST would be reduced by approximately $1
million.
ANTI-TAKEOVER PROVISIONS
Certain existing and proposed provisions of the Amended and Restated SST
Trust Indenture help the Fund maintain its status as an independent,
publicly-owned investment company, and render a hostile takeover more
difficult, particularly the provisions relating to super majority voting in
connection with certain business combinations and the limitations imposed on
the voting rights of any investor who acquires more than 10% of SST's shares.
These provisions include unlimited terms for trustees, limitations on the
ability of shareholders to remove trustees, limitations on the calling of
special meetings and non-cumulative voting in the election of trustees. See
"Description of Capital Structure of the Funds and Shareholders
Rights--Special Provisions of SST."
Although these provisions do not preclude a hostile takeover, they could
discourage a takeover attempt through which shareholders might be offered a
premium over prevailing market prices. These provisions also render removal
of Trustees, management and the investment advisor more difficult. The
Trustees, however, concluded that potential benefits of the provisions
outweigh possible disadvantages. They believe such provisions encourage
potential acquirors to negotiate directly with the Trustees, who are in the
best position to act on behalf of all shareholders. Furthermore, the Trustees
have the ability to waive certain of these restrictions.
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 than normal
portfolio turn-over (100% or more), which will generate additional brokerage
commissions and expenses for SST. Moreover, SST is not restricted from making
investments in real estate, precious metals, oil and gas limited
partnerships, or commodities and commodities contracts (including futures
contracts), all of which are considered
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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. As a
secondary objective, SST will seek to maximize total return, but only to the
extent consistent with its primary objective.
NON-DIVERSIFIED STATUS
The classification of SST as a "non-diversified" investment company
means that the proportion of assets of SST that may be invested in securities
of a single issuer is not limited by the 1940 Act. A "diversified investment
company" is required by the Investment Company Act of 1940 generally to
invest, with respect to 75% of its total assets, not more than 5% of such
assets in the securities of a single issuer. Moreover, SST has not elected to
conduct its operations so as to qualify as a "regulated investment company"
for purposes of the Internal Revenue Code of 1986, as amended (the "Code").
Thus, unlike many mutual funds, it is not restricted by certain
diversification requirements imposed by the Code. A relatively high
percentage of SST's assets may be invested in obligations of a limited number
of issuers, some of which may be within the same economic sector. Therefore,
SST's portfolio will be more susceptible to any single economic, political or
regulatory occurrence than the portfolio securities of a diversified
investment company.
CLOSED-END INVESTMENT COMPANY--NO REDEMPTION RIGHTS
As a closed-end investment company SST will not redeem any of its
outstanding shares. SST shares will be traded in the over-the-counter market;
but there can be no assurance that a market will develop. Closed-end
investment company shares frequently trade at a discount from net asset
value. The shares of SST have never traded publicly. Therefore, SST cannot
predict whether its shares will trade in the future at a premium or at a
discount from net asset value or the extent of either. The risk of its shares
trading at a discount is separate from the risk of a decline in net asset
value. Shareholders will have a one-time opportunity to redeem their SST
shares at net asset value during a thirty-day period commencing on the fifth
anniversary date of the Merger.
BORROWING-ISSUANCE OF SENIOR SECURITIES
As a closed-end investment company, SST may borrow from a bank or other
entity in a privately arranged transaction to the maximum extent permitted
under the 1940 Act. Loans would involve additional risk to SST, since the
interest expense may be greater than the income from or appreciation of the
securities carried by the borrowings and since the value of the securities
carried may decline below the amount borrowed.
SST will have authority to issue senior securities. The 1940 Act
requires SST to maintain "asset coverage" of not less than 300% if a "class
of senior securities represents indebtedness," as those terms are defined and
used in the 1940 Act. In addition, if SST issues a class of senior security
that is stock, SST may not declare any dividends (other than a dividend
payable in common stock).
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Neither can it make any cash distributions to its shareholders if, after the
distribution, the senior security would have less than 300% asset coverage.
SST has no present intention of issuing any class of senior security;
however, it may be in the best interests of the Fund to do so in the future.
Any investment gains made with the proceeds obtained from borrowings in
excess of interest will increase net income per share and net asset value per
share of SST's shares to be greater than would otherwise be the case. On the
other hand, if the investment performance fails to cover the cost of the
additional securities purchased (including any interest paid on the money
borrowed), net income per share and net asset value per share of the shares
of SST will be less than would otherwise be the case.
EXPENSE RATIOS
The Merger will create economies that will substantially reduce
operating costs of the four Funds, but SST will still have a high ratio of
expenses to average net assets relative to other funds because of its small
size. The result may be continuing operating losses.
UTILIZATION OF TAX LOSS CARRY FORWARDS
Although SST will be able to use its existing net operating loss and
capital loss carryforwards each year against income earned by SST, there can
be no assurance that sufficient income will be earned to utilize in their
entirety the loss carryforwards which are available, as the ability to use
certain loss carryforwards will expire on specific dates in the future. In
addition, the Merger is not a tax-deferred reorganization for federal income
tax purposes. As a result, the loss carryforwards of SAIF, SIF and STGF will
not be available to offset SST income after the Merger. Management estimates
that after the Merger, a maximum of $4,648,795 of net operating losses and a
maximum of $1,109,769 of capital loss carryovers will be available to be used
by SST based upon June 30,1996 financial statements. To the extent that the
former holders of SAF represent less than 50% of the total assets of SST
after the Merger, the amount of the above losses which may be used by SST in
any one year will be limited to $258,396. In addition, other transactions
subsequent to the Merger could result in a change in the ownership of SST
(combined with the change resulting from the Merger) that causes the amount
loss limitation rules to apply. Whether any future events will cause
imposition of a restriction in tax loss utilization for SST cannot be
predicted at this point. Based upon the past performance of the Funds, there
is little likelihood that SST will be able to utilize these tax benefits.
NON-QUALIFICATION OF MERGER FOR TAX DEFERRAL
Shareholders of SAIF, SIF and STGF will have a fully taxable exchange
when they surrender their shares in exchange for SST shares. Their individual
gain or loss will be measured by the difference between the tax bases of
their SAIF, SIF and STGF shares they surrender and the fair market value of
the SST shares they receive. Each shareholder's computation of gain or loss
will depend on his specific circumstances regarding factors such as share
basis, holding period, and income, gain, loss or deductions in the year of
the exchange which may be wholly unrelated to
15
<PAGE>
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, he may be subjected to restrictions on use of that
recognized capital loss.
NON-QUALIFICATION AS A REGULATED INVESTMENT COMPANY FOR TAX PURPOSES
SST, the entity surviving the Merger, is not expected to qualify for
special Federal income tax rules applicable to electing qualified regulated
investment companies. While this factor permits SST to utilize certain loss
carryforwards, it will not be able to take advantage of certain potentially
favorable tax rules applicable to electing qualified regulated investment
companies.
DIFFERENCE BETWEEN OPERATIONS OF SST AS AN
OPEN-END AND CLOSED-END INVESTMENT COMPANY
All of the Funds are currently registered as open-end investment
companies under the 1940 Act. Open-end investment companies issue redeemable
securities. The holders of these securities have the right to surrender,
effectively at any time, all, or any part of their shares in the open-end
fund and obtain their proportionate share of the value of the fund's net
assets (sometimes referred to as the "net asset value") less any redemption
fee. This has been the way the Funds have operated since their inception.
In contrast, a closed-end investment company neither redeems its
outstanding stock nor engages in the continuous sale of new securities; it
operates with a relatively fixed capitalization. Conversely, open-end
investment companies are obligated to calculate a daily net asset value and
manage their portfolios to provide sufficient liquidity for possible
redemptions.
Some of the legal and practical differences between operation of SST as
an open-end and a closed-end investment company are as follows:
AMENDMENT TO SST DECLARATION OF TRUST
Upon approval of the shareholders of SST to ratify and confirm the
Amended and Restated Trust Indenture of SST, among other things, Sections
8.3(a) and (b) will be deleted. These sections currently provide as follows:
Section 8.3. Redemption of Shares. (a) Option of Shareholder. A
Shareholder may redeem all or any part of his Shares at net asset value as
defined in Section 2.8 less a withdrawal fee of $1.00 to be paid to the Fund,
including the proportionate brokerage, if any, necessary in order to redeem
such Shares. Payment shall be made within five days (the five days to be five
consecutive days during which the New York Stock Exchange shall be open).
(b) Reserve for Contingent Liabilities. The Trustees are authorized in
their discretion to retain, at the time of such redemption, a sufficient
reserve for taxes and
16
<PAGE>
other contingent liabilities, provided that the Trustees shall pay to the
person entitled thereto the pro rata share of any excess after determination
and payment of such taxes and contingent liabilities.
The foregoing provisions will be replaced with the following new
Sections 8.3.
Section 8.3. Redemption of Shares. Option of Shareholder. For a period
of thirty days commencing on the fifth anniversary date of the Merger, as
defined in Section 1.4, a Shareholder may redeem all or any part of his
Shares at net asset value as defined in Section 2.8, less the proportionate
brokerage, if any, necessary in order to redeem such Shares. Payment shall be
made by the Funds within seven business days of receipt of the redemption
request (the seven business days to be consecutive business days during which
the New York Stock Exchange shall be open).
ACQUISITION AND DISPOSITION OF SHARES
Currently, none of the four funds continuously offers its shares, which
is standard procedure for open-end funds. Closed-end funds do not
continuously offer their shares, and neither will SST. Shareholders thereby
would lose the possible benefit of an expanding pool of money from the sale
of additional shares, which SST as an open-end fund would have to invest. As
a practical matter, however, SST has no principal underwriter. It does not,
and has not, actively marketed its securities over the past several years,
and infrequently sold new shares. The Trustees of the Funds believe the
possible advantage of an increasing pool of investment capital is outweighed
by the burden of costs. These include the cost (a) to determine a daily net
asset value and (b) to keep Fund securities registered for sales in a
continuous offering with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, and under "Blue Sky" or state securities
laws of states in which the Funds were active in the past. In reality, the
investment base of the Funds is static, which is the hallmark of a true
closed-end investment company.
In an open-end fund, shareholders desiring to realize the value of their
shares are able to do so by exercising their right of redemption; that is,
their right to require the fund to repurchase their shares at current net
asset value (less such redemption fee as may be determined by the fund's
Trustees). An open-end fund's net asset value is calculated by dividing (i)
the value of its portfolio securities plus all cash and other assets
(including accrued interest and dividends received but not collected) less
all liabilities (including all accrued expenses) by (ii) the number of
outstanding shares of such fund.
Shareholders of a closed-end fund have no such right of redemption.
Unless shares are admitted to trading on a securities exchange, or some other
regular trading market develops, shareholders may be unable to dispose of
their shares easily or at all. Even if a market should develop, the share
price would be affected by market forces. The shares of most closed-end funds
trade at a discount from net asset value.
17
<PAGE>
It is expected that shares of SST will be traded in the over-the-counter
market should the Fund be converted to a closed-end fund; however, there can
be no assurance that a market will develop for shares of SST. Shareholders
wishing to sell shares in SST after conversion may be able to sell in market
transactions. If the shares were to trade at a discount from net asset value,
the extent of that discount cannot be predicted at this time. Shareholders of
SST will have the opportunity to redeem their shares at net asset value
during a thirty-day period commencing on the fifth anniversary date of the
Merger.
VOTING RIGHTS
The voting rights of holders of shares of common stock of SST will not
change if SST converts to a closed-end fund. See "Description of Capital
Structure of the Funds and Shareholder Rights."
DETERMINATION OF NET ASSET VALUE
Currently, as an open-end fund, SST determines its per share net asset
value on each business day. But as a closed-end fund, SST would no longer
need to compute daily net asset value; this cost savings will benefit SST.
PORTFOLIO MANAGEMENT
As a closed-end investment company, SST would not be subject to
pressures to sell portfolio securities at disadvantageous times in order to
meet redemptions. There would be no need to maintain cash reserves, or cash
equivalents, in order to meet redemptions. As a closed-end fund, SST will be
able to keep cash reserves at a minimum, depending primarily on management's
perception of market conditions.
In the past, SST has kept a prudent portion of its portfolio liquid to
meet redemptions. By changing to a closed-end status, SST will be able to
more efficiently use portfolio funds. Likewise, SST will be able to invest
with a longer-term without having to be concerned about the possibility of
liquidating a position at an inopportune moment solely to meet redemption
requests.
BLUE SKY RESTRICTIONS
As an open-end fund, SST is required to register its shares of common
stock under applicable state securities, or "Blue Sky" laws. Upon conversion
to a closed-end fund, SST will not be required to keep such registrations
current and will thereby benefit from a reduction in costs and expenses.
SENIOR SECURITIES
The 1940 Act prohibits open-end funds from issuing "senior securities"
representing indebtedness (i.e. bonds, debentures, notes, and other similar
securities), other than indebtedness to banks where asset coverage is at
least 300% in relation to all borrowings. Closed-end investment companies, on
the other hand, are permitted to issue senior securities representing
18
<PAGE>
indebtedness to any lender if the 300% asset coverage is met. In addition,
closed-end investment companies may issue preferred stock (subject to various
limitations), whereas open-end investment companies generally may not. This
ability to issue senior securities gives closed-end investment companies more
flexibility than open-end funds in "leveraging" their stockholders'
investments. However, SST has no present intention of issuing any class of
senior security.
19
<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 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. By changing SST from an
open-end investment company to a closed-end investment company, greater
financial flexibility and investment latitude can be achieved as liquid
reserves would no longer be maintained to meet redemptions.
Accordingly, the Trustees unanimously recommend that shareholders
approve the Merger as set forth in the Merger Agreement. This Agreement
provides, among other things, that the Funds must approve the Merger. If the
Merger is not approved, the Trustees will take such further action as they,
in their discretion, deem necessary or advisable. The description of the
Merger Agreement set forth below is a summary only.
THE MERGER
The following summary of the Merger Agreement is qualified in its
entirety by reference to the Merger Agreement, a copy of which is set forth
in full as Exhibit A to this Proxy Statement and Prospectus. The Merger
Agreement contemplates a reorganization whereby SIF, SAIF and STGF (the
"Merging Funds") will merge into SST, and SST will survive the Merger.
Shareholders of the Merging Funds will receive shares of SST determined
by dividing the net asset value of each of the Merging Fund's shares by the
net asset value of SST's shares as of the Valuation Date, which is defined in
the Merger Agreement as the business day preceding the Closing Date. In
addition, on the Valuation Date, SST will effect a reverse split so that each
ten issued and outstanding shares of SST will become one share.
The Merger will be effective ten days after all shareholder and
regulatory approvals have been received by the Funds. The Amended and
Restated Trust Indenture of SST will be the Trust Indenture of the Surviving
Fund, and the Trustees of SST will be the Trustees of the Surviving Fund.
The consummation of the Merger is subject to conditions set forth in the
Merger Agreement. Without limitation, it includes approval of the Merger by
shareholders of the Merging Funds and of SST, and ratification by
shareholders of SST of the Restated and Amended Trust Indenture of SST, which
provides for the change of SST from an open-end fund to a closed-end fund.
20
<PAGE>
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 Merging Funds, respectively, materially breaches or
shall have breached any of its representations, warranties or covenants
contained herein, or (iii) any other condition precedent to the obligations
of the terminating party has not been met and it reasonably appears that it
will not or cannot be met.
Termination of the Merger Agreement will end all obligations of the
parties thereto without liability except that any party in breach of the
Merger Agreement, upon demand, will reimburse the other party for all
reasonable out-of-pocket fees and expenses incurred in connection with the
transactions contemplated by the Merger Agreement, including legal,
accounting and filing fees.
Approval of the Merger will require the vote specified below in
"Information Concerning the Meetings--Record Date; Vote Required; Share
Information." If the Merger is not approved by the shareholders of the Funds,
the Trustees of the Funds will consider other possible courses of action.
TRUSTEE APPROVAL OF THE MERGER
At meetings held on May 2, 1997, the Trustees of SAIF, SAF, SIF and
STGF, including the Independent Trustees, unanimously approved the Merger and
the Merger Agreement, determined that the Merger is in the best interests of
each of the Funds and their shareholders, and resolved to recommend that
shareholders vote for approval of the Merger. The Trustees of SAF further
resolved to change the Fund's name to Steadman Security Trust upon the Merger
and to change SST from an open-end investment company to a closed-end
investment company and to recommend the latter change to the shareholders of
SST for their approval. The Trustees further determined that the Merger would
not result in dilution of any shareholders' interest in any Fund.
In evaluating the Merger, the Trustees requested and reviewed materials
which included financial statements as well as other written information
regarding each of the Funds and their personnel, operations and financial
condition. The Trustees also considered information with respect to the
relative historical performance of the Funds. In addition, the Trustees
reviewed and discussed the terms and provisions of the investment advisory
agreements pursuant to which SSC provides investment management services to
the Funds. The Trustees also reviewed the differences between open-end
investment companies and closed-end companies.
In making their determination to approve the Merger, the Trustees of the
Funds gave careful consideration to the following factors: the investment
objective of each of the Funds; the cost savings to each of the Funds; the
ability to use the resources of the Funds more efficiently; the change from
an open-end investment company to a closed-end investment company; the
potential for increasing shareholder value; the terms and conditions of the
Merger Agreement; and the fact that the Merger will not qualify as a
tax-deferred reorganization under the Code. Also, the Merger would afford the
shareholders of SST the continued capabilities and resources of SSC in
investment management and shareholder servicing. The shareholders of SST will
be able to purchase and sell their shares on
21
<PAGE>
an established stock exchange. Finally, all expenses of the Merger will be
shared proportionately by the Funds.
A. Investment Policy. Three of the Funds have as their stated investment
policy the same objective: "capital appreciation." The fourth Fund, SIF, has
the investment objective of current income. The net assets of the four
constituent funds, as of April 15, 1997, ranged from approximately $310,000
(STGF) to $938,000 (SAIF) to $1,479,000 (SIF) and $4,099,000 (SAF). By
combining these resources in a single fund and changing SST's primary
investment objective from capital appreciation to income, the Trustees
believe that the shareholders will benefit from the greater resources
available to enable a wider range of investment and greater flexibility in
managing this portfolio.
B. Operating Costs. Operating costs of the Funds will be substantially
reduced by merging into SST. This union will enable SST to use its assets
more efficiently to increase shareholder value. Fund accounting, stock
transfer costs and other shareholder services will be significantly reduced.
By converting to a closed-end fund, daily determination of net asset values
will be eliminated, as well as the need for annual state securities
registration. Based upon management's analysis of the Funds, the Trustees
believe that the aggregate annual operating expenses of the four Funds, which
amounted to approximately $1,130,000 for the year ended June 30, 1996, would
be reduced to $480,000 if the Merger had taken place June 30, 1996. These
savings will be achieved principally in the following areas: shareholder
servicing fees, professional fees, reports to shareholders, computer services
and custodian fees. 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.
C. Closed-End Investment Company. The newly merged fund, SST, will
operate as a closed-end investment company. Shares will be traded in the
over-the-counter market; however, there can be no assurance that a market
will develop for SST shares. This new status will eliminate the need for
maintaining liquid reserves to fund the repurchase of shares as this right of
redemption will no longer exist for SST following the Merger. Accordingly,
greater resources will be available for long-term investment consistent with
the Fund's objectives and management's perception of market conditions. SST
will be able to invest with a longer term view without being concerned about
the possibility of liquidating at an inopportune time solely to meet
redemption requests. The shareholders will be able to purchase and sell their
shares in market transactions provided that a market develops. However,
shareholders will have the opportunity to request redemption of their shares
at net asset value during a thirty-day period commencing on the fifth
anniversary date of the Merger. As a closed-end investment company, SST will
have greater flexibility in utilizing its portfolio assets. This versatility
includes the ability to issue senior securities as permitted by the 1940 Act,
which will permit greater leveraging of the Fund's assets. There is no
assurance, however, that the use of such techniques will result in increased
performance by SST.
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D. Federal Tax Aspects. The reverse stock split of SST will constitute a
recapitalization of SST, but the Merger will not qualify as a tax-deferred
reorganization for federal income tax purposes. SST and its shareholders will
not recognize gain or loss as a result of the exchange of SST shares for SST
shares in the reverse stock split. The Merger transaction will be treated for
federal income tax purposes as if SAIF, SIF and STGF had transferred all of
their assets to SST in a taxable transaction, had recognized all of the
built-in gains and losses on those assets, and had distributed SST shares to
their respective shareholders in liquidation. The Trustees believe that the
capital loss and net operating loss carryovers of SAIF, SIF and STGF will be
sufficient to offset any net gain of those entities recognized in the Merger.
The loss carryforwards of SAIF, SIF and STGF not utilized in the Merger will
expire, but SST, as the surviving single entity, will be able to utilize its
separate tax loss carryforwards after the Merger. SST and its shareholders
will not recognize any gain or loss as a result of the deemed asset sale and
liquidation. The shareholders of SAIF, SIF and STGF will be deemed to have
exchanged their SAIF, SIF and STGF shares for SST shares in a taxable
transaction. Such shareholders will recognize gain or loss equal to the
difference between their individual tax bases for the SAIF, SIF and STGF
shares surrendered and the fair market value of the SST shares received. Such
gain or loss will be capital for shareholders who hold their SAIF, SIF or
STGF shares as capital assets and will be long term or short term gain or
loss depending upon their individual holding periods for the shares
surrendered. For many SAIF, SIF and STGF shareholders, the result may be a
tax loss rather than tax gain, but each shareholder's gain or loss
calculation must be performed individually. Based upon the past performance
of the Funds, there is little likelihood that SST will be able to utilize
these tax benefits.
Based upon the foregoing considerations, the Trustees of each of the
Funds, including the Independent Trustees, unanimously approved the Merger
and the change of SST from an open-end investment company to a closed-end
investment company. They determined that the Merger is in the best interests
of each of the Funds and their shareholders. The Trustees further determined
that the Merger would not result in dilution of any shareholders' interest,
and that by the Merger, an increase in the asset base of SST should benefit
the shareholders because of the economies of scale available to a larger fund.
TAX ASPECTS OF THE MERGER
The following discussion summarizes certain of the material federal
income tax consequences of the Merger. It is intended to provide only a
general summary and does not include a complete analysis of all potential
federal income tax consequences or consequences that are contingent upon
individual circumstances, such as the taxpayer being subject to certain
special provisions of the Internal Revenue Code of 1986, as amended (the
"Code"). This discussion does not address any aspects of state, local, or
foreign tax laws or any federal tax laws other than those pertaining to
income tax.
None of the Funds has requested a ruling from the Internal Revenue
Service (the "Service") with respect to any of the matters discussed in this
summary. It is unlikely that the Service would be willing to issue a ruling
regarding the Merger. However, the Funds have received an opinion letter from
Manatt, Phelps & Phillips, LLP, as "Tax Counsel" regarding certain material
federal income tax consequences of the Merger.
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<PAGE>
Tax Counsel has advised the Funds that, in its opinion, the legal issues
discussed in this federal income tax summary are correct in all material
respects. However, the summary itself is not an opinion of Tax Counsel or tax
advice and does not in any way constitute an assurance that the federal
income tax consequences discussed herein will be accepted by the Service or
the courts.
In the opinion of Tax Counsel, the reverse stock split of SST will
constitute a recapitalization of SST, but the Merger will not qualify as a
tax-deferred reorganization for federal income tax purposes. SST and its
shareholders will not recognize gain or loss as a result of the exchange of
SST shares for SST shares in the reverse stock split. The Merger transaction
will be treated for federal income tax purposes as if SAIF, SIF and STGF had
transferred all of their assets to SST in a taxable transaction, had
recognized all of the built-in gains and losses on those assets, and had
distributed SST shares to their respective shareholders in liquidation.
Capital loss and net operating loss carryovers of SAIF, SIF and STGF may be
utilized to offset any net gain of those entities recognized in the Merger.
SST and its shareholders will not recognize any gain or loss as a result of
the deemed asset sale and liquidation. The shareholders of SAIF, SIF and STGF
will be deemed to have exchanged their SAIF, SIF and STGF shares for SST
shares in a taxable transaction. Such shareholders will recognize gain or
loss equal to the difference between their individual tax bases for the SAIF,
SIF and STGF shares surrendered and the fair market value of the SST shares
received. Such gain or loss will be capital for shareholders who hold their
SAIF, SIF or STGF shares as capital assets and will be long term or short
term gain or loss depending upon their individual holding periods for the
shares surrendered. The loss carryforwards of SST will survive the Merger for
use in the post-Merger period, but the loss carryforwards of SAIF, SIF and
STGF will not. To the extent that the former holders of SAF represent less
than 50% of the total assets of SST after the Merger, the amount of the above
losses 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 amount loss limitation rules to apply. Whether any future events
will cause imposition of a restriction in tax loss utilization for SST cannot
be predicted at this point. The Merger will not constitute an "ownership
change" for SST within the meaning of Section 382 of the Code.
The foregoing discussion of the expected federal income tax consequences
of the Merger and the opinion of Tax Counsel are based on current
authorities. There is no assurance that legislative or administrative changes
or court decisions may not be forthcoming that would significantly change
these expected consequences. Any such changes may or may not be retroactive
with respect to transactions prior to the date of those changes. The opinion
of Tax Counsel is also based on certain factual assumptions and factual
representations to Tax Counsel by the Funds. The opinion of Tax Counsel could
change if such assumptions and representations proved to be inaccurate.
THE SUMMARY FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY. IT DOES NOT CONSTITUTE TAX ADVICE OR AN OPINION
OF TAX COUNSEL. EACH SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS
TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER APPLICABLE TO HIM OR HER,
INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER TAX
LAWS.
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<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 April 15, 1997 as if the
Merger had occurred on that date, and the reverse split of ten for one had
taken place.
SHARES NET ASSET NET BOOK
SHARES AFTER VALUE VALUE
NET ASSETS OUTSTANDING MERGER PER SHARE AFTER MERGER
---------- ----------- ------- --------- ------------
SAIF $ 938,428 1,356,390 134,832 $.69 --
SAF 4,099,172 5,888,056 588,961 .70 --
SIF 1,479,668 1,957,733 212,596 .76 --
STGF 310,691 512,701 44,640 .61 --
SST Pro Forma 6,827,959 -- 981,029 -- $6.96
COMPARATIVE FEE TABLES
TRANSACTION CHARGES
Because each Fund is a no-load fund, shareholders are not required to
pay any sales charges or other fees in connection with the purchase of shares
in any of the Funds. Moreover, since there is no current Prospectus available
for SAIF, SIF or STGF, shares in these funds have not been offered or sold to
the public since May, 1988. Shares of SAF were available for purchase under a
Prospectus dated January 1, 1996 through October 31, 1996. It is expected
that shares of SST will be traded in the over-the-counter market; however,
there can be no assurance that a market will develop for shares of SST.
Shares of SST may be purchased or sold in normal brokerage transactions with
appropriate fees charged in connection with such transactions.
EXPENSES OF THE FUNDS; PRO FORMA PROJECTED OPERATING EXPENSES
The Funds each pay a variety of expenses directly for management of
their assets, administration, distribution of their shares and other
services; and those expenses are reflected in the net asset value per share
of each Fund. The following calculations are based on the expenses of each
Fund for the 12 months ended June 30, 1996. These amounts are shown as a
percentage of the average net assets of each Fund for such periods.
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<PAGE>
Pro Forma Fee Table for Shareholders
of SAIF, SAF, SIF and STGF
as of June 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
PRO FORMA
FOR
SAIF SAF SIF STGF SST
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses..................... -0- -0- -0- -0- -0-
Annual Fund Operating Expenses (as a percentage of
average net assets at June 30, 1996)............... 24.61 8.14 10.60 25.19 7.83
Investment Advisory Fees............................. 1.00 1.00 1.00 1.00 1.00
Custodian Fees....................................... .26 .22 .02 .26 .01
Miscellaneous........................................ 23.35 6.92 9.58 23.93 6.82
Total Annual Operating Expenses...................... $ 300,454 $ 422,508 $ 225,193 $ 175,696 $ 723,068
---------- ---------- ---------- ---------- -----------
---------- ---------- ---------- ---------- -----------
</TABLE>
Based on management's analysis, the Trustees believe that the principal
aggregate operating expenses of the four Funds, which totaled approximately
$1,124,000 for the year ended June 30, 1996, would have been reduced to about
$723,000 if the Merger had taken place on that date. The pro forma statement of
SST is based on the following assumptions. Shareholder servicing fees were
reduced from $16.20 per account to $10.00 per account, annually, or from a total
of $324,641 to $200,396, resulting in annual savings of $124,245. Salaries and
employment benefits were reduced from $362,467 to $275,000, resulting in savings
of $87,467 because fewer employees will be needed after the Merger. Professional
fees were reduced from $140,473 to $30,000 based upon anticipated needs for
accounting, legal and other professional services, resulting in savings of
$110,473. Because of the Merger, the expense of reports to shareholders was
reduced from $29,845 to $8,000, resulting in savings of $21,845. Because of the
Merger, the expense for computer services was reduced by $14,470 from $30,470 to
$16,000. Rental expense was reduced by $32,252 from $57,252 to $25,000.
Trustees' fees and expenses were reduced from $19,382 to $15,000 resulting in
savings of $4,382. Custodian's fees were reduced from $16,649 to $4,000
resulting in savings of $12,649. An additional expense of $7,000 was added as
the estimated cost for listing SST's shares on a regional stock exchange if that
should occur. Accordingly, the foregoing adjustments which total $400,783
contributed to the pro forma result for the combined entity as of June 30, 1996.
However, management of SST believes that further reductions will result in
the year following the Merger, principally because of a consolidation of
shareholder accounts and a reduction in the size of SST due to share
redemptions, which will be effected prior to the Merger. Thus, assuming that
after the Merger SST has $6 million in total assets, the following further
expense reductions are projected by management for SST. Shareholder servicing
fees will be reduced from the pro forma amount of $200,396 to $40,000 as a
result of a reduction in the number of shareholder accounts. The Investment
Advisory fee will be reduced from $92,044 to $60,000 based on a reduction in the
total assets of SST. Finally, a provision for $50,628 in miscellaneous expenses
in the pro forma statement
26
<PAGE>
has been eliminated to result in management's projection of $480,000 for the
annual expenses of SST after the Merger.
However, there can be no assurance that reductions in expenses 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.
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 is 5% and that the operating expenses for each Fund are the ones shown in
the chart above for the 12 months ended June 30, 1996. If you were to continue
to hold your shares at the end of each period shown below, your investment would
incur the following expenses by the end of each period shown:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SAIF......................................................................... $ 222 $ 544 $ 752 $ 1,004
SAF.......................................................................... 80 233 376 697
SIF.......................................................................... 103 292 461 806
STGF......................................................................... 226 551 758 1,004
Pro Forma SST................................................................ 77 225 365 681
</TABLE>
27
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial statements give effect to the
Merger in a transaction which will be accounted for as a pooling of interests.
The unaudited pro forma statement of assets and liabilities is based on the
individual balance sheets of SAIF, SIF, STGF and SST (formerly SAF) appearing
elsewhere in this Registration Statement and has been prepared to reflect the
Merger as of March 31, 1997. The unaudited pro forma statements of operations
and statements of changes in net assets is based on the individual statements of
operations and statements of net assets of SAIF, SIF, STGF and SST, appearing
elsewhere in this Registration Statement, and combines the results of operations
and changes in net assets of SAIF, SIF, STGF and SST for the nine month period
ended March 31, 1997 and for the year ended June 30, 1996, as if the merger had
occurred at the beginning of each respective period. 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 or future results of operations and changes in net assets of
the combined entity or of the financial position or the results of operations
and changes in net assets of the combined entity that would have actually
occurred had the merger been in effect as of the date or for the periods
presented.
28
<PAGE>
SURVIVING ENTITY
PRO FORMA STATEMENT OF ASSETS and LIABILITIES
MARCH 31, 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:$5,680,128)......... $ 1,008,150 $ 1,573,650 $ 310,625 $ 4,228,813 $ 7,121,238
Cash and cash equivalents... 37,261 33,693 44,250 32,772 147,976
Interest and dividends
receivable................ 64 88 1,606 132 1,890
Receivable for securities
sold...................... -- -- -- 38,699 38,699
------------- ------------- ------------- ------------- -------------- --------------
Total assets.............. $ 1,045,475 $ 1,607,431 $ 356,481 $ 4,300,416 -- $ 7,309,803
------------- ------------- ------------- ------------- -------------- --------------
LIABILITIES
Accounts payable and accrued
expenses.................. $ 22,009 $ 20,324 $ 16,011 $ 49,237 $ 107,581
Investment advisory and
service fee payable....... 13,295 5,321 6,017 6,787 31,420
Other payable to affiliate.. 5,167 7,424 2,656 17,530 32,777
------------- ------------- ------------- ------------- -------------- --------------
Total liabilities......... $ 40,471 $ 33,069 $ 24,684 $ 73,554 -- $ 171,778
------------- ------------- ------------- ------------- -------------- --------------
NET ASSETS.................... $ 1,005,004 $ 1,574,362 $ 331,797 $ 4,226,862 -- $ 7,138,025
------------- ------------- ------------- ------------- -------------- --------------
------------- ------------- ------------- ------------- -------------- --------------
NET ASSETS
Net assets consist of:
Accumulated net investment
loss...................... ($ 4,144,399) ($ 1,866,633) ($ 2,796,018) ($ 5,042,220) $ 13,849,270 --
Unrealized appreciation of
investments............... 374,203 306,564 (7,013) 767,356 (1,441,110) --
Accumulated net realized
losses.................... (1,060,702) (679,384) (351,652) (862,448) 2,954,186 --
Capital paid in less
distributions since
inception................. 5,835,902 3,813,815 3,486,480 9,364,174 ($ 22,500,371) --
Capital stock--$.001 par
value; total authorized
shares-unlimited; 1,001,818
shares issued and
outstanding............... -- -- -- -- $ 7,138,025 7,138,025
------------- ------------- ------------- ------------- -------------- --------------
Net assets................ $ 1,005,004 $ 1,574,362 $ 331,797 $ 4,226,862 -- $ 7,138,025
------------- ------------- ------------- ------------- -------------- --------------
------------- ------------- ------------- ------------- -------------- --------------
NET ASSET VALUE PER SHARE..... $ 0.74 $ 0.80 $ 0.65 $ 0.71 $ 7.13
------------- ------------- ------------- ------------- -------------- --------------
------------- ------------- ------------- ------------- -------------- --------------
SHARES OUTSTANDING............ 1,357,437 1,958,854 513,448 5,932,375 (4,930,557) 1,001,818(2)
------------- ------------- ------------- ------------- -------------- --------------
------------- ------------- ------------- ------------- -------------- --------------
</TABLE>
29
<PAGE>
SURVIVING ENTITY
PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED
MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION> Pro Forma
SAIF SIF STGF SAF Adjustments Combined
------------ ------------ ------------ ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends................... $ 18,105 $ 4,870 $ 4,282 $ 8,436 $ 35,693
Interest.................... 2,363 4,324 2,127 10,316 19,130
------------ ------------ ------------ ------------- -------------- -------------
Total income............. $ 20,468 $ 9,194 $ 6,409 $ 18,752 -- $ 54,823
------------ ------------ ------------ ------------- -------------- -------------
EXPENSES
Shareholder servicing fee... $ 112,209 $ 35,859 $ 51,099 $ 27,905 ($ 86,904)(3a) $ 140,168
Salaries and employee
benefits.................. 39,915 57,953 23,200 132,858 (47,676)(3b) 206,250
Professional fees........... 50,680 58,421 28,849 145,506 (260,956)(3c) 22,500
Reports to shareholders..... 11,343 6,169 7,719 6,213 (25,444)(3d) 6,000
Computer services........... 6,570 6,818 6,235 17,277 (24,900)(3e) 12,000
Investment advisory fee..... 7,961 13,109 3,260 34,305 58,635
Rent........................ 5,471 8,911 2,201 23,448 (21,281)(3f) 18,750
Trustees' fees and
expenses.................. 5,944 5,744 5,744 4,844 (11,026)(3g) 11,250
Custodian fees.............. 1,654 1,870 1,021 5,011 (6,556)(3h) 3,000
Exchange fees............... 5,250 (3i) 5,250
Miscellaneous............... 4,109 5,633 3,001 16,670 29,413
------------ ------------ ------------ ------------- -------------- ------------
Total expenses........... $ 245,856 $ 200,487 $ 132,329 $414,037 ($479,493) $ 513,216
------------ ------------ ------------ ------------- -------------- ------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net realized (loss) gain
from investment
transactions.............. ($100,573) ($290,054) ($ 15,539) $ 264,609 ($141,557)
Change in unrealized
appreciation/
(depreciation) of
investment................ 355,124 362,074 (55,627) 249,042 910,613
------------ ------------ ------------ ------------- -------------- ------------
Net gain on
investments........... 254,551 72,020 (71,166) 513,651 -- 769,056
------------ ------------ ------------ ------------- -------------- ------------
Net increase (decrease) in
net assets resulting from
operations.................. $ 29,163 ($119,273) ($197,086) $ 118,366 $479,493 $ 310,663
------------ ------------ ------------ ------------- -------------- ------------
------------ ------------ ------------ ------------- -------------- ------------
</TABLE>
See Notes To Pro Forma Financial Statements
30
<PAGE>
SURVIVING ENTITY
PRO FORMA STATEMENT OF CHANGES IN NET ASSETS
FOR THE NINE MONTHS ENDED
MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma
SAIF SIF STGF SAF Adjustments Combined
------------ ------------ ------------ ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in
net assets from
operations
Net investment loss......... ($225,388) ($191,293) ($125,920) ($395,285) $ 479,493 (3) ($458,393)
Net realized gain (loss)
from investment
transactions.............. (100,573) (290,054) (15,539) 264,609 (141,557)
Change in unrealized
(depreciation)
appreciation.............. 355,124 362,074 (55,627) 249,042 910,613
------------ ------------ ------------ ------------- -------------- ------------
Net increase (decrease) in
net assets resulting from
operations................ 29,163 (119,273) (197,086) 118,366 479,493 310,663
Decrease in net assets from
trust share transactions.... (31,967) (69,832) (13,524) (472,995) (588,318)
------------ ------------ ------------ ------------- -------------- ------------
Net decrease in net assets.... (2,804) (189,105) (210,610) (354,629) 479,493 (277,655)
Net assets of beginning of
period...................... 1,007,808 1,763,467 542,407 4,581,491 7,895,173
------------ ------------ ------------ ------------- -------------- ------------
Net assets at end of period... $1,005,004 $1,574,362 $ 331,797 $4,226,862 $ 479,493 $7,617,518
------------ ------------ ------------ ------------- -------------- ------------
------------ ------------ ------------ ------------- -------------- ------------
</TABLE>
See Notes To Pro Forma Financial Statements
31
<PAGE>
SURVIVING ENTITY
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
SAIF SIF STGF SAF ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends............................ $ 1,270 $ 1,530 $ 855 $ 23,904 $ 27,559
Interest............................. 4,979 112,558 1,979 10,242 129,758
---------- ---------- ----------- ---------- ---------- ----------
Total income....................... $ 6,249 $ 114,088 $ 2,834 $ 34,146 $ 157,317
---------- ---------- ----------- ---------- ---------- ----------
EXPENSES
Shareholder servicing fee............ $ 160,315 $ 50,666 $ 72,446 $ 41,214 $(124,245)(4a) $ 200,396
Salaries and employee benefits....... 55,920 84,139 37,679 184,729 (87,467)(4b) 275,000
Professional fees.................... 26,297 30,275 27,222 56,679 (110,473)(4c) 30,000
Reports to shareholders.............. 10,841 5,149 7,472 6,383 (21,845)(4d) 8,000
Computer services.................... 6,589 7,943 7,225 8,713 (14,470)(4e) 16,000
Investment advisory fee.............. 12,209 21,259 6,870 51,706 92,044
Rent................................. 7,548 13,163 4,260 32,281 (32,252)(4f) 25,000
Trustees' fees and expenses.......... 6,998 3,528 3,528 5,328 (4,382)(4g) 15,000
Custodian fees....................... 3,225 400 1,838 11,186 (12,649)(4h) 4,000
Exchange fees........................ 7,000 (4i) 7,000
Miscellaneous........................ 10,512 8,671 7,156 24,289 50,628
---------- ---------- ----------- ---------- --------- ----------
Total expenses..................... $ 300,454 $ 225,193 $ 175,696 $ 422,508 $(400,783) $ 723,068
---------- ---------- ----------- ---------- --------- ----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain (loss) from
investment transactions............ $ 73,821 $ 47,825 $ (129,743) $ 517,110 $ 509,013
Change in unrealized (depreciation)
appreciation of investment......... (10,496) (271,135) 84,018 (352,459) (550,072)
---------- ---------- ----------- ---------- --------- ----------
Net gain (loss) on investments..... 63,325 (223,310) (45,725) 164,651 -- (41,059)
---------- ---------- ----------- ---------- --------- ----------
Net (decrease) in net assets
resulting from operations......... $ (230,880) $ (334,415) $ (218,587) $ (223,711) $ 400,783 $ (606,810)
---------- ---------- ----------- ---------- --------- ----------
---------- ---------- ----------- ---------- --------- ----------
</TABLE>
SEE NOTES TO PRO FORMA FINANCIAL STATEMENTS
32
<PAGE>
SURVIVING ENTITY
PRO FORMA STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
SAIF SIF STGF SAF ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Decrease in net assets from
operations......................... $ (294,205) $ (111,105) $ (172,862) $ (388,362) $ 400,783(4) $ (565,751)
Net investment loss.................. 73,821 47,825 (129,743) 517,110 509,013
Net realized gain (loss) from
investment transactions............ (10,496) (271,135) 84,018 (352,459) (550,072)
---------- ---------- --------- ---------- --------- ----------
Change in unrealized (depreciation)
appreciation
Net (decrease) increase in net
assets resulting from operations... (230,880) (334,415) (218,587) (223,711) 400,783 (606,810)
Decrease in net assets from trust
share transactions................. (102,199) (200,097) (37,546) (929,919) (1,269,761)
---------- ---------- --------- ---------- --------- ----------
Net decrease in net assets........... (333,079) (534,512) (256,133) (1,153,630) 400,783 (1,876,571)
Net assets of beginning of period.... 1,340,887 2,297,979 798,540 5,735,121 10,172,527
---------- ---------- ---------- ---------- --------- ----------
Net assets at end of period.......... $1,007,808 $1,763,467 $ 542,407 $4,581,491 $ 400,783 $8,295,956
---------- ---------- ---------- ---------- --------- ----------
---------- ---------- ---------- ---------- --------- ----------
</TABLE>
SEE NOTES TO PRO FORMA FINANCIAL STATEMENTS
33
<PAGE>
SURVIVING ENTITY
MARCH 31, 1997 AND JUNE 30, 1996
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited pro forma combined financial statements assume consummation
of the transaction described in this Registration Statement and no SAIF, SIF,
STGF and SST (formerly SAF) shares are redeemed.
The following unaudited pro forma financial statements give effect to the
Merger in a transaction which will be accounted for as a pooling of
interests. The unaudited pro forma statement of assets and liabilities is
based on the individual balance sheets of SAIF, SIF, STGF and SST appearing
elsewhere in this Registration Statement and has been prepared to reflect the
Merger as of March 31, 1997. The unaudited pro forma statements of operations
and statements of changes in net assets is based on the individual statements
of operations and statements of net assets of SAIF, SIF, STGF and SST,
appearing elsewhere in this Registration Statement, and combines the results
of operations and changes in net assets of SAIF, SIF, STGF and SST for the
nine month period ended March 31, 1997 and for the year ended June 30, 1996,
as if the merger had occurred at the beginning of each respective period. 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 or future results of
operations and changes in net assets of the combined entity or of the
financial position or the results of operations and changes in net assets of
the combined entity that would have actually occurred had the merger been in
effect as of the date or for the periods presented.
2. SST REVERSE STOCK SPLIT
Immediately prior the merger SST will declare a reverse stock split of
ten shares to one share, so that each ten outstanding shares of SST will
become one share of SST (5,932,375 divided by 10 equals 593,238).
Shareholders of the merging funds (SAIF, SIF and STGF) will receive shares of
SST on a pro rata basis in exchange for their shares. Therefore, since SST
net asset represented 59.2161% of total net assets ($4,226,862 divided by
$7,138,025) prior to the merger or 593,238 shares, the total number of shares
outstanding after the merger will be 1,001,818 (593,238 divided by 59.2161%).
34
<PAGE>
SURVIVING ENTITY
MARCH 31, 1997 AND JUNE 30, 1996
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
3. ADJUSTMENTS TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS AS OF
MARCH 31, 1997 AND FOR THE NINE MONTHS THEN ENDED
(a) To record reduction in transfer agent fees from $16.20 per account
annually to $10 per account annually.
(b) To record reduction in salaries and benefits to $275,000 annually.
(c) To record reduction in professional fees to $30,000 annually.
(d) To record reduction in reports to shareholders to $8,000 annually.
(e) To record reduction in computer services fees to $16,000 annually.
(f) To record reduction in rent to $25,000 annually.
(g) To record reduction in trustees fees and expenses to $15,000 annually.
(h) To record reduction in custodian fees to $4,000 annually.
(i) To record exchange fees expense of $7,000 annually.
4. ADJUSTMENTS TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS AS OF
JUNE 30, 1996 AND FOR THE YEAR THEN ENDED
(a) To record reduction in transfer agent fees from $16.20 per account
annually to $10 per account annually.
(b) To record reduction in salaries and benefits to $275,000 annually.
(c) To record reduction in professional fees to $30,000 annually.
(d) To record reduction in reports to shareholders to $8,000 annually.
(e) To record reduction in computer services fees to $16,000 annually.
(f) To record reduction in rent to $25,000 annually.
(g) To record reduction in trustees fees and expenses to $15,000 annually.
35
<PAGE>
(h) To record reduction in custodian fees to $4,000 annually.
(i) To record exchange fees expense of $7,000 annually.
36
<PAGE>
FORM OF ORGANIZATION OF THE FUNDS
Each Fund is a common law trust fund formed under a declaration of trust
and domiciled in the District of Columbia. SST (formerly SAF) was originally
organized under a Trust Indenture in the State of Missouri in 1939. It now
exists as a common law trust under the laws of the District of Columbia
pursuant to a Trust Indenture approved by shareholders on January 8, 1979.
SAIF was originally organized as a Delaware corporation on November 3, 1959.
It now exists as a common law trust under the laws of the District of
Columbia pursuant to a Trust Indenture approved by the shareholders on May
24, 1978. SIF was originally organized as a Delaware corporation on August 6,
1956. It now exists as a common law trust under the laws of the District of
Columbia pursuant to a Trust Indenture approved by the shareholders on May
11, 1979. STGF was originally organized as a Delaware corporation in 1967. It
now exists as a common law trust under the laws of the District of Columbia
pursuant to a Trust Indenture approved by the shareholders on May 11, 1979.
Each of the Funds is operated as a non-diversified open-end investment
company; however, upon the effectiveness of the Merger, SST will change to a
closed-end investment company. None of the Funds is taxed for federal income
tax purposes under the special rules for electing and qualifying regulated
investment companies under Code Sections 851-855. All the Funds are taxed
under the normal federal income tax rules applicable to C corporations.
COMPARISON OF INVESTMENT OBJECTIVES,
POLICIES AND TECHNIQUES OF THE FUNDS
The investment objective of the SST is to maximize capital growth through
the utilization of a broad range of investment vehicles and techniques,
including but not limited to the purchase and sale of put and call options.
SST may also make substantial temporary defensive investments in high grade
debt securities of all types, U.S. government securities and repurchase
agreements when market conditions warrant, such as when a severe downturn in
the stock market is anticipated. Both SAIF and STGF have substantially
similar investment objectives. SIF has a different investment objective,
which is to seek current income. As a secondary objective, SIF seeks to
maximize the total return but only consistent with its primary objectives.
Similar to the other Funds, SIF may also make substantial temporary defensive
investments in debt securities and money market instruments when market
conditions warrant. Upon the Merger, SST will have current income as its
principal investment objective and capital appreciation as its secondary
objective, but only to the extent consistent with its primary objective.
In seeking to achieve their objectives, all of the Funds may use the
following investment vehicles, without limitation:
* Common stock of issuers of all kinds.
* Preferred stocks, warrants, and convertible securities.
37
<PAGE>
* Corporate bonds and debentures of all kinds; and debt securities issued
or guaranteed by the U.S. government of its agencies or instrumentalities
("U.S. government securities").
* Money market instruments (commercial paper, bank certificates of
deposits, and U.S. government securities).
In choosing portfolio investments, none of the Funds is restricted to any
particular criteria or quality standards except as expressly stated in this
Prospectus. With respect to equity investments, the investment advisor for
each Fund generally looks for issuers that show growth potential, based on
fundamental analysis of the relevant industries and the issuers' financial
position. In selecting debt instruments (other than short-term debt for
defensive purposes), the advisor considers interest rate movements and may
choose investment grade instruments the yield of which exceeds that of
short-term U.S. Treasury securities.
Each Fund has the flexibility to employ a broad range of investment
techniques, including but not limited to the purchase and sale of put and
call options (primarily for premium income but also for hedging purposes),
investing in foreign securities, transactions in repurchase agreements,
investments in government securities, investments in high yield bonds ("junk
bonds"), acquisition of restricted or illiquid securities, purchase and sale
of real estate and related loans, borrowing to increase investment funds,
short sales, and lending portfolio securities. For a discussion of the
characteristics and risks of these vehicles and techniques, please refer to
the Statement of Additional Information. Each Fund may invest in these
instruments and use these techniques without limit, except as expressly
stated in the Statement of Additional Information.
The effect of such techniques can produce portfolio turnover rates of
100% or more. The portfolio turnover for the year ended June 30, 1996 was
339% for SAIF, 382% for SIF, 333% for STGF and 231% for SST. High portfolio
turnover (100% or more) increases brokerage costs and increases the
likelihood of short-term gains and losses.
The investment objective of each Fund may be changed by its Board of
Trustees without shareholder approval.
CONDENSED FINANCIAL INFORMATION
OF THE FUNDS
The following financial highlights of each of the Funds for the year
ended June 30, 1996 and the nine previous years have been 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.
38
<PAGE>
FINANCIAL HIGHLIGHTS
SAIF
<TABLE>
<CAPTION>
UNAUDITED FOR THE YEAR FOR THE PERIOD
NINE MONTHS ENDED ENDED FEBRUARY 1, 1995
MARCH 31, JUNE 30, THROUGH JUNE 30,
------------------------- ------------ ----------------
<S> <C> <C> <C> <C>
1997 1996 1996 1995*
---------- ----------- ------------ ----------------
Per Share Operating
Performance:
Net asset value, beginning
of period................. $ 0.72 $ 0.88 $ 0.88 $ 0.96
Net investment income
(loss).................... (.16) (.20) (.41) (.12)
Net realized and unrealized
gain (loss) on
investments............... .18 .10 .25 .04
---------- ----------- ----------- ----------------
Total from investment
operations................ .02 (.10) (.16) (.08)
Dividends and distributions
paid:
From net realized gain...... -- -- -- --
From net investment income.. -- -- -- --
From capital................ -- -- -- --
---------- ----------- ----------- ----------------
Total distributions......... -- -- -- --
---------- ----------- ----------- ----------------
Net asset value, end of
period...................... $ 0.74 $ 0.78 $ 0.72 $ 0.88
---------- ----------- ----------- ----------------
---------- ----------- ----------- ----------------
Ratio/Supplemental Data:
Total return (1).......... 4.17%** (14.77)%** (18.48)% (20.01)%**
Net Assets, end of period
(in thousands).......... $ 1,005 $ 1,111 $ 1,008 $ 1,341
Ratio of expenses to average
net assets.................. 30.98%** 27.32%** 24.61% 24.62%**
Ratio of net investment income
(loss) to average net
assets...................... (28.40)%** (26.89)%** (24.10)% (22.86)%**
Portfolio turnover.......... 149%** 343%** 339% 617%**
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991 1990 1989 1988 1987
------- ------- -------- ------- ------- ------- ------ ------- ------
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 $ 2.89
Net investment income
(loss).................... (.26) (.24) (.19) (.20) (.19) (.19) (.11) (.12) (.14)
Net realized and unrealized
gain (loss) on
investments............... (.43) .39 .15 .15 (.16) (.08) .08 (.32) (.07)
------- ------- -------- ------- ------- ------- ------ ------- ------
Total from investment
operations................ (.69) .15 (.04) (.05) (.35) (.27) (.03) (.44) (.21)
Dividends and distributions
paid:
From net realized gain...... -- -- -- -- -- -- -- -- --
From net investment income.. -- -- -- -- -- -- -- -- --
From capital................ -- -- -- -- -- -- -- -- --
------- ------- -------- ------- ------- ------- ------ ------- ------
Total distributions......... -- -- -- -- -- -- -- -- --
------- ------- -------- ------- ------- ------- ------ ------- ------
Net asset value, end of
period...................... $ 0.96 $ 1.65 $ 1.50 $ 1.54 $ 1.59 $ 1.94 $ 2.21 $ 2.24 $ 2.68
------- ------- -------- ------- ------- ------- ------ ------- ------
------- ------- -------- ------- ------- ------- ------ ------- ------
Ratio/Supplemental Data:
Total return (1).......... (41.82)% 10.00% (2.60)% (3.14)% (18.04)% (12.22)% (1.34)% (16.42)% (7.27)%
Net Assets, end of period
(in thousands).......... $1,472 $2,627 $2,496 $2,648 $2,844 $3,691 $4,563 $4,943 $6,480
Ratio of expenses to average
net assets.................. 17.69% 12.66% 14.83% 15.13% 13.75% 12.74% 9.37% 7.00% 6.26%
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)% (3.39)%
Portfolio turnover.......... 289% 134% 221% 460% 211% 258% 121% 228% 420%
</TABLE>
- ----------------------------------------
(1) Total return on the changes in net value of a share during the period and
assumes reinvestment of distributions at net asset value.
* The Fund's fiscal year-end was changed to June 30.
** Annualized
39
<PAGE>
FINANCIAL HIGHLIGHTS
SAF
<TABLE>
<CAPTION>
UNAUDITED FOR THE YEAR FOR THE PERIOD
NINE MONTHS ENDED ENDED OCTOBER 1, 1994
MARCH 31, JUNE 30, THROUGH JUNE 30,
--------------------- ------------ ----------------
<S> <C> <C> <C> <C>
1997 1996 1996 1995*
------- ------- ------------ ----------------
Per Share Operating
Performance:
Net asset value, beginning
of period................. $ 0.70 $ 0.73 $ 0.73 $ 0.72
------- ------- ------------ ------
Net investment income
(loss).................... (.06) (.05) (.17) (.03)
Net realized and unrealized
gain (loss) on
investments............... .07 .14 .04
------- ------- ------------ ------
Total from investment
operations................ .01 (.05) (.03) .01
Dividends and distributions
paid:
From net realized gain...... -- -- -- --
From net investment
income.................... -- -- -- --
From capital................ -- -- -- --
------- ------- ------------ ------
Total distributions......... -- -- -- --
------- ------- ------------ ------
Net asset value, end of
period...................... $ 0.71 $ 0.68 $ 0.70 $ 0.73
------- ------- ------------ ------
------- ------- ------------ ------
Ratio/Supplemental Data:
Total return (1).......... 1.43%** (9.59)%** (4.38)% 1.85%**
Net Assets, end of period
(in thousands).......... $ 4,227 $ 4,609 $ 4,581 $5,735
Ratio of expenses to average
net assets.................. 12.19%** 8.80%** 8.14% 8.17%**
Ratio of net investment income
(loss) to average net
assets...................... (11.64)%** (8.08)%** (7.48)% (7.23)%**
Portfolio turnover.......... 214%** 250%** 231% 505%**
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 1993 1992 1991 1990 1989 1988 1987 1986
------- ------- -------- ------- ------- ------- ------ ------- ------
Per Share Operating
Performance:
Net asset value, beginning
of period................. $ 0.87 $ 0.64 $ 0.67 $ 0.57 $ 0.84 $ 0.60 $ 0.91 $ 0.85 $ 0.82
------- ------- -------- ------- ------- ------- ------ ------- ------
Net investment income
(loss).................... (.08) (.05) (.03) (.02) (.03) -- -- .02 (.01)
Net realized and unrealized
gain (loss) on
investments............... (.07) .28 -- .12 (.24) .27 (.25) .12 .11
------- ------- -------- ------- ------- ------- ------ ------- ------
Total from investment
operations................ (.15) .23 (.03) .10 (.27) .27 (.25) .14 .10
Dividends and distributions
paid:
From net realized gain...... -- -- -- -- -- (.03) -- (.06) (.07)
From net investment
income.................... -- -- -- -- -- -- -- (.02) --
From capital................ -- -- -- -- -- -- (.06) -- --
------- ------- -------- ------- ------- ------- ------ ------- ------
Total distributions......... -- -- -- -- -- (.03) (.06) (.08) (.07)
------- ------- -------- ------- ------- ------- ------ ------- ------
Net asset value, end of
period...................... $ 0.72 $ 0.87 $ 0.64 $ 0.67 $ 0.57 $ 0.84 $ 0.60 $ 0.91 $ 0.85
------- ------- -------- ------- ------- ------- ------ ------- ------
------- ------- -------- ------- ------- ------- ------ ------- ------
Ratio/Supplemental Data:
Total return (1).......... (17.24)% 35.94% (4.48)% 17.54% (32.14)% 40.00% (34.07)% 16.47% 12.20%
Net Assets, end of period
(in thousands).......... $ 6,307 $ 8,844 $ 7,254 $ 8,539 $ 8,392 $16,035 $13,572 $20,662 $19,866
Ratio of expenses to average
net assets.................. 7.76% 5.79% 6.92% 7.16% 6.08% 6.65% 4.10% 3.06% 2.88%
Ratio of net investment income
(loss) to average net
assets...................... (6.09)% (4.63)% (5.14)% (3.29)% (4.54)% (.24)% (.33)% (2.13)% (0.82)%
Portfolio turnover.......... 241% 300% 301% 267% 86% 208% 367% 302% 375%
</TABLE>
- ----------------------------------------
(1) Total return on the changes in net value of a share during the period and
assumes reinvestment of distributions at net asset value.
* The Fund's fiscal year-end was changed to June 30.
** Annualized
40
<PAGE>
FINANCIAL HIGHLIGHTS
SIF
<TABLE>
<CAPTION>
UNAUDITED FOR THE YEAR FOR THE PERIOD
NINE MONTHS ENDED ENDED OCTOBER 1, 1994
MARCH 31, JUNE 30, THROUGH JUNE 30,
--------------------- ------------ ----------------
<S> <C> <C> <C> <C>
1997 1996 1996 1995*
------- -------- ------------ ----------------
Per Share Operating
Performance:
Net asset value, beginning
of period................. $ 0.86 $ 1.02 $ 1.02 $ 0.93
------- -------- ----------- -----------------
Net investment income
(loss).................... (.10) (.03) (.13) (.02)
Net realized and unrealized
gain (loss) on
investments............... .04 (.04) (.03) .11
------- -------- ----------- -----------------
Total from investment
operations................ (.06) (.07) (.16) .09
Dividends and distributions
paid:
From net realized gain...... -- -- -- --
From net investment
income.................... -- -- -- --
From capital................ -- -- -- --
------- -------- ----------- ------------------
Total distributions......... -- -- -- --
------- -------- ----------- ------------------
Net asset value, end of
period.................. $ 0.80 $ 0.95 $ 0.86 $ 1.02
------- -------- ----------- ------------------
------- -------- ----------- ------------------
Ratio/Supplemental Data:
Total return (1).......... (9.30)%** (8.82)%** (15.53)% 19.36%**
Net Assets, end of period
(in thousands).......... $ 1,574 $ 1,990 $ 1,763 $ 2,298
Ratio of expenses to average
net assets.................. 15.47%** 11.75%** 10.60% 10.54%**
Ratio of net investment income
(loss) to average net
assets...................... (14.76)%** (4.91)%** (5.23)% (4.24)%**
Portfolio turnover............ 146** 316%** 382% 226%**
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 1993 1992 1991 1990 1989 1988 1987 1986
------- ------- -------- ------- ------- ------- ------ ------- ------
Per Share Operating
Performance:
Net asset value, beginning
of period................. $ 1.42 $ 1.38 $ 1.49 $ 1.12 $ 1.32 $ 1.22 $ 1.32 $ 1.61 $ 1.46
------- ------- -------- ------- ------- ------- ------ ------- ------
Net investment income
(loss).................... (.08) (.06) (.09) (.06) (.09) (.08) -- .01 .06
Net realized and unrealized
gain (loss) on
investments............... (.41) .10 (.02) .43 (.11) .18 (.09) (.30) .09
------- ------- -------- ------- ------- ------- ------ ------- ------
Total from investment
operations................ (.49) .04 (.11) .37 (.20) .10 (.09) (.29) .13
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 $ 1.32 $ 1.61
------- ------- -------- ------- ------- ------- ------ ------- ------
------- ------- -------- ------- ------- ------- ------ ------- ------
Ratio/Supplemental Data:
Total return (1).......... (34.51)% 2.90% (7.38)% 33.04% (15.15)% 8.20% (6.82)% (18.01)% 10.27%
Net Assets, end of period
(in thousands).......... $ 2,159 $ 3,550 $ 3,791 $ 4,277 $ 3,530 $ 4,627 $4,812 $ 5,659 $8,133
Ratio of expenses to average
net assets.................. 8.90% 6.48% 7.78% 7.88% 10.31% 8.95% 5.59% 4.32% 3.97%
Ratio of net investment income
(loss) to average net
assets...................... (6.65)% (4.52)% (6.09)% (5.08%) (7.27)% (6.15)% .13% .53% 1.84%
Portfolio turnover............ 282% 179% 263% 245% 144% 165% 128% 96% 129%
</TABLE>
- ----------------------------------------
(1) Total return on the changes in net value of a share during the period and
assumes reinvestment of distributions at net asset value.
* The Fund's fiscal year-end was changed to June 30.
** Annualized
41
<PAGE>
FINANCIAL HIGHLIGHTS
STGF
<TABLE>
<CAPTION>
UNAUDITED FOR THE YEAR FOR THE PERIOD
NINE MONTHS ENDED ENDED OCTOBER 1, 1994
MARCH 31, JUNE 30, THROUGH JUNE 30,
--------------------- ------------ ----------------
<S> <C> <C> <C> <C>
1997 1996 1996 1995*
------- -------- ------------ ----------------
Per Share Operating
Performance:
Net asset value, beginning
of period................. $ 1.02 $ 1.43 $ 1.43 $ 1.57
------- --------- ------------ ---------------
Net investment income
(loss).................... (.24) (.24) (.58) (.22)
Net realized and unrealized
gain (loss) on
investments............... (.13) (.07) .17 .08
------- --------- ------------ ---------------
Total from investment
operations................ (.37) (.31) (.41) (.14)
Dividends and distributions
paid:
From net realized gain...... -- -- -- --
From net investment
income.................... -- -- -- --
From capital................ -- -- -- --
------- ---------- ------------ ---------------
Total distributions......... -- -- -- --
------- ---------- ------------ ---------------
Net asset value, end of
period...................... $ 0.65 $ 1.12 $ 1.02 $ 1.43
------- ---------- ------------ ----------------
------- ---------- ------------ ----------------
Ratio/Supplemental Data:
Total return (1).......... (48.04)%** (28.67)%** (28.29)% (17.84)%**
Net Assets, end of period
(in thousands).......... $ 332 $ 599 $ 542 $ 799
Ratio of expenses to average
net assets.................. 40.64%** 30.14%** 25.19% 22.28%**
Ratio of net investment income
(loss) to average net
assets...................... (38.41)%** (29.67)%** (24.78)% (20.90)%**
Portfolio turnover.......... 441%** 396%** 333% 615%**
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 1993 1992 1991 1990 1989 1988 1987 1986
------- ------- -------- ------- ------- ------- ------ ------- ------
Per Share Operating
Performance:
Net asset value, beginning
of period................. $ 2.48 $ 2.69 $ 2.84 $ 2.21 $ 3.92 $ 3.03 $ 4.12 $ 4.48 $ 5.06
------- ------- -------- ------- ------- ------- ------ ------- ------
Net investment income
(loss).................... (.45) (.40) (.33) (.30) (.41) (.37) (.30) (.27) (.33)
Net realized and unrealized
gain (loss) on
investments............... (.46) .19 .18 .93 (1.30) 1.26 (.79) (.09) (.25)
------- ------- -------- ------- ------- ------- ------ ------- ------
Total from investment
operations................ (.91) (.21) (.15) .63 (1.71) .89 (1.09) (.36) (.58)
Dividends and distributions
paid:
From net realized gain...... -- -- -- -- -- -- -- -- --
From net investment
income.................... -- -- -- -- -- -- -- -- --
From capital................ -- -- -- -- -- -- -- -- --
------- ------- -------- ------- ------- ------- ------ ------- ------
Total distributions......... -- -- -- -- -- -- -- -- --
------- ------- -------- ------- ------- ------- ------ ------- ------
Net asset value, end of
period...................... $ 1.57 $ 2.48 $ 2.69 $ 2.84 $ 2.21 $ 3.92 $ 3.03 $ 4.12 $ 4.48
------- ------- -------- ------- ------- ------- ------ ------- ------
------- ------- -------- ------- ------- ------- ------ ------- ------
Ratio/Supplemental Data:
Total return (1).......... (36.69)% (7.81) (5.28)% 28.51% (43.62)% 29.37% (26.46)% (8.04)%(11.46)%
Net Assets, end of period
(in thousands).......... $ 894 $ 1,467 $ 1,634 $ 1,786 $ 1,443 $ 2,675 $2,178 $ 3,119 $3,779
Ratio of expenses to average
net assets.................. 16.34% 11.94% 13.33% 14.10% 14.97% 12.14% 9.90% 6.34% 5.81%
Ratio of net investment income
(loss) to average net
assets...................... (14.79)% (11.38)% (12.45)% (11.70)% (12.60)% (9.97)% (8.55)% (4.88)% (4.87)%
Portfolio turnover.......... 274% 128% 157% 318% 184% 116% 164% 196% 197%
</TABLE>
- ----------------------------------------
(1) Total return on the changes in net value of a share during the period and
assumes reinvestment of distributions at net asset value.
* The Fund's fiscal year-end was changed to June 30.
** Annualized
42
<PAGE>
SAIF
Management's Discussion of
Performance of the Fund
During its fiscal year ended June 30, 1996, the Fund's net asset value
per share decreased 18.48% The Fund experienced a net decrease in net assets
from operations of approximately $231,000 as a result of a net realized gain
from investment transactions of $74,000 offset by a net investment loss of
$294,000 and unrealized depreciation of investments of $11,000.
Portfolio turnover during the year, although high, was about half of the
rate for the prior period and at year's end the Fund's portfolio consisted of
investments in segments of the computer industry, communications,
pharmaceutical, and radio and television equipment industries. The Fund
maintained an aggressive trading position with its assets almost fully
invested in equity securities most of the year. The Fund's net investment
loss of approximately $294,000 resulted from expenses after taking into
account the Fund's investment income from dividends and interest of
approximately $6,000. The Fund's primary goal is to maximize capital
appreciation.
From time to time the Fund may quote its total return in advertisements
or in reports or other communications to shareholders. A mutual fund's total
return is a measurement of the overall change in value, including changes in
share price and assuming reinvestment of all distributions, of an investment
in the fund. Cumulative total return shows the fund's performance over a
specific period of time. Average annual total return is the average annual
compounded return that would have produced the same cumulative total return
if the fund's performance had been constant over the entire period. The
returns shown are based on historical results and are not intended to
indicate future performance. The investment reurn and principal value of an
investment in the fund will fluctuate so that an investor's shares when
redeemed may be worth more or less than their original cost. Average annual
returns which differ from actual year-to-year results, tend to smooth out
variations in a fund's returns.
SAF
MANAGEMENT'S DISCUSSION OF
PERFORMANCE OF THE FUND
During its fiscal year ended June 30, 1996, the Fund's net asset value per
share decreased 4.38%. The Fund experienced a net decrease in net assets from
operations of approximately $224,000, as a result of a net realized gain from
investment transactions of $517,000 offset by a net investment loss of $388,000
and unrealized depreciation of investments of $353,000.
Portfolio turnover during the year, although high, was less than half of the
rate for the prior period and at year's end the Fund's portfolio consisted of
investments in various segments of the computer industry, communications,
medical instruments, motor vehicles, oil & gas drilling, pharmaceutical, and
radio and television equipment industries. In addition, the Fund purchased call
options in the expectation that the Fund would benefit from rising prices in
these positions. The Fund maintained an aggressive trading position with its
assets almost fully invested in equity securities most of the year. The Fund's
net investment loss of approximately $388,000 resulted from expenses after
taking into account the Fund's investment income from dividends and interest of
approximately
43
<PAGE>
$34,000. Realization of current income is secondary to the Fund's
pursuit of its primary goal of capital appreciation.
From time to time the Fund may quote its total return in advertisements or
in reports or other communications to shareholders. A mutual fund's total return
is a measurement of the overall change in value, including changes in share
price and assuming reinvestment of all distributions, of an investment in the
fund. Cumulative total return shows the fund's performance over a specific
period of time. Average annual total return is the average annual compounded
return that would have produced the same cumulative total return if the fund's
performance had been constant over the entire period. The returns shown are
based on historical results and are not intended to indicate future performance.
The investment return and principal value of an investment in the fund will
fluctuate that an investor's shares when redeemed may be worth more or less than
their original cost. Average annual returns, which differ from actual
year-to-year results, tend to smooth out variations in a fund's returns.
SIF
MANAGEMENT'S DISCUSSION OF
PERFORMANCE OF THE FUND
During its fiscal year ended June 30, 1996, the Fund's net asset value per
share decreased 15.53%. The Fund experienced a net decrease in net assets from
operations of approximately $334,000 as a result of a net realized gain from
investment transactions of $48,000 offset by a net investment loss of $111,000
and unrealized depreciation of investments of $271,000.
Portfolio turnover during the year was higher than the rate for the prior
period as a result of positioning from U.S. Treasury Bonds to investments in
stocks of various segments of the computer industry, communications, and medical
instruments industries. The Fund maintained an aggressive trading position with
its assets almost fully invested in equity securities most of the year. The
Fund's net investment loss of approximately $111,000 resulted from expenses
after taking into account the Fund's investment income from dividends and
interest of approximately $114,000. Realization of capital appreciation is
secondary to the Fund's primary goal of current income.
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.
44
<PAGE>
STGF
MANAGEMENT'S DISCUSSION OF
PERFORMANCE OF THE FUND
During its fiscal year ended June 30, 1996, the Fund's net asset value per
share decreased 28.29%. The Fund experienced a net decrease in net assets from
operations of approximately $219,000 as a result of a net realized loss from
investment transactions of $130,000 and a net investment loss of $173,000 offset
by unrealized appreciation of investments of $84,000.
Portfolio turnover during the year, although high, was about half of the
rate for the prior period and at year's end the Fund's portfolio consisted of
investments in the computer industry, communications, pharmaceutical, and radio
and television equipment industries. The Fund maintained an aggressive trading
position with its assets almost fully invested in equity securities most of the
year. The Fund's net investment loss of approximately $173,000 resulted from
expenses after taking into account the Fund's investment income from dividends
and interest of approximately $3,000. Realization of current income is secondary
to the Fund's pursuit of its primary goal of capital appreciation.
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.
45
<PAGE>
SAIF TOTAL RETURN VS S&P 500 INDEX
Comparison of change in the value of a $10,000 investment in the Fund
and the same investment in the S&P 500 Index for each
fiscal year from February 1, 1986 to January 1, 1996; February
1, 1995 to June 30, 1995; July 1, 1995 to June 30, 1996
[A GRAPH APPEARS HERE WITH THE FOLLOWING PLOTTING POINTS]
<TABLE>
<CAPTION>
SAIF S&P
---------------------------- ------------------------------
<S> <C> <C> <C> <C>
STATUS OF STATUS OF
$10,000 $10,000
PERIOD END PERCENT CHANGE INVESTMENT PERCENT CHANGE INVESTMENT
- ----------- --------------- ----------- ----------------- -----------
2/1/86 --.-- $ 10,000 -- $ 10,000
1/31/87 (7.27) 9,273 33.87 13,387
1/31/88 (16.42) 7,750 (3.32) 12,943
1/31/89 (1.34) 7,646 20.07 15,541
1/31/90 (12.22) 6,712 14.46 17,788
1/31/91 (18.04) 5,501 8.40 19,282
1/31/92 (3.14) 5,328 22.69 23,657
1/31/93 (2.60) 5,189 10.58 26,160
1/31/94 10.00 5,708 12.88 29,529
1/31/95 (41.82) 3,321 2.59 30,294
6/30/95 (8.33) 3,044 17.17 35,495
6/30/96 (18.48) 2,481 26.00 44,724
</TABLE>
46
<PAGE>
SAF TOTAL RETURN VS S&P 500 INDEX
Comparison of change in the value of a $10,000 investment in the Fund
and the same investment in the S&P 500 Index for each fiscal year
from October 1, 1985 to September 30, 1994; October 1, 1994 to June 30, 1995
and July 1, 1995 to June 30, 1996
[A GRAPH APPEARS HERE WITH THE FOLLOWING PLOTTING POINTS]
<TABLE>
<CAPTION>
SAF S&P
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
STATUS OF STATUS OF
$10,000 $10,000
PERIOD END PERCENT CHANGE INVESTMENT PERCENT CHANGE INVESTMENT
- ----------- --------------- ----------- --------------- -----------
10/1/85 --.-- $ 10,000 --.-- $ 10,000
9/30/86 11.44 11,144 31.51 13,151
9/30/87 15.83 12,908 43.27 18,841
9/30/88 (27.86) 9,312 (12.54) 16,478
9/30/89 47.50 13,735 32.97 21,911
9/30/90 (32.27) 9,303 (9.23) 19,889
9/30/91 17.51 10,932 31.17 26,088
9/30/92 (4.47) 10,443 11.05 28,971
9/30/93 35.88 14,190 13.00 32,737
9/30/94 17.24 16,636 3.68 33,942
6/30/95 1.39 16,867 20.19 40,795
6/30/96 (4.38) 16,128 26.00 51,401
</TABLE>
47
<PAGE>
SIF TOTAL RETURN VS S&P 500 INDEX
Comparison of change in the value of a $10,000 investment in the Fund
and the same investment in the S&P 500 Index for each
fiscal year from January 1, 1986 to December 31, 1994;
January 1, 1995 to June 30, 1995
and July 1, 1995 to June 30, 1996
[A GRAPH APPEARS HERE WITH THE FOLLOWING PLOTTING POINTS]
<TABLE>
<CAPTION>
SIF S&P
---------------------------- ------------------------------
<S> <C> <C> <C> <C>
STATUS OF STATUS OF
$10,000 $10,000
PERIOD END PERCENT CHANGE INVESTMENT PERCENT CHANGE INVESTMENT
- ----------- --------------- ----------- ----------------- -----------
1/1/86 --.-- $ 10,000 --.-- $ 10,000
12/31/86 10.27 11,027 18.56 11,856
12/31/87 (18.01) 9,041 5.10 12,461
12/31/88 (6.82) 8,424 16.61 14,530
12/31/89 8.13 9,109 31.69 19,135
12/31/90 (15.04) 7,739 (3.10) 18,542
12/31/91 32.95 10,289 30.47 24,192
12/31/92 (7.05) 9,564 7.62 26,035
12/31/93 2.89 9,840 10.08 28,660
12/31/94 (34.51) 6,444 1.38 29,056
6/30/95 9.68 7,068 20.21 34,928
6/30/96 (15.53) 5,970 26.00 44,010
</TABLE>
48
<PAGE>
STGF TOTAL RETURN VS S&P 500 INDEX
Comparison of change in the value of a $10,000 investment in the Fund
and the same investment in the S&P 500 Index for each fiscal year from
January 1, 1986 to December 31, 1994; January 1, 1995 to June 30, 1995
July 1, 1995 to June 30, 1996
[A GRAPH APPEARS HERE WITH THE FOLLOWING PLOTTING POINTS]
<TABLE>
<CAPTION>
STGF S&P
---------------------------- ------------------------------
<S> <C> <C> <C> <C>
STATUS OF STATUS OF
$10,000 $10,000
PERIOD END PERCENT CHANGE INVESTMENT PERCENT CHANGE INVESTMENT
- ----------- --------------- ----------- ----------------- -----------
1/1/86 --.-- $ 10,000 --.-- $ 10,000
12/31/86 (11.46) 8,854 18.56 11,856
12/31/87 (8.04) 8,142 5.10 12,461
12/31/88 (26.46) 5,988 16.61 14,530
12/31/89 29.37 7,747 31.69 19,135
12/31/90 (43.62) 4,368 (3.10) 18,542
12/31/91 28.51 5,613 30.47 24,192
12/31/92 (5.28) 5,317 7.62 26,035
12/31/93 (7.81) 4,902 10.08 28,660
12/31/94 (36.69) 3,103 1.38 29,056
6/30/95 (8.92) 2,826 20.21 34,928
6/30/96 (28.29) 2,026 26.00 44,010
</TABLE>
49
<PAGE>
DESCRIPTION OF CAPITAL STRUCTURE OF THE FUNDS
AND SHAREHOLDER RIGHTS
Each Fund is organized as a common law trust under the laws of the District
of Columbia and has outstanding only one class of shares of beneficial interest.
Each share has one vote, and all shares participate equally in dividends and
other distributions by the respective Fund, and in the residual assets of such
Fund in the event of liquidation. Fractional shares have the same rights
proportionately as do full shares. Shares of the Funds have no preemptive rights
and no conversion or subscription rights. The Funds do not hold regularly
scheduled annual shareholders' meetings. Special meetings are called when
required by applicable laws and regulations. No shareholder of any Fund shall be
subject to any liability to any person in connection with the property or
affairs of any such Fund.
In addition, the governing documents of the Funds contain several other
provisions relating to shareholders' rights that are uncommon to most other
mutual funds. (a) Trustees hold office for a term of unlimited duration, (b)
shareholders are not entitled to vote for or against any amendments to the Trust
Indenture, (c) shareholders are not entitled to vote for or against a
termination of the Fund, and (d) except as otherwise required by law,
shareholders may call special meetings only upon a vote of 90% of the
outstanding shares.
As interpreted by the staff of the Securities and Exchange Commission, the
1940 Act provides shareholders of the Funds with certain rights with respect to
removal of Trustees. Under these provisions, shareholders may remove one or more
Trustees by declaration or vote of two-thirds of each Fund's outstanding shares.
The Trustees will promptly call a meeting of shareholders for the purpose of
voting upon the question of removal of Trustees when requested to do so by the
record holders of not less than 10% of the outstanding shares of the Fund. Such
Fund will comply with these procedures.
SPECIAL PROVISIONS OF SST
Senior Securities. As a closed-end investment company, SST will have the
authority to issue senior securities, including preferred shares, subject to the
rules and regulations of the 1940 Act. The Trustees of the Fund have the
authority to issue such senior securities upon such terms and in such amounts as
they shall determine, subject to the 1940 Act. As of the date hereof, no such
senior securities have been issued by SST, and the Trustees have no present
intention of authorizing the issuance of senior securities.
Anti-Takeover Provisions. Certain provisions of the Amended and Restated
Trust Indenture of SST may be regarded as anti-takeover provisions. Although the
Trustees are not aware of any effort that might be made to obtain control of the
Fund upon completion of the Merger, the Trustees believe it is appropriate to
include certain provisions as part of the Fund's Amended and Restated Trust
Indenture, these conditions may have the effect of discouraging a future
takeover attempt, not approved by the Trustees, but which individual
shareholders may deem to be in their best interests or in which shareholders may
receive a substantial premium for their shares over then current market prices.
50
<PAGE>
The following discussion is a general summary of the material provisions of
the Amended and Restated Trust Indenture of SST, which may be deemed to have
such an "anti-takeover" effect. The description of these provisions is
necessarily general and reference should be made in each case to the complete
documents set forth in Exhibit B hereto.
1. Trustees. Trustees are chosen for a term of unlimited duration.
2. Meetings of Shareholders. Special meetings of the Shareholders may
be called at any time by the Chairman or by a majority of the Trustees, and
shall be called upon written request of shareholders holding in the
aggregate not less than ninety percent (90%) of the outstanding shares
having voting rights. The Trustees shall promptly call a meeting of
shareholders for the purpose of voting upon the question of removal of
Trustees when requested to do so by the record holders of not less than 10%
of the outstanding shares of the Fund.
3. Absence of Cumulative Voting. The Amended and Restated Trust
Indenture provides that there shall not be cumulative voting by shareholders
for the election of Trustees. The absence of cumulative voting rights means
that holders of a majority of the shares voted at a meeting of shareholders
may, if they so choose, elect all Trustees to be selected, thus precluding
minority shareholder representation among the Trustees.
4. Restrictions on Acquisitions of Shares of SST. The Amended and
Restated Trust Indenture provides that for a period of five years from the
effective date of the approval of the Merger, no person may acquire,
directly or indirectly, the beneficial ownership of more than 10% of the
Fund shares, unless such offer or acquisition shall have been approved in
advance by a two-thirds vote of the Fund's Continuing Trustees. In addition,
no shares beneficially owned in violation of the foregoing percentage
limitation, as determined by the Trustees, shall be entitled to vote in
connection with any matter submitted to shareholders for a vote. The
restriction on voting shares beneficially owned in violation of the
foregoing limitation is imposed automatically. In order to prevent the
imposition of such restriction, the Trustees must take affirmative action
approving in advance a particular offer to acquire or acquisition.
5. Approval of Certain Business Combinations. If an individual or other
entity, together with its affiliates acquire 10% or more of the outstanding
shares of SST ("Related Person"), certain transactions with the Related
Person, as well as the decision to reclassify or recapitalize shares of SST
or dissolve or liquidate SST require the affirmative vote of either (a)
two-thirds of the Trustees who are not affiliated with the Related Person
and were Trustees prior to the date the Related Person became a Related
Person or (b) at least 80% of the outstanding shares of SST entitled to vote
and at least a majority of such outstanding shares not including shares
deemed beneficially owned by the Related Person.
Redemption of Shares Prior to Merger. Shareholders of the Funds do not have
appraisal or other dissenter's rights with respect to the Merger. Any Fund
shareholder however may redeem his
51
<PAGE>
or her shares prior to the closing date of the Merger at net asset value. The
proceeds will be paid by check within seven business days after receipt of a
redemption request.
REDEMPTION OF SHARES AFTER MERGER
Shareholders of SST will have a one-time opportunity to redeem their SST
shares at net asset value during a thirty-day period commencing on the fifth
anniversary date of the Merger.
The redemption procedures are as follows:
ACCOUNTS WITHOUT SHARE CERTIFICATES--A signed request (all joint owners
must sign) stating the amount to be withdrawn must be made to Steadman
Security Corporation, 1730 K Street, N.W., Washington, D.C. 20006. For
amounts more than $1,000, a "signature guarantee" will be necessary
from a commercial bank or trust company. Signature guarantees shall be
accepted from all eligible guarantor institutions, which include
domestic banks, brokers, dealers, credit unions, national securities
exchanges, registered securities associations, clearing agencies and
savings associations.
INSTANT LIQUIDITY (BY TELEPHONE)--Any amount may be withdrawn by
telephone by calling 1-800-424-8570 on any business day if telephone
withdrawals have been previously authorized on the Investment
Application. Telephone instructions from any person representing
himself or herself to be a shareholder or a shareholder's
representative, and believed by SSC, as Transfer Agent for the Fund, to
be genuine will be acted upon. No Fund nor the Transfer Agent will be
liable for following unauthorized instructions communicated by
telephone that they reasonably believe to be genuine. The
Funds will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine.
ACCOUNTS WITH SHARE CERTIFICATES--The signed share certificates (all joint
owners must sign) together with a "signature guarantee" from an eligible
guarantor institution (see "Accounts without share Certificates," above)
and a written request that the certificates be redeemed, must be submitted
to SSC at the above address.
Requests for redemption by corporations, executors, administrators, trustees
or guardians may require further documentation.
The proceeds of redemptions are paid by check within seven days after
receipt of a request for redemption that complies with the procedures set forth
above. Proceeds may also be wired to a bank or trust company if wire transfers
have been previously authorized on the Investment Application. When a personal
or corporate check was used to purchase the shares, redemption proceeds will be
released only when bank clearance on the check has been received. This procedure
could take up to seven days after the purchase date and can be avoided by
submitting a certified check along with the purchase order. Also, there may be a
charge if a shareholder uses a broker-dealer to repurchase the Fund's shares.
52
<PAGE>
The right of redemption may be suspended during any period when: (a) trading
on the New York Stock Exchange is restricted as determined by the Securities and
Exchange Commission or such Exchange is closed for other than weekends and
holidays; or (b) as permitted by the Securities and Exchange Commission.
OVER-THE-COUNTER MARKET
Currently SST shares are not traded in any market.As of April 15, 1997, the
proforma net asset value of SST was $6.96 per share. Upon the effectiveness of
the Merger, SST will become a closed-end investment company, and shares of SST
will not be redeemable. It is expected that shares of SST will be traded in the
over-the-counter market; however, there can be no assurance that a market will
develop for shares of SST or if a market develops, at what price SST shares may
be bought or sold. It is anticipated that shares of SST will trade at a
substantial discount from their net asset value, which discount may be greater
than the discount at which shares of closed-end funds are normally traded.
The Trustees have the authority to use up to $500,000 of SST assets to
purchase SST shares in the open market, from time to time, in such amounts as
the Trustees determine to be in the best interests of the Fund. Such purchases
will be made at the the market price for SST shares, which may be at a
substantial discount from net asset value.
MANAGEMENT OF THE FUNDS
Under the laws of the District of Columbia, the Trustees are responsible for
managing the business and affairs of the Funds. Each Fund has entered into an
investment advisory agreement (the "Advisory Agreement") with SSC (sometimes
referred to herein as the "Advisor") which has its principal offices at 1730 K
Street, N.W., Washington, D.C. 20006. Upon the effectiveness of the Merger, SSC
will continue to be the Advisor to SST.
All voting stock of SSC is owned by United Securities, Inc., a Maryland
corporation whose sole shareholders are two of Mr. Charles W. Steadman's adult
children, Carole S. Kinney and Charles T.W. Steadman, and Mrs. Consuelo M.
Steadman, Mr. Charles W. Steadman's wife. Mr. Steadman has a long-term
employment contract with the Advisor under which he may be deemed a control
person.
Since commencing business through its predecessor, William Allen Steadman &
Company, in 1932, the Advisor has principally engaged in the business of
providing continuous investment supervision for the Funds. Under the terms of
the Advisory Agreement, the Advisor manages the investments of each Fund
and is responsible for overall management of its business affairs subject to
supervision of the Trustees. Charles W. Steadman, Chairman of the Board of
Trustees and President of each Fund, is primarily responsible for the day-to-day
management of the Funds' portfolios. He has been in mutual fund management for
the past 29 years as Chairman of the Board and President of Steadman Security
Corporation. As compensation for its services, each Fund pays to the Advisor a
monthly advisory fee at the annual rate of 1% of the first $35,000,000 of the
average daily net asset value of the Fund, 7/8 of 1% on the next $35,000,000 and
3/4 of 1% on all on all sums
53
<PAGE>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 thirty-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 as of March 31, 1997 had a net asset value of approximately $1 million.
The Shareholder States are represented by the Unclaimed Property Clearing House
("UPCH"), which has advised the Funds that it does not believe the Merger should
take place because the UPCH believes that after the Merger SST shares will trade
at a substantial discount from net asset value, and the Shareholder States will
receive substantially less from the sale of their shares after the Merger than
if those shares were redeemed at net asset value. The UPCH told the Funds that
it is prepared to recommend to the Shareholder States that they commence
litigation to prevent the consummation of the Merger unless the restriction on
their ability to redeem shares of the Funds prior to February 14, 1998 is
removed. The Trustees believe that the delay and further expense which would
result from such potential litigation is not in the best interest of the
shareholders. Accordingly, the Funds told the UPCH that they would agree to
amend the Settlement Agreement to remove the restriction on the redemption of
shares prior to the effectiveness of the Merger; provided that (a) the Merger is
approved by the requisite vote of the Funds' shareholders; and (b) the
Shareholder States agree, among other things, to vote their shares for approval
of the Merger and in support of the Trustees' recommendations with respect to
other matters that arise at the special shareholders' meetings, and to release
the Funds from any liability related to such states' ownership of shares of the
Funds. At the present time no formal agreement has been reached with the
Shareholder States; however, if one is reached and if all the Shareholder States
redeem all of their shares, the net asset value of SST would be reduced by
approximately $1 million.
54
<PAGE>
ELECTION OF TRUSTEES
OF
STEADMAN ASSOCIATED FUND
PROPOSAL NO. 2
(TO BE VOTED ON BY SHAREHOLDERS OF
STEADMAN ASSOCIATED FUND ONLY)
Election of Trustees
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.
Currently the Fund has four Trustees, one of whom, Paul F. Wagner, was
appointed by the remaining trustees October 14, 1992 to fill a vacancy. This is
the first shareholders meeting since that date, and accordingly the shareholders
are being asked to approve Mr. Wagner's appointment. Two additional persons have
been nominated to serve as Trustee, William Mark Crain and Richard O. Haase. It
is intended that all properly executed proxies will be voted (unless such
authority has been withheld in the proxy) in favor of the persons designated as
Trustees to be elected by the shareholders.
The Trustees of SST know of no reason why any of these nominees will be
unable to serve, but in the event of any such unavailability, the proxies
received will be voted for such substitute nominee or nominees as the Trustees
may recommend.
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 Associate -- -0-
with the Center for Study of Public Choice,
George Mason University
Richard O. Haase* 62 Vice President, Maiden, Haase & Smith, a real -- -0-
estate valuation company
55
<PAGE>
Vice Admiral John T. Hayward 85 Vice Admiral, U.S.N. (ret.); Trustee of each of 1973 -0-
USN (Ret.) the Steadman Funds
Charles W. Steadman 82 Chairman of the Board and President of Steadman 1968 16,425
Security Corporation and of each of the Steadman
Funds
Paul F. Wagner* 78 Chairman, Wagner, Hines & Avery, Inc., a 1992 -0-
Washington, D.C. public affairs firm, Trustee of
each of the Steadman Funds
</TABLE>
- ------------------------
* Nominee for election.
COMMITTEE AND MEETINGS OF TRUSTEES
The Board of Trustees of SST acts as a committee of the whole, and
accordingly there are no special committees of the Board. During the fiscal year
ended June 30, 1996, the Trustees of the Fund held five meetings. All of the
Trustees then in office attended at least 80% of the total number of meetings of
the Trustees during such period.
INTERESTED PERSONS
SST considers Mr. Charles W. Steadman to be an "interested person" of the
Fund within the meaning of Section 2(a)(19) of the Investment Company Act as a
result of the position he holds with Steadman Security Corporation ("SSC"), the
Fund's investment adviser. Mr. Steadman is the Chairman and President of the
Fund.
COMPENSATION OF TRUSTEES
SSC, the investment adviser for SST, pays all compensation of all officers
of the Fund and all Trustees of the Fund who are affiliated with SSC. The Fund
pays each Trustee who is not affiliated with SSC a fee of $300 for each meeting
attended, together with such Trustee's actual out-of-pocket expenses relating to
attendance at meetings. These fees and expenses for the fiscal year ended June
30, 1996 totaled $5,328. After the Merger, the Trustees will continue to be
compensated at the same level.
56
<PAGE>
OFFICERS OF SST
The Trustees of SST have elected the following persons as executive officers
of the Fund. The principal business address of each officer is 1730 K Street,
N.W., Washington, D.C. 20005. The following sets forth information concerning
each of these officers:
<TABLE>
<CAPTION>
Total Compensation*
------------------------
Name and Principal Occupation Officer
During the Past Five Years Office Age Since Salary Bonus Other
- ----------------------------- --------- --- ------- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
Charles W. Steadman..... 82 1968 $75,000 -0- -0-
Mark Katcher............ Executive Vice President, 67 1972 $26,000 -0- -0-
Treasurer and Secretary**
- -----------------------------------------------------------------------------------------------------
</TABLE>
* For the year ended June 30, 1996
** Upon the Merger, Mr. Steadman's annual salary will be increased to $113,000
and Mr. Katcher's annual salary will be increased to $60,000.
RATIFICATION OF AMENDED AND RESTATED
TRUST INDENTURE OF STEADMAN SECURITY TRUST,
DATED MAY 2, 1997
PROPOSAL NO. 3
(TO BE VOTED ON BY SHAREHOLDERS OF
STEADMAN ASSOCIATED FUND ONLY)
In connection with the proposed Merger, the Trustees of SST have amended and
restated the Trust Indenture of the Fund to provide among other things for the
change of the Fund's name from Steadman Associated Fund to Steadman Security
Trust and the change from an open-end investment company to a closed-end
investment company. A complete copy of the Amended and Restated Trust Indenture
of Steadman Security Trust with amendments through May 2, 1997 ("Amended and
Restated Trust Indenture") is set forth on Exhibit B to this Proxy Statement and
Prospectus. The shareholders of SST are being asked to ratify and confirm the
Amended and Restated Trust Indenture.
The following summary of the Amended and Restated Trust Indenture is
qualified in its entirety by reference to Exhibit B to this Proxy Statement and
Prospectus. For a discussion of the change from an open-end investment company
to a closed-end investment company, see "Difference Between Operations of SST as
an Open-End and Closed-End Investment Company."
The Amended and Restated Trust Indenture incorporates all prior amendments
to the trust indenture which have taken place since it was previously adopted by
SST (or its predecessor fund) in 1939. The Amended and Restated Trust Indenture
reflects the change of SST from an open-end investment company to a closed-end
investment company and incorporates such other changes as are necessary to
operate SST as a closed-end investment company.
57
<PAGE>
The Amended and Restated Trust Indenture eliminates the obligation of SST to
redeem outstanding shares of the funds as required of an open-end investment but
not required of a closed-end investment company. However, shareholders will have
a one-time opportunity to redeem their SST shares at net asset value during a
thirty-day period commencing on the fifth anniversary date of the Merger.
The Amended and Restated Trust Indenture also reflect the current fee
arrangements entered into with Steadman Security Corporation, SST's advisor.
Additionally, it permits SST's advisor to execute portfolio transactions for SST
through such entities as the advisor determines, in its discretion, will render
satisfactory service to SST at standard and/or negotiated commission rates. The
Amended and Restated Trust Indenture also reflects renaming of SST from the
Steadman Associated Fund to the Steadman Security Trust.
The investment objective of the Fund has been changed to seek current income
as its primary objective and capital appreciation as its secondary objective,
but only to the extent consistent with its primary objective.
The duration of the Fund has been extended to February 23, 2034.
Certain anti-takeover provisions have been added as more fully described in
"Description of Capital Structure of the Funds and Shareholder Rights--Special
Provisions of SST."
SELECTION OF INDEPENDENT AUDITORS
PROPOSAL NO. 4
(TO BE VOTED ON BY SHAREHOLDERS OF
STEADMAN ASSOCIATED FUND ONLY)
The Trustees of SST including a majority of the Trustees who are not
Interested Persons have selected the firm of Reznick Fedder & Silverman as
independent auditors to examine the financial statements of SST for the current
fiscal year and thereafter. The Trustees know of no direct or indirect financial
interest of such firm in SST. The firm of Coopers & Lybrand L.L.P., which had
been the independent auditors for the year ended June 30, 1996, advised the
Trustees on January 13, 1997 that they had resigned as auditor of the Funds. In
its letter of resignation, the firm of Coopers & Lybrand, L.L.P. stated that it
had no disagreements with the Funds' management concerning the scope of its
services to the Funds or with the Funds' accounting policies.
The selection of independent auditors is subject to the ratification or
rejection by the shareholders of SST. If the shareholders approve, the firm of
Reznick Fedder & Silverman will serve as the independent auditors of SST until
the next meeting of shareholders. Unless a contrary specification is made, the
accompanying proxy will be voted in favor of the ratification of the selection
of such independent auditors.
58
<PAGE>
Representatives of Reznick Fedder & Silverman are expected to be present at
the Meeting and will have the opportunity to make a statement if they so desire
and to respond to questions from shareholders.
INFORMATION CONCERNING THE MEETINGS
THE MEETINGS
The Meetings of the Funds will be held at Hotel, Washington, D.C.
2000? at 9:30 a.m., Washington, D.C. time, on , 1997 and any adjournments
thereof. At the Meetings, shareholders of the Funds will be asked to consider
and vote upon Proposal No. 1, approval of the Merger Agreement, and the
transactions contemplated thereby, and in addition shareholders of SST will be
asked to (a) elect trustees (Proposal No. 2), (b) ratify the Amended and
Restated Trust Indenture of SST, which includes the change of SST from an
open-end investment company to a closed-end investment company (Proposal No. 3),
and (c) ratify the selection of independent auditors for SST (Proposal No. 4).
RECORD DATE; VOTE REQUIRED; SHARE INFORMATION
The Trustees of each Fund have fixed the close of business on , 1997
as the record date (the "Record Date") for the determination of shareholders
entitled to notice of, and to vote at, the Meetings. Pursuant to the
requirements of the 1940 Act, the affirmative vote of a majority of the
outstanding shares of each of the Funds, voting separately, cast in person or by
proxy at the Meetings and entitled to vote at the Meetings is required for
approval of Proposal No. 1. Each shareholder of a Fund will be entitled to one
vote for each share held of record at the close of business on the Record Date.
Only shareholders of the Funds will vote on the Merger. Only shareholders of SST
will vote on the election of Trustees of SST, the ratification of the Amended
and Restated Trust Indenture and the Selection of Independent Auditors for SST.
Proposal No. 2 requires the affirmative vote of a majority of the SST shares,
which are present in person or by proxy at the meeting provided a quorum is
present. Proposals No. 3 and No. 4 require for approval the affirmative vote of
a majority of the outstanding shares of SST cast in person or by proxy.
At the close of business on the Record Date, there were shares of
SAIF, shares of SAF, shares of SIF and shares of STGF issued
and outstanding. The presence in person or by proxy of the holders of a majority
of shares of each Fund constitutes a quorum for the transaction of business at
such Fund's Meeting. To the knowledge of the Trustees, as of the Record Date, no
person owned or record or beneficially more than 5% of the outstanding shares of
any Fund and no person could be deemed a "control person" as defined in the 1940
Act.
In the event a quorum does not exist as to one or more of the Funds on the
date originally scheduled for its Meeting, or, subject to approval of the
Trustees, for other reasons, one or more adjournments of the Meetings may be
sought by the Trustees. Any adjournment would require a vote in favor of the
adjournment by the holders of a majority of the shares present at such Meeting
(or any adjournment thereof) in person or by proxy. The persons named as proxies
will vote all shares
59
<PAGE>
represented by proxies which they are required to vote in
favor of the respective Proposal, in favor of an adjournment, and will vote all
shares which they are required to vote against the respective Proposal, against
an adjournment.
PROXIES
The enclosed form of proxy, if properly executed and returned, will be voted
(or counted as an abstention or withheld from voting) in accordance with the
choices specified thereon, and will be included in determining whether there is
quorum to conduct the Meeting. If a shareholder executes and returns a proxy but
fails to indicate how the votes should be cast, the proxy will be voted in favor
of the respective Proposal.
Shares owned of record by broker-dealers for the benefit of their
customers ("street account shares") will be voted by the broker-dealer based
on instructions received from its customers. If no instructions are received,
the broker-dealer may, as record holder, vote such shares on the respective
Proposal in the same proportion as that broker-dealer votes street account
shares for which voting instructions were received in time to be voted
("broker non-votes"). Abstentions and broker non-votes will be counted as
present for purposes of determining a quorum and will have the same effect as
a vote against such Proposal. The proxy may be revoked at any time prior to
the voting thereof by: (i) writing to the Secretary of the Fund at 1730 K
Street, N.W., Washington, D.C. 20006; (ii) attending the Meeting and voting
in person; or (iii) signing and returning a new proxy (if returned and
received in time to be voted).
COSTS OF THE SOLICITATION AND THE REORGANIZATION
All expenses of this solicitation, including the cost of printing and
mailing this Proxy Statement and Prospectus, will be shared proportionately by
the Funds, based upon the net asset value of each of the Funds as of the date
the Merger Agreement is signed. In addition to the solicitation of proxies by
mail, proxies may be solicited by officers and employees of SSC, the Trust's
investment adviser, personally or by telephone or telegraph.
Expenses of the Merger will be paid as set forth in the Merger Agreement.
All out-of-pocket expenses of the Funds associated with the Merger, including
Fund accounting and transfer agent expenses and legal fees will be borne by the
Funds proportionately.
MISCELLANEOUS
FINANCIAL INFORMATION
Financial information as to SST and the other Funds is available without
charge upon written request to the Fund at 1730 K Street, N.W., Washington, D.C.
20006, and in its audited financial statements as of June 30, 1996 which are
included in the Statement of Additional Information.
60
<PAGE>
PUBLIC INFORMATION
SST is registered under the 1940 Act and is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended, and in
accordance therewith, files reports, proxy statements and other information with
the SEC. SIF, SAIF and STGF are also registered under the 1940 Act and are
required to file reports with the SEC under the 1940 Act. Proxy materials,
reports and other information about SST, SIF, SAIF and STGF which are of public
record, can be inspected and copied at public reference facilities maintained by
the SEC in Washington, D.C. and certain of its regional offices, and copies of
such materials can be obtained at prescribed rates from the Public Reference
Branch, Office of Consumer Affairs and Information Services, SEC, 450 Fifth
Street, N.W., Washington, D.C. 20549.
OTHER BUSINESS
The Trustees of the Funds know of no business other than the matters
specified above which will be presented at the Meetings. Since matters not known
at the time of the solicitation may come before the Meetings, the proxy as
solicited confers discretionary authority with respect to such matters as
properly come before the Meetings, including any adjournment or adjournments
thereof, and it is the intention of the persons named as attorneys-in-fact in
the proxy to vote this proxy in accordance with their judgment on such matters.
By Order of the Boards of Trustees
of
Steadman American Industry Fund
Steadman Associated Fund
Steadman Investment Fund
Steadman Technology and Growth Fund
Max Katcher, Secretary
June __, 1997
61
<PAGE>
PART B: INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
ITEM 10. COVER PAGE
STATEMENT OF ADDITIONAL INFORMATION
MAY __, 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
Distribution Expense.................................................................................... B-8
B-1
<PAGE>
Portfolio Transactions and Brokerage Commissions........................................................ B-8
Shareholder Investment Plan............................................................................. B-10
Independent Accountants................................................................................. B-10
Financial Statements and Related Information............................................................ B-10
</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 become a close-end management investment company under the
name Steadman Security Trust. The Other Funds comprise the Steadman Investment
Fund, the Steadman American Industry Fund and the Steadman Technology and Growth
Fund.
INVESTMENT TECHNIQUES
The following information supplements and should be read in conjunction with
the section of the Fund's Prospectus entitled "Investment Policies, Objectives
and Techniques".
OPTIONS ON STOCK INDICES
Options on stock indices operate in much the same way as options on common
stock, except that the underlying instrument, rather than being a stock, is a
stock index such as the Standard & Poor's 500 Stock Index.
The Fund will utilize various investment techniques involving options on
stock market indices so as to enhance income. Call or put options may be
purchased or sold on these indices depending upon the market conditions as
viewed by the Advisor. The opportunity to realize a gain or loss on the purchase
or sale of an index option is based upon movements in the level of prices in the
stock market generally rather than changes in price of an individual stock.
Successful use of index option techniques is therefore dependent upon the
Advisor's ability to predict correctly movements in the stock market in general
or the index of underlying stocks in particular, and this requires skills and
techniques different from those involved in predicting the price level change of
individual stocks.
When purchasing a call on an index as an initial transaction, the maximum
gain is unlimited while the risk is limited to the amount of the premium paid
for the call. In selling a call on an. index as an initial transaction, the
maximum gain is the amount of the premium realized in the sale of the call
whereas the risk is not limited by the price of an underlying security. When
purchasing a put on an index as an initial transaction, the maximum gain is the
difference between the exercise price and zero while the risk is limited to the
amount of the premium paid for the put. In selling a put on an index as an
initial transaction, the maximum gain is the. amount of the premium realized in
the sale of the put whereas the risk is the difference between the exercise
price and zero.
B-2
<PAGE>
The Fund will cover call options on indexes by owning securities whose price
changes, in the opinion of the Advisor, are expected to be similar to those of
the index, or in such other manner as may be in accordance with the guidelines
established by the SEC with respect to coverage of options strategies.
Nevertheless, where the Fund covers a call option on an index through ownership
of securities, such securities may not match the composition of the index. In
that event, the Fund will not be fully covered and could be subject to risk of
loss in the event of adverse changes in the value of the index. The Advisor will
monitor and make appropriate adjustments to insure that the Fund is adequately
covered if the index and the underlying securities diverge.
The Fund will cover put options on indexes by segregating assets equal to
the option's exercise price, or in such other manner as may be in accordance
with the guidelines established by the SEC with respect to coverage of options
strategies.
PORTFOLIO DIVERSIFICATION
The Fund has elected to qualify as a "non-diversified investment company",
as defined under Section 5(b)(2) of the Investment Company Act of 1940, so that
the Fund may invest its assets in the securities of a small number of issuers.
This subjects the Fund's portfolio directly to the increase or decrease in the
particular investment. Thus, the opportunity for gain and the risk of loss arc
not spread over as broad a base as would be the case in a "diversified" company.
While diversification spreads the risk of loss over a broader base, it also
restricts the ability of the Advisor to take maximum advantage of investment
opportunities that it determines are in the best interest of the Fund.
The Fund will limit its investments in the securities of a small number of
issuers only when the Advisor determines that it is in the best interest of the
Fund to do so.
TAX STATUS
Currently, the Fund does not qualify as a regulated investment company
("RIC") taxable under the rules of Sections 851-855 of the Internal Revenue Code
of 1986, as amended (the "Code"). The Fund is taxed under the normal rules of
the Code applicable to C corporations. It is anticipated that such tax status as
a non-RIC shall continue indefinitely.
In the event the Fund qualifies as a RIC in the future, distributions of any
taxable net investment income and of any excess of net short-term capital gain
over net long-term capital loss and capital loss carryovers, if any, will be
taxable to shareholders as ordinary income. Further, in qualifying years, to the
extent that long-term capital gains exceed short-term capital losses and any
capital loss carry forwards, they may be distributed to shareholders and, if
distributed, will be taxable to the shareholders as long-term capital gain.
Distributions from the Fund currently are taxable under the normal corporate
tax rules because the Fund is not a RIC for federal income tax purposes.
Non-redemption cash distributions to shareholders constitute ordinary dividend
income if such distributions are out of the corporation's current or accumulated
earnings and profits. Thereafter, the distributions are a non-taxable return of
basis to the extent of the recipient's tax basis for the recipient's shares. Any
distributions in excess
B-3
<PAGE>
of earnings and profits and in excess of such tax basis
constitute gain from a deemed sale or exchange of the shares.
Redemption distributions may be taxable under the rules described above, or
such redemptions may be treated for federal income tax purposes as a sale or
exchange of the redeemed shares. Such characterization depends upon the
application to the recipient of Section 302(b) of the Code. A redemption
distribution may be a sale or exchange of the redeemed shares for tax purposes
if it is not essentially equivalent to a dividend, is a substantially
disproportionate redemption, is in complete termination of a shareholder's
interest in the corporation, or is a redemption from a noncorporate shareholder
in partial liquidation of the distributor (all within the technical meanings of
Section 302(b)). Such determinations are highly individualized. Shareholders
must consult with their own tax advisors concerning the effect to them of any
redemption distribution from the Fund.
Special rules apply for federal income tax purposes if the Fund makes a
distribution of its assets in kind (which could be a liquidating distribution
from the Fund or a non-liquidating distribution). Other special tax rules apply
if the Fund makes a distribution of its shares or rights to acquire its shares
to its shareholders with respect to their Fund shares. No such distributions are
contemplated currently by the Fund so an explanation of these rules is beyond
the scope of this discussion.
Under the federal income tax law, the Fund is required to report to the
Internal Revenue Service all dividend distributions. Under the backup
withholding provisions, all distributions by the Fund may be subject to
withholding of federal income tax at the rate of 31 % in the case of non-exempt
shareholders who fail to furnish the Fund with their correct taxpayer
identification numbers and with required certifications regarding their status
under federal income tax laws. If the withholding provisions are applicable, any
such distributions will be reduced by the amounts required to be withheld.
Investors should consult their tax advisors about the applicability of the
backup withholding provisions.
The foregoing discussion relates solely to U.S. federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic
corporations, partnerships, trusts and estates). Each shareholder who is not a
U.S. person should consult his or her tax advisor regarding the U.S. and foreign
tax consequences of ownership of shares of the Fund, including the likelihood
that such a shareholder would be subject to a U.S. withholding tax at a rate of
30% (or at a lower rate under a tax treaty) on amounts constituting ordinary
income to him or her, where such amounts are treated as income from U.S. sources
under the Code.
In addition to federal taxes, shareholders of the Fund may be subject to
state and local taxes on distributions from the Fund. Shareholders should
consult their own tax advisors with respect to the tax status of distributions
from the Fund in their own state and localities.
PORTFOLIO TURNOVER
Because the Fund may engage in short-term trading, its portfolio rates may
exceed 300%. High portfolio turnover (over 100%) may result in correspondingly
higher brokerage costs.
B-4
<PAGE>
OTHER INVESTMENT TECHNIQUES
The Fund's Trust Indenture provides that the Fund may, in the sole
discretion of the Advisor and to the maximum extent permissible by the
applicable laws and regulations, engage in all lawful investment activities.
Without limitation on any other investment activities, the Fund reserves
freedom of action to engage in the following types of activities specified in
Section (8)(b) of the Investment Company Act of 1940. (A) The Fund may borrow
money from a bank for either investment or emergency purposes provided that
such borrowing does not exceed 33 1/3% of the value of the Fund's total
assets, less its liabilities other than such borrowings; (B) The Fund may
issue senior securities to the extent the borrowing identified in (A) above
constitutes the issuance of senior securities; (C) The Fund may engage in the
business of underwriting securities issued by other persons to the extent
that the purchase of restricted securities constitutes such underwriting; (D)
The Fund may purchase and sell real estate including land and buildings and
securities of companies whose assets consist of real property and interests
therein; (E) The Fund may make both long and short-term loans to others,
including the purchase of non-publicly offered debt securities. The extent to
which the Fund intends to engage in the foregoing activities is entirely
dependent upon the market conditions and the economic environment in which
the Fund must operate. Thus it is not practical to predict the extent to
which the Fund will or may engage in such activities. The Fund intends to
engage in these activities to the maximum extent permissible under applicable
laws and regulations when, in the judgment of the Advisor such activities
appear to be beneficial to the Fund and its shareholders. Accordingly, the
risks involved in an investment in the Fund may be greater than the risks
generally associated with many other mutual funds.
PERFORMANCE INFORMATION
The Fund will calculate its total rate of return for certain periods by
determining the average annual compounded rates of return over these periods
that would cause an investment of $1,000 (with all distributions reinvested) to
reach the value of that investment at the end of the periods. The Fund may also
calculate total rates of return which represent aggregate performance over a
period or year-by-year performance. The average annual total rate of return for
the shares of SST for the one year, five year, and ten year periods ended June
30, 1996 are (4.38%), 2.83%, and 4.55% respectively. The average annual total
rate of return for the Other Funds shares for the one year, five years, and ten
years periods ended June 30, 1996 are (18.48)%, (13.67)% and (12.52)%
respectively for SAIF, (15.53)%, (4.61)%, and (4.79)%, respectively for SIF, and
(28.29)%, (13.04)% and (14.11)% respectively for STGF.
TRUSTEES AND OFFICERS OF THE FUND
*CHARLES W. STEADMAN, Chairman of the Board of Trustees and President of
the fund; Chairman of the Board, President and Treasurer, Steadman Security
Corporation (SSC) and subsidiaries. Age 82.
PAUL A. BOWERS, M.D., Trustee, 9 Sandringham Road, Bala Cynwyd,
Pennsylvania; Retired from private medical practice and as a Professor,
Obstetrics and Gynecology, Jefferson Medical College, Philadelphia,
Pennsylvania. Age 84.
B-5
<PAGE>
JOHN T. HAYWARD, Trustee, 3 Barclay Square, Newport, Rhode Island, Vice
Admiral, U.S.N. (ret); Management Consultant; formerly Vice President, General
Dynamics Corporation, Washington, D.C. (aerospace manufacturing)(1968-1974). Age
85.
PAUL F. WAGNER, Trustee, Chairman, Wagner, Hines & Avery, Inc. a
Washington, D.C. Public Affairs firm. Age 78.
MAX KATCHER, Executive Vice President, Secretary and Treasurer of the Fund,
Executive Vice President of SSC. Age 67.
E. JEAN BELLOSI, Assistant Secretary of the Fund, Secretary of SSC. Age 57.
* Interested person as defined by Section 2(a)(19) of the Investment Company
Act.
The Trustees and officers hold the same positions relative to the Other
Funds, which Other Funds are proposed to be merged into the Fund.
The address of all of the officers of the Fund is 1730 K Street, NW,
Washington, DC 20006.
On September 30, 1996, the Trustees and Officers of the Fund, as a group
beneficially owned 16,434.691 shares in the Fund and 1,821.711 shares of the
Other Funds which is less than one percent of each of the Fund's equity
securities.
During the fiscal year ended June 30, 1996, the Fund paid $5,328 in fees and
expenses to all Trustees except Mr. Steadman who received no such fees or
expenses. Trustees are paid $300 per meeting attended, except Mr. Steadman.
During the fiscal year ended June 30, 1996, the Other Funds paid $14,054 in fees
and expenses to all Trustees except Mr. Steadman, who received no such fees or
expenses. The Other Funds Trustees are paid $300 per meetings attended, except
Mr. Steadman. Upon the merger into the Fund, the Trustees will be compensated at
the same level.
PRINCIPAL SHAREHOLDERS
On April 15, 1997, no person beneficially owned more than 5% of the then
outstanding shares of the Fund or each of the Other Funds.
INVESTMENT ADVISORY AND TRANSFER AGENT FEES
SSC provides investment advisory services under an agreement which continues
in effect subject to annual approval by the Trustees or by a majority of the
outstanding voting securities of the Fund, provided that in either event, the
continuance is also approved by a majority of the Trustees who are not
"interested persons" of the Fund or of SSC. The fees for investment advisory
services arc computed as follows: 1% of the first $35,000,000 of net assets, 7/8
of 1% of the next $35,000,000 and 3/4 of 1% of all sums in excess thereof.
B-6
<PAGE>
The Fund paid investment advisory fees during the fiscal year ended June 30,
1996, the fiscal period ended June 30, 1995*, and the fiscal year ended
September 30, 1994 as follows: 1996-$51,706; 1995-$41,902; and 1994-$74,029. The
Other Funds paid aggregate investment advisory fees during the fiscal year ended
June 30, 1996, the fiscal period ended June 30, 1995*, and in the case of SAIF,
the fiscal year ended January 31, 1994 and in the case of SIF and STGF, the
fiscal year ended December 31, 1994 as follows: $1996-$40,338; 1995-$20,833; and
1994-$59,119.
Under an agreement with the Fund which is contained in the approved minutes
of the Fund, SSC serves as Transfer and Dividend Disbursing Agent and Agent for
Administration of Shareholder Accounts (hereinafter "delegated services") for
the Fund and the Other Funds. The fee for such services is computed on the basis
of the number of shareholder accounts calculated as of the last business day of
each month at $1.35 per account, per month. This agreement is embodied in
resolutions by the Trustees. The last increase in fee amount was made on May
21,1986 (effective retroactive to May 1, 1986) and renewed annually by the
Trustees since that date.
The Fund paid fees for delegated services during the fiscal year ended June
30, 1996, the fiscal period ended June 30, 1995* , and the fiscal year ended
September 30, 1994 as follows: 1996-$41,214; 1995-$33,620; and 1994-$47,679. The
Other Funds paid aggregate fees for delegated services during the fiscal year
ended June 30, 1996, the fiscal period ended June 30, 1995*, and in the case of
SAIF the fiscal year ended January 31, 1994 and in the case of SIF and STGF, the
fiscal year ended December 31, 1994 as follows: 1996-$283,427; 1995-$135,292;
and 1994-$303,110.
The Fund and the Other Funds also reimbursed SSC for salaries and fringe
benefits, including payroll taxes and group insurance, of its employees who
perform functions other than investment advisory and shareholder services during
the fiscal year ended June 30, 1996 of $184,729 and $177,738, respectively.
SSC assumes no responsibility under the Agreement other than to render the
services called for thereunder, in good faith, and is not responsible for any
action of the Fund in following or declining to follow any advice or
recommendation. It is not liable for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with matters to which the
Agreement relates, except for a loss resulting from willful misfeasance, bad
faith, gross negligence or reckless disregard in the performance of its duties
under the Agreement. Trustees, officers and employees of SSC have the unlimited
and unrestricted right to engage in any other business or to devote time and
attention in part to the management or other aspects of any other business,
whether of a similar or dissimilar nature.
The Agreement also provides that the Fund will pay all of its ordinary
expenses of operation except specifically excepted, such expenses of operation
including, but not being limited to, the following: (i) the expenses of
maintaining its own books of accounts; (ii) the expenses of its
- ------------------------
*The Funds' fiscal year was changed to June 30.
B-7
<PAGE>
custodian, the transfer agent and dividend disbursing agent; (iii) the
expenses of computing the net asset value of the shares at any required
valuation date; (iv) the fees and expenses of the Trustees and, contrary to
most other funds, the fees of those Trustees who also may be directors of the
Advisor or its subsidiary corporation; (v) the expenses of meetings of
shareholders; (vi) the expenses of printing and mailing of all shareholder
reports and other required reports and documents provided shareholders,
including the cost of printing and mailing prospectuses to shareholders;
(vii) taxes of any kind assessed against the Fund; (viii) interest and
commissions; (ix) Securities and Exchange Commission registration fees; (x)
state registration fees; (xi) the expenses of trust existence; (xii) all or
part of the salaries of the fund officers and other employees who also may be
directors or officers or employees of the Advisor or its subsidiaries; (xiii)
the fees of auditors; (xiv) the fees of legal counsel; (xv) travel,
entertainment, publication, telephone, telegraph, office space rent; and
(xvi) all other ordinary expenses of operation. The Fund also will pay all
extraordinary expenses of whatever kind unless such expenses have been
specifically assumed by the Advisor. The Other Funds have similar agreements.
DISTRIBUTION EXPENSES
The Fund and the Other Funds pays all fees and expenses in connection with
registering their shares under federal and state securities laws; preparing,
printing and mailing its prospectuses and reports to shareholders; and issuing
its shares, including expenses of confirming purchase orders. Upon completion of
the merger of the Other Funds into the Fund, the Fund will be a close-end fund
and will not be offering fund shares on a regular basis except pursuant to a
dividend reinvestment plan, if offered by the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
SSC makes decisions as to buying and selling investment securities, subject
to supervision by the Fund's Board of Trustees. It is the practice of the Fund
to seek the most favorable prices and execution of orders for the purchase or
sale of portfolio securities, taking the facilities and services of a particular
broker or dealer. Subject to these into considerations, the Fund has authorized
SSC to place a portion of such business on a principal or agency basis with
eligible brokers who have provided statistical, quote and research material to
the Advisor. Research services include written and oral advice, analyses and
reports concerning issuers, industries, securities, markets, economic factors
and trends and portfolio strategy. The Fund has been informed that, to the
extent brokerage is allocated to obtain statistical, investment, research, or
quotation services, SSC, as Advisor, will be assisted in providing to the Fund
more thorough and complete advisory material. Although such services may tend to
reduce the expenses of SSC in rendering investment advice to the Fund, the value
of the services is not determinable. Such services may also be used in serving
the other mutual funds managed by SSC, and the brokerage commissions of such
other mutual funds may indirectly benefit the Fund. SSC investment personnel
determine the overall reasonableness of commissions paid by rating brokers or
dealers on such general factors as execution capabilities, quality of research
and financial condition, and net results of specific transactions in such terms
as price, promptness, size of order and difficulty of execution.
B-8
<PAGE>
While the Trustees oversee the portfolio transactions of the Fund in light
of the Fund's investment policies and objectives without regard to the Other
Funds, it is possible that at certain times the Fund and one or more of the
Other Funds managed by SSC or its subsidiaries will seek to effect similar
portfolio transactions in the same security. In such instances, such
transactions are effected on a prorated basis based on the total assets of the
Fund and the Other Funds and at a prorated cost, if feasible, and in the
alternative on a rotating or other equitable basis. The Advisor makes all such
allocations. In some cases this arrangement could have detrimental effect on the
price or volume executed insofar as a particular Fund is concerned.
The Fund's Investment Advisor, acting on behalf of the Fund, is authorized
to pay a brokerage commission in excess of that which another broker might have
charged for effecting the same transaction, in recognition of the value of
brokerage or research services. The Advisor and the Trustees consider the above
allocation of brokerage to be consistent with the Fund's brokerage policy.
Brokers do not exercise investment discretion as to the Fund's portfolio
securities, hence no brokerage is allocated for such service.
During the last three fiscal years the Fund and Other Funds paid brokerage
as follows:
<TABLE>
<CAPTION>
FUND OTHER FUNDS (2)
------------------------- -------------------------
BROKERAGE TRANSACTIONS BROKERAGE TRANSACTIONS
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
06/30/96................................................... $ 126,558 $ 22,887,207 $ 94,626 $ 15,689,513
06/30/95(1)................................................ $ 154,535 $ 33,592,600 $ 54,910 $ 9,660,951
09/30/94................................................... $ 161,884 $ 31,907,181 $ 170,195 $ 27,232,365
</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, 1996, the Advisor directed
brokerage transactions and paid brokerage commissions as follows because of
research services provided by Reich & Co., Inc. of $32,500 on transactions of
$7,000,000. During the Other Funds' fiscal year ended June 30, 1996, the Advisor
directed brokerage transactions and paid brokerage commissions as follows
because of research services provided by Reich & Co., Inc. of $31,700 on
transactions of $5,601,700. Brokerage commissions were directed to Reich & Co.,
Inc. pursuant to an understanding that quotation services and devices would be
provided to the Advisor in exchange for these brokerage commissions.
B-9
<PAGE>
The following table details transaction amounts and commissions paid to
brokers during the last fiscal year for the Fund and the Other Funds as well as
the percentage of transactions and commissions as related to the total for the
Fund and the Other Funds.
<TABLE>
<CAPTION>
FUND
<S> <C> <C> <C> <C>
BROKER TRANSACTIONS % OF TOTAL COMMISSIONS % OF TOTAL
- ------------------------------------------------------------ ------------- ----------- ------------ -----------
Reich & Co.................................................. $ 17,558,532 76.7 $ 81,551 64.5
Dean Witter................................................. 4,696,238 20.5 33,207 26.2
Drexel Burnham.............................................. 162,813 .7 500 .4
Ryan Hartley & Lee.......................................... $ 469,625 2.1 11,300 8.9
------------- ----- ------------ -----
Totals...................................................... $ 22,887,208 100.0% $ 126,558 100.0%
------------- ----- ------------ -----
------------- ----- ------------ -----
</TABLE>
<TABLE>
<CAPTION>
OTHER FUNDS
<S> <C> <C> <C> <C>
BROKER TRANSACTIONS % OF TOTAL COMMISSIONS % OF TOTAL
- -------------------------------------------------------- ----------------- ----------- ------------ -----------
Reich & Co.............................................. $ 13,922,221 88.7% $ 79,078 83.6%
Dean Witter............................................. 1,499,629 9.6 10,914 11.5
Ryan Hartley & Lee, Inc................................. 94,312 .6 3,350 3.6
William Blair & Co...................................... 91,975 .6 1,074 1.1
Wertheim, Inc........................................... 81,375 .5 210 .2
----------------- ----- ------------ -----
Totals.................................................. $ 15,689,512 100.0% $ 94,626 100.0%
----------------- ----- ------------ -----
----------------- ----- ------------ -----
</TABLE>
SHAREHOLDER INVESTMENT PLAN
Fund and the Other Funds currently have available a "Systematic Withdrawal"
plan which will be abolished upon the merger of the Other Funds into the Fund
which will become a closed-end management investment company.
INDEPENDENT ACCOUNTANTS
Reznick Fedder & Silverman, 4520 East West Highway, Bethesda, Maryland
20814, has been selected as the independent accountants for the Fund and
provides audit and tax service.
ITEM 14. FINANCIAL STATEMENTS.
FINANCIAL STATEMENTS AND RELATED INFORMATION
The Fund's Financial Statements and related notes for the fiscal year ended
June 30, 1996 follow:
B-10
<PAGE>
Financial Statements and information of the Fund and the Other Funds listed
below are included in part B hereof.
-- Report of Independent Accountants, dated July 29, 1996, except for
Steadman Associated Fund for which the date is August 6, 1996.
--Portfolio of Investments, June 30, 1996.
--Statement of Assets and Liabilities, June 30, 1996.
--Statement of Operations, for the year ended June 30, 1996
-- Statements of Changes in Net Assets, for the year ended June 30, 1996,
for the period October 1, 1994 through June 30,1995 and the year ended
September 30, 1994.
-- Financial Highlights, for the year ended June 30, 1996, for the period
October 1, 1994 through June 30, 1995 and for each of the four years ended
September 30.
--Notes to Financial Statements listed above.
B-11
<PAGE>
STEADMAN ASSOCIATED FUND
1730 K Street, N.W.
Washington, D.C. 20006
1-800-424-8570
202-223-1000 Washington D.C. area
TRANSFER AGENT
Steadman Security Corporation
1730 K Street, N.W.
Washington, D.C. 20006
CUSTODIAN
Crestar Bank, N.A.
1445 New York Avenue, N.W.
Washington, D.C. 20005
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
1800 M Street N.W.
Washington D.C. 20036
For more information about
STEADMAN ASSOCIATED FUND.
account information or daily
Net Asset Values, call:
Shareholder Services
1-800-424-8570
202-223-1000 Washington, D.C. area
STEADMAN
ASSOCIATED
FUND
ANNUAL
REPORT
JUNE 30, 1996
A STEADMAN NO-LOAD MUTUAL FUND
STEADMAN SECURITY
CORPORATION
[LOGO]
INVESTMENT ADVISER
<PAGE>
Fellow Shareholders:
The forces most dominant in present market behavior have continued to be a
low level of inflation and behavior of interest rates.
The economy generally is moving at a pace that is slowing. Although
employment levels remain high, there are indications that some of this can be
accounted for by a fact of two jobs among wage earners in many households. This
of course casts a question about the dependability of recent employment reports.
It also may support indications of there being a lesser rather than greater
likelihood that there will be an incentive for the Federal Reserve to initiate
any near term move to tighten money and raise rates.
These conditions suggest that the interest rates are going to decline.
Looking to the 30 year Treasury Bond for guidance we are beginning to see a
pattern of declining yield, of course with the Bond rising in price. We expect
this trend of declining interest rates to continue and bear with it very
favorable market consequences for your Fund.
Thank you for your confidence and continued support.
Sincerely,
/s/ Charles W. Steadman
Charles W. Steadman
Chairman of the Board of
Trustees and President
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
STEADMAN ASSOCIATED FUND
We have audited the accompanying statement of assets and liabilities of
Steadman Associated Fund, including the portfolio of investments, as of June 30,
1996, and the related statement of operations for the year ended, the statements
of changes in net assets for the year then ended and the periods October 1, 1994
through June 30, 1995, and October 1, 1993 through September 30, 1994, and the
financial highlights for the year ended June 30, 1996 and the period October 1,
1994 through June 30, 1995, and each of the four years ended September 30, 1994.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of June 30, 1996, by correspondence
with the custodian and broker. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Steadman Associated Fund as of June 30, 1996, the results of its operations, the
changes in its net assets, and the financial highlights for each of the
respective periods stated in the first paragraph, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Washington, D.C.
August 6, 1996
<PAGE>
STEADMAN ASSOCIATED FUND
PORTFOLIO OF INVESTMENTS
June 30, 1996
VALUE
SHARES (NOTE 1)
-------- ---------
COMMON STOCKS -- 96.6%
Communications Equipment -- 11.3%
Electronic Data Systems. . . . . . . . . . . . . . 2,000 $ 107,500
Motorola . . . . . . . . . . . . . . . . . . . . . 2,500 157,188
Precision Systems (a) . . . . . . . . . . . . . . 19,000 223,250
---------
Total Communications Equipment 487,938
---------
Computer Equipment -- 9.2%
Hewlett Packard. . . . . . . . . . . . . . . . . . 4,000 398,500
---------
Total Computer Equipment 398,500
---------
Computer Storage Equipment -- 12.0%
Iomega Corp. (a) . . . . . . . . . . . . . . . . . 4,000 116,000
Seagate Technology (a) . . . . . . . . . . . . . . 9,000 405,000
---------
Total Computer Storage Equipment 521,000
---------
Computer Systems -- 32.3%
Microsoft Corp. (a). . . . . . . . . . . . . . . . 7,500 900,937
Sun Microsystems (a) . . . . . . . . . . . . . . . 8,500 500,437
---------
Total Computer Systems 1,410,374
---------
Medical Instruments -- 1.9%
Boston Scientific (a). . . . . . . . . . . . . . . 1,800 81,000
---------
Total Medical Instruments 81,000
---------
Motor Vehicles -- 10.4%
General Motors "H".. . . . . . . . . . . . . . . . 7,500 450,938
---------
Total Motor Vehicles 450,938
---------
Oil & Gas Drilling -- 1.6%
Global Marine (a). . . . . . . . . . . . . . . . . 5,000 69,375
---------
Total Oil & Gas Drilling 69,375
---------
<PAGE>
STEADMAN ASSOCIATED FUND
PORTFOLIO OF INVESTMENTS
June 30, 1996
VALUE
SHARES (NOTE 1)
-------- ---------
Pharmaceutical -- 4.4%
Elan Corp. Warrants (a). . . . . . . . . . . . . . 2,500 59,687
Regeneron Pharmaceuticals (a). . . . . . . . . . . 7,500 130,313
---------
Total Pharmaceutical 190,000
---------
Radio & TV Equipment -- 6.0%
Geotek Communications, Inc. (a). . . . . . . . . . 7,500 102,656
Qualcomm Inc. (a). . . . . . . . . . . . . . . . . 3,000 159,375
---------
Total Radio & TV Equipment 262,031
---------
Semiconductor -- 7.5%
Intel Corp. Warrants (a) . . . . . . . . . . . . . . . 9,000 326,250
---------
Total Semiconductor 326,250
---------
Total Common Stocks (Cost $3,630,405). . . . . . . . . 4,188,406
---------
CALL OPTIONS PURCHASED -- 3.4%
Applied Materials, 1/17/97 at $30. . . . . . . . . . . 2,500 13,750
Applied Materials, 10/18/96 at $30 . . . . . . . . . . 1,500 6,000
American Tel. and Tel., 7/19/96 at $70 . . . . . . . . 20,000 1,250
IBM, 7/19/96 at $90. . . . . . . . . . . . . . . . . . 5,000 50,000
Iomega Corp., 11/15/96 at $30. . . . . . . . . . . . . 2,500 19,688
LAM Research, 12/20/96 at $25. . . . . . . . . . . . . 2,500 12,813
LSI Logic, 1/17/97 at $25. . . . . . . . . . . . . . . 2,500 13,750
Seagate Technology, 12/20/96 at $45. . . . . . . . . . 2,500 14,687
Sun Microsystems, 10/18/96 at $60. . . . . . . . . . . 2,500 15,625
---------
Total Call Options Purchased (Cost $187,250) . . . 147,563
---------
Total Portfolio of Investments (Cost $3,817,655) $ 4,335,969
---------
---------
(a) Non-income producing security.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996
ASSETS:
Investments at value (Cost $3,817,655) (Note 1). . . . . . . $ 4,335,969
Cash and cash equivalents (Note 1). . . . . . . . . . . . . 314,978
Dividends receivable . . . . . . . . . . . . . . . . . . . . 1,860
Interest receivable. . . . . . . . . . . . . . . . . . . . . 449
Receivable for trust shares subscribed . . . . . . . . . . . 100
-----------
Total assets. . . . . . . . . . . . . . . . . . . . . . 4,653,356
-----------
LIABILITIES:
Payable for investments purchased. . . . . . . . . . . . . . 32,325
Accounts payable and accrued expenses. . . . . . . . . . . . 12,804
Investment advisory and service fees payable (Note 4). . . . 7,271
Other payable to affiliate (Note 4). . . . . . . . . . . 17,711
Payable for Trust shares redeemed. . . . . . . . . . . . . . 1,754
-----------
Total liabilities . . . . . . . . . . . . . . . . . . . 71,865
-----------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,581,491
-----------
-----------
NET ASSETS CONSIST OF:
Undistributed net investment loss. . . . . . . . . . . . . . $(4,646,935)
Unrealized appreciation of Investments . . . . . . . . . . . 518,314
Accumulated net realized losses from security transactions . (1,127,057)
Paid-in capital. . . . . . . . . . . . . . . . . . . . . . . 9,837,169
-----------
$9,837,169
-----------
-----------
NET ASSET VALUE, offering price and redemption price per share
($4,581,491 DIVIDED BY 6,580,298 shares of
no par value trust shares) . . . . . . . . . . . . . . . . $ .70
-----------
-----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
STEADMAN ASSOCIATED FUND
STATEMENT OF OPERATIONS
for the year ended June 30, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 23,904
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,242
--------
Total income . . . . . . . . . . . . . . . . . . . . . . $ 34,146
EXPENSES:
Salaries and employee benefits (Note 4). . . . . . . . . . . . . 184,729
Investment advisory fee (Note 4) . . . . . . . . . . . . . . . . 51,706
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . 56,679
Shareholder servicing fee (Note 4) . . . . . . . . . . . . . . . 41,214
Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,281
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . 12,469
Blue Sky Registration Fees . . . . . . . . . . . . . . . . . . . 11,820
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . 11,186
Computer services. . . . . . . . . . . . . . . . . . . . . . . . 8,713
Reports to shareholders. . . . . . . . . . . . . . . . . . . . . 6,383
Trustees' fees and expenses (Note 4) . . . . . . . . . . . . . . 5,328
--------
Total expenses. . . . . . . . . . . . . . . . . . . . . . . 422,508
---------
Net investment loss . . . . . . . . . . . . . . . . . . . . (388,362)
---------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS (NOTES 1 AND 3):
Net realized gain from investment transactions . . . . . . . . . 517,110
Change in unrealized appreciation/(depreciation) of investments (352,459)
---------
Net gain on investments. . . . . . . . . . . . . . . . . . . . . 164,651
---------
Net decrease in net assets resulting from operations . . . . . . $(223,711)
---------
---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
STEADMAN ASSOCIATED FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the period
For the year October 1, 1994 For the
ended June 30, through year ended
1996 June 30, 1995* September 30, 1994
----------------- ---------------- ------------------
<S> <C> <C> <C>
Decrease in net assets from operations:
Net investment loss. . . . . . . . . . . . . . . . . . . . . $ (388,362) $ (240,379) $ (450,758)
Net realized gain (loss) from investment transactions. . . . 517,110 (451,689) (1,192,478)
Change in unrealized appreciation/depreciation . . . . . . . (352,459) 689,335 232,086
---------- ---------- ----------
Net increase (decrease) in net assets resulting
from operations. . . . . . . . . . . . . . . . . . (223,711) (2,733) (1,411,150)
---------- ---------- ----------
Decrease in net assets from trust share transactions (Note 2). . (929,919) (568,786) (1,125,963)
---------- ---------- ----------
Increase (decrease) in net assets. . . . . . . . . . . . . . (1,153,630) (571,519) (2,537,113)
Net assets at beginning of period. . . . . . . . . . . . . . . . 5,735,121 6,306,640 8,843,753
---------- ---------- ----------
Net assets at end of period (including accumulated
net investment loss of $4,635,886, $4,247,524 and
- - $0 -, respectively . . . . . . . . . . . . . . . . . . . . . . $4,581,491 $ 5,735,121 $ 6,306,640
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
* The Fund's fiscal year-end was changed to June 30.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
STEADMAN ASSOCIATED FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the
period
October 1,
For the year 1994
ended through For the years ended September 30,
June 30 June 30,
---------- ---------- -------------------------------------------
1996 1995* 1994 1993 1992 1991
---------- ---------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period . . . . . . . $.73 $.72 $.87 $.64 $.67 $.57
---------- ---------- -------------------------------------------
Net investment loss . . . . . . . . . . . . . (.17) (.03) (.08) (.05) (.03) (.02)
Net realized and unrealized
gain (loss) on investments . . . . . . . . .14 .04 (.07) .28 - .12
---------- ---------- -------------------------------------------
Total from investment operations. . . . . . . (.03) .01 (.15) .23 (.03) .10
---------- ---------- -------------------------------------------
Net asset value, end of period . . . . . . . . . . $.70 $.73 $.72 $.87 $.64 $.67
---------- ---------- -------------------------------------------
---------- ---------- -------------------------------------------
Ratios/Supplemental Data:
Total return . . . . . . . . . . . . . . . . . . . (4.38) 1.85%** (17.24)% 35.9% (4.5)% 17.5%
Ratio of expenses to average net assets. . . . . . 8.14% 8.17%** 7.76% 5.79% 6.92% 7.16%
Ratio of net investment income (loss)
to average net assets . . . . . . . . . . . . (7.48)% (7.23)%** (6.09)% (4.63)% (5.14)% (3.29)%
Portfolio turnover rate. . . . . . . . . . . . . . 231% 505%** 241% 300% 301% 267%
Net assets, end of period (in thousands) . . . . . $4,581 $5,735 $6,307 $8,844 $7,254 $8,539
</TABLE>
* The Fund's fiscal year-end was changed to June 30.
** Annualized
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
STEADMAN ASSOCIATED FUND
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
- -
Steadman Associated Fund (the Fund) is registered under the Investment
Company Act of 1940, as amended, as a non-diversified, open-end investment
company. During 1995, the Fund changed its fiscal year end from September 30 to
June 30.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies consistently followed by the Fund in the
preparation of its financial statements
CASH AND CASH EQUIVALENTS
Management defines cash equivalents as investments that mature in three
months or less. All cash and cash equivalents are invested in a single money
market fund maintained by the investment custodian.
SECURITY VALUATION
Investments in securities traded on a national securities exchange are valued
at the last reported sales price on the last business day of the period.
Investments for which no sale was reported on that date are valued at the mean
between the latest bid and asked prices.
SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are recorded on the trade date. Realized gains and
losses from security transactions are reported on an identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income and
expenses are recorded on the accrual basis.
Call options give the holder the right to purchase a security at a specified
price on a certain date. Risks arise from possible illiquidity of the options
market and from movements in security values. Options are reflected in the
accompanying Statement of Assets and Liabilities at market value.
INCOME TAXES
The Fund is subject to income taxes in years when it does not qualify as a
regulated investment company under subchapter M of the Internal Revenue Code.
The Fund accounts for income taxes using the liability method, whereby deferred
tax assets and liabilities arise from the tax effect of temporary differences
between the financial statement and taxes bases of assets and liabilities,
measured using presently enacted tax rates. If it is more likely than not that
some portion or all of a deferred tax asset will not be realized, a valuation
allowance is recognized.
<PAGE>
STEADMAN ASSOCIATED FUND
2. TRUST SHARES
The Trust Indenture does not specify a limit to the number of shares which
may be issued. Transactions in trust shares were as follows:
<TABLE>
<CAPTION>
For the year For the period October 1, 1994 For the year
ended June 30, 1996 through June 30, 1995 ended September 30, 1994
------------------------- ------------------------- -------------------------
Shares Amount Shares Amount Shares Amount
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold. . . . . . . . . 269 $ 200 581 $ 413 -- 0 -- $ -- 0--
Shares redeemed. . . . . . . (1,295,786) (930,119) (845,933) (569,199) (1,426,814) (1,125.963)
---------- ---------- ---------- ----------- ----------- -----------
Net decrease. . . . . . . (1,295,517) $ (929,919) (845,352) $ (568,786) (1,426,814) $(1,125,963)
---------- ----------- -----------
---------- ----------- -----------
Shares outstanding:
Beginning of period . . . 7,875,815 8,721,167 10,147,981
---------- ---------- ----------
End of period . . . . . . 6,580,298 7,875,815 8,721,167
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
3. PURCHASES AND SALES OF SECURITIES
During the year ended June 30, 1996, purchases and proceeds from sales of
investment securities aggregated $11,790,716 and $12,530,500, respectively.
Unrealized appreciation of investments aggregated $501,026 of which $648,718
related to gross unrealized appreciation where there is an excess of value over
tax cost and $147,692 related to gross unrealized depreciation where there is an
excess of tax cost over value.
4. INVESTMENT ADVISORY FEE AND TRANSACTIONS WITH AFFILIATES
Steadman Security Corporation (SSC), the affiliate, has provided advisory
services under an agreement which first became effective in 1972. On February
28, 1984, at the Annual Meeting of the shareholders, a new Investment Advisory
Agreement was approved. Under the new advisory agreement SSC will continue to
provide the same services it provided under the same terms and conditions of the
previous agreement. The agreement will continue in effect subject to the annual
approval by the Board of Trustees or by a majority of the outstanding voting
securities of the Fund. The fee for investment advisory services is based on 1%
of the first $35,000,000 of the average daily net assets of the Fund, 7/8 of 1 %
on the next $35,000,000 and 3/4 of 1% on all sums in excess thereof. In addition
to the investment advisory fee, SSC received fees from the Fund for the
performance of delegated services. (dividend disbursing agent and transfer
agent) as defined in the Trust Indenture, as amended. The fee for such services
was computed on the basis of the number of shareholder accounts calculated as of
the last business day of each month at $1.35 per accounts. SSC received
reimbursements from the Fund for the salaries and benefits of its employees who
perform functions other than investment advisory and shareholder service
functions for the Fund.
<PAGE>
STEADMAN ASSOCIATED FUND
Certain officers and trustees of the Fund are "affiliated persons" of the
Investment Advisor, as defined by the Investment Company Act of 1940.
5. FEDERAL INCOME TAXES
In the fiscal period ended June 30, 1996, the Fund did not meet asset
diversification requirements applicable to regulated investments companies.
Thus, the Fund did not qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code. However, the Fund had a net
investment loss for the fiscal period ended June 30, 1996, therefore no income
tax provision is required. A full valuation allowance has been provided for
deferred tax assets, totalling approximately $2,194,000 at June 30, 1996, which
arise principally from net operating loss carryforwards and capital loss
carryforwards available for income tax purposes.
For income tax purposes, the Fund has net operating loss carryforwards
approximating $4,647,000 which are available to offset future net operating
income in non-qualifying years, if any, which expire as follows: (2000)
$443,000; (2001) $499,000; (2003) $328,000; (2004) $476,000; (2005) $534,000;
(2006) $324,000; (2007) $381,000; (2008) $539,000; (2009) $437,000; (2010)
$287,000 and (2011) $401,000. Capital loss carryforwards aggregating
approximately $1,110,000 are available to offset future capital gains, if any
which expire as follows: (2001) $658,000 and (2000) $452,000.
<PAGE>
6. UNCLAIMED PROPERTY
In December 1989, the Fund and other Steadman Funds were contacted by the
Unclaimed Property Clearinghouse (the Clearinghouse), an association of some 45
member states organized to facilitate the collection for the states of unclaimed
property that is considered abandoned under the laws of the member states. The
Clearinghouse requested certain documents and information in order to determine
whether, and if so, to what extent its member states may assert claims for
abandoned accounts of the Fund's shareholders. On the basis of a review of the
documents and information provided in response to this request, the Special
Counsel for the Clearinghouse has informally asserted that the member states are
entitled to certain property of the Fund's shareholders. In addition, Steadman
Security Corporation holds certain unclaimed dividends of the Fund's
shareholders. In May 1991, the District of Columbia filed suit in the Superior
Court of the District of Columbia against the Fund, other Steadman Funds,
Steadman Security Corporation and its principal officer under the District of
Columbia Disposition of Unclaimed Property Act. Under this action the District
of Columbia sought possession and custody of the alleged abandoned property as
well as prejudgment interest, an unspecified amount of civil penalties, and
reimbursement for reasonable attorney's fees and costs. On March 25, 1993,
counsel for the District of Columbia, the Clearinghouse and the Fund executed a
settlement agreement, which involves no findings of any violations of law by the
Fund and other defendants. The Superior Court dismissed the suit as of November
30, 1993, although the terms of the settlement agreement do not call for
dismissal until after the closing of the agreement. The District of Columbia has
appealed the dismissal. In accordance with the settlement agreement, record
title to certain shares of the Fund and associated distributions were
transferred from the present shareholders of record to the members of the
Clearinghouse on the closing date, February 14, 1995. The shares will be
redeemed over a period of three years from this date. On May 9, 1995 the Court
of appeals dismissed the appeal.
<PAGE>
STEADMAN AMERICAN
INDUSTRY FUND
1730 K Street, N.W.
Washington, D.C. 20006
1-800-424-8570
202-223-1000 Washington D.C. area
TRANSFER AGENT
Steadman Security Corporation
1730 K Street, N.W.
Washington, D.C. 20006
CUSTODIAN
Crestar Bank, N.A.
1445 New York Avenue, N.W.
Washington, D.C. 20005
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
1800 M Street N.W.
Washington D.C. 20036
FOR MORE INFORMATION ABOUT
STEADMAN AMERICAN INDUSTRY FUND,
account information or daily
Net Asset Values, call:
SHAREHOLDER SERVICES
1-800-424-8570
202-223-1000 Washington, D.C. area
STEADMAN
AMERICAN
INDUSTRY
FUND
ANNUAL
REPORT
June 30, 1996
A STEADMAN NO-LOAD MUTUAL FUND
STEADMAN SECURITY
CORPORATION
[LOGO]
Investment Adviser
<PAGE>
Fellow Shareholders:
The forces most dominant in present market behavior have continued to be a
low level of inflation and behavior of interest rates.
The economy generally is moving at a pace that is slowing. Although
employment levels remain high, there are indications that some of this can be
accounted for by a fact of two jobs among wage earners in many households. This
of course casts a question about the dependability of recent employment reports.
It also may support indications of there being a lesser rather than greater
likelihood that there will be an incentive for the Federal Reserve to initiate
any near term move to tighten money and raise rates.
These conditions suggest that the interest rates are going to decline.
Looking to the 30 year Treasury Bond for guidance we are beginning to see a
pattern of declining yield, of course with the Bond rising in price. We expect
this trend of declining interest rates to continue and bear with it very
favorable market consequences for your Fund.
Thank you for your confidence and continued support.
Sincerely,
/s/ Charles W. Steadman
Charles W. Steadman
Chairman of the Board of
Trustees and President
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
STEADMAN AMERICAN INDUSTRY FUND
We have audited the accompanying statement of assets and liabilities of
Steadman American Industry Fund, including the portfolio of investments, as of
June 30, 1996, and the related statement of operations for the year then ended,
the statements of changes in net assets for the year then ended and the periods
February 1, 1995 through June 30, 1995, and February 1, 1994 through January 31,
1995 and the financial highlights for the year then ended and for the period
February 1, 1995 through June 30, 1995 and each of the four years ended January
31, 1995. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of June 30, 1996, by correspondence
with the custodian and broker. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Steadman American Industry Fund as of June 30, 1996, the results of its
operations, the changes in its net assets, and the financial highlights for each
of the respective periods stated in the first paragraph, in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Washington, D.C.
July 29, 1996
<PAGE>
STEADMAN AMERICAN INDUSTRY FUND
PORTFOLIO OF INVESTMENTS
June 30, 1996
<TABLE>
<CAPTION>
Value
Shares (Note 1)
-------- ----------
<S> <C> <C>
COMMON STOCKS -- 100%
Communications Equipment -- 7.0%
Precision Systems (a) . . . . . . . . . . . . . . . . . 5,000 $ 58,750
--------
Total Communications Equipment 58,750
--------
Computer Peripherals -- 10.1%
Cisco Systems (a). . . . . . . . . . . . . . . . . . . . 1,500 84,938
--------
Total Computer Peripherals 84,938
--------
Computer Storage Equipment -- 21.4%
Seagate Technology (a) . . . . . . . . . . . . . . . . . 4,000 180,000
--------
Total Computer Storage Equipment 180,000
--------
Pharmaceutical -- 14.2%
Elan Corp. Warrants (a). . . . . . . . . . . . . . . . . 5,000 119,375
--------
Total Pharmaceutical 119,375
--------
Radio & TV Equipment -- 8.2%
Geotek Communications (a). . . . . . . . . . . . . . . . 5,000 68,437
--------
Total Radio & TV Equipment 68,437
--------
Semiconductor -- 32.4%
Intel Corp. Warrants (a).. . . . . . . . . . . . . . . . 7,500 271,875
--------
Total Semiconductor 271,875
--------
Telecom Services -- 6.7%
Champion Technology Holding Ltd. . . . . . . . . . . . . 100,000 56,500
--------
Total Telecom Services 56,500
--------
Total Portfolio of Investments (Cost $820,796) $839,875
--------
--------
</TABLE>
(a) Non-income producing security.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
STEADMAN AMERICAN INDUSTRY FUND
Statement of Assets and Liabilities
June 30, 1996
Assets:
Investments at value (Cost $820,796) (Note 1) . . . . . . . $ 839,875
Dividends receivable. . . . . . . . . . . . . . . . . . . . 120
Interest receivable . . . . . . . . . . . . . . . . . . . . 256
Cash and cash equivalents (Note 1) . . . . . . . . . . . . 200,513
-----------
Total assets . . . . . . . . . . . . . . . . . . . . . 1,040,764
-----------
Liabilities:
Accounts payable and accrued expenses . . . . . . . . . . . 14,013
Investment advisory and service fees payable (Note 4) . . . 13,523
Other payable to affiliate (Note 4) . . . . . . . . . . . . 4,956
Payable for Trust shares redeemed . . . . . . . . . . . . . 464
-----------
Total liabilities. . . . . . . . . . . . . . . . . . . 32,956
-----------
Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,007,808
-----------
-----------
Net assets consist of:
Accumulated net investment loss . . . . . . . . . . . . . . $(3,919,011)
Unrealized appreciation of investments. . . . . . . . . . . 19,079
Accumulated net realized losses plus distributions
from realized gains. . . . . . . . . . . . . . . . . . . . (960,129)
Capital paid in less distributions since inception . . . . 5,867,869
-----------
$ 1,007,808
-----------
-----------
Net asset value, offering price and redemption price per share
($1,007,808 DIVIDED BY 1,398,489 shares of no par value
trust shares) . . . . . . . . . . . . . . . . . . . . . . . $ .72
-----------
-----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
STEADMAN AMERICAN INDUSTRY FUND
STATEMENT OF OPERATIONS
for the year ended June 30, 1996
Investment Income:
Dividends . . . . . . . . . . . . . . . . . . . . $ 1,270
Interest. . . . . . . . . . . . . . . . . . . . . 4,979
--------
Total income . . . . . . . . . . . . . . . $ 6,249
---------
Expenses:
Shareholder servicing fee (Note 4). . . . . . . . 160,315
Salaries and employee benefits (Note 4) . . . . . 55,920
Professional fees . . . . . . . . . . . . . . . . 26,297
Miscellaneous . . . . . . . . . . . . . . . . . . 10,512
Investment advisory fee (Note 4). . . . . . . . . 12,209
Reports to shareholders . . . . . . . . . . . . . 10,841
Rent . . . . . . . . . . . . . . . . . . . . . . 7,548
Trustees' fees and expenses (Note 4). . . . . . . 6,998
Computer services . . . . . . . . . . . . . . . . 6,589
Custodian fees. . . . . . . . . . . . . . . . . . 3,225
--------
Total expenses . . . . . . . . . . . . . . . 300,454
---------
Net investment loss . . . . . . . . . . . . . . . (294,205)
---------
Realized and Unrealized Gain (Loss) on Investments
(Notes 1 and 3):
Net realized gain from investment transactions. . 73,821
Change in unrealized appreciation/(depreciation)
of investments . . . . . . . . . . . . . . . . (10,496)
---------
Net gain on investments . . . . . . . . . . . . . 63,325
---------
Net decrease in net assets resulting from
operations. . . . . . . . . . . . . . . . . . . $(230,880)
---------
---------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
STEADMAN AMERICAN INDUSTRY FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the period
For the year February 1, 1995 For the year
ended June 30, through June 30, ended January 31,
1996 1995* 1995
-------------- ---------------- ----------------
<S> <C> <C> <C>
Decrease in net assets from operations:
Net investment loss . . . . . . . . . . . . . . . . . . . . . . . . . $ (294,205) $ (131,469) $ (304,379)
Net realized gain (loss) from investment transactions . . . . . . . . 73,821 (69,865) (84,960)
Change in unrealized appreciation/depreciation. . . . . . . . . . . . (10,496) 91,916 (700,806)
----------- ----------- ------------
Net increase (decrease) in net assets resulting
from operations . . . . . . . . . . . . . . . . . . . . . . . . . . (230,880) (109,418) (1,090,145)
Decrease in net assets from trust share transactions (Note 2). . . . . . (102,199) (22,155) (64,452)
----------- ----------- ------------
Increase (decrease) in net assets. . . . . . . . . . . . . . . . . . . . (333,079) (131,573) 1,154,597
Net assets at beginning of period. . . . . . . . . . . . . . . . . . . . 1,340,887 1,472,460 2,627,057
----------- ----------- ------------
Net assets at end of period, including accumulated net
investment loss of $3,918,641, $3,624,436 and $3,018,368
respectively. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,007,808 $1,340,887 $1,472,460
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
* The Fund's fiscal year-end was changed to June 30.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
STEADMAN AMERICAN INDUSTRY FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the year For the period
ended February 1, 1995
June 30, through June 30, For the years ended January 31,
-------- ---------------- ---------------------------------------
1996 1995* 1995 1994 1993 1992
-------- ---------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period. . . . . . $.88 $.96 $1.65 $1.50 $1.54 $1.59
-------- -------- -------- -------- -------- --------
Net investment loss . . . . . . . . . . . . . . (.41) (.12) (.26) (.24) (.19) (.20)
Net realized and unrealized
gain (loss) on investments. . . . . . . . . .25 .04 (.43) .39 .15 .15
-------- -------- -------- -------- -------- --------
Total from investment operations. . . . . . (.16) (.08) (.69) .15 (.04) (.05)
-------- -------- -------- -------- -------- --------
Net asset value, end of period. . . . . . . . . $.72 $.88 $.96 $1.65 $1.50 $1.54
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Ratios/Supplemental Data:
Total return. . . . . . . . . . . . . . . . . . (18.48)% (20.01)%** (41.82)% 10.00% (2.60)% (3.14)%
Ratio of expenses to average net
assets . . . . . . . . . . . . . . . . . . . 24.61% 24.62%** 17.69% 12.66% 14.83% 15.13%
Ratio of net investment loss to average
net assets . . . . . . . . . . . . . . . . . (24.10)% (22.86)%** (15.63)% (11.40)% (13.52)% (13.13)%
Portfolio turnover rate . . . . . . . . . . . . 339% 617%** 289% 134% 221% 460%
Net assets, end of period (in thousands). . . . $1,008 $1,341 $1,472 $2,627 $2,496 $2,648
</TABLE>
* The Fund's fiscal year-end was changed to June 30.
** Annualized
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
STEADMAN AMERICAN INDUSTRY FUND
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Steadman American Industry Fund (the Fund) is registered under the
Investment Company Act of 1940, as amended, as a non-diversified, open-end
investment company. During 1995, the Fund changed its fiscal year end from
January 31 to June 30.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates. The following is a
summary of significant accounting policies consistently followed by the Fund in
the preparation of its financial statements.
CASH AND CASH EQUIVALENTS
Management defines cash equivalents as investments that mature in
three months or less. All cash and cash equivalents are invested in a
single money market fund maintained by the investment custodian.
SECURITY VALUATION
Investments in securities traded on a national securities exchange are
valued at the last reported sales price on the last business day of the
period. Investments for which no sale was reported on that date are valued
at the mean between the latest bid and asked prices.
SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are recorded on the trade date. Realized gains
and losses from security transactions are reported on an identified cost
basis. Dividend income is recorded on the ex-dividend date. Interest income
and expenses are recorded on the accrual basis.
INCOME TAXES
The Fund is subject to income taxes in years when it does not qualify
as a regulated investment company under subchapter M of the Internal
Revenue Code. The Fund accounts for income taxes using the liability
method, whereby deferred tax assets and liabilities arise from the tax
effect of temporary differences between the financial statement and tax
bases of assets and liabilities, measured using presently enacted tax
rates. If it is more likely than not that some portion or all of a
deferred tax asset will not be realized, a valuation allowance is
recognized.
<PAGE>
STEADMAN AMERICAN INDUSTRY FUND
2. TRUST SHARES
The Trust Indenture does not specify a limit to the number of shares which
may be issued. Transactions in trust shares were as follows:
<TABLE>
<CAPTION>
For the year For the period February 1, 1995 For the year
ended June 30, 1996 through June 30, 1995 ended January 31, 1995
------------------- -------------------------------- ----------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Shares sold. . . . . . . -- 0 -- $ -- 0 -- -- 0 -- $ -- 0 -- -- 0-- $ -- 0--
Shares redeemed. . . . . (117,686) (102,199) (24,096) (22,155) (51,912) (64,452)
--------- ---------- --------- --------- --------- ---------
Net decrease . . . . . (117,686) $(102,199) (24,096) $(22,155) (51,912) $(64,452)
---------- --------- ---------
---------- --------- ---------
Shares outstanding:
Beginning of period . 1,516,175 1,540,271 1,592,183
--------- --------- ---------
End of period . . . . 1,398,489 1,516,175 1,540,271
--------- --------- ---------
--------- --------- ---------
</TABLE>
3. PURCHASES AND SALES OF SECURITIES
During the year ended June 30, 1996, purchases and proceeds from sales of
investment securities aggregated $3,929,931 and $4,387,838, respectively.
Unrealized appreciation of investment aggregated $19,079 of which $51,388
related to gross unrealized appreciation in which market value exceeded tax cost
and $32,309 related to gross unrealized depreciation in which tax cost exceeded
market value.
4. INVESTMENT ADVISORY FEE AND TRANSACTIONS WITH AFFILIATES
Steadman Security Corporation (SSC), the affiliate, has provided advisory
services under an agreement which first became effective in 1972. On February
28, 1984, at the Annual Meeting of the shareholders, a new Investment Advisory
Agreement was approved. Under the new advisory agreement, SSC will continue to
provide the same services it provided under the same terms and conditions of the
previous agreement. The agreement will continue in effect subject to the annual
approval by the Board of Trustees or by a majority of the outstanding voting
securities of the Fund. The fee for investment advisory services is based on 1%
of the first $35,000,000 of the average daily net assets of the Fund, 7/8 of 1%
on the next $35,000,000 and 3/4 of 1% on all sums in excess thereof. In addition
to the investment advisory fee, SSC received fees from the Fund for the
performance of delegated services (dividend disbursing agent and transfer agent)
as defined in the Trust Indenture, as amended. The fee for such services was
computed on the basis of the number of shareholder accounts calculated as of the
last business day of each month at $1.35 per account. SSC received
reimbursements from the Fund for the salaries and benefits of its employees who
perform functions other than investment advisory and shareholder service
functions for the Fund.
Certain officers and trustees of the Fund are "affiliated persons" of the
Investment Adviser, as defined by the Investment Company Act of 1940.
<PAGE>
STEADMAN AMERICAN INDUSTRY FUND
5. FEDERAL INCOME TAXES
In the fiscal year ended June 30, 1996, the Fund did not meet the asset
diversification requirements applicable to regulated investment companies. Thus,
the Fund did not qualify as a regulated investment company under Subchapter M of
the Internal Revenue Code. However, the Fund had a net investment loss in fiscal
1996, therefore no income tax provision is required. A full valuation allowance
was provided for deferred tax assets, totalling approximately $1,854,000 at June
30, 1996, which arise principally from net operating loss carryforwards and
capital carryforwards available for income tax purposes.
For income tax purposes, the Fund has net operating loss carryforwards
approximating $3,919,000 which are available to offset future net operating
income in non-qualifying years, if any, which expire as follows: (1999) $74,000;
(2000) $239,000; (2001) $139,000; (2002) $353,000; (2003) $371,000; (2004)
$235,000; (2005) $384,000; (2006) $365,000; (2007) $360,000; (2008) $335,000;
(2009) $322,000; (2010) $447,000 and (2011) $295,000. Capital loss carryforwards
aggregating approximately $960,000 are available to offset future capital gains,
if any, which expire as follows: (1997) $119,000; (1999) $771,000, and (2000)
$70,000.
<PAGE>
6. UNCLAIMED PROPERTY
In December 1989, the Fund and other Steadman Funds were contacted by the
Unclaimed Property Clearinghouse (the Clearinghouse), an association of some 45
member states organized to facilitate the collection for the states of unclaimed
property that is considered abandoned under the laws of the member states. The
Clearinghouse requested certain documents and information in order to determine
whether, and if so, to what extent its member states may assert claims for
abandoned accounts of the Fund's shareholders. On the basis of a review of the
documents and information provided in response to this request, the Special
Counsel for the Clearinghouse has informally asserted that the member states are
entitled to certain property of the Fund's shareholders. In addition, Steadman
Security Corporation holds certain unclaimed dividends of the Fund's
shareholders. In May 1991, the District of Columbia filed suit in the Superior
Court of the District of Columbia against the Fund, other Steadman Funds,
Steadman Security Corporation and its principal officer under the District of
Columbia Disposition of Unclaimed Property Act. Under this action the District
of Columbia sought possession and custody of the alleged abandoned property as
well as prejudgment interest, an unspecified amount of civil penalties, and
reimbursement for reasonable attorney's fees and costs. On March 25, 1993,
counsel for the District of Columbia, the Clearinghouse and the Fund executed a
settlement agreement, which involves no findings of any violations of law by the
Fund and other defendants. The Superior Court dismissed the suit as of November
30, 1993, although the terms of the settlement agreement do not call for
dismissal until after the closing of the agreement. The District of Columbia
appealed the dismissal. In accordance with the settlement agreement, record
title to certain shares of the Fund and associated distributions were
transferred from the present shareholders of record to the members of the
Clearinghouse on the closing date, February 14, 1995. The shares will be
redeemed over a period of three years from this date. On May 9, 1995, the Court
of Appeals dismissed the appeal.
<PAGE>
STEADMAN INVESTMENT FUND
1730 K Street, N.W.
Washington, D.C. 20006
1-800-424-8570
202-223-1000 Washington D.C. area
TRANSFER AGENT
Steadman Security Corporation
1730 K Street, N.W.
Washington, D.C. 20006
CUSTODIAN
Crestar Bank, N.A.
1445 New York Avenue, N.W.
Washington, D.C. 20005
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P
1800 M Street N.W.
Washington D.C. 20005
For more information about
STEADMAN INVESTMENT FUND.
account information or daily
Net Asset Values, call:
Shareholder Services
1-800-424-8570
202-223-1000 Washington, D.C. area
Fellow Shareholders:
STEADMAN
Investment
Fund
ANNUAL
REPORT
June 30, 1996
A STEADMAN NO-LOAD MUTUAL FUND
STEADMAN SECURITY
[LOGO] CORPORATION
Investment Adviser
<PAGE>
Fellow Shareholders:
The forces most dominant in present market behavior have continued to be a
low level of inflation and behavior of interest rates.
The economy generally is moving at a pace that is slowing. Although
employment levels remain high, there are indications that some of this can be
accounted for by a fact of two jobs among wage earners in many households. This
of course casts a question about the dependability of recent employment reports.
It also may support indications of there being a lesser rather than greater
likelihood that there will be an incentive for the Federal Reserve to initiate
any near term move to tighten money and raise rates.
These conditions suggest that the interest rates are going to decline.
Looking to the 30 year Treasury Bond for guidance we are beginning to see a
pattern of declining yield, of course with the Bond rising in price. We expect
this trend of declining interest rates to continue and bear with it very
favorable market consequences for your Fund.
Thank you for your confidence and continued support.
Sincerely,
/s/ Charles W. Steadman
Charles W. Steadman
Chairman of the Board of
Trustees and President
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
STEADMAN INVESTMENT FUND
We have audited the accompanying statement of assets and liabilities of
Steadman Investment Fund, including the portfolio of investments, as of June 30,
1996, and the related statement of operations for the year ended June 30, 1996,
the statements of changes in net assets for the year then ended and the periods
January 1, 1995 through June 30, 1995, and January 1, 1994 through December 31,
1994 and the financial highlights for the year ended June 30, 1996 and the
period January 1, 1995 through June 30, 1995, and each of the four years ended
December 31, 1994. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of June 30, 1996, by correspondence
with the custodian and broker. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Steadman Investment Fund as of June 30, 1996, the results of its operations, the
changes in its net assets, and the financial highlights for each of the
respective periods stated in the first paragraph, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Washington, D.C.
July 29, 1996
<PAGE>
STEADMAN INVESTMENT FUND
PORTFOLIO OF INVESTMENTS
June 30, 1996
<TABLE>
<CAPTION>
Value
Shares (Note 1)
---------- ------------
<S> <C> <C>
COMMON STOCK -- 100%
Communications Equipment -- 18.3%
Electronic Data Systems. . . . . . . . . . . . . . . 2,000 $ 107,500
Motorola, Inc. . . . . . . . . . . . . . . . . . . . 2,000 125,750
Precision Systems (a). . . . . . . . . . . . . . . . 5,000 58,750
----------
Total Communications Equipment 292,000
----------
Computer Equipment -- 6.2%
Hewlett-Packard. . . . . . . . . . . . . . . . . . . 1,000 99,625
----------
Total Computer Equipment 99,625
----------
Computer Peripherals -- 10.6%
Cisco Systems (a). . . . . . . . . . . . . . . . . . 3,000 169,875
----------
Total Computer Peripherals 169,875
----------
Computer Storage Equipment -- 13.3%
Iomega Corp. (a) . . . . . . . . . . . . . . . . . . 5,000 145,000
Seagate Technology (a) . . . . . . . . . . . . . . . 1,500 67,500
----------
Total Computer Storage Equipment 212,500
----------
Computer Systems Design -- 7.4%
Sun Microsystems (a) . . . . . . . . . . . . . . . . 2,000 117,750
----------
Total Computer Systems Design 117,750
----------
Medical Instruments -- 5.6%
Boston Scientific (a). . . . . . . . . . . . . . . . 2,000 90,000
----------
Total Medical Instruments 90,000
----------
</TABLE>
<PAGE>
STEADMAN INVESTMENT FUND
PORTFOLIO OF INVESTMENTS
June 30, 1996
<TABLE>
<CAPTION>
Value
Shares (Note 1)
---------- ------------
<S> <C> <C>
Motor Vehicles -- 9.4%
General Motors Class "H" . . . . . . . . . . . . . . 2,500 150,313
----------
Total Motor Vehicles 150,313
----------
Oil & Gas Drilling -- 8.7%
Global Marine (a). . . . . . . . . . . . . . . . . . 10,000 138,750
----------
Total Oil & Gas Drilling 138,750
----------
Pharmaceutical -- 8.1%
Regeneron Pharmaceutical (a) . . . . . . . . . . . . 7,500 130,312
----------
Total Pharmaceutical 130,312
----------
Radio and TV Equipment -- 4.3%
Geotek Communications, Inc. (a). . . . . . . . . . . 5,000 68,438
----------
Total Radio and TV Equipment 68,438
----------
Semiconductor -- 3.4%
Intel Corp. Warrants (a) . . . . . . . . . . . . . . 1,500 54,375
----------
Total Semiconductor 54,375
----------
Telephone Communications --4.7%
Lucent Technology. . . . . . . . . . . . . . . . . . 2,000 75,750
----------
Total Telephone Communications 75,750
----------
Total Portfolio of Investments (Cost $1,655,198) $ 1,599,688
----------
----------
</TABLE>
(a) Non-Income producing security
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
<PAGE>
STEADMAN INVESTMENT FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996
<TABLE>
<S> <C>
Assets:
Investments at value (Cost $1,655,198) (Note 1). . . . . . . . . . . $ 1,599,688
Cash and cash equivalents (Note 1) . . . . . . . . . . . . . . . . . 261,004
Interest receivable . . . . . . . . . . . . . . . . . . . . . . . . 567
Dividends receivable . . . . . . . . . . . . . . . . . . . . . . . . 630
-----------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,861,889
-----------
Liabilities:
Accounts payable and accrued expenses. . . . . . . . . . . . . . . . 14,858
Investment advisory and service fees payable (Note 4). . . . . . . . 5,571
Other payable to affiliate (Note 4). . . . . . . . . . . . . . . . . 7,593
Payable for securities purchased . . . . . . . . . . . . . . . . . . 70,400
-----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . 98,422
-----------
Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,763,467
-----------
-----------
Net assets consist of:
Accumulated net investment loss. . . . . . . . . . . . . . . . . . . $(1,675,340)
Unrealized depreciation of investments . . . . . . . . . . . . . . . (55,510)
Accumulated net realized losses. . . . . . . . . . . . . . . . . . . (389,330)
Capital paid in less distributions since inception . . . . . . . . . 3,883,647
-----------
$ 1,763,467
-----------
-----------
Net asset value, offering price and redemption price per share
($1,763,467 DIVIDED BY 2,038,728 shares of no par value trust shares). . . $ .86
-----------
-----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
STEADMAN INVESTMENT FUND
STATEMENT OF OPERATIONS
for the year ended June 30, 1996
<TABLE>
<S> <C> <C>
Investment Income:
Dividends . . . . . . . . . . . . . . . . . . . . . . . $ 1,530
Interest. . . . . . . . . . . . . . . . . . . . . . . . 112,558
---------
Total income . . . . . . . . . . . . . . . . . . . . $ 114,088
Expenses:
Salaries and employee benefits (Note 4) . . . . . . . . 84,139
Shareholder servicing fee (Note 4). . . . . . . . . . . 50,666
Professional fees . . . . . . . . . . . . . . . . . . . 30,275
Investment advisory fee (Note 4). . . . . . . . . . . . 21,259
Miscellaneous . . . . . . . . . . . . . . . . . . . . . 8,671
Rent. . . . . . . . . . . . . . . . . . . . . . . . . . 13,163
Computer services . . . . . . . . . . . . . . . . . . . 7,943
Reports to shareholders . . . . . . . . . . . . . . . . 5,149
Trustees' fees and expenses (Note 4). . . . . . . . . . 3,528
Custodian fees. . . . . . . . . . . . . . . . . . . . . 400
---------
Total expenses. . . . . . . . . . . . . . . . . . . . 225,193
-----------
Net investment loss . . . . . . . . . . . . . . . . . (111,105)
-----------
Realized and Unrealized Gain (Loss) on Investments (Notes 1 and 3):
Net realized gain from investment transactions. . . . . 47,825
Change in unrealized appreciation/(depreciation) of investments (271,135)
-----------
Net loss on investments . . . . . . . . . . . . . . . (223,310)
-----------
Net decrease in net assets resulting from operations. $ (334,415)
-----------
-----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
STEADMAN INVESTMENT FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the year For the period For the
ended June 30, January 1, 1995 year ended
1996 through June 30, 1995* December 31, 1994
---------------- ------------------- -----------------
<S> <C> <C> <C>
Increase (decrease) in net assets from operations:
Net investment loss. . . . . . . . . . . . . . . . . . . . . . $ (111,105) $ (46,958) $ (46,458)
Net realized gain (loss) from investment transactions. . . . . 47,825 (242,568) (194,587)
Change in unrealized depreciation/appreciation . . . . . . . . (271,135) 491,165 (779,305)
----------- ----------- -----------
Net increase (decrease) in net assets resulting
from operations . . . . . . . . . . . . . . . . . . . . . . . (334,415) 202,139 (1,160,720)
Decrease in net assets from trust share transactions (Note 2). . (200,097) (63,007) (230,035)
----------- ----------- -----------
Increase (decrease) in net assets. . . . . . . . . . . . . . . . (534,512) 139,132 (1,390,755)
Net assets at beginning of period. . . . . . . . . . . . . . . . 2,297,979 2,158,847 3,549,602
----------- ----------- -----------
Net assets at end of period (including accumulated net
investment loss of $1,679,999, $1,568,894
and $204,464 respectively) . . . . . . . . . . . . . . . . . . . $1,763,467 $2,297,979 $2,158,847
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
* The Fund's fiscal year-end was changed to June 30.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
STEADMAN INVESTMENT FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the year For the period
ended January 1, 1995 For the years ended December 31,
June 30, through June 30,
------------ ---------------- -------------------------------------
1996 1995* 1994 1993 1992 1991
------------ ---------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period . . . . . $1.02 $.93 $1.42 $1.38 $1.49 $1.12
------------ ---------------- -------------------------------------
Net investment loss. . . . . . . . . . . . . . (.13) (.02) (.08) (.06) (.09) (.06)
Net realized and unrealized
gain (loss) on investments. . . . . . . . . (.03) 11 .(.41) .10 .(.02) .43
------------ ---------------- -------------------------------------
Total from investment operations . . . (.16) .09 (.49) .04 (.11) .37
------------ ---------------- -------------------------------------
Net asset value, end of period . . . . . . . . $.86 $1.02 $ .93 $1.42 $1.38 $1.49
------------ ---------------- -------------------------------------
------------ ---------------- -------------------------------------
Ratios/Supplemental Data:
Total return . . . . . . . . . . . . . . . . . (15.53)% 19.36%** (34.51)% 2.89% (7.05)% 32.95%
Ratio of expenses to average net
assets. . . . . . . . . . . . . . . . . . . 10.60% 10.54%** 8.90% 6.48% 7.78% 7.88%
Ratio of net investment loss to average
net assets. . . . . . . . . . . . . . . . . (5.23)% (4.24)%** (6.65)% (4.52)% (6.09)% (5.08)%
Portfolio turnover rate. . . . . . . . . . . . 382% 226%** 282% 179% 263% 245%
Net assets, end of period (in thousands) . . . $1,763 $2,298 $2,159 $3,550 $3,781 $4,277
</TABLE>
*The Fund's fiscal year-end was changed to June 30.
**Annualized
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
STEADMAN INVESTMENT FUND
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Steadman Investment Fund (the Fund) is registered under the Investment Company
Act of 1940, as amended, as a non-diversified, open-end investment company.
During 1995, the Fund changed its fiscal year end from December 31 to June 30.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The following is a summary of
significant accounting policies consistently followed by the Fund in the
preparation of its financial statements.
CASH AND CASH EQUIVALENTS
Management defines cash equivalents as investments that mature in three
months or less. All cash and cash equivalents are invested in a single money
market fund maintained by the investment custodian.
SECURITY VALUATION
Investments in securities traded on a national securities exchange are
valued at the last reported sales price on the last business day of the
period. Investments for which no sale was reported on that date are valued at
the mean between the latest bid and asked prices.
SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are recorded on the trade date. Realized gains and
losses from security transactions are reported on an identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income and
expenses are recorded on the accrual basis.
INCOME TAXES
The Fund is subject to income taxes in years when it does not qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code.
The Fund accounts for income taxes using the liability method, whereby
deferred tax assets and liabilities arise from the tax effect of temporary
differences between the financial statement and tax bases of assets and
liabilities, measured using presently enacted tax rates. If it is more likely
than not that some portion or all of a deferred tax asset will not be
realized, a valuation allowance is recognized.
<PAGE>
STEADMAN INVESTMENT FUND
2. TRUST SHARES
The Trust Indenture does not specify a limit to the number of shares which
may be issued. Transactions in trust shares were as follows:
<TABLE>
<CAPTION>
For the year For the period January 1 For the year
ended June 30, 1996 1995 through June 30, 1995 ended December 31, 1994
----------------------- -------------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Shares Amount Shares Amount Shares Amount
-------- -------- -------- -------- -------- --------
Shares sold. . . . . . . . . -- 0 -- $ -- 0 -- -- 0 -- $ -- 0 -- -- 0 -- $ -- 0--
Shares redeemed. . . . . . . (205,360) (200,097) (65,380) (63,007) (183,957) (230,035)
------- ---------- -------- ---------- --------- ---------
Net decrease. . . . . . . (205,360) $ (200,097) (65,380) $ (63,007) (183,957) $(230,035)
. . . . . . . . . . . . ========== ========== =========
Shares outstanding:
Beginning of period. . . 2,244,088 2,309,468 2,493,425
--------- --------- ---------
End of Period. . . . . . 2,038,728 2,244,088 2,309,468
--------- --------- ---------
--------- --------- ---------
</TABLE>
3. PURCHASES AND SALES OF SECURITIES
During the year ended June 30, 1996, purchases and sales proceeds of
investment securities aggregated $7,862,972 and $8,232,376, respectively.
The net unrealized depreciation of investments aggregated $55,510 of which
$75,670 related to gross unrealized appreciation where there is an excess of
value over tax cost and $131,180 related to gross unrealized depreciation of
investments where there is an excess of tax cost over value.
4. INVESTMENT ADVISORY FEE AND TRANSACTIONS WITH AFFILIATES
Steadman Security Corporation (SSC), the affilate, has provided investment
advisory services under an agreement which first became effective in 1972. On
February 28, 1984, at the Annual Meeting of the shareholders, a new Investment
Advisory Agreement was approved. Under the new advisory agreement SSC will
continue to provide the same services it provides under the same terms and
conditions of the previous agreement. The agreement will continue in effect
subject to the annual approval by the Board of Trustees or by a majority of the
outstanding voting securities of the Fund. The fee for investment advisory
services is based on 1% of the first $35,000,000 of the average daily net assets
of the Fund, 7/8 of 1% on the next $35,000,000 and 3/4 of 1% on all sums in
excess thereof. In addition to the investment advisory fee, SSC received fees
from the Fund for the performance of delegated services (dividend disbursing
agent and transfer agent) as defined in the Trust Indenture, as amended. The
fee for such services was computed on the basis of the number of shareholder
accounts calculated as of the last business day of each month at $1.35 per
account. SSC received reimbursements from the Fund for the salaries and
benefits of its employees who perform functions other than investment advisory
and shareholder service functions for the Fund.
<PAGE>
Certain officers and trustees of the Fund are "affiliated persons" of the
Investment Adviser, as defined by the Investment Company Act of 1940.
5. FEDERAL INCOME TAXES
In the fiscal year June 30, 1996, the Fund did not meet the asset
diversification requirements applicable to regulated investment companies. Thus,
the Fund did not qualify as a regulated investment company under Subchapter M of
the Internal Revenue Code. However, the Fund had a net investment loss in the
fiscal period ended June 30, 1996, therefore no income tax provision is
required. A full valuation allowance has been provided for the deferred tax
assets, totalling approximately $784,000 at June 30, 1996, which arise
principally from net operating loss carryforwards and capital loss carryforwards
available for income tax purposes.
The Fund has net operating loss carryforwards approximating $1,675,000 which
are available to offset future net operating income in non-qualifying years, if
any, which expire as follows: (2004) $299,000; (2005) $304,000; (2006)
$222,000; (2007) $278,000; (2008) $217,000; (2009) $204,000; (2010) $46,000 and
(2011) 112,000. Capital loss carryforwards aggregating approximately $389,000
are available to offset future capital gains, if any, expiring as follows:
(1999) $147,000 and (2000) $243,000.
<PAGE>
6. UNCLAIMED PROPERTY
In December 1989, the Fund and other Steadman Funds were contacted by the
Unclaimed Property Clearinghouse (the Clearinghouse), an association of some 45
member states organized to facilitate the collection for the states of unclaimed
property that is considered abandoned under the laws of the member states. The
Clearinghouse requested certain documents and information in order to determine
whether, and if so, to what extent its member states may assert claims for
abandoned accounts of the Fund's shareholders. On the basis of a review of the
documents and information provided in response to this request, the Special
Counsel for the Clearinghouse has informally asserted that the member states are
entitled to certain property of the Fund's shareholders. In addition Steadman
Security Corporation holds certain unclaimed dividends of the Fund's
shareholders. In May 1991, the District of Columbia filed suit in the Superior
Court of the District of Columbia against the Fund, other Steadman Funds,
Steadman Security Corporation and its principal officer under the District of
Columbia Disposition of Unclaimed Property Act. Under this action the District
of Columbia sought possession and custody of the alleged abandoned property as
well as prejudgment interest, an unspecified amount of civil penalties, and
reimbursement for reasonable attorney's fees and costs. On March 25, 1993,
counsel for the District of Columbia, the Clearinghouse and the Fund executed a
settlement agreement, which involves no findings of any violations of law by
the Fund and other defendants. The Superior Court dismissed the suit as of
November 30, 1993, although the terms of the settlement agreement do not call
for dismissal until after the closing agreement. The District of Columbia
appealed the dismissal. In accordance with the settlement agreement, record
title to certain shares of the Fund and associated distributions were
transferred from the present shareholders of record to the members of the
Clearinghouse on the closing date, February 14, 1995. The shares will be
redeemed over a period of three years from this date. On May 9, 1995, the Court
of Appeals dismissed the appeal.
<PAGE>
STEADMAN TECHNOLOGY
AND GROWTH FUND
1730 K Street, N.W.
Washington, D.C. 20006
1-800-424-8570
202-223-1000 Washington D.C. area
TRANSFER AGENT
Steadman Security Corporation
1730 K Street, N.W.
Washington, D.C. 20006
CUSTODIAN
Crestar Bank, N.A.
1445 New York Avenue, N.W.
Washington, D.C. 20005
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
1800 M Street, N.W.
Washington, D.C. 20036
For more information about
STEADMAN TECHNOLOGY AND GROWTH FUND,
account information or daily
Net Asset Values, call:
Shareholder Services
1-800-424-8570
202-223-1000 Washington, D.C. area
STEADMAN
TECHNOLOGY
AND GROWTH
FUND
ANNUAL
REPORT
June 30, 1996
A Steadman NO-LOAD Mutual Fund
STEADMAN SECURITY
CORPORATION
[LOGO]
Investment Adviser
<PAGE>
Fellow Shareholders:
The forces most dominant in present market behavior have continued to be a
low level of inflation and behavior of interest rates.
The economy generally is moving at a pace that is slowing. Although
employment levels remain high, there are indications that some of this can be
accounted for by a fact of two jobs among wage earners in many households. This
of course casts a question about the dependability of recent employment reports.
It also may support indications of there being a lesser rather than greater
likelihood that there will be an incentive for the Federal Reserve to initiate
any near term move to tighten money and raise rates.
These conditions suggest that the interest rates are going to decline.
Looking to the 30 year Treasury Bond for guidance we are beginning to see a
pattern of declining yield, of course with the Bond rising in price. We expect
this trend of declining interest rates to continue and bear with it very
favorable market consequences for your Fund.
Thank you for your confidence and continued support.
Sincerely,
/s/ Charles W. Steadman
Charles W. Steadman
Chairman of the Board of
Trustees and President
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
STEADMAN TECHNOLOGY AND GROWTH FUND
We have audited the accompanying statement of assets and liabilities of
Steadman Technology and Growth Fund, including the portfolio of investments, as
of June 30, 1996, and the related statement of operations for the year then
ended, the statements of changes in net assets for the year then ended and the
periods January 1, 1995 through June 30, 1995, and January 1, 1994 through
December 31, 1994 and the financial highlights for the year ended June 30, 1996,
and the period January 1, 1995 through June 30, 1995, and each of the four years
ended December 31, 1994. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of June 30, 1996, by correspondence with the
custodian and broker. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Steadman Technology and Growth Fund as of June 30, 1996, the results of its
operations, the changes in its net assets, and the financial highlights for each
of the respective periods stated in the first paragraph, in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Washington, D.C.
July 29, 1996
<PAGE>
STEADMAN TECHNOLOGY AND GROWTH FUND
PORTFOLIO OF INVESTMENTS
June 30, 1996
Value
Shares (Note 1)
------ --------
COMMON STOCKS -- 100%
Communications Equipment -- 6.9%
Precision Systems (a) . . . . . . . . . . . . . . 3,000 $ 35,250
--------
Total Communications Equipment 35,250
--------
Computer Storage Equipment -- 26.4%
Seagate Technology (a). . . . . . . . . . . . . . 3,000 135,000
--------
Total Computer Storage Equipment 135,000
--------
Pharmaceutical -- 43.1%
Elan Corp. Warrants (a) . . . . . . . . . . . . . 4,500 107,437
Regeneron Pharmaceuticals (a) . . . . . . . . . . 6,500 112,938
--------
Total Pharmaceutical 220,375
--------
Radio & TV Equipment -- 9.4%
Geotek Communications (a) . . . . . . . . . . . . 3,500 47,906
--------
Total Radio & TV Equipment 47,906
--------
Semiconductor -- 14.2%
Intel Corp. Warrants (a). . . . . . . . . . . . . 2,000 72,500
--------
Total Semiconductor 72,500
--------
Total Portfolio of Investments (Cost $462,417). . $511,031
--------
--------
(a) Non-income producing security
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
STEADMAN TECHNOLOGY AND GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at value (Cost $462,417) (Note 1). . . . . . . . . . . $ 511,031
Cash and cash equivalents (Note 1). . . . . . . . . . . . . . . . 53,877
Interest receivable. . . . . . . . . . . . . . . . . . . . . . . . 131
-----------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . 565,039
-----------
LIABILITIES:
Accounts payable and accrued expenses. . . . . . . . . . . . . . . 13,050
Investment advisory and service fees payable (Note 4). . . . . . . 6,353
Other payable to affiliate (Note 4). . . . . . . . . . . . . . . . 3,229
-----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . 22,632
-----------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 542,407
-----------
-----------
Net assets consist of:
Accumulated net investment loss. . . . . . . . . . . . . . . . . . $(2,670,098)
Unrealized appreciation of investments . . . . . . . . . . . . . . 48,614
Accumulated net realized losses . . . . . . . . . . . . . . . . . (336,113)
Capital paid in less distributions since inception.. . . . . . . . 3,500,004
-----------
$ 542,407
-----------
-----------
NET ASSET VALUE, offering price and redemption price per share
($542,407 DIVIDED BY 529,419 shares of no par value trust
shares). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.02
-----------
-----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
STEADMAN TECHNOLOGY AND GROWTH FUND
STATEMENT OF OPERATIONS
for the year ended June 30, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 855
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,979
------
Total income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,834
EXPENSES:
Shareholder servicing fee (Note 4). . . . . . . . . . . . . . . . . . . 72,446
Salaries and employee benefits (Note 4) . . . . . . . . . . . . . . . . 37,679
Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,222
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,156
Reports to shareholders . . . . . . . . . . . . . . . . . . . . . . . . 7,472
Computer services . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,225
Investment advisory fee (Note 4). . . . . . . . . . . . . . . . . . . . 6,870
Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,260
Trustees' fees and expenses (Note 4). . . . . . . . . . . . . . . . . . 3,528
Custodian fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,838
------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 175,696
----------
Net investment loss . . . . . . . . . . . . . . . . . . . . . . . . . . (172,862)
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTES 1 AND 3):
Net realized loss from investment transactions. . . . . . . . . . . . . (129,743)
Change in unrealized appreciation/(depreciation) of investments . . . . 84,018
----------
Net loss on investments . . . . . . . . . . . . . . . . . . . . . (45,725)
----------
Net decrease in net assets resulting from operations. . . . . . . $(218,587)
----------
----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
STEADMAN TECHNOLOGY AND GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the year For the period For the year
ended June 30, January 1, 1995 ended December
1996 through June 30,1995* 31, 1994
-------------- --------------------- --------------
<S> <C> <C> <C>
Decrease in net assets from operations:
Net investment loss. . . . . . . . . . . . . . . . . . . . . $(172,862) $(85,892) $ (174,615)
Net realized gain (loss) from investment transactions. . . . (129,743) (55,337) 15,713
Change in unrealized appreciation/depreciation . . . . . . . 84,018 59,947 (369,931)
---------- --------- -----------
Net decrease in net assets resulting
from operations. . . . . . . . . . . . . . . . . . (218,587) (81,282) (528,833)
Decrease in net assets from trust share transactions (Note 2). . . (37,546) (14,277) (44,346)
---------- --------- -----------
Decrease in net assets . . . . . . . . . . . . . . . . (256,133) (95,559) (573,179)
Net assets at beginning of period. . . . . . . . . . . . . . . . . 798,540 894,099 1,467,278
---------- --------- -----------
Net assets at end of period, including accumulated net
investment loss of $2,668,357, $2,495,495
and $2,284,399, respectively . . . . . . . . . . . . . . . . $542,407 $798,540 $ 894,099
---------- --------- -----------
---------- --------- -----------
</TABLE>
* The Fund's fiscal year-end was changed to June 30.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
STEADMAN TECHNOLOGY AND GROWTH FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the For the period
year ended January 1, 1995
June 30, through June 30 For the years ended December 31,
---------- ---------------------------------------------------------
1996 1995 1994 1993 1992 1991
---------- ---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period. . . . $1.43 $1.57 $2.48 $2.69 $2.84 $2.21
---------- ---------------------------------------------------------
Net investment loss . . . . . . . . . . . . (.58) (.22) (.45) (.40) (.33) (.30)
Net realized and unrealized
gain (loss) on investments. . . . . . .. .17 08 (.46) .19 .18 .93
---------- ---------------------------------------------------------
Total from investment operations. . . . (.41) (.14) (.91) (.21) (.15) .63
---------- ---------------------------------------------------------
Net asset value, end of period. . . . . . . $1.02 $1.43 $1.57 $2.48 $2.69 $2.84
---------- ---------------------------------------------------------
---------- ---------------------------------------------------------
Ratios/Supplemental Data:
Total return. . . . . . . . . . . . . . . . (28.29)% (17.84)%** (36.69)% (7.81)% (5.28)% 28.51%
Ratio of expenses to average net
assets. . . . . . . . . . . . . . . . . 25.19% 22.28%** 16.34% 11.94% 13.33% 14.10%
Ratio of net investment loss
to average net assets . . . . . . . . . (24.78)% (20.90)%** (14.79)% (11.38)% (12.45)% (11.70)%
Portfolio turnover rate . . . . . . . . . . 333% 615%** 274% 128% 157% 318%
Net assets, end of period (in thousands). . $542 $799 $894 $1,467 $1,634 $1,786
</TABLE>
* The Fund's fiscal year-end was changed to June 30.
** Annualized
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
<PAGE>
STEADMAN TECHNOLOGY AND GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Steadman Technology and Growth Fund (the Fund) is registered under the
Investment Company Act of 1940, as amended, as a nondiversified, open-end
investment company. During 1995, the Fund changed its fiscal year end from
December 31 to June 30.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies consistently followed
by the Fund in the preparation of its financial statements.
CASH AND CASH EQUIVALENTS
Management defines cash equivalents as investments that mature in
three months or less. All cash and cash equivalents are invested in a
single money market fund maintained by the investment custodian.
SECURITY VALUATION
Investments in securities traded on a national securities exchange are
valued at the last reported sales price on the last business day of the
period. Investments for which no sale was reported on that date are valued
at the mean between the latest bid and asked prices.
SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are recorded on the trade date. Realized gains
and losses from security transactions are reported on an identified cost
basis. Dividend income is recorded on the ex-dividend date. Interest
income and expenses are recorded on the accrual basis.
INCOME TAXES
The Fund is subject to income taxes in years when it does not qualify
as a regulated investment company under Subchapter M of the Internal
Revenue Code. The Fund accounts for income taxes using the liability
method, whereby deferred tax assets and liabilities arise from the tax
effect of temporary differences between the financial statement and tax
bases of assets and liabilities, measured using presently enacted tax
rates. If it is more likely than not that some portion or all of a deferred
tax asset will not be realized, a valuation allowance is recognized.
<PAGE>
STEADMAN TECHNOLOGY AND GROWTH FUND
2. TRUST SHARES
The Trust Indenture does not specify a limit to the number of shares which
may be issued. Transactions in trust were as follows:
<TABLE>
<CAPTION>
For the year For the period January 1, 1995 For the year ended
ended June 30, 1996 through June 30, 1995 December 31, 1994
----------------------- ------------------- --------------------
Shares Amount Shares Amount Shares Amount
--------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Shares sold. . . . . . . . . -- 0 -- $ -- 0 -- -- 0 -- $ -- 0 -- -- 0 -- $ -- 0 --
Shares redeemed. . . . . . . (29,474) (37,546) (9,910) (14,277) (22,286) (44,346)
---------- ----------- -------- ---------- -------- -----------
Net decrease . . . . . . . . (29,474) $ (37,546) (9,910) $ (14,277) (22,286) $ (44,346)
----------- ---------- -----------
----------- ---------- -----------
Shares outstanding:
Beginning of period. . . . . 558,893 568,803 591,089
------- ------- -------
End of period. . . . . . . . 529,419 558,893 568,803
------- ------- -------
------- ------- -------
</TABLE>
3. PURCHASES AND SALES OF SECURITIES
During the year ended June 30, 1996, purchases and proceeds from sales of
investment securities aggregated $2,259,821 and $2,531,447, respectively.
The net unrealized appreciation of investments aggregated $48,614 of which
$62,237 related to gross unrealized appreciation where there is an excess of
value over tax cost and $13,623 related to gross unrealized depreciation where
there is an excess of tax cost over value.
4. INVESTMENT ADVISORY FEE AND TRANSACTIONS WITH AFFILIATES
Steadman Security Corporation (SSC), the affiliate, has provided advisory
services under an agreement which first became effective in 1972. On February
28, 1984, at the Annual Meeting of the shareholders, a new Investment Advisory
Agreement was approved. Under the new advisory agreement, SSC will continue to
provide the same services it provided under the same terms and conditions of the
previous agreement. The agreement will continue in effect subject to the annual
approval by the Board of Trustees or by a majority of the outstanding voting
securities of the Fund. The fee for investment advisory services is based on 1%
of the first $35,000,000 of the average daily net assets of the Fund, 7/8 of 1%
on the next $35,000,000 and 3/4 of 1% on all sums in excess thereof. In
addition to the investment advisory fee, SSC received fees from the Fund for the
performance of delegated services (dividend disbursing agent and transfer agent)
as defined in the Trust Indenture, as amended. The fee for such services was
computed on the basis of the number of shareholder accounts calculated as of the
last business day of each month at $1.35 per account. SSC received
reimbursements from the Fund for the salaries and benefits of its employees who
perform functions other than investment advisory and shareholder service
functions for the Fund.
<PAGE>
Certain officers and trustees of the Fund are "affiliated persons" of the
Investment Adviser, as defined by the Investment Company Act of 1940.
5. FEDERAL INCOME TAXES
In the fiscal year ended June 30, 1996, the Fund did not meet the asset
diversification requirements applicable to regulated investment companies. Thus,
the Fund did not qualify as a regulated investment company under Subchapter M of
the Internal Revenue Code. However, the Fund had a net investment loss in the
fiscal period ended June 30, 1996 and realized net capital losses in the fiscal
period ended June 30, 1996, therefore no income tax provision is required. A
full valuation allowance was provided throughout the fiscal period ended June
30, 1996 for deferred tax assets, totalling approximately $1,142,000 at June 30,
1996, which arise principally from net operating loss carryforwards and capital
loss carryforwards available for income tax purposes.
The Fund has net operating loss carryovers approximating $2,670,000 which
are available to offset future net operating income in non-qualifying years, if
any, which expire as follows: (1999) $111,000; (2000) $272,000; (2001) $264,000;
(2002) $252,000; (2003) $236,000; (2004) $240,000; (2005) $254,000; (2006)
$194,000; (2007) $212,000; (2008) $198,000; (2009) $177,000; (2010) $86,000 and
(2011) 174,000. Capital loss carryforwards aggregating approximately $336,000
are available to offset future capital gains, if any, which expire as follows:
(1997) $151,000; (2000) $55,000 and (2001) 130,000.
<PAGE>
6. UNCLAIMED PROPERTY
In December 1989, the Fund and other Steadman Funds were contacted by the
Unclaimed Property Clearinghouse (the Clearinghouse), an association of some
45 member states organized to facilitate the collection for the states of
unclaimed property that is considered abandoned under the laws of the member
states. The Clearinghouse requested certain documents and information in order
to determine whether, and if so, to what extent its member states may assert
claims for abandoned accounts of the Fund s shareholders. On the basis of a
review of the documents and information provided in response to this request,
the Special Counsel for the Clearinghouse has informally asserted that the
member states are entitled to certain property of the Fund s shareholders. In
addition, Steadman Security Corporation holds certain unclaimed dividends of
the Fund s shareholders. In May 1991, the District of Columbia filed suit in
the Superior Court of the District of Columbia against the Fund, other
Steadman Funds, Steadman Security Corporation and its principal officer under
the District of Columbia Disposition of Unclaimed Property Act. Under this
action the District of Columbia sought possession and custody of the alleged
abandoned property as well as prejudgment interest, an unspecified amount of
civil penalties, and reimbursement for reasonable attorney s fees and costs.
On March 25, 1993, counsel for the District of Columbia, the Clearinghouse and
the Fund executed a settlement agreement, which involves no findings of any
violations of law by the Fund and other defendants. The Superior Court
dismissed the suit as of November 30, 1993, although the terms of the
settlement agreement do not call for dismissal until after the closing of the
agreement. The District of Columbia appealed the dismissal. In accordance
with the settlement agreement, record title to certain shares of the Fund and
associaled distributions were transferred from the present shareholders of
record to the members of the Clearinghouse on the closing date, February 14,
1995. The shares will be redeemed over a period of three years from this date.
On May 9, 1995, the Court of Appeals dismissed the appeal.
<PAGE>
PART C: OTHER INFORMATION
ITEM 15. INDEMNIFICATION.
Section 5.3 of the Amended Restated Trust Indenture of Steadman Security
Trust and Declaration of Trust (the "Trust Agreement") of the Steadman
Associated Fund, which will be renamed the Steadman Security Trust (the "Fund"
or the "Registrant"), provides that the Fund shall indemnify each of its
trustees, advisors, officers, employees, and agents (including any person who
serves at the request of the Fund as a director, officer, partner, trustee or
the like of another organization in which the Fund has any interest as a
shareholder, creditor or otherwise) against all liabilities and expenses,
including amounts paid in satisfaction of judgments, in compromise, as fines or
penalties and as counsel fees, reasonably incurred by such person in connection
with the defense or disposition of any action, suit or other proceeding, whether
civil or criminal, in which the person may be involved or with which the person
may be threatened, while acting as a trustee or advisor, or as an officer,
employee, or agent of the Fund or the trustees, or thereafter, by reason of the
person being or having been a trustee, advisor, officer, employee or agent.
However, indemnification shall not be available with respect to any matter as to
which such person has been adjudicated to have acted in bad faith or with
willful misconduct or reckless disregard of such person's duties or gross
negligence or not to have acted in good faith in the reasonable belief that such
person's action was in the best interest of the Fund. If the matter is disposed
of by a compromise payment, pursuant to a consent decree or otherwise, no
indemnification either for said payment or for any other expenses shall be
provided unless such compromise shall have been approved as in the best
interests of the Fund by a majority of the disinterested trustees or the Fund
has received a written opinion of independent legal counsel to the effect that
the person to be indemnified appears to have acted in good faith in the
reasonable belief that such person's action was in the best interests of the
fund. A provision of this section of the Trust Agreement also provides that the
Trust Agreement is not the sole means of indemnification and that the Fund may
indemnify persons as provided by applicable law.
The District of Columbia Code does not contain a provision relating to the
indemnification of trustees, officers, employees, or agents of a trust. However,
under general common law trust principles, a trustee is normally entitled to
reimbursement from the trust for all necessary and reasonable expenditures made
in the execution of the trust if the trustee acted in good faith for the benefit
of the trust. However, under common law trust principles, property of the trust
cannot be used to reimburse the trustee for losses or expenses incurred by the
trustee, unless the trustee has exercised good faith and common prudence.
In addition, the Agreement and Plan of Merger (the "Agreement") by and among
the Registrant, and the Steadman Investment Fund, the Steadman American Industry
Fund, and the Steadman Technology and Growth Fund (the "Other Funds") provides
at Section 14. Indemnification for, in certain circumstances, the
indemnification of the respective officers, directors, trustees, and
shareholders of the Other Funds. A copy of the Agreement is attached as Exhibit
4 to this Registration Statement.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be provided to directors, officers, or
controlling persons of the Registrant, the
C-1
<PAGE>
Registrant has been advised that in the opinion of the Securities and
Exchange Commission ("SEC"), such indemnification is against public policy as
expressed in the Act and, therefore, is unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
ITEM 16. EXHIBITS:
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
1 Amended and Restated Trust Indenture of Steadman Associated Fund and Declaration of Trust
4 Agreement and Plan of Merger
5 Specimen share certificate*
6 Steadman Security Trust Amended and Restated Investment Advisory Agreement*
9 Custodian agreement and depository contract with Crestar Bank N.A.*
11.1 Opinion of Manatt, Phelps & Phillips, LLP as to the legality of the securities being registered*
11.2 Consent of Manatt, Phelps & Phillips, LLP*
12.1 Opinion of Manatt, Phelps & Phillips, LLP, regarding tax matters and consequences*
12.2 Consent of Coopers & Lybrand, L.L.P.
16 Power of Attorney (reference is made to the signature page)*
99.1 Form of Proxies of Funds
</TABLE>
- ------------------------
* Previously filed
C-2
<PAGE>
ITEM 17. UNDERTAKINGS
(1) The undersigned registrant agrees that prior to any public reoffering of
the securities registered through the use of a prospectus which is a part of
this registration statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act [17 CFR
230.145c], the reoffering prospectus will contain the information called for by
the applicable registration form for the reofferings by persons who may be
deemed underwriters, in addition to the information called for by the other
items of the applicable form.
(2) The undersigned registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
C-3
<PAGE>
SIGNATURE
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 2nd day of May, 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.
<TABLE>
<CAPTION>
(SIGNATURE) (TITLE) (DATE)
<S> <C> <C>
/S/ CHARLES W. STEADMAN Chairman of the Board, May 2, 1997
- ----------------------------------- President and Trustee
Charles W. Steadman Principal Executive Officer
/s/ MAX KATCHER Executive Vice President May 2, 1997
- ----------------------------------- Treasurer & Secretary
Max Katcher Principal Financial Officer
Principal Accounting Officer
/s/ PAUL A. BOWERS
- ----------------------------------- Trustee May 2, 1997
Paul A. Bowers*
/s/ JOHN T. HAYWARD
- ----------------------------------- Trustee May 2, 1997
John T. Hayward*
/s/ PAUL E. WAGER
- ----------------------------------- Trustee May 2, 1997
Paul E. Wager*
</TABLE>
- ------------------------
* Signed pursuant to power of attorney.
<PAGE>
EXHIBIT I
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.....................................................9
Section 2.4. Taxes..........................................................10
Section 2.5. Delegation.....................................................10
Section 2.6. Expenses.......................................................10
Section 2.7. Deposits.......................................................11
Section 2.8. Valuation......................................................11
Section 2.9. Fiscal Year and Accounting Method..............................12
Section 2.10. Reserves......................................................12
Section 2.11. Business Interests of Trustees and Others.....................12
Section 2.12. Power to Contract.............................................13
Section 2.13. Insurance.....................................................13
Section 2.14. Pension and Other Plans.......................................13
Section 2.15. Dividends.....................................................14
Section 2.16. Seal..........................................................14
Section 2.17. Charitable Contributions......................................14
Section 2.18. Indemnification...............................................14
Section 2.19. Remedies......................................................14
Section 2.20. Repurchase of Fund Shares.....................................14
Section 2.21. Further Powers................................................14
Section 2.22. Shareholders Lists...........................................15
ARTICLE III
Advisor.....................................................................15
Section 3.1. Designation....................................................15
Section 3.2. Terms of Agreement.............................................15
Section 3.3. Substitution for Advisor.......................................16
Section 3.4. Independence of Trustees.......................................16
Section 3.5. Other Activities...............................................16
2
<PAGE>
ARTICLE IV
Investments.................................................................16
Section 4.1. Statement of Investment Policy.................................16
Section 4.2 Other Investments..............................................17
Section 4.3 Option Activities..............................................17
Section 4.4 Restrictions...................................................17
Section 4.5. Portfolio Transactions.........................................17
ARTICLE V
Limitations of Liability....................................................17
Section 5.1. Liability to Third Persons.....................................17
Section 5.2. Liability to Fund or to Shareholders...........................17
Section 5.3. Indemnification................................................17
Section 5.4. Surety Bonds...................................................18
Section 5.5. Apparent Authority.............................................18
Section 5.6. Recitals Regarding Liability; Insurance........................18
ARTICLE VI
Shares and Other Securities.................................................19
Section 6.1. Description of Shares..........................................19
Section 6.2. Certificates...................................................19
Section 6.3. Issuance of Securities.........................................19
Section 6.4. Pooling of Funds...............................................20
Section 6.5 Acquisition of Fund Shares.....................................20
Section 6.6 Approval of Certain Business Combinations......................21
ARTICLE VII
Record and Transfer of Shares...............................................23
Section 7.1. Share Register; Holders of Record..............................23
Section 7.2. Transfer Agent.................................................23
Section 7.3. Blank Certificates.............................................23
Section 7.4. Change of Holder of Record.....................................23
Section 7.5. Transfer of Shares.............................................24
Section 7.6. Limitation of Fiduciary Responsibility.........................24
Section 7.7. Notices........................................................24
Section 7.8. Replacement of Certificates....................................25
Section 7.9. Designation of Beneficiary.....................................25
ARTICLE VIII
Characteristics of Securities...............................................25
Section 8.1. General........................................................25
Section 8.2. Death of Shareholders..........................................25
Section 8.3. Redemption of Shares...........................................25
3
<PAGE>
ARTICLE IX
Shareholders................................................................26
Section 9.1 Special Meetings................................................26
Section 9.2. Notice of Meetings.............................................26
Section 9.3. Voting Rights of Shareholders..................................26
Section 9.4. Record Date....................................................27
Section 9.5. Proxies........................................................27
Section 9.6. Reports........................................................27
Section 9.7 Notice for Nominations and Proposals............................27
ARTICLE X
Trustees....................................................................28
Section 10.1. Number and Qualification......................................28
Section 10.2. Terms of Office: Election....................................28
Section 10.3. Registration and Removal.....................................29
Section 10.4. Vacancies....................................................29
Section 10.5. Meetings......................................................30
Section 10.6. Officers......................................................30
Section 10.7. By-laws.......................................................31
ARTICLE XI
Distributions to Shareholders...............................................31
Section 11.1. General.......................................................31
Section 11.2. Retained Earnings............................................31
Section 11.3. Sources of Distributions......................................31
ARTICLE XII
Amendment or Termination of Fund............................................32
Section 12.1. Amendment or Termination......................................32
Section 12.2. Transfer to Successor.........................................32
ARTICLE XIII
Miscellaneous...............................................................32
Section 13.1. Governing Law.................................................33
Section 13.2. Counterparts..................................................33
Section 13.3. Reliance by Third Parties.....................................33
Section 13.4. Provisions in Conflict With Laws or Regulations...............33
Section 13.5. Not In Derogation of Existing Rights..........................33
Section 13.6. Section Headings..............................................34
ARTICLE XIV
Effective Date and Duration of Trust and Fund...............................34
Section 14.1. Effective Date................................................34
4
<PAGE>
Section 14.2. This Instrument Supersedes....................................34
Section 14.3. Duration and Termination......................................34
ARTICLE XV
Shareholders' Acceptance....................................................34
Section 15.1. Acceptance....................................................34
5
<PAGE>
This Amended and Restated Trust Indenture of Steadman Associated Fund and
Declaration of Trust ("Instrument" herein) constitutes an Amendment of Trust
Indenture of Steadman Associated Fund supplemental to a certain Trust
Indenture dated 23rd February 1939, as amended or supplemented September 21,
1939, October 31, 1940, April 15, 1941, May 15, 1941, November 10, 1943,
November 1, 1944, August 29, 1950, September 1, 1951, March 26, 1954, March
7, 1955, July 1, 1957, June 21, 1960, July 6, 1961, January 10, 1962,
December 30, 1964, August 24, 1965, November 30, 1965, December 8, 1965,
April 22, 1966, November 30, 1966, June 13, 1967, August 30, 1967, June 12,
1969, December 31, 1969, December 31, 1970, April 15, 1971, December 30,
1971, December 29, 1972, February 15, 1974, June 30, 1974, October 31, 1974,
December 24, 1974 and December 29, 1978 is:
AMENDED AND RESTATED AS OF MAY 2, 1997 BY AND BETWEEN THE PARTIES, being,
(a) The Registered Holders ("Shareholders" herein) from time to time of
Shares of Steadman Associated Fund ("Fund" herein) as settlors of express
revocable trusts who became parties hereto by taking and holding their
respective Shares, and
(b) The Trustees being Charles W. Steadman, Paul A. Bowers, John T.
Hayward, and Paul F. Wagner (such persons so long as they shall continue in
office in accordance with the terms of this Instrument, and all other persons
who at the time in question have been duly elected or appointed as Trustees
in accordance with the provisions of this Instrument and are then in office
are collectively called the "Trustees" herein.)
RECITALS
The Fund is a common law trust within the meaning of Section 16(b) of the
Investment Company Act of 1940 and was organized as Associated Fund Trust in
1939. The Fund's name was changed in 1969 to Steadman Associated Fund and is
hereby changed upon the Effective Date of this amendment to the Steadman
Security Trust, which shall for all purposes of this document mean the "Fund".
The original Trust Indenture has been the subject of many amendments, and
the shareholders of the Fund will be requested to ratify and confirm this
Amended and Restated Trust Indenture, including the change of the Fund from
an open-end investment to a closed-end company.
It is in the best interests of the Fund and its Shareholders that the
certain Trust Indenture dated 23rd February 1939, as amended and
supplemented, be amended and restated to reflect the
6
<PAGE>
foregoing changes and such other changes as are necessary to operate as a
closed-end investment company.
NOW, THEREFORE, In consideration of the mutual covenants herein contained
and for other good and valuable consideration,
(a) The Parties amend that certain Restated Trust Indenture of Steadman
Associated Fund and Declaration of Trust and herein restate it as the Amended
and Restated Trust Indenture of Steadman Security Trust and Declaration of
Trust ;
(b) The Trustees agree to be, bound by this Instrument; and
(c) THE TRUSTEES DO HEREBY DECLARE that they will hold as Trustees the
Fund and all Fund Property of every type and description which they may
acquire now or hereafter as Trustees, together with the proceeds thereof, in
trust, to manage, invest, reinvest, purchase and sell, exchange or otherwise
dispose of the same for the benefit of the Shareholders present and future
and in the manner and subject to the provisions as now shall be set forth in
this Instrument.
ARTICLE I
The Trust - The Fund
Section 1.1. Name. The name of the trust created by this Instrument
shall be Steadman Security Trust ("Fund" herein). So far as may be
practicable, the Trustees shall conduct the Fund's activities, execute all
documents and sue or be sued under this name. This name (and the word "Fund"
or "Trust" wherever used herein except where the context otherwise requires)
shall refer to the Trustees in their capacity as Trustees, and not
individually or personally, and shall not refer to the officers, agents,
employees or Shareholders of the Fund or of the Trustees. If the Trustees
determine that the use of this name is not practicable, legal or convenient,
they may use any other designation or they may adopt any other name for the
Fund that they deem proper, and the Trust may hold property and conduct its
activities under such designation or name.
Section 1.2. Location. The principal office of the Fund shall be in the
District of Columbia, or in any other location the Trustees may select. The
Fund may have such other offices or places of business as the Trustees may
from time to time determine to be necessary or expedient.
Section 1.3. Nature of the Fund.
(a) The Fund shall be of the type commonly termed a common law trust
within the meaning of Section 16(b) of the Investment Company Act of 1940.
The Fund is not intended to be, shall not be deemed to be, and shall not be
treated as a general partnership, limited partnership, joint venture,
corporation, joint stock company or any other form of legal relationship. The
7
<PAGE>
Shareholders shall be beneficiaries, and their relationship to the Trustees
shall be solely in that capacity in accordance with the rights conferred upon
them hereunder.
(b) The Advisor shall have discretion with respect to whether the Fund
should qualify, from time to time, as a regulated investment company as that
term is defined in Subchapter M of the Internal Revenue Code of 1986, as
amended.
Section 1.4. Definitions. As used herein, the following terms have the
following meanings unless the context otherwise requires:
"Act" shall mean the Investment Company Act of 1940, as amended.
"Advisor" or "Investment Advisor" shall mean Steadman Security
Corporation, a Delaware corporation having its principal place of business in
Washington, D.C., and where applicable, as in but not limited to Article V,
shall include the directors, officers, employees and agents of the Advisor.
"Affiliate" shall have the same meaning as in the Act.
"Amended and Restated Trust Indenture of Steadman Security Trust and
Declaration of Trust" shall mean this Instrument as amended, restated or
modified from time to time. References herein to "Amendment of Trust
Indenture of Steadman Associated Fund", "Declaration of Trust",
"Instrument", "hereof", "herein", "hereunder", "Restated Trust Indenture of
Steadman Associated Fund", "Restated Trust Indenture", "Trust Indenture",
"Trust" and "Fund" shall be deemed to refer to this Instrument and shall not
be limited to the particular text, article or section in which such words
appear.
"Committee" shall mean a group of any two or more Trustees which has been
designated as such by the Trustees and to whom duties or powers have been
delegated pursuant to Section 2.5.
"Effective Date" shall be as stated in Section 14.1.
"Fiscal Year" shall mean any fiscal period of the Fund for which an
income tax return is submitted to the Internal Revenue Service and which is
treated by the Internal Revenue Service as a reporting period.
"Fund Property" shall mean as of any particular time any and all property
of whatever nature, tangible or intangible, cash and securities of all kinds,
which are transferred, conveyed or paid to the Fund or the Trustees and all
income, profits and gains there from and which at such time is owned or held
by, or for the account of, the Fund or the Trustees.
8
<PAGE>
"Merger" shall mean the merger of Steadman American Industry Fund,
Steadman Investment Fund and Steadman Technology and Growth Fund into the
Fund.
"Person" shall mean and include individuals, corporations, limited
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, business trusts or
other organizations, whether or not legal entities, and governments and
agencies and political subdivisions thereof.
"Securities" shall mean any stock, shares, voting trust certificates,
bonds, debentures, notes or other evidences of indebtedness, secured or
unsecured, convertible, subordinated or otherwise, or in general any
instruments commonly known as "securities" or any certificates of interest,
shares or participations in temporary or interim certificates for, or any
right to subscribe to, purchase or acquire any of the foregoing.
"Shareholders" shall mean as of any particular time all holders of record
or registered holders of outstanding Shares at such time.
"Shares" shall mean the shares of beneficial interest of the Fund
described in Section 6.1.
ARTICLE II
Powers of Trustees
Section 2.1. General. The Trustees shall have, without further
authorization, full, exclusive and absolute power, control and authority over
the Fund Property and, the business of the Fund to the same extent as if the
Trustees were the sole and absolute owners of the Fund Property and business
in their own right, free from any power or control on the part of the
Shareholders, except as may be required by law, with such powers of
delegation as may be permitted by this Instrument. The enumeration of any
specific power or authority herein shall not be construed as limiting the
aforesaid powers or authority in any respect.
Section 2.2. Investments. The Trustees shall have power to invest and
reinvest the Fund Property in such securities as they deem appropriate and
compatible for the fulfillment of the objectives of the Fund, and hold or
retain such securities or to sell them at such times and from time to time as
they shall in their absolute discretion determine.
In the exercise of their powers, the Trustees shall not be limited to
investing in obligations maturing before the possible termination of the
Trust, nor shall the Trustees be limited by any law now or hereafter in
effect limiting the investments which may be held or retained by trustees or
other fiduciaries, but they shall have full authority and power to make any
and all investments within the limitations of this Instrument as they, in
their absolute discretion, shall determine, and without liability for loss.
9
<PAGE>
Section 2.3. Legal Title. Legal title to all the Fund Property shall be
vested in the Trustees, as joint tenants or otherwise, and held by and
transferred to the Trustees, except that the Trustees shall have power to
cause legal title to any Fund Property to be held by or in the name of one or
more of the Trustees with suitable reference to their trustee status or in
the name of the Fund, or to the extent the Trustees deem such action to be in
the best interest of the Fund and its Shareholders, in the name of any other
Person as nominee on such terms, in such manner and with such powers as the
Trustees may determine, provided that if any Fund Property is held in the
name of a nominee, such nominee will hold that Fund Property for the
exclusive benefit of the Fund.
Section 2.4. Taxes. The Trustees shall have power to pay all taxes or
assessments, of whatever kind or nature, imposed upon or against the Fund or
the Trustees in connection with the Fund Property or upon or against the Fund
Property or income or any part thereof, to settle and compromise disputed tax
liabilities and for the foregoing purposes to make such returns and do all
such other acts and things as may be deemed by the Trustees necessary or
desirable.
Section 2.5. Delegation. The Trustees shall have power, consistent with
their continuing exclusive authority over the management of the Fund, the
conduct of its affairs and the management and disposition of Fund Property,
to delegate from time to time to such one or more of their number, to
Committees, to officers, employees and agents of the Fund or to the Advisor
the doing of any such things and the execution of such deeds or other
instruments, either in the name of the Fund or the names of the Trustees or
as their attorney or attorneys or otherwise, as the Trustees may from time to
time deem expedient.
Section 2.6. Expenses. (a) The Trustees shall have power to incur and pay
any charges or expenses, which, in the opinion of the Trustees, are necessary
or incidental to or proper for carrying out any of the purposes of this
Instrument, to reimburse others for the payment therefor and to pay
appropriate compensation or fees out of the Fund Property to themselves as
Trustees and to Persons with whom the Fund has contracted or transacted
business including the Advisor, its subsidiaries and affiliated Persons. The
Trustees shall fix the compensation of all officers of the Fund and the
Trustees. The Trustees shall receive reasonable compensation for their
general services as Trustees and officers hereunder. The Trustees may also
pay themselves on any one or more of themselves such compensation for special
services, including legal services, as they in good faith deem reasonable and
reimbursement for expenses reasonably incurred by them or any one or more of
them on behalf of the Fund.
(b) In addition to but without limitation upon the foregoing or any
other powers or authority of the Trustees, the Trustees shall pay on behalf
of the Fund all of the Fund's ordinary expenses of operation unless
specifically excepted, such expenses of operation including, but not being
limited to the following: (i) the expenses of maintaining its own books of
account; (ii) the expenses of maintaining one or more of its Custodians,
Transfer Agents or Dividend Disbursing Agents; (iii) the expenses of
computing the net asset value of shares of the Fund at any required valuation
date; (iv) the fees and expenses of its Trustees, including those Trustees
who also may
10
<PAGE>
be Directors of the Advisor or its subsidiary, corporations or affiliated
Persons and the fees and expenses of the members of any Committee of the Fund
including any members who also may be Directors or officers or employees (or
all of these) of the Advisor, its subsidiaries or affiliated Persons, perform
services therefor and be compensated thereby; (v) the expenses of meetings of
its shareholders; (vi) the expenses of printing and mailing of all
shareholder reports and other required reports and documents provided
shareholders including but not being limited to the costs of printing and
mailing prospectuses to shareholders; (vii) taxes of any kind assessed
against the Fund; (viii) interest and commissions; (ix) Securities and
Exchange Commission registration fees; (x) state registration fees; (xi) the
expenses of trust existences; (xii) all or part of the salaries of Fund
officers and other employees who may also be Directors or officers or
employees (or all of these) of the Advisor, its subsidiaries or affiliated
Persons, perform services therefor and be compensated thereby; (xiii) the
fees of its auditors; (xiv) the fees of its legal counsel; and (xv) all other
ordinary expenses of operation. The Trustees also shall pay all
extraordinary expenses of whatever kind or nature, unless such expenses have
been specifically assumed by the Advisor or one of its affiliates.
Section 2.7. Deposits. The Trustees shall have power to select a
custodian for the physical holding of the Fund Property in compliance with
the Act under such terms and conditions as the Trustees in their sole and
absolute discretion shall deem to be appropriate. The Trustees shall also
have power to deposit any moneys or Securities included in the Fund Property
with any one or more banks, trust companies, state and federal savings and
loan associations or other banking or savings institutions, including any
affiliate of the Advisor, whether or not such deposits draw interest
provided, however, that any such institution shall qualify under applicable
sections of the Act and all proper regulations promulgated by the Securities
and Exchange Commission. Such deposits shall be subject to withdrawal in
such manner as the Trustees determine, and the Trustees shall have no
responsibility for any loss which may occur by reason of the failure of the
bank, trust company state or federal savings and loan association or other
banking or savings institution with which the moneys or Securities have been
deposited.
Section 2.8. Valuation. (a) The Trustees shall have power to determine
conclusively, the value of any of the Fund Property and of any services,
Securities, assets or other consideration hereafter acquired or disposed of
by the Fund and to revalue the Fund Property.
(b) The Trustees or Advisor or an officer or officers or agent or agents
of the Fund designated from time to time for this purpose by the Trustees
shall, at any required valuation date, in order to properly administer the
Fund, determine the value of all the assets of the Fund at the close of
trading on the New York Stock Exchange on any day upon which such Exchange is
open for unrestricted trading or at such other times as the Trustees shall
designate, and the value of such assets so determined, less total liabilities
of the Fund (exclusive of capital stock and surplus) divided by the number of
shares outstanding shall be the net asset value of a share until a new net
asset value is determined by the Trustees or Advisor or such officers or
agents. In determinations of net asset value all Securities for which market
quotations are available shall be appraised at a price not less than the bid
price and not greater than the asked price prevailing at the time of
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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
preceeding close of such Exchange in such manner (based upon changes in the
market prices of selected securities or changes in market averages or on
other standard and readily ascertainable market data since such close) as the
Trustees or Advisor or such officers or agents deem adequate to reflect a
fair approximate estimate of the probable change in net asset value which has
occurred since such close. In determining the net asset value, the Trustees
or Advisor or such officers or agents may include in liabilities such
reserves for taxes, estimated accrued expenses and contingencies in
accordance with accounting principles generally accepted at the time as the
Trustees or Advisor or such officers or agents may in its or their best
judgment deem fair and reasonable under the circumstances.
Section 2.9. Fiscal Year and Accounting Method. The Trustees shall have
power to determine the Fiscal Year for the Fund and the method or form in
which its accounts shall be kept and from time to time to change the Fiscal
Year or the method or form in which its accounts shall be kept.
Section 2.10. Reserves. The Trustees may set up reserves for taxes or
other contingent liabilities and may allocate thereto such portion of the
assets of the Fund as may be necessary. Any excess reserve so set up shall
be returned to the Fund on termination of the tax or other contingent
liabilities. All reserves shall be held by the Trustees.
Section 2.11. Business Interests of Trustees and Others. (a) Any Trustee,
officer, employee or agent of the Fund may, in his personal capacity, or in a
capacity of trustee, officer, director, stockholder, partner, member, Advisor
or employee of any Person have business interests and engage in business
activities in addition to those relating to the Fund, which interests and
activities may be similar to those of the Fund and may include the
acquisition, syndication, holding, management, operation or disposition, for
his own account or for the account of such Person, of interest in Securities.
Each Trustee, officer, employee and agent of the Fund and each of their
respective affiliates shall be free of any obligation to present to the Fund
any investment opportunity which comes to him in any capacity other than
solely as Trustee, officer, employee or agent of the Fund even if such
opportunity is within the investment policies of the Fund. Subject to the
provisions of this Section, any Trustee, officer, employee or agent of the
Fund may be interested as Trustee, officer, director, stockholder, partner,
member, Advisor or employee or deal with or otherwise have a direct or
indirect interest in any Person who may deal with or be engaged to render
advice or services to the Fund and receive compensation from such Person as
well as compensation as Trustee, officer, employee or agent of the Fund or
otherwise hereunder, and none of the activities referred to in this paragraph
shall be deemed to conflict with his duties and power, as Trustee, officer,
employee or agent of the Fund.
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(b) Ownership of Securities of the Fund. Any Trustee, officer, employee
or agent of the Fund may acquire, own, hold and dispose of Securities for his
individual account and may exercise all rights of a holder of such Securities
to the same extent and in the same manner as if he were not a Trustee,
officer, employee or agent of the Fund, subject, however, to such regulations
which the Trustees by resolution from time to time may adopt.
Section 2.12. Power to Contract. Subject to Article III and Section 2.5
with respect to delegation of authority by the Trustees, the Trustees shall
have power to appoint, employ or contract with any Person (including one or
more of themselves and any corporation, partnership or trust of which one or
more of them may be an affiliate) as the Trustees may deem necessary or
desirable for the transaction of the business of the Fund, including any
Person who, under the supervision of the Trustees, may among other things:
obtain or furnish and supervise the performance of ministerial functions in
connection with the administration of the Fund; serve as the Fund's
investment and financial advisor and consultant in connection with policy
decisions made by the Trustees; furnish reports to the Trustees and provide
research, economic and statistical data in connection with the Fund's
investments and investment policies; act as a consultant, borrower, lender,
accountant, correspondent, technical advisor, attorney, broker, investor,
underwriter, corporate fiduciary, escrow agent, depositor, custodian or agent
for collection, insurer or insurance, agent, transfer agent or registrar or
paying agent in any capacity deemed by the Trustees necessary or desirable;
obtain services as may be required for other activities relating to any of
the Fund Property; investigate, select, and, on behalf of the Fund, conduct
relations with Persons acting in such capacities and pay appropriate fees to,
enter into appropriate contracts with, employ and retain services performed
or to be performed by any of them in connection with the investments
acquired, sold, or otherwise disposed of, or committed, negotiated, or
contemplated to be acquired, sold or otherwise disposed of, by the Fund;
substitute any other Person for any such Person; act as attorney-in-fact or
agent in the purchase or sale or other disposition of investments; and assist
in the performance of such ministerial functions necessary in the management
of the Fund as may be agreed upon with the Trustees or officers of the Fund.
Section 2.13. Insurance. The Trustees shall have the power to purchase
and pay for entirely out of the Fund Property insurance policies insuring the
Fund Property against any and all risks and insuring the Trustees, officers,
employees, agents, investment advisors, including the Advisor, or independent
contractors of the Fund, individually or collectively, against all claims and
liabilities of every nature arising by reason of holding or having held any
such office or position by reason of any action alleged to have been taken or
omitted by the Fund or any such Person as Trustee, officer, employee, agent,
investment advisor, or independent contractor, including any action taken or
omitted that may be determined to constitute negligence whether or not the
Fund would have the power to indemnify, such Person against such liability.
Section 2.14. Pension and Other Plans. The Trustees shall have the power
to pay pensions for faithful service, as deemed appropriate by the Trustees,
and to adopt, establish and carry out pension and profit-sharing plans, share
bonus, option and purchase plans and savings,
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thrift and other retirement, incentive and benefit plans, trusts and
provisions, including the purchasing of life insurance and annuity contracts
as a means of providing such retirement and other benefits, for any or all of
the Trustees, officers, employees and agents of the Fund.
Section 2.15. Dividends. The Trustees shall have the power to declare
and pay dividends in cash, shares or otherwise, to make other distributions
to Shareholders, whether out of net income, accumulated-undistributed income,
paid-in capital or otherwise, and to establish a dividend and distribution
reinvestment plan or program or any plan or program similar thereto.
Section 2.16. Seal. The Trustees shall have the power to adopt and use a
seal for the Fund, but, unless otherwise required by the Trustees, the seal
need not be placed on, and its absence shall not impair the validity of any
document, instrument or other paper executed and delivered by or on behalf of
the Fund.
Section 2.17. Charitable Contributions. The Trustees shall have power to
make donations, irrespective of benefit to the Fund, for the public welfare
or for community fund, hospital, charitable, religious education, scientific,
civic or similar purposes.
Section 2.18. Indemnification. In addition to the mandatory
indemnification provided for in Section 5.3, the Trustees shall have power to
the extent permitted by law to indemnify or enter into agreements with
respect to indemnification with any Person with whom the Fund has dealings,
including without limitation any investment advisor, including the Advisor,
any underwriter of Securities of the Fund or any independent contractor, to
such extent as the Trustees shall determine.
Section 2.19. Remedies. Notwithstanding any provision in this
Instrument, when the Trustees deem that there is a significant risk that an
obligor to the Fund may default or is in default under the terms of any
obligation to the Fund, the Trustees shall have power to pursue any remedies
permitted by law which, in their sole judgment, are in the interests of the
Fund, and the Trustees shall have the power to enter into any investment,
commitment or obligation of the Fund resulting from the pursuit of such
remedies or necessary or desirable to dispose of property acquired in the
pursuit of such remedies.
Section 2.20. Repurchase of Fund Shares. The Trustees shall have the
power to repurchase Fund shares, from time to time, in such amounts and at
such prices as they shall deem to be in the best interests of the Fund.
Section 2.21. Further Powers. The Trustees shall have power to do all
such other matters and things and execute all such instruments as they deem
necessary, proper or desirable in order to carry out, promote or advance the
interests of the Fund, although such matters or things are not specifically
mentioned herein. Any determination as to what is in the interests of the
Fund made by the Trustees, in good faith shall be conclusive. In construing
the provisions of this
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Instrument, the presumption shall be in favor of a grant of power to the
Trustees. The Trustees will not be required to obtain any court order to
deal with the Fund Property.
Section 2.22. Shareholders Lists. The Fund's shareholder list shall not
be furnished to any person except upon unanimous vote of the Trustees or when
required by applicable laws or regulations.
ARTICLE III
Advisor
Section 3.1. Designation. The Trustees shall maintain general supervision
over the investment policy of the Fund and the business of the Fund conducted
by officers, agents, employees, the Investment Advisor or independent
contractors of the Fund. The Trustees shall grant or delegate investment
authority to the Advisor, pursuant to the terms of Sections 2.5 and 2.12, or
to any other Person the services of which are obtained by the Advisor as the
Trustees may, in their sole discretion, deem necessary or desirable, without
regard to whether such authority is normally granted or delegated by trustees.
Section 3.2. Terms of Agreement. The Trustees have previously entered
into an agreement with the Advisor pursuant to the provisions of Section 3.1
which shall provide that: (i) the Advisor shall be required to see its best
efforts to present a continuing and suitable investment program to the Fund
which is consistent with the investment policies and objectives of the Fund;
(ii) the Advisor furnish the Fund with investment research and advice and
shall manage and supervise the Fund's portfolio of investments; (iii) the
Advisor in performance of the foregoing shall furnish the Trustees with such
information and reports regarding the Securities in the Fund's portfolio and
proposed additions to the portfolio as the Advisor deems appropriate or as
the Trustees may reasonably request; (iv) the Advisor shall supervise the
Fund's relations with its Custodian, auditors and Governmental regulatory
bodies and shall furnish certain office space and certain secretarial and
certain clerical assistance necessary for the performance of the foregoing
functions; (v) the agreement shall include the provisions of Subsection
2.6(b); (vi) the Advisor shall be paid a monthly management fee computed at
the annual rate of 1% of the first $35 million, 7/8 of 1% on the next $35
million and 3/4 of 1% on all sums in excess thereof of the average daily net
assets of the Fund on the first business day of each month of its fiscal
year, and "net assets" shall be determined as in Section 2.8 (vii) the
agreement shall have an initial term of 24 months and shall remain in effect
thereafter for as long as the agreement is approved annually by the Trustees,
or by the majority vote of the Shareholders in accordance with Section 15 of
the Act; (viii) the agreement shall be terminable without penalty at any time
upon 60 days' written notice: (a) to the Advisor during the original term or
any renewal or extension thereof if a majority of the Trustees, including a
majority of those Trustees who are not parties to the agreement or
"interested persons", as defined in Section 2(a)(19) of the Act, or a
majority of the outstanding voting securities, shall in good faith determine
that the Advisor is not presenting a continuing and suitable investment
program consistent with the investment objectives and policies of the Fund;
(b) to the Fund by the Advisor; or (c) as otherwise provided in the Act; and
(ix) the
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agreement may contain such other provisions as the Trustees shall determine
in their discretion are appropriate.
Section 3.3. Substitution for Advisor. If the Advisor ceases to serve
hereunder for whatever reason, the Trustees shall promptly select a
Substitute Advisor to provide such investment advisory services as the
Trustees shall determine in the place and stead of the Advisor and shall
present to the Shareholders as soon as practicable thereafter but not more
than 90 days after such selection has been made a proposal to approve such
Substitute Advisor. During the period between the cessation of service by the
Advisor and the approval of the Substitute Advisor by the Shareholders, the
Trustees shall perform the Advisor's duties with such assistance as they may
determine to be appropriate.
Section 3.4. Independence of Trustees. Not more than 60% of the total
number of Trustees may be affiliates of the Advisor, provided that if at any
time the percentage of all Trustees who are affiliates of the Advisor becomes
more than 60% of the total number of Trustees then in office because of the
death, resignation, removal or change in affiliation of a Trustee who is not
such an affiliate, such requirement shall not be applicable for a period of
60 days during which time a majority of all the Trustees then in office shall
appoint a sufficient number of other individuals as Trustees so that not more
than 60% of the total number of all Trustees then in office shall be
affiliates of the Advisor. The Trustees shall endeavor at all times to
comply with this requirement but the failure so to comply shall not affect
the validity or effectiveness of any action of the Trustees.
Section 3.5. Other Activities. The Advisor shall not be required to
administer the investment activities of the Fund as its sole and exclusive
function. The Advisor may deal with Persons with whom the Fund may do
business and may have other business interests and may engage in other
activities of any kind in addition to those relating to the activities to be
performed by the Advisor for the Fund, including rendering services and
advice to other Persons (whether or not such Persons are in competition with
the Fund or are engaged in, activities similar to those of the Fund) acting
as a trustee and managing other investments, including investments of the
Advisor or any affiliate of the Advisor. The Trustees may request the
Advisor to engage in other activities which complement the Fund's investments
and to provide services for the Fund or for other Persons who do business
with the Fund, and the Advisor may receive compensation or commissions
therefor from the Fund or other Persons. The Advisor may invest in any such
particular investment opportunity for its own account or offer, make
available or recommend any such particular investment opportunity to any
Person.
ARTICLE IV
Investments
Section 4.1. Statement of Investment Policy. The Investment Objective of
the Fund is to seek current income. As a secondary objective, the Fund seeks
to maximize the total return but only to the extent consistent with its
primary objective.
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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 failure to
compel in any way any former or acting Trustee to redress any breach of
trust), except for his own bad faith, willful misconduct, a gross negligence
or reckless disregard of his duties or for his failure to act in good faith
in the reasonable belief that his action was in the best interests of the
Fund.
Section 5.3. Indemnification. The Fund shall indemnify each of its
Trustees, Advisors, officers, employees and agents (including any Person who
serves at its request as director, officer,
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partner, trustee or the like of another organization in which the Fund has
any interest as a shareholder, creditor or otherwise) against all liabilities
and expenses, including amounts paid in satisfaction of judgments, in
compromise, as fines or penalties and as counsel fees, reasonably incurred by
him in connection with the defense or disposition of any action, suit or
other proceeding, whether civil or criminal, in which he may be involved or
with which he may be threatened, while acting as a Trustee or Advisor or as
an officer, employee or agent of the Fund or the Trustees, as the case may
be, or thereafter, by reason of his being or having been such a Trustee,
Advisor, officer, employee or agent, except with respect to any matter as to
which he shall have been adjudicated to have acted in bad faith or with
willful misconduct or reckless disregard of his duties or gross negligence or
not to have acted in good faith in the reasonable belief that his action was
in the best interests of the Fund, provided that as to any matter disposed of
by a compromise payment by such Trustee, Advisor, officer, employee or agent,
pursuant to a consent decree or otherwise, no indemnification either for said
payment or for any other expenses shall be provided unless such compromise
shall be approved as in the best interests of the Fund by a majority of the
disinterested Trustees or the Fund shall have received a written opinion of
independent legal counsel to the effect that such Trustee, Advisor, officer,
employee or agent appears to have acted in good faith in the reasonable
belief that his action was in the best interests of the Fund. The rights
accruing to any Trustee, Advisor, officer, employee or agent under these
provisions shall not exclude any other right to which he may be lawfully
entitled, provided that no Trustee, Advisor, officer, employee or agent may
satisfy any right of indemnity or reimbursement granted herein or to which he
may be otherwise entitled except out of Fund Property, and no Shareholder
shall be personally liable to any Person with respect to any claim for
indemnity or reimbursement or otherwise. The Trustees may make advance
payments in connection with indemnification under this Section, provided that
the indemnified Trustee, advisor, officer, employee or agent shall have given
a written undertaken to reimburse the Fund in the event it is subsequently
determined that he is not entitled to such indemnification.
Section 5.4. Surety Bonds. No Trustee shall, as such, be obligated to
give any bond or surety or other security for the performance of any of his
duties, except as may be required by applicable law.
Section 5.5. Apparent Authority. No purchaser, lender, transfer agent,
registrar, warrant agent, dividend disbursing agent or other Person dealing
with the Trustees or Advisor or any officer, employee or agent of the Fund
shall be bound to make any inquiry concerning the validity of any transaction
purporting to be made by the Trustees or Advisor or by such officer, employee
or agent or make inquiry concerning or be liable for the application of money
or property paid, loaned or delivered to or on the order of the Trustees or
Advisor, or such officer, employee or agent.
Section 5.6. Recitals Regarding Liability; Insurance. Any written
instrument creating an obligation of the Fund shall be conclusively taken to
have been executed or done by a Trustee or Advisor or an officer, employee or
agent of the Fund only in his capacity as a Trustee or Advisor or an officer,
employee or agent of the Fund. Any written instrument creating an obligation
of the
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Fund shall refer to this Instrument and shall contain a recital to the effect
that the obligations thereunder are not personally binding upon, nor shall
resort be had to the private property of any of the Trustees, Shareholders,
Advisor, officers, employees or agents of the Fund, but the Fund Property or
a specific portion thereof only shall be bound, and may contain any further
recital which the Trustees deem appropriate but the omission of such recital
shall not operate to impose personal liability on any of the Trustees,
Shareholders, Advisor, officers, employees or agents of the Fund. The
Trustees shall, at all times, maintain insurance for the protection of the
Fund Property, the Trustees, the Advisor, officers, employees and agents of
the Fund in such amount as the Trustees shall deem adequate to cover all
foreseeable tort liability to the extent such insurance is available at
reasonable rates.
ARTICLE VI
Shares and Other Securities
Section 6.1. Description of Shares. The interests of the Shareholders
hereunder shall be divided into Shares, all of one class. The number of
Shares authorized hereunder for issuance by the Trustees shall be unlimited.
Ownership of Shares may be evidenced by certificates. All Shares shall have
equal non-cumulative voting, distribution, liquidation and other rights,
shall be fully paid and non-assessable upon issuance and shall have no
preference, conversion, exchange or pre-emptive rights.
Section 6.2. Certificates. Every Shareholder shall be entitled to
receive a certificate, provided, however, that the physical issuance and
delivery of a certificate to a Shareholder shall not be required except by
written request of the Shareholder. Certificates shall be in such form as
the Trustees shall from time to time approve, specifying the number of Shares
held by such Shareholder. Certificates shall be entitled "Certificate of
Steadman Security Trust". No change shall be made in the certificates which
would impair any rights of the Shareholders in certificates theretofore
outstanding. Unless otherwise determined by the Trustees, such certificates
shall be signed by the Chairman of the Trustees or the President and the
Secretary of the Fund. Such signatures may be facsimile signatures. There
shall be filed with the transfer agent a copy of the form of certificate so
approved by the Trustees, certified by the Chairman, the President or the
Secretary, and such form shall continue to be used unless and until the
Trustees approve some other form.
Section 6.3. Issuance of Securities. The Trustees in their discretion
may from time to time, without vote of the Shareholders, issue Securities of
the Fund in addition to the then issued and outstanding Securities of the
Fund and Securities of the Fund held in the treasury, to such party or
parties, for such payment, property, services or other consideration, at such
time or times, and on such terms as the Trustees may determine and may in
such manner acquire other assets, real, personal or mixed tangible or
intangible, and no prior offering thereof to any of the holders of Securities
of the Fund need be made.
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Section 6.4. Pooling of Funds. The Shareholders authorize the pooling
and/or commingling of funds and investments in the manner herein provided and
agree that their sole interest shall be in their proportionate share of the
Fund Property. The Fund shall determine the proportionate share of each
Shareholder in the fund as herein provided.
Section 6.5 Acquisition of Fund Shares
(a) Acquisition of Fund Shares Prohibition. From and after the
effective date of the approval by the FundShareholders to convert the Fund
from an open-end investment company to a closed-end investment company, no
person shall directly or indirectly offer to acquire or acquire the
beneficial ownership of more than 10% of the Fund Shares, unless such offer
or acquisition shall have been approved in advance by a two-thirds vote of
the Continuing Trustees, as defined in Section 6.6. In addition,
notwithstanding any provision to the contrary in this Trust Indenture, where
any person directly or indirectly acquires beneficial ownership of more than
10% of the Fund Shares in violation of this Section 6.5, the securities
beneficially owned in excess of 10% shall not be counted as Shares entitled
to vote, shall not be voted by any person or counted as voting Shares in
connection with any matter submitted to the Shareholders for a vote, and
shall not be counted as outstanding for purposes of determining a quorum or
the affirmative vote necessary to approve any matter submitted to the
Shareholders for a vote.
(b) Definitions. The term "person" means an individual, a group acting
in concert, a corporation, a partnership, an association, a joint stock
company, a trust, an unincorporated organization or similar company, a
syndicate or any other group acting in concert formed for the purpose of
acquiring, holding, voting or disposing of securities of the Fund. The term
"acquire" includes every type of acquisition, whether effected by purchase,
exchange, operation of law or otherwise. The term group "acting in concert"
includes (a) knowing participation in a joint activity or conscious parallel
action towards a common goal whether or not pursuant to an express agreement,
and (b) a combination or pooling of voting or other interest in the Fund's
outstanding Shares for a common purpose, pursuant to any contract,
understanding, relationship, agreement or other arrangement, whether written
or otherwise. The term "beneficial ownership" shall have the meaning defined
in Rule 13d-3 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended, as in effect on the date of filing of this
Trust Indenture.
(c) Exclusion for Trustees, Officers, Employees and Certain Proxies.
The restrictions contained in this Section 6.5 shall not apply to (i) any
underwriter or member of an underwriting or selling group involving a public
sale or resale of securities of the Fund provided, however, that upon
completion of the sale or resale of such securities, no such underwriter or
member of such selling group is a beneficial owner of more than 10% of the
Fund Shares or (ii) any proxy granted to one or more Continuing Trustees, as
defined in Section 6.6, by a Shareholder of the Fund. In addition, the
Continuing Trustees of the Fund, the officers and employees of the Fund or
any entities organized or established by the Fund acting in such capacity
shall not be deemed to be a group with respect to their beneficial ownership
of voting stock of the Fund solely by virtue
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of their being trustees, officers or employees of the Fund. Notwithstanding
the foregoing, no trustee, officer or employee of the Fund or group of any of
them shall be exempt from the provisions of this Section 6.5 should any such
person or group become a beneficial owner of more than 10% of the Fund Shares.
(d) Determinations. A majority of the Continuing Trustees, as defined
in Section 6.6, shall have the power to construe and apply the provisions of
this Section 6.5 and to make all determinations necessary or desirable to
implement such provisions, including but not limited to matters with respect
to (i) the number of Shares beneficially owned by any person; (ii) whether a
person has an agreement, arrangement or understanding with another as to the
matters referred to in the definition of beneficial ownership; (iii) the
application of any other definition or operative provision of this Section
6.5 to the given facts; or (iv) any other matter relating to the
applicability or effect of this Section 6.5. Any constructions, applications
or determinations made by the Continuing Trustees pursuant to this Section
6.5 in good faith and on the basis of such information and assistance as was
then reasonably available for such purpose shall be conclusive and binding
upon the Fund and its Shareholders.
Section 6.6 Approval of Certain Business Combinations. The Shareholder
vote required to approve Business Combinations (as hereinafter defined) shall
be as set forth in this Section 6.6.
(a) (1) Except as otherwise expressly provided in this Section 6.6,
the affirmative vote of the holders of (i) at least 80% of the outstanding
Shares entitled to vote thereon, and (ii) at least a majority of the
outstanding Shares entitled to vote thereon, not including Shares deemed
beneficially owned by a Related Person (as hereinafter defined), shall be
required in order to authorize any of the following:
(a) any merger or consolidation of the Fund with or into a Related
Person (as hereinafter defined);
(b) any sale, lease, exchange, transfer or other disposition,
including without limitation, a mortgage or any other capital device,
of all or any Substantial Part (as hereinafter defined) of the assets
of the Fund to a Related Person:
(c) any merger or consolidation of a Related Person with or into the
Fund;
(d) any sale, lease, exchange, transfer or other disposition of all
or any Substantial Part of the assets of a Related Person to the
Fund;
(e) the issuance of any securities of the Fund to a Related Person;
(f) the acquisition by the Fund of any securities of a Related
Person;
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(g) any reclassification of the Shares of the Fund, or any
recapitalization involving Shares of the Fund;
(h) any agreement, contract or other arrangement providing for any
of the transactions described in this Section 6.6; and
(i) the adoption of any plan or proposal for liquidation or
dissolution of the Fund.
(2) Such affirmative vote shall be required notwithstanding any other
provision of this Trust Indenture, any provision of law, or any agreement with
any regulatory agency or national securities exchange which might otherwise
permit a lesser vote or no vote.
(3) The term "Business Combination" as used in this Section 6.6 shall mean
any transaction which is referred to in any one or more of subparagraphs
A(1)(a) through (i) above.
(b) The provisions of paragraph (a) shall not be applicable to any
particular Business Combination and such Business Combination shall require
only such affirmative vote as is required by any other provision of this Trust
Indenture, any provision of law, or any agreement with any regulatory agency or
national securities exchange, if the Business Combination shall have been
approved by a two-thirds vote of the Continuing Trustees (as hereinafter
defined); provided, however, that such approval shall only be effective if
obtained at a meeting at which a Continuing Trustee (as hereinafter defined) is
present.
(c) For the purposes of this Section 6.6 the following definitions apply:
(1) The term "Related Person" shall mean and include (a) any
individual, corporation, partnership or other person or entity which together
with its "affiliates" (as that term is defined in Rule 12b-2 of the General
Rules and Regulations under the Securities Exchange Act of 1934, as amended),
"beneficially owns" (as that term is defined in Rule 13d-3 of the General
Rules and Regulations under the Securities Exchange Act of 1934, as amended)
in the aggregate 10% or more of the outstanding Fund Shares; and (b) any
"affiliate" (as that term is defined in Rule 12b-2 under the Securities
Exchange Act of 1934, as amended) of any such individual, corporation,
partnership or other person or entity. Without limitation, any Fund Shares
which any Related Person has the right to acquire pursuant to any agreement,
or upon exercise of conversion rights, warrants or options, or otherwise,
shall be deemed "beneficially owned" by such Related Person.
(2) The term "Substantial Part" shall mean more than 25% of the
total assets of the Fund, as of the end of its most recent fiscal year ending
prior to the time the determination is made.
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(3) The term "Continuing Trustee" shall mean Trustees of the Fund
who is unaffiliated with the Related Person and was a Trustee prior to the
time that the Related Person became a Related Person, and any successor of a
Continuing Trustee who is unaffiliated with the Related Person and is
recommended to succeed a Continuing Trustee by a majority of Continuing
Trustees then on the board.
(4) The term "Continuing Trustee Quorum" shall mean two-thirds of
the Continuing Trustees capable of exercising the powers conferred on them.
ARTICLE VII
Record and Transfer of Shares
Section 7.1. Share Register; Holders of Record. A register shall be kept
by or on behalf of the Trustees, under the direction of the Trustees, which
shall contain the names and addresses of the Shareholders and the number of
Shares held by them respectively, and the numbers of the certificates, if
any, representing such Shares and a record of all transfers thereof. Only
Shareholders whose Shares are recorded on such register shall be entitled to
vote or to receive distributions or otherwise to exercise or enjoy the rights
of Shareholders, all subject to the provisions of Section 9.4. No
shareholders shall be entitled to receive any distribution or to have notice
given to him as provided herein until he has given his address to a transfer
agent or such other officer or agent of the Fund as shall keep the register
for entry thereon.
Section 7.2. Transfer Agent. The Trustees shall employ Steadman Security
Corporation ("SSC") as transfer and dividend disbursing agent ("Agent") upon
such terms and conditions as the Trustees in their judgment may deem to be
suitable and shall pay to the Agent such fees and expenses for such services
as the Trustees determine to be appropriate in addition to fees and expenses
paid to the Advisor for any other services it performs. The Agent may keep
the register and record therein the original issues and transfers of Shares
and countersign certificates for Shares issued to the persons entitled
thereto. The Agent shall perform the duties usually performed by transfer
agents and registrars of certificates of stock in a corporation except as
modified by the Trustees. If SSC declines or is unable to provide this
service, the Trustees shall employ another organization.
Section 7.3. Blank Certificates. In accordance with the usual custom of
corporations having a transfer agent, signed certificates for Shares in blank
may be deposited with any transfer agent of the Fund, to be used by such
transfer agent in accordance with authority, conferred upon it as occasion
may require, and in so doing the signers of such certificates shall not be
responsible for any loss resulting therefrom.
Section 7.4. Change of Holder of Record. Any person becoming entitled to
any Shares in consequence of the death, bankruptcy or insolvency of any
Shareholder or otherwise by operation of law shall be recorded as the holder
of record upon production of such proper evidence of ownership as the Fund or
its transfer agent may prescribe and delivery of any existing certificate
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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.
Section 7.7. Notices. Any notice to which Shareholders hereunder may be
entitled and any shall be deemed duly served or given if mailed, postage
prepaid, addressed to Shareholders of record at their last known post office
addresses as recorded on the Share register provided for in Section 7.1.
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Section 7.8. Replacement of Certificates. In case of the loss,
mutilation or destruction of any for Shares hereunder the Trustees may issue
or cause to be issued a new certificate on such terms as they may deem fit.
Section 7.9. Designation of Beneficiary. A Shareholder may at any time
designate as beneficiary any person or persons (hereinafter called the
"Beneficiary") whose interest in the Fund shall be contingent upon such
beneficiary or beneficiaries surviving such Shareholder, and whose interests
may at any time be revoked by the Shareholder without the consent of such
Beneficiary by notice in writing to the Trustees.
The transfer by a Shareholder of his interest or any part thereof in the
Fund shall operate to revoke any prior designation of any Beneficiary to the
extent of such transfer.
Such designation shall be in form satisfactory to the Trustees and shall
contain the name and address of such Beneficiary, and shall be registered by
the Trustees on the Shareholder's account. The Trustees shall make no charge
for the initial designation, but all subsequent designations shall be
registered upon payment to the Trustees of a fee of One Dollar ($1.00).
The Shareholder agrees for himself, his legal representative, executors,
administrators. heirs, and assigns that upon his death the recognition by the
Trustees of the Beneficiary last designated and unrevoked as the person
entitled to the Shareholder's interest in the Fund shall be a complete
discharge to the Trustees in respect of such interest.
ARTICLE VIII
Characteristics of Securities
Section 8.1. General. The ownership of the Fund Property of every
description and the right to conduct any business described herein are vested
exclusively in the Trustees, and the Shareholders shall have no interests
therein other than the beneficial interest conferred by their Shares, and
they shall have no right to call for any partition or division of any
property, profits, rights or interests of the Fund, nor can they be called
upon to share or assume any losses of the Fund or suffer an assessment of any
kind by virtue of their ownership of Shares. The Shares shall be personal
property having only the rights set forth in this Instrument and in the
certificates for the Shares.
Section 8.2. Death of Shareholders. The death of a Shareholder during
the continuance of the Fund shall not terminate the Fund or give such
Shareholder's legal representative a right to an accounting, or to take any
action in the courts or otherwise against other Shareholders, the Trustees or
the Fund Property, but shall only entitle the legal representative of the
deceased Shareholder to become the Shareholder upon compliance with Section
7.4.
Section 8.3. Redemption of Shares. Option of Shareholder. For a period
of thirty days commencing on the fifth anniversary date of the Merger, as
defined in Section 1.4, a
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Shareholder may redeem all or any part of his Shares at net asset value as
defined in Section 2.8, less the proportionate brokerage, if any, necessary
in order to redeem such Shares. Payment shall be made by the Fund within
seven business days of receipt of the redemption request (the seven business
days to be consecutive business 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.
Each Shareholder entitled to vote in accordance with this Instrument
shall be entitled to one vote for each full Share outstanding, and entitled
to vote field by such Shareholder. Fractional Shares shall not be entitled
to vote. When a quorum is present at any meeting of Shareholders, the vote
of the holders of a majority of the Shares entitled to vote present in
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person or by proxy at such meeting shall decide any question upon which
Shareholders are entitled to vote present in person or by proxy at such
meeting shall decide any question upon which Shareholders are entitled to
vote, except as expressly provided otherwise in this Instrument.
Section 9.4. Record Date. For the purpose of determining the
Shareholders who are entitled to vote or act at any meeting or any
adjournment thereof, or who are entitled to participate in any dividend or
distribution or for the purpose of any other action, the Trustees may fix a
date not less than 10 nor more than 60 days prior to the date of any meeting
of Shareholders or dividend payment or other action as a record date for the
determination of Shareholders entitled to vote at such meeting or any
adjournment thereof or to receive any dividend or to be treated as
Shareholders of record for purposes of such other action.
Section 9.5. Proxies. At any meeting of Shareholders, any holder of
Shares entitled to vote there at may vote by proxy, provided that no proxy
shall be voted at any meeting unless it shall have been placed on file with
the Secretary of the Fund or with such other officer or agent of the Fund as
the Secretary may direct, for verification prior to the time at which such
vote shall be taken. Pursuant to a resolution of a majority of the Trustees,
proxies may be solicited in the name of one or more Trustees or one or more
of the officers of the Fund. A proxy purporting to be executed by or on
behalf of a Shareholder shall be deemed valid unless challenged at or prior
to its exercise and the burden of proving invalidity shall rest on the
challenger.
Section 9.6. Reports. The Trustees shall cause to be prepared after the
end of the first full Fiscal Year and after the end of each succeeding Fiscal
Year a report containing audited financial statements, including a balance
sheet and statements of income and accumulated undistributed income. realized
gain or loss on investments, and changes in financial position of the Fund,
prepared in conformity with generally accepted accounting principles,
together with a report of independent accountants on such financial
statements based on an examination of the books and records of the Fund made
in accordance with generally accepted auditing standards. A signed copy of
such reports shall be filed with the Trustees as soon as practicable after
the close of the period covered thereby. Copies of such reports shall be
mailed to all Shareholders.
Section 9.7 Notice for Nominations and Proposals. (a) Nominations for
the election of Trustees and proposals for any new business to be taken up at
any meeting of Shareholders may be made by the Trustees of the Fund or by any
Shareholder of the Fund entitled to vote generally in the election of
Trustees. In order for a Shareholder of the Fund to make any such nominations
and/or proposals, he or she shall give notice thereof in writing, delivered
or mailed by first class United States mail, postage prepaid, to the
Secretary of the Fund not less than thirty days nor more than sixty days
prior to the date of any such meeting; provided, however, that if less than
forty days notice of the meeting is given to Shareholders, such written
notice shall be delivered or mailed, as prescribed, to the Secretary of the
Fund not later than the close of business on the tenth day following the day
on which notice of the meeting was mailed to Shareholders. Each such notice
given by a Shareholder with respect to
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nominations for the election of Trustees shall set forth (i) the name, age,
business address and, if known, residence address of each nominee proposed in
such notice; (ii) the principal occupation or employment of each such
nominee; and (iii) the number of the Fund Shares which are beneficially owned
by each such nominee. In addition, the Shareholder making such nomination
shall promptly provide any other information reasonably requested by the Fund.
(b) Each such notice given by a Shareholder to the Secretary with
respect to business proposals to be brought before a meeting shall set forth
in writing as to each matter: (i) a brief description of the business
desired to be brought before the meeting and the reasons for conducting such
business at the meeting; (ii) the name and address, as they appear on the
Fund's books, of the Shareholder proposing such business; (iii) the number of
Fund Shares which are beneficially owned by the Shareholder; and (iv) any
material interest of the Shareholder in such business. Notwithstanding
anything in this Trust Indenture to the contrary, no new business shall be
conducted at the meeting except in accordance with the procedures set forth
in this Trust Indenture.
(c) The Chairman of the meeting of Shareholders may, if the facts
warrant, determine and declare to such meeting that a nomination or proposal
was not made in accordance with the foregoing procedure, and, if he should so
determine, he shall so declare to the meeting and the defective nomination or
proposal shall be disregarded and laid over for action at the next succeeding
special or annual meeting of the Shareholders taking place thirty days or
more thereafter. This provision shall not require the holding of any
adjourned or special meeting of Shareholders for the purpose of considering
such defective nomination or proposal.
ARTICLE X
Trustees
Section 10.1. Number and Qualification. The number of Trustees shall not
be less than one (1) nor more than fifteen (15). No reduction in the number
of Trustees shall have the effect of removing any Trustee from office prior
to the expiration of his term. A Trustee shall be an individual at least 21
years of age who is not under legal disability. Trustees may, but not need,
own shares or other securities of the Fund. The Trustees, in their capacity
as Trustees, shall not be required to devote any specific portion of their
time to the business and affairs of the Fund.
Section 10.2. Terms of Office: Election. The Trustees shall be chosen
for a term of unlimited duration. Trustees shall hold office until their
successors shall be elected and qualified, provided that the term of office
of a Trustee shall terminate and a vacancy shall occur in the event of the
death, resignation, bankruptcy, adjudicated incompetence or other incapacity
to exercise the duties of the office or the removal of a trustee. Election
of Trustees at shareholder meetings shall be by the affirmative vote of the
holders of at least a majority of the Shares present in person or by proxy at
such meetings. The election of any Trustee other than an individual who was
servicing as a Trustee immediately prior to such elections pursuant to this
Section shall not
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become effective unless and until such person shall have in writing accepted
his election and agreed to be bound by the terms of this Instrument. There
shall be no cumulative voting by Shareholders in the election of Trustees of
the Fund.
Section 10.3. Registration and Removal. Any Trustee may resign his
trust (without need for prior or subsequent accounting) by an instrument in
writing signed by him and delivered or mailed to the Chairman of the
Trustees, the President or the Secretary of the Fund, and such resignation
shall be effective upon such delivery or at a later date according to the
terms of such instrument. Any or all of the Trustees may be removed, with or
without cause, by action of 90% of the remaining Trustees at a meeting duly
called. No natural person shall serve as Trustee after the holders of record
of not less than two-thirds of the outstanding shares of the Fund have
declared that he be removed from that office either by declaration, in
writing, filed with the custodian of the securities of the Fund or by votes
cast in person or by proxy at meeting called for that purpose. The Trustees
will promptly call meeting of shareholders for the purpose of voting upon the
question of removal of any such Trustee or Trustees when requested to do so
by the record holders of not less than 10% of the outstanding shares. Upon
the resignation or removal of a Trustee, or his otherwise ceasing to be a
Trustee, he shall execute and deliver such documents as the remaining
Trustees shall require for the purpose of conveying to the Fund or the
remaining Trustees any Fund Property held in the name of the resigning or
removed Trustee, and by the acceptance of his appointment or election as
Trustee he shall delegate to any other of the Trustees his power of attorney
to execute such documents on his behalf. Upon the incapacity or death of any
Trustee, his legal representative shall execute and deliver on his behalf
such documents as the remaining Trustees shall require as provided in the
preceding sentence.
Section 10.4. Vacancies. Whenever a vacancy shall occur, until such
vacancy is filled the Trustees or Trustee continuing in office, regardless of
their number, shall have all the powers granted to the Trustees and shall
discharge all the duties imposed upon the Trustees by this Instrument. No
such vacancy shall operate to annul or terminate this Instrument or to revoke
any existing agency created pursuant to the terms of this Instrument, and
title to any Fund Property held in the name of any Trustee alone, jointly
with one or more of the other Trustees or otherwise, shall, in the event of
the death, resignation, bankruptcy, adjudicated incompetence or other
incapacity to exercise the duties of the office or the removal of such
Trustee vest in the continuing or surviving Trustees without necessity of any
further act or conveyance.
In the case of any vacancy occurring other than by reason of increase in
the number of Trustees, the holders of at least a majority of the Shares
present in person or by proxy at a meeting of Shareholders or a majority of
the Trustees continuing in office acting in a meeting of Trustees or by
written instrument or instruments, may elect or appoint an individual having
the qualifications described in Section 10.1 to fill such vacancy. In the
case of any vacancy created by an increase in the number of Trustees, a
majority of the Trustees continuing in office acting in a meeting of Trustees
or by written instrument or instruments may appoint an individual having the
qualifications described in Section 10.1 to fill such vacancy. Upon the
effectiveness of any election or appointment made as provided in this
Section, the Fund Property shall vest in such
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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.
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
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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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Section 13.5. Not In Derogation of Existing Rights. Nothing herein shall
operate in derogation of any substantive rights, privileges, duties or
liabilities with respect to the Shares issued and outstanding prior to the
Effective Date of this Instrument.
Section 13.6. Section Headings. Section headings have been inserted for
convenience only and are not a part of this Instrument.
ARTICLE XIV
Effective Date and Duration of Trust and Fund
Section 14.1. Effective Date. This Instrument and the Trust herein shall
become effective immediately upon all affirmative vote of not less than
two-thirds of a majority of the Shares then outstanding, and entitled to vote
as required by the Act and upon the signing of a certificate by the Chairman
or Secretary setting forth the fact of such affirmative vote and the date
thereof which date shall be the "Effective Date".
Section 14.2. This Instrument Supersedes. On and after the Effective
Date, this Instrument shall supersede the Trust Indenture dated February 23,
1939 and all amendments and supplements thereto and the Fund and all matters
pertaining thereto shall be governed by this Instrument.
Section 14.3. Duration and Termination. The Fund shall terminate on
February 23, 2034, unless the date of termination shall be extended and
changed to a later date or unless terminated earlier by the affirmative vote
of a majority of Trustees.
ARTICLE XV
Shareholders' Acceptance
Section 15.1. Acceptance. Shareholders holding shares after the
Effective Date of this Instrument shall be deemed to have accepted this
instrument and the terms and conditions contained herein and shall be bound
hereby, nothing herein contained to the contrary notwithstanding.
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EXHIBIT 4
Agreement and Plan of Merger
<PAGE>
EXHIBIT 4
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger ("Agreement") is made as of the 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").
This Agreement is intended to be and is adopted as a "plan of
reorganization", within the meaning of Treasury Regulations Section
1.368-2(g), for reorganizations under Section 368(a)(1)(A) of the Internal
Revenue Code of 1986, as amended ("Code"). The reorganizations
("Reorganizations") will consist of the mergers of the Other Funds with and
into the Fund ("Merger") and the issuance by the Fund in each transaction of
shares of beneficial interest of the Fund ("shares") to be distributed
contemporaneously with the Closing Date (as defined in Section 3.1 below), to
the shareholders of the Other Funds as provided herein, all upon the terms
and conditions hereinafter set forth in this Agreement.
In consideration of the premises and of the covenants and agreements
hereinafter set forth, the parties hereto covenant and agree as follows:
I. THE REORGANIZATIONS OF THE OTHER FUNDS
1.1 Subject to the terms and conditions herein set forth and on the
basis of the representations and warranties contained herein, on the Closing
Date, each of the Other Funds will merge with and into the Fund, and the
Fund, as the survivor of the Merger, will in exchange therefor on the Closing
Date as set forth in paragraph 3.1 issue to the shareholders of the Other
Funds the number of shares of the Fund, including fractional Fund shares,
determined by dividing the value of each of the Other Funds shares computed
in the manner and as of the time and date set forth in paragraph 2.1, by the
net asset value per share of the Fund, computed in the manner and as of the
time and date set forth in paragraph 2.2. Such transactions shall take place
at the closing provided for in paragraph 3.1 ("Closing").
1.2 Copies of all books and records of or pertaining to the Other
Funds, including those in connection with its obligations under the
"Investment Company Act of 1940", as amended, (the "1940 Act"), the Code,
State blue sky laws or otherwise in connection with this Agreement, will
promptly after the Closing be delivered to officers of the Fund or their
designee. The Fund and its advisor, Steadman Security Corporation
("Steadman") shall have access to such books and records upon reasonable
request during normal business hours.
<PAGE>
2. THE CALCULATION
2.1 The net asset value of each of the Other Fund's shares shall be the
net asset value per share computed at the close of trading on the New York
Stock Exchange on the business day preceding the Closing Date (such time and
date being hereinafter called the "Valuation Date"), using the valuation
procedures set forth in each of the Other Fund's Trust Indenture.
2.2 The net asset value of each share of the Fund shall be the net asset
value per share computed on the Valuation Date, using the valuation
procedures set forth in the Fund's Trust Indenture.
2.3 The Fund shall effectuate a reverse split of each share of the Fund
which is issued and outstanding on the Valuation Date so that for each ten
Fund shares issued and outstanding there shall be issued one Fund share.
2.4 All computations of value shall be made by Steadman in accordance
with its regular practice in pricing the Fund and the Other Funds. The Fund
shall cause Steadman to deliver to the Fund and the Other Funds a copy of its
valuation reports at the Closing.
2.5 The number of Fund shares (including fractional shares, if any) to
be issued hereunder shall be determined by dividing the net asset value of
each of the shares of the Other Funds determined in accordance with paragraph
2.1 by the net asset value of a Fund share determined in accordance with
paragraph 2.2 as effected by the reverse stock split of the Fund shares
effectuated pursuant to paragraph 2.3. Fractional shares shall not be issued
and the net asset value of any Fund fractional shares required to be issued
pursuant to paragraphs 2.3 and 2.5 shall be paid in cash to each Fund
shareholder and Other Funds shareholders.
3. THE MERGER
3.1 Upon the effectiveness of the Merger, the Other Funds shall be
merged with and into the Fund, pursuant to the laws of the District of
Columbia, which shall be the survivor from and after the effective time of
the Merger, and which is sometimes hereinafter referred to as the "surviving
fund," and which shall continue to exist as said surviving fund under the
name Steadman Security Trust. The separate existence of each of the Other
Funds, which are hereinafter sometimes referred to as the "terminating
funds," shall cease at the Closing Date in accordance with the provisions of
Section 4.1.
3.2 The Amended and Restated Trust Indenture of the Fund and Declaration
of Trust with amendments through May 2, 1997 ("Fund Trust Indenture") as now
in force and effect, and as the same may be amended and restated, shall
continue to be the Trust Indenture of the surviving fund, and shall continue
in full force and effect until further amended and changed in the manner
prescribed therein.
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<PAGE>
3.3 The Trustees in office of the Fund at the Closing Date shall be the
Trustees of the surviving fund.
3.4 Each issued share of a terminating fund shall, at the Closing Date,
be converted into shares of the surviving fund. The issued shares of the
Fund shall not be converted or exchanged in any manner, but each such share
which is issued and outstanding as of Closing Date shall continue to
represent one issued share of the surviving Fund.
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.
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5.2 The Fund has prepared and filed with the Securities and Exchange
Commission ("Commission") a registration statement on Form N-14 under the
Securities Act of 1933, as amended ("1933 Act"), and will prepare and file
with the Commission any amendments thereto, relating to the Fund shares to
be issued to the Other Funds Shareholders pursuant to the Merger
("Registration Statement"). The Other Funds will provide the Fund with the
Proxy Materials as described in paragraph 5.3 below, for inclusion in the
Registration Statement. The Other Funds will further provide the Fund with
such other information and documents relating to the Other Funds as are
reasonably necessary for the preparation of the Registration Statement.
5.3 The Fund and the Other Funds will call a meeting of their
shareholders to consider and act upon the Merger, including this Agreement,
and take all other action necessary to obtain approval of the transactions
contemplated herein. The Fund and the Other Funds will prepare, with such
assistance from each other as may be mutually agreed to, the notice of
meeting, form of proxy and proxy statement and prospectus (collectively
"Proxy Materials") to be used in connection with such meetings provided that
the Fund will furnish the Other Funds with a current effective prospectus
relating to the Fund shares for inclusion in the Proxy Materials and with
such other information relating to the Fund as is reasonably necessary for
the preparation of the Proxy Materials. The Fund will include in its Proxy
Materials for approval by its shareholders the change in the classification
of the Fund from an open-end investment company to a closed-end investment
company, including the elimination by the Fund of the right to issue and have
outstanding redeemable Fund shares.
5.4 Prior to the Closing Date, the Other Funds will assist the Fund in
obtaining such information as the Fund reasonably requests concerning the
beneficial ownership of the shares of the Other Funds.
5.5 Subject to the provisions of this Agreement, the Fund and the Other
Funds will each take, or cause to be taken, all action, and do or cause to be
done, all things reasonably necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement.
5.6 As promptly as practicable after the Closing Date, the Other Funds
shall furnish or cause to be furnished to the Fund, such information as the
Fund reasonably requests to enable the Fund to determine the Other Funds
earnings and profits for federal income tax purposes and other tax attributes
that will be carried over to the Fund pursuant to Section 381 of the Code.
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
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securities laws as it may deem appropriate in order to continue its
operations after the Closing Date.
6. REPRESENTATIONS AND WARRANTIES
6.1 The Fund represents and warrants to the Other Funds as follows:
(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
5
<PAGE>
the Fund or any of its properties or assets, except as previously
disclosed in writing to the Other Funds. The Fund knows of no facts that
might form the basis for the institution of such proceedings and is not a
party to or subject to the provisions of any order, decree or judgment of
any court or governmental body which materially and adversely affects, or
is reasonably likely to materially and adversely affect, its business or
its ability to consummate the transactions contemplated herein.
(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.
6
<PAGE>
(m) All material Federal and other tax returns and reports of the Fund
required by law to have been filed, have been filed, and all Federal and
other taxes shown as due or required to be shown as due on said returns
and reports have been paid or provision has been made for the payment
thereof, and to the best of the Fund's knowledge no such return is
currently under audit and no assessment has been asserted with respect to
such returns.
(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.
7
<PAGE>
(b) Each of the Other Funds is a duly registered, open-end, management
investment company, and its registration with the Commission as an
investment company under the 1940 Act and the registration of its shares
under the 1933 Act are in full force and effect.
(c) All of the issued and outstanding shares of each of the Other Funds
have been offered and sold in compliance in all material respects with
applicable registration requirements of the 1933 Act and state securities
laws. However, shares of the Other Funds are not currently offered for
sale to the public, and there is no current prospectus available for any
of the Other Funds.
(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.
8
<PAGE>
(i) Each of the Other Funds has the power to enter into this Agreement
and carry out its obligations hereunder. The execution, delivery and
performance of this Agreement have been duly authorized by all necessary
action of the Trustees on the part of each of the Other Funds, subject to
shareholder approval, and this Agreement constitutes a valid and binding
obligation of each of the Other Funds enforceable in accordance with its
terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting
creditors rights and to general equity principles.
(j) The Other Funds shares to be issued and delivered to the Fund, for
the account of the Other Funds Shareholders, pursuant to the terms of
this Agreement will at the Closing Date have been duly authorized and,
when so issued and delivered, will be duly and validly 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
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accepted accounting principles, except as disclosed in writing to the
Fund or as set forth in the financial statements of each of the Other
Funds covering such period.
(p) The information furnished or to be furnished by each of the Other
Funds for use in registration statements, proxy materials and other
documents which may be necessary in connection with the transactions
contemplated hereby shall be accurate and complete in all material
respects and shall comply in all 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
10
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there will be no such claims or inquiries as of the Closing Date other
than as disclosed by Steadman in writing to Fund or the Other Funds prior
to the Closing Date.
(f) Steadman is not aware of any threatened or pending litigation,
administrative proceeding, investigation, examination or inquiry of or
before any court or governmental body relating to the Fund or the Other
Funds or any of their properties or assets which, if adversely
determined, would materially and adversely affect the Fund or the Other
Funds business or ability to consummate the transactions herein
contemplated.
(g) Steadman is not aware of any outstanding or threatened private
claims or litigation relating to the Fund or the Other Funds. Steadman
knows of no facts that might form the basis for such proceedings.
(h) Except as previously disclosed to the Fund or the Other Funds in
writing, and except as have been fully corrected, there have been no
miscalculations of the net asset value of the Fund or the Other Funds
during the twelve-month period preceding the Closing Date and all such
calculations have been done in accordance with the provisions of Rule 2a4
under the 1940 Act.
(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.
11
<PAGE>
7.2 The Fund shall have delivered to Other Funds a certificate executed
in Fund's name by Fund's President or Vice President and Treasurer or
Secretary, in a form reasonably satisfactory to Other Funds and dated as of
the Closing Date, to the effect that the representations and warranties of
the Fund made in this Agreement are true and correct at and as of the Closing
Date, except as they may be affected by the transactions contemplated by this
Agreement, and as to such other matters as Other Funds shall reasonably
request;
7.3 The Fund Shareholders shall have voted to change the Fund from an
open-end investment company to a closed-end investment company.
7.4 Each of the Fund and Other Funds shall have received a favorable
opinion from Manatt, Phelps & Phillips, LLP, counsel to the Fund and the
Other Funds, dated as of the Closing Date, covering the following points:
That (a) Fund and each of the Other Funds are common law trusts
organized and existing under the laws of the District of Columbia, and
each has the power to own all of its properties and assets and to carry
on its business as presently conducted; (b) The Fund is a duly
registered, closed-end, management investment company and, to the
knowledge of such counsel, its registration with the Commission as an
investment company under the 1940 Act is in full force and effect; (c)
this Agreement has been duly authorized, executed and delivered by the
Fund and the Other Funds, and assuming due authorization, execution and
delivery of this Agreement by the Fund and the Other Funds, including
approval by the shareholders of the Fund and the Other Funds
Shareholders, is a valid and binding obligation of the Fund and the Other
Funds enforceable against the Fund and the Other Funds in accordance with
its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting
creditors rights and to general equity principles; (d) the Fund's shares
to be issued to the Other Funds Shareholders as provided by this
Agreement are duly authorized and upon delivery of such shares to the
Other Funds Shareholders will be validly issued and outstanding and fully
paid and non-assessable and no shareholder of Fund has any preemptive
rights to subscription or purchase in respect thereof; (e) the execution
and delivery of this Agreement did not, and the consummation of the
transactions contemplated hereby will not, violate the Fund's or the
Other Funds' Declaration of Trust or any provision of any material
agreement (known to such counsel) to which the Fund or the Other Funds
are a party or by which they are bound or, to the knowledge of such
counsel, result in the acceleration of any material obligation or the
imposition of any material penalty under any agreement, judgment or
decree to which the Fund or the Other Funds are a party or by which they
are bound; (f) to the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority of the
United States or any state is required for the consummation by the Fund
or the Other Funds of the transactions contemplated herein, except such
as have been obtained under the 1933 Act , the Securities Exchange Act of
1934, as amended (the "1934 Act") and the 1940 Act and such as may be
required under state securities laws; (g) as they relate to the Fund or
the Other
12
<PAGE>
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
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.
13
<PAGE>
8.3 The Other Funds shall have delivered to the Fund at the Closing a
certificate executed in Other Funds' name by the President or Vice President
and the Treasurer or Secretary of Other Funds, in form and substance
satisfactory to the Fund and dated as of the Closing Date, to the effect that
the representations and warranties of the Other Funds, on behalf of the Other
Funds, made in this Agreement are true and correct at and as of the Closing
Date, except as they may be affected by the transactions contemplated by this
Agreement, and as to such other matters as Fund shall reasonably request.
Such a certificate shall also be delivered to Fund as executed by Steadman
with respect to its representations and warranties made in paragraph 6.3.
8.4 The Fund shall have received at the Closing a favorable opinion
dated as of the Closing Date set forth in Section 7.4 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 Coopers & Lybrand, L.L.P.
8.7 On the Closing Date, the Other Funds Assets shall include no assets
that the Fund, by reason of charter limitations or otherwise, may not
properly acquire.
8.8 All actions taken by the Other Funds in connection with the
transactions contemplated by the Agreement and all documents incidental
thereto shall be reasonably satisfactory in form and substance to the Fund
and its counsel.
8.9 The filing of the Registration Statement shall have been approved by
the Trustees of the Fund.
9. FURTHER CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE
FUND AND THE OTHER FUNDS.
The obligations of the Other Funds and the Fund hereunder are each
subject to the further conditions that on or before the Closing Date.
9.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares
of the Fund and the Other Funds and
14
<PAGE>
certified copies of the resolutions evidencing such approval shall have been
delivered to the Fund and the Other Funds.
9.2 On the Closing Date, no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with,
this Agreement or the transactions contemplated herein.
9.3 All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities (including those
of the Commission and of state Blue Sky and securities authorities, including
"no-action" positions or any exemptive orders from such federal and state
authorities) deemed necessary by the Fund or the Other Funds to permit
consummation, in all material respects, of the transactions contemplated
herein shall have been obtained, except where failure to obtain any such
consent, order or permit would not involve risk of a material adverse effect
on the assets or properties of the Fund or the Other Funds.
9.4 The Registration Statement on Form N-14 shall have become effective
under the 1933 Act, no stop orders suspending the effectiveness thereof shall
have been issued and, to the best knowledge of the parties hereto, no
investigation or proceeding for that purpose shall have been instituted or be
pending, threatened or contemplated under the 1933 Act.
9.5 The parties shall have received a favorable opinion from Manatt,
Phelps & Phillips (based on such representations as such firm shall
reasonably request), addressed to the Fund and the Other Funds, which opinion
may be relied upon by the shareholders of the Fund and the Other Funds
Shareholders, substantially to the effect that, for federal income tax
purposes:
(a) The mergers of the Other Funds with and into the Fund will
constitute a "reorganization" within the meaning of Section 368(a)(1) of
the Code in each transaction in the Merger, and the Other Funds and the
Fund will each be a "party to the reorganization" within the meaning of
Section 368(b) of the Code with respect to the particular merger relevant
to such entities;
(b) Pursuant to Section 1032 of the Code, no gain or loss will be
recognized by the Fund upon the receipt of the assets of the Other Funds
solely in exchange for the Fund shares;
(c) Pursuant to Section 361 (a) of the Code, no gain or loss will be
recognized by Other Funds upon the exchange of the Other Funds' assets
for Fund shares;
(d) Pursuant to Section 354(a) of the Code, no gain or loss will be
recognized by the Other Funds' Shareholders upon the exchange of the
Other Funds shares for the Fund shares;
15
<PAGE>
(e) Pursuant to Section 358 of the Code, the aggregate tax basis for the
Fund shares received by each of the Other Funds' shareholders pursuant to
the merger will be the same as the aggregate tax basis of the Other Funds
shares held by each such Other Funds' shareholders immediately prior to
the Merger;
(f) Pursuant to Section 1223 of the Code, the holding period of the Fund
shares to be received by each of the Other Funds' shareholders will
include the period during which the Other Funds shares surrendered in
exchange therefor were held by such shareholders (provided such Other
Funds shares were held by such shareholders as capital assets on the date
of the Merger);
(g) Pursuant to Section 362(b) of the Code, the tax basis of the assets
of the Other Funds acquired by the Fund in the Merger will be the same as
the tax basis of such assets in the hands of the Other Funds immediately
prior to the Merger;
(h) Pursuant to Section 1223 of the Code, the holding period of the
assets of the Other Funds in the hands of the Fund will include the
period during which those assets were held by the Other Funds; and
(i) The Fund will succeed to and take into account the items of the Other
Funds described in Section 381(c) of the Code, subject to the conditions
and limitations specified in Sections 381, 382, 383 and 384 of the Code
and applicable regulations thereunder.
Notwithstanding anything herein to the contrary, neither the Fund nor the
Other Funds may waive the material conditions set forth in this paragraph 8.6
although the actual wording of such opinion may differ to the extent agreed
to by 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.
16
<PAGE>
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.
12. TERMINATION
12.1 This Agreement may be terminated and the transactions contemplated
hereby may be abandoned at any time prior to the Closing:
(a) by the mutual written consent of the Fund and the Other Funds, by
notice to the other, without liability to the terminating party on
account of such termination (providing the termination party is not
otherwise in default or in breach of this Agreement) if the Closing shall
not have occurred on or before September 30, 1997; or
(b) by either the Fund or the Other Funds, in writing without liability
of the terminating party on account of such termination (provided the
terminating party is not otherwise in material default or breach of the
Agreement), if (i) the other party shall fail to perform in any material
respect its agreements contained herein required to be performed on or
prior to the Closing Date, (ii) the Fund or the Other Funds,
respectively, materially breaches or shall have breached any of its
representations, warranties or covenants contained herein, (iii) the Fund
shareholders or the Other Funds' shareholders fail to approve the
Agreement, or (iv) any other condition herein expressed to be precedent
to the obligations of the terminating party has not been met and it
reasonably appears that it will not or cannot be met.
12.2 (a) Termination of this Agreement pursuant to paragraphs 12.1(a)
shall terminate all obligations of the parties hereunder and there shall
be no liability for damages on the part of the Fund or the Other Funds or
the trustees, directors or officers of the Fund or the Other Funds to any
other party or its trustees, directors or officers.
(b) Termination of this Agreement pursuant to paragraph 12.1(b) shall
terminate all obligations of the parties hereunder and there shall be no
liability for damages on the part of the Fund, the Other Funds or
Steadman to any other party or its trustees, directors or officers,
except that any party in breach of this Agreement shall, upon demand,
reimburse the non-breaching party or parties for all reasonable
out-of-pocket fees and expenses incurred in connection with the
transactions contemplated by this Agreement, including legal, accounting
and filing fees.
17
<PAGE>
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.
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
18
<PAGE>
(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 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
19
<PAGE>
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.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed by its duly authorized officer.
STEADMAN SECURITY TRUST
(formerly Steadman Associated Fund)
By: /s/ Charles W. Steadman
----------------------------
Charles W. Steadman
Chairman and President
STEADMAN SECURITY CORPORATION
By: /s/ Charles W. Steadman
----------------------------
Charles W. Steadman
Chairman and President
STEADMAN INVESTMENT FUND
By: /s/ Charles W. Steadman
----------------------------
Charles W. Steadman
Chairman and President
STEADMAN AMERICAN INDUSTRY FUND
By: /s/ Charles W. Steadman
----------------------------
Charles W. Steadman
Chairman and President
STEADMAN TECHNOLOGY AND
GROWTH FUND
By: /s/ Charles W. Steadman
----------------------------
Charles W. Steadman
Chairman and President
20
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
------------
To to Board of Trustees of
Steadman Security Trust
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, except for Steadman Associated Fund for which the date is August 6,
1996, on our audits of the financial statements and financial highlights of
Steadman Associated Fund, Steadman Investment Fund, Steadman American
Industry Fund and Steadman Technology and Growth Fund, which reports are
included in the Fund's Annual Reports to Shareholders for the year ended June
30, 1996, which are included in this Registration Statement. We also consent
to the reference to our firm under the caption "Condensed Financial
Information of the Funds."
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
May 5, 1997
<PAGE>
EXHIBIT 99.1
Form of Proxies of Funds
<PAGE>
PROXY PROXY
STEADMAN ASSOCIATED FUND
1730 K Street, N.W.
Suite 904
Washington, D.C. 20005
----------------------
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
----------------------
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES of Steadman Associated
Fund, which will become Steadman Security Trust, (the "Fund") for use at a
special meeting of the shareholders of the Fund, which meeting will be held
at 9:30 a.m., Washington, D.C. Time, on ___________, ___________, 1997, at
the ________________________ Hotel, ______________________, Washington, D.C.
2000?.
The undersigned shareholder of the Fund, revoking any and all previous
proxies heretofore given for shares of the Fund held by the undersigned
("Shares"), does hereby appoint Charles W. Steadman and Max Katcher, and each
and any of them, with full power of substitution to each, to be the attorneys
and proxies of the undersigned (the "Proxies"), to attend the Meeting of the
shareholders of the Fund, and to represent and direct the voting interest
represented by the undersigned as of the record date for said Meeting for the
Proposals specified below.
This proxy, if properly executed, will be voted in the manner as directed
herein by the undersigned shareholder. Unless otherwise specified below in
the squares provided, the undersigned's vote will be cast "FOR" each
Proposal. If no direction is made for any Proposals, this proxy will be
voted "FOR" any and all such Proposals. In their discretion, the Proxies are
authorized to transact and vote upon such other matters and business as may
come before the Meeting or any adjournments thereof.
Proposal 1. To approve an Agreement and Plan of Merger, and the
transactions contemplated thereby, pursuant to which the
Steadman Investment Fund, Steadman American Industry Fund
and Steadman Technology and Growth Fund would merge with and
into the Fund.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Proposal 2. Election of Trustees
/ / FOR the nominees listed below / / WITHHOLD AUTHORITY
(except as noted to the (to vote for all
contrary below) nominees listed
below)
(INSTRUCTION: To withhold authority to vote for any
individual nominee, strike a line through the nominee's name
in the list below).
William Mark Craim Richard O. Haase Paul F. Wagner
Proposal 3. To ratify and confirm the Amended and Restated Trust
Indenture of Steadman Security Trust, as of May 2, 1997.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Proposal 4. To ratify the selection of Reznick Fedder and Silverman to
serve as independent auditors of the Fund.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Proposal 5. To transact such other business as properly may come before
the Meeting or any adjournment(s) thereof.
<PAGE>
To avoid the expense of adjourning the Meeting to a subsequent date,
please return this proxy in the enclosed self-addressed, postage-paid
envelope. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF
STEADMAN ASSOCIATED FUND, WHICH RECOMMENDED A VOTE FOR THE PROPOSAL.
Dated: ______________, 1997
____________________________
Signature of Shareholder
____________________________
Signature of Shareholder
This proxy may be revoked by the shareholder(s) at
any time prior to the special meeting.
NOTE: Please sign exactly as your name appears hereon. If shares are
registered in more than one name, all registered shareholders should sign
this proxy; but if one shareholder signs, this signature binds the other
shareholder. When signing as an attorney, executor, administrator, agent,
trustee, or guardian, or custodian for a minor, please give full title as
such. If a corporation, please sign in full corporate name by an authorized
person. If a partnership, please sign in partnership name by an authorized
person.
<PAGE>
PROXY PROXY
STEADMAN INVESTMENT FUND
1730 K Street, N.W.
Suite 904
Washington, D.C. 20005
----------------------
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
----------------------
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES of Steadman Investment
Fund (the "Fund") for use at a special meeting of the shareholders of the
Fund, which meeting will be held at 9:30 a.m., Washington, D.C. Time, on
___________, ___________, 1997, at the ________________________ Hotel,
______________________, Washington, D.C. 2000?.
The undersigned shareholder of the Fund, revoking any and all previous
proxies heretofore given for shares of the Fund held by the undersigned
("Shares"), does hereby appoint Charles W. Steadman and Max Katcher, and each
and any of them, with full power of substitution to each, to be the attorneys
and proxies of the undersigned (the "Proxies"), to attend the Meeting of the
shareholders of the Fund, and to represent and direct the voting interest
represented by the undersigned as of the record date for said Meeting for the
Proposals specified below.
This proxy, if properly executed, will be voted in the manner as directed
herein by the undersigned shareholder. Unless otherwise specified below in
the squares provided, the undersigned's vote will be cast "FOR" each
Proposal. If no direction is made for any Proposals, this proxy will be
voted "FOR" any and all such Proposals. In their discretion, the Proxies are
authorized to transact and vote upon such other matters and business as may
come before the Meeting or any adjournments thereof.
Proposal 1. To approve an Agreement and Plan of Merger, and the
transactions contemplated thereby, pursuant to which the
Fund would merge with and into Steadman Securities Trust
("SST") whereby Shares of the Fund will become shares of
SST, and whereby SST will change from an open-end investment
company to a closed-end investment company.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Proposal 2. To transact such other business as properly may come before
the Meeting or any adjournment(s) thereof.
To avoid the expense of adjourning the Meeting to a subsequent date,
please return this proxy in the enclosed self-addressed, postage-paid
envelope. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF
STEADMAN INVESTMENT FUND, WHICH RECOMMENDED A VOTE FOR THE PROPOSAL.
Dated: ______________, 1997
____________________________
Signature of Shareholder
____________________________
Signature of Shareholder
This proxy may be revoked by the shareholder(s) at
any time prior to the special meeting.
NOTE: Please sign exactly as your name appears hereon. If shares are
registered in more than one name, all registered shareholders should sign
this proxy; but if one shareholder signs, this signature binds the other
shareholder. When signing as an attorney, executor, administrator, agent,
trustee, or guardian, or custodian for a minor, please give full title as
such. If a corporation, please sign in full corporate name by an authorized
person. If a partnership, please sign in partnership name by an authorized
person.
<PAGE>
PROXY STEADMAN AMERICAN INDUSTRY FUND PROXY
1730 K Street, N.W.
Suite 904
Washington, D.C. 20005
----------------------
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
----------------------
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES of Steadman American
Industry Fund (the "Fund") for use at a special meeting of the shareholders
of the Fund, which meeting will be held at 9:30 a.m., Washington, D.C. Time,
on ___________, ___________, 1997, at the ________________________ Hotel,
______________________, Washington, D.C. 2000?.
The undersigned shareholder of the Fund, revoking any and all previous
proxies heretofore given for shares of the Fund held by the undersigned
("Shares"), does hereby appoint Charles W. Steadman and Max Katcher, and each
and any of them, with full power of substitution to each, to be the attorneys
and proxies of the undersigned (the "Proxies"), to attend the Meeting of the
shareholders of the Fund, and to represent and direct the voting interest
represented by the undersigned as of the record date for said Meeting for the
Proposals specified below.
This proxy, if properly executed, will be voted in the manner as directed
herein by the undersigned shareholder. Unless otherwise specified below in
the squares provided, the undersigned's vote will be cast "FOR" each
Proposal. If no direction is made for any Proposals, this proxy will be
voted "FOR" any and all such Proposals. In their discretion, the Proxies are
authorized to transact and vote upon such other matters and business as may
come before the Meeting or any adjournments thereof.
Proposal 1. To approve an Agreement and Plan of Merger, and the
transactions contemplated thereby, pursuant to which the
Fund would merge with and into Steadman Securities Trust
("SST") whereby Shares of the Fund will become shares of
SST, and whereby SST will change from an open-end investment
company to a closed-end investment company.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Proposal 2. To transact such other business as properly may come before
the Meeting or any adjournment(s) thereof.
To avoid the expense of adjourning the Meeting to a subsequent date,
please return this proxy in the enclosed self-addressed, postage-paid
envelope. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF
STEADMAN AMERICAN INDUSTRY FUND, WHICH RECOMMENDED A VOTE FOR THE PROPOSAL.
Dated: ______________, 1997
____________________________
Signature of Shareholder
____________________________
Signature of Shareholder
This proxy may be revoked by the shareholder(s) at
any time prior to the special meeting.
NOTE: Please sign exactly as your name appears hereon. If shares are
registered in more than one name, all registered shareholders should sign
this proxy; but if one shareholder signs, this signature binds the other
shareholder. When signing as an attorney, executor, administrator, agent,
trustee, or guardian, or custodian for a minor, please give full title as
such. If a corporation, please sign in full corporate name by an authorized
person. If a partnership, please sign in partnership name by an authorized
person.
<PAGE>
PROXY STEADMAN TECHNOLOGY AND GROWTH FUND PROXY
1730 K Street, N.W.
Suite 904
Washington, D.C. 20005
----------------------
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
----------------------
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES of Steadman Technology
and Growth Fund (the "Fund") for use at a special meeting of the shareholders
of the Fund, which meeting will be held at 9:30 a.m., Washington, D.C. Time,
on ___________, ___________, 1997, at the ________________________ Hotel,
______________________, Washington, D.C. 2000?.
The undersigned shareholder of the Fund, revoking any and all previous
proxies heretofore given for shares of the Fund held by the undersigned
("Shares"), does hereby appoint Charles W. Steadman and Max Katcher, and each
and any of them, with full power of substitution to each, to be the attorneys
and proxies of the undersigned (the "Proxies"), to attend the Meeting of the
shareholders of the Fund, and to represent and direct the voting interest
represented by the undersigned as of the record date for said Meeting for the
Proposals specified below.
This proxy, if properly executed, will be voted in the manner as directed
herein by the undersigned shareholder. Unless otherwise specified below in
the squares provided, the undersigned's vote will be cast "FOR" each
Proposal. If no direction is made for any Proposals, this proxy will be
voted "FOR" any and all such Proposals. In their discretion, the Proxies are
authorized to transact and vote upon such other matters and business as may
come before the Meeting or any adjournments thereof.
Proposal 1. To approve an Agreement and Plan of Merger, and the
transactions contemplated thereby, pursuant to which the
Fund would merge with and into Steadman Securities Trust
("SST") whereby Shares of the Fund will become shares of
SST, and whereby SST will change from an open-end investment
company to a closed-end investment company.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Proposal 2. To transact such other business as properly may come before
the Meeting or any adjournment(s) thereof.
To avoid the expense of adjourning the Meeting to a subsequent date,
please return this proxy in the enclosed self-addressed, postage-paid
envelope. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF
STEADMAN TECHNOLOGY AND GROWTH FUND, WHICH RECOMMENDED A VOTE FOR THE
PROPOSAL.
Dated: ______________, 1997
____________________________
Signature of Shareholder
____________________________
Signature of Shareholder
This proxy may be revoked by the shareholder(s) at
any time prior to the special meeting.
NOTE: Please sign exactly as your name appears hereon. If shares are
registered in more than one name, all registered shareholders should sign
this proxy; but if one shareholder signs, this signature binds the other
shareholder. When signing as an attorney, executor, administrator, agent,
trustee, or guardian, or custodian for a minor, please give full title as
such. If a corporation, please sign in full corporate name by an authorized
person. If a partnership, please sign in partnership name by an authorized
person.
