<PAGE>
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Fellow Shareholders:
After several years of strong performance the economy continues to exhibit
strength with a low level of inflation and stability of interest rates. Although
signs of slowing appeared in the second quarter corporate profits were better
than predicted and firms are pursuing growth with added investment. An index of
manufacturing strength rose to its highest level since 1994.
Technology has spurred the rise of stock market prices and your Fund's
portfolio has been structured to contain the companies that have been in the
forefront of technology.
I would now like to inform you of a very important development that
will affect the Fund and its shareholders. It is disclosed in footnote No. 7 of
this Annual report. In the near future you will receive a proxy statement and
prospectus that describe the purpose and reasons why management has decided to
embark upon this endeavor.
Sincerely,
/s/ Charles W. Steadman
Charles W. Steadman
Chairman of the Board of
Trustees and President
================================================================================
<PAGE>
================================================================================
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
STEADMAN ASSOCIATED FUND
We have audited the accompanying statement of assets and liabilities of
Steadman Associated Fund, including the portfolio of investments, as of June 30,
1997, and the related statements of operations, changes in net assets and the
financial highlights for the year then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit. The statement of changes in net assets
for the year ended June 30, 1996 and the financial highlights for the year ended
June 30, 1996 and the period October 1, 1994 through June 30, 1995 and each of
the three years in the period ended September 30, 1994 were audited by other
auditors whose report, dated August 6, 1996, expressed an unqualified opinion on
the statement of changes in net assets and those financial highlights.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of June 30, 1997, by correspondence with the
custodian and/or broker. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Steadman Associated Fund as of June 30, 1997, the results of its operations, the
changes in its net assets, and the financial highlights for the year then
ended, in conformity with generally accepted accounting principles.
Bethesda, Maryland Reznick Fedder & Silverman
July 25, 1997
================================================================================
<PAGE>
================================================================================
STEADMAN ASSOCIATED FUND
PORTFOLIO OF INVESTMENTS
June 30,1997
<TABLE>
<CAPTION>
Value
Shares (Note 1)
-------- ----------
<S> <C> <C>
COMMON STOCKS -- 99.8%
Aircraft -- 8.1%
Boeing Co. (a)............................... 6,500 $ 344,906
----------
Total Aircraft 344,906
----------
Computer Equipment -- 5.3%
Hewlett Packard.............................. 4,000 224,000
----------
Total Computer Equipment 224,000
----------
Computer Software -- 29.1%
Microsoft Corp. (a).......................... 9,000 1,137,375
Oracle Corp. (a)............................. 2,000 100,750
----------
Total Computer Software 1,238,125
----------
Computer Switching -- 2.0%
Xylan Corp. (a).............................. 5,000 85,000
----------
Total Computer Switching 85,000
Computer Systems Design -- 7.0%
Sun Microsystems (a)......................... 8,000 297,750
----------
Total Computer Systems Design 297,750
----------
Mail Order Houses -- 6.1%
Gateway 2000 (a)............................. 8,000 259,500
----------
Total Mail Order Houses 259,500
----------
Motor Vehicles -- 8.5%
Ford Motor Co................................ 5,000 188,750
General Motors "H"........................... 3,000 173,250
----------
Total Motor Vehicles 362,000
----------
</TABLE>
(a) Non-income producing security.
<PAGE>
================================================================================
STEADMAN ASSOCIATED FUND
PORTFOLIO OF INVESTMENTS
June 30,1997
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
---------- -------------
<S> <C> <C>
Semiconductor -- 19.9%
Intel Corp. Warrants (a).............................. 6,000 609,000
LSI Logic (a) ........................................ 7,500 240,000
----------
Total Semiconductor 849,000
----------
Telcom Mfg. -- 2.5%
Lucent Technologies................................... 1,500 108,094
----------
Total Telcom Mfg. 108,094
----------
Telephone Services -- 11.3%
Worldcom Inc (a)........................................... 15,000 480,000
----------
Total Telephone Services 480,000
----------
Total Common Stocks (Cost $3,029,393) 4,248,375
----------
CALL OPTIONS PURCHASED --.2%
LSI Logic, 10/18/97 at $40 ................................ 2,500 4,688
Seagate Technology, 9/20/97 at $47.50 ..................... 5,000 2,181
----------
Total Call Options Purchased (Cost $63,025) 6,869
----------
Total Portfolio of Investments (Cost $3,092,418) $ 4,255,244
=============
</TABLE>
(a) Non-income producing security.
The accompanying notes are an integral part of the financial statements.
================================================================================
<PAGE>
================================================================================
STEADMAN ASSOCIATED FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30,1997
<TABLE>
<S> <C>
ASSETS:
Investments at value (Cost $3,092,418) (Note 1)...................................................... $ 4,255,244
Cash and cash equivalents (Note 1) ................................................................. 235,550
Dividends receivable ................................................................................ 560
Interest receivable ................................................................................. 1,425
Due from affiliate .................................................................................. 3,896
-------------
Total assets ...................................................................................... 4,496,675
-------------
LIABILITIES:
Accounts payable and accrued expenses ............................................................... 87,142
Investment advisory and service fees payable (Note 4) ............................................... 3,712
Other payable to affiliate (Note 4) ................................................................. 2,969
Payable for trust shares redeemed ................................................................... 1,693
Miscellaneous payable ............................................................................... 4,175
-------------
Total liabilities ................................................................................. 99,691
-------------
NET ASSETS ............................................................................................... $ 4,396,984
=============
NET ASSETS CONSIST OF:
Undistributed net investment loss ................................................................... $ (5,181,222)
Unrealized appreciation of investments .............................................................. 1,162,826
Accumulated net realized losses from security transactions .......................................... (821,035)
Paid-in capital ..................................................................................... 9,236,415
-------------
$ 4,396,984
=============
NET ASSET VALUE, offering price and redemption price per share
($4,396,984 divided by 5,768,032 shares of no par value trust shares) ............................... $ .76
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
================================================================================
<PAGE>
================================================================================
STEADMAN ASSOCIATED FUND
STATEMENT OF OPERATIONS
for the year ended June 30,1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends ............................................................................. $ 12,759
Interest .............................................................................. 14,646
---------
Total income ....................................................................... $ 27,405
---------
EXPENSES:
Salaries and employee benefits (Note 4) ............................................... 174,244
Investment advisory fee (Note 4) ...................................................... 45,410
Professional fees ..................................................................... 62,741
Proposed merger expense (Note 7) ...................................................... 162,690
Shareholder servicing fee (Note 4) .................................................... 36,859
Rent .................................................................................. 31,257
Miscellaneous ......................................................................... 22,790
Blue Sky Registration Fees ............................................................ 1,800
Custodian fees ........................................................................ 6,447
Computer services ..................................................................... 5,917
Reports to shareholders ............................................................... 6,818
Trustees' fees and expenses (Note 4) .................................................. 4,719
---------
Total expenses ..................................................................... 561,692
---------
Net investment loss ................................................................ (534,287)
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS (NOTES 1 AND 3):
Net realized gain from investment transactions ........................................ 306,022
Change in unrealized appreciation/(depreciation) of investments ....................... 644,512
---------
Net gain on investments ............................................................... 950,534
---------
Net increase in net assets resulting from operations .................................. $ 416,247
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
================================================================================
<PAGE>
================================================================================
STEADMAN ASSOCIATED FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the year For the year
ended June 30, ended June 30,
1997 1996
-------------- --------------
<S> <C> <C>
Increase/(decrease) in net assets from operations:
Net investment loss ........................................................... $ (534,287) $ (388,362)
Net realized gain from investment transactions ................................ 306,022 517,110
Change in unrealized appreciation/(depreciation)
of investments ...................................................... 644,512 (352,459)
----------- ------------
Net increase (decrease) in net assets resulting
from operations ..................................................... 416,247 (223,711)
----------- ------------
Decrease in net assets from trust share transactions (Note 2) ...................... (600,754) (929,919)
----------- ------------
Decrease in net assets ........................................................ (184,507) (1,153,630)
Net assets at beginning of period .................................................. 4,581,491 5,735,121
----------- ------------
Net assets at end of period (including accumulated
net investment loss of $5,170,173 and $4,635,886) .................................. $ 4,396,984 $ 4,581,491
=========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
================================================================================
<PAGE>
================================================================================
STEADMAN ASSOCIATED FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the year For the year For the period
ended ended October 1, 1994 For the years ended September 30,
June 30 June 30 through June 30
----------- ------------ --------------- ---------------------------------
1997 1996 1995* 1994 1993 1992
----------- ------------ --------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value,beginning of period........ $ .70 $ .73 $ .72 $ .87 $ .64 $ .67
----------- ------------ --------------- ---------------------------------
Net investment loss........................ (.11) (.17) (.03) (.08) (.05) (.03)
Net realized and unrealized
gain (loss) on investments............ .17 .14 .04 (.07) .28 -
----------- ------------ --------------- ---------------------------------
Total from investment operations........ .06 (.03) .01 (.15) .23 (.03)
----------- ------------ --------------- ---------------------------------
Net asset value, end of period............... $ .76 $ .70 $ .73 $ .72 $ .87 $ .64
=========== ============ =============== =================================
Ratios/Supplemental Data:
Total return................................. 8.89% (4.38) 1.85%** (17.24)% 35.9% (4.5)%
Ratio of expenses to average net assets...... 12.42% 8.14% 8.17%** 7.76% 5.79% 6.92%
Ratio of net investment loss
to average net assets...................... (11.82)% (7.48)% (7.23)%** (6.09)% (4.63)% (5.14)%
Portfolio turnover rate...................... 193% 231% 505%** 241% 300% 301%
Net assets, end of period (in thousands)...... $ 4,397 $4,581 $5,735 $6,307 $8,844 $7,254
</TABLE>
* The Fund's fiscal year-end was changed to June 30.
** Annualized
The accompanying notes are an integral part of the financial statements.
================================================================================
<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. The Fund has not been accepting new subscriptions for shares since
November 1996.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and 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 when acquired. All cash and cash equivalents are invested in a
single money market fund maintained by the investment custodian.
SECURITY VALUATION
Investments in securities traded on a national securities exchange are valued
at the last reported sales price on the last business day of the period.
Investments for which no sale was reported on that date are valued at the mean
between the latest bid and asked prices.
SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are recorded on the trade date. Realized gains and
losses from security transactions are reported on an identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income and
expenses are recorded on the accrual basis.
Call options give the holder the right to purchase a security at a specified
price on a certain date. Risks arise from possible illiquidity of the options
market and from movements in security values. Options are reflected in the
accompanying Statement of Assets and Liabilities at market value.
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 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 year
ended June 30,1997 ended June 30,1996
------------------------ ----------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold...................................... 609 $ 400 269 $ 200
Shares redeemed.................................. (812,875) (601,154) (1,295,786) (930,119)
-------- ---------- --------- ----------
Net decrease.................................. (812,266) $ (600,754) (1,295,517) $ (929,919)
========== ==========
Shares outstanding:
Beginning of period........................... 6,580,298 7,875,815
--------- ---------
End of period................................. 5,768,032 6,580,298
========= =========
</TABLE>
3. PURCHASES AND SALES OF SECURITIES
During the year ended June 30, 1997, purchases and proceeds from sales of
investment securities aggregated $8,273,172 and $9,171,210, respectively.
Unrealized appreciation of investments aggregated $1,162,826 of which $2,830,668
related to gross unrealized appreciation where there is an excess of value over
tax cost and $1,667,842 related to gross unrealized depreciation where there is
an excess of tax cost over value.
4. INVESTMENT ADVISORY FEE AND TRANSACTIONS WITH AFFILIATES
Steadman Security Corporation (SSC), an affiliate, has provided advisory
services under an agreement which first became effective in 1972. On February
28, 1984, at the Annual Meeting of the shareholders, a new Investment Advisory
Agreement was approved. Under the new advisory agreement SSC will continue to
provide the same services it 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 shareholder servicing fees from the
Fund for the performance of delegated services. (dividend disbursing agent and
transfer agent) as defined in the Trust Indenture, as amended. The fee for such
services was computed on the basis of the number of shareholder accounts
calculated as of the last business day of each month at $1.35 per accounts. SSC
received reimbursements from the Fund for the salaries and benefits of its
officers and employees who performed functions other than investment advisory
and shareholder service functions for the Fund.
================================================================================
<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 year ended June 30, 1997, 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 year ended June 30, 1997, therefore no income tax
provision is required. A full valuation allowance has been provided for deferred
tax assets, totalling approximately $2,288,000 at June 30, 1997, which arise
principally from net operating loss carryforwards and capital loss carryforwards
available for income tax purposes.
For income tax purposes, the Fund has net operating loss carryforwards
approximating $5,192,000 which are available to offset future net operating
income in non-qualifying years, if any, which expire as follows: (2000)
$443,000; (2001) $499,000; (2003) $328,000; (2004) $476,000; (2005) $534,000;
(2006) $324,000; (2007) $381,000; (2008) $539,000; (2009) $437,000; (2010)
$287,000; (2011) $401,000 and (2012) $543,000. Capital loss carryforwards
aggregating approximately $804,000 are available to offset future capital gains,
if any, which expire as follows: (2001) $452,000 and (2000) $352,000.
6. EXPIRATION OF SHAREHOLDER STATES REDEMPTION RESTRICTION
In 1993 the Fund entered into a Settlement Agreement with approximately 47
states (the "Shareholder States") with respect to the recovery of shares and
distributions owned by persons who had allegedly abandoned these properties. The
Settlement Agreement provides among other things, that the Shareholder States
will not request redemption of their shares until February 14, 1998. The
Shareholder States currently own 9% of shares in the Fund. In July 1997, the
Fund agreed to remove this restriction and allow Shareholder States to redeem
shares upon request.
7. PROPOSED MERGER
During 1997, management proposed a merger of Steadman American Industry
Fund, Steadman Investment Fund, and Steadman Technology and Growth Fund with and
into the Steadman Associated Fund, which will change to a close-end investment
company whose name will change to Steadman Security Trust (SST). In connection
with the merger, SST will amend its investment objective to primarily seek
current income and secondarily to maximize total return. Following the proposed
merger, fund shares no longer will be sold or redeemed by SST on a request
basis, but may be sold to other investors in market transactions. The costs
associated with the proposed merger are allocated to all the funds based on the
respective net asset values of the funds. The proposed merger requires approval
by the shareholders. A Registration Statement or Form N-14 is pending SEC
regulatory approval and the proposed merger requires the approval of the
Shareholders of all of the funds.
================================================================================
<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
Reznick Fedder & Silverman P.C.
4520 East West Highway
Bethesda, Maryland 20814
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, 1997
A Steadman NO-LOAD Mutual Fund
[LOGO] STEADMAN SECURITY
CORPORATION
Investment Advisor
- -------------------------------------------------------------------------------
