<PAGE>
As filed with the Securities and Exchange Commission on October 30, 1997
Securities Act File No. 333-20889
Investment Company Act File No. 811-00018
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-------------------------------
Pre-Effective Amendment No. __ Post-Effective Amendment No. 1
(Check Appropriate Box of Boxes)
STEADMAN ASSOCIATED FUND
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(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
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(Address of Principal Executive Offices, including Zip Code)
Max Katcher
Steadman Associated Fund
1730 K Street, N.W.
Washington, D.C. 20006
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(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
N-14 Location in
Item No. Registration Statement
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Part A: Information Required
in Prospectus/Proxy Statement
- -----------------------------
1. Beginning of Registration Statement Cover Page; Cross Reference Sheet
and Outside Front Cover Page of
Prospectus
2. Beginning and Outside Back Cover Table of Contents
Page of Prospectus
3. Synopsis and Risk Factors Synopsis; Principal Risk Factors
4. Information about the Transaction Synopsis; Approval of the Merger;
Capitalization Table; Exhibit A
5. Information about the Registrant Synopsis; Comparison of Investment
Objectives, Policies and Techniques
of the Funds; Principal Risk Factors;
Legal Proceedings; Miscellaneous.
6. Information about the Company Synopsis; Comparison of Investment
Being Acquired Objectives, Policies and Techniques
of the Funds; Principal Risk Factors;
Miscellaneous.
7. Voting Information Synopsis; Approval of the Merger;
Information concerning the Meetings.
8. Interest of Certain Persons and Not Applicable.
Experts
9. Additional Information Required Not Applicable.
for Reoffering by Persons Deemed
to be Underwriters
<PAGE>
N-14 Location in
Item No. Registration Statement
-------- ----------------------
Part B: Information Required in
Statement of Additional Information
- -----------------------------------
10. Cover Page Cover Page
11. Table of Contents Item 11. Table of Contents
12. Additional Information about the Item 12. Additional Information
Registrant about the Registrant
13. Additional Information about the Item 13. Additional Information about
Company Being Acquired the Company Being Acquired.
14. Financial Statements Item 14. Financial Statements
Part C: Other Information
- --------------------------
15. Indemnification Item 15. Indemnification
16. Exhibits Item 16. Exhibits
17. Undertakings Item 17. Undertakings
<PAGE>
STEADMAN AMERICAN INDUSTRY FUND
STEADMAN ASSOCIATED FUND
STEADMAN INVESTMENT FUND
STEADMAN TECHNOLOGY AND GROWTH FUND
October 29, 1997
DEAR SHAREHOLDER:
ENCLOSED IS A PROXY STATEMENT AND PROSPECTUS AND A MORE DETAILED
SHAREHOLDER LETTER CONCERNING THE PROPOSED MERGER OF STEADMAN AMERICAN INDUSTRY
FUND ("SAIF"), STEADMAN INVESTMENT FUND ("SIF"), AND STEADMAN TECHNOLOGY AND
GROWTH FUND ("STGF") INTO STEADMAN ASSOCIATED FUND ("SAF"), WHICH WILL BE
RENAMED
STEADMAN SECURITY TRUST ("SST")
THE MERGER WILL BE ACCOMPLISHED BY EXCHANGING SAIF, SIF, AND STGF SHARES ON
A PRO RATA BASIS FOR SHARES OF SST. THEREAFTER, FOLLOWING THE APPROVAL OF THE
SST SHAREHOLDERS AT THE MEETING, SST WILL OPERATE AS A SINGLE OPEN-END FUND.
CONSOLIDATION OF THE FOUR FUNDS WILL POTENTIALLY RESULT IN LOWER OPERATING
EXPENSES. A MANAGEMENT ANALYSIS ESTIMATES THAT MERGING THE FOUR FUNDS INTO ONE
FUND SHOULD PERMIT THE FUNDS, WHEN MERGED, TO REDUCE AGGREGATE ANNUAL OPERATING
COSTS FROM ABOUT $1,338,000 TO $700,000. EVEN THOUGH THE MERGER WILL NOT ENSURE
THAT THE COMBINED SST WILL BE PROFITABLE, THE TRUSTEES BELIEVE IT HAS A BETTER
OPPORTUNITY FOR EARNINGS THAN CONTINUING WITH FOUR FUNDS SEPARATELY. THE
TRUSTEES ANTICIPATE THAT AFTER THE MERGER, OPERATING EXPENSES MAY EXCEED INCOME
AND IN ORDER TO OPERATE PROFITABLY, SST WILL HAVE TO RELY UPON CAPITAL
APPRECIATION, IF ANY.
POSSIBLE REDUCTION IN FUND SIZE - THE COMBINED ASSETS OF THE FUNDS MAY
CONTINUE TO SHRINK AFTER THE MERGER BECAUSE THE TRUSTEES ANTICIPATE THAT SST'S
OPERATING EXPENSES MAY EXCEED SST'S INCOME. IN ADDITION, SHOULD SHAREHOLDERS
INCREASE THE AMOUNT OF REQUESTS TO REDEEM SHARES ABSENT THE SALE OF NEW SHARES,
THE NET ASSETS OF SST MAY CONTINUE TO SHRINK. SHOULD THE NET ASSETS OF SST
BECOME TOO SMALL TO SUSTAIN SST, THE FUND MAY HAVE TO BE LIQUIDATED.
SHAREHOLDERS WHO DO NOT WISH TO PARTICIPATE IN THE MERGER CAN EITHER REDEEM
THEIR SHARES OR VOTE "NO" ON THE ENCLOSED PROXY.
THE TRUSTEES OF EACH OF THE FOUR FUNDS UNANIMOUSLY RECOMMEND SHAREHOLDER
APPROVAL OF THIS MERGER PROPOSAL AND THE RATIFICATION OF THE SELECTION OF
REZNICK FEDDER & SILVERMAN, P.C. TO SERVE AS INDEPENDENT AUDITORS TO EXAMINE THE
FINANCIAL STATEMENTS OF EACH OF THE FUNDS FOR THE CURRENT FISCAL YEAR AND SST
AFTER COMPLETION OF THE
<PAGE>
MERGER. THE SST TRUSTEES ALSO UNANIMOUSLY RECOMMEND THAT THE SST
SHAREHOLDERS ELECT THE PERSONS NOMINATED TO SERVE AS TRUSTEES, AND RATIFY AND
CONFIRM THE AMENDED AND RESTATED TRUST INDENTURE OF SST INCLUDING CHANGING
SST'S FUNDAMENTAL INVESTMENT OBJECTIVE.
PLEASE REVIEW THE ATTACHED MATERIALS CAREFULLY AND RETURN YOUR PROXY AS
SOON AS POSSIBLE.
FOR THE BOARDS OF TRUSTEES
OF
STEADMAN AMERICAN INDUSTRY FUND
STEADMAN ASSOCIATED FUND
STEADMAN INVESTMENT FUND
STEADMAN TECHNOLOGY AND GROWTH FUND
/s/ Charles W. Steadman
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
October 29, 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 Thursday, December 18, 1997, at 10:00 a.m., Washington, D.C. time, at
the executive offices of SSC located at 1730 K Street, N.W., Washington, D.C.
20006 (the "Special Meetings").
At the Special Meetings, you will be asked to consider and approve a very
important proposal. Subject to shareholder approval, Steadman American Industry
Fund, Steadman Investment Fund and Steadman Technology and Growth Fund (the
"Merging Funds") will merge into Steadman Associated Fund (the "Merger"), which
will be renamed the "Steadman Security Trust" ("SST" and collectively with the
Merging Funds, the "Funds"). Immediately prior to the Merger, SST will effect a
reverse stock split so that each ten shares of SST will be converted into one
SST share. Shareholders of the Merging Funds will receive shares of SST on a
pro rata basis in exchange for their shares of the Merging Funds.
Possible Reduction in Fund Size - The combined assets of the Funds may
continue to shrink after the Merger because the Trustees anticipate that SST's
operating expenses may exceed SST's income. In addition, should shareholders
increase the amount of requests to redeem shares absent the sale of new shares,
the net assets of SST may continue to shrink. Should the net assets of SST
become too small to sustain SST, the Fund may have to be liquidated.
THE REORGANIZATION WILL PROVIDE SHAREHOLDERS WITH POTENTIAL ECONOMIES:
1. Potential Lower Operating Costs. Operating costs of SST on a
post-merger basis will be reduced substantially from the aggregate expense of
operating the Merging Funds and SST separately. The Merger will enable SST to
use its assets more effectively. Because of the Merger and the resulting
reduction in the number of shareholder accounts, accounting fees, stock transfer
costs, and other shareholder service expenses will be reduced significantly.
Management of the Funds believes that annual operating costs will be reduced
principally in the following areas: shareholder servicing fees, professional
fees, expenses related to reports to shareholders, computer services and data
processing expenses, and custodian fees. Management estimates that SST's annual
operating expenses will be approximately $700,000 or about $638,000 lower than
current total expenses of the four Funds. The estimated reduction in operating
costs cannot guarantee profitable operation of SST.
<PAGE>
2. Expense Ratio. The Trustees expect the expense ratio of SST
after the Merger to be lower than the expense ratios of each of the four Funds.
There can be no assurance that reductions in expenses will result in profitable
operations for SST.
3. Tax Aspects. The reverse stock split will constitute a
recapitalization of SST for tax purposes, but the Merger will not qualify as a
tax-deferred reorganization under the Internal Revenue Code of 1986, as amended.
Shareholders of SAIF, SIF, and STGF will recognize gain or loss equal to the
difference between the tax bases of their SAIF, SIF, or STGF shares surrendered
by them in the Merger and the fair market value of the SST shares they receive
in the exchange. In many cases, the result may be a tax loss rather than a tax
gain, but each shareholder must calculate individually their own gain or loss.
Such gain or loss will be capital gain or loss for shareholders who hold their
SAIF, SIF, or STGF shares as capital assets and will be long term or short term
gain or loss depending upon their individual holding periods for the shares
surrendered. SST and its shareholders will not recognize gain or loss as a
result of the exchange of SST shares for SST shares in the reverse stock split.
SAIF, SIF, and STGF will be treated for federal income tax purposes as if they
had transferred all of their assets to SST in a taxable transaction, had
recognized all of the built-in gains and losses on those assets, and had then
liquidated. SAIF, SIF, and STGF will be able to offset any net gain from this
deemed asset sale with their respective capital loss and net operating loss
carryovers. The Trustees anticipate that there will be sufficient loss
carryovers to offset any net gain recognized by SAIF, SIF, or STGF in the
Merger. SST will not be taxed 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. SAF,
as the surviving single entity of the Merger for tax purposes, will be able to
utilize its separate tax loss carryforwards against ordinary income and capital
gains to eliminate or reduce post-merger taxable income. Based upon the past
performance of the Funds, there is little likelihood that after the Merger SST
will be able to utilize these tax benefits in full.
The attached Joint Proxy Statement and Prospectus has been prepared to give
you detailed information about this reorganization.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN YOUR PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE SO THAT YOUR VOTE
WILL BE COUNTED.
We appreciate your continued support and confidence in our funds.
FOR THE BOARDS OF TRUSTEES
OF
STEADMAN AMERICAN INDUSTRY FUND
STEADMAN ASSOCIATED FUND
STEADMAN INVESTMENT FUND
STEADMAN TECHNOLOGY AND GROWTH FUND
/s/ Charles W. Steadman
Charles W. Steadman
Chairman of the Boards of Trustees
and President
<PAGE>
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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
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NOTICE OF SPECIAL MEETINGS OF SHAREHOLDERS
To Be Held December 18, 1997
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To the Shareholders:
Notice is hereby given of Special Meetings of the Shareholders of
Steadman American Industry Fund ("SAIF"), Steadman Associated Fund ("SAF"),
Steadman Investment Fund ("SIF") and Steadman Technology and Growth Fund
("STGF"), each currently an open-end investment company (collectively, the
"Funds"). The meetings will be held on Thursday, December 18, 1997, at 10:00
a.m., Washington, D.C. time, at the executive offices of SSC located at 1730
K Street, N.W., Washington, D.C. 20006, subject to any adjournments thereof
(the "Meetings"), for the following purposes:
1. FOR THE SHAREHOLDERS OF ALL OF THE FUNDS:
(a) To consider and act upon a proposal to approve the Agreement and
Plan of Merger dated as of May 2, 1997, as amended October 16,
1997 (the "Merger Agreement"), by and among SAIF, SAF, SIF, and
STGF whereby SAIF, SIF, and STGF will merge into SAF (the
"Merger"), which will be renamed Steadman Security Trust ("SST");
and
(b) To consider and act upon a proposal to ratify the selection of
Reznick Fedder & Silverman, P.C. as independent auditors of the
Funds and SST after the Merger.
2. SOLELY FOR THE SHAREHOLDERS OF SAF:
(a) To elect three Trustees for terms of unlimited duration; and
(b) To consider and act upon a proposal to ratify and confirm the
Amended and Restated Trust Indenture of SST dated as of October
16, 1997, which provides, among other things, for the change of
SST's fundamental investment objective from primarily capital
growth and secondarily current income to primarily current income
and secondarily to maximize total return.
<PAGE>
Execution of a proxy in the form enclosed also permits the proxy holders to
vote, in their discretion, upon such other matters that may come before the
Meeting or any adjournment thereof. As of the date of mailing, the Trustees of
the Funds are not aware of any other matters that may come before the Meeting.
The Merger is more fully described in the accompanying Proxy Statement and
Prospectus. A copy of the Merger Agreement is attached as Exhibit A thereto.
Shareholders of record of SAIF, SAF, SIF, and STGF at the close of business on
October 21, 1997 are entitled to notice of, and to vote at, the Meetings.
Please read the Proxy Statement and Prospectus carefully before telling us,
through your proxy or in person, how you wish your shares to be voted. The
Trustees of each of SAIF, SAF, SIF, and STGF unanimously recommend a vote in
favor of the Merger and for ratification of the selection of Reznick Fedder &
Silverman, P.C. as independent auditors to examine the financial statements of
each of the Funds for the current fiscal year and for SST after the completion
of the Merger. The Trustees of SST also unanimously recommend that SST
shareholders elect the persons nominated to serve as Trustees, and ratify and
confirm the Amended and Restated Trust Indenture of SST and the change in SST's
fundamental investment objective.
WE URGE YOU TO SIGN, DATE AND MAIL THE ENCLOSED PROXY PROMPTLY.
By Order of the Boards of Trustees,
/s/ Max Katcher
Max Katcher, Secretary
Washington, D.C.
October 29, 1997
YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES YOU OWN
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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.
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<PAGE>
QUESTIONS AND ANSWERS ABOUT THE PROPOSED MERGER
1. What is the Merger?
The Merger proposes to combine four separate funds into a single investment
company, the Steadman Associated Fund ("SAF"), whose name will change to
Steadman Security Trust ("SST").
The number of shares of SST issued to shareholders of SAIF, SIF, and STGF
will be determined on the basis of relative net asset values of SST and each
of the other funds. Immediately prior to the merger, SST will declare a
reverse stock split of ten to one so that each ten outstanding shares of SST
will become one share of SST. The value of the new 10-to-1 shares of SST
issued to shareholders of the other funds as a result of the Merger will be
equal to the value of shares they held in the other funds on the day before
the closing date of the Merger. Shareholders of SST will not be diluted as a
result of the Merger.
2. What are the reasons for the Merger?
After a detailed study of the operations of SAIF, SAF, SIF, and STGF, the
Trustees concluded that the Merger would create substantial cost savings and
other economies and would provide shareholders with important benefits:
A. Potential Lower Operating Costs. Operating costs of SST on a
post-merger basis will be reduced substantially from the aggregate costs of
operating four funds separately. The Merger will enable SST to use its
assets more effectively and increase shareholder value by providing a larger
pool of funds for investment. Because of the Merger and the resulting
reduction in the number of shareholder accounts, accounting fees, stock
transfer costs, and other shareholder service expenses will be reduced
significantly. The Trustees believe that aggregate annual operating costs
will be reduced principally in the following areas: shareholder servicing
fees, professional fees, expenses related to reports to shareholders,
computer services and data processing fees, and custodian fees. Management
estimates that SST annual operating expenses will be about $700,000 or
$638,000 lower than total expenses of the current four Funds, approximately
$1,338,000. The estimated reduction in operating expenses cannot guarantee
profitable operation of SST.
B. Expense Ratio. The annual operating expenses for each of the
Funds as a percentage of average net assets at June 30, 1997 were as follows:
SAIF - 31.07%, SAF- 12.42%, SIF- 16.47%, and STGF- 41.46%. If the Merger had
taken place on June 30, 1997, the Trustees believe that as a result of
anticipated savings, the pro forma combined expense ratio of SST would have
been 11.27%. There can be no assurance that reductions in aggregate expenses
will result in profitable operations, and it is anticipated that operating
expenses of SST after the Merger may exceed net operating income of SST
before taking into account capital appreciation, if any.
C. Tax Aspects. The ten to one reverse stock split of SST will be
a recapitalization of SST for federal income tax purposes, but the Merger
will not qualify as a tax-deferred reorganization under the Internal Revenue
Code of 1986, as amended (the "Code"). SST and its shareholders will not
recognize gain or loss as a result of the exchange of SST shares for SST
shares in the reverse stock split. Shareholders of SAIF, SIF, and STGF will
recognize gain or loss equal to the difference between the tax bases of their
SAIF, SIF, or STGF shares surrendered by them in the Merger and the fair
market value of SST shares they receive in the exchange. For many SAIF,
1
<PAGE>
SIF, and STGF shareholders, the result may be a tax loss rather than a tax
gain, but each shareholder's gain or loss calculation must be performed
individually and shareholders are encouraged to consult with their own tax
advisor. SAIF, SIF, and STGF will be treated for federal income tax purposes
as if they had transferred all of their assets to SST in a taxable
transaction, had recognized all of the built-in gains and losses on those
assets, and had then liquidated. SAIF, SIF, and STGF will be able to offset
any net gain from this deemed asset sale with their respective capital loss
and net operating loss carryovers. The Trustees anticipate that there will
be sufficient loss carryovers to offset any net gain recognized by SAIF, SIF,
or STGF in the Merger. SST will not recognize any gain or loss as a result
of the deemed asset sale, nor will its shareholders. Any capital loss and
net operating loss carryovers of SAIF, SIF, and STGF not used to offset their
net recognized gain in the Merger will expire. SAF, as the surviving single
entity of the Merger for tax purposes, will be able to utilize its separate
tax loss carryforwards against ordinary income and capital gains to eliminate
or reduce post-Merger taxable income. Management estimates that after the
Merger, a maximum of $5,192,000 of net operating losses and a maximum of
$804,000 of capital loss carryovers will be available to be used by SST based
upon June 30, 1997 financial information. If the former holders of SAF
represent less than 50% of the total ownership interests of SST after the
Merger, the amount of the above losses which may be used by SST in any one
year will be limited by Section 382 of the Code. In addition, other
transactions subsequent to the Merger could result in a change in the
ownership of SST (combined with the change resulting from the Merger) that
causes the loss limitation rules to apply. For example, assuming that the
effective date of the Merger was June 30, 1997 and that the amount of the pro
forma net asset value represented by former holders of SAF has decreased to
49% of the total ownership interests of SST, the amount of the above net
operating losses and capital loss carryovers that could be used in future
periods would be limited to approximately $300,000 annually. If, however, on
the effective date of the Merger, the net asset value represented by former
holders of SAF was less than 49% of the total ownership interests of SST, the
amount of net operating losses and capital loss carryovers would be less then
$300,000. 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 after
the Merger SST will be able to utilize these tax benefits in full.
3. Who is paying the expenses of the Merger?
Each of the Funds will bear its proportionate share of the expenses of
the Merger of the Funds. It is anticipated that the expenses of the Merger,
which include, but are not limited to, legal and accounting fees and
expenses, printing, postage, and mailing expenses for over 17,000 shareholder
accounts, state blue-sky and SEC filing fees, and expenses relating to
electronic filing with the SEC will approximate $393,000, which will lower
the net asset value of SST by that sum upon consummation of the Merger.
4. Who will serve as Trustees of SST?
Charles W. Steadman, Dr. Paul A. Bowers and Vice Admiral John T. Hayward
USN (Ret.) will continue to serve as Trustees along with Paul F. Wagner,
William Mark Crain and Richard O. Haase, who have been nominated for election
at the shareholders' meeting.
2
<PAGE>
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. SST will be pleased to furnish any additional
information that you want.
7. Will this Merger result in any tax liability to any of the funds or to me
as a shareholder?
The Merger will not qualify as a tax-deferred reorganization for federal
income tax purposes. The transaction will be treated for federal income tax
purposes as if SAIF, SIF, and STGF had transferred all of their assets to SST
in a taxable transaction, had recognized all built-in gains and losses on
those assets, and had distributed SST shares to their respective shareholders
in liquidation. The Trustees believe that the capital loss and net operating
loss carryovers of SAIF, SIF, and STGF will be sufficient to offset any net
gain of those entities recognized in the Merger. SST and its shareholders
will not recognize any gain or loss as a result of the deemed asset sale.
The shareholders of SAIF, SIF, and STGF will be deemed to have exchanged
their SAIF, SIF, and STGF shares for SST shares in a taxable transaction.
Such shareholders will recognize gain or loss equal to the difference between
their individual tax bases for the SAIF, SIF, and STGF shares surrendered and
the fair market value of SST shares received. Such gain or loss will be
capital for shareholders who hold their SAIF, SIF, or STGF shares as capital
assets and will be long term or short term gain or loss depending upon their
individual holding periods for the shares surrendered. For many SAIF, SIF,
and STGF shareholders, the result may be a tax loss rather than a tax gain,
but each shareholder's gain or loss calculation must be determined
individually.
Shareholders of the funds should consult their tax advisors regarding the
effect, if any, of the Merger in light of their individual circumstances.
Because the foregoing discussion relates only to federal income tax
consequences of the Merger, shareholders should also consult their tax
advisors as to state and local tax consequences, if any.
8. When can I redeem my shares?
Shareholders may redeem their shares in each of the Funds at net asset
value at any time by following Fund procedures. Call 1-800-424-8570 to
redeem your shares or for more information pertaining to the redemption of
your shares.
Shareholders are directed to read the accompanying Proxy Statement and
Prospectus for further information about the Merger and related matters.
Additional information about SST is set forth in its accompanying Proxy
Statement and Prospectus.
3
<PAGE>
STEADMAN AMERICAN INDUSTRY FUND
STEADMAN ASSOCIATED FUND
STEADMAN INVESTMENT FUND
STEADMAN GROWTH AND TECHNOLOGY FUND
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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 on Thursday, December 18,
1997, at 10:00 a.m., Washington, D.C. time, at the executive offices of
Steadman Security Corporation ("SSC") located at 1730 K Street, N.W.,
Washington, D.C. 20006, subject to 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 October 29, 1997.
At the Meetings, shareholders will be asked to consider and vote upon
approval of the Agreement and Plan of Merger, dated as of May 2, 1997, as
amended October 16, 1997 (the "Merger Agreement"), by and among SAIF, SAF,
SIF, and STGF (the "Merger"). The Merger Agreement provides for the merger
of SAIF, SIF, and STGF with and into SAF, which will be renamed Steadman
Security Trust ("SST") and with the approval of SST shareholders which will
be sought at the Meeting, SST will change its fundamental investment
objective from primarily capital growth and secondarily current income to
primarily current income and secondarily to maximize total return. As
originally drafted, the Merger Agreement provided as a condition to the
closing that SAF would convert to a closed-end fund. The Trustees of the
Funds have amended the Merger Agreement to remove this condition. As a
result of the proposed Merger, each shareholder of SAIF, SIF, and STGF will
receive that number of SST shares equal in value to that shareholder's pro
rata interest in the net assets transferred to SST, as of the Valuation Date
(as defined in the Merger Agreement). The proposed Merger provides that
immediately prior to the effective date of the Merger, SST will effect a
reverse split of its shares so that each ten shares issued and outstanding
will be converted to one share of the Fund. The shareholders of SAF, which
will become SST, will continue to hold the same number of shares before and
after the Merger. The reverse stock split will constitute a tax-free
recapitalization of SST, but the Merger will not qualify as a tax deferred
reorganization for federal income tax purposes for SAIF, SIF, STGF, or their
respective shareholders. See "Approval of the Merger-Tax Aspects of the
Merger."
1
<PAGE>
POSSIBLE REDUCTION IN FUND SIZE - THE COMBINED ASSETS OF THE FUNDS MAY
CONTINUE TO SHRINK AFTER THE MERGER BECAUSE THE TRUSTEES ANTICIPATE THAT
SST'S OPERATING EXPENSES MAY EXCEED SST'S INCOME. IN ADDITION, SHOULD
SHAREHOLDERS INCREASE THE AMOUNT OF REQUESTS TO REDEEM SHARES ABSENT THE SALE
OF NEW SHARES, THE NET ASSETS OF SST MAY CONTINUE TO SHRINK. SHOULD THE NET
ASSETS OF SST BECOME TOO SMALL TO SUSTAIN SST, THE FUND MAY HAVE TO BE
LIQUIDATED.
To simplify references herein, SAF in most cases will generally refer to
the Steadman Associated Fund prior to the Merger. For legal and tax
purposes, SAF will be the surviving fund and for accounting purposes, SIF
will be the surviving fund, however, references herein to SST will generally
refer to the surviving fund after the Merger-either SAF or SIF as the context
may indicate.
As of October 21, 1997 (the "Record Date"), SAF had 5,209,368 shares of a
single class issued and outstanding pursuant to an Amended and Restated Trust
Indenture, dated as of October 16, 1997 ("Trust Indenture").
It is anticipated that operating expenses of SST after the Merger may
exceed net operating income of the Fund before taking into account capital
appreciation, if any.
The primary investment objective of three of the Funds, SAIF, STGF, and
SAF, is substantially the same-capital growth through the utilization of a
broad range of investment vehicles and techniques including, but not limited
to, the purchase and sale of put and call options. The realization of
current income is secondary to each Fund's efforts in pursuing its goal of
capital appreciation. However, the current primary objective of the fourth
Fund, SIF, is to seek current income, and secondarily to maximize total
return but only consistent with its primary objective. Upon the consummation
of the Merger, the investment objective of SST will be to seek current income
and secondarily to maximize the total return but only to the extent
consistent with the primary objective. All of the Funds currently employ the
same investment management techniques. See "Comparison of Investment
Objectives, Policies and Techniques of the Funds."
In addition, pursuant to the borrowing policy of SAF, SAF may borrow from
banks for investment purposes. This borrowing, which is a speculative
technique known as leveraging, generally will be unsecured, and is subject to
the requirements of the 1940 Act. Following the Merger, the borrowing policy
of the Fund will not change. Open-end investment companies are not permitted
to issue senior securities. For a more detailed discussion of the Fund's
borrowing policy, see "Principal Risk Factors-Borrowing Policy."
SST has filed with the Securities and Exchange Commission (the "SEC") a
Registration Statement on Form N-14 (the "Registration Statement") relating
to the registration of shares of SST to be offered to the shareholders of
SAIF, SIF, and STGF pursuant to the Merger Agreement. This Proxy Statement
and Prospectus relating to the Merger also constitutes a Prospectus of SST
filed as part of such Registration Statement. Information contained or
2
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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
SAF 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 SSC, 1730 K Street, N.W., Washington, D.C. 20006 or by
calling the following toll free number 1-800-424-8570: Annual Reports, dated
June 30, 1997 for each of the Funds: SAIF, SAF, SIF, and STGF.
Investors are advised to read and retain this Proxy Statement and
Prospectus for future reference.
A Statement of Additional Information, dated the date of this Prospectus,
relating to the proposed transactions described in this Proxy Statement and
Prospectus, has been filed with the SEC and is incorporated by reference
herein. Copies of this Statement of Additional Information may be obtained
without charge by contacting 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 October 22, 1997.
3
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TABLE OF CONTENTS
PROXY STATEMENT AND PROSPECTUS
Page
----
AGREEMENT AND PLAN OF MERGER..................................................7
SYNOPSIS......................................................................7
Parties to the Merger.....................................................7
The Merger................................................................7
Tax Consequences of the Merger............................................9
Investment Objectives and Policies........................................9
Investment Advisory Fee..................................................10
Purchases of Shares in the Funds.........................................10
PRINCIPAL RISK FACTORS.......................................................10
Performance of the Funds.................................................10
Redemption by States.....................................................11
Lack of Shareholder Participation in Certain Governance Matters;
Restrictions on Acquisition............................................11
Absence of Dividends.....................................................12
Investment Management Techniques.........................................12
Non-Diversified Status...................................................13
Borrowing Policy.........................................................13
Operating Costs..........................................................14
Utilization of Tax Loss Carry Forwards...................................14
Non-Qualification of Merger for Tax Deferral.............................14
Non-Qualification as a Regulated Investment Company for Tax Purposes.....15
Lack of Ability to Increase Net Assets through Share Sales...............15
APPROVAL OF THE MERGER (PROPOSAL NO. 1)......................................15
Background...............................................................16
The Merger...............................................................16
Trustee Approval of the Merger...........................................17
Tax Aspects of the Merger................................................19
CAPITALIZATION TABLE (UNAUDITED).............................................20
COMPARATIVE FEE TABLES.......................................................21
Transaction Charges......................................................21
Expenses of the Funds; Pro Forma Projected Operating Expenses............21
Example..................................................................23
PRO FORMA FINANCIAL INFORMATION..............................................23
4
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TABLE OF CONTENTS
(continued)
PROXY STATEMENT AND PROSPECTUS
Page
----
FORM OF ORGANIZATION OF THE FUNDS............................................30
COMPARISON OF INVESTMENT OBJECTIVES,
POLICIES AND TECHNIQUES OF THE FUNDS.....................................30
General..................................................................30
Portfolio Concentration..................................................31
CONDENSED FINANCIAL INFORMATION OF THE FUNDS.................................32
SAIF
Management's Discussion of
Performance of the Fund.............................................37
SAF
Management's Discussion of
Performance of the Fund..............................................37
SIF
Management's Discussion of
Performance of the Fund..............................................38
STGF
Management's Discussion of
Performance of the Fund..............................................39
DESCRIPTION OF CAPITAL STRUCTURE OF THE FUNDS
AND SHAREHOLDER RIGHTS....................................................44
Special Provisions of SST.................................................44
Redemption of Shares......................................................45
MANAGEMENT OF THE FUNDS.......................................................46
LEGAL PROCEEDINGS.............................................................47
SELECTION OF INDEPENDENT AUDITORS (PROPOSAL NO. 2)............................47
ELECTION OF TRUSTEES
OF STEADMAN ASSOCIATED FUND (PROPOSAL NO. 3)..............................48
Election of Trustees......................................................48
Committee and Meetings of Trustees........................................49
Interested Persons........................................................49
Compensation of Trustees..................................................49
Officers of SAF...........................................................50
5
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TABLE OF CONTENTS
(continued)
PROXY STATEMENT AND PROSPECTUS
Page
----
RATIFICATION OF AMENDED AND RESTATED TRUST
INDENTURE OF STEADMAN SECURITY TRUST (PROPOSAL NO. 4)...................50
INFORMATION CONCERNING THE MEETINGS..........................................52
The Meetings.............................................................52
Record Date; Vote Required; Share Information............................52
Proxies..................................................................53
Costs of the Solicitation and the Reorganization.........................53
MISCELLANEOUS................................................................53
Financial Information....................................................53
Public Information.......................................................54
OTHER BUSINESS...............................................................54
Exhibit A-Agreement and Plan of Merger, dated as of May 2, 1997, as amended
October 16, 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 dated as of October 16, 1997.
6
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AGREEMENT AND PLAN OF MERGER
SYNOPSIS
Following is a synopsis of certain information contained in or incorporated
by reference in this Proxy Statement and Prospectus. It presents key
considerations to assist shareholders of SAIF, SAF, SIF, and STGF in determining
whether to approve the Merger. This synopsis is only a summary and is qualified
in its entirety by the more detailed information contained in or incorporated by
reference in this Proxy Statement and Prospectus and the Exhibits hereto.
Shareholders should carefully review this Proxy Statement and Prospectus and the
Exhibits hereto in their entirety.
Parties to the Merger
Each of the Funds, SAIF, SIF, STGF, and SST, is a common law trust,
domiciled in the District of Columbia. Each is currently a non-diversified
open-end investment company.
The Merger
The Merger Agreement provides for the merger of SAIF, SIF, and STGF into
SAF, which will be renamed 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 to those
shareholders that would have received less than a one share as a result the
Merger and reverse stock split. The Merger Agreement provides that immediately
prior to the effective date of the Merger SST will effect a reverse stock split
so that each ten shares issued and outstanding will be converted into one share
of the Fund.
The Trustees of each Fund, including Trustees who are not "interested
persons" of the Fund (the "Independent Trustees"), as that term is defined in
the 1940 Act, have concluded that the Merger is in the best interests of each of
the Funds and their shareholders. They also believe that the interests of
existing shareholders will not be diluted as a result of the Merger except for
expenses of the Merger, which will be shared proportionately by the Funds. The
Trustees unanimously recommend approval of the Merger by the shareholders of
each Fund.
The Trustees' recommendation is based on the following conclusions:
First, operating costs of the Funds will be reduced substantially from the
aggregate costs of operating the four funds functioning separately. However,
it is anticipated that operating expenses of SST after the Merger may exceed net
operating income of the Fund before taking into account capital appreciation, if
any. The Merger may enable SST to use its assets more effectively and increase
shareholder value by providing a larger pool of funds for investment.
Accounting fees, stock transfer costs, and other shareholder service expenses
will be reduced significantly. The Trustees believe that aggregate annual
operating costs will be reduced principally in the following areas: shareholder
servicing fees, professional fees, expenses related to reports to shareholders,
computer services and data processing expenses, and custodian fees. Management
of the Funds estimates that SST annual operating expenses will be approximately
$700,000 which is $638,000
7
<PAGE>
lower than total aggregate expenses of the current four Funds. The estimated
reduction in operating expenses cannot guarantee profitable operation of SST.
Second, the annual operating expenses for each of the Funds as a percentage
of average net assets at June 30, 1997 were as follows: SAIF - 31.07%, SAF-
12.42%, SIF- 16.47% and STGF- 41.46%. If the Merger had taken place on June 30,
1997, the Trustees believe that as a result of anticipated savings, the pro
forma combined expense ratio of SST would have been 11.27%. There can be no
assurance, however, that reductions in expenses will result in profitable
operations, and it is anticipated that operating expenses of SST after the
Merger may exceed net operating income of SST before taking into account capital
appreciation, if any.
Third, the reverse stock split of SST will constitute a recapitalization of
SST, but the Merger will not qualify as a tax-deferred reorganization under the
Internal Revenue Code of 1986, as amended (the "Code"). SST and its
shareholders will not recognize any gain or loss as a result of the exchange of
SST shares for SST shares in the reverse stock split. Shareholders of SAIF,
SIF, and STGF will recognize gain or loss equal to the difference between the
tax bases of their SAIF, SIF, or STGF shares surrendered by them in the Merger
and the fair market value of SST shares they receive in the exchange. For many
SAIF, SIF, and STGF shareholders, the result may be a tax loss rather than a tax
gain, but each shareholder's gain or loss calculation must be determined
individually and shareholders are encouraged to consult their own tax advisor.
SAIF, SIF, and STGF will be treated for federal income tax purposes as if they
had transferred all of their assets to SST in a taxable transaction, had
recognized all of the built-in gains and losses on those assets, and had then
liquidated. SAIF, SIF, and STGF will be able to offset any net gain from this
deemed asset sale with their respective capital loss and net operating loss
carryovers. The Trustees anticipate that there will be sufficient loss
carryovers to offset any net gain recognized by SAIF, SIF, or STGF in the
Merger. SST will not recognize any gain or loss as a result of the deemed asset
sale, nor will its shareholders. Any capital loss and net operating loss
carryovers of SAIF, SIF, and STGF not used to offset their net gain in the
Merger will expire. SST, as the surviving single entity, will be able to
utilize its separate tax loss carryforwards against ordinary income and capital
gains to eliminate or reduce SST's post-merger taxable income. Management
estimates that after the Merger, a maximum of $5,192,000 of net operating losses
and a maximum of $804,000 of capital loss carryovers will be available to be
used by SST based upon June 30,1997 financial information. If the former
holders of SAF represent less than 50% of the total ownership interests of SST
after the Merger, the amount of the above losses which may be used by SST in any
one year will be limited by Section 382 of the Code. In addition, other
transactions subsequent to the Merger could result in a change in the ownership
of SST (combined with the change resulting from the Merger) that causes the loss
limitation rules to apply. For example, assuming that the effective date of the
Merger was June 30, 1997 and that the amount of the pro forma net asset value
represented by former holders of SAF has decreased to 49% of the total ownership
interests of SST, the amount of the above net operating losses and capital loss
carryovers that could be used in future periods would be limited to
approximately $300,000 annually. If, however, on the effective date of the
Merger, the net asset value represented by former holders of SAF was less than
49% of the total ownership interests of SST, the amount of net operating losses
and capital loss carryovers would be less then $300,000. Whether any future
events will cause imposition of a restriction in tax loss utilization for SST
cannot be predicted at this point. Based upon the past performance of the
Funds, there is little likelihood that SST will be able to utilize these tax
benefits in full. See "Approval of the Merger-Trustees Approval of the
8
<PAGE>
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 Meetings. The Trustees of each Fund recommend a vote "FOR" the
Merger. See "Information Concerning the Meetings-Record Date; Vote Required;
Share Information."
Tax Consequences of the Merger
The reverse stock split of SST will constitute a tax-free recapitalization
of SST, but the Merger will not qualify as a tax-deferred reorganization for
federal income tax purposes. The transaction will be treated for federal income
tax purposes as if SAIF, SIF, and STGF had transferred all of their assets to
SST in a taxable transaction, had recognized all of the built-in gains and
losses on those assets, and had distributed SST shares to their respective
shareholders in liquidation. The Trustees believe that the capital loss and net
operating loss carryovers of SAIF, SIF, and STGF will be sufficient to offset
any net gain of those entities recognized in the Merger. Loss carryforwards of
SAIF, SIF, and STGF not utilized in the Merger will expire, but SST will be able
to use its separate loss carryforwards after the Merger. SST and its
shareholders will not recognize any gain or loss as a result of the deemed asset
sale and liquidation. The shareholders of SAIF, SIF, and STGF will be deemed to
have exchanged their SAIF, SIF, and STGF shares for SST shares in a taxable
transaction. Such shareholders will recognize gain or loss equal to the
difference between their individual tax bases for the SAIF, SIF, and STGF shares
surrendered and the fair market value of SST shares received. Such gain or loss
will be capital for shareholders who hold their SAIF, SIF, or STGF shares as
capital assets and will be long term or short term gain depending upon their
individual holding periods for the shares surrendered. For many SAIF, SIF, and
STGF shareholders, the result may be a tax loss rather than a tax gain, but each
shareholder's gain or loss calculation must be performed individually and
shareholders are encouraged to consult with their own tax advisor.
Investment Objectives and Policies
Three of the Funds (SAIF, STGF, and SAF) 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, 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.
The current primary investment objective of the fourth Fund, SIF, however, is to
seek current income, and secondarily to maximize total return consistent with
its primary objective. Upon the consummation of the Merger, the investment
objective of SST will be to seek current income and secondarily to maximize the
total return but only to the extent consistent with its primary objective. All
of the Funds employ the same investment management techniques. For a discussion
of the changes in the investment portfolio as a result of the change in
investment objective, see "Ratification of Amended and Restated Trust Indenture
of Steadman Security Trust."
9
<PAGE>
Shareholders of the Funds should consider these similarities and
differences in investment objectives and policies of the Funds. See "Comparison
of Investment Objectives and Techniques of the Funds."
Investment Advisory Fee
Each Fund obtains investment management services from the same investment
advisor, 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, 7/8 of 1% of the next $35
million and 3/4 of 1% on all assets more than $70 million. Upon effectiveness
of the Merger, SSC will continue to provide investment advisory services to SST
pursuant to its existing Investment Advisory Agreement.
None of the Funds has a separate service and/or distribution plan pursuant
to Rule 12b-1 under the 1940 Act.
Purchases of Shares in the Funds
SAIF, SIF, and STGF have not accepted new subscriptions for shares since
May, 1988. Shares of SAF were available for purchase under a Prospectus dated
January, 1996 through October 31, 1996. The Trustees of SST intend to explore
the possibility of adopting a new plan of distribution to offer new shares after
the Merger. Should SST decide to undertake the sale of new shares, SST will
incur addition costs to keep Fund securities registered for sale in a continuous
offering with the Securities and Exchange Commission under the Securities Act of
1933, as amended, and under the "Blue Sky" or state securities laws of states in
which the Fund determines to sell. No assurance can be given that SST will
offer new shares, or that if offered, SST will be able to sell new shares.
PRINCIPAL RISK FACTORS
In evaluating whether to approve the Merger, shareholders should carefully
consider the following summary of risk factors relating to SST in addition to
the other information set forth in this Proxy Statement and Prospectus.
Performance of the Funds
The historical performance of each of the Funds during the past ten years
has been substantially less than the performance of the Standard & Poor's 500
Stock Index for the same period. (See "Management's Discussion of Performance
of the Funds").
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The following table shows performance of each Fund (which does not include
reinvestment of distributions).
Per Share Percentage
Net Asset Increase
Fund Beginning Date Price Ending Date Value (Decrease)
---- -------------- ----- ----------- --------- ----------
SAIF 2/1/86 $2.89 06/30/97 $0.72 (75.0%)
SAF 10/1/86 $0.82 06/30/97 $0.76 (7.3%)
SIF 1/1/86 $1.46 06/30/97 $0.85 (41.8%)
STGF 1/1/86 $5.06 06/30/97 $0.68 (86.6%)
From January 1, 1986, through June 30, 1997, the Standard and Poor's 500
Stock Index increased by 341% from 202.83 to 895.20 (which does not include
the reinvestment of dividends). Except for (a) SAF which paid a dividend in
1986, 1987, and 1989 and made a capital distribution in 1988 and (b) SIF which
paid a dividend in 1988, none of the Funds paid dividends or made distributions
to shareholders during those years. There can be no assurance that as a result
of the Merger, performance of SST will differ from past performance of the
Funds. For comparisons of financial information after the Merger, the
historical financial information of SIF will be used as SIF will be deemed the
surviving Fund for accounting purposes.
Redemption by States
In 1993, the Funds entered into a Settlement Agreement with approximately
47 states with respect to the recovery of shares and distributions owned by
persons who had allegedly abandoned these properties. The Settlement Agreement
provides among other things, that forty-three of these jurisdictions
("Shareholder States") will not request redemption of their shares until
February 14, 1998. The Shareholder States currently own shares in the Funds,
which have a net asset value of approximately $949,000. The Shareholder States
are represented by the Unclaimed Property Clearing House ("UPCH"). In July
1997, at the request of the UPCH, the Funds unconditionally agreed to remove the
restriction on the redemption of shares and to redeem prior to the Merger all of
the shares of the Funds owned by the Shareholder States upon their request. The
Shareholder States do not have any rights, priorities, or preferences regarding
redemption of Fund shares that differ from any other shareholder of the Funds.
If all the Shareholder States redeem all of their shares, the net asset value of
SST after the Merger would be reduced by approximately $949,000. This reduction
in net assets, absent an corresponding reduction in expenses, would result in an
increase in the expense ratio of the Fund.
Lack of Shareholder Participation in Certain Governance Matters; Restrictions on
Acquisition
Certain existing provisions of the Amended and Restated SST Trust Indenture
help maintain the continuity and stability of the Fund. An existing provision
of the trust indenture of SAF permits the Trustees to not issue shares to a
person if such issuance would cause the person to become an "affiliated person"
of the Fund within the meaning of Section 2 of the 1940 Act. This provision
11
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generally gives the Trustees the ability to limit the amount of SAF shares owned
at any one time by any one person to 5% of SAF shares. The Amended and Restated
Trust Indenture of SST retains this provision. Additional provisions include
unlimited terms for trustees, limitations on the ability of shareholders to
remove trustees, limitations on the calling of special meetings, and
non-cumulative voting in the election of trustees. See "Description of Capital
Structure of the Funds and Shareholders Rights-Special Provisions of SST."
These provisions render removal of trustees, management, and the investment
advisor more difficult. The Trustees, however, concluded that potential
benefits of the provisions outweigh possible disadvantages. They believe such
provisions encourage the trustees, management, and the investment advisor to
consider the long-term prospects of the Fund as well as the short term. Not
redeeming your shares prior to the Merger will result in the above provisions
applying to all shareholders should the Merger be consummated and the Amended
and Restated Trust Indenture be approved by shareholders of SST at the Meeting.
Absence of Dividends
SAIF and STGF have not paid a dividend or made a capital distribution for
at least ten years. SAF has not paid a dividend or made a capital distribution
since 1989 and SIF has not paid a dividend or made a capital distribution since
1988. See "Condensed Financial Information of the Funds." Following the Merger
of the Funds, SST does not anticipate paying any cash dividends or distributions
in the foreseeable future.
Investment Management Techniques
An investment in SST involves greater risk than an investment in many other
mutual funds because the investment objectives and policies of SST afford
management wide possible latitude in choosing investment vehicles and
techniques. This latitude is greater than that afforded many other investment
companies. Many of the vehicles and techniques-including but not limited to
option activities, investment in foreign securities, borrowing to increase
investment funds, and short-selling-are highly specialized and involve
significant risks. For a full discussion of the risks attendant to particular
investments and techniques, please refer to the Statement of Additional
Information. Use of such techniques may also produce higher (100% or more) than
normal portfolio turn-over which will generate additional brokerage commissions
and expenses for SST. Moreover, SST is not restricted from making investments
in real estate, precious metals, oil and gas limited partnerships, or
commodities and commodities contracts (including futures contracts), all of
which are considered speculative. Currently, SAF and two of the Funds, SAIF and
STGF, share the same investment objective and techniques; while SIF's principal
objective is different-to seek current income rather than capital growth-all
four Funds use the same investment techniques. Upon completion of the Merger,
the primary investment objective of SST will change to seek current income and
secondarily to maximize the total return, but only to the extent consistent with
its primary objective. For a discussion of the changes in the investment
portfolio following the Merger as a result of the change in investment
objective, see "Ratification of Amended and Restated Trust Indenture of Steadman
Security Trust."
12
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Non-Diversified Status
The classification of SST as a "non-diversified" investment company means
that the proportion of assets of SST that may be invested in securities of a
single issuer is not limited by the 1940 Act. A "diversified investment
company" is required by the Investment Company Act of 1940, as amended (the
"1940 Act"), generally to invest, with respect to 75% of its total assets, not
more than 5% of such assets in the securities of a single issuer. Moreover, SST
has not elected to conduct its operations so as to qualify as a "regulated
investment company" for purposes of the Code. Thus, unlike many mutual funds,
it is not restricted by certain diversification requirements imposed by the
Code. A relatively high percentage of SST's assets may be invested in
obligations of a limited number of issuers, some of which may be within the same
economic sector. Therefore, SST's portfolio may be more susceptible to any
single economic, political, or regulatory occurrence than the portfolio
securities of a diversified investment company.
Borrowing Policy
The Fund's borrowing policy will not change as a result of the Merger.
SAF's current borrowing policy is that SAF may borrow from banks for investment
purposes. This borrowing, which is a speculative technique known as leveraging,
generally will be unsecured, except to the extent SAF enters into reverse
repurchase agreements described below. The 1940 Act required SAF to maintain
continuous asset coverage (that is, total assets including borrowings, less
liabilities exclusive of borrowings) of 300% of the amount borrowed. If the
300% asset coverage should decline as a result of market fluctuations or other
reasons, SAF is required to sell some of its portfolio holdings within three
days to reduce the debt and restore the 300% asset coverage, even though it may
be disadvantageous from an investment standpoint to sell securities at that
time. Leveraging may exaggerate the effect on net asset value of any increase
or decrease in the market value of SAF's portfolio. Money borrowed for
leveraging will be subject to interest costs which may or may not be recovered
by appreciation of the securities purchased. SAF also may be required to
maintain minimum average balances in connection with such borrowing or to pay a
commitment or other fee to maintain a line of credit; either of these
requirements would increase the cost of borrowing over the stated interest rate.
Among the forms of borrowing in which SAF may engage is the entry into
reverse repurchase agreements with members of the New York Stock Exchange (or
subsidiaries thereof), members of the Federal Reserve System, recognized primary
U.S. government securities dealers or institutions which the Adviser has
determined to be of comparable creditworthiness. These transactions involve the
transfer by SAF of an underlying debt instrument in return for cash proceeds
based on a percentage of the value of the security. SAF retains the right to
receive interest and principal payments on the security. At an agreed upon
future date, SAF repurchases the security at principal, plus accrued interest.
In certain types of agreements, there is no agreed-upon repurchase date and
interest payments are calculated daily, often based on the prevailing overnight
repurchase rate. SAF will maintain in a segregated custodial account cash, cash
equivalents or U.S. government securities or other high quality liquid debt
securities at least equal to the aggregate amount of its reverse repurchase
obligations, plus accrued interest, in certain cases, in accordance with
releases promulgated by the Securities and Exchange Commission. The Securities
and Exchange Commission views reverse repurchase transactions as collateralized
borrowings by SAF. These agreements, which
13
<PAGE>
are treated as if reestablished each day, are expected to provide SAF with a
flexible borrowing tool. As an open-end investment company, SAF is prohibited
from issuing senior securities.
Operating Costs
The Merger will create economies that will substantially reduce operating
costs of the four Funds, but SST will still have a high ratio of expenses to
average net assets relative to other funds because of its small size. It is
anticipated that operating expenses of SST after the Merger may exceed net
operating income of the Fund before taking into account capital appreciation, if
any. The result may be continuing operating losses.
Utilization of Tax Loss Carry Forwards
Although SST will be able to use its existing net operating loss and
capital loss carryforwards each year against income earned by SST, there can be
no assurance that sufficient income will be earned to utilize in their entirety
the loss carryforwards which are available, as the ability to use certain loss
carryforwards will expire on specific dates in the future. In addition, the
Merger is not a tax-deferred reorganization for federal income tax purposes. As
a result, the loss carryforwards of SAIF, SIF, and STGF will not be available to
offset SST income after the Merger. Management estimates that after the Merger,
a maximum of $5,192,000 of net operating losses and a maximum of $804,000 of
capital loss carryovers will be available to be used by SST based upon June 30,
1997 financial information. If the former holders of SAF represent less than
50% of the total ownership interests of SST after the Merger, the amount of the
above losses which may be used by SST in any one year will be limited by Section
382 of the Code. In addition, other transactions subsequent to the Merger could
result in a change in the ownership of SST (combined with the change resulting
from the Merger) that causes the loss limitation rules to apply. For example,
assuming that the effective date of the Merger was June 30, 1997 and that the
amount of the pro forma net asset value represented by former holders of SAF has
decreased to 49% of the total ownership interests of SST, the amount of the
above net operating losses and capital loss carryovers that could be used in
future periods would be limited to approximately $300,000 annually. If,
however, on the effective date of the Merger, the net asset value represented by
former holders of SAF was less than 49% of the total ownership interests of SST,
the amount of net operating losses and capital loss carryovers would be less
then $300,000. Whether any future events will cause imposition of a restriction
in tax loss utilization for SST cannot be predicted at this point. Based upon
the past performance of the Funds, there is little likelihood that SST will be
able to utilize these tax benefits in full.
Non-Qualification of Merger for Tax Deferral
Shareholders of SAIF, SIF, and STGF will have a fully taxable exchange when
they surrender their shares in exchange for SST shares. Their individual gain
or loss will be measured by the difference between the tax bases of their SAIF,
SIF, and STGF shares they surrender and the fair market value of SST shares they
receive. Each shareholder's computation of gain or loss will depend on his or
her specific circumstances regarding factors such as share basis, holding
period, and income, gain, loss or deductions in the year of the exchange which
may be wholly unrelated to the Merger. Although many SAIF, SIF, and STGF
shareholders may recognize tax losses in the
14
<PAGE>
exchange, some shareholders may have net income as a result of the exchange. In
addition, if the exchange creates a recognized capital loss for a shareholder,
the shareholder may be subjected to restrictions on use of that recognized
capital loss. Shareholders are encouraged to consult their own tax advisor
regarding the individual tax consequences of the transactions described in this
Proxy Statement and Prospectus.
Non-Qualification as a Regulated Investment Company for Tax Purposes
SST, the entity surviving the Merger, is not expected to qualify for
special federal income tax rules applicable to electing qualified regulated
investment companies. While this factor permits SST to utilize certain loss
carryforwards, it will not be able to take advantage of certain potentially
favorable tax rules applicable to electing qualified regulated investment
companies.
Lack of Ability to Increase Net Assets through Share Sales
All of the Funds are currently registered as open-end investment companies
under the 1940 Act. Open-end investment companies issue redeemable securities.
The holders of these securities have the right to surrender, effectively at any
time, all, or any part of their shares in the open-end fund and obtain their
proportionate share of the value of the fund's net assets (sometimes referred to
as the "net asset value") less any redemption fee. This has been the way the
Funds have operated since their inception.
Currently, none of the four Funds continuously offers its shares, even
though continuously offering shares is standard procedure for open-end funds.
Shareholders thereby lose the possible benefit of an expanding pool of money
from the sale of additional shares, which SST as an open-end fund would have to
invest. As a practical matter, however, SST has no principal underwriter. It
does not, and has not, actively marketed its securities over the past several
years, and infrequently sold new shares. The Trustees of SST intend to explore
the possibility of adopting a new plan of distribution to offer new shares after
the Merger. Should SST decide to undertake the sale of new shares, SST will
incur addition costs to keep Fund securities registered for sale in a continuous
offering with the Securities and Exchange Commission under the Securities Act of
1933, as amended, and under the "Blue Sky" or state securities laws of states in
which the Fund determines to sell. No assurance can be given that SST will
offer new shares, or that if offered, SST will be able to sell new shares.
Currently, the investment base of the Funds is generally static although
the Funds frequently receive requests for small redemptions. Should
shareholders increase the amount of requests to redeem shares after the Merger,
and should SST be unable to sell new shares, the net assets of SST may continue
to shrink. Should the net assets of SST become too small to sustain SST, the
Fund may have to be liquidated.
15
<PAGE>
APPROVAL OF THE MERGER
PROPOSAL NO. 1
(TO BE VOTED ON BY SHAREHOLDERS OF ALL FUNDS)
Background
The Trustees of the Funds reviewed operations of each Fund with a view to
determining how best to reduce costs of operation, increase asset value and
enhance investment opportunities while preserving the investment objectives of
the Funds. The Trustees concluded that it has become increasingly difficult for
small funds to compete, especially because of operating costs which must be
incurred by each Fund. Among other things, the Trustees concluded that by
merging the Funds into a single fund, SST, significant economies of scale can be
achieved to reduce costs.
Accordingly, the Trustees unanimously recommend that shareholders approve
the Merger as set forth in the Merger Agreement. The Merger Agreement provides,
among other things, that the shareholders of each of the Funds must approve the
Merger. If the Merger is not approved, the Trustees will take such further
action as they, in their discretion, deem necessary or advisable.
The Merger
The following summary of the Merger Agreement is qualified in its entirety
by reference to the Merger Agreement, a copy of which is set forth in full as
Exhibit A to this Proxy Statement and Prospectus. The Merger Agreement
contemplates a reorganization whereby SIF, SAIF, and STGF (the "Merging Funds")
will merge into SAF, and SAF will survive the Merger for legal and tax purposes.
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 SAF'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, SAF will effect a reverse split so that each ten issued
and outstanding shares of SAF will become one share of SST.
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 SAF will be the Trust Indenture of SST, and the Trustees of SAF
will be the Trustees of SST.
The consummation of the Merger is subject to conditions set forth in the
Merger Agreement. Without limitation, the conditions include approval of the
Merger by shareholders of the Merging Funds and of SAF, and ratification by
shareholders of SAF of the Restated and Amended Trust Indenture of SST, which
provides for the change in the investment objective of SST.
Notwithstanding approvals of shareholders of the Funds, the Merger may be
terminated at any time prior to the Closing: (a) by the mutual written consent
of all of the Funds, or (b) by either SAF 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) SAF or
the
16
<PAGE>
Merging Funds, respectively, materially breaches or shall have breached any of
its representations, warranties or covenants contained in the Merger Agreement,
or (iii) any other condition precedent to the obligations of the terminating
party has not been met and it reasonably appears that it will not or cannot be
met.
Termination of the Merger Agreement will end all obligations of the parties
thereto without liability except that any party in breach of the Merger
Agreement, upon demand, will reimburse the other party for all reasonable
out-of-pocket fees and expenses incurred in connection with the transactions
contemplated by the Merger Agreement, including legal, accounting and filing
fees.
Approval of the Merger will require the vote specified below in
"Information Concerning the Meetings-Record Date; Vote Required; Share
Information." If the Merger is not approved by the shareholders of the Funds,
the Trustees of the Funds will consider other possible courses of action.
Trustee Approval of the Merger
At meetings held on May 2, 1997 and October 16, 1997, the Trustees of SAIF,
SAF, SIF, and STGF, including the Independent Trustees, unanimously approved the
Merger and the Merger Agreement, as amended, determined that the Merger is in
the best interests of each of the Funds and their shareholders, and resolved to
recommend that shareholders vote for approval of the Merger. The Trustees of
SAF further resolved to change the Fund's name to Steadman Security Trust upon
the Merger, to change SAF's fundamental investment objective from primarily
capital growth and secondarily current income to primarily current income, and
secondarily to maximize total return, and to recommend the latter changes to the
shareholders of SAF for their approval. The Trustees further determined that
the Merger would not result in dilution of any shareholders' interest in any
Fund.
In evaluating the Merger, the Trustees requested and reviewed materials
which included financial statements as well as other written information
regarding each of the Funds and their personnel, operations, and financial
condition. The Trustees also considered information with respect to the
relative historical performance of the Funds. In addition, the Trustees
reviewed and discussed the terms and provisions of the investment advisory
agreements pursuant to which SSC provides investment management services to the
Funds.
In making their determination to approve the Merger, the Trustees of the
Funds gave careful consideration to the following factors: the investment
objective of each of the Funds; the cost savings to each of the Funds; the
ability to use the resources of the Funds more effectively; the potential for
increasing shareholder value; the potential for increasing the return on
investments; the terms and conditions of the Merger Agreement; and the fact that
the Merger will not qualify as a tax-deferred reorganization under the Code.
Also, the Merger would afford the shareholders of SST the continued capabilities
and resources of SSC in investment management and shareholder servicing.
A. Potential Lower Operating Costs. Operating costs of SST on a
post-merger basis will be substantially reduced from the aggregate cost of
operating the four funds separately. The Merger will enable SST to use its
assets more effectively to increase shareholder value by providing a larger pool
of funds for investment. Because of the Merger and the resulting reduction
17
<PAGE>
in the number of shareholders' accounts, Fund accounting fees, stock transfer
costs, and other shareholder service expenses will be significantly reduced.
Based upon management's analysis of the Funds, the Trustees believe that the
aggregate annual operating expenses of the four Funds, which amounted to
approximately $1,338,000 for the year ended June 30, 1997, would be reduced to
approximately $700,000 if the Merger had taken place June 30, 1997. These
savings will be achieved principally in the following areas: shareholder
servicing fees, professional fees, expenses related to reports to shareholders,
computer services and data processing expenses, and custodian fees. Reduced
expenses will, however, not necessarily result in profitable operations for SST.
See "Comparative Fee Tables-Expenses of the Funds; Pro Forma Projected Operating
Expenses." Furthermore, due to the size of SST after the Merger, and the
anticipated portfolio income, SST may continue to suffer operating losses and
will need to rely upon capital appreciation of its portfolio securities to be
profitable. There is no assurance that the portfolio securities will have
capital appreciation in a sufficient amount to offset any operating losses, if
the portfolio securities have any capital appreciation at all.
B. Investment Objective. Three of the Funds have as their stated
investment objective the same objective: primarily capital appreciation. The
fourth Fund, SIF, has the primary investment objective of current income. The
net assets of the four constituent funds, as of June 30, 1997, ranged from
approximately $348,000 (STGF) to $976,000 (SAIF) to $1,634,000 (SIF) and
$4,397,000 (SAF). By combining these resources in a single fund with pro forma
net assets at June 30, 1997 of $6,266,183 (assuming redemptions by the
Shareholder States) and changing SST's primary investment objective from capital
appreciation to current income, the Trustees believe that the shareholders will
benefit from the greater resources available to enable a wider range of
investment and greater flexibility in managing this portfolio.
C. Federal Tax Aspects. The reverse stock split of SST will
constitute a recapitalization of SST, but the Merger will not qualify as a
tax-deferred reorganization for federal income tax purposes. SST and its
shareholders will not recognize gain or loss as a result of the exchange of SST
shares for SST shares in the reverse stock split. The Merger transaction will
be treated for federal income tax purposes as if SAIF, SIF, and STGF had
transferred all of their assets to SST in a taxable transaction, had recognized
all of the built-in gains and losses on those assets, and had distributed SST
shares to their respective shareholders in liquidation. The Trustees believe
that the capital loss and net operating loss carryovers of SAIF, SIF, and STGF
will be sufficient to offset any net gain of those entities recognized in the
Merger. The loss carryforwards of SAIF, SIF, and STGF not utilized in the
Merger will expire, but SAF, as the surviving single entity of the Merger for
tax purposes, will be able to utilize its separate tax loss carryforwards after
the Merger. Based upon the past performance of the Funds, there is little
likelihood that after the Merger SST will be able to utilize these tax benefits.
SST and its shareholders will not recognize any gain or loss as a result of the
deemed asset sale and liquidation. The shareholders of SAIF, SIF, and STGF will
be deemed to have exchanged their SAIF, SIF, and STGF shares for SST shares in a
taxable transaction. Such shareholders will recognize gain or loss equal to the
difference between their individual tax bases for the SAIF, SIF, and STGF shares
surrendered and the fair market value of SST shares received. Such gain or loss
will be capital for shareholders who hold their SAIF, SIF, or STGF shares as
capital assets and will be long term or short term gain or loss depending upon
their individual holding periods for the shares surrendered. For many SAIF,
SIF, and STGF shareholders, the result
18
<PAGE>
may be a tax loss rather than tax gain, but each shareholder's gain or loss
calculation must be performed individually and shareholders are encouraged to
consult their own tax advisor.
Based upon the foregoing considerations, the Trustees of each of the Funds,
including the Independent Trustees, unanimously approved the Merger. They
determined that the Merger is in the best interests of each of the Funds and
their shareholders. The Trustees further determined that the Merger would not
result in dilution of any shareholders' interest, and that because of the
Merger, an increase in the asset base of SST should benefit the shareholders
because of the economies of scale available to a larger fund.
Tax Aspects of the Merger
The following discussion summarizes certain of the material federal income
tax consequences of the Merger. It is intended to provide only a general
summary and does not include a complete analysis of all potential federal income
tax consequences or consequences that are contingent upon individual
circumstances, such as the taxpayer being subject to certain special provisions
of the Code. This discussion does not address any aspects of state, local, or
foreign tax laws or any federal tax laws other than those pertaining to income
tax.
None of the Funds has requested a ruling from the Internal Revenue Service
(the "Service") with respect to any of the matters discussed in this summary.
It is unlikely that the Service would be willing to issue a ruling regarding the
Merger. However, the Funds have received an opinion letter from Manatt, Phelps
& Phillips, LLP, as "Tax Counsel" regarding certain material federal income tax
consequences of the Merger. This summary, however, is not an opinion of Tax
Counsel or tax advice and does not in any way constitute an assurance that the
federal income tax consequences discussed herein will be accepted by the Service
or the courts.
The opinion of Tax Counsel provides that the reverse stock split of SST
will constitute a recapitalization of SST, but the Merger will not qualify as a
tax-deferred reorganization for federal income tax purposes. SST and its
shareholders will not recognize gain or loss as a result of the exchange of SST
shares for SST shares in the reverse stock split. The Merger will be treated
for federal income tax purposes as if SAIF, SIF, and STGF had transferred all of
their assets to SST in a taxable transaction, had recognized all of the built-in
gains and losses on those assets, and had distributed SST shares to their
respective shareholders in liquidation. Capital loss and net operating loss
carryovers of SAIF, SIF, and STGF may be utilized to offset any net gain of
those entities recognized in the Merger. SST and its shareholders will not
recognize any gain or loss as a result of the deemed asset sale and liquidation.
The shareholders of SAIF, SIF, and STGF will be deemed to have exchanged their
SAIF, SIF, and STGF shares for SST shares in a taxable transaction. Such
shareholders will recognize gain or loss equal to the difference between their
individual tax bases for the SAIF, SIF, and STGF shares surrendered and the fair
market value of SST shares received. Such gain or loss will be capital for
shareholders who hold their SAIF, SIF, or STGF shares as capital assets and will
be long term or short term gain or loss depending upon their individual holding
periods for the shares surrendered. The loss carryforwards of SST will survive
the Merger for use in the post-Merger period, but the loss carryforwards of
SAIF, SIF, and STGF will not. If the former holders of SAF represent less than
50% of the total ownership interests of SST after the Merger, the amount of the
above losses that may be used by SST in any one year will be limited. In
addition,
19
<PAGE>
other transactions subsequent to the Merger could result in a change in
ownership of SST (combined with the change resulting from the Merger) that
causes the loss limitation rules to apply. Whether any future events will cause
imposition of a restriction in tax loss utilization for SST cannot be predicted
at this point. Based on certain representations to Tax Counsel, the Merger
itself will not constitute an "ownership change" for SST within the meaning of
Section 382 of the Code.
The foregoing discussion of the expected federal income tax consequences of
the Merger and the opinion of Tax Counsel are based on current authorities. The
opinion of Tax Counsel has no binding effect or official status, and no
assurance can be given that the conclusions reached in the opinion would be
sustained by a court if contested by the Service. There is no assurance that
legislative or administrative changes or court decisions may not be forthcoming
that would significantly change these expected consequences. Any such changes
may or may not be retroactive with respect to transactions prior to the date of
those changes. The opinion of Tax Counsel is also based on certain factual
assumptions and factual representations to Tax Counsel by the Funds. The
opinion of Tax Counsel could change if such assumptions and representations
proved to be inaccurate.
THE SUMMARY FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY. IT DOES NOT CONSTITUTE TAX ADVICE OR AN OPINION OF
TAX COUNSEL. EACH SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO
THE SPECIFIC TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT AND THE MERGER
APPLICABLE TO HIM OR HER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL,
STATE, LOCAL AND OTHER TAX LAWS.
20
<PAGE>
CAPITALIZATION TABLE (UNAUDITED)
The table below sets forth the capitalization of the Funds and indicates
the pro forma combined capitalization of SST as of June 30, 1997 as if the
Merger had occurred on that date, the reverse split of ten for one had taken
place, and all shares held by the Shareholder States had been redeemed.
<TABLE>
Shares Shares
Outstanding Outstanding Net Asset
Before After Value
Net Assets Merger Merger Per Share
-------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
SAIF $ 976,097 1,346,814 N/A $0.72
SAF 4,396,984 5,768,032 N/A 0.76
SIF 1,633,890 1,928,494 N/A 0.85
STGF 348,158 510,386 N/A 0.68
SST Pro Forma(1)(2)(3) 6,266,183 N/A 840,321 7.46
</TABLE>
- -----------------
(1) Gives effect to the redemption by the Shareholder States of approximately
290,053 shares of SAIF, 556,355 shares of SAF, 304,539 shares of SIF, and
83,032 shares of STGF, resulting in a reduction in net assets of
approximately $210,216, $424,070, $258,021, and $56,639 for SAIF, SAF, SIF,
and STGF, respectively.
(2) Gives effect to a decrease in net assets of $11,950, $62,020, $21,480, and
$4,550 for SAIF, SAF, SIF, and STGF, respectively, for additional expected
Merger expenses.
(3) Gives effect to the 10 to 1 reverse stock split, which results in a
decrease in net assets of approximately $4,780, $24,808, $8,592, and $1,820
for SAIF, SAF, SIF, and STGF, respectively, as a result of issuing cash in
lieu of fractional shares to shareholders that would be entitled to receive
less then one share of SST. At June 30, 1997, 100,418 shares, 521,167
shares, 180,501 shares, and 38,235 shares of SST would have been issued to
the holders of shares of SAIF, SAF, SIF, and STGF, respectively, as a
result of the Merger and reverse stock split.
COMPARATIVE FEE TABLES
Transaction Charges
Because each Fund is a no-load fund, shareholders are not required to pay
any sales charges or other fees in connection with the purchase of shares in any
of the Funds. Moreover, because there is no current Prospectus available for
SAIF, SIF, or STGF, shares in these funds have not been offered or sold to the
public since May, 1988. Shares of SAF were available for purchase under a
Prospectus dated January 1, 1996 through October 31, 1996.
Expenses of the Funds; Pro Forma Projected Operating Expenses
The Funds each pay a variety of expenses directly for management of their
assets, administration, distribution of their shares and other services; and
those expenses are reflected in the net asset value per share of each Fund. The
following calculations are based on the expenses of each Fund for the year ended
June 30, 1997. These amounts are shown as a percentage of the average net
assets of each Fund for such periods.
21
<PAGE>
Pro Forma Fee Table for Shareholders
of SAIF, SAF, SIF, and STGF
as of June 30, 1997 (Unaudited)
<TABLE>
PRO FORMA
FOR
SAIF SAF SIF STGF SST
----------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
Investment Advisory Fees 1.00% 1.00% 1.00% 1.00% 1.00%
Other Expenses 30.07% 11.42% 15.47% 40.46% 10.27%
Total Annual Operating Expenses
(as a percentage of average
net assets at June 30, 1997) 31.07% 12.42% 16.47% 41.46% 11.27%(1)
Merger Expenses
(as a percentage of average
net assets at June 30, 1997) 3.48% 3.66% 3.20% 2.81% N/A
Total Annual Operating Expenses $325,398 $561,692 $280,048 $171,210 $700,238(1)
-------- -------- -------- -------- -----------
-------- -------- -------- -------- -----------
Merger Expenses $ 34,493 $164,490 $ 54,392 $ 12,515 N/A
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
- ----------------
(1) Excludes expenses relating to the Merger.
Based on management's analysis, the Trustees believe that the principal
aggregate operating expenses of the four Funds, which totaled approximately
$1,338,000 for the year ended June 30, 1997, would have been reduced by
approximately $638,000 to about $700,000 if the Merger had taken place July
1, 1996 (excluding expenses related to the Merger). The pro forma statement
of SST is based on the following assumptions: (1) assets of SST post-Merger
are $6.3 million due to (a) Shareholder States, which currently hold
approximately $949,000 of shares, redeeming all shares then held and (b) the
payment of cash in lieu of fractional shares as a result of the Merger and 10
for 1 reverse stock split and no other shareholders receiving cash in lieu of
fractional shares resulting in a total reduction in assets of SST of
approximately $40,000; (2) no other shareholders redeem their shares prior to
the Merger; (3) as a result of the decrease in the number of shareholder
accounts from a pre-merger total of approximately 17,000 accounts to a
post-Merger total of approximately 10,000 accounts, annual shareholder
servicing fees, which include record management and transfer services, will
be reduced from an aggregate pre-Merger total of $302,006 to a post-Merger
total of $186,423, resulting in annual savings of $115,583; (4) salaries and
employment benefits will be reduced from an aggregate pre-Merger total of
$338,098 to a post-Merger total of $275,000, resulting in savings of $63,098
because fewer employees will be needed after the Merger; (5) professional
fees (not including professional fees incurred as a result of the Merger)
will be reduced from an aggregate pre-Merger total of $169,400 to a
post-Merger total of $31,000 based upon anticipated needs for accounting,
legal, and other professional services, resulting in savings of $138,400; (6)
the expense of preparing, printing, and mailing reports to shareholders
(including annual reports and semi-annual reports) will be reduced from a
pre-Merger total of $33,649 to a post-Merger total $8,000, resulting in
savings of $25,649 due to the reduction in the number of shareholder
accounts; (7) the expense for computer services, including outside data
processing services, will be reduced from an aggregate pre-Merger total of
$16,776 to a post-Merger total of $16,000 resulting in a savings of $776 due
to the decrease in the number of shareholder accounts and the absence of a
need to calculate net asset
22
<PAGE>
value on a daily basis; (8) rental expense, which is reimbursed to SSC, will
be reduced from an aggregate pre-Merger total of $53,039 to a post-Merger
total of $25,000, resulting in a savings of $28,039 due to SSC agreeing to
seek less reimbursement from SST for rent expense, because SSC will have
fewer employees and reduced space requirements; (9) trustees' fees and
expenses will be reduced from an aggregate pre-Merger total of $21,901 to a
post-Merger total of $15,000 resulting in savings of $6,901 due to the fact
that there will be one fund instead of four paying trustees' fees; and (10)
custodian's fees, which are based both on the size of the fund and the number
of transactions engaged in by the fund, will be reduced from an aggregate
pre-Merger total of $11,774 to a post-Merger total of $4,000, resulting in
savings of $7,774 due to an agreement with the custodian to reduce the
percentage the custodian will charge based on the size of SST after the
Merger and the reduction in the size of SST after the Merger due to the
redemption by the Shareholder States and the payment of cash in lieu of
fractional shares following the 10 for 1 reverse stock split. In addition,
an additional expense of $14,000 was added as the estimated cost for
registering SST's shares under state blue sky laws, subject to compliance
with each state's registration requirements. Accordingly, the foregoing
$372,220 of adjustments to total annual operating expenses, which do not
include additional expenses related to the Merger, contributed to the pro
forma result for the combined entity as of June 30, 1997.
There can be no assurance that reductions in expenses outlined above will
be fully realized or will result in profitable operations for SST.
Furthermore, due to the size of SST after the Merger and the portfolio income
anticipated to be generated by SST after the Merger, it is anticipated that
SST will have to rely upon capital appreciation of its portfolio securities
to be profitable. There is no assurance that the portfolio securities will
have capital appreciation in a sufficient amount to offset any operating
losses, if the portfolio securities have any capital appreciation at all.
For comparisons of financial information after the Merger, the historical
financial information of SIF will be used as SIF will be deemed to be the
surviving Fund for accounting purposes.
23
<PAGE>
Example
To attempt to show the effect of these expenses on an investment over time,
the example shown below has been created. Assume that you make a $1,000
investment in any of the Funds or in the new merged fund and that the annual
return on Fund investments is 5% and that the operating expenses for each Fund
are the ones shown in the chart above for the 12 months ended June 30, 1997. If
you were to continue to hold your shares at the end of each period shown below,
your investment would incur the following expenses by the end of each period
shown:
1 year 3 years 5 years 10 years
------ ------- ------- --------
SAIF $270 $618 $808 $986
SAF 120 333 516 866
SIF 155 414 617 953
STGF 339 691 834 920
Pro Forma SST 109 307 482 830
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial statements give effect to the
Merger in a transaction which will be accounted for as a pooling of interests
with SIF as the accounting survivor. The unaudited pro forma statement of
assets and liabilities and the pro forma schedule of investments are based on
the individual balance sheets and portfolios of investments of SAIF, SIF,
STGF, and SAF appearing elsewhere in this Registration Statement and has been
prepared to reflect the Merger as of June 30, 1997. The unaudited pro forma
statement of operations is based on the individual statements of operations
of SAIF, SIF, STGF, and SAF, appearing elsewhere in this Registration
Statement, and combines the results of operations of SAIF, SIF, STGF, and SAF
for the for the years ended June 30, 1997, as if the Merger had occurred at
the beginning of the fiscal year ended June 30, 1997. The unaudited pro
forma financial statements for 1997 should be read in conjunction with the
historical financial statements and notes thereto of SAIF, SIF, STGF, and SAF
included elsewhere in this Registration Statement. The pro forma combined
financial data is intended for informational purposes only and is not
necessarily indicative of the financial position, portfolio of investments,
or future results of operations of the combined entity that would have
actually occurred had the Merger been in effect as of the date or for the
periods presented.
24
<PAGE>
SURVIVING ENTITY
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
SAIF SIF STGF SAF ADJUSTMENTS COMBINED
------------- ------------- ------------- ------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in securities,
at value--
(cost: $5,175,514)......... $ 955,375 $ 1,554,164 $ 343,375 $ 4,255,244 $ (548,100)(3j) $ 6,560,058
Cash and cash equivalents.. 70,678 139,235 36,482 235,550 (40,000)(2) 41,099
548,100 (3j)
(948,946)(3k)
Due from affiliate......... 3,896 -- 3,519 3,896 11,311
------------- ------------- ------------- ------------- --------------- --------------
Interest and dividends
receivable................ 1,099 788 145 1,985 4,017
------------- ------------- ------------- ------------- --------------- --------------
Total assets........... $ 1,031,048 $ 1,694,187 $ 383,521 $ 4,496,675 $ (988,946) $ 6,616,485
------------- ------------- ------------- ------------- --------------- --------------
LIABILITIES
Accounts payable and accrued
expenses................... $ 54,660 $ 34,903 $ 29,044 $ 87,142 $ 100,000 (3l) $ 305,749
Investment advisory and
service fee payable....... -- 1,358 286 3,712 5,356
Miscellaneous payable....... -- -- 354 4,175 4,529
------------- ------------- ------------- ------------- --------------- --------------
Payable for Trust shares
redeemed................... 291 8,801 -- 1,693 10,785
------------- ------------- ------------- ------------- --------------- --------------
Other payable to affiliate.. -- 15,235 5,679 2,969 23,883
------------- ------------- ------------- ------------- --------------- --------------
Total liabilities....... $ 54,951 $ 60,297 $ 35,363 $ 99,691 $ 100,000 $ 350,302
------------- ------------- ------------- ------------- --------------- --------------
NET ASSETS.................... $ 976,097 $ 1,633,890 $ 348,158 $ 4,396,984 $ (1,088,946) $ 6,266,183
------------- ------------- ------------- ------------- --------------- --------------
------------- ------------- ------------- ------------- --------------- --------------
Net assets consist of:
Accumulated net investment
loss....................... $(4,220,318) $(1,943,059) $(2,832,669) $(5,181,222) (100,000)(3l) $(14,277,268)
Unrealized appreciation of
investments................ 319,814 362,642 87,362 1,162,826 1,932,644
Accumulated net realized
losses..................... (951,213) (574,661) (390,993) (821,035) (2,737,902)
Capital paid in less
distributions since
inception.................. 5,827,814 3,788,968 3,484,458 9,236,415 (40,000)(2)
(948,946)(3k) 21,348,709
------------- ------------- ------------- ------------- --------------- --------------
Net assets.............. $ 976,097 $ 1,633,890 $ 348,158 $ 4,396,984 $ (1,088,946) $ 6,266,183
------------- ------------- ------------- ------------- --------------- --------------
------------- ------------- ------------- ------------- --------------- --------------
NET ASSET VALUE PER SHARE.... $ 0.72 $ 0.85 $ 0.68 $ 0.76 $ 7.46
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
SHARES OUTSTANDING........... 1,346,814 1,928,494 510,386 5,768,032 (4,995,640)(2) 840,321
------------- ------------- ------------- ------------- --------------- --------------
------------- ------------- ------------- ------------- --------------- --------------
</TABLE>
SEE NOTES TO PRO FORMA FINANCIAL STATEMENTS
25
<PAGE>
SURVIVING ENTITY
PRO FORMA SCHEDULE OF INVESTMENTS
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SAIF SIF STGF SAF
--------------------- ----------------------- ----------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ---------- --------- ------------ ----------- ---------- --------- ------------
COMMON STOCK--SAIF, SIF,
STGF-100%, SAF-99.8%
Computer Communications
Equip.--SAIF-7%, SIF-15.1%
Cisco Systems (a) 1,000 $ 67,125 3,500 $ 234,937 -- -- -- --
Computer and Office
Equipment--SAIF-6.5%, SAF-5.3%
Champion Technology Holding
Ltd. (a)....................... 100,000 62,000 -- -- -- -- -- --
Hewlett Packard.................. -- -- -- -- -- -- 4,000 224,000
Electronic Computers-- SIF-16.8%,
SAF-6.1%
Gateway 2000 (a)............... -- -- -- -- -- -- 8,000 259,500
Sun Microsystems (a)............. -- -- 7,000 260,530 -- -- 8,000 297,750
Computer Storage Devices--
SAIF-10.5%, SIF-8.1%, SAF-29.1%
Microsoft Corporation (a)...... -- -- -- -- -- -- 9,000 1,137,375
Oracle Corporation (a)........... 2,000 100,750 2,500 125,937 -- -- 2,000 100,750
Aircraft--SAF-8.1%
Boeing Corporation............. -- -- -- -- -- -- 6,500 344,906
Motor Vehicles and Car
Bodies--SAIF-19.8%, SIF-8.6%,
SAF-8.5%
Ford Motors.................... 5,000 188,750 -- -- -- -- 5,000 188,750
General Motors Class "H'......... -- -- 2,300 132,825 -- -- 3,000 173,250
Real Estate Investment
Trusts--STGF-17.9%
Capstead Mortgage.............. -- -- -- -- 2,500 61,719 -- --
Semi-Conductor and Related
Devices--SAIF-47.8%, SIF-16.3%,
STGF-29.6%, SAF-19.9%
Intel Corp. Warrants (a)....... 4,500 456,750 2,500 253,750 1,000 101,500 6,000 609,000
LSI Logic (a).................. -- -- -- -- -- -- 7,500 240,000
Telephone Communications--
SIF-10.3%, STGF-52.5%,
SAF-11.3%
Lucent Technology.............. -- -- 3,000 216,185 2,500 180,156 1,500 108,094
Worldcom Inc. (a).............. 2,500 80,000 5,000 160,000 -- -- 15,000 480,000
Telephone and Telegraph
Apparatus--SIF-10.9%, SAF-2.0%
Xylan Corporation (a).......... -- -- 10,000 170,000 -- -- 5,000 85,000
--------- ---------- --------- ------------ ----- ---------- --------- ------------
Total Common Stocks (Cost:
SAIF-$635,561, SIF-$1,191,522,
STGF-$256,013,
SAF-$3,029,393)................ 115,100 955,375 35,800 $ 1,554,164 6,000 343,375 75,500 4,248,375
--------- ---------- --------- ------------ ----- ---------- --------- ------------
CALL OPTIONS PURCHASED--SAIF,
SIF, STGF-0%, SAF-0.2%
LSI Logic, 10/18/97.............. -- -- -- -- -- -- 2,500 4,688
Seagate Technology, 9/20/97...... -- -- -- -- -- -- 5,000 2,181
--------- ---------- --------- ------------ ----- ---------- --------- ------------
Total Call Options Purchased
(Cost: SAF-$63,025)............ -- -- -- -- -- -- 7,500 6,869
--------- ---------- --------- ------------ ----- ---------- --------- ------------
Total Portfolio of Investments
(Cost: SAIF-$635,561, SIF-
$1,191,522, STGF-$256,013,
SAF-$3,092,418)................ 115,100 $ 955,375 35,800 $ 1,554,164 6,000 $ 343,375 83,000 $ 4,255,244
--------- ---------- --------- ------------ ----- ---------- --------- ------------
--------- ---------- --------- ------------ ----- ---------- --------- ------------
- ------------------------
(a) Non-income producing security.
SEE NOTES TO PRO FORMA FINANCIAL STATEMENTS
</TABLE>
26
<PAGE>
SURVIVING ENTITY
PRO FORMA SCHEDULE OF INVESTMENTS (cont.)
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
COMBINED TOTAL ADJUSTMENTS PRO FORMA COMBINED
----------------------- ---------------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------------ ----------- --------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCK--99.91%
Computer Communications Equip.-- 4.25%
Cisco Systems (a)....................... 4,500 $ 302,062 4,500 $ 302,062
Computer and Office Equipment-- 4.02%
Champion Technology Holding Ltd. (a).... 100,000 62,000 100,000 62,000
Hewlett Packard......................... 4,000 224,000 4,000 224,000
Electronic Computers--11.50%
Gateway 2000 (a)........................ 8,000 259,500 8,000 259,500
Sun Microsystems (a).................... 15,000 558,280 15,000 558,280
Computer Storage Devices--20.61%
Microsoft Corporation (a)............... 9,000 1,137,375 9,000 1,137,375
Oracle Corporation (a).................. 6,500 327,437 6,500 327,437
Aircraft--4.85%
Boeing Corporation...................... 6,500 344,906 6,500 344,906
Motor Vehicles and Car Bodies-- 9.62%
Ford Motors............................. 10,000 377,500 10,000 377,500
General Motors Class "H"................ 5,300 306,075 5,300 306,075
Real Estate Investment Trusts-- 0.87%
Capstead Mortgage....................... 2,500 61,719 2,500 61,719
Semi-Conductor and Related Devices--23.37%
Intel Corp. Warrants (a)................ 14,000 1,421,000 (5,400)(3j) $ (548,100)(3j) 8,600 872,900
LSI Logic (a)........................... 7,500 240,000 7,500 240,000
Telephone Communications--17.23%
Lucent Technology....................... 7,000 504,435 7,000 504,435
Worldcom Inc. (a)....................... 22,500 720,000 22,500 720,000
Telephone and Telegraph Apparatus--3.59%
Xylan Corporation (a)..................... 15,000 255,000 15,000 255,000
--------- ------------ ----------- --------------- --------- ------------
Total Common Stocks (Cost $5,112,489). 237,300 7,101,289 (5,400) (548,100) 231,900 6,553,189
--------- ------------ ----------- --------------- --------- ------------
CALL OPTIONS PURCHASED-- 0.09%
LSI Logic, 10/18/97....................... 2,500 4,688 2,500 4,688
Seagate Technology, 9/20/97............... 5,000 2,181 5,000 2,181
--------- ------------ ----------- --------------- --------- ------------
Total Call Options Purchased (Cost
$63,025)............................ 7,500 6,869 7,500 6,869
--------- ------------ ----------- --------------- --------- ------------
Total Portfolio of Investments (Cost
$5,175,514)............................. 244,800 $ 7,108,158 (5,400) $ (548,100) 239,400 $ 6,560,058
--------- ------------ ----------- --------------- --------- ------------
--------- ------------ ----------- --------------- --------- ------------
</TABLE>
- ------------------------
(a) Non-income producing security.
SEE NOTES TO PRO FORMA FINANCIAL STATEMENTS
27
<PAGE>
SURVIVING ENTITY
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
SAIF SIF STGF SAF ADJUSTMENTS COMBINED
---------- ----------- ----------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends............................... $ 20,973 $ 5,670 $ 5,957 $ 12,759 $ 45,359
Interest................................ 3,117 6,659 2,682 14,646 27,104
--------- ---------- ----------- --------- ------------- ------
Total income......................... $ 24,090 $ 12,329 $ 8,639 $ 27,405 -- $ 72,463
--------- ---------- ----------- --------- ------------- ------
EXPENSES
Shareholder servicing fee............... $ 149,345 $ 47,647 $ 68,155 $ 36,859 $ (115,583)(3a) $ 186,423
Salaries and employee benefits.......... 49,285 87,965 26,604 174,244 (63,098)(3b) 275,000
Professional fees....................... 42,448 33,357 30,854 62,741 (138,400)(3c) 31,000
Reports to shareholders................. 12,026 6,416 8,389 6,818 (25,649)(3d) 8,000
Computer services....................... 3,655 3,992 3,212 5,917 (776)(3e) 16,000
Investment advisory fee................. 10,521 17,117 4,109 45,410 77,157
Rent.................................... 7,244 11,734 2,804 31,257 (28,039 (3f) 25,000
Trustees' fees and expenses............. 5,944 5,619 5,619 4,719 (6,901 (3g) 15,000
Custodian fees.......................... 1,955 2,050 1,322 6,447 (7,774 (3h) 4,000
Registration fees....................... -- -- -- -- 14,000 (3i) 14,000
Merger expenses......................... 34,493 54,392 12,515 164,490 126,669 (3l) --
(392,559)(3l)
Miscellaneous............................ 8,482 9,759 7,627 22,790 48,658
---------- ----------- ----------- ---------- -------------- ----------
Total expenses....................... $ 325,398 $ 280,048 $ 171,210 $ 561,692 $ (638,110) $ 700,238
---------- ----------- ----------- ---------- -------------- ----------
Net investment loss....................... (301,308) (267,719) (162,571) (534,287) (627,775)
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized (loss) gain from investment
transactions............................ $ 8,916 $ (185,331) $ (54,880) $ 306,022 $ 74,727
Change in unrealized appreciation/
(depreciation) of investment............ 300,735 418,153 38,748 644,512 1,402,148
Net gain (loss) on investments............ 309,651 232,822 (16,132) 950,534 -- 1,476,875
---------- ----------- ----------- ---------- -------------- ----------
Net increase (decrease) in net assets
resulting from operations............... $ 8,343 $ (34,897) $ (178,703) $ 416,247 $ 638,110 $ 849,100
---------- ----------- ----------- ---------- -------------- ----------
---------- ----------- ----------- ---------- -------------- ----------
</TABLE>
SEE NOTES TO PRO FORMA FINANCIAL STATEMENTS
28
<PAGE>
SURVIVING ENTITY
JUNE 30, 1997
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited pro forma combined financial statements assume consummation
of the transaction described in this Registration Statement and, except as
described in Notes 3 and 4 hereto, no SAIF, SIF, STGF, and SAF shares are
redeemed. For comparisons of financial information after the Merger, the
historical financial information of SIF will be used as SIF will be deemed the
surviving entity for accounting purposes.
The following unaudited pro forma financial statements give effect to the
Merger in a transaction which will be accounted for as a pooling of interests
with SIF as the accounting survivor. The unaudited pro forma statement of
assets and liabilities and pro forma schedule of investments are based on the
individual balance sheets and portfolios of investments of SAIF, SIF, STGF, and
SST appearing elsewhere in this Registration Statement and has been prepared to
reflect the Merger as of June 30, 1997. The unaudited pro forma statement of
operations is based on the individual statements of operations of SAIF, SIF,
STGF, and SST, appearing elsewhere in this Registration Statement, and combines
the results of operations of SAIF, SIF, STGF, and SST for the year ended June
30, 1997, as if the merger had occurred at the beginning of the fiscal year
ended June 30, 1997. The unaudited pro forma financial statements should be
read in conjunction with the historical financial statements and notes thereto
of SAIF, SIF, STGF, and SST included elsewhere in this Registration Statement.
The pro forma combined financial data is intended for informational purposes
only and is not necessarily indicative of the financial position, portfolio of
investments, or future results of operations of the combined entity that would
have actually occurred had the merger been in effect as of the date or for the
periods presented.
2. SST REVERSE STOCK SPLIT
Immediately prior to the Merger, SST will declare a reverse stock split of
ten shares to one share, so that each ten outstanding shares of SST will become
one share of SST (5,768,032 divided by 10 equals 576,803). Shareholders owning
a number of shares that when divided by 10 will result in the shareholder owning
less than one share will receive cash in lieu of fractional shares.
Shareholders of the merging funds (SAIF, SIF, and STGF) will be issued
shares of SST on a pro rata basis in exchange for their shares.
29
<PAGE>
SURVIVING ENTITY
JUNE 30, 1997
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
3. ADJUSTMENTS TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS AS OF JUNE 30, 1997
AND FOR THE YEAR THEN ENDED
(a) To record reduction in transfer agent fees to $186,423 annually.
(b) To record reduction in salaries and benefits to $275,000 annually.
(c) To record reduction in professional fees to $31,000 annually.
(d) To record reduction in reports to shareholders to $8,000 annually.
(e) To record reduction in computer services fees to $16,000 annually.
(f) To record reduction in rent to $25,000 annually.
(g) To record reduction in trustees fees and expenses to $15,000 annually.
(h) To record reduction in custodian fees to $4,000 annually.
(i) To record registration fees expense of $14,000 annually.
(j) To record sale of investments to meet cash requirement to affect
redemption.
(k) To record redemption of shares by Shareholder States.
(l) To record estimated Merger costs to be incurred.
4. REDEMPTION OF SHARES BY SHAREHOLDER STATES
In connection with the Funds agreement to allow for the redemption of
shares owned by the Shareholder States, the Funds anticipate the following
redemptions prior to the Merger: SAIF -290,000 shares; SIF - 305,000 shares;
STGF - 83,000 shares; and SAF - 556,000 shares.
30
<PAGE>
FORM OF ORGANIZATION OF THE FUNDS
Each Fund is a common law trust fund formed under a declaration of trust
and domiciled in the District of Columbia. SAF was originally organized under a
Trust Indenture in the State of Missouri in 1939. It now exists as a common law
trust under the laws of the District of Columbia pursuant to a Trust Indenture
approved by shareholders on January 8, 1979. SAIF was originally organized as a
Delaware corporation on November 3, 1959. It now exists as a common law trust
under the laws of the District of Columbia pursuant to a Trust Indenture
approved by the shareholders on May 24, 1978. SIF was originally organized as a
Delaware corporation on August 6, 1956. It now exists as a common law trust
under the laws of the District of Columbia pursuant to a Trust Indenture
approved by the shareholders on May 11, 1979. STGF was originally organized as
a Delaware corporation in 1967. It now exists as a common law trust under the
laws of the District of Columbia pursuant to a Trust Indenture approved by the
shareholders on May 11, 1979.
Each of the Funds is operated as a non-diversified open-end investment
company; and, upon the effectiveness of the Merger, SST will operate as an
open-end investment company. None of the Funds is taxed for federal income tax
purposes under the special rules for electing and qualifying regulated
investment companies under Sections 851 through 855 of the Code. All the Funds
are taxed under the normal federal income tax rules applicable to corporations
under Subchapter C of the Code.
COMPARISON OF INVESTMENT OBJECTIVES,
POLICIES AND TECHNIQUES OF THE FUNDS
General
The investment objective of SAF 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. SAF may also
make substantial temporary defensive investments in high grade debt securities
of all types, U.S. government securities and repurchase agreements when market
conditions warrant, such as when a severe downturn in the stock market is
anticipated. Both SAIF and STGF have substantially similar investment
objectives. SIF has a different primary investment objective, which is to seek
current income. As a secondary objective, SIF seeks to maximize the total
return but only consistent with its primary objectives. Similar to the other
Funds, SIF may also make substantial temporary defensive investments in debt
securities and money market instruments when market conditions warrant. Upon
the Merger, the investment objective of SST will be to seek current income as
its principal investment objective and secondarily to maximize the total return,
but only to the extent consistent with its primary objective. For a discussion
of the changes in the investment portfolio as a result of the change in
investment objective, see "Ratification of Amended and Restated Trust Indenture
of Steadman Security Trust."
In seeking to achieve their objectives, all of the Funds may use the
following investment vehicles, without limitation:
* Common stock of issuers of all kinds.
31
<PAGE>
* Preferred stocks, warrants, and convertible securities.
* Corporate bonds and debentures of all kinds; and debt securities
issued or guaranteed by the U.S. government of its agencies or
instrumentalities ("U.S. government securities").
* Money market instruments (commercial paper, bank certificates of
deposits, and U.S. government securities).
In choosing portfolio investments, none of the Funds is restricted to any
particular criteria or quality standards except as expressly stated in this
Prospectus. With respect to equity investments, the investment advisor for each
Fund generally looks for issuers that show growth potential, based on
fundamental analysis of the relevant industries and the issuers' financial
position. In selecting debt instruments (other than short-term debt for
defensive purposes), the advisor considers interest rate movements and may
choose investment grade instruments the yield of which exceeds that of
short-term U.S. Treasury securities.
Each Fund has the flexibility to employ a broad range of investment
techniques, including but not limited to the purchase and sale of put and call
options (primarily for premium income but also for hedging purposes), investing
in foreign securities, transactions in repurchase agreements, investments in
government securities, investments in high yield bonds ("junk bonds"),
acquisition of restricted or illiquid securities, purchase and sale of real
estate and related loans, borrowing to increase investment funds, short sales,
and lending portfolio securities. For a discussion of the characteristics and
risks of these vehicles and techniques, please refer to the Statement of
Additional Information. Each Fund may invest in these instruments and use these
techniques without limit, except as expressly stated in the Statement of
Additional Information.
The effect of such techniques can produce portfolio turnover rates of 100%
or more. The portfolio turnover for the year ended June 30, 1997 was 128% for
SAIF, 138% for SIF, 350% for STGF, and 193% for SST. High portfolio turnover
(100% or more) increases brokerage costs and increases the likelihood of
short-term gains and losses.
Portfolio Concentration
The current concentration policy of SAF, as well as the other Funds, states
that it is not the policy of the Fund to invest 25% or more of the value of its
total assets in any one industry. An industry is determined by looking at the
standard industry classification ("SIC") code (i.e., if two companies have the
same SIC code, the companies would be in the same industry). However, when
securities of a given industry come to constitute 25% or more of the value of
the Fund's total assets by reason of changes in value of either the concentrated
securities or other securities, the excess need not be sold. Following the
Merger, SST will have the same concentration policy. At June 30, 1996, STGF was
concentrated in an industry in violation of its concentration policy. The
industry was Pharmaceutical Preparations (SIC Code 2834). Between June 30, 1996
and December 31, 1996, the position in this industry was completely liquidated
resulting in a gain. At June 30, 1997, STGF was concentrated in an industry in
violation of its concentration policy. The industry was Telephone
Communications-No Radio
32
<PAGE>
Telephone (SIC Code 4813). Subsequent to June 30, 1997, the position in this
industry was reduced below the 25% limit resulting in a gain. All of the Funds
are currently in compliance with their concentration policy.
Subsequent to June 30, 1997, the Funds have instituted policies and
procedures to assist in preventing a violation of the concentration policy of
the Funds. The policy provides that prior to the investment advisor making a
purchase of a security, the chief financial officer, or designee thereof, must
confirm that the purchase will not result in a violation of the concentration
policy. In addition, pursuant to the policy, the chief financial officer will
determine weekly if any portfolio securities have appreciated in value above 25%
such that additional purchases would be prohibited.
CONDENSED FINANCIAL INFORMATION
OF THE FUNDS
The following financial highlights of each of the Funds for the year
ended June 30, 1997 have been audited and have been derived from the audited
financial statements of the Funds, which were audited by Reznick Fedder &
Silverman, P.C., independent certified public accountants, whose reports thereon
are included with each Funds' Annual Reports, and are available to shareholders
upon request. The year ended June 30, 1996 and the eight previous years have
been audited and have been derived from the audited financial statements of the
Funds, which were audited by Coopers & Lybrand L.L.P., independent certified
public accountants, whose reports thereon are included with each Funds' Annual
Reports, and are available to shareholders upon request.
33
<PAGE>
FINANCIAL HIGHLIGHTS
SAIF
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE PERIOD
FEBRUARY 1, 1995
JUNE 30, THROUGH JUNE 30,
-------------------- -----------------
1997 1996 1995*
--------- --------- -----------------
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of
period............................. $ 0.72 $ 0.88 $ 0.96
Net investment income (loss)......... (.33) (.41) (.12)
Net realized and unrealized gain
(loss) on investments.............. .33 .25 .04
--------- --------- --------
Total from investment operations..... -- (.16) (.08)
Dividends and distributions paid:
From net realized gain............... -- -- --
From net investment income........... -- -- --
From capital......................... -- -- --
--------- -------- ---------
Total distributions.................. -- -- --
--------- -------- ---------
Net asset value, end of period....... $ 0.72 $ 0.72 $ 0.88
--------- -------- ---------
--------- -------- ---------
Ratio/Supplemental................... 0.56% (18.48)% (20.01)%**
Data: Total return (1)
Net Assets, end of period (in
thousands)......................... $ 976 $ 1,008 $ 1,341
Ratio of expenses to average net
assets............................. 31.07% 24.61% 24.62%**
Ratio of net investment income (loss)
to average net assets.............. (28.77)% (24.10)% (22.86)%**
Portfolio turnover................... 128% 339% 617%**
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
-----------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988
------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of
period............................. $1.65 $ 1.50 $ 1.54 $ 1.59 $ 1.94 $ 2.21 $ 2.24 $ 2.68
Net investment income (loss)......... (.26) (.24) (.19) (.20) (.19) (.19) (.11) (.12)
Net realized and unrealized gain
(loss) on investments.............. (.43) .39 .15 .15 (.16) (.08) .08 (.32)
------- ------ ------ -------- -------- -------- ------- ----------
Total from investment operations..... (.69) .15 (.04) (.05) (.35) (.27) (.03) (.44)
Dividends and distributions paid:
From net realized gain............... -- -- -- -- -- -- -- --
From net investment income........... -- -- -- -- -- -- -- --
From capital......................... -- -- -- -- -- -- -- --
------- ------ ------ -------- -------- -------- ------- ----------
Total distributions.................. -- -- -- -- -- -- -- --
------- ------ ------ -------- -------- -------- ------- ----------
Net asset value, end of period....... $0.96 $ 1.65 $ 1.50 $ 1.54 $ 1.59 $ 1.94 $ 2.21 $ 2.24
------- ------ ------ -------- -------- -------- ------- ----------
------- ------ ------ -------- -------- -------- ------- ----------
Ratio/Supplemental................... (41.82)% 10.00% (2.60)% (3.14)% (18.04)% (12.2)% (1.34)% (16.42)%
Data: Total return (1)
Net Assets, end of period (in
thousands)......................... $1,472 $2,627 $2,496 $ 2,648 $2,844 $3,691 $4,563 $4,943
Ratio of expenses to average net
assets............................. 17.69% 12.66% 14.83% 15.13% 13.75% 12.74% 9.37% 7.00%
Ratio of net investment income (loss)
to average net assets.............. (15.63)% (11.40)% (13.52)% (13.13)% (10.25)% (8.75)% (4.84)% (3.64)%
Portfolio turnover................... 289% 134% 221% 460% 211% 258% 121% 228%
</TABLE>
- ------------------------
(1) Total return on the changes in net value of a share during the period and
assumes reinvestment of distributions at net asset value.
* The Fund's fiscal year-end was changed to June 30.
34
<PAGE>
FINANCIAL HIGHLIGHTS
SAF
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE PERIOD
OCTOBER 1, 1994
JUNE 30, THROUGH JUNE 30, FOR THE YEARS ENDED SEPTEMBER 30,
-------------------- ------------------ -----------------------------------------------------
1997 1996 1995* 1994 1993 1992 1991 1990
--------- --------- ------------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value,
beginning of
period............... $ 0.70 $ 0.73 $ 0.72 $ 0.87 $ 0.64 $ 0.67 $ 0.57 $ 0.84
--------- --------- ------- --------- --------- --------- --------- ---------
Net investment income
(loss)............... (.11) (.17) (.03) (.08) (.05) (.03) (.02) (.03)
Net realized and
unrealized gain
(loss) on
investments.......... .17 .14 .04 (.07) .28 -- .12 (.24)
--------- --------- ------- --------- --------- --------- --------- ---------
Total from investment
operations........... .06 (.03) .01 (.15) .23 (.03) .10 (.27)
Dividends and
distributions paid:
From net realized
gain................. -- -- -- -- -- -- -- --
From net investment
income............... -- -- -- -- -- -- -- --
From capital........... -- -- -- -- -- -- -- --
--------- --------- ------- --------- --------- --------- --------- ---------
Total distributions.... -- -- -- -- -- -- -- --
--------- --------- ------- --------- --------- --------- --------- ---------
Net asset value, end of
period................... $ 0.76 $ 0.70 $ 0.73 $ 0.72 $ 0.87 $ 0.64 $ 0.67 $ 0.57
--------- --------- ------- --------- --------- --------- --------- ---------
--------- --------- ------- --------- --------- --------- --------- ---------
Ratio/Supplemental
Data: Total return
(1).................. 8.89% (4.38)% 1.85%** (17.24)% 35.88% (4.50)% 17.51% (32.27)%
Net Assets, end of
period (in
thousands)......... $ 4,397 $ 4,581 $ 5,735 $ 6,307 $ 8,844 $ 7,254 $ 8,539 $ 8,392
Ratio of expenses to
average net assets....... 12.42% 8.14% 8.17%** 7.76% 5.79% 6.92% 7.16% 6.08%
Ratio of net investment
income (loss) to average
net assets............... (11.82)% (7.48)% (7.23)%** (6.09)% (4.63)% (5.14)% (3.29)% (4.54)%
Portfolio turnover..... 193% 231% 505%** 241% 300% 301% 267% 86%
</TABLE>
<TABLE>
<CAPTION>
1989 1988
--------- ---------
<S> <C> <C>
Per Share Operating
Performance:
Net asset value,
beginning of
period............... $ 0.60 $ 0.91
--------- ---------
Net investment income
(loss)............... -- --
Net realized and
unrealized gain
(loss) on
investments.......... .27 (.25)
--------- ---------
Total from investment
operations........... .27 (.25)
Dividends and
distributions paid:
From net realized
gain................. (.03) --
From net investment
income............... -- --
From capital........... -- (.06)
--------- ---------
Total distributions.... (.03) (.06)
--------- ---------
Net asset value, end of
period................... $ 0.84 $ 0.60
--------- ---------
--------- ---------
Ratio/Supplemental
Data: Total return
(1).................. 47.50% (27.86)%
Net Assets, end of
period (in
thousands)......... $ 16,035 $ 13,572
Ratio of expenses to
average net assets....... 6.65% 4.10%
Ratio of net investment
income (loss) to average
net assets............... (.24)% (.33)%
Portfolio turnover..... 208% 367%
</TABLE>
- ------------------------
(1) Total return on the changes in net value of a share during the period and
assumes reinvestment of distributions at net asset value.
* The Fund's fiscal year-end was changed to June 30.
35
<PAGE>
FINANCIAL HIGHLIGHTS
SIF
<TABLE>
<CAPTION>
FOR THE
FOR THE YEARS ENDED PERIOD
JANUARY 1,
JUNE 30, 1995 THROUGH FOR THE YEARS ENDED DECEMBER 31,
-------------------- JUNE 30, ------------------------------------------
1997 1996 1995* 1994 1993 1992 1991
--------- --------- ------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period... $ 0.86 $ 1.02 $ 0.93 $ 1.42 $ 1.38 $ 1.49 $ 1.12
--------- --------- ------------- --------- --------- --------- ---------
Net investment income (loss)........... (.03) (.13) (.02) (.08) (.06) (.09) (.06)
Net realized and unrealized gain (loss)
on investments....................... .02 (.03) .11 (.41) .10 (.02) .43
--------- --------- ------------- --------- --------- --------- ---------
Total from investment operations....... (.01) (.16) .09 (.49) .04 (.11) .37
Dividends and distributions paid:
From net realized gain................. -- -- -- -- -- -- --
From net investment income............. -- -- -- -- -- -- --
From capital........................... -- -- -- -- -- -- --
--------- --------- ------------- --------- --------- --------- ---------
Total distributions.................... -- -- -- -- -- -- --
--------- --------- ------------- --------- --------- --------- ---------
Net asset value, end of period........... $ 0.85 $ 0.86 $ 1.02 $ 0.93 $ 1.42 $ 1.38 $ 1.49
--------- --------- ------------- --------- --------- --------- ---------
--------- --------- ------------- --------- --------- --------- ---------
Ratio/Supplemental Data: Total
return(1)............................ (2.05)% (15.53)% 19.36%** (34.51)% 2.89% (7.05)% 32.95%
Net Assets, end of period (in
thousands)......................... $ 1,634 $ 1,763 $ 2,298 $ 2,159 $ 3,550 $ 3,791 $ 4,277
Ratio of expenses to average net
assets................................. 16.47% 10.60% 10.54%** 8.90% 6.48% 7.78% 7.88%
Ratio of net investment income (loss) to
average net assets..................... (15.75)% (5.23)% (4.24)%** (6.65)% (4.52)% (6.09)% (5.08%)
Portfolio turnover..................... 138% 382% 226%** 282% 179% 263% 245%
<CAPTION>
1990 1989 1988
--------- --------- ---------
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period... $ 1.32 $ 1.22 $ 1.32
--------- --------- ---------
Net investment income (loss)........... (.09) (.08) --
Net realized and unrealized gain (loss)
on investments....................... (.11) .18 (.09)
--------- --------- ---------
Total from investment operations....... (.20) .10 (.09)
Dividends and distributions paid:
From net realized gain................. -- -- --
From net investment income............. -- -- (.01)
From capital........................... -- -- --
--------- --------- ---------
Total distributions.................... -- -- (.01)
--------- --------- ---------
Net asset value, end of period........... $ 1.12 $ 1.32 $ 1.22
--------- --------- ---------
--------- --------- ---------
Ratio/Supplemental Data: Total
return(1)............................ (15.15)% 8.13% (6.82)%
Net Assets, end of period (in
thousands)......................... $ 3,530 $ 4,627 $ 4,812
Ratio of expenses to average net
assets................................. 10.31% 8.95% 5.59%
Ratio of net investment income (loss) to
average net assets..................... (7.27)% (6.15)% .13%
Portfolio turnover..................... 144% 165% 128%
</TABLE>
- ------------------------
(1) Total return on the changes in net value of a share during the period and
assumes reinvestment of distributions at net asset value.
* The Fund's fiscal year-end was changed to June 30.
36
<PAGE>
FINANCIAL HIGHLIGHTS
STGF
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE PERIOD
JANUARY 1, 1995
JUNE 30, THROUGH JUNE 30,
-------------------- -----------------
1997 1996 1995*
--------- --------- -----------------
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of
period............................ $ 1.02 $ 1.43 $ 1.57
--------- --------- -------
Net investment income (loss)........ (.50) (.58) (.22)
Net realized and unrealized gain
(loss) on investments............. .16 .17 .08
--------- --------- -------
Total from investment operations.... (.34) (.41) (.14)
Dividends and distributions paid:
From net realized gain.............. -- -- --
From net investment income.......... -- -- --
From capital........................ -- -- --
--------- --------- -------
Total distributions................. -- -- --
--------- --------- -------
Net asset value, end of period...... $ 0.68 $ 1.02 $ 1.43
--------- --------- -------
--------- --------- -------
Ratio/Supplemental Data:............ (33.42)% (28.29)% (17.84)%**
Total return (1)
Net Assets, end of period (in
thousands)........................ $ 348 $ 542 $ 799
Ratio of expenses to average net
assets............................ 41.46% 25.19% 22.28%**
Ratio of net investment income
(loss) to average net assets...... 39.37% (24.78)% (20.90)%**
Portfolio turnover.................. 350% 333% 615%**
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988
---- ------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of
period............................ $ 2.48 $ 2.69 $ 2.84 $ 2.21 $ 3.92 $ 3.03 $ 4.12
----- --------- -------- -------- -------- --------- ---------
Net investment income (loss)........ (.45) (.40) (.33) (.30) (.41) (.37) (.30)
Net realized and unrealized gain
(loss) on investments............. (.46) .19 .18 .93 (1.30) 1.26 (.79)
----- --------- -------- -------- -------- --------- ---------
Total from investment operations.... (.91) (.21) (.15) .63 (1.71) .89 (1.09)
Dividends and distributions paid:
From net realized gain.............. -- -- -- -- -- -- --
From net investment income.......... -- -- -- -- -- -- --
From capital........................ -- -- -- -- -- -- --
----- --------- -------- -------- -------- --------- ---------
Total distributions................. -- -- -- -- -- -- --
----- --------- -------- -------- -------- --------- ---------
Net asset value, end of period...... $1.57 $ 2.48 $ 2.69 $ 2.84 $ 2.21 $ 3.92 $ 3.03
----- --------- -------- -------- -------- --------- ---------
----- --------- -------- -------- -------- --------- ---------
Ratio/Supplemental Data:............ (36.69)% (7.81)% (5.28)% 28.51% (43.62)% 29.37% (26.46)%
Total return (1)
Net Assets, end of period (in
thousands)........................ $894 $ 1,467 $ 1,634 $ 1,786 $ 1,443 $ 2,675 $ 2,178
Ratio of expenses to average net
assets............................ 16.34% 11.94% 13.33% 14.10% 14.97% 12.14% 9.90%
Ratio of net investment income
(loss) to average net assets...... (14.79)% (11.38)% (12.45)% (11.70)% (12.60)% (9.97)% (8.55)%
Portfolio turnover.................. 274% 128% 157% 318% 184% 116% 164%
</TABLE>
- ------------------------
(1) Total return on the changes in net value of a share during the period and
assumes reinvestment of distributions at net asset value.
* The Fund's fiscal year-end was changed to June 30.
37
<PAGE>
SAIF
MANAGEMENT'S DISCUSSION OF
PERFORMANCE OF THE FUND
During its fiscal year ended June 30, 1997, the Fund's net asset value per
share did not change. The Fund experienced a net increase in net assets from
operations of approximately $8,000 as a result of a net realized gain from
investment transactions of $9,000 offset by a net investment loss of $301,000
and unrealized appreciation of investments of $300,000.
Portfolio turnover during the year, although high, was about one-third of
the rate for the prior period and at year's end the Fund's portfolio consisted
of investments in segments of the computer, communications, and motor vehicle
industries. The Fund maintained an aggressive trading position with its assets
almost fully invested in equity securities most of the year. The Fund's net
investment loss of approximately $301,000 resulted from expenses after taking
into account the Fund's investment income from dividends and interest of
approximately $24,000. The Fund's primary goal is to maximize capital
appreciation.
From time to time the Fund may quote its total return in advertisements or
in reports or other communications to shareholders. A mutual fund's total return
is a measurement of the overall change in value, including changes in share
price and assuming reinvestment of all distributions, of an investment in the
fund. Cumulative total return shows the fund's performance over a specific
period of time. Average annual total return is the average annual compounded
return that would have produced the same cumulative total return if the fund's
performance had been constant over the entire period. The returns shown are
based on historical results and are not intended to indicate future performance.
The investment return and principal value of an investment in the fund will
fluctuate so that an investor's shares when redeemed may be worth more or less
than their original cost. Average annual returns which differ from actual
year-to-year results, tend to smooth out variations in a fund's returns.
SAF
MANAGEMENT'S DISCUSSION OF
PERFORMANCE OF THE FUND
During its fiscal year ended June 30, 1997, the Fund's net asset value per
share increased 8.89%. The Fund experienced a net increase in net assets from
operations of approximately $416,000, as a result of a net realized gain from
investment transactions of $306,000 offset by a net investment loss of $534,000
and unrealized appreciation of investments of $644,000.
Portfolio turnover during the year, although high, was less than the rate
for the prior period and at year's end the Fund's portfolio consisted of
investments in various segments of the computer, communications, aircraft, motor
vehicles, mail order, and semiconductor industries. In addition, the Fund
purchased call options in the expectation that the Fund would benefit from
rising prices in these positions. The Fund maintained an aggressive trading
position with its assets almost fully invested in equity securities most of the
year. The Fund's net investment loss of approximately $534,000 resulted from
expenses after taking into account the Fund's investment income from dividends
and
38
<PAGE>
interest of approximately $27,000. Realization of current income is secondary to
the Fund's pursuit of its primary goal of capital appreciation.
From time to time the Fund may quote its total return in advertisements or
in reports or other communications to shareholders. A mutual fund's total return
is a measurement of the overall change in value, including changes in share
price and assuming reinvestment of all distributions, of an investment in the
fund. Cumulative total return shows the fund's performance over a specific
period of time. Average annual total return is the average annual compounded
return that would have produced the same cumulative total return if the fund's
performance had been constant over the entire period. The returns shown are
based on historical results and are not intended to indicate future performance.
The investment return and principal value of an investment in the fund will
fluctuate that an investor's shares when redeemed may be worth more or less than
their original cost. Average annual returns, which differ from actual
year-to-year 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, 1997, the Fund's net asset value per
share decreased 2.05%. The Fund experienced a net decrease in net assets from
operations of approximately $35,000 as a result of a net realized loss from
investment transactions of $185,000 and a net investment loss of $268,000 offset
by unrealized appreciation of investments of $418,000.
Portfolio turnover during the year, although high, was about one third of
the rate for the prior period as a result of maintaining the profile of
investments in stocks of various segments of the computer, communications, and
motor vehicle industries. The Fund maintained an aggressive trading position
with its assets almost fully invested in equity securities most of the year. The
Fund's net investment loss of approximately $268,000 resulted from expenses
after taking into account the Fund's investment income from dividends and
interest of approximately $12,000. Realization of capital appreciation is
secondary to the Fund's primary goal of current income.
From time to time the Fund may quote its total return in advertisements or
in reports or other communications to shareholders. A mutual fund's total return
is a measurement of the overall change in value, including changes in share
price and assuming reinvestment of all distributions, of an investment in the
fund. Cumulative total return shows the fund's performance over a specific
period of time. Average annual total return is the average annual compounded
return that would have produced the same cumulative total return if the fund's
performance had been constant over the entire period. The returns shown are
based on historical results and are not intended to indicate future performance.
The investment return and principal value of an investment in the fund will
fluctuate so that an investor's shares when redeemed may be worth more or less
than their original cost. Average annual returns which differ from actual
year-to-year results, tend to smooth out variations in a fund's returns.
39
<PAGE>
STGF
MANAGEMENT'S DISCUSSION OF
PERFORMANCE OF THE FUND
During its fiscal year ended June 30, 1997, the Fund's net asset value per
share decreased 33.42%. The Fund experienced a net decrease in net assets from
operations of approximately $179,000 as a result of a net realized loss from
investment transactions of $55,000 and a net investment loss of $163,000 offset
by unrealized appreciation of investments of $39,000.
Portfolio turnover during the year, although high, was about the same as the
rate for the prior period and at year's end the Fund's portfolio consisted of
investments in the semiconductor, communications, and real estate industries.
The Fund maintained an aggressive trading position with its assets almost fully
invested in equity securities most of the year. The Fund's net investment loss
of approximately $163,000 resulted from expenses after taking into account the
Fund's investment income from dividends and interest of approximately $9,000.
Realization of current income is secondary to the Fund's pursuit of its primary
goal of capital appreciation.
From time to time the Fund may quote its total return in advertisements or
in reports or other communications to shareholders. A mutual fund's total return
is a measurement of the overall change in value, including changes in share
price and assuming reinvestment of all distributions, of an investment in the
fund. Cumulative total return shows the fund's performance over a specific
period of time. Average annual total return is the average annual compounded
return that would have produced the same cumulative total return if the fund's
performance had been constant over the entire period. The returns shown are
based on historical results and are not intended to indicate future performance.
The investment return and principal value of an investment in the fund will
fluctuate so that an investor's shares when redeemed may be worth more or less
than their original cost. Average annual returns which differ from actual
year-to-year results, tend to smooth out variations in a fund's returns.
40
<PAGE>
SAIF
Total Return vs. S&P 500 Index
February 1, 1987 to January 31, 1995,
February 1, 1995 to June 30, 1995,
July 1, 1995 to June 30, 1996, and
July 1, 1996 to June 30, 1997
[A GRAPH WITH THE FOLLOWING PLOTTING POINTS APPEARS ON THIS PAGE]
<TABLE>
<CAPTION>
SAIF S&P 500
---------------------- ----------------------
<S> <C> <C> <C> <C>
STATUS OF STATUS OF
PERCENT $10,000 PERCENT $10,000
PERIOD ENDED CHANGE INVESTMENT CHANGE INVESTMENT
- ------------- --------- ----------- --------- -----------
2/1/87..... -- $ 10,000 -- $ 10,000
1/31/88.... (16.42) 8,358 (33.20) 9,668
1/31/89.... (1.34) 8,248 20.07 11,608
1/31/90.... (12.22 7,240 14.46 13,287
1/31/91.... (18.04 5,934 8.40 14,403
1/31/92.... (3.14) 5,748 22.69 17,671
1/31/93.... (2.60) 5,599 10.58 19,541
1/31/94.... 10.00 6,159 12.88 22,058
1/31/95.... (41.82) 3,583 2.59 22,629
6/30/95.... (8.33) 3,285 17.17 26,514
6/30/96.... (18.48) 2,678 26.00 33,408
6/30/97.... .56 2,693 34.69 44,997
</TABLE>
41
<PAGE>
SAF
Total Return vs. S&P 500 Index
October 1, 1986 to September 30, 1994
October 1, 1994 to June 30, 1995, and
July 1, 1995 to June 30, 1997
[A GRAPH WITH THE FOLLOWING PLOTTING POINTS APPEARS ON THIS PAGE]
<TABLE>
<CAPTION>
SAF S&P 500
---------------------- ----------------------
<S> <C> <C> <C> <C>
STATUS OF STATUS OF
PERCENT $10,000 PERCENT $10,000
PERIOD ENDED CHANGE INVESTMENT CHANGE INVESTMENT
- ------------- --------- ----------- --------- -----------
10/1/86.... -- $ 10,000 -- $ 10,000
9/30/87.... 15.83 11,583 43.27 14,327
9/30/88.... (27.86) 8,356 (12.54) 12,530
9/30/89.... 47.50 12,325 32.97 16,662
9/30/90.... (32.27) 8,348 (9.23) 15,124
9/30/91.... 17.51 9,809 31.17 19,838
9/30/92.... (4.47) 9,371 11.05 22,030
9/30/93.... 35.88 12,733 13.00 24,894
9/30/94.... (17.24) 10,538 3.68 25,810
6/30/95.... 1.39 10,684 20.19 31,021
6/30/96.... (4.38) 10,216 26.00 39,087
6/30/97.... 8.89 11,124 34.69 52,647
</TABLE>
42
<PAGE>
SIF
Total Return vs. S&P 500 Index
February 1, 1987 to December 31, 1994,
January 1, 1995 to June 30, 1995, and
July 1, 1995 to June 30, 1997
0 [A GRAPH WITH THE FOLLOWING PLOTTING POINTS APPEARS ON THIS PAGE]
<TABLE>
<CAPTION>
S&P 500
------------------------
SIF STATUS OF STATUS OF
PERCENT $10,000 PERCENT $10,000
PERIOD ENDED CHANGE INVESTMENT CHANGE INVESTMENT
- ------------ --------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1/1/87..... -- $ 10,000 -- $ 10,000
12/31/87... (18.01) 8,199 5.10 10,510
12/31/88... (6.82) 7,640 16.61 12,256
12/31/89... 8.13 8,261 31.69 16,140
12/31/90... (15.15) 7,009 (3.10) 15,640
12/31/91... 32.95 9,310 30.47 20,406
12/31/92... (7.05) 8,654 7.62 21,961
12/31/93... 2.89 8,904 10.08 24,175
12/31/94... (34.51) 5,831 1.38 24,508
6/30/95.... 9.68 6,395 20.21 29,461
6/30/96.... (15.53) 5,402 26.00 37,121
6/30/97.... (2.05) 5,291 34.69 49,999
</TABLE>
43
<PAGE>
STGF
Total Return vs. S&P 500 Index
January 1, 1987 to December 31, 1994,
January 1, 1995 to June 30, 1995, and
July 1, 1995 to June 30, 1997
[A GRAPH WITH THE FOLLOWING PLOTTING POINTS APPEARS ON THIS PAGE]
<TABLE>
<CAPTION>
STGF S&P 500
---------------------- ------------------------
<S> <C> <C> <C> <C>
STATUS OF STATUS OF
PERCENT $10,000 PERCENT $10,000
PERIOD ENDED CHANGE INVESTMENT CHANGE INVESTMENT
- ------------ --------- ----------- ----------- -----------
1/1/87..... -- $ 10,000 -- $ 10,000
12/31/87... (8.04) 9,196 5.10 10,510
12/31/88... (26.46) 6,763 16.61 12,256
12/31/89... 29.37 8,949 31.69 16,140
12/31/90... (43.62) 4,933 (3.10) 15,640
12/31/91... 28.51 6,339 30.47 20,406
12/31/92... (5.28) 6,004 7.62 21,961
12/31/93... (7.81) 5,535 10.08 24,175
12/31/94... (36.69) 3,504 1.38 24,508
6/30/95.... (8.92) 3,191 20.21 29,461
6/30/96.... (28.29) 2,288 26.00 37,l21
6/30/97.... (33.42) 1,523 34.69 49,999
</TABLE>
44
<PAGE>
DESCRIPTION OF CAPITAL STRUCTURE OF THE FUNDS
AND SHAREHOLDER RIGHTS
Each Fund is organized as a common law trust under the laws of the District
of Columbia and has outstanding only one class of shares of beneficial
interest. All shareholders have equal voting rights, and all shares participate
equally in dividends and other distributions by the respective Fund, and in
the residual assets of such Fund in the event of liquidation. Fractional
shares have the same rights proportionately as do full shares. Shares of the
Funds have no preemptive rights and no conversion or subscription rights. The
Funds do not hold regularly scheduled annual shareholders' meetings. Special
meetings are called when required by applicable laws and regulations. No
shareholder of any Fund shall be subject to any liability to any person in
connection with the property or affairs of any such Fund.
In addition, the governing documents of the Funds contain several other
provisions relating to shareholders' rights that are uncommon to most other
mutual funds including: (a) trustees hold office for a term of unlimited
duration, (b) shareholders are not entitled to vote for or against any
amendments to the Trust Indenture, (c) shareholders are not entitled to vote for
or against a termination of the Fund, and (d) except as otherwise required by
law, shareholders may call special meetings only upon a vote of 90% of the
outstanding shares.
As interpreted by the staff of the Securities and Exchange Commission, the
1940 Act provides shareholders of the Funds with certain rights with respect to
removal of Trustees. Under these provisions, shareholders may remove one or
more Trustees by declaration or vote of two-thirds of each Fund's outstanding
shares. The Trustees will promptly call a meeting of shareholders for the
purpose of voting upon the question of removal of Trustees when requested to do
so by the record holders of not less than 10% of the outstanding shares of the
Fund. Such Fund will comply with these procedures.
Special Provisions of SST
The following discussion is a general summary of the material provisions of
the Amended and Restated Trust Indenture of SST. The description of these
provisions is necessarily general and reference should be made in each case to
the complete documents set forth in Exhibit B hereto.
1. Election and Removal of Trustees. Trustees are chosen for a term of
unlimited duration. Trustees may only be removed by a vote of 90% of the
remaining Trustees or a vote of two-thirds of the shareholders.
2. Meetings of Shareholders. Special meetings of the Shareholders may be
called at any time by the Chairman or by a majority of the Trustees, and
shall be called upon written request of shareholders holding in the
aggregate not less than ninety percent (90%) of the outstanding shares
having voting rights. The Trustees shall promptly call a meeting of
shareholders for the purpose of voting upon the question of removal of
Trustees when requested to do so by the record holders of not less than 10%
of the outstanding shares of the Fund.
45
<PAGE>
3. Absence of Cumulative Voting. The Amended and Restated Trust
Indenture provides that there shall not be cumulative voting by
shareholders for the election of Trustees. The absence of cumulative
voting rights means that holders of a majority of the shares voted at a
meeting of shareholders may, if they so choose, elect all Trustees to be
selected, thus precluding minority shareholder representation among the
Trustees. Other than a provision of the Act requiring every shareholder to
have equal voting power, no provision of the Act requires cumulative
voting.
4. Possible Limitation on Acquisition. An existing provision of the
trust indenture of SAF permits the Trustees to limit the amount of SAF
shares owned at any one time by any one person to 5% of SAF shares. The
Amended and Restated Trust Indenture of SST retains this provision as a
means to allow the Trustees to prevent a person from becoming an affiliated
person within the meaning of Section 2 of the 1940 Act. There is no
provision of the Act that limits the percentage ownership one person may
have in an open-end investment company.
Not redeeming your shares prior to the Merger will result in the above
provisions applying to all shareholders should the Merger be consummated and the
Amended and Restated Trust Indenture be approved by shareholders of SST at the
Meeting.
Redemption of Shares
Shareholders of the Funds do not have appraisal or other dissenter's rights
with respect to the Merger. However, shareholders of the Funds may redeem their
shares at any time before or after the closing date of the Merger at net asset
value. The proceeds will be paid by check within seven days after receipt of a
redemption request.
The redemption procedures of SST will not change as a result of the Merger.
The current redemption procedures are as follows:
Accounts without share certificates - A signed request (all joint owners
must sign) stating the amount to be withdrawn must be made to Steadman
Security Corporation, 1730 K Street, N.W., Washington, D.C. 20006. For
amounts more than $1,000, a "signature guarantee" will be necessary from a
commercial bank or trust company. Signature guarantees shall be accepted
from all eligible guarantor institutions, which include domestic banks,
brokers, dealers, credit unions, national securities exchanges, registered
securities associations, clearing agencies and savings associations.
Instant Liquidity (by telephone) - Any amount may be withdrawn by telephone
by calling 1-800-424-8570 on any business day if telephone withdrawals have
been previously authorized on the Investment Application. Telephone
instructions from any person representing himself or herself to be a
shareholder or a shareholder's representative, and believed by SSC, as
Transfer Agent for the Fund, to be genuine will be acted upon. No Fund 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.
46
<PAGE>
Accounts with share certificates - The signed share certificates (all joint
owners must sign) together with a "signature guarantee" from an eligible
guarantor institution (see "Accounts without share Certificates," above)
and a written request that the certificates be redeemed, must be submitted
to SSC at the above address.
Requests for redemption by corporations, executors, administrators,
trustees or guardians may require further documentation.
The proceeds of redemptions are paid by check within seven days after
receipt of a request for redemption that complies with the procedures set forth
above. Proceeds may also be wired to a bank or trust company if wire transfers
have been previously authorized on the Investment Application. When a personal
or corporate check was used to purchase the shares, redemption proceeds will be
released only when bank clearance on the check has been received. This
procedure could take up to seven days after the purchase date and can be avoided
by submitting a certified check along with the purchase order. Also, there may
be a charge if a shareholder uses a broker-dealer to repurchase the Fund's
shares.
The right of redemption may be suspended during any period when: (a)
trading on the New York Stock Exchange is restricted as determined by the
Securities and Exchange Commission or such Exchange is closed for other than
weekends and holidays; or (b) as permitted by the Securities and Exchange
Commission.
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 sums in excess thereof.
47
<PAGE>
The advisory fee is higher than that paid by many other investment companies.
SSC also receives certain other fees, which are described in the Statement of
Additional Information.
The Advisor also receives reimbursements from each Fund for salaries and
benefits of its employees who perform directly attributable functions to such
Fund other than investment advisory and shareholder services. These functions
include: fund accounting, reviewing the Fund's internal financial reports;
coordinating the editing, printing and mailing of reports to the Fund's
shareholders; internal audit of the Fund's books, transactions, and daily
pricing; compliance with SEC regulation, including registration; preparation of
materials for Trustees' meetings; legal and other administrative functions; and
clerical assistance.
LEGAL PROCEEDINGS
The Funds are not parties to any material legal proceedings; however, the
Funds have been threatened with litigation to prevent consummation of the
Merger. In 1993, the Funds entered into a Settlement Agreement with
approximately 47 states with respect to the recovery of shares and distributions
owned by persons who had allegedly abandoned these properties. The Settlement
Agreement provides among other things, that the Shareholder States will not
request redemption of their shares until February 14, 1998. The Shareholder
States currently own shares in the Funds, which as of June 30, 1997 had a net
asset value of approximately $949,000. The Shareholder States are represented
by the UPCH. In July 1997, at the request of the UPCH, the Funds unconditionally
agreed to remove the restriction on the redemption of shares and to redeem prior
to the Merger all of the shares of the Funds owned by the Shareholder States
upon their request. The Shareholder States have no rights, priorities, or
preferences over any other shareholders of the Funds.
SELECTION OF INDEPENDENT AUDITORS
PROPOSAL NO. 2
(TO BE VOTED ON BY SHAREHOLDERS OF ALL FUNDS)
The Trustees of all of the Funds including a majority of the Trustees who
are not Interested Persons have selected the firm of Reznick Fedder & Silverman,
P.C. as independent auditors to examine the financial statements of each of the
Funds for the current fiscal year and for SST after completion of the Merger.
The Trustees know of no direct or indirect financial interest of such firm in
the Funds. The firm of Coopers & Lybrand L.L.P., which had been the independent
auditors for the year ended June 30, 1996, advised the Trustees on January 13,
1997 that they had resigned as auditor of the Funds. In its letter of
resignation, the firm of Coopers & Lybrand, L.L.P. stated that it had no
disagreements with the Funds' management concerning the scope of its services to
the Funds or with the Funds' accounting policies.
The selection of independent auditors is subject to the ratification or
rejection by the shareholders of each of the Funds. If the shareholders
approve, the firm of Reznick Fedder & Silverman, P.C. will serve as the
independent auditors of each of the Funds until the next meeting of
shareholders. Unless otherwise indicated, signed proxies will be voted in favor
of the ratification of the selection of such independent auditors. The Trustees
recommend that shareholders of the Funds vote "FOR" proposal 2.
48
<PAGE>
Representatives of Reznick Fedder & Silverman, P.C. are expected to be
present at the Meeting and will have the opportunity to make a statement if they
so desire and to respond to questions from shareholders.
ELECTION OF TRUSTEES
OF
STEADMAN ASSOCIATED FUND
PROPOSAL NO. 3
(TO BE VOTED ON BY SHAREHOLDERS OF
STEADMAN ASSOCIATED FUND ONLY)
Election of Trustees
Three Trustees have been nominated for election by the shareholders of SST.
Pursuant to the terms of the Amended and Restated Trust Indenture of SST,
Trustees shall be chosen for a term of unlimited duration, and shall hold office
until their successors shall be elected and qualified, provided that the term of
office will be terminated in the event of death, resignation, bankruptcy,
adjudicated incompetence or other incapacity to serve. The Trustees of SST
recommend that shareholders vote "FOR" the nominees being proposed.
Currently, the Fund has four Trustees, one of whom, Paul F. Wagner, was
appointed by the remaining trustees October 14, 1992 to fill a vacancy. This is
the first shareholders meeting since that date, and accordingly the shareholders
are being asked to approve Mr. Wagner's appointment. Two additional persons
have been nominated to serve as Trustees, William Mark Crain and Richard O.
Haase. It is intended that all properly executed proxies will be voted (unless
such authority has been withheld in the proxy) in favor of the persons
designated as Trustees to be elected by the shareholders.
The Trustees of SST know of no reason why any of these nominees will be
unable to serve, but in the event of any such unavailability, the proxies
received will be voted for such substitute nominee or nominees as the Trustees
may recommend.
49
<PAGE>
Certain information concerning the Trustees and the nominees is set forth
below.
<TABLE>
<CAPTION>
Principal Shares of
Occupation During SST Beneficially
Past Five Years and Trustee Owned at
Name and Address Age Public Directorships Since April 15, 1997
- ---------------- --- ----------------------------------------- --------- ---------------
<S> <C> <C> <C> <C>
Paul A. Bowers, M.D. 85 Emeritus Professor, Obstetrics and
Gynecology, 1978 -0-
Jefferson Medical College (ret.); Trustee
of each of the Steadman Funds
William Mark Crain* 45 Professor of Economics and Research -- -0-
Associate with the Center for Study of
Public Choice, George Mason
University
Richard O. Haase* 62 Vice President, Maiden, Haase & Smith, -- -0-
a real estate valuation company
Vice Admiral John T.
Hayward USN (Ret.) 85 Vice Admiral, U.S.N. (ret.); Trustee 1973 -0-
of each of the Steadman Funds
Charles W. Steadman 82 Chairman of the Board and President 1968 16,425
of Steadman Security Corporation and
of each of the Steadman Funds
Paul F. Wagner* 80 Chairman, Wagner, Hines & Avery, Inc., 1992 -0-
a Washington, D.C. public affairs firm,
Trustee of each of the Steadman Funds
_____________________
*Nominee for election.
</TABLE>
Committee and Meetings of Trustees
The Board of Trustees of SST acts as a committee of the whole, and
accordingly there are no special committees of the Board. During the fiscal
year ended June 30, 1997, the Trustees of the Fund held six meetings. All of
the Trustees then in office attended at least 80% of the total number of
meetings of the Trustees during such period.
Interested Persons
SST considers Mr. Charles W. Steadman to be an "interested person" of the
Fund within the meaning of Section 2(a)(19) of the 1940 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-
50
<PAGE>
of-pocket expenses relating to attendance at meetings. These fees and expenses
for the fiscal year ended June 30, 1997 totaled $4,844 for SAF. After the
Merger, the Trustees will continue to be compensated at the same level.
Officers of SAF
The Trustees of SAF 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. 20006. The following sets forth information
concerning each of these officers:
<TABLE>
<CAPTION>
Total Compensation*
-------------------------
Name and Principal Occupation Officer
During the Past Five Years Office Age Since Salary Bonus Other
- ----------------------------- ------------------------- ---- ------- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Charles W. Steadman President** 82 1968 $75,000 -0- -0-
Max Katcher Executive Vice President,
Treasurer and Secretary** 67 1972 $26,000 -0- -0-
*For the year ended June 30, 1997
**Upon consummation of the Merger, Mr. Steadman's annual salary
to be paid by SST will be $113,000 and Mr. Katcher's annual
salary to be paid by SST will be $60,000, which amounts equal
the aggregate salaries of Mr. Steadman and Mr. Katcher for
services currently provided to the four Funds individually.
</TABLE>
RATIFICATION OF AMENDED AND RESTATED
TRUST INDENTURE OF STEADMAN SECURITY TRUST,
DATED MAY 2, 1997
PROPOSAL NO. 4
(TO BE VOTED ON BY SHAREHOLDERS OF
STEADMAN ASSOCIATED FUND ONLY)
In connection with the proposed Merger, the Trustees of SST have amended
and restated the Trust Indenture of the Fund to provide among other things for
the change of the Fund's name from Steadman Associated Fund to Steadman Security
Trust and the change in the Fund's investment objective. A complete copy of the
Amended and Restated Trust Indenture of Steadman Security Trust with amendments
dated as of October 16, 1997 ("Amended and Restated Trust Indenture") is set
forth on Exhibit B to this Proxy Statement and Prospectus. The following
summary of the Amended and Restated Trust Indenture is qualified in its entirety
by reference to Exhibit B to this Proxy Statement and Prospectus. The
shareholders of SST are being asked to ratify and confirm the Amended and
Restated Trust Indenture.
The Amended and Restated Trust Indenture incorporates all prior amendments
to the trust indenture which have taken place since it was previously adopted by
SST (or its predecessor fund) in 1939. The Amended and Restated Trust Indenture
reflects the change in the investment objective of SST and incorporates such
other changes as are necessary to operate SST on a post-Merger basis. In
addition, the duration of the Fund has been extended to February 23, 2034.
51
<PAGE>
The Amended and Restated Trust Indenture also reflects the current fee
arrangements entered into with SSC, 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.
By ratifying the Amended and Restated Trust Indenture, shareholders are
also voting to change the fundamental investment objective of SST from primarily
capital growth and secondarily current income to primarily current income and
secondarily to maximize total return.
The current investment objective of SAF states that the primary investment
objective of the Fund is capital growth. In addition, the realization of
current income is a secondary objective of the Fund as long as the secondary
objective does not conflict with the primary objective. As a result of this
investment objective, at June 30, 1997, 96.6% of the investment portfolio of SAF
consisted of common stock. Following the ratification of the Amended and
Restated Trust Indenture by shareholders of SAF, which will include an amendment
to the investment objective of the Fund, the investment objective will be
primarily to seek current income and secondarily to maximize total return.
As a result of the change in the investment objective of the Fund to
primarily current income and secondarily to maximize total return, the Fund will
reorganize its investment portfolio. As part of this reorganization,
substantially all of the current investments the Fund will be sold and the Fund
intends to invest in higher yielding securities, including common stocks and
bonds. To the extent that the Fund has gains from the sale of its investments
that cannot be offset with net operating losses, the Fund will incur taxable
income. To the extent the Fund has losses from the sale of investments, the
losses will be added to, and may be subject to the same restrictions as, the net
operating loss carryforwards that the Fund has accumulated to date. There can
be no assurance, however, that the reorganization of the investment portfolio
will provide a sufficient yield so as to result in profitable operations, and it
is anticipated that operating expenses of SST after the Merger may exceed net
operating income before taking into account capital appreciation, if any
By ratifying the Amended and Restated Trust Indenture, shareholders are
ratifying certain existing provisions of the Amended and Restated SST Trust
Indenture that help the Fund maintain continuity and stability. An existing
provision of the trust indenture of SAF permits the Trustees to not issue shares
to a person if such issuance would cause the person to become an "affiliated
person" of the Fund within the meaning of Section 2 of the 1940 Act. This
provision generally gives the Trustees the ability to limit the amount of SAF
shares owned at any one time by any one person to 5% of SAF shares. The Amended
and Restated Trust Indenture of SST retains this provision. Additional
provisions include unlimited terms for trustees, limitations on the ability of
shareholders to remove trustees, limitations on the calling of special meetings
and non-cumulative voting in the election of trustees. For a more detailed
discussion of these provisions and their effect on shareholder rights, see
"Description of Capital Structure of the Funds and Shareholders Rights-Special
Provisions of SST."
52
<PAGE>
INFORMATION CONCERNING THE MEETINGS
The Meetings
The Meetings of the Funds will be held on Thursday, December 18, 1997, at
10:00 a.m., Washington, D.C. time, at the executive offices of SSC located at
1730 K Street, N.W., Washington, D.C. 20006, subject to any adjournments
thereof. At the Meetings, shareholders of the Funds will be asked to consider
and vote upon Proposal No. 1, approval of the Merger Agreement, and the
transactions contemplated thereby, and (b) ratification of the selection of
independent auditors for each Fund (Proposal No. 2), and in addition
shareholders of SST will be asked to (a) elect trustees (Proposal No. 3) and (b)
ratify the Amended and Restated Trust Indenture of SST, which includes the
change of SST's fundamental investment objective from primarily capital growth
and secondarily current income to primarily current income and secondarily to
maximize total return (Proposal No. 4).
Record Date; Vote Required; Share Information
The Trustees of each Fund have fixed the close of business on October 21,
1997 as the record date for the determination of shareholders entitled to notice
of, and to vote at, the Meetings. Pursuant to the requirements of the 1940 Act,
the affirmative vote of a majority of the outstanding shares of each of the
Funds, voting separately, in person or by proxy at the Meetings and entitled to
vote at the Meetings is required for approval of Proposal No. 1. Each
shareholder of a Fund will be entitled to one vote for each share held of record
at the close of business on the Record Date. Shareholders of each of the Funds
will vote on the Merger and the Selection of Independent Auditors. Only
shareholders of SST will vote on the election of Trustees of SST and the
ratification of the Amended and Restated Trust Indenture, including changing the
fundamental investment objective of SST. Proposal No. 2 requires the
affirmative vote of a majority of the shares of each of the Funds, voting
separately, cast in person or by proxy at the Meetings. Proposals No. 3 and No.
4 require the affirmative vote of a majority of the shares of SST cast in person
or by proxy at the Meetings.
At the close of business on the Record Date, there were 1,222,328 shares of
SAIF, 5,209,368 shares of SAF, 1,841,635 shares of SIF, and 491,147 shares of
STGF issued and outstanding. The presence in person or by proxy of the holders
of 33% of shares of each Fund constitutes a quorum for the transaction of
business at such Fund's Meeting. To the knowledge of the Trustees, as of the
Record Date, no person owned of record or beneficially more than 5% of the
outstanding shares of any Fund and no person could be deemed a "control person"
as defined in the 1940 Act.
In the event a quorum does not exist as to one or more of the Funds on the
date originally scheduled for its Meeting, or, subject to approval of the
Trustees, for other reasons, one or more adjournments of the Meetings may be
sought by the Trustees. Any adjournment would require a vote in favor of the
adjournment by the holders of a majority of the shares present at such Meeting
(or any adjournment thereof) in person or by proxy. The persons named as
proxies will vote all shares represented by proxies which they are required to
vote in favor of a Proposal and all signed proxies to which no instruction on a
Proposal is given, in favor of an adjournment for the purpose of considering
such Proposal at such adjourned meeting, and will vote all shares which they are
required
53
<PAGE>
to vote against the Proposal, against an adjournment for the purpose of
considering such Proposal at such adjourned meeting.
Proxies
The enclosed form of proxy, if properly executed and returned, will be
voted (or counted as an abstention or withheld from voting) in accordance with
the choices specified thereon, and will be included in determining whether there
is a quorum to conduct the Meeting. Signed proxies for which no instruction is
given on a particular Proposal will be voted "FOR" the Proposal.
Shares owned of record by broker-dealers for the benefit of their customers
("street account shares") will be voted by the broker-dealer based on
instructions received from its customers. If no instructions are received, the
broker-dealer may, as record holder, vote such shares on the respective Proposal
in the same proportion as that broker-dealer votes street account shares for
which voting instructions were received in time to be voted ("broker
non-votes"). Abstentions will be counted as present for purposes of determining
a quorum, will be counted as a vote cast at the Meeting, and with respect to
Proposal 1, will have the same effect as a vote against such Proposal. Broker
non-votes will be counted as present for determining a quorum but will not be
counted as a vote cast. The proxy may be revoked at any time prior to the
voting thereof by: (i) writing to the Secretary of the Fund at 1730 K Street,
N.W., Washington, D.C. 20006; (ii) attending the Meeting and voting in person;
or (iii) signing and returning a new proxy (if returned and received in time to
be voted).
Costs of the Solicitation and the Reorganization
All expenses of this solicitation, including the cost of printing and
mailing this Proxy Statement and Prospectus to over 17,000 shareholders, will be
shared proportionately by the Funds, based upon the net asset value of each of
the Funds as of the date the Merger Agreement is signed. In addition to the
solicitation of proxies by mail, proxies may be solicited by officers and
employees of SSC, the Trust's investment adviser, personally or by telephone or
telegraph.
Expenses of the Merger will be paid as set forth in the Merger Agreement.
All out-of-pocket expenses of the Funds associated with the Merger, including
Fund accounting and transfer agent expenses, printing, postage, and mailing
expenses for over 17,000 shareholder accounts, filing and application fees, and
legal fees will be borne by the Funds proportionately to each Fund's net asset
value.
MISCELLANEOUS
Financial Information
Financial information as to SAF 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, 1997 which are
included in the Statement of Additional Information.
54
<PAGE>
Public Information
SAF 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 SAF, SIF, SAIF, and STGF which have been
filed with the SEC and are of public record, can be inspected and copied at
public reference facilities maintained by the SEC in Washington, D.C. and
certain of its regional offices, and copies of such materials can be obtained at
prescribed rates from the Public Reference Branch, Office of Consumer Affairs
and Information Services, SEC, 450 Fifth Street, N.W., Washington, D.C. 20549.
This registration statement, including all exhibits and schedules, and such
other information as may have been incorporated by reference herein, may also be
accessed electronically by means of the SEC's site on the World Wide Web at
http://www.sec.gov.
OTHER BUSINESS
The Trustees of the Funds know of no business other than the matters
specified above which will be presented at the Meetings. Since matters not
known at the time of the solicitation may come before the Meetings, the proxy as
solicited confers discretionary authority with respect to such matters as
properly come before the Meetings, including any adjournment or adjournments
thereof, and it is the intention of the persons named as attorneys-in-fact in
the proxy to vote this proxy in accordance with their judgment on such matters.
By Order of the Boards of Trustees
of
Steadman American Industry Fund
Steadman Associated Fund
Steadman Investment Fund
Steadman Technology and Growth Fund
/s/ Max Katcher
Max Katcher, Secretary
Washington, D.C.
October 29, 1997
55
<PAGE>
PART B: INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
Item 10. Cover Page
STATEMENT OF ADDITIONAL INFORMATION
October 22, 1997
STEADMAN SECURITY TRUST
(formerly the Steadman Associated Fund)
1730 K Street N.W.
Washington, D.C. 20006
Telephone: (202) 223-1000
Toll Free: (800) 424-8570
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the prospectus of the Steadman Security Trust (formerly
the Steadman Associated Fund) bearing the same date. Requests for copies of the
prospectus should be made by writing to Steadman Security Corporation, 1730 K
Street NW, Washington DC 20006, or by calling one of the telephone numbers
listed above.
No person has been authorized to give any information or to make any
representations other than those contained in this Statement of Additional
Information and the Prospectus bearing the same date and, if given or made, such
information or representations may not be relied upon as having been authorized
by the Fund.
This Statement of Additional Information does not constitute an offer to
sell securities.
Item 11. Table of Contents
Table of Contents Page No.
Investment Techniques.................................... B-2
Options on Stock Indices................................. B-2
Portfolio Diversification................................ B-3
Tax Status............................................... B-3
Portfolio Turnover....................................... B-5
Other Investment Techniques.............................. B-5
Performance Information.................................. B-5
Trustees and Officers of the Fund........................ B-5
Principal Shareholders................................... B-6
Investment Advisory and Transfer Agent Fees.............. B-6
Distribution Expense..................................... B-8
B-1
<PAGE>
Portfolio Transactions and Brokerage Commissions......... B-8
Shareholder Investment Plan.............................. B-10
Independent Accountants.................................. B-10
Financial Statements and Related Information............. B-10
Item 12. Additional Information about the Registrant.
Item 13. Additional Information about the Company Being Acquired.
The following information relates to the Fund and the Other Funds being
merged into the Fund. Upon completion of the merger of the Fund and the Other
Funds, the Fund will be an open-end management investment company under the name
Steadman Security Trust. The Other Funds comprise the Steadman Investment Fund,
the Steadman American Industry Fund and the Steadman Technology and Growth Fund.
INVESTMENT TECHNIQUES
The following information supplements and should be read in conjunction
with the section of the Fund's Prospectus entitled "Comparison of Investment
Objectives, Policies and Techniques of the Funds."
OPTIONS ON STOCK INDICES
Options on stock indices operate in much the same way as options on common
stock, except that the underlying instrument, rather than being a stock, is a
stock index such as the Standard & Poor's 500 Stock Index.
The Fund will utilize various investment techniques involving options on
stock market indices so as to enhance income. Call or put options may be
purchased or sold on these indices depending upon the market conditions as
viewed by the Advisor. The opportunity to realize a gain or loss on the
purchase or sale of an index option is based upon movements in the level of
prices in the stock market generally rather than changes in price of an
individual stock. Successful use of index option techniques is therefore
dependent upon the Advisor's ability to predict correctly movements in the stock
market in general or the index of underlying stocks in particular, and this
requires skills and techniques different from those involved in predicting the
price level change of individual stocks.
When purchasing a call on an index as an initial transaction, the maximum
gain is unlimited while the risk is limited to the amount of the premium paid
for the call. In selling a call on an index as an initial transaction, the
maximum gain is the amount of the premium realized in the sale of the call
whereas the risk is not limited by the price of an underlying security. When
purchasing a put on an index as an initial transaction, the maximum gain is the
difference between the exercise price and zero while the risk is limited to the
amount of the premium paid for the put. In selling a put on an index as an
initial transaction, the maximum gain is the amount of the premium realized in
the sale of the put whereas the risk is the difference between the exercise
price and zero.
B-2
<PAGE>
The Fund will cover call options on indices by owning securities whose
price changes, in the opinion of the Advisor, are expected to be similar to
those of the index, or in such other manner as may be in accordance with the
guidelines established by the SEC with respect to coverage of options
strategies. Nevertheless, where the Fund covers a call option on an index
through ownership of securities, such securities may not match the composition
of the index. In that event, the Fund will not be fully covered and could be
subject to risk of loss in the event of adverse changes in the value of the
index. The Advisor will monitor and make appropriate adjustments to insure that
the Fund is adequately covered if the index and the underlying securities
diverge.
The Fund will cover put options on indices by segregating assets equal to
the option's exercise price, or in such other manner as may be in accordance
with the guidelines established by the SEC with respect to coverage of options
strategies.
PORTFOLIO DIVERSIFICATION
The Fund has elected to qualify as a "non-diversified investment company,"
as defined under Section 5(b)(2) of the Investment Company Act of 1940, as
amended (the "1940 Act"), 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 through 855 of the Internal
Revenue Code of 1986, as amended (the "Code"). The Fund is taxed under the
normal corporate tax rules under Subchapter C of the Code. It is anticipated
that such tax status as a non-RIC shall continue indefinitely.
In the event the Fund qualifies as a RIC in the future, distributions of
any taxable net 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
B-3
<PAGE>
current or accumulated earnings and profits. Thereafter, the distributions are
a non-taxable return of basis to the extent of the recipient's tax basis for the
recipient's shares. Any distributions in excess of earnings and profits and in
excess of such tax basis constitute gain from a deemed sale or exchange of the
shares.
Redemption distributions may be taxable under the rules described above, or
such redemptions may be treated for federal income tax purposes as a sale or
exchange of the redeemed shares. Such characterization depends upon the
application to the recipient of Section 302(b) of the Code. A redemption
distribution may be a sale or exchange of the redeemed shares for tax purposes
if it is not essentially equivalent to a dividend, is a substantially
disproportionate redemption, is in complete termination of a shareholder's
interest in the corporation, or is a redemption from a noncorporate shareholder
in partial liquidation of the distributor (all within the technical meanings of
Section 302(b)). Such determinations are highly individualized. Shareholders
must consult with their own tax advisors concerning the effect to them of any
redemption distribution from the Fund.
Special rules apply for federal income tax purposes if the Fund makes a
distribution of its assets in kind (which could be a liquidating distribution
from the Fund or a non-liquidating distribution). Other special tax rules apply
if the Fund makes a distribution of its shares or rights to acquire its shares
to its shareholders with respect to their Fund shares. No such distributions
are contemplated currently by the Fund so an explanation of these rules is
beyond the scope of this discussion.
Under the federal income tax law, the Fund is required to report to the
Internal Revenue Service all dividend distributions. Under the backup
withholding provisions, all distributions by the Fund may be subject to
withholding of federal income tax at the rate of 31% in the case of non-exempt
shareholders who fail to furnish the Fund with their correct taxpayer
identification numbers and with required certifications regarding their status
under federal income tax laws. If the withholding provisions are applicable,
any such distributions will be reduced by the amounts required to be withheld.
Investors should consult their tax advisors about the applicability of the
backup withholding provisions.
The foregoing discussion relates solely to U.S. federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic
corporations, partnerships, trusts and estates). Each shareholder who is not a
U.S. person should consult his or her tax advisor regarding the U.S. and foreign
tax consequences of ownership of shares of the Fund, including the likelihood
that such a shareholder would be subject to a U.S. withholding tax at a rate of
30% (or at a lower rate 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.
B-4
<PAGE>
PORTFOLIO TURNOVER
Because the Fund may engage in short-term trading, its portfolio rates may
exceed 300%. High portfolio turnover (over 100%) may result in correspondingly
higher brokerage costs.
OTHER INVESTMENT TECHNIQUES
The Fund's Trust Indenture provides that the Fund may, in the sole
discretion of the Advisor and to the maximum extent permissible by the
applicable laws and regulations, engage in all lawful investment activities.
Without limitation on any other investment activities, the Fund reserves freedom
of action to engage in the following types of activities specified in Section
(8)(b) of the 1940 Act: (A) The Fund may borrow money from a bank for either
investment or emergency purposes provided that such borrowing does not exceed 33
1/3% of the value of the Fund's total assets, less its liabilities other than
such borrowings; (B) The Fund may issue senior securities to the extent the
borrowing identified in (A) above constitutes the issuance of senior securities;
(C) The Fund may engage in the business of underwriting securities issued by
other persons to the extent that the purchase of restricted securities
constitutes such underwriting; (D) The Fund may purchase and sell real estate
including land and buildings and securities of companies whose assets consist of
real property and interests therein; (E) The Fund may make both long and
short-term loans to others, including the purchase of non-publicly offered debt
securities. The extent to which the Fund intends to engage in the foregoing
activities is entirely dependent upon the market conditions and the economic
environment in which the Fund must operate. Thus it is not practical to predict
the extent to which the Fund will or may engage in such activities. The Fund
intends to engage in these activities to the maximum extent permissible under
applicable laws and regulations when, in the judgment of the Advisor such
activities appear to be beneficial to the Fund and its shareholders.
Accordingly, the risks involved in an investment in the Fund may be greater than
the risks generally associated with many other mutual funds.
PERFORMANCE INFORMATION
The Fund will calculate its total rate of return for certain periods by
determining the average annual compounded rates of return over these periods
that would cause an investment of $1,000 (with all distributions reinvested) to
reach the value of that investment at the end of the periods. The Fund may also
calculate total rates of return which represent aggregate performance over a
period or year-by-year performance. The average annual total rate of return for
the shares of SST for the one year, five year, and ten year periods ended June
30, 1997 are 8.89%, 2.21%, and 1.00% respectively. The average annual total
rate of return for the Other Funds shares for the one year, five years, and ten
years periods ended June 30, 1997 are 0.56%, (13.06)%, and (11.83)%,
respectively for SAIF, (2.05)%, (9.76)%, and (5.88)%, respectively for SIF, and
(33.42)%, (22.84)%, and (16.41)%, respectively for STGF.
B-5
<PAGE>
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 85.
JOHN T. HAYWARD, Trustee, 3 Barclay Square, Newport, Rhode Island, Vice
Admiral, U.S.N. (ret); Management Consultant; formerly Vice President,
General Dynamics Corporation, Washington, D.C. (aerospace
manufacturing)(1968-1974). Age 85.
PAUL F. WAGNER, Trustee, Chairman, Wagner, Hines & Avery, Inc., a
Washington, D.C. Public Affairs firm. Age 80.
MAX KATCHER, Executive Vice President, Secretary and Treasurer of the Fund,
Executive Vice President of SSC. Age 67.
E. JEAN BELLOSI, Assistant Secretary of the Fund, Secretary of SSC. Age
57.
____________
*Interested person as defined by Section 2(a)(19) of the 1940 Act.
The Trustees and officers hold the same positions relative to the Other
Funds, which Other Funds are proposed to be merged into the Fund.
The address of all of the officers of the Fund is 1730 K Street, NW,
Washington, DC 20006.
On June 30, 1997, the Trustees and Officers of the Fund, as a group
beneficially owned 16,434.691 shares in the Fund and 1,821.711 shares of the
Other Funds which is less than one percent of each of the Fund's equity
securities.
During the fiscal year ended June 30, 1997, the Fund paid $4,844 in fees
and expenses to all Trustees except Mr. Steadman who received no such fees or
expenses. Trustees are paid $300 per meeting attended, except Mr. Steadman.
During the fiscal year ended June 30, 1997, the Other Funds paid $17,432 in fees
and expenses to all Trustees except Mr. Steadman, who received no such fees or
expenses. The Other Funds Trustees are paid $300 per meetings attended, except
Mr. Steadman. Upon the merger into the Fund, the Trustees will be compensated
at the same level.
PRINCIPAL SHAREHOLDERS
On June 30, 1997, no person beneficially owned more than 5% of the then
outstanding shares of the Fund or each of the Other Funds.
B-6
<PAGE>
INVESTMENT ADVISORY AND TRANSFER AGENT FEES
SSC provides investment advisory services under an agreement which
continues in effect subject to annual approval by the Trustees or by a
majority of the outstanding voting securities of the Fund, provided that in
either event, the continuance is also approved by a majority of the Trustees
who are not "interested persons" of the Fund or of SSC. The fees for
investment advisory services arc computed as follows: 1% of the first
$35,000,000 of net assets, 7/8 of 1% of the next $35,000,000 and 3/4 of 1% of
all sums in excess thereof.
The Fund paid investment advisory fees during the fiscal years ended June
30, 1997 and 1996, the fiscal period ended June 30, 1995*, and the fiscal
year ended September 30, 1994 as follows: 1997-$45,410; 1996-$51,706;
1995-$41,902; and 1994-$74,029. The Other Funds paid aggregate investment
advisory fees during the fiscal years ended June 30, 1997 and 1996, the
fiscal period ended June 30, 1995*, and in the case of SAIF, the fiscal year
ended January 31, 1994 and in the case of SIF and STGF, the fiscal year ended
December 31, 1994 as follows: 1997-$31,747; 1996-$40,338; 1995-$20,833; and
1994-$59,119.
Under an agreement with the Fund which is contained in the approved
minutes of the Fund, SSC serves as Transfer and Dividend Disbursing Agent and
Agent for Administration of Shareholder Accounts (hereinafter "delegated
services") for the Fund and the Other Funds. The fee for such services is
computed on the basis of the number of shareholder accounts calculated as of
the last business day of each month at $1.35 per account, per month. This
agreement is embodied in resolutions by the Trustees. The last increase in
fee amount was made on May 21,1986 (effective retroactive to May 1, 1986) and
renewed annually by the Trustees since that date.
The Fund paid fees for delegated services during the fiscal year ended
June 30, 1997 and 1996, the fiscal period ended June 30, 1995*, and the
fiscal year ended September 30, 1994 as follows: 1997-$36,859; 1996-$41,214;
1995-$33,620; and 1994-$47,679. The Other Funds paid aggregate fees for
delegated services during the fiscal year ended June 30, 1997 and 1996, the
fiscal period ended June 30, 1995*, and in the case of SAIF the fiscal year
ended January 31, 1994 and in the case of SIF and STGF, the fiscal year ended
December 31, 1994 as follows: 1997-$265,147; 1996-$283,427; 1995-$135,292;
and 1994-$303,110.
The Fund and the Other Funds also reimbursed SSC for salaries and fringe
benefits, including payroll taxes and group insurance, of its employees who
perform functions other than investment advisory and shareholder services
during the fiscal year ended June 30, 1997 of $174,244 and $163,854,
respectively.
SSC assumes no responsibility under the Agreement other than to render
the services called 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
- ------------------------
* The Funds' fiscal year was changed to June 30.
B-7
<PAGE>
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 unless specifically excepted, such expenses of
operation including, but not being limited to, the following: (i) the
expenses of maintaining its own books of accounts; (ii) the expenses of its
custodian, the transfer agent and dividend disbursing agent; (iii) the
expenses of computing the net asset value of the shares at any required
valuation date; (iv) the fees and expenses of the Trustees and, contrary to
most other funds, the fees of those Trustees who also may be directors of the
Advisor or its subsidiary corporation; (v) the expenses of meetings of
shareholders; (vi) the expenses of printing and mailing of all shareholder
reports and other required reports and documents provided shareholders,
including the cost of printing and mailing prospectuses to shareholders;
(vii) taxes of any kind assessed against the Fund; (viii) interest and
commissions; (ix) Securities and Exchange Commission registration fees; (x)
state registration fees; (xi) the expenses of trust existence; (xii) all or
part of the salaries of the fund officers and other employees who also may be
directors or officers or employees of the Advisor or its subsidiaries; (xiii)
the fees of auditors; (xiv) the fees of legal counsel; (xv) travel,
entertainment, publication, telephone, telegraph, and office space rent; and
(xvi) all other ordinary expenses of operation. The Fund also will pay all
extraordinary expenses of whatever kind unless such expenses have been
specifically assumed by the Advisor. The Other Funds have similar agreements.
DISTRIBUTION EXPENSES
The Fund and the Other Funds pay all fees and expenses in connection with
registering their shares under federal and state securities laws; preparing,
printing, and mailing their prospectuses and reports to shareholders; and
issuing shares, including expenses of confirming purchase orders. Upon
completion of the merger of the Other Funds into the Fund, the Fund will not
be offering fund shares on a regular basis except pursuant to a dividend
reinvestment plan, if offered by the Fund. Depending on the performance of
the Fund and other considerations, the Trustees intend to examine the
possibility of offering additional Fund shares in the future.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
SSC makes decisions as to buying and selling investment securities,
subject to supervision by the Fund's Board of Trustees. It is the practice of
the Fund to seek the most favorable prices and execution of orders for the
purchase or sale of portfolio securities, taking the facilities and services
of a particular broker or dealer. Subject to these considerations, the Fund
has authorized SSC to place a portion of such business on a principal or
agency basis with eligible brokers who have provided statistical, quote and
research material to the Advisor. Research services include written 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
B-8
<PAGE>
value of the services is not determinable. Such services may also be used in
serving the other mutual funds managed by SSC, and the brokerage commissions
of such other mutual funds may indirectly benefit the Fund. SSC investment
personnel determine the overall reasonableness of commissions paid by rating
brokers or dealers on such general factors as execution capabilities, quality
of research and financial condition, and net results of specific transactions
in such terms as price, promptness, size of order and difficulty of execution.
While the Trustees oversee the portfolio transactions of the Fund in
light of the Fund's investment policies and objectives without regard to the
Other Funds, it is possible that at certain times the Fund and one or more of
the Other Funds managed by SSC or its subsidiaries will seek to effect
similar portfolio transactions in the same security. In such instances, such
transactions are effected on a prorated basis based on the total assets of
the Fund and the Other Funds and at a prorated cost, if feasible, and in the
alternative, on a rotating or other equitable basis. The Advisor makes all
such allocations. In some cases, this arrangement could have a detrimental
effect on the price or volume executed insofar as a particular Fund is
concerned.
The Fund's Investment Advisor, acting on behalf of the Fund, is
authorized to pay a brokerage commission in excess of that which another
broker might have charged for effecting the same transaction, in recognition
of the value of brokerage or research services. The Advisor and the Trustees
consider the above allocation of brokerage to be consistent with the Fund's
brokerage policy. Brokers do not exercise investment discretion as to the
Fund's portfolio securities, hence no brokerage is allocated for such service.
During the last three fiscal years the Fund and Other Funds paid
brokerage as follows:
<TABLE>
<CAPTION>
FUND OTHER FUNDS (2)
------------------------- --------------------------
BROKERAGE TRANSACTIONS BROKERAGE TRANSACTIONS
---------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
06/30/97 $ 88,713 $ 16,916,669 $ 53,591 $ 9,835,742
06/30/96 $ 126,558 $ 22,887,207 $ 94,626 $ 15,689,513
06/30/95(1) $ 154,535 $ 33,592,600 $ 54,910 $ 9,660,951
</TABLE>
- ------------------------
(1) For the fiscal period October 1, 1994 through June 30, 1995
(2) Prior to June 30,1995, the fiscal years were: SAIF--January 31; SIF and
STGF--December 31.
During the Fund's fiscal year ended June 30, 1997, the Advisor directed
brokerage transactions and paid brokerage commissions as follows because of
research services provided by Reich & Co., Inc. of $31,000 on transactions of
$6.0 million. During the Other Funds' fiscal year ended June 30, 1997, the
Advisor directed brokerage transactions and paid brokerage commissions as
follows because of research services provided by Reich & Co., Inc. of $18,000
on transactions of $3.4 million. Brokerage commissions were directed to Reich
& Co., Inc. pursuant to an understanding that quotation services and devices
would be provided to the Advisor in exchange for these brokerage commissions.
B-9
<PAGE>
The following table details transaction amounts and commissions paid to
brokers during the last fiscal year for the Fund and the Other Funds as well
as the percentage of transactions and commissions as related to the total for
the Fund and the Other Funds.
FUND
<TABLE>
<CAPTION>
BROKER TRANSACTIONS % OF TOTAL COMMISSIONS % OF TOTAL
- ------------------------------------------------------------ ------------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Reich & Co., Inc............................................ $ 14,866,281 87.88% $ 78,081 88.02%
Dean Witter................................................. 2,023,138 11.96 10,132 11.42
Ryan Hartley & Lee, Inc..................................... 27,250 0.16 500 0.56
------------- ----------- ------------ -----------
Totals...................................................... $ 16,916,669 100.00% $ 88,713 100.00%
------------- ----------- ------------ -----------
------------- ----------- ------------ -----------
</TABLE>
OTHER FUNDS
<TABLE>
<CAPTION>
BROKER TRANSACTIONS % OF TOTAL COMMISSIONS % OF TOTAL
- -------------------------------------------------------------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Reich & Co., Inc.............................................. $ 8,436,804 85.78% $ 44,511 83.06%
Dean Witter................................................... 1,398,938 14.22 9,080 16.94
------------ ----------- ------------ -----------
Totals........................................................ $ 9,835,742 100.00% $ 53,591 100.00%
------------ ----------- ------------ -----------
------------ ----------- ------------ -----------
</TABLE>
SHAREHOLDER INVESTMENT PLAN
The Fund and the Other Funds currently have available a "Systematic
Withdrawal" plan which will be abolished upon the merger of the Other Funds
into the Fund.
INDEPENDENT ACCOUNTANTS
Reznick Fedder & Silverman, P.C., 4520 East West Highway, Bethesda,
Maryland 20814, has been selected as the independent accountants for the Fund
and provides audit and tax services.
ITEM 14. FINANCIAL STATEMENTS.
FINANCIAL STATEMENTS AND RELATED INFORMATION
The Fund's Financial Statements and related notes for the fiscal year
ended June 30, 1997 follow:
B-10
<PAGE>
Financial Statements and information of the Fund and the Other Funds
listed below are included in part B hereof.
--Independent Auditors' Report of Reznick Fedder & Silverman, P.C., dated
July 25, 1997.
--Report of Independent Accountants, Cooper & Lybrand L.L.P., dated July
29, 1996, except for Steadman Associated Fund for which the date is
August 6, 1996.
--Portfolio of Investments, June 30, 1997.
--Statement of Assets and Liabilities, June 30, 1997.
--Statement of Operations, for the year ended June 30, 1997.
--Statements of Changes in Net Assets, for the years ended June 30, 1997
and 1996.
--Financial Highlights, for the years ended June 30, 1997 and 1996, for
the period October 1, 1994 through June 30, 1995, and each of the three
years in the period ended September 30, 1994 for the Steadman Associated
Fund; for the years ended June 30, 1997 and 1996, for the period February
1, 1995 through June 30, 1995, and each of the three years in the period
ended January 31, 1995 for the Steadman American Industry Fund; and for
the years ended June 30, 1997 and 1996, for the period January 1, 1995
through June 30, 1995, and each of the three years in the period ended
December 31, 1994 for the Steadman Investment Fund and the Steadman
Technology and Growth Fund.
--Notes to Financial Statements.
B-11
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholder and Board of
Trustees of Steadman American Industry Fund
We have audited the accompanying statement of assets and liabilities of
Steadman American Industry Fund, including the portfolio of investments, as of
June 30, 1997, and the related statements of operations, changes in net assets
and the financial highlights for the year then ended. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit. The statement of changes in net assets
for the year ended June 30, 1996 and the financial highlights for the year ended
June 30, 1996 and the period February 1, 1995 through June 30, 1995 and each of
the three years in the period ended January 31, 1995 were audited by other
auditors whose report, dated August 6, 1996, expressed an unqualified opinion on
the statement of changes in net assets and those financial highlights.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of June 30, 1997, by correspondence with the
custodian and/or broker. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Steadman American Industry Fund as of June 30, 1997, the results of its
operations, the changes in its net assets, and the financial highlights for the
year then ended, in conformity with generally accepted accounting principles.
Reznick Fedder & Silverman
Bethesda, Maryland
July 25, 1997
<PAGE>
[Letterhead of Coopers & Lybrand]
REPORT OF INDEPENDENT ACCOUNTANTS
-------------
To the Board of Trustees of
Steadman American Industry Fund
We have audited the statement of changes in net assets for the year ended
June 30, 1996 and the financial highlights for the year ended June 30, 1996, the
five months ended June 30, 1995, and each of the three years in the period ended
January 31, 1995 of the Steadman American Industry Fund (the "Fund"). This
financial statement and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on this financial
statement and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards required that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statement and financial highlights referred to
above present fairly, in all material respects, the changes in net assets for
the year ended June 30, 1996 and the financial highlights of the Fund for each
of the respective periods stated in the first paragraph in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
July 29, 1996
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997
<TABLE>
<S> <C>
Assets
Investments at value (cost $635,561) (note 1)................................ $ 955,375
Dividends receivable......................................................... 769
Interest receivable.......................................................... 330
Cash and cash equivalents (note 1)........................................... 70,678
Due from affiliate........................................................... 3,896
----------
Total assets............................................................ 1,031,048
----------
Liabilities
Accounts payable and accrued expenses........................................ 54,660
Payable for trust shares redeemed............................................ 291
----------
Total liabilities....................................................... 54,951
----------
NET ASSETS.............................................................. $ 976,097
----------
----------
Net assets consist of
Accumulated net investment loss.............................................. $(4,220,318)
Unrealized appreciation of investments....................................... 319,814
Accumulated net realized losses plus distributions from realized gains....... (951,213)
Capital paid in less distributions since inception........................... 5,827,814
----------
$ 976,097
----------
----------
Net asset value, offering price and redemption price per share
($976,097/1,346,814 shares of no par value trust shares)................... $ 0.72
----------
----------
</TABLE>
The accompying notes are an integral part of the financial statements
-3-
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended June 30,
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Increase (decrease) in net assets from operations
Net investment loss..................................................................... $ (301,308) $ (294,205)
Net realized gain from investment transactions.......................................... 8,916 73,821
Change in unrealized appreciation/(depreciation) of
investments........................................................................... 300,735 (10,496)
---------- ----------
Net increase (decrease) in net assets resulting
from operations....................................................... 8,343 (230,880)
Decrease in net assets from trust share transactions (note 2).............................. (40,054) (102,199)
---------- ----------
Decrease in net assets.................................................................. (31,711) (333,079)
Net assets at beginning of period.......................................................... 1,007,808 1,340,887
---------- ----------
Net assets at end of period, (including accumulated net investment loss of $4,219,949
and $3,918,641)....................................................................... $ 976,097 1,007,808
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements
-4-
<PAGE>
STATEMENT OF OPERATIONS
For the year ended June 30, 1997
<TABLE>
<S> <C> <C>
Investment Income
Dividends......................................................................... $ 20,973
Interest.......................................................................... 3,117
---------
Total income................................................................ $ 24,090
Expenses
Shareholder servicing fee (note 4)................................................ 149,345
Salaries and employee benefits (note 4)........................................... 49,285
Professional fees................................................................. 42,448
Proposed merger expense (note 7).................................................. 34,493
Miscellaneous..................................................................... 8,482
Investment advisory fee (note 4).................................................. 10,521
Reports to shareholders........................................................... 12,026
Rent.............................................................................. 7,244
Trustees' fees and expenses (note 4).............................................. 5,944
Computer services................................................................. 3,655
Custodian fees.................................................................... 1,955
---------
Total expenses............................................................. 325,398
---------
Net investment loss........................................................ (301,308)
---------
Realized and Unrealized Gain (Loss) on Investments (note 1 and 3)
Net realized loss from investment transactions.................................... 8,916
Change in unrealized appreciation/(depreciation) of investments................... 300,735
---------
Net gain on investments..................................................... 309,651
---------
Net increase in net assets resulting from operations........................ $ 8,343
---------
---------
</TABLE>
The accompanying notes are an integral part of the financial statements
-5-
<PAGE>
PORTFOLIO OF INVESTMENTS
June 30, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
---------- ---------
<S> <C> <C>
COMMON STOCKS--100%
Computer peripherals--7.0%
Cisco System (a)........................................................................ 1,000 $ 67,125
---------
Total computer peripherals...................................................... 67,125
---------
Computer software--10.5%
Oracle Corp. (a)........................................................................ 2,000 100,750
---------
Total Computer Software......................................................... 100,750
---------
Motor vehicles--19.8%
Ford motors............................................................................. 5,000 188,750
---------
Total motor vehicles............................................................ 188,750
---------
Semiconductor--47.8%
Intel Corp. warrants (a)................................................................ 4,500 456,750
---------
Total semiconductor............................................................. 456,750
Telecom services--6.5%
Champion Technology Holding Ltd......................................................... 100,000 62,000
---------
Total telecom services.......................................................... 62,000
---------
Telephone services--8.4%
Worldcom Inc. (a)....................................................................... 2,500 80,000
---------
Total telephone services........................................................ 80,000
---------
Total Portfolio of Investment (Cost $635,561)........................................ $ 955,375
----------
----------
</TABLE>
(a) Non-income producing security
The accompanying notes are an integral part of the financial statements
-6-
<PAGE>
STEADMAN AMERICAN INDUSTRY FUND
FINANCIAL HIGHLIGHTS
June 30, 1997
<TABLE>
<CAPTION>
FOR PERIOD
FOR THE FOR THE YEAR FEBRUARY 1,
YEAR ENDED ENDED 1995 THROUGH
JUNE 30, JUNE 30, JUNE 30, FOR THE YEAR ENDED JANUARY 31,
----------------- ----------------- ----------------- --------- --------- ---------
1997 1996 1995* 1995 1994 1993
----------------- ----------------- ----------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Per share operating
performance:
Net asset value, beginning of
period..................... $ 0.72 $ 0.88 $ 0.96 $ 1.65 $ 1.50 $ 1.54
----------------- ----------------- ----------------- --------- --------- ---------
Net investment loss.......... (0.33) (0.41) (0.12) (0.26) (0.24) (0.19)
Net realized and unrealized
gain (loss) on
investments................ 0.33 0.25 0.04 (0.43) 0.39 0.15
----------------- ----------------- ----------------- --------- --------- ---------
Total from investment
operations................. -- (0.16) (0.08) (0.69) 0.15 (0.04)
----------------- ----------------- ----------------- --------- --------- ---------
Net asset value, end of
period..................... $ 0.72 $ 0.72 $ 0.88 $ 0.96 $ 1.65 $ 1.50
----------------- ----------------- ----------------- --------- --------- ---------
----------------- ----------------- ----------------- --------- --------- ---------
Ratios/Supplemental Data:
Total return................. .56% (18.48)% (20.01)%** (41.82)% 10.00% (2.60)%
Ratio of expenses to average
net assets................. 31.07% 24.61% 24.62%** 17.69% 12.66% 14.83%
Ratio of net investment loss
to average net assets...... (28.77)% (24.10)% (22.86)%** (15.63)% (11.40)% (13.52)%
Portfolio turnover rate...... 128 339% 617%** 289% 134% 221%
Net assets, end of period (in
thousands)................. $ 976 $ 1,008 $ 1,341 $ 1,472 $ 2,627 $ 2,496
</TABLE>
* The Fund's fiscal year-end was changed to June 30.
** Annualized
The accompanying notes are an integral part of the financial statements
-7-
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
Steadman American Industry Fund (the Fund) is registered under the
Investment Company Act of 1940, as amended, as a nondiversified, open-end
investment company.
The preparation of financial statements is conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements.
CASH AND CASH EQUIVALENTS
Management defines cash equivalents as investments that mature in three
months or less when acquired. All cash and cash equivalents are invested in a
single money market fund maintained by the investment custodian.
SECURITY VALUATION
Investments in securities traded on a national securities exchange are
valued at the last reported sales price on the last business day of the period.
Investment for which no sale was reported on that date are valued at the mean
between the latest bid and asked prices.
SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are recorded on the trade date. Realized gains and
losses from security transactions are reported on an identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income and
expenses are recorded on the accrual basis.
INCOME TAXES
The Fund is subject to income taxes in years when it does not qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code.
The Fund accounts for income taxes using the liability method, whereby deferred
tax assets and liabilities arise from the tax effect of temporary differences
between the financial statement and tax bases of assets and liabilities,
measured using presently enacted tax rates. If it is more likely than not that
some portion or all of a deferred tax asset will not be realized, a valuation
allowance is recognized.
-8-
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 1997
NOTE 2 -- TRUST SHARES
The Trust Indenture does not specify a limit to the number of shares which
may be issued. Transactions in trust shares were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
JUNE 30, 1997 JUNE 30, 1996
---------------------- -----------------------
<S> <C> <C> <C> <C>
SHARES AMOUNT SHARES AMOUNT
---------- ---------- ---------- -----------
Shares sold.................................................... -- $ -- -- $ --
Shares redeemed................................................ (51,675) (40,054) (117,686) (102,199)
---------- ---------- ---------- -----------
Net decrease................................................... (51,675) $ (40,054) (117,686) $ (102,199)
---------- -----------
---------- -----------
Shares outstanding
Beginning of period.......................................... 1,398,489 1,516,175
---------- ----------
End of period................................................ 1,346,814 1,398,489
---------- ----------
---------- ----------
</TABLE>
NOTE 3 -- PURCHASES AND SALES OF SECURITIES
During the year ended June 30, 1997, purchases and proceeds from sales of
investment securities aggregated $1,271,367 and $1,466,133, respectively.
Unrealized appreciation of investments aggregated $319,814 of which $645,239
related to gross unrealized appreciation in which value exceed tax cost and
$325,425 related to gross unrealized depreciation in which tax cost exceeded
market value.
NOTE 4 -- INVESTMENT ADVISORY FEE AND TRANSACTIONS WITH AFFILIATES
Steadman Security Corporation (SSC), an affiliate, has provided advisory
services under an agreement which first become effective in 1972. On February
28, 1984, at the Annual Meeting of the shareholders, a new Investment Advisory
Agreement was approved. Under the new advisory agreement, SSC will continue to
provide the same services it provided under the same terms and condition of the
previous agreement. The agreement will continue in effect subject to the annual
approval of the Board of Trustees or by a majority of the outstanding voting
securities of the Fund. The fee for investment advisory services is based on 1%
of the first $35,000,000 of the average daily net assets of the Fund, 7/8 of 1%
on the next $35,000,000 and 3/4 of 1% on all sums in excess thereof. In addition
to the investment advisory fee, SSC received shareholder
-9-
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
JUNE 30, 1997
NOTE 4 -- INVESTMENT ADVISORY FEE AND TRANSACTIONS WITH AFFILIATES
(Continued)
servicing fees from the Fund for the performance of delegated services
(dividend disbursing agent and transfer agent) as defined in the Trust
Indenture, as amended. The fee for such services was computed on the basis of
the number of shareholder accounts calculated as of the last business day of
each month at $1.35 per account. SSC received reimbursements from the Fund
for the salaries and benefits of its officers and employees who performed
functions other than investment advisory and shareholder service functions
for the Fund.
Certain officers and trustees of the Fund are "affiliated persons" of the
Investment Adviser, as defined by the Investment Company Act of 1940.
NOTE 5 -- FEDERAL INCOME TAXES
In the fiscal year ended June 30, 1997, the Fund did not meet the asset
diversification requirements applicable to regulated investment companies. Thus,
the Fund did not qualify as regulated investment company under Subchapter M of
the Internal Revenue Code. However, the Fund had a net investment loss in the
fiscal year ended June 30, 1997, therefore no income tax provision is required.
A full valuation allowance was provided for deferred tax assets, totaling
approximately $1,971,000 at June 30, 1997, which arise principally from net
operating loss carryforwards and capital carryforwards available for income tax
purposes.
For income tax purposes, the Fund has net operating loss carryovers
approximating $4,235,000 which are available to offset future net operating
income in non-qualifying years, if any, which expire as follows: (1999)$74,000;
(2000) $239,000; (2001) $139,000; (2002) $353,000; (2003) $371,000; (2004)
$235,000; (2005) $384,000; (2006) $365,000; (2007) $360,000; (2008) $335,000;
(2009) $322,000; (2010) $447,000 (2011) $295,000 and (2012) $316,000. Capital
loss carryforwards aggregating approximately $951,000 are available to offset
future capital gains, it any, which expire as follows: (1997) $110,000; (1999)
$771,000; and (2000) $70,000.
-10-
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONTINUED
JUNE 30, 1997
NOTE 6 -- EXPIRATION OF SHAREHOLDER STATES REDEMPTION RESTRICTION
In 1993 the Fund entered into a Settlement Agreement with approximately 47
states (the "Shareholder States") with respect to the recovery of shares and
distributions owned by persons who had allegedly abandoned these properties. The
Settlement Agreement provides among other things, that the Shareholders States
will not request redemption of their shares until February 14, 1998. The
Shareholder States currently own 22% of shares in the Fund. In July 1997, the
Fund agreed to remove this restriction and allow Shareholder States to redeem
shares upon request.
NOTE 7 -- PROPOSED MERGER
During 1997, management proposed a merger of Steadman American Industry
Fund, Steadman Investment Fund, and Steadman Technology and Growth Fund with and
into the Steadman Associated Fund, which will change to a close-end investment
company whose name will change to Steadman Security Trust (SST). In connection
with the merger, SST will amend its investment objective to primarily seek
current income and secondarily to maximize total return. Following the proposed
merger, fund shares no longer will be sold or redeemed by SST on a request
basis, but may be sold to other investors in market transactions. The costs
associated with the proposed merger are allocated to all the funds based on the
respective net asset values of the funds. The proposed merger requires approval
by the share-holders. A Registration Statement of Form N-14 is pending SEC
regulatory approval and the proposed merger requires the approval of the
Shareholders of all of the funds.
-11-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Trustees of
Steadman Associated Fund
We have audited the accompanying statement of assets and liabilities of
Steadman Associated Fund, including the portfolio of investments, as of June
30, 1997, and the related statements of operations, changes in net assets and
the financial highlights for the year then ended. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit. The statement of changes in net
assets for the year ended June 30, 1996 and the financial highlights for the
year ended June 30, 1996 and the period October 1, 1994 through June 30, 1995
and each of the three years in the period ended September 30, 1994 were
audited by other auditors whose report, dated August 6, 1996, expressed an
unqualified opinion on the statement of changes in net assets and those
financial highlights.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned as of June 30, 1997,
by correspondence with the custodian and/or broker. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Steadman Associated Fund as of June 30, 1997, the results of its
operations, the changes in its net assets, and the financial highlights for
the year then ended, in conformity with generally accepted accounting
principles.
Reznick Fedder & Silverman
Bethesda, Maryland
July 25, 1997
<PAGE>
[Letterhead of Coopers & Lybrand]
REPORT OF INDEPENDENT ACCOUNTANTS
------------------
To the Board of Trustees of
Steadman Associated Fund
We have audited the statement of changes in net assets for the year ended
June 30, 1996 and the financial highlights for the year ended June 30, 1996,
the nine months ended June 30, 1995, and each of the three years in the
period ended September 30, 1994 of the Steadman Associated Fund (the "Fund").
This financial statement and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on this
financial statement and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards required that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statement and financial highlights referred
to above present fairly, in all material respects, the changes in net assets
for the year ended June 30, 1996 and the financial highlights of the Fund for
each of the respective periods stated in the first paragraph in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
August 6, 1996
<PAGE>
PORTFOLIO OF INVESTMENTS
June 30, 1997
<TABLE>
<CAPTION>
Shares Value
(note 1)
---------- ----------------
<S> <C> <C>
COMMON STOCKS--99.8%
Aircraft--8.1%
Boeing Co. (a).................................................... 6,500 $ 344,906
----------------
Total Aircraft............................................... 344,906
----------------
Computer Equipment--5.3%
Hewlett Packard................................................... 4,000 224,000
----------------
Total Computer Equipment..................................... 224,000
----------------
Computer Software--29.1%............................................
Microsoft Corp. (a)............................................... 9,000 1,137,375
Oracle Corp. (a).................................................. 2,000 100,750
----------------
Total Computer Software...................................... 1,238,125
----------------
Computer Switching--2.0%
Xylan Corp. (a)................................................... 5,000 85,000
----------------
Total Computer Switching..................................... 85,000
----------------
Computer Systems Design--7.0%
Sun Microsystems (a).............................................. 8,000 297,750
----------------
Total Computer Systems Design................................ 297,750
----------------
Mail Order Houses--6.1%
Gateway 2000 (a).................................................. 8,000 259,500
----------------
Total Mail Order Houses...................................... 259,500
----------------
Motor Vehicles--8.5%
Ford Motor Co..................................................... 5,000 188,750
General Motors "H"................................................ 3,000 173,250
----------------
Total Motor Vehicles......................................... 362,000
----------------
</TABLE>
(continued)
-3-
<PAGE>
PORTFOLIO OF INVESTMENTS - CONTINUED
June 30, 1997
(a) Non-income producing security.
<TABLE>
<CAPTION>
Value
Shares (note 1)
--------- ------------
<S> <C> <C>
Semiconductor--19.9%
Intel Corp. Warrants (a).............................................................. 6,000 609,000
LSI Logic (a)......................................................................... 7,500 240,000
------------
Total Semiconductor............................................................... 849,000
------------
Telcom Mfg.--2.5%
Lucent Technologies................................................................... 1,500 108,094
------------
Total Telecom Mfg................................................................. 108,094
------------
Telephone Services--11.3%
Worldcom Inc. (a)..................................................................... 15,000 480,000
------------
Total Telephone Services.......................................................... 480,000
------------
Total Common Stocks (Cost $3,029,393)............................................. 4,248,375
------------
CALL OPTIONS PURCHASED--.2%
LSI Logic, 10/18/97 at $40............................................................ 2,500 4,688
Seagate Technology, 9/20/97 at $47.50................................................. 5,000 2,181
------------
Total Call Options Purchased (Cost $63,025)....................................... 6,869
------------
Total Portfolio of Investments (Cost $3,092,418).................................. $ 4,255,244
------------
------------
</TABLE>
(a) Non-income producing security.
The accompanying notes are an integral part of the financial statements
-4-
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997
<TABLE>
<S> <C>
Assets
Investments at value (Cost $3,092,418)(note 1).............................. $ 4,255,244
Cash and cash equivalents (note 1).......................................... 235,550
Dividends receivable........................................................ 560
Interest receivable......................................................... 1,425
Due from affiliate.......................................................... 3,896
-----------
Total assets.............................................................. 4,496,675
-----------
Liabilities
Accounts payable and accrued expenses....................................... 87,142
Investment advisory and service fees payable (note 4)....................... 3,712
Other payable to affiliate (note 4)......................................... 2,969
Payable for trust shares redeemed........................................... 1,693
Miscellaneous payable....................................................... 4,175
-----------
Total liabilities......................................................... 99,691
-----------
Net Assets................................................................ $ 4,396,984
-----------
-----------
Net assets consist of
Undistributed net investment loss........................................... $(5,181,222)
Unrealized appreciation of investments...................................... 1,162,826
Accumulated net realized losses from security transactions.................. (821,035)
Paid-in capital............................................................. 9,236,415
-----------
$ 4,396,984
-----------
-----------
Net asset value, offering price and redemption price per share ($4,396,984
DIVIDED BY 5,768,032 shares of no par value trust shares)..................... $ 0.76
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements
-5-
<PAGE>
STATEMENT OF OPERATIONS
For the year ended June 30, 1997
<TABLE>
<S> <C> <C>
Investment Income
Dividends.............................................................. $ 12,759
Interest............................................................... 14,646
---------
Total income..................................................... $ 27,405
---------
Expenses
Salaries and employee benefits (note 4)................................ 174,244
Investment advisory fee (note 4)....................................... 45,410
Professional fees...................................................... 62,741
Proposed merger expense (note 7)....................................... 162,690
Shareholder servicing fee (note 4)..................................... 36,859
Rent................................................................... 31,257
Miscellaneous.......................................................... 22,790
Blue Sky Registration Fees............................................. 1,800
Custodian fees......................................................... 6,447
Computer services...................................................... 5,917
Reports to shareholders................................................ 6,818
Trustees' fees and expenses (note 4)................................... 4,719
---------
Total expenses................................................... 561,692
---------
Net investment loss.............................................. (534,287)
---------
Realized and Unrealized Gain/(Loss) on Investments (notes 1 and 3)
Net realized gain from investment transactions......................... 306,022
Change in unrealized appreciation/(depreciation) of investments........ 644,512
---------
Net gain on investments................................................ 950,534
---------
Net increase in net assets resulting from operations................... $ 416,247
---------
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
-6-
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended June 30,
<TABLE>
<CAPTION>
1997 1996
------------ -------------
<S> <C> <C>
Increase/(decrease) in net assets from operations
Net investment loss................................................................ $ (534,287) $ (388,362)
Net realized gain from investment transactions..................................... 306,022 517,110
Change in unrealized appreciation/(depreciation) of investments.................... 644,512 (352,459)
------------ -------------
Net increase (decrease) in net assets resulting from operations.................. 416,247 (223,711)
------------ -------------
Decrease in net assets from trust share transactions (note 2)........................ (600,754) (929,919)
------------ -------------
Decrease in net assets............................................................... (184,507) (1,153,630)
Net assets at beginning of period.................................................... 4,581,491 5,735,121
------------ -------------
Net assets at end of period (including accumulated net investment loss of $5,170,173
and $4,635,886).................................................................... $ 4,396,984 $ 4,581,491
------------ -------------
------------ -------------
</TABLE>
The accompanying notes are an integral part of the financial statements
-7-
<PAGE>
Steadman Associated Fund
Financial Highlights
June 30, 1997
<TABLE>
<CAPTION>
For the year For the year For the year
ended ended ended For the years ended September 30,
June 30, June 30, June 30, ------------------------------------
1997 1996 1995* 1994 1993 1992
-------------- ------------- ------------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of
period....................... $ .70 $ .73 $ .72 $ .87 $ .64 $ .67
-------------- ------------- ------------- ---------- ---------- ---------
Net investment loss............ (.11) (.17) (.03) (.08) (.05) (.03)
Net realized and unrealized
gain (loss) on
investments................ .17 .14 .04 (.07) .28 --
-------------- ------------- ------------- ---------- ---------- ---------
Total from investment
operations................. .06 (.03) .01 (.15) .23 (.03)
-------------- ------------- ------------- ---------- ---------- ---------
Net asset value end of period.... $ .76 $ .70 $ .73 $ .72 $ .87 $ .64
-------------- ------------- ------------- ---------- ---------- ---------
-------------- ------------- ------------- ---------- ---------- ---------
Ratios/Supplemental Data:
Total return................... 8.89% (4.38) 1.85%** (17.24)% 35.9% (4.5)%
Ratio of expenses to average
net assets................... 12.42% 8.14% 8.17%** 7.76% 5.79% 6.92%
Ratio of net investment loss to
average net assets........... (11.82)% (7.48)% (7.23)%** (6.09)% (4.63)% (5.14)%
Portfolio turnover rate........ 193% 231% 505%** 241% 300% 301%
Net assets, end of period (in
thousands)................... $ 4,397 $ 4,581 $ 5,735 $ 6,307 $ 8,844 $ 7,254
</TABLE>
* The Fund's fiscal year-end was changed to June 30.
** Annualized
The accompanying notes are an integral part of the financial statements
-8-
<PAGE>
Steadman Associated Fund
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
Steadman Association Fund (the Fund) is registered under the Investment
Company Act of 1940, as amended, as a non-diversified, open-end
investment company. The Fund has not been accepting new subscriptions for
shares since November 1996.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those
estimates. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements.
Cash and Cash Equivalents
Management defines cash equivalents as investments that mature in three
months or less when acquired. All cash and cash equivalents are invested
in a single money market fund maintained by the investment custodian.
Security Valuation
Investments in securities traded on a national securities exchange are
valued at the last reported sales price on the last business day of the
period. Investments for which no sale was reported on that date are
valued at the mean between the latest bid and asked prices.
Security Transactions and Investment Income
Security transactions are recorded on the trade date. Realized gains and
losses from security transactions are reported on an identified cost
basis. Dividend income is recorded on the ex-dividend date. Interest
income and expenses are recorded on the accrual basis.
Call options give the holder the right to purchase a security at a
specified price on a certain date. Risks arise from possible illiquidity
of the options market and from movements in security values. Options are
reflected in the accompanying Statement of Assets and Liabilities at
market value.
-9-
<PAGE>
Steadman Associated Fund
NOTES TO FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1997
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES (continued)
Income Taxes
The Fund is subject to income taxes in years when it does not qualify as
a regulated investment company under Subchapter M of the Internal Revenue
Code. The Fund accounts for income taxes using the liability method,
whereby deferred tax assets and liabilities arise from the tax effect of
temporary differences between the financial statement and tax bases of
assets and liabilities, measured using presently enacted tax rates. If it
is more likely than not that some portion or all of a deferred tax asset
will not be realized, a valuation allowance is recognized.
NOTE 2--TRUST SHARES
The Trust Indenture does not specify a limit to the number of shares
which may be issued. Transactions in trust shares were as follows:
<TABLE>
<CAPTION>
For the year ended For the year ended
June 30, 1997 June 30, 1996
----------------------- ------------------------
<S> <C> <C> <C> <C>
Shares Amount Shares Amount
---------- ----------- ----------- -----------
Shares sold.................................................. 609 $ 400 269 $ 200
Shares redeemed.............................................. (812,875) (601,154) (1,295,786) (930,119)
---------- ----------- ----------- -----------
Net decrease................................................. (812,266) $ (600,754) (1,295,517) $ (929,919)
----------- -----------
----------- -----------
Shares outstanding
Beginning of period........................................ 6,580,298 7,875,815
---------- -----------
End of period.............................................. 5,768,032 6,580,298
---------- -----------
---------- -----------
</TABLE>
NOTE 3--PURCHASES AND SALES OF SECURITIES
During the year ended June 30, 1997, purchases and proceeds from sales of
investment securities aggregated $8,273,172 and $9,171,210, respectively.
Unrealized appreciation of investments aggregated $1,162,826 of which
$2,830,668 related to gross unrealized appreciation where there is an
excess of value over tax cost and $1,667,842 related to gross unrealized
depreciation where there is an excess of tax cost over value.
-10-
<PAGE>
Steadman Associated Fund
NOTES TO FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1997
NOTE 4--INVESTMENT ADVISORY FEE AND TRANSACTIONS WITH AFFILIATES
Steadman Security Corporation (SSC), an affiliate, has provided advisory
services under an agreement which first became effective in 1972. On
February 28, 1984, at the Annual Meeting of the shareholders, a new
Investment Advisory Agreement was approved. Under the new advisory
agreement, SSC will continue to provide the same services it provides
under the same terms and conditions of the previous agreement. The
agreement will continue in effect subject to the annual approval by the
Board of Trustees or by a majority of the outstanding voting securities
of the Fund. The fee for investment advisory services is based on 1% of
the first $35,000,000 of the average daily net assets of the Fund, 7/8 of
1% on the next $35,000,000 and 3/4 of 1% on all sums in excess thereof.
In addition to the investment advisory fee, SSC received shareholder
servicing fees from the Fund for the performance of delegated services
(dividend disbursing agent and transfer agent) as defined in the Trust
Indenture, as amended. The fee for such services was computed on the
basis of the number of shareholder accounts calculated as of the last
business day of each month at $1.35 per account. SSC received
reimbursements from the Fund for the salaries and benefits of its
officers and employees who performed functions other than investment
advisory and shareholder service functions for the Fund.
Certain officers and trustees of the Fund are "affiliated persons" of the
Investment Advisor, as defined by the Investment Company Act of 1940.
NOTE 5--FEDERAL INCOME TAXES
In the fiscal year ended June 30, 1997, the Fund did not meet the asset
diversification requirements applicable to regulated investment
companies. Thus, the Fund did not qualify as a regulated investment
company under Subchapter M of the Internal Revenue Code. However, the
Fund had a net investment loss in the fiscal year ended June 30, 1997,
therefore no income tax provision is required. A full valuation allowance
has been provided for deferred tax assets, totaling approximately
$2,288,000 at June 30, 1997, which arise principally from net operating
loss carryforwards and capital loss carryforwards available for income
tax purposes.
For income tax purposes, the Fund has net operating loss carryforwards
approximating $5,192,000 which are available to offset future net
operating income in non-qualifying years, if any, which expire as
follows: (2000) $443,000; (2001) $499,000; (2003) $328,000; (2004)
$476,000; (2005) $534,000; (2006) $324,000; (2007) $381,000; (2008)
$539,000; (2009) $437,000; (2010) $287,000 (2011) $401,000 and (2012)
$543,000. Capital loss carryforwards aggregating approximately $804,000
are available to offset future capital gains, if any, which expire as
follows: (2001) $452,000 and (2000) $352,000.
-11-
<PAGE>
Steadman Associated Fund
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997
NOTE 6--EXPIRATION OF SHAREHOLDER STATES REDEMPTION RESTRICTION
In 1993 the Fund entered into a Settlement Agreement with approximately
47 states (the "Shareholder States") with respect to the recovery of
shares and distributions owned by persons who had allegedly abandoned
these properties. The Settlement Agreement provides among other things,
that the Shareholder States will not request redemption of their shares
until February 14, 1998. The Shareholder States currently own 9% of
shares in the Fund. In July 1997, the Fund agreed to remove this
restriction and allow Shareholder States to redeem shares upon request.
NOTE 7--PROPOSED MERGER
During 1997, management proposed a merger of Steadman American Industry
Fund, Steadman Investment Fund, and Steadman Technology and Growth Fund
with and into the Steadman Associated Fund, which will change to a
close-end investment company whose name will change to Steadman Security
Trust (SST). In connection with the merger, SST will amend its investment
objective to primarily seek current income and secondarily to maximize
total return. Following the proposed merger, fund shares no longer will
be sold or redeemed by SST on a request basis, but may be sold to other
investors in market transactions. The costs associated with the proposed
merger are allocated to all the funds based on the respective net asset
values of the funds. The proposed merger requires approval by the
shareholders. A Registration Statement of Form N-14 is pending SEC
regulatory approval and the proposed merger requires the approval of the
Shareholders of all of the funds.
-12-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Trustees of
Steadman Investment Fund
We have audited the accompanying statement of assets and liabilities of
Steadman Investment Fund, including the portfolio of investments, as of June 30,
1997, and the related statements of operations, changes in net assets and the
financial highlights for the year then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit. The statement of changes in net assets
for the year ended June 30, 1996 and the financial highlights for the year ended
June 30, 1996 and the period January 1, 1995 through June 30, 1995 and each of
the three years in the period ended December 31, 1994 were audited by other
auditors whose report, dated August 6, 1996, expressed an unqualified opinion on
the statement of changes in net assets and those financial highlights.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of June 30, 1997, by correspondence with the
custodian and/or broker. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Steadman Investment Fund as of June 30, 1997, the results of its
operations, the changes in its net assets, and the financial highlights for the
year then ended, in conformity with generally accepted accounting principles.
Reznick Fedder & Silverman
Bethesda, Maryland
July 25, 1997
<PAGE>
[Letterhead of Coopers & Lybrand]
REPORT OF INDEPENDENT ACCOUNTANTS
------------
To the Board of Trustees of
Steadman Investment Fund
We have audited the statement of changes in net assets for the year ended
June 30, 1996 and the financial highlights for the year ended June 30, 1996,
the five months ended June 30, 1995, and each of the three years in the
period ended January 31, 1995 of the Steadman Investment Fund (the "Fund").
This financial statement and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on this
financial statement and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards required that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statement and financial highlights referred to
above present fairly, in all material respects, the changes in net assets for
the year ended June 30, 1996 and the financial highlights of the Fund for each
of the respective periods stated in the first paragraph in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
July 29, 1996
<PAGE>
PORTFOLIO OF INVESTMENTS
June 30, 1997
Value
SHARES (NOTE 1)
------ ----------
COMMON STOCKS--100%
Computer Peripherals--15.1%
Cisco Systems (a)................................ 3,500 $ 234,937
----------
Total Computer Peripherals..................... 234,937
----------
Computer Software--8.1%
Oracle Corp. (a).................................. 2,500 125,937
----------
Total Computer Software........................ 125,937
----------
Computer Switching--10.9%
Xylan Corp. (a)................................... 10,000 170,000
----------
Total Computer Switching....................... 170,000
----------
Computer Systems Design--16.8%
Sun Microsystems (a).............................. 7,000 260,530
----------
Total Computer Systems Design.................. 260,530
----------
Motor Vehicles--8.6%
General Motors "H"................................ 2,300 132,825
----------
Total Motor Vehicles........................... 132,825
----------
Telecom Mfg.--13.9%
Lucent Technologies (a)........................... 3,000 216,185
----------
Total Telecom Mfg.............................. 216,185
----------
Semiconductor--16.3%
Intel Corp. Warrants (a).......................... 2,500 253,750
----------
Total Semiconductor............................ 253,750
----------
Telephone Services--10.3%
Worldcom Inc. (a)................................. 5,000 160,000
----------
Total Telephone Services....................... 160,000
----------
Total Portfolio of Investments (Cost $1,191,522) $1,554,164
----------
----------
- ------------------------
(a) Non-income producing security.
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997
Assets
Investments at value (Cost $1,191,522)(note 1)............ $ 1,554,164
Cash and cash equivalents (note 1)........................ 139,235
Interest receivable....................................... 788
-----------
Total assets........................................... 1,694,187
-----------
Liabilities
Accounts payable and accrued expenses..................... 34,903
Investment advisory and service fees payable (note 4)..... 1,358
Other payable to affiliate (note 4)....................... 15,235
Payable for trust shares redeemed......................... 8,801
-----------
Total liabilities...................................... 60,297
-----------
Net Assets............................................. $ 1,633,890
-----------
-----------
Net assets consist of
Accumulated net investment loss........................... $(1,943,059)
Unrealized appreciation of investments.................... 362,642
Accumulated net realized losses........................... (574,661)
Capital paid in less distributions since inception........ 3,788,968
-----------
$ 1,633,890
-----------
-----------
Net asset value, offering price and redemption price per
share
($1,633,890 = 1,928,494 shares of no par value trust
shares)................................................... $ 0.85
-----------
-----------
The accompanying notes are an integral part of the financial statements
-4-
<PAGE>
STATEMENT OF OPERATIONS
For the year ended June 30, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
Investment Income
Dividends........................................................... $ 5,670
Interest............................................................ 6,659
-------
Total income..................................................... $ 12,329
---------
Expenses
Salaries and employee benefits (note 4)............................. 87,965
Shareholder servicing fee (note 4).................................. 47,647
Professional fees................................................... 33,357
Proposed merger expense (note 7).................................... 54,392
Investment advisory fee (note 4).................................... 17,117
Miscellaneous....................................................... 9,759
Rent................................................................ 11,734
Computer services................................................... 3,992
Reports to shareholders............................................. 6,416
Trustees' fees and expenses (note 4)................................ 5,619
Custodian fees...................................................... 2,050
-------
Total expenses................................................... 280,048
---------
Net investment loss.............................................. (267,719)
---------
Realized and Unrealized Gain/(Loss) on Investments (notes 1 and 3)
Net realized loss from investment transactions...................... (185,331)
Change in unrealized appreciation/(depreciation) of investments..... 418,153
---------
Net gain on investments............................................. 232,822
---------
Net decrease in net assets resulting from operations................ $ (34,897)
---------
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
-5-
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the year ended June 30,
<TABLE>
<CAPTION>
1997 1996
----------- ------------
<S> <C> <C>
Increase/(decrease) in net assets from operations
Net investment loss.............................................. $ (267,719) $ (111,105)
Net realized (loss) gain from investment transactions............ (185,331) 47,825
Change in unrealized appreciation/(depreciation)
of investments.................................................. 418,153 (271,135)
---------- ----------
Net decrease in net assets resulting
from operations.............................................. (34,897) (334,415)
---------- ----------
Decrease in net assets from trust share transactions (note 2)..... (94,680) (200,097)
---------- ----------
Decrease in net assets........................................... (129,577) (534,512)
Net assets at beginning of period................................. 1,763,467 2,297,979
---------- ----------
Net assets at end of period (including accumulated
net investment loss of $1,947,718 and $1,679,999)................ $1,633,890 $1,763,467
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
-6-
<PAGE>
STEADMAN INVESTMENT FUND
FINANCIAL HIGHLIGHTS
June 30, 1997
<TABLE>
<CAPTION>
FOR THE
PERIOD
JANUARY 1,
FOR THE FOR THE YEAR 1995 FOR THE YEAR ENDED DECEMBER 31,
YEAR ENDED ENDED THROUGH
JUNE 30, JUNE 30, JUNE 30, -------------------------------
1997 1996 1995* 1994 1993 1992
------------- -------------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of
period................................... $ .86 $ 1.02 $ .93 $ 1.42 $ 1.38 $ 1.49
--------- ---------- -------- -------- ------- ---------
Net investment loss....................... (.03) (.13) (.02) (.08) (.06) (.09)
Net realized and unrealized
gain (loss) on
investments............................ .02 (.03) .11 (.41) .10 (.02)
--------- ---------- -------- -------- ------- ---------
Total from investment
operations............................. .01 (.16) .09 (.49) .04 (.11)
--------- ---------- -------- -------- ------- ---------
Net asset value end of period............. $ .85 $ .86 $ 1.02 $ .93 $ 1.42 $ 1.38
--------- ---------- -------- -------- ------- ---------
--------- ---------- -------- -------- ------- ---------
Ratios/Supplemental Data:
Total return............................. (2.05)% (15.53)% 19.36%** (34.51)% 2.89% (7.05)%
Ratio of expenses to average
net assets.............................. 16.47% 10.60% 10.54%** 8.90% 6.48% 7.78%
Ratio of net investment loss to
average net assets....................... (15.75)% (5.23)% (4.24)%** (6.65)% (4.52)% (6.09)%
Portfolio turnover rate................... 138% 382% 226%** 282% 179% 263%
Net assets, end of period
(in thousands)........................... $ 1,634 $ 1,763 $ 2,298 $ 2,159 $ 3,550 $ 3,781
</TABLE>
- ------------------------
* The Fund's fiscal year-end was changed to June 30.
** Annualized
The accompanying notes are in integral part of the financial statements.
-7-
<PAGE>
STEADMAN INVESTMENT FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
Steadman Investment Fund (the Fund) is registered under the Investment
Company Act of 1940, as amended, as a non-diversified, open-end investment
company.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates. The following is a summary
of significant accounting policies consistently followed by the Fund in the
preparation of its financial statements.
CASH AND CASH EQUIVALENTS
Management defines cash equivalents as investments that mature in three months
or less when acquired. All cash and cash equivalents are invested in a single
money market fund maintained by the investment custodian.
SECURITY VALUATION
Investments in securities traded on a national securities exchange are valued
at the last reported sales price on the last business day of the period.
Investments for which no sale was reported on that date are valued at the mean
between the latest bid and asked prices.
SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are recorded on the trade date. Realized gains and losses
from security transactions are reported on an identified cost basis. Dividend
income is recorded on the ex-dividend date. Interest income and expenses are
recorded on the accrual basis.
-8-
<PAGE>
STEADMAN INVESTMENT FUND
NOTES TO FINANCIAL STATEMENTS--CONTINUED
June 30, 1997
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES (Continued)
INCOME TAXES
The Fund is subject to income taxes in years when it does not qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code.
The Fund accounts for income taxes using the liability method, whereby deferred
tax assets and liabilities arise from the tax effect of temporary differences
between the financial statement and tax bases of assets and liabilities,
measured using presently enacted tax rates. If it is more likely than not that
some portion or all of a deferred tax asset will not be realized, a valuation
allowance is recognized.
NOTE 2--TRUST SHARES
The Trust Indenture does not specify a limit to the number of shares which
may be issued. Transactions in trust shares were as follows:
FOR THE YEAR ENDED FOR THE YEAR ENDED
JUNE 30, 1997 JUNE 30, 1996
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- -----------
Shares sold............... -- $ -- -- $ --
Shares redeemed........... (110,234) (94,680) (205,360) (200,097)
--------- ---------- --------- -----------
Net decrease.............. (110,234) $ (94,680) (205,360) $ (200,097)
---------- -----------
---------- -----------
Shares outstanding
Beginning of period...... 2,038,728 2,244,088
--------- ---------
End of period............ 1,928,494 2,038,728
--------- ---------
--------- ---------
NOTE 3--PURCHASES AND SALES OF SECURITIES
During the year ended June 30, 1997, purchases and sales proceeds from
investment securities aggregated $2,176,772 and $2,455,118, respectively.
The net unrealized appreciation of investments aggregated $362,642 of which
$800,241 related to gross unrealized appreciation where there is an excess of
value over tax cost and $437,599 related to gross unrealized depreciation of
investments where there is an excess of tax cost over value.
-9-
<PAGE>
STEADMAN INVESTMENT FUND
NOTES TO FINANCIAL STATEMENTS--CONTINUED
June 30, 1997
NOTE 4--INVESTMENT ADVISORY FEE AND TRANSACTIONS WITH AFFILIATES
Steadman Security Corporation (SSC), an affiliate, has provided advisory
services under an agreement which first became effective in 1972. On
February 28, 1984, at the Annual Meeting of the shareholders, a new Investment
Advisory Agreement was approved. Under the new advisory agreement, SSC will
continue to provide the same services it provides under the same terms and
conditions of the previous agreement. The agreement will continue in effect
subject to the annual approval by the Board of Trustees or by a majority of
the outstanding voting securities of the Fund. The fee for investment advisory
services is based on 1% of the first $35,000,000 of the average daily net
assets of the Fund, 7/8 of 1% on the next $35,000,000 and 3/4 of 1% on all
sums in excess thereof. In addition to the investment advisory fee, SSC
received shareholder servicing fees from the Fund for the performance of
delegated services (dividend disbursing agent and transfer agent) as defined
in the Trust Indenture, as amended. The fee for such services was computed on
the basis of the number of shareholder accounts calculated as of the last
business day of each month at $1.35 per account. SSC received reimbursements
from the Fund for the salaries and benefits of its officers and employees who
performed functions other than investment advisory and shareholder service
functions for the Fund.
Certain officers and trustees of the Fund are "affiliated persons" of the
Investment Advisor, as defined by the Investment Company Act of 1940.
NOTE 5--FEDERAL INCOME TAXES
In the fiscal year ended June 30, 1997, the Fund did not meet the asset
diversification requirements applicable to regulated investment companies.
Thus, the Fund did not qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code. However, the Fund had a net
investment loss in the fiscal year ended June 30, 1997, therefore no income
tax provision is required. A full valuation allowance has been provided for
deferred tax assets, totaling approximately $958,000 at June 30, 1997, which
arise principally from net operating loss carryforwards and capital loss
carryforwards available for income tax purposes.
The Fund has net operating loss carryforwards approximating $1,946,000 which
are available to offset future net operating income in non-qualifying years, if
any, which expire as follows: (2004) $299,000; (2005) $304,000;
(2006) $222,000; (2007) $278,000; (2008) $217,000; (2009) $204,000;
(2010) $40,000 (2011) $112,000 and (2012) $270,000. Capital loss carryforwards
aggregating approximately $575,000 are available to offset future capital
gains, if any, which expire as follows: (1999) $147,000; (2000) $243,000 and
(2003) $185,000.
-10-
<PAGE>
STEADMAN INVESTMENT FUND
NOTES TO FINANCIAL STATEMENTS--CONTINUED
June 30, 1997
NOTE 6--EXPIRATION OF SHAREHOLDER STATES REDEMPTION RESTRICTION
In 1993 the Fund entered into a Settlement Agreement with approximately 47
states (the "Shareholder States") with respect to the recovery of shares and
distributions owned by persons who had allegedly abandoned these properties.
The Settlement Agreement provides among other things, that the Shareholder
States will not request redemption of their shares until February 14, 1998. The
Shareholder States currently own 16% of shares in the Fund. In July 1997, the
Fund agreed to remove this restriction and allow Shareholder States to redeem
shares upon request.
NOTE 7--PROPOSED MERGER
During 1997, management proposed a merger of Steadman American Industry Fund,
Steadman Fund, and Steadman Technology and Growth Fund with and into the
Steadman Associated Fund, which will change to a close-end investment company
whose name will change to Steadman Security Trust (SST). In connection with the
merger, SST will amend its investment objective to primarily seek current
income and secondarily to maximize total return. Following the proposed merger,
fund shares no longer will be sold or redeemed by SST on a request basis, but
may be sold to other investors in market transactions. The costs associated
with the proposed merger are allocated to all the funds based on the respective
net asset values of the funds. The proposed merger requires approval by the
shareholders. A Registration Statement of Form N-14 is pending SEC regulatory
approval and the proposed merger requires the approval of the Shareholders of
all of the funds.
-11-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholder and Board of Trustees of
Steadman Technology and Growth Fund
We have audited the accompanying statement of assets and liabilities of
Steadman Technology and Growth Fund, including the portfolio of investments,
as of June 30, 1997, and the related statements of operations, changes in net
assets and the financial highlights for the year then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit. The statement of
changes in net assets for the year ended June 30, 1996 and the financial
highlights for the year ended June 30, 1996 and the period January 1, 1995
through June 30, 1995 and each of the three years in the period ended
December 31, 1994 were audited by other auditors whose report, dated August
6, 1996, expressed an unqualified opinion on the statement of changes in net
assets and those financial highlights.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of June 30, 1997, by
correspondence with the custodian and/or broker. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Steadman Technology and Growth Fund as of June 30, 1997, the
results of its operations, the changes in its net assets, and the financial
highlights for the year then ended, in conformity with generally accepted
accounting principles.
Reznick Fedder & Silverman
Bethesda, Maryland
July 25, 1997
<PAGE>
[Letterhead of Coopers & Lybrand]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of
Steadman Technology and Growth Fund
We have audited the statement of changes in net assets for the year ended
June 30, 1996 and the financial highlights for the year ended June 30, 1996,
the five months ended June 30, 1995, and each of the three years in the
period ended January 31, 1995 of the Steadman Technology and Growth Fund (the
"Fund"). This financial statement and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on this financial statement and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards required that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statement and financial highlights referred
to above present fairly, in all material respects, the changes in net assets
for the year ended June 30, 1996 and the financial highlights of the Fund for
each of the respective periods stated in the first paragraph in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
July 29, 1996
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997
Assets
Investments at value (cost $256,013) (note 1)............ $ 343,375
Cash and cash equivalents (note 1)....................... 36,482
Interest receivable...................................... 145
Miscellaneous receivable................................. 3,519
------------
Total assets........................................... 383,521
------------
Liabilities
Accounts payable and accrued expenses.................... 29,044
Miscellaneous payable.................................... 354
Investment advisory and service fees payable (note 4).... 286
Other payable to affiliate (note 4)...................... 5,679
------------
Total liabilities...................................... 35,363
------------
NET ASSETS............................................. $ 348,158
------------
------------
Net assets consist of
Accumulated net investment loss.......................... $(2,832,669)
Unrealized appreciation of investments................... 87,362
Accumulated net realized losses.......................... (390,993)
Capital paid in less distributions since inception....... 3,484,458
------------
$ 348,158
------------
------------
Net asset value, offering price and redemption price per
share ($348,158/510,386 shares of no par value trust
shares).................................................. $ 0.68
------------
------------
The accompanying notes are an integral part of the financial statements
-3-
<PAGE>
STATEMENT OF OPERATIONS
For the year ended June 30, 1997
Investment Income
Dividends $ 5,957
Interest 2,682
--------
Total income $ 8,639
Expenses
Shareholder servicing fee (note 4) 68,155
Salaries and employee benefits (note 4) 26,604
Professional fees 30,854
Proposed merger expense (note 7) 12,515
Miscellaneous 7,627
Reports to shareholders 8,389
Computer services 3,212
Investment advisory fee (note 4) 4,109
Rent 2,804
Trustees' fees and expenses (note 4) 5,619
Custodian fees 1,322
--------
Total expenses 171,210
----------
Net investment loss (162,571)
----------
Realized and Unrealized Gain (Loss) on
Investments
Net realized loss from investment transactions (54,880)
Change in unrealized appreciation/(depreciation)
of investments 38,748
----------
Net loss on investments (16,132)
----------
Net decrease in net assets resulting from
operations $(178,703)
----------
----------
The accompanying notes are an integral part of the financial statements
-4-
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended June 30,
1997 1996
---------- ----------
Decrease in net assets from operations:
Net investment loss............................ $(162,571) $(172,862)
Net realized loss from investment transactions. (54,880) (129,743)
Change in unrealized appreciation/
(depreciation) of Investments................ 38,748 84,018
---------- ----------
Net decrease in net assets resulting from
operations............................... (178,703) (218,587)
Decrease in net assets from trust share
transactions (Note 2).......................... (15,546) (37,546)
---------- ----------
Decrease in net assets......................... (194,249) (256,133)
Net assets at beginning of period................ 542,407 798,540
---------- ----------
Net assets at end of period, (including
accumulated net Investment loss of $2,830,928
and $2,668,357)................................ $ 348,158 542,407
---------- ----------
---------- ----------
The accompanying notes are an integral part of the financial statements
-5-
<PAGE>
PORTFOLIO OF INVESTMENTS
June 30, 1997
VALUE
SHARES (NOTE 1)
------ --------
COMMON STOCKS--100%
R.E.I.T.--17.9%
Capstead Mortgage......................... 2,500 $ 61,719
--------
Total R.E.I.T......................... 61,719
--------
Semiconductor--29.6%
Intel Corp. Warrants (a).................. 1,000 101,500
--------
Total Semiconductor................... 101,500
--------
Telecom Mfg--52.5%
Lucent Technologies....................... 2,500 180,156
--------
Total Telecom Mfg..................... 180,156
--------
Total Portfolio of Investment (Cost
$256,013)............................... $343,375
--------
--------
(a) Non-income producing security
The accompanying notes are an integral part of the financial statements
-6-
<PAGE>
STEADMAN TECHNOLOGY AND GROWTH FUND
FINANCIAL HIGHLIGHTS
June 30, 1997
<TABLE>
<CAPTION>
FOR PERIOD
FOR THE FOR THE YEAR JANUARY 1,
YEAR ENDED ENDED 1995 THROUGH FOR THE YEAR ENDED DECEMBER 31,
JUNE 30, JUNE 30, JUNE 30, -------------------------------
1,997 1,996 1995* 1994 1993 1992
----------- ------------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance:
Net asset value, beginning of period........... $ 1.02 $ 1.43 $ 1.57 $ 2.48 $ 2.69 $ 2.84
----------- ------------- ------------ --------- --------- ---------
Net investment loss............................ (0.50) (0.58) (0.22) (0.45) (0.40) (0.33)
Net realized and unrealized gain (loss) on
investments.................................. 0.16 0.17 0.08 (0.46) 0.19 0.18
----------- ------------- ------------ --------- --------- ---------
Total from investment operations............... (0.34) (0.41) (0.14) (0.91) (0.21) (0.15)
----------- ------------- ------------ --------- --------- ---------
Net asset value, end of period................. $ 0.68 $ 1.02 $ 1.43 $ 1.57 $ 2.48 $ 2.69
----------- ------------- ------------ --------- --------- ---------
----------- ------------- ------------ --------- --------- ---------
Ratios/Supplemental Data:
Total return................................... (33.42)% (28.29)% (17.84)%** (36.69)% (7.81)% (5.28)%
Ratio of expenses to average net assets........ 41.46% 25.19% 22.28%** 16.34% 11.94% 13.33%
Ratio of net investment loss to average net
assets....................................... 39.37% (24.78)% (20.90)%** (14.79)% (11.38)% (12.45)%
Portfolio turnover rate........................ 350% 333% 615%** 274% 128% 157%
Net assets, end of period (in Thousands)....... $ 348 $ 542 $ 799 $ 894 1,467 $ 1,634
</TABLE>
- ------------------------
* The fund's fiscal year-end was changed to June 30
** Annualized
The accompanying notes are an integral part of the financial statements
-7-
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
Steadman Technology and Growth Fund (the Fund) is registered under the
Investment Company Act of 1940, as amended, as a nondiversified, open-end
investment company.
The preparation of financial statements is conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements.
CASH AND CASH EQUIVALENTS
Management defines cash equivalents as investments that mature in three
months or less when acquired. All cash and cash equivalents are invested in a
single money market fund maintained by the investment custodian.
SECURITY VALUATION
Investments in securities traded on a national securities exchange are
valued at the last reported sales price on the last business day of the
period. Investment for which no sale was reported on that date are valued at
the mean between the latest bid and asked prices.
SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are recorded on the trade date. Realized gains and
losses from security transactions are reported on an identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income and
expenses are recorded on the accrual basis.
INCOME TAXES
The Fund is subject to income taxes in years when it does not qualify as
a regulated investment company under Subchapter M of the Internal Revenue
Code. The Fund accounts for income taxes using the liability method, whereby
deferred tax assets and liabilities arise from the tax effect of temporary
differences between the financial statement and tax bases of assets and
liabilities, measured using presently enacted tax rates. If it is more likely
than not that some portion or all of a deferred tax asset will not be
realized, a valuation allowance is recognized
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NOTES TO FINANCIAL STATEMENTS--CONTINUED
JUNE 30, 1997
NOTE 2--TRUST SHARES
The Trust Indenture does not specify a limit to the number of shares
which may be issued. Transactions in trust were as follows:
FOR THE YEAR ENDED FOR THE YEAR ENDED
JUNE 30, 1997 JUNE 30, 1996
--------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
-------- ---------- -------- ---------
Shares sold.............. -- $ -- -- $ --
Shares redeemed.......... (19,033) (15,546) (29,474) (37,546)
-------- ---------- -------- ---------
Net decrease............. (19,033) $(15,546) (29,474) $(37,546)
---------- ---------
---------- ---------
Shares outstanding
Beginning of period.... 529,419 558,893
-------- --------
End of period.......... 510,386 529,419
-------- --------
-------- --------
NOTE 3--PURCHASES AND SALES OF SECURITIES
During the year ended June 30, 1997, purchases and proceeds from sales of
investment securities aggregated $1,294,470 and $1,446,015, respectively.
The net unrealized appreciation of investments aggregated $87,362 of
which $227,706 related to gross unrealized appreciation where there is an
excess of value over tax cost and $140,344 related to gross unrealized
depreciation where there is an excess of tax cost over value.
NOTE 4--INVESTMENT ADVISORY FEE AND TRANSACTIONS WITH AFFILIATES
Steadman Security Corporation (SSC), an affiliate, has provided advisory
services under an agreement which first become effective in 1972. On February
28, 1984, at the Annual Meeting of the shareholders, a new Investment
Advisory Agreement was approved. Under the new advisory agreement, SSC will
continue to provide the same services it provided under the same terms and
condition of the previous agreement. The agreement will continue in effect
subject to the annual approval of the Board of Trustees or by a majority of
the outstanding voting securities of the Fund. The fee for investment
advisory services is based on 1% of the first $35,000,000 of the average
daily net assets of the Fund, 7/8 of 1% on the next $35,000,000 and 3/4 of 1%
on all sums in excess thereof. In addition to the investment advisory fee,
SSC received shareholder
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NOTES TO FINANCIAL STATEMENTS--CONTINUED
JUNE 30, 1997
NOTE 4--INVESTMENT ADVISORY FEE AND TRANSACTIONS WITH AFFILIATES (Continued)
servicing fees from the Fund for the performance of delegated services
(dividend disbursing agent and transfer agent) as defined in the Trust
Indenture, as amended. The fee for such services was computed on the basis of
the number of shareholder accounts calculated as of the last business day of
each month at $1.35 per account. SSC received reimbursements from the Fund
for the salaries and benefits of its officers and employees who performed
functions other than investment advisory and shareholder service functions
for the Fund.
Certain officers and trustees of the Fund are "affiliated persons" of the
Investment Adviser, as defined by the Investment Company Act of 1940.
NOTE 5--FEDERAL INCOME TAXES
In the fiscal year ended June 30, 1997, the Fund did not meet the asset
diversification requirements applicable to regulated investment companies.
Thus, the Fund did not qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code. However, the Fund had a net
investment loss in the fiscal year ended June 30, 1997 and realized net
capital losses in the fiscal year ended June 30, 1997, therefore no income
tax provision is required. A full valuation allowance was provided throughout
the fiscal year ended June 30, 1997 for deferred tax assets, totaling
approximately $1,229,000 at June 30, 1997, which arise principally from net
operating loss carryforwards and capital loss carryforwards available for
income tax purposes.
The Fund has net operating loss carryovers approximating $2,837,000 which
are available to offset future net operating income in nonqualifying years,
if any, which expire as follows: (1999)$111,000; (2000) $272,000; (2001)
$264,000; (2002) $252,000; (2003) $236,000; (2004) $240,000; (2005) $254,000;
(2006) $194,000; (2007) $212,000; (2008) $198,000; (2009) $177,000; (2010)
$86,000; (2011) $174,000; (2012) $167,000. Capital loss carryforwards
aggregating approximately $391,000 are available to offset future capital
gains, it any, which expire as follows: (1997) $151,000; (2000) $55,000;
(2001) $130,000 and (2002) $55,000.
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NOTES TO FINANCIAL STATEMENTS--CONTINUED
JUNE 30, 1997
NOTE 6--EXPIRATION OF SHAREHOLDER STATES REDEMPTION RESTRICTION
In 1993 the Fund entered into a Settlement Agreement with approximately
47 states (the "Shareholder States") with respect to the recovery of shares
and distributions owned by persons who had allegedly abandoned these
properties. The Settlement Agreement provides among other things, that the
Shareholders States will not request redemption of their shares until
February 14, 1998. The Shareholder States currently own 16% of shares in the
Fund. In July 1997, the Fund agreed to remove this restriction and allow
Shareholder States to redeem shares upon request.
NOTE 7--PROPOSED MERGER
During 1997, management proposed a merger of Steadman American Industry
Fund, Steadman Investment Fund, and Steadman Technology and Growth Fund with
and into the Steadman Associated Fund, which will change to a close-end
investment company whose name will change to Steadman Security Trust (SST).
In connection with the merger, SST will amend its investment objective to
primarily seek current income and secondarily to maximize total return.
Following the proposed merger, fund shares no longer will be sold or redeemed
by SST on a request basis, but may be sold to other investors in market
transactions. The costs associated with the proposed merger are allocated to
all the funds based on the respective net asset values of the funds. The
proposed merger requires approval by the shareholders. A Registration
Statement of Form N-14 is pending SEC regulatory approval and the proposed
merger requires the approval of the Shareholders of all of the funds.
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<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 Registrant has been advised
that in the opinion of the Securities and Exchange Commission ("SEC"),
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such indemnification is against public policy as expressed in the Act and,
therefore, is unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
Item 16. Exhibits:
Number Description
------ -----------
1 Amended and Restated Trust Indenture of Steadman Associated
Fund and Declaration of Trust
4 Agreement and Plan of Merger
5 Specimen share certificate*
6 Steadman Security Trust Amended and Restated Investment
Advisory Agreement*
9 Custodian agreement and depository contract with Crestar
Bank N.A.*
11.1 Opinion of Manatt, Phelps & Phillips, LLP as to the legality
of the securities being registered*
11.2 Consent of Manatt, Phelps & Phillips, LLP*
12.1 Opinion of Manatt, Phelps & Phillips, LLP, regarding tax
matters and consequences*
12.2 Consent of Coopers & Lybrand L.L.P.
12.3 Consent of Reznick Fedder & Silverman, P.C.
16 Power of Attorney (reference is made to the signature page)*
99.1 Form of Proxies of Funds*
- ---------------------
*Previously filed.
**To be filed by amendment.
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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.
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<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement
has been signed on behalf of the registrant, in the City of Washington,
District of Columbia, on the 29th day of October, 1997.
------
Steadman Security Trust
Registrant
/s/ Charles W. Steadman
-------------------------------------
Charles W. Steadman, Trustee,
Chairman of the Board of Trustees and
President, Steadman Security Trust
As required by the Securities Act of 1933, this Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated.
(Signature) (Title) (Date)
/s/ Charles W. Steadman Chairman of the Board, October 29, 1997
- -------------------------- President and Trustee
Charles W. Steadman Principal Executive Officer
/s/ Max Katcher Executive Vice President October 29, 1997
- -------------------------- Treasurer & Secretary
Max Katcher Principal Financial Officer
Principal Accounting Officer
/s/ Paul A. Bowers Trustee October 29, 1997
- --------------------------
Paul A. Bowers*
/s/ John T. Hayward Trustee October 29, 1997
- --------------------------
John T. Hayward*
/s/ Paul E. Wager Trustee October 29, 1997
- --------------------------
Paul E. Wagner*
- --------------------------------------
*Signed pursuant to power of attorney.
<PAGE>
EXHIBIT 1
Amended and Restated Trust Indenture of Steadman Associated Fund
and Declaration of Trust
<PAGE>
EXHIBIT 1
AMENDED
AND
RESTATED TRUST INDENTURE OF
STEADMAN SECURITY TRUST
(formerly Steadman Associated Fund)
AND DECLARATION OF TRUST
WITH AMENDMENTS
DATED AS OF
OCTOBER 16, 1997
<PAGE>
TABLE OF CONTENTS
ARTICLE I
The Trust - The Fund.....................................................7
Section 1.1. Name........................................................7
Section 1.2. Location....................................................7
Section 1.3. Nature of the Fund..........................................7
Section 1.4. Definitions.................................................8
ARTICLE II
Powers of Trustees.......................................................9
Section 2.1. General.....................................................9
Section 2.2. Investments.................................................9
Section 2.3. Legal Title................................................10
Section 2.4. Taxes......................................................10
Section 2.5. Delegation.................................................10
Section 2.6. Expenses...................................................10
Section 2.7. Deposits...................................................11
Section 2.8. Valuation..................................................11
Section 2.9. Fiscal Year and Accounting Method..........................12
Section 2.10. Reserves..................................................12
Section 2.11. Business Interests of Trustees and Others.................12
Section 2.12. Power to Contract.........................................13
Section 2.13. Insurance.................................................13
Section 2.14. Pension and Other Plans...................................13
Section 2.15. Dividends.................................................14
Section 2.16. Seal......................................................14
Section 2.17. Charitable Contributions..................................14
Section 2.18. Indemnification...........................................14
Section 2.19. Remedies..................................................14
Section 2.20. Further Powers............................................14
Section 2.21. Restriction on Investment.................................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
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ARTICLE IV
Investments.............................................................16
Section 4.1. Statement of Investment Policy.............................17
Section 4.2 Other Investments..........................................17
Section 4.3 Option Activities..........................................17
Section 4.4 Restrictions...............................................17
Section 4.5. Portfolio Transactions.....................................17
ARTICLE V
Limitations of Liability................................................17
Section 5.1. Liability to Third Persons.................................17
Section 5.2. Liability to Fund or to Shareholders.......................17
Section 5.3. Indemnification............................................18
Section 5.4. Surety Bonds...............................................18
Section 5.5. Apparent Authority.........................................18
Section 5.6. Recitals Regarding Liability; Insurance....................19
ARTICLE VI
Shares and Other Securities.............................................19
Section 6.1. Description of Shares......................................19
Section 6.2. Certificates...............................................19
Section 6.3. Issuance of Securities.....................................19
Section 6.4. Pooling of Funds...........................................20
ARTICLE VII
Record and Transfer of Shares...........................................20
Section 7.1. Share Register; Holders of Record..........................20
Section 7.2. Transfer Agent.............................................20
Section 7.3. Blank Certificates.........................................20
Section 7.4. Change of Holder of Record.................................20
Section 7.5. Transfer of Shares.........................................21
Section 7.6. Limitation of Fiduciary Responsibility.....................21
Section 7.7. Notices....................................................21
Section 7.8. Replacement of Certificates................................22
Section 7.9. Designation of Beneficiary.................................22
ARTICLE VIII
Characteristics of Securities...........................................22
Section 8.1. General....................................................22
Section 8.2. Death of Shareholders......................................22
ARTICLE IX
Shareholders............................................................23
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Section 9.1. Special Meetings...........................................23
Section 9.2. Notice of Meetings.........................................23
Section 9.3. Voting Rights of Shareholders..............................23
Section 9.4. Record Date................................................24
Section 9.5. Proxies....................................................24
Section 9.6. Reports....................................................24
Section 9.7. Notice for Nominations and Proposals.......................24
ARTICLE X
Trustees................................................................25
Section 10.1. Number and Qualification..................................25
Section 10.2. Terms of Office: Election.................................25
Section 10.3. Resignation and Removal...................................25
Section 10.4. Vacancies.................................................26
Section 10.5. Meetings..................................................26
Section 10.6. Officers..................................................27
Section 10.7. By-laws...................................................28
ARTICLE XI
Distributions to Shareholders...........................................28
Section 11.1. General...................................................28
Section 11.2. Retained Earnings.........................................28
Section 11.3. Sources of Distributions..................................28
ARTICLE XII
Amendment or Termination of Fund........................................28
Section 12.1. Amendment or Termination..................................28
Section 12.2. Transfer to Successor.....................................29
ARTICLE XIII
Miscellaneous...........................................................29
Section 13.1. Governing Law.............................................29
Section 13.2. Counterparts..............................................29
Section 13.3. Reliance by Third Parties.................................29
Section 13.4. Provisions in Conflict With Laws or Regulations...........30
Section 13.5. Not In Derogation of Existing Rights......................30
Section 13.6. Section Headings..........................................30
ARTICLE XIV
Effective Date and Duration of Trust and Fund...........................30
Section 14.1. Effective Date............................................30
Section 14.2. This Instrument Supersedes................................31
Section 14.3. Duration and Termination..................................31
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<PAGE>
ARTICLE XV
Shareholders' Acceptance................................................31
Section 15.1. Acceptance................................................31
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<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 OCTOBER 16, 1997, BY AND BETWEEN THE
PARTIES, being,
(a) The Registered Holders ("Shareholders" herein) from time to time of
Shares of Steadman Associated Fund ("Fund" herein) as settlors of express
revocable trusts who became parties hereto by taking and holding their
respective Shares, and
(b) The Trustees being Charles W. Steadman, Paul A. Bowers, John T.
Hayward, and Paul F. Wagner (such persons so long as they shall continue in
office in accordance with the terms of this Instrument, and all other persons
who at the time in question have been duly elected or appointed as Trustees
in accordance with the provisions of this Instrument and are then in office
are collectively called the "Trustees" herein.)
RECITALS
The Fund is a common law trust within the meaning of Section
16(c) of the Investment Company Act of 1940, as amended, and was organized as
Associated Fund Trust in 1939. The Fund's name was changed in 1969 to
Steadman Associated Fund and is hereby changed upon the Effective Date of
this amendment to the Steadman Security Trust, which shall for all purposes
of this document mean the "Fund."
The original Trust Indenture has been the subject of many
amendments, and the shareholders of the Fund will be requested to ratify and
confirm this Amended and Restated Trust Indenture, including the change of
the name of the Fund to Steadman Security Trust and the change in the Fund's
fundamental investment policy from primarily capital growth and secondarily
current income to primarily current income and secondarily to maximize total
return.
It is in the best interests of the Fund and its Shareholders that
the certain Trust Indenture dated 23rd February 1939, as amended and
supplemented, be amended and restated to reflect the
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<PAGE>
foregoing changes and such other changes as are deemed necessary by the
Trustees for the operations of the Fund.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and for other good and valuable consideration,
(a) The Parties amend that certain Restated Trust Indenture of
Steadman Associated Fund and Declaration of Trust and herein restate it as
the Amended and Restated Trust Indenture of Steadman Security Trust and
Declaration of Trust;
(b) The Trustees agree to be bound by this Instrument; and
(c) THE TRUSTEES DO HEREBY DECLARE that they will hold as Trustees
the Fund and all Fund Property of every type and description which they may
acquire now or hereafter as Trustees, together with the proceeds thereof, in
trust, to manage, invest, reinvest, purchase and sell, exchange or otherwise
dispose of the same for the benefit of the Shareholders present and future
and in the manner and subject to the provisions as now shall be set forth in
this Instrument.
ARTICLE I
The Trust - The Fund
Section 1.1. Name. The name of the trust created by this Instrument
shall be Steadman Security Trust ("Fund" herein). So far as may be
practicable, the Trustees shall conduct the Fund's activities, execute all
documents and sue or be sued under this name. This name (and the word "Fund"
or "Trust" wherever used herein except where the context otherwise requires)
shall refer to the Trustees in their capacity as Trustees, and not
individually or personally, and shall not refer to the officers, agents,
employees or Shareholders of the Fund or of the Trustees. If the Trustees
determine that the use of this name is not practicable, legal or convenient,
they may use any other designation or they may adopt any other name for the
Fund that they deem proper, and the Trust may hold property and conduct its
activities under such designation or name.
Section 1.2. Location. The principal office of the Fund shall be in the
District of Columbia, or in any other location the Trustees may select. The
Fund may have such other offices or places of business as the Trustees may
from time to time determine to be necessary or expedient.
Section 1.3. Nature of the Fund.
(a) The Fund shall be of the type commonly termed a common law trust
within the meaning of Section 16(c) of the Investment Company Act of 1940, as
amended. The Fund is not intended to be, shall not be deemed to be, and shall
not be treated as a general partnership, limited partnership, joint venture,
corporation, joint stock company or any other form of legal
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<PAGE>
relationship. The Shareholders shall be beneficiaries, and their
relationship to the Trustees shall be solely in that capacity in accordance
with the rights conferred upon them hereunder.
(b) The Advisor shall have discretion with respect to whether the
Fund should qualify, from time to time, as a regulated investment company as
that term is defined in Subchapter M of the Internal Revenue Code of 1986, as
amended.
Section 1.4. Definitions. As used herein, the following terms have
the following meanings unless the context otherwise requires:
"Act" shall mean the Investment Company Act of 1940, as amended.
"Advisor" or "Investment Advisor" shall mean Steadman Security
Corporation, a Delaware corporation having its principal place of business in
Washington, D.C., and where applicable, as in but not limited to Article V,
shall include the directors, officers, employees and agents of the Advisor.
"Affiliate" shall have the same meaning as in the Act.
"Amended and Restated Trust Indenture of Steadman Security Trust and
Declaration of Trust" shall mean this Instrument as amended, restated or
modified from time to time. References herein to "Amendment of Trust
Indenture of Steadman Associated Fund," "Declaration of Trust,"
"Instrument," "hereof," "herein," "hereunder," "Restated Trust Indenture of
Steadman Associated Fund," "Restated Trust Indenture," "Trust Indenture,"
"Trust" and "Fund" shall be deemed to refer to this Instrument and shall not
be limited to the particular text, article or section in which such words
appear.
"Committee" shall mean a group of any two or more Trustees which has
been designated as such by the Trustees and to whom duties or powers have
been delegated pursuant to Section 2.5.
"Effective Date" shall be as stated in Section 14.1.
"Fiscal Year" shall mean any fiscal period of the Fund for which an
income tax return is submitted to the Internal Revenue Service and which is
treated by the Internal Revenue Service as a reporting period.
"Fund Property" shall mean as of any particular time any and all
property of whatever nature, tangible or intangible, cash and securities of
all kinds, which are transferred, conveyed or paid to the Fund or the
Trustees and all income, profits and gains therefrom and which at such time
is owned or held by, or for the account of, the Fund or the Trustees.
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<PAGE>
"Merger" shall mean the merger of Steadman American Industry Fund,
Steadman Investment Fund and Steadman Technology and Growth Fund into the
Fund.
"Person" shall mean and include individuals, corporations, limited
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, business trusts or
other organizations, whether or not legal entities, and governments and
agencies and political subdivisions thereof.
"Securities" shall mean any stock, shares, voting trust
certificates, bonds, debentures, notes or other evidences of indebtedness,
secured or unsecured, convertible, subordinated or otherwise, or, in general,
any instruments commonly known as "securities," or any certificates of
interest, shares or participations in temporary or interim certificates for,
or any right to subscribe to, purchase or acquire any of the foregoing.
"Shareholders" shall mean, as of any particular time, all holders of
record or registered holders of outstanding Shares at such time.
"Shares" shall mean the shares of beneficial interest of the Fund
described in Section 6.1.
ARTICLE II
Powers of Trustees
Section 2.1. General. The Trustees shall have, without further
authorization, full, exclusive and absolute power, control and authority over
the Fund Property and the business of the Fund to the same extent as if the
Trustees were the sole and absolute owners of the Fund Property and business
in their own right, free from any power or control on the part of the
Shareholders, except as may be required by law, with such powers of
delegation as may be permitted by this Instrument. The enumeration of any
specific power or authority herein shall not be construed as limiting the
aforesaid powers or authority in any respect.
Section 2.2. Investments. The Trustees shall have power to invest
and reinvest the Fund Property in such securities as they deem appropriate
and compatible for the fulfillment of the objectives of the Fund, and hold or
retain such securities or to sell them at such times and from time to time as
they shall in their absolute discretion determine.
In the exercise of their powers, the Trustees shall not be
limited to investing in obligations maturing before the possible termination
of the Trust, nor shall the Trustees be limited by any law now or hereafter
in effect limiting the investments which may be held or retained by trustees
or other fiduciaries, but they shall have full authority and power to make
any and all investments within the limitations of this Instrument as they, in
their absolute discretion, shall determine, and without liability for loss.
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Section 2.3. Legal Title. Legal title to all the Fund Property
shall be vested in the Trustees, as joint tenants or otherwise, and held by
and transferred to the Trustees, except that the Trustees shall have power to
cause legal title to any Fund Property to be held by or in the name of one or
more of the Trustees with suitable reference to their trustee status or in
the name of the Fund, or to the extent the Trustees deem such action to be in
the best interest of the Fund and its Shareholders, in the name of any other
Person as nominee on such terms, in such manner and with such powers as the
Trustees may determine, provided that if any Fund Property is held in the
name of a nominee, such nominee will hold that Fund Property for the
exclusive benefit of the Fund.
Section 2.4. Taxes. The Trustees shall have power to pay all
taxes or assessments, of whatever kind or nature, imposed upon or against the
Fund or the Trustees in connection with the Fund Property or upon or against
the Fund Property or income or any part thereof, to settle and compromise
disputed tax liabilities and for the foregoing purposes to make such returns
and do all such other acts and things as may be deemed by the Trustees
necessary or desirable.
Section 2.5. Delegation. The Trustees shall have power,
consistent with their continuing exclusive authority over the management of
the Fund, the conduct of its affairs, and the management and disposition of
Fund Property, to delegate from time to time to such one or more of their
number, to Committees, to officers, employees and agents of the Fund or to
the Advisor the doing of any such things and the execution of such deeds or
other instruments, either in the name of the Fund or the names of the
Trustees or as their attorney or attorneys or otherwise, as the Trustees may
from time to time deem expedient.
Section 2.6. Expenses. (a) The Trustees shall have power to
incur and pay any charges or expenses, which, in the opinion of the Trustees,
are necessary or incidental to or proper for carrying out any of the purposes
of this Instrument, to reimburse others for the payment therefor and to pay
appropriate compensation or fees out of the Fund Property to themselves as
Trustees and to Persons with whom the Fund has contracted or transacted
business including the Advisor, its subsidiaries and affiliated Persons. The
Trustees shall fix the compensation of all officers of the Fund and the
Trustees. The Trustees shall receive reasonable compensation for their
general services as Trustees and officers hereunder. The Trustees may also
pay themselves on any one or more of themselves such compensation for special
services, including legal services, as they in good faith deem reasonable and
reimbursement for expenses reasonably incurred by them or any one or more of
them on behalf of the Fund.
(b) In addition to but without limitation upon the foregoing
or any other powers or authority of the Trustees, the Trustees shall pay on
behalf of the Fund all of the Fund's ordinary expenses of operation unless
specifically excepted, such expenses of operation including, but not being
limited to the following: (i) the expenses of maintaining its own books of
account; (ii) the expenses of maintaining one or more of its Custodians,
Transfer Agents or Dividend Disbursing Agents; (iii) the expenses of
computing the net asset value of shares of the Fund at any required valuation
date; (iv) the fees and expenses of its Trustees, including those Trustees
who also may
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be Directors of the Advisor or its subsidiary, corporations or affiliated
Persons and the fees and expenses of the members of any Committee of the Fund
including any members who also may be Directors or officers or employees (or
all of these) of the Advisor, its subsidiaries or affiliated Persons, who may
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, who may perform services therefor and be compensated thereby; (xiii)
the fees of its auditors; (xiv) the fees of its legal counsel; and (xv) all
other ordinary expenses of operation. The Trustees also shall pay all
extraordinary expenses of whatever kind or nature, unless such expenses have
been specifically assumed by the Advisor or one of its affiliates.
Section 2.7. Deposits. The Trustees shall have power to select a
custodian for the physical holding of the Fund Property in compliance with
the Act under such terms and conditions as the Trustees in their sole and
absolute discretion shall deem to be appropriate. The Trustees shall also
have power to deposit any moneys or Securities included in the Fund Property
with any one or more banks, trust companies, state and federal savings and
loan associations or other banking or savings institutions, including any
affiliate of the Advisor, whether or not such deposits draw interest
provided, however, that any such institution shall qualify under applicable
sections of the Act and all proper regulations promulgated by the Securities
and Exchange Commission. Such deposits shall be subject to withdrawal in
such manner as the Trustees determine, and the Trustees shall have no
responsibility for any loss which may occur by reason of the failure of the
bank, trust company state or federal savings and loan association or other
banking or savings institution with which the moneys or Securities have been
deposited.
Section 2.8. Valuation. (a) The Trustees shall have power to determine
conclusively, the value of any of the Fund Property and of any services,
Securities, assets or other consideration hereafter acquired or disposed of by
the Fund and to revalue the Fund Property.
(b) The Trustees or Advisor or an officer or officers or agent or agents
of the Fund designated from time to time for this purpose by the Trustees
shall, at any required valuation date, in order to properly administer the
Fund, determine the value of all the assets of the Fund at the close of
trading on the New York Stock Exchange on any day upon which such Exchange is
open for unrestricted trading or at such other times as the Trustees shall
designate, and the value of such assets so determined, less total liabilities
of the Fund (exclusive of capital stock and surplus) divided by the number of
shares outstanding shall be the net asset value of a share until a new net
asset value is determined by the Trustees or Advisor or such officers or
agents. In determinations of net asset value, all Securities for which
market quotations are available shall be appraised at a price not less than
the bid price and not greater than the asked price prevailing at the time of
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valuation, and other Securities and assets shall be appraised at fair value,
all as determined in good faith by or under authority of the Trustees in
accordance with accounting principles generally accepted at the time. In
determinations of net asset value, treasury stock shall be treated as if it
were unissued. When net asset value is determined as of a time other than
the close of unrestricted trading on the New York Stock Exchange, the
Trustees or Advisor or such officers or agents may, but need not, determine
such net asset value by adjusting the net asset value determined as of the
preceding close of such Exchange in such manner (based upon changes in the
market prices of selected securities or changes in market averages or on
other standard and readily ascertainable market data since such close) as the
Trustees or Advisor or such officers or agents deem adequate to reflect a
fair approximate estimate of the probable change in net asset value which has
occurred since such close. In determining the net asset value, the Trustees
or Advisor or such officers or agents may include in liabilities such
reserves for taxes, estimated accrued expenses and contingencies in
accordance with accounting principles generally accepted at the time as the
Trustees or Advisor or such officers or agents may in its or their best
judgment deem fair and reasonable under the circumstances.
Section 2.9. Fiscal Year and Accounting Method. The Trustees shall have
power to determine the Fiscal Year for the Fund and the method or form in
which its accounts shall be kept and from time to time to change the Fiscal
Year or the method or form in which its accounts shall be kept.
Section 2.10. Reserves. The Trustees may set up reserves for taxes or
other contingent liabilities and may allocate thereto such portion of the
assets of the Fund as may be necessary. Any excess reserve so set up shall
be returned to the Fund on termination of the tax or other contingent
liabilities. All reserves shall be held by the Trustees.
Section 2.11. Business Interests of Trustees and Others. (a) Any Trustee,
officer, employee or agent of the Fund may, in his personal capacity, or in a
capacity of trustee, officer, director, stockholder, partner, member, Advisor
or employee of any Person have business interests and engage in business
activities in addition to those relating to the Fund, which interests and
activities may be similar to those of the Fund and may include the
acquisition, syndication, holding, management, operation or disposition, for
his own account or for the account of such Person, of interest in Securities.
Each Trustee, officer, employee and agent of the Fund and each of their
respective affiliates shall be free of any obligation to present to the Fund
any investment opportunity which comes to him in any capacity other than
solely as Trustee, officer, employee or agent of the Fund even if such
opportunity is within the investment policies of the Fund. Subject to the
provisions of this Section, any Trustee, officer, employee or agent of the
Fund may be interested as Trustee, officer, director, stockholder, partner,
member, Advisor or employee or deal with or otherwise have a direct or
indirect interest in any Person who may deal with or be engaged to render
advice or services to the Fund and receive compensation from such Person as
well as compensation as Trustee, officer, employee or agent of the Fund or
otherwise hereunder, and none of the activities referred to in this paragraph
shall be deemed to conflict with his duties and power, as Trustee, officer,
employee or agent of the Fund.
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(b) Ownership of Securities of the Fund. Any Trustee, officer, employee
or agent of the Fund may acquire, own, hold and dispose of Securities for his
individual account and may exercise all rights of a holder of such Securities
to the same extent and in the same manner as if he were not a Trustee,
officer, employee or agent of the Fund, subject, however, to such regulations
which the Trustees by resolution from time to time may adopt.
Section 2.12. Power to Contract. Subject to Article III and Section 2.5
with respect to delegation of authority by the Trustees, the Trustees shall
have power to appoint, employ or contract with any Person (including one or
more of themselves and any corporation, partnership or trust of which one or
more of them may be an affiliate) as the Trustees may deem necessary or
desirable for the transaction of the business of the Fund, including any
Person who, under the supervision of the Trustees, may among other things:
obtain or furnish and supervise the performance of ministerial functions in
connection with the administration of the Fund; serve as the Fund's
investment and financial advisor and consultant in connection with policy
decisions made by the Trustees; furnish reports to the Trustees and provide
research, economic and statistical data in connection with the Fund's
investments and investment policies; act as a consultant, borrower, lender,
accountant, correspondent, technical advisor, attorney, broker, investor,
underwriter, corporate fiduciary, escrow agent, depositor, custodian or agent
for collection, insurer or insurance, agent, transfer agent or registrar or
paying agent in any capacity deemed by the Trustees necessary or desirable;
obtain services as may be required for other activities relating to any of
the Fund Property; investigate, select, and, on behalf of the Fund, conduct
relations with Persons acting in such capacities and pay appropriate fees to,
enter into appropriate contracts with, employ and retain services performed
or to be performed by any of them in connection with the investments
acquired, sold, or otherwise disposed of, or committed, negotiated, or
contemplated to be acquired, sold or otherwise disposed of, by the Fund;
substitute any other Person for any such Person; act as attorney-in-fact or
agent in the purchase or sale or other disposition of investments; and assist
in the performance of such ministerial functions necessary in the management
of the Fund as may be agreed upon with the Trustees or officers of the Fund.
Section 2.13. Insurance. The Trustees shall have the power to purchase
and pay for entirely out of the Fund Property insurance policies insuring the
Fund Property against any and all risks and insuring the Trustees, officers,
employees, agents, investment advisors, including the Advisor, or independent
contractors of the Fund, individually or collectively, against all claims and
liabilities of every nature arising by reason of holding or having held any
such office or position by reason of any action alleged to have been taken or
omitted by the Fund or any such Person as Trustee, officer, employee, agent,
investment advisor, or independent contractor, including any action taken or
omitted that may be determined to constitute negligence whether or not the
Fund would have the power to indemnify, such Person against such liability.
Section 2.14. Pension and Other Plans. The Trustees shall have the power
to pay pensions for faithful service, as deemed appropriate by the Trustees,
and to adopt, establish and carry out pension and profit-sharing plans, share
bonus, option and purchase plans and savings,
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thrift and other retirement, incentive and benefit plans, trusts and
provisions, including the purchasing of life insurance and annuity contracts
as a means of providing such retirement and other benefits, for any or all of
the Trustees, officers, employees and agents of the Fund.
Section 2.15. Dividends. The Trustees shall have the power to declare
and pay dividends in cash, shares or otherwise, to make other distributions
to Shareholders, whether out of net income, accumulated-undistributed income,
paid-in capital or otherwise, and to establish a dividend and distribution
reinvestment plan or program or any plan or program similar thereto.
Section 2.16. Seal. The Trustees shall have the power to adopt and use a
seal for the Fund, but, unless otherwise required by the Trustees, the seal
need not be placed on, and its absence shall not impair the validity of any
document, instrument or other paper executed and delivered by or on behalf of
the Fund.
Section 2.17. Charitable Contributions. The Trustees shall have
power to make donations, irrespective of benefit to the Fund, for the public
welfare or for community fund, hospital, charitable, religious education,
scientific, civic or similar purposes.
Section 2.18. Indemnification. In addition to the mandatory
indemnification provided for in Section 5.3, the Trustees shall have power to
the extent permitted by law to indemnify or enter into agreements with
respect to indemnification with any Person with whom the Fund has dealings,
including without limitation any investment advisor, including the Advisor,
any underwriter of Securities of the Fund or any independent contractor, to
such extent as the Trustees shall determine.
Section 2.19. Remedies. Notwithstanding any provision in this
Instrument, when the Trustees deem that there is a significant risk that an
obligor to the Fund may default or is in default under the terms of any
obligation to the Fund, the Trustees shall have power to pursue any remedies
permitted by law which, in their sole judgment, are in the interests of the
Fund, and the Trustees shall have the power to enter into any investment,
commitment or obligation of the Fund resulting from the pursuit of such
remedies or necessary or desirable to dispose of property acquired in the
pursuit of such remedies.
Section 2.20. Further Powers. The Trustees shall have power to do
all such other matters and things and execute all such instruments as they
deem necessary, proper or desirable in order to carry out, promote or advance
the interests of the Fund, although such matters or things are not
specifically mentioned herein. Any determination as to what is in the
interests of the Fund made by the Trustees, in good faith shall be
conclusive. In construing the provisions of this Instrument, the presumption
shall be in favor of a grant of power to the Trustees. The Trustees will not
be required to obtain any court order to deal with the Fund Property.
Section 2.21. Restriction on Investment. The Trustees shall have
the power to restrict investment in the Fund so that any one person can, at
any given time, own no more than 5% of
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the Fund's shares. The Trustees shall have the power to restrict investment
in the Fund so that no person or affiliated group of persons may be permitted
to acquire such shares in the Fund to make them as "affiliated person" of the
Fund as that term is defined in Section 2(a) of the Act.
Section 2.22. Shareholders Lists. The Fund's shareholder list shall
not be furnished to any person except upon unanimous vote of the Trustees or
when required by applicable laws or regulations.
ARTICLE III
Advisor
Section 3.1. Designation. The Trustees shall maintain general
supervision over the investment policy of the Fund and the business of the
Fund conducted by officers, agents, employees, the Investment Advisor or
independent contractors of the Fund. The Trustees shall grant or delegate
investment authority to the Advisor, pursuant to the terms of Sections 2.5
and 2.12, or to any other Person the services of which are obtained by the
Advisor as the Trustees may, in their sole discretion, deem necessary or
desirable, without regard to whether such authority is normally granted or
delegated by trustees.
Section 3.2. Terms of Agreement. The Trustees have previously
entered into an agreement with the Advisor pursuant to the provisions of
Section 3.1 which shall provide that: (i) the Advisor shall be required to
see its best efforts to present a continuing and suitable investment program
to the Fund which is consistent with the investment policies and objectives
of the Fund; (ii) the Advisor furnish the Fund with investment research and
advice and shall manage and supervise the Fund's portfolio of investments;
(iii) the Advisor in performance of the foregoing shall furnish the Trustees
with such information and reports regarding the Securities in the Fund's
portfolio and proposed additions to the portfolio as the Advisor deems
appropriate or as the Trustees may reasonably request; (iv) the Advisor shall
supervise the Fund's relations with its Custodian, auditors and Governmental
regulatory bodies and shall furnish certain office space and certain
secretarial and certain clerical assistance necessary for the performance of
the foregoing functions; (v) the agreement shall include the provisions of
Subsection 2.6(b); (vi) the Advisor shall be paid a monthly management fee
computed at the annual rate of 1% of the first $35 million, 7/8 of 1% on the
next $35 million and 3/4 of 1% on all sums in excess thereof of the average
daily net assets of the Fund on the first business day of each month of its
fiscal year, and "net assets" shall be determined as in Section 2.8; (vii)
the agreement shall have an initial term of 24 months and shall remain in
effect thereafter for as long as the agreement is approved annually by the
Trustees, or by the majority vote of the Shareholders in accordance with
Section 15 of the Act; (viii) the agreement shall be terminable without
penalty at any time upon 60 days' written notice: (a) to the Advisor during
the original term or any renewal or extension thereof if a majority of the
Trustees, including a majority of those Trustees who are not parties to the
agreement, or "interested persons," as defined in Section 2(a)(19) of the
Act, or a majority of the outstanding voting securities, shall in good faith
determine that the Advisor is not presenting a continuing and suitable
investment program consistent with the investment objectives and policies
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of the Fund; (b) to the Fund by the Advisor; or (c) as otherwise provided in
the Act; and (ix) the agreement may contain such other provisions as the
Trustees shall determine in their discretion are appropriate.
Section 3.3. Substitution for Advisor. If the Advisor ceases to serve
hereunder for whatever reason, the Trustees shall promptly select a
Substitute Advisor to provide such investment advisory services as the
Trustees shall determine in the place and stead of the Advisor and shall
present to the Shareholders as soon as practicable thereafter but not more
than 90 days after such selection has been made a proposal to approve such
Substitute Advisor. During the period between the cessation of service by the
Advisor and the approval of the Substitute Advisor by the Shareholders, the
Trustees shall perform the Advisor's duties with such assistance as they may
determine to be appropriate.
Section 3.4. Independence of Trustees. Not more than 60% of the total
number of Trustees may be affiliates of the Advisor, provided that if at any
time the percentage of all Trustees who are affiliates of the Advisor becomes
more than 60% of the total number of Trustees then in office because of the
death, resignation, removal or change in affiliation of a Trustee who is not
such an affiliate, such requirement shall not be applicable for a period of
60 days during which time a majority of all the Trustees then in office shall
appoint a sufficient number of other individuals as Trustees so that not more
than 60% of the total number of all Trustees then in office shall be
affiliates of the Advisor. The Trustees shall endeavor at all times to
comply with this requirement but the failure so to comply shall not affect
the validity or effectiveness of any action of the Trustees.
Section 3.5. Other Activities. The Advisor shall not be required to
administer the investment activities of the Fund as its sole and exclusive
function. The Advisor may deal with Persons with whom the Fund may do
business and may have other business interests and may engage in other
activities of any kind in addition to those relating to the activities to be
performed by the Advisor for the Fund, including rendering services and
advice to other Persons (whether or not such Persons are in competition with
the Fund or are engaged in, activities similar to those of the Fund) acting
as a trustee and managing other investments, including investments of the
Advisor or any affiliate of the Advisor. The Trustees may request the
Advisor to engage in other activities which complement the Fund's investments
and to provide services for the Fund or for other Persons who do business
with the Fund, and the Advisor may receive compensation or commissions
therefor from the Fund or other Persons. The Advisor may invest in any such
particular investment opportunity for its own account or offer, make
available or recommend any such particular investment opportunity to any
Person.
ARTICLE IV
Investments
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Section 4.1. Statement of Investment Policy. The Investment Objective
of the Fund is to seek current income. As a secondary objective, the Fund seeks
to maximize the total return but only to the extent consistent with its primary
objective.
Section 4.2 Other Investments. To the extent that the Fund has
assets not otherwise invested in accordance with Section 4.1, the Advisor may,
at any time, invest such assets in such investment as are determined by the
Advisor to be in the best interests of the Fund.
Section 4.3 Option Activities. The Advisor may, to the maximum
extent permissible under applicable laws and regulations, engage in any and all
option activities as it shall, from time to time, determine to be appropriate
and in the best interests of the Fund's shareholders.
Section 4.4 Restrictions. The Fund may, in the sole discretion of
the Advisor and to the maximum extent permissible by applicable laws and
regulations, engage in all lawful investment activities.
Section 4.5. Portfolio Transactions. The Advisor is authorized to
execute portfolio transactions for the Fund through such entities as Advisor
determines, at its discretion, provided such entity renders satisfactory
service at standard and/or negotiated commission rates.
ARTICLE V
Limitations of Liability
Section 5.1. Liability to Third Persons. No Shareholder as such shall
be subject to any personal liability whatsoever, in tort, contract or otherwise,
to any other Person or Persons in connection with the Fund Property or the
affairs of the Fund, and no Trustee, Advisor, officer, employee or agent of the
Fund shall be subject to any personal liability whatsoever, in tort, contract or
otherwise, to any other Person or Persons in connection with the Fund Property
or the affairs of the Fund, nor for any taxes or other governmental charges in
respect to Fund Property or the income or profits therefrom or the transfer
thereof, except that arising from his bad faith, willful misconduct, gross
negligence or reckless disregard of his duties or for his failure to act in good
faith in the reasonable belief that his action was in the best interests of the
Fund; and all such other Persons shall look solely to the Fund Property for
satisfaction of claims of any nature arising in connection with the affairs of
the Fund. If any Shareholder, Trustee, Advisor, officer, employee or agent, as
such, of the Fund is made a party to any suit or proceeding to enforce any such
liability, he shall not on account thereof be held to any personal liability.
Section 5.2. Liability to Fund or to Shareholders. No Trustee,
Advisor, officer, employee or agent of the Fund shall be liable to the Fund or
to any Shareholder, Trustee, Advisor, officer, employee or agent of the Fund for
any action or failure to act (including, without limitation, the 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
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for his failure to act in good faith in the reasonable belief that his action
was in the best interests of the Fund.
Section 5.3. Indemnification. The Fund shall indemnify each of its
Trustees, Advisors, officers, employees and agents (including any Person who
serves at its request as director, officer, partner, trustee or the like of
another organization in which the Fund has any interest as a shareholder,
creditor or otherwise) against all liabilities and expenses, including amounts
paid in satisfaction of judgments, in compromise, as fines or penalties and as
counsel fees, reasonably incurred by him in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
in which he may be involved or with which he may be threatened, while acting as
a Trustee or Advisor or as an officer, employee or agent of the Fund or the
Trustees, as the case may be, or thereafter, by reason of his being or having
been such a Trustee, Advisor, officer, employee or agent, except with respect to
any matter as to which he shall have been adjudicated to have acted in bad faith
or with willful misconduct or reckless disregard of his duties or gross
negligence or not to have acted in good faith in the reasonable belief that his
action was in the best interests of the Fund, provided that as to any matter
disposed of by a compromise payment by such Trustee, Advisor, officer, employee
or agent, pursuant to a consent decree or otherwise, no indemnification either
for said payment or for any other expenses shall be provided unless such
compromise shall be approved as in the best interests of the Fund by a majority
of the disinterested Trustees or the Fund shall have received a written opinion
of independent legal counsel to the effect that such Trustee, Advisor, officer,
employee or agent appears to have acted in good faith in the reasonable belief
that his action was in the best interests of the Fund. The rights accruing to
any Trustee, Advisor, officer, employee or agent under these provisions shall
not exclude any other right to which he may be lawfully entitled, provided that
no Trustee, Advisor, officer, employee or agent may satisfy any right of
indemnity or reimbursement granted herein or to which he may be otherwise
entitled except out of Fund Property, and no Shareholder shall be personally
liable to any Person with respect to any claim for indemnity or reimbursement or
otherwise. The Trustees may make advance payments in connection with
indemnification under this Section, provided that the indemnified Trustee,
advisor, officer, employee or agent shall have given a written undertaking to
reimburse the Fund in the event it is subsequently determined that he is not
entitled to such indemnification.
Section 5.4. Surety Bonds. No Trustee shall, as such, be obligated to
give any bond or surety or other security for the performance of any of his
duties, except as may be required by applicable law.
Section 5.5. Apparent Authority. No purchaser, lender, transfer
agent, registrar, warrant agent, dividend disbursing agent or other Person
dealing with the Trustees or Advisor or any officer, employee or agent of the
Fund shall be bound to make any inquiry concerning the validity of any
transaction purporting to be made by the Trustees or Advisor or by such officer,
employee or agent or make inquiry concerning or be liable for the application of
money or property paid, loaned or delivered to or on the order of the Trustees
or Advisor, or such officer, employee or agent.
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Section 5.6. Recitals Regarding Liability; Insurance. Any written
instrument creating an obligation of the Fund shall be conclusively taken to
have been executed or done by a Trustee or Advisor or an officer, employee or
agent of the Fund only in his capacity as a Trustee or Advisor or an officer,
employee or agent of the Fund. Any written instrument creating an obligation of
the Fund shall refer to this Instrument and shall contain a recital to the
effect that the obligations thereunder are not personally binding upon, nor
shall resort be had to the private property of any of the Trustees,
Shareholders, Advisor, officers, employees or agents of the Fund, but the Fund
Property or a specific portion thereof only shall be bound, and may contain any
further recital which the Trustees deem appropriate but the omission of such
recital shall not operate to impose personal liability on any of the Trustees,
Shareholders, Advisor, officers, employees or agents of the Fund. The Trustees
shall, at all times, maintain insurance for the protection of the Fund Property,
the Trustees, the Advisor, officers, employees and agents of the Fund in such
amount as the Trustees shall deem adequate to cover all foreseeable tort
liability to the extent such insurance is available at reasonable rates.
ARTICLE VI
Shares and Other Securities
Section 6.1. Description of Shares. The interests of the Shareholders
hereunder shall be divided into Shares, all of one class. The number of Shares
authorized hereunder for issuance by the Trustees shall be unlimited. Ownership
of Shares may be evidenced by certificates. All Shares shall have equal
non-cumulative voting, distribution, liquidation and other rights, shall be
fully paid and non-assessable upon issuance and shall have no preference,
conversion, exchange or pre-emptive rights.
Section 6.2. Certificates. Every Shareholder shall be entitled to receive
a certificate, provided, however, that the physical issuance and delivery of a
certificate to a Shareholder shall not be required except by written request of
the Shareholder. Certificates shall be in such form as the Trustees shall from
time to time approve, specifying the number of Shares held by such Shareholder.
Certificates shall be entitled "Certificate of Steadman Security Trust." No
change shall be made in the certificates which would impair any rights of the
Shareholders in certificates theretofore outstanding. Unless otherwise
determined by the Trustees, such certificates shall be signed by the Chairman of
the Trustees or the President and the Secretary of the Fund. Such signatures
may be facsimile signatures. There shall be filed with the transfer agent a
copy of the form of certificate so approved by the Trustees, certified by the
Chairman, the President or the Secretary, and such form shall continue to be
used unless and until the Trustees approve some other form.
Section 6.3. Issuance of Securities. The Trustees in their discretion may
from time to time, without vote of the Shareholders, issue Securities of the
Fund in addition to the then issued 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
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assets, real, personal or mixed tangible or intangible, and no prior offering
thereof to any of the holders of Securities of the Fund need be made.
Section 6.4. Pooling of Funds. The Shareholders authorize the pooling
and/or commingling of funds and investments in the manner herein provided and
agree that their sole interest shall be in their proportionate share of the Fund
Property. The Fund shall determine the
proportionate share of each Shareholder in the fund as herein provided.
ARTICLE VII
Record and Transfer of Shares
Section 7.1. Share Register; Holders of Record. A register shall be kept
by or on behalf of the Trustees, under the direction of the Trustees, which
shall contain the names and addresses of the Shareholders and the number of
Shares held by them respectively, and the numbers of the certificates, if any,
representing such Shares and a record of all transfers thereof. Only
Shareholders whose Shares are recorded on such register shall be entitled to
vote or to receive distributions or otherwise to exercise or enjoy the rights of
Shareholders, all subject to the provisions of Section 9.4. No shareholders
shall be entitled to receive any distribution or to have notice given to him as
provided herein until he has given his address to a transfer agent or such other
officer or agent of the Fund as shall keep the register for entry thereon.
Section 7.2. Transfer Agent. The Trustees shall employ Steadman Security
Corporation ("SSC") as transfer and dividend disbursing agent ("Agent") upon
such terms and conditions as the Trustees in their judgment may deem to be
suitable and shall pay to the Agent such fees and expenses for such services as
the Trustees determine to be appropriate in addition to fees and expenses paid
to the Advisor for any other services it performs. The Agent may keep the
register and record therein the original issues and transfers of Shares and
countersign certificates for Shares issued to the persons entitled thereto. The
Agent shall perform the duties usually performed by transfer agents and
registrars of certificates of stock in a corporation except as modified by the
Trustees. If SSC declines or is unable to provide this service, the Trustees
shall employ another organization.
Section 7.3. Blank Certificates. In accordance with the usual custom of
corporations having a transfer agent, signed certificates for Shares in blank
may be deposited with any transfer agent of the Fund, to be used by such
transfer agent in accordance with authority, conferred upon it as occasion may
require, and in so doing the signers of such certificates shall not be
responsible for any loss resulting therefrom.
Section 7.4. Change of Holder of Record. Any person becoming entitled to
any Shares in consequence of the death, bankruptcy or insolvency of any
Shareholder or otherwise by operation of law shall be recorded as the holder of
record upon production of such proper evidence of ownership as the Fund or its
transfer agent may prescribe and delivery of any existing certificate to the
Trustees or the transfer agent of the Fund. Until this condition immediately
foregoing is
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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 communication shall be deemed duly served or given if
mailed, postage prepaid, addressed to Shareholders of record at their last known
post office addresses as recorded on the Share register provided for in Section
7.1.
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Section 7.8. Replacement of Certificates. In case of the loss,
mutilation or destruction of any certificate for Shares hereunder, the Trustees
may issue or cause to be issued a new certificate on such terms as they may deem
fit.
Section 7.9. Designation of Beneficiary. A Shareholder may at any
time designate as beneficiary any person or persons (hereinafter called the
"Beneficiary") whose interest in the Fund shall be contingent upon such
beneficiary or beneficiaries surviving such Shareholder, and whose interests may
at any time be revoked by the Shareholder without the consent of such
Beneficiary by notice in writing to the Trustees.
The transfer by a Shareholder of his interest or any part thereof in the
Fund shall operate to revoke any prior designation of any Beneficiary to the
extent of such transfer.
Such designation shall be in a 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. 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
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$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 seven
days.
ARTICLE IX
Shareholders
Section 9.1. Special Meetings. (a) Special meetings of' the Shareholders
shall be called when required by applicable laws or regulations and may be
called at any time by a majority of the Trustees, and shall be called by the
Chairman upon written request of Shareholders holding in the aggregate not less
than 90% of the outstanding Shares having voting rights. Any such request shall
specify the purpose or purposes for which such meeting is to be called. No
other business not stated in the notice of the meeting shall be considered at
such meeting. Any such meeting shall be held in the District of Columbia or in
such other place within or without the District of Columbia as the Chairman
shall designate.
(b) Quorum. The holders of 33% of the outstanding shares present in person
or by proxy shall constitute a quorum at any meeting except as may be otherwise
required by the Act or by applicable law.
Section 9.2. Notice of Meetings. Notice of all meetings of the
Shareholders, stating the time, place and purposes of the meeting, shall be
given by the Trustees by mail to each Shareholder at his registered address
mailed at least 10 days and not more than 60 days before the meeting. Any
adjourned meeting may be held as adjourned without further notice.
Section 9.3. Voting Rights of Shareholders. The Shareholders shall be
entitled to vote only upon (a) election of Trustees as provided in Sections 10.1
and 10.2; (b) removal and election of Trustees as provided in Sections 10.3 and
10.4; (c) amendment of this Instrument or termination of the Fund as provided in
Section 12.1; (d) termination as provided in Section 3.2 of any agreement
entered into pursuant to Section 3.1; (e) upon such other matters as may be
required by the Act; and (f) to the same extent as the shareholders of a
business corporation, as to whether or not a court action, proceeding or claim
should be brought or maintained derivatively or as a class action on behalf of
the Fund or its Shareholders. Except with respect to the foregoing matters
specified in this Section, on which the specified Shareholders' vote shall
determine the Trustees' action, no action taken by the Shareholders at any
meeting shall in any way bind the Trustees.
Each Shareholder entitled to vote in accordance with this Instrument shall
be entitled to one vote for each full Share outstanding, and entitled to vote
held by such Shareholder. Fractional Shares shall not be entitled to vote.
When a quorum is present at any meeting of Shareholders, the vote of the holders
of a majority of the Shares entitled to vote present in person or by proxy at
such meeting shall decide any question upon which Shareholders are entitled to
vote, except as expressly provided otherwise in this Instrument.
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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 thereat 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 (30) days nor more than sixty (60) days prior to the date
of any such meeting; provided, however, that if less than forty (40) days notice
of the meeting is given to Shareholders, such written notice shall be delivered
or mailed, as prescribed, to the Secretary of the Fund not later than the close
of business on the tenth day following the day on which notice of the meeting
was mailed to Shareholders. Each such notice given by a Shareholder with
respect to nominations for the election of Trustees shall set forth (i) the
name, age, business address and, if known, residence address of each nominee
proposed in such notice; (ii) the principal occupation or employment of each
such nominee; and (iii) the number of the Fund Shares which are beneficially
owned by each such nominee. In addition, the Shareholder making such nomination
shall promptly provide any other information reasonably requested by the Fund.
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(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 (30) days or more thereafter.
This provision shall not require the holding of any adjourned or special meeting
of Shareholders for the purpose of considering such defective nomination or
proposal.
ARTICLE X
Trustees
Section 10.1. Number and Qualification. The number of Trustees shall
not be less than one (1) nor more than fifteen (15). No reduction in the number
of Trustees shall have the effect of removing any Trustee from office prior to
the expiration of his term. A Trustee shall be an individual at least 21 years
of age who is not under legal disability. Trustees may, but need not, own
shares or other securities of the Fund. The Trustees, in their capacity as
Trustees, shall not be required to devote any specific portion of their time to
the business and affairs of the Fund.
Section 10.2. Terms of Office: Election. The Trustees shall be chosen
for a term of unlimited duration. Trustees shall hold office until their
successors shall be elected and qualified, provided that the term of office of a
Trustee shall terminate and a vacancy shall occur in the event of the death,
resignation, bankruptcy, adjudicated incompetence or other incapacity to
exercise the duties of the office or the removal of a trustee. Election of
Trustees at shareholder meetings shall be by the affirmative vote of the holders
of at least a majority of the Shares present in person or by proxy at such
meetings. The election of any Trustee other than an individual who was serving
as a Trustee immediately prior to such elections pursuant to this Section shall
not become effective unless and until such person shall have in writing accepted
his election and agreed to be bound by the terms of this Instrument. There
shall be no cumulative voting by Shareholders in the election of Trustees of the
Fund.
Section 10.3. Resignation and Removal. Any Trustee may resign his
trust (without need for prior or subsequent accounting) by an instrument in
writing signed by him and delivered or mailed to the Chairman of the Trustees,
the President or the Secretary of the Fund, and such
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resignation shall be effective upon such delivery or at a later date according
to the terms of such instrument. Any or all of the Trustees may be removed,
with or without cause, by action of 90% of the remaining Trustees at a meeting
duly called. No natural person shall serve as Trustee after the holders of
record of not less than two-thirds of the outstanding shares of the Fund have
declared that he be removed from that office either by declaration, in writing,
filed with the custodian of the securities of the Fund or by votes cast in
person or by proxy at a meeting called for that purpose. The Trustees will
promptly call a meeting of shareholders for the purpose of voting upon the
question of removal of any such Trustee or Trustees when requested to do so by
the record holders of not less than 10% of the outstanding shares. Upon the
resignation or removal of a Trustee, or his otherwise ceasing to be a Trustee,
he shall execute and deliver such documents as the remaining Trustees shall
require for the purpose of conveying to the Fund or the remaining Trustees any
Fund Property held in the name of the resigning or removed Trustee, and by the
acceptance of his appointment or election as Trustee he shall delegate to any
other of the Trustees his power of attorney to execute such documents on his
behalf. Upon the incapacity or death of any Trustee, his legal representative
shall execute and deliver on his behalf such documents as the remaining Trustees
shall require as provided in the preceding sentence.
Section 10.4. Vacancies. Whenever a vacancy shall occur, until such
vacancy is filled the Trustees or Trustee continuing in office, regardless of
their number, shall have all the powers granted to the Trustees and shall
discharge all the duties imposed upon the Trustees by this Instrument. No such
vacancy shall operate to annul or terminate this Instrument or to revoke any
existing agency created pursuant to the terms of this Instrument, and title to
any Fund Property held in the name of any Trustee alone, jointly with one or
more of the other Trustees or otherwise, shall, in the event of the death,
resignation, bankruptcy, adjudicated incompetence or other incapacity to
exercise the duties of the office or the removal of such Trustee vest in the
continuing or surviving Trustees without necessity of any further act or
conveyance.
In the case of any vacancy occurring other than by reason of increase
in the number of Trustees, the holders of at least a majority of the Shares
present in person or by proxy at a meeting of Shareholders or a majority of the
Trustees continuing in office acting in a meeting of Trustees or by written
instrument or instruments, may elect or appoint an individual having the
qualifications described in Section 10.1 to fill such vacancy. In the case of
any vacancy created by an increase in the number of Trustees, a majority of the
Trustees continuing in office acting in a meeting of Trustees or by written
instrument or instruments may appoint an individual having the qualifications
described in Section 10.1 to fill such vacancy. Upon the effectiveness of any
election or appointment made as provided in this Section, the Fund Property
shall vest in such new Trustee jointly with the continuing or surviving Trustees
without the necessity of any further act or conveyance, provided that no such
election or appointment shall become effective unless or until the new Trustee
shall have accepted, in writing, his election or appointment and agreed to be
bound by the terms of this Instrument.
Section 10.5. Meetings. Meetings of the Trustees shall be held from time
to time, either within or without the District of Columbia, upon the call of the
Chairman of the Trustees, the
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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 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.
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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.
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:
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(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 they 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.
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
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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.
Section 13.5. Not In Derogation of Existing Rights. Nothing herein
shall operate in derogation of any substantive rights, privileges, duties or
liabilities with respect to the Shares issued and outstanding prior to the
Effective Date of this Instrument.
Section 13.6. Section Headings. Section headings have been inserted
for convenience only and are not a part of this Instrument.
ARTICLE XIV
Effective Date and Duration of Trust and Fund
Section 14.1. Effective Date. This Instrument and the Trust herein
shall become effective immediately upon the affirmative vote of not less than
two-thirds of a majority of the Shares then outstanding, and entitled to vote as
required by the Act and upon the signing of a certificate by the Chairman or
Secretary setting forth the fact of such affirmative vote and the date thereof
which date shall be the "Effective Date."
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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, restatements, 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, and amended as of the 16th day of October, 1997, by and among
Steadman Associated Fund, a common law trust organized under the laws of the
District of Columbia ("Fund") and Steadman Investment Fund, Steadman American
Industry Fund and Steadman Technology and Growth Fund, each of which is a common
law trust organized under the laws of the District of Columbia (collectively,
the "Other Funds"). Upon completion of the transactions set forth in this
Agreement, the Steadman Associated Fund will change its name to the Steadman
Security Trust ("Fund").
The reorganizations ("Reorganizations") will consist of the mergers of the
Other Funds with and into the Fund ("Merger") and the issuance by the Fund in
each transaction of shares of beneficial interest ("shares") of the Fund to be
distributed contemporaneously with the Closing Date (as defined in Section 3.1
below), to the shareholders of the Other Funds as provided herein, all upon the
terms and conditions hereinafter set forth in this Agreement.
In consideration of the premises and of the covenants and agreements
hereinafter set forth, the parties hereto covenant and agree as follows:
I. THE REORGANIZATIONS OF THE OTHER FUNDS
1.1 Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, on the Closing Date,
each of the Other Funds will merge with and into the Fund, and the Fund, as the
survivor of the Merger, will in exchange therefor on the Closing Date as set
forth in paragraph 3.1 issue to the shareholders of the Other Funds the number
of shares of the Fund determined by dividing the value of each of the Other
Funds shares computed in the manner and as of the time and date set forth in
paragraph 2.1, by the net asset value per share of the Fund, computed in the
manner and as of the time and date set forth in paragraph 2.2. Such transactions
shall take place at the closing provided for in paragraph 3.1 ("Closing").
1.2 Copies of all books and records of or pertaining to the Other Funds,
including those in connection with its obligations under the Investment Company
Act of 1940, as amended (the "1940 Act"), the Code, state blue sky laws or
otherwise in connection with this Agreement, will promptly after the Closing be
delivered to officers of the Fund or their designee. The Fund and its advisor,
Steadman Security Corporation ("Steadman") shall have access to such books and
records upon reasonable request during normal business hours.
<PAGE>
2. THE CALCULATION
2.1 The net asset value of each of the Other Funds 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 Funds trust indenture.
2.2 The net asset value of each share of the Fund shall be the net asset
value per share computed on the Valuation Date, using the valuation procedures
set forth in the Fund's Trust Indenture.
2.3 The Fund shall effectuate a reverse split of each share of the Fund
which is issued and outstanding on the Valuation Date so that for each ten Fund
shares issued and outstanding shall be issued one Fund share.
2.4 All computations of value shall be made by Steadman in accordance with
its regular practice in pricing the Fund and the Other Funds. The Fund shall
cause Steadman to deliver to the Fund and the Other Funds a copy of its
valuation reports at the Closing.
2.5 The number of Fund shares to be issued hereunder shall be determined
by dividing the net asset value of each of the shares of the Other Funds
determined in accordance with paragraph 2.1 by the net asset value of a Fund
share determined in accordance with paragraph 2.2 as adjusted to reflect the
reverse stock split of the Fund shares effectuated pursuant to paragraph 2.3.
Fractional shares shall be issued, however, for those shareholders that would
receive less then one share after consummation of the Merger and the reverse
stock split, the net asset value of any such fractional shares which would
otherwise 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 October 16, 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
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<PAGE>
of the surviving fund, and shall continue in full force and effect until further
amended and changed in the manner prescribed therein.
3.3 The Trustees in office of the Fund at the Closing Date shall be the
Trustees of the surviving fund.
3.4 Each issued share of a terminating fund shall, at the Closing Date, be
converted into shares of the surviving fund. The issued shares of the Fund
shall not be converted or exchanged in any manner, but each such share which is
issued and outstanding as of Closing Date shall continue to represent one issued
share of the surviving Fund.
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.
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<PAGE>
5.1 The Fund will operate its business in the ordinary course between the
date hereof and the Closing Date.
5.2 The Fund has prepared and filed with the Securities and Exchange
Commission ("Commission") a registration statement on Form N-14 under the
Securities Act of 1933, as amended ("1933 Act"), and will prepare and file with
the Commission any amendments thereto, relating to the Fund shares to be issued
to the Other Funds Shareholders pursuant to the Merger ("Registration
Statement"). The Other Funds will provide the Fund with the Proxy Materials as
described in paragraph 5.3 below, for inclusion in the Registration Statement.
The Other Funds will further provide the Fund with such other information and
documents relating to the Other Funds as are reasonably necessary for the
preparation of the Registration Statement.
5.3 The Fund and the Other Funds will call a meeting of their shareholders
to consider and act upon the Merger, including this Agreement, and take all
other action necessary to obtain approval of the transactions contemplated
herein. The Fund and the Other Funds will prepare, with such assistance from
each other as may be mutually agreed to, the notice of meeting, form of proxy
and proxy statement and prospectus (collectively "Proxy Materials") to be used
in connection with such meetings provided that the Fund will furnish the Other
Funds with a current effective prospectus relating to the Fund shares for
inclusion in the Proxy Materials and with such other information relating to the
Fund as is reasonably necessary for the preparation of the Proxy Materials. The
Fund will include in its Proxy Materials for approval by its shareholders the
change of the name of the Fund to the Steadman Security Trust and the change in
its fundamental investment policy from primarily capital growth and secondarily
current income to primarily current income and secondarily to maximize total
return.
5.4 Prior to the Closing Date, the Other Funds will assist the Fund in
obtaining such information as the Fund reasonably requests concerning the
beneficial ownership of the shares of the Other Funds.
5.5 Subject to the provisions of this Agreement, the Fund and the Other
Funds will each take, or cause to be taken, all action, and do or cause to be
done, all things reasonably necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement.
5.6 As promptly as practicable after the Closing Date, the Other Funds
shall furnish or cause to be furnished to the Fund, such information as the Fund
reasonably requests to enable the Fund to determine the Other Funds gains or
losses resulting from the Reorganizations for federal income tax purposes and
such other tax information that the Fund may reasonably request.
5.7 As promptly as practicable after the Closing Date, the Other Funds
shall prepare and file all federal and other tax returns and reports of the
Other Funds required by law to be filed with respect to all periods ending
through and after the Closing Date but not theretofore filed.
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<PAGE>
5.8 The Fund agrees to use all reasonable efforts to obtain the approvals
and authorizations required by the 1933 Act, the 1940 Act and such of the state
Blue Sky and securities laws as it may deem appropriate in order to continue its
operations after the Closing Date.
6. REPRESENTATIONS AND WARRANTIES
6.1 The Fund represents and warrants to the Other Funds as follows:
(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 Fund 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.
-5-
<PAGE>
(g) No material litigation or administrative proceeding or investigation
of or before any court or governmental body is presently pending or, to its
knowledge, threatened against the Fund or any of its properties or assets,
except as previously disclosed in writing to the Other Funds. The Fund
knows of no facts that might form the basis for the institution of such
proceedings and is not a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body which
materially and adversely affects, or is reasonably likely to materially and
adversely affect, its business or its ability to consummate the
transactions contemplated herein.
(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
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<PAGE>
net asset value per share of the Fund nor the redemption of Fund shares by
Fund shareholders, shall constitute a material adverse change.
(m) All material Federal and other tax returns and reports of the Fund
required by law to have been filed, have been filed, and all Federal and
other taxes shown as due or required to be shown as due on said returns and
reports have been paid or provision has been made for the payment thereof,
and to the best of the Fund's knowledge no such return is currently under
audit and no assessment has been asserted with respect to such returns.
(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 Funds
as follows:
(a) Each of the Other Funds is a common law trust, 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.
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<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 trust indenture 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.
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<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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<PAGE>
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
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<PAGE>
there will be no such claims or inquiries as of the Closing Date other than
as disclosed by Steadman in writing to the 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's 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's 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 the Other Funds to consummate the transactions provided
for herein shall be subject, at its election, to the performance by the 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.
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7.2 The Fund shall have delivered to the Other Funds a certificate
executed in the Fund's name by the 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 approve the Merger.
7.4 Each of the Fund and Other Funds shall have received a favorable
opinion from Manatt, Phelps & Phillips, LLP, counsel to the Fund and the Other
Funds, dated as of the Closing Date, covering the following points:
That (a) Fund and each of the Other Funds are common law trusts organized
and existing under the laws of the District of Columbia, and each has the
power to own all of its properties and assets and to carry on its business
as presently conducted; (b) The Fund is a duly registered, open-end,
management investment company and, to the knowledge of such counsel, its
registration with the Commission as an investment company under the 1940
Act is in full force and effect; (c) this Agreement has been duly
authorized, executed and delivered by the Fund and the Other Funds, and
assuming due authorization, execution and delivery of this Agreement by the
Fund and the Other Funds, including approval by the shareholders of the
Fund and the Other Funds Shareholders, is a valid and binding obligation of
the Fund and the Other Funds enforceable against the Fund and the Other
Funds in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws relating
to or affecting creditors' rights and to general equity principles; (d) the
Fund 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' trust indentures 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 each is 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 each is bound; (f) to the knowledge of
such counsel, no consent, approval, authorization or order of any court or
governmental authority of the United States or any state is required for
the consummation by the Fund or the Other Funds of the transactions
contemplated herein, except such as have been obtained under the 1933 Act ,
the Securities Exchange Act of 1934, as amended (the "1934 Act") and the
1940 Act and such as may be required under state securities laws; (g) as
they relate to the Fund or the Other Funds, as the case may be, the
descriptions in the Proxy Materials of statutes, legal and
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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 their 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.
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 their liabilities, together with a list of Other Funds'
securities and other assets showing the respective adjusted bases and holding
periods thereof for income tax purposes, as of the Closing Date, certified by
the President of each of the Other Funds.
8.3 The Other Funds shall have delivered to the Fund at the Closing a
certificate executed in Other Funds' name by the President or Vice President and
the Treasurer or Secretary of Other Funds, in form and substance satisfactory to
the Fund and dated as of the Closing Date, to the
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effect that the representations and warranties of the Other Funds, on behalf of
the Other Funds, made in this Agreement are true and correct at and as of the
Closing Date, except as they may be affected by the transactions contemplated by
this Agreement, that the Other Funds Shareholders have voted to approve the
Merger, and as to such other matters as Fund shall 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 the Fund, pursuant to
paragraph 6.2(g), copies of the most recent financial statements of the Other
Funds certified by an independent public accountant.
8.7 On the Closing Date, the Other Funds Assets shall include no assets
that the Fund, by reason of charter limitations or otherwise, may not properly
acquire.
8.8 All actions taken by the Other Funds in connection with the
transactions contemplated by the Agreement and all documents incidental thereto
shall be reasonably satisfactory in form and substance to the Fund and its
counsel.
8.9 The filing of the Registration Statement shall have been approved by
the Trustees of the Fund.
9. FURTHER CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE FUND AND THE OTHER
FUNDS.
The obligations of the Other Funds and the Fund hereunder are each subject
to the further conditions that on or before the Closing Date:
9.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
the Fund and the Other Funds and
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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 an opinion from Manatt, Phelps &
Phillips, LLP, based upon such representations as such firm shall reasonably
request, addressed to the Fund and the Other Funds, regarding the material
federal income tax aspects of the Reorganizations in form and content reasonably
acceptable to the Fund and the Other Funds.
10. BROKERAGE FEES AND EXPENSES
10.1 The Fund and the Other Funds each represents and warrants to the
other that there are no brokers or finders entitled to receive any payments in
connection with the transactions provided for herein.
10.2 The Fund and each of the Other Funds shall bear the expenses incurred
in connection with entering into and carrying out the provisions of this
Agreement, on a pro-rata basis based upon net asset value at the Valuation Date
(all of which expenses shall be deducted from the respective funds net assets
values as of such date) including legal, accounting and Commission registration
fees and Blue Sky expenses.
11. ENTIRE AGREEMENT: SURVIVAL OF WARRANTIES
11.1 The Fund and the Other Funds agree that no party has made any
representation, warranty or covenant not set forth herein and that this
Agreement constitutes the entire agreement between the parties.
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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 December 31, 1997; or
(b) by either the Fund or the Other Funds, in writing without liability of
the terminating party on account of such termination (provided the
terminating party is not otherwise in material default or breach of the
Agreement), if (i) the other party shall fail to perform in any material
respect its agreements contained herein required to be performed on or
prior to the Closing Date, (ii) the Fund or the Other Funds, respectively,
materially breaches or shall have breached any of its representations,
warranties or covenants contained herein, (iii) the Fund shareholders or
the Other Funds Shareholders fail to approve the Agreement, or (iv) any
other condition herein expressed to be precedent to the obligations of the
terminating party has not been met and it reasonably appears that it will
not or cannot be met.
12.2 (a) Termination of this Agreement pursuant to paragraphs 12.1(a)
shall terminate all obligations of the parties hereunder and there shall be
no liability for damages on the part of the Fund or the Other Funds or the
trustees, directors or officers of the Fund or the Other Funds to any other
party or its trustees, directors or officers.
(b) Termination of this Agreement pursuant to paragraph 12.1(b) shall
terminate all obligations of the parties hereunder and there shall be no
liability for damages on the part of the Fund, the Other Funds or Steadman
to any other party or its trustees, directors or officers, except that any
party in breach of this Agreement shall, upon demand, reimburse the
non-breaching party or parties for all reasonable out-of-pocket fees and
expenses incurred in connection with the transactions contemplated by this
Agreement, including legal, accounting and filing fees.
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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 the
Other Funds to perform or comply with any of their 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
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(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.
20006, with a copy to Steadman at 1730 K Street, N.W., Suite 904, Washington,
D.C. 20006, 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
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shall be construed to confer upon or give any person, firm or corporation, other
than the parties hereto and their respective successors and assigns, any rights
or remedies under or by reason of this Agreement.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its duly authorized officer.
STEADMAN SECURITY TRUST
(formerly Steadman Associated Fund)
By: /s/ Charles W. Steadman
-----------------------
Charles W. Steadman
Chairman and President
STEADMAN SECURITY CORPORATION
By: /s/ Charles W. Steadman
-----------------------
Charles W. Steadman
Chairman and President
STEADMAN INVESTMENT FUND
By: /s/ Charles W. Steadman
-----------------------
Charles W. Steadman
Chairman and President
STEADMAN AMERICAN INDUSTRY FUND
By: /s/ Charles W. Steadman
-----------------------
Charles W. Steadman
Chairman and President
STEADMAN TECHNOLOGY AND
GROWTH FUND
By: /s/ Charles W. Steadman
-----------------------
Charles W. Steadman
Chairman and President
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EXHIBIT 12.2
Consent of Coopers & Lybrand L.L.P.
<PAGE>
[LETTERHEAD OF COOPERS & LYBRAND]
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of
Steadman Associated Fund
We consent to the inclusion in this Registration Statement of Steadman
Associated Fund on Form N-14 (File No. 333-20889) of our reports dated July 29,
1996 for Steadman American Industry Fund, Steadman Investment Fund and Steadman
Technology and Growth Fund and August 6, 1996 for Steadman Associated Fund, on
our audits of the statement of changes in net assets and financial highlights of
Steadman Associated Fund, Steadman American Industry Fund, Steadman Investment
Fund and Steadman Technology and Growth Fund, which are included in the
Registration Statement. We also consent to the reference to our firm under the
caption "Condensed Financial Information of the Funds".
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
October 30, 1997
<PAGE>
EXHIBIT 12.3
Consent of Reznick Fedder & Silverman, P.C.
<PAGE>
[LETTERHEAD OF REZNICK FEDDER & SILVERMAN, P.C.]
Consent of Independent Accountants
We hereby consent to the incorporation by reference in this post-effective
Amendment No. 1 Registration Statement on Form N-14 (File No. 333-20889) of our
reports dated July 25, 1997, related to the financial statements and financial
highlights of Steadman American Industry Fund, Steadman Associated Fund,
Steadman Investment Fund and Steadman Technology and Growth Fund as of June 30,
1997 and for the year then ended.
/S/ REZNICK FEDDER & SILVERMAN, P.C.
Bethesda, Maryland
October 29, 1997
