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As Filed with the Securities and Exchange Commission
Registration No.
File No. 811-747
United States
Securities and Exchange Commission
Washington, D.C. 20549
Form N-1A
Registration Statement Under the Securities Act of 1933
Pre-Effective Amendment No. ____________
Post-Effective Amendment No. ____________
and/or
Registration Statement Under the Investment Company Act of 1940
Amendment No. 12
Steadman InvestmentFund
1730 K Street N.W., Washington, D.C. 20006
Telephone: (202) 223-1000
Charles W. Steadman, 1730 K Street N.W., Washington D.C. 20006
______________________________________________________________
Name and Address of Agent for Service
This conforming paper document is being submitted pursuant
to Rule 901(d) of Regulation S-T.
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STEADMAN INVESTMENT FUND
1730 K STREET, N.W., WASHINGTON, D.C. 20006
1-800-424-8570 202-223-1000
PART A
INFORMATION REQUIRED IN A PROSPECTUS
THE FUND
The Steadman Investment Fund (the "Fund") is a no-load, non-
diversified, registered, open-end investment company 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 the Trust Indenture
approved by shareholders on May 11, 1979. Shares of the Fund are continuously
offered at net asset value without the imposition of a sales charge and may be
redeemed at their net asset value, except during the occurrence of certain
extraordinary events. See "Redemption of Fund Shares".
INVESTMENT POLICIES, OBJECTIVES AND TECHNIQUES
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. The fund may also make substantial
temporary defensive investments in debt securities and money market instruments
when market conditions warrant, such as when a severe downturn in the stock
market is anticipated. There can be no assurance that the Fund's investment
objective will be attained. In seeking to achieve its objective the Fund may
use the following investment vehicles, without limitation:
* Common stocks of issuers of all kinds.
* Preferred stocks, warrants, and convertible
securities.
* Corporate bonds and debentures and debt securities issued or
guaranteed by the U.S. government or its agencies or instrumentalities ("U.S.
government securities).
* Money market instruments, including but not limited to
commercial paper, bank certificates of deposits, and U.S. government securities.
In choosing portfolio investments, the Fund is not restricted to any
particular criteria or quality standards. With respect to equity investments,
the Fund's investment adviser generally looks for issuers that show growth
potential, based on
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fundamental analysis of the relevant industries and the issuers' financial
position. In selecting debt instruments (other than short-term debt for defense
purposes), the adviser considers interest rate movements and generally chooses
investment grade instruments the yield of which exceeds that of short-term U.S.
Treasury securities.
The 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 of real estate and
related loans, borrowing to increase investment funds, and lending portfolio
securities. For a discussion of certain characteristics and risks of these
vehicles and techniques and a discussion specifying the circumstances under
which the Fund will concentrate its investments in one or more industries,
please refer to the Appendix to this prospectus (the "Appendix") and to the
Statement of Additional Information. The fund may invest in these instruments
and use these techniques without limit, except as expressly stated in the
Appendix.
The effect of such techniques can produce portfolio turnover rates of
100% or more and increase the Fund's brokerage costs.
The Fund's investment objective may be changed without shareholder
approval.
PURCHASE OF FUND SHARES*
Fund shares may be purchased at net asset value without payment of any
sales charge or commission when purchases are made directly from the Fund.
Shares may also be purchased through registered broker-dealers, who may charge a
transaction fee.
To make an initial investment and open an account, complete the
attached investment application and forward it with a check for $1,000 or more,
made payable to Steadman Investment Fund, 1730 K Street, N.W., Washington, D.C.
20006. Initial investments of less than $1,000 will not be accepted.
Investments received prior to the closing of the New York Stock
Exchange (currently 4:00 p.m. New York time) will be credited at the net asset
value determined at the close of the Exchange on that day. Investments received
after closing will be credited at the net asset value on the next subsequent
closing of the Exchange.
*The Fund has not accepted new subscriptions for its shares since May 1988 and
is not currently offering its shares.
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After an account has been established a confirmation will be issued
indicating the amount invested, the number of shares purchased, and the purchase
price (net asset value). The confirmation will include a deposit stub which may
be used to make an additional investment of $100 or more at any time by
completing the form and mailing it with a check in the appropriate amount.
Additional investments of less than $100 will not be accepted.
Stock certificates for shares are ordinarily not issued, as they are
not necessary and complicate redemption. They will, however, be issued upon
written request.
All investments are subject to our acceptance. The Fund may decline to
accept an investment when in the judgment of the Fund's investment adviser, the
acceptance of such investment would not be in the best interests of existing
Fund shareholders. This determination is made immediately upon receipt of the
purchase order and the purchaser's check is returned immediately after this
determination is made.
Unless an election to the contrary is made in writing to the Fund at
1730 K Street, N.W., Washington, D. C. 20006, all income dividends and all
capital gain distributions payable on shares of the Fund will be reinvested in
additional shares at the net asset value in effect on the dividend or
distribution record date. The Fund's investment adviser, Steadman Security
Corporation ("SSC"), is the agent to reinvest dividends and distributions in
additional shares. A change of election may be made at any time as to whether or
not to receive dividends and distributions in cash or have them reinvested in
additional shares. Such changes of election apply to dividends and
distributions, the record dates of which fall on or after the date that the Fund
receives such change of election.
SYSTEMATIC WITHDRAWAL PLAN
The Fund has a Systematic Withdrawal Plan under which shareholders who
own at least $5,000 (at current net asset value) worth of the Fund, may receive
a fixed distribution amount at monthly intervals. Information about
participation in this plan may be obtained by writing the fund at the address
shown on the cover of this Prospectus, or by telephoning the Fund at
1-(800)-424-8570.
SHAREHOLDER RETIREMENT PLANS
Taxes on current income can be deferred by investing in Keogh Plans,
Individual Retirement Accounts (IRAs), Simplified Employee Pensions (SEPs),
401(k), pension, profit-sharing, employee benefit, deferred compensation and
other qualified retirement plans. The federal tax law governing these tax-
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deferred retirement plans must be complied with to avoid adverse tax
consequences.
The Fund is available for your tax-deferred retirement plan with no
minimum investment requirements for initial or additional contributions. Such
retirement plans must have a qualified plan sponsor or trustee. The Adviser
sponsors prototype 401(k), profit sharing, and money purchase plans as well as
IRA, SEP-IRA and Keogh plans. You should contact the Adviser for specific plan
documentation and any additional information you may require. You should also
consult your tax adviser before investing.
REDEMPTION OF FUND SHARES
Money may be withdrawn from an account at any time by following the
procedures set forth herein. Shares will be redeemed at the net asset value next
calculated after the request has been received and in good order and the
proceeds are paid by check within seven days after receipt of a redemption
request.
Accounts without share certificates - A signed request (all joint
owners must sign) stating the amount to be withdrawn must be made to Steadman
Security Corporation, 1730 K Street, N.W., Washington, D. C. 20006. For amounts
over $1,000 it will be necessary to obtain a "signature guarantee" from a
commercial bank or trust company. Signature guarantees shall be accepted from
all eligible guarantor institutions, which include domestic banks, brokers,
dealers, credit unions, national securities exchanges, registered securities
associations, clearing agencies and savings associations.
Instant Liquidity (by telephone) - Any amount may be withdrawn by
telephone by calling 1-(800)-424-8570 on any business day if telephone
withdrawals have been previously authorized on the Investment Application.
Telephone instructions from any person representing himself or herself to be you
or your representative, and believed by Steadman Security Corporation, as
Transfer Agent for the Fund, to be genuine will be acted upon. The Fund or the
Transfer Agent will not be liable for following unauthorized instructions
communicated by telephone that they reasonably believe to be genuine. The Fund
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if it does not, it may be liable for any losses due
to unauthorized or fraudulent instructions. Under these procedures, the Fund
will require personal identification prior to acting upon instructions received
by telephone and will provide prompt written confirmation of these transactions.
During times of drastic economic or market conditions, you may
experience difficulty in contacting the Fund by
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telephone. In such cases, you should consider using the other redemption
procedure described above, which may result in your redemption request being
processed at a later time than if your request had been made by telephone. The
Fund will not terminate its policy permitting telephone redemptions without 30
days notice to participating shareholders.
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 Steadman
Security Corporation, 1730 K Street, N.W., Washington, D. C. 20006.
Requests for redemption by corporations, executors,
administrators,trustees or guardians may require further documentation. Such
documentation is to be mailed to Steadman Security Corporation, 1730 K Street,
N.W., Washington, D.C. 20006.
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 SEC or
such Exchange is closed for other than weekends and holidays: or (b) as
permitted by the SEC.
For cost reasons we may close an account upon 30 days written notice
when the net asset value of the shares in an account is less than $100 as a
result of redemptions. Involuntary redemption may be avoided if additional funds
are added to the account during the 30-day period.
INCOME, DIVIDEND AND CAPITAL GAINS DISTRIBUTIONS
TAX CONSIDERATIONS
The Fund does not intend to qualify as a regulated investment company
("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended(the
"Code") for the fiscal year
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ending June 30, 1996.* Investors should consult their personal tax advisers
regarding an investment in the Fund and the Fund's intention not to so qualify.
For any non-qualifying taxable year, the Fund will be subject to federal income
tax on its net realized capital gains in excess of its remaining capital loss
carryforwards, if any, and on its ordinary income in excess of net operating
loss carryforwards, if any.
The Fund has net operating loss carryforwards approximating $1,570,000
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 and (2010) $46,000.
Capital loss carryforwards aggregating approximately $438,000 are available to
offset future capital gains, if any, expiring as follows: (1999) $195,000 and
(2000) $ 243,000.
Dividend distributions by the Fund, if any, will be taxable to a U.S.
shareholder as ordinary income to the extent of the Fund's current and
accumulated earnings and profits, whether paid in cash or in shares. For any
non-qualifying year, the Fund may also be subject to the federal accumulated
earnings tax (the "AET"). The AET is a 39.6 percent tax imposed on a
corporation's accumulated taxable income (the "ATI"), and is in addition to the
regular federal income tax. The ATI would be the Fund's taxable income adjusted
for specific items and reduced by the accumulated earnings credit (the "AEC").
The adjustments to taxable income include a deduction for dividends paid to
shareholders, the disallowance of net operating loss carryovers, and the
disallowance of the corporate dividends received deduction. The AEC is the
amount, if any, by which $250,000 exceeds the accumulated earnings and profits
of the corporations of the close of the preceding taxable year. As a result of
capital loss carryforwards and net operating loss carryforwards, and, with
respect to the AET, to the extent the Fund distributes its accumulated taxable
income, it is not anticipated that the Fund will have any federal income tax or
AET obligation for the current fiscal year.
The Fund may also be subject to the corporate alternative minimum tax
("AMT"). The Fund will be liable for the AMT to the extent that such tax
exceeds the Fund's regular taxable income tax liability, if any for the taxable
year. The Fund's regular income tax liability for these purposes does not
include any amount paid on account of the accumulated earnings tax. The AMT is
20 percent of the Fund's alternative minimum taxable income ("AMTI") with
certain adjustments. The Fund's AMTI is equal to its regular taxable income
plus certain specified tax preference items. For years in which the Fund does
not qualify as a RIC, AMTI will be increased or decreased by 75
* The Fund's fiscal year-end was changed to June 30.
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percent of the difference between adjusted current earnings ("ACE") and AMTI as
computed before the dividends received deduction. In addition, any net operating
loss carryovers for AMT purposes are limited in usage to 90 percent of AMTI.
Management considers the potential AMT implications on the Fund in its decision
regarding RIC qualification.
In circumstances where the Fund determines that such action would be
in the best interests of the shareholders (such as in anticipation of exhaustion
of loss carryforwards), the Fund may elect to qualify as a RIC. To qualify as a
RIC, the Fund must, among other things: (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of stock or securities or foreign
currencies or other income (including, but not limited to, gains from options,
futures contracts or forward contracts) derived with respect to the Fund's
business of investing in stocks, securities or currencies; (b) derive less than
30% of its gross income from the sale or other disposition of the following
assets held for less than three months: (i) stock or securities, (ii) options,
futures or forward contracts on foreign currencies), or (iii) foreign currencies
(or options, futures or forward contracts other than options, futures, or
forward contracts on foreign currencies) which are not directly related to the
Fund's principal business of investing in stocks or securities (or options and
futures with respect to stocks or securities); and (c) diversify its holdings so
that, at the end of each calendar quarter, (i) at least 50% of the value of the
Fund's total assets is represented by cash and cash items, U.S. government
securities, securities of other regulated investment companies, and other
securities, with such other securities limited in respect of any one issuer to
an amount not greater in value than 5% of the Fund's total assets and to not
more than 10% of the outstanding voting securities of such issuer, an (ii) not
more than 25% of the value of the Fund's total assets is invested in the
securities (other than U.S. government securities or securities of other
regulated investment companies) of any one issuer or of any two or more issuers
that the Fund controls and that are determined to be engaged in the same
business or similar or related businesses. In addition, if there is net
unrealized appreciation on the Fund's portfolio securities at the end of the
Fund's last year before it qualifies as a RIC ("net built-in gain"), and such
appreciation exceeds available capital loss carryovers, the Fund will be subject
to federal income tax on such appreciation (as though the securities were sold
for fair market value) unless it makes the alternative election described below.
The Fund may be able to reduce or eliminate any such tax by electing to
recognize the built-in gain only as such securities are actually disposed of
during the 10-year period beginning with the first year that the Fund qualifies
as a RIC. Any net built-in gain that is not recognized until after the 10-year
period would not be subject to tax at the Fund level.
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Further, in order to qualify as a RIC, the Fund will be required to distribute
during its last nonqualifying year or its first qualifying year any previously
undistributed earnings accumulated in years in which it did not qualify as a
RIC. Any such distributions would constitute taxable dividends to shareholders.
As a RIC, the Fund would not be subject to U.S. federal income tax on
its investment company taxable income to the extent that it distributes such
income to its shareholders, provided that at least 90% of its investment company
taxable income for the taxable year is so distributed. Investment company
taxable income includes dividends, interest and net short-term capital gains in
excess of net long-term capital losses, but does not include net long-term
capital gains in excess of net short-term capital losses. If the Fund fails to
satisfy the 90% distribution requirement or otherwise fails to qualify as a RIC
in any taxable year, it will be subject to tax in such year on all of its
taxable income, whether or not the Fund makes any distributions to its
shareholders. As a RIC, the Fund would also be subject to a 4% federal excise
tax to the extent it does not distribute, within a calendar year, substantially
all of its ordinary income and capital gains. Except as described in the
following paragraph, dividends paid by the Fund will be taxable to shareholders
as ordinary income. In years in which the Fund qualifies as a RIC, corporate
shareholders of the fund will be entitled to the 70% deduction for dividends
received by corporations to the extent dividends paid by the Fund are
attributable to qualifying dividends received by the Fund.
As a RIC, the Fund also would not be subject to U.S. federal income
tax on its net long-term capital gains in excess of net short-term capital
losses and capital loss carryovers, if any, that it distributes to its
shareholders. If the Fund retains for reinvestment or otherwise an amount of
such net long-term capital gains, it will be subject to tax of 35% of the amount
retained. The Board of Trustees of the Fund will determine at least once a year
whether to distribute any net long-term capital gains in excess of net short-
term capital losses and capital loss carryovers from prior years. The Fund
expects to designate amounts retained as undistributed capital gains in a notice
to its shareholders who, if subject to U.S. federal income taxation on long-term
capital gains, (a) will be required to include in income for U.S. federal income
tax purposes, as long-term capital gains, their proportionate shares of the
undistributed amount, and (b) will be entitled to credit against their U.S.
federal income tax liabilities their proportionate shares of the tax paid by the
Fund on the undistributed amount and to claim refunds to the extent that their
credits exceed their liabilities. For U.S. federal income tax purposes, the
basis of shares owned by a shareholder of the Fund will be increased by an
amount equal to 65% of the amount of undistributed capital gains included in the
shareholder's income. Distributions of net long-term capital
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gains that are designated as capital gain dividends by the Fund are taxable to
shareholders as long-term capital gains regardless of how long the shareholder
has held the Fund's shares, and are not eligible for the dividends received
deduction. Under the Code, net long-term capital gains will be taxed at a rate
no greater than 28% for individuals and 35% for corporations.
Shareholders ordinarily include all dividends declared by the Fund as
income in the year of payment. However, if the Fund requalifies as a RIC,
dividends declared payable to shareholders of record in October, November or
December of one year which are paid in January of the following year, will be
deemed for tax purposes to have been received by shareholders and paid by the
Fund on December 31 of the year in which the dividends were declared.
Shareholders will be notified annually as to the U.S. federal income tax status
of their dividends and distributions.
The Adviser and the Trustees will monitor the Fund's tax situation
(including the continuing availability of loss carryforwards) on an ongoing
basis to determine whether it is in the shareholders' best interests to qualify
for RIC status. Similarly, Fund management will determine, based on the tax
considerations discussed above, whether to distribute or retain taxable income.
As long as the Fund does not qualify as a RIC, this determination will take into
account whether the Fund can offset the income with capital loss carryforwards
or net operating losses, and whether the fund will be liable for any AET if it
does not distribute income. If and at such time as the Fund qualifies for RIC
status, it will distribute all (or substantially all) of its taxable income as
required by the Code.
DETERMINATION OF NET ASSET VALUE
The Fund's net asset value per share is determined at the close of
trading on the New York Stock Exchange (currently 4:00 P.M., New York Time) on
days when the Exchange is open for business. It is computed by dividing the
value of net assets (i.e. the value of the assets less liabilities) by the total
number of shares outstanding. Portfolio securities are valued at the last sale
price on the national securities exchange or national securities market on which
the securities are primarily traded. Securities not listed on an exchange or
national securities market or securities for which there were no transactions
are valued at the mean between the most recent reported bid and asked prices.
Any securities or other assets for which market quotations are not readily
available are valued at fair value as determined in good faith by the Trustees.
Debt securities having maturities of less than 60 days are valued by the
amortized cost method, unless the Trustees determine this is not fair value.
Expenses and fees, including the management fee, are accrued daily and taken
into account for the purpose of determining the net asset value.
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MANAGEMENT OF THE FUND
Under the laws of the District of Columbia, the Trustees of the Fund
are responsible for managing the business and affairs of the Fund. The Fund has
entered into an investment advisory agreement (the "Advisory Agreement") with
SSC (sometimes referred to herein as the "Adviser") which has its principal
offices at 1730 K Street, N.W., Washington, D.C. 20006. All voting stock of
SSC is owned by United Securities, Inc., a Maryland corporation whose sole
shareholders are Mr. Charles W. Steadman's three adult children-Carole S.
Kinney, Charles T.W. Steadman and Dorothy (Diana) Steadman. Mr. Steadman has a
long-term employment contract with the Adviser under which he may be deemed a
control person.
Since commencing business through its predecessor, William Allen
Steadman & Company, in 1932, the Adviser has principally engaged in the business
of providing continuous investment supervision for the Steadman Family of Mutual
Funds (the "Steadman Funds"). Under the terms of the Advisory Agreement, the
Adviser manages the Fund's investments and is responsible for overall management
of the Fund's business affairs subject to the supervision of the Trustees.
Charles W. Steadman, Chairman of the Board of Trustees and President, is
primarily responsible for the day-to-day management of the Fund's portfolio. He
became portfolio manager in June, 1991 and 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, the Fund pays to the
Adviser a monthly advisory fee at the annual rate of 1% of the first $35,000,000
of the average daily net asset value of the Fund, 7/8 of 1% on the next
$35,000,000 and 3/4 of 1% on all sums in excess thereof. The advisory fee is
higher than that paid by many other investment companies. SSC also receives
certain other fees which are described under "Custodian and Transfer and
Dividend Disbursing Agent". The Fund's operating expenses for the period
January 1, 1995 through June 30, 1995* amounted to 10.54% of its average net
assets.
The Adviser also receives reimbursements for the Fund for salaries and
benefits of its employees who perform functions directly attributable to the
Fund other than investment advisory and shareholder service functions. For the
six months ended June 30, 1995, these totaled $43,379. These functions include:
fund accounting, reviewing the Fund's internal financial reports; coordinating
the editing, printing and mailing of reports to the Fund's shareholders; the
internal audit of the Fund's books, transactions, and daily pricing; compliance
with SEC regulation, including registration; preparation of materials for
Trustees' meetings; legal and other administrative functions; and clerical
assistance related to the above.
* The Fund's fiscal year-end was changed to June 30.
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DESCRIPTION OF CAPITAL STRUCTURE AND SHAREHOLDER RIGHTS
The Fund is organized as a common law trust under the laws of the
District of Columbia and has outstanding only one class of shares of beneficial
interest. Each share has one vote and all shares participate equally in
dividends and other distributions by the Fund, and in the residual assets of the
Fund in the event of liquidation. Fractional shares have the same rights
proportionately as do full shares. Shares of the Fund have no preemptive rights
and no conversion or subscription rights. Unlike many other mutual funds, the
Fund does not hold regularly scheduled annual shareholders' meetings. Special
meetings are called when required by applicable laws and regulations.
In addition, the Fund's governing documents contain several other
provisions relating to shareholders' rights that are uncommon to most other
mutual funds. (a) Trustees hold office for a term of unlimited duration, (b)
shareholders are not entitled to vote for or against any amendments to the Trust
Indenture, (c) shareholders are not entitled to vote for or against a
termination of the Fund, and (d) except as otherwise required by law,
shareholders may call special meetings only upon a vote of 90% of the
outstanding shares.
As interpreted by the staff of the Securities and Exchange Commission,
the Investment Company Act provides shareholders of the Fund 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 the 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. The Fund will comply with these procedures.
RISK FACTORS
An investment in the Fund involves greater risk than an investment in
many other mutual funds. You should purchase Fund shares only as a supplement
to an overall investment program and only if you are willing to undertake the
risks involved. Investors are further advised to consult with their personal
accountant or personal investment adviser prior to making an investment in the
Fund.
The Fund's investment objectives and policies 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
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short-selling - are highly specialized and involve significant risks. For a
fuller discussion of the risks attendant to particular investments and
techniques, please refer to the Appendix and to the Statement of Additional
Information. Use of such techniques may also produce higher than normal
portfolio turn-over (100% or more), which generates additional brokerage
commissions and expenses for the Fund. Moreover, the Fund 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.
The Fund's classification as a "non-diversified" investment company
means that the proportion of the Fund's assets that may be invested in the
securities of a single issuer is not limited by the Investment Company Act of
1940. A "diversified investment company" is required by the Investment Company
Act of 1940 generally to invest, with respect to 75% of its total assets, not
more than 5% of such assets in the securities of a single issuer. Moreover, at
present, the fund has not elected to conduct its operations so as to qualify as
a "regulated investment company" for purposes of the Internal Revenue Code, and
thus, unlike most mutual funds, it is not restricted by certain diversification
requirements imposed by the Code. (For a discussion of these diversification
requirements, please refer to the discussion of "Income, Dividend and Capital
Gains Distribution - Tax Considerations" at page 5 of this Prospectus.) Since a
relatively high percentage of the Fund's assets may be invested in the
obligation of a limited number of issuers, some of which may be within the same
economic sector, the Fund's portfolio securities will be more susceptible to any
single economic, political or regulatory occurrence than the portfolio
securities of a more diversified investment company.
The Fund's tax status also raises questions and poses risks that are
usually not present in mutual funds. For a discussion of these risks please
refer to the discussion of "Income, Dividend and Capital Gains Distributions -
Tax Considerations" at page 5 of this Prospectus.
SETTLEMENT OF LITIGATION
In December 1989, the Fund and other Steadman Funds were contacted by
the Unclaimed Property Clearinghouse (the Clearinghouse), an association of some
45 member states organized to facilitate the collection for the states of
unclaimed property that is considered abandoned under the laws of the member
states. The Clearinghouse requested certain documents and information in order
to determine whether, and if so, to what extent its member states may assert
claims for abandoned accounts of the Fund's shareholders. On the basis of a
review of the documents and information provided in response to this request,
the Special Counsel for the Clearinghouse has informally asserted that the
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member states are entitled to certain property of the Fund's shareholders. In
addition, Steadman Security Corporation holds certain unclaimed dividends of the
Fund's shareholders. In May 1991, the District of Columbia filed suit in the
Superior Court of the District of Columbia against the Fund, other Steadman
Funds, Steadman Security Corporation and its principal officer under the
District of Columbia Disposition of Unclaimed Property Act. Under this action
the District of Columbia sought possession and custody of the alleged abandoned
property as well as prejudgment interest, an unspecified amount of civil
penalties, and reimbursement for reasonable attorney's fees and costs. On March
25, 1993, the counsel for the District of Columbia, the Clearinghouse and the
Fund executed a settlement agreement, which involves no findings of any
violations of law by the Fund and other defendants. The Superior Court dismissed
the suit as of November 30, 1993, although the terms of the settlement agreement
do not call for dismissal until after the closing of the agreement. The District
of Columbia appealed the dismissal. In accordance with the settlement agreement,
record title to certain shares of the Fund and associated distributions were
transferred from the present shareholders of record to the members of the
Clearinghouse on the closing date, February 14, 1995. The shares will be
redeemed over a period of three years from this date. On May 9, 1995, the Court
of Appeals dismissed the appeal.
SHAREHOLDER REPORTS
The Fund provides each shareholder with semi-annual financial
information and an annual report containing audited financial statements.
Inquiries concerning the Fund may be made by telephone at 1-(800)-424-8570 or
(202) 223-1000, or by writing the Fund at the address shown on the cover of this
Prospectus.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Nations Bank Trust Company, N.A., 1501 Pennsylvania Avenue, N.W.,
Washington, D.C. 20013, is the custodian of all cash and securities for the
Fund.
Nations Bank Trust Company, N.A., has custody of all securities and
cash for the Fund, delivers and receives payment for securities sold, receives
payment and pays for securities purchased, collects income from investments and
performs other duties, all as directed by officers of the Fund. The Custodian
is not responsible for any of the investment policies or decisions of the Fund.
The Chairman of the Fund's Board of Trustees maintains a personal banking
relationship, which includes an outstanding loan, with the parent company of the
custodian.
SSC, the Adviser, also serves as the transfer and dividend disbursing
agent and agent for the shareholder accounts.
13
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The fee for such services is $1.35 per account per month, and is calculated on
the basis of the number of shareholder accounts as of the last business day of
each month. In the six months ended June 30, 1995, the Fund paid the Advisor
$26,752 in fees for performing such shareholder account services, 2.4% of
average net assets.
14
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APPENDIX
OPTIONS AND FUTURES
The fund may buy and sell ("write") options and futures contracts both
to generate income (premiums from the sale of call options) and to manage the
Fund's exposure to changing interest rates and security prices. Some
strategies, including buying puts, writing calls, and selling futures, tend to
hedge the Fund's investments against price fluctuations. Other strategies,
including writing puts, buying calls, and buying futures tend to increase market
exposure. The Fund may invest in options based on any type of securities,
index, or instrument.
Options and futures can be volatile investments, and involve certain
risks. If the Adviser applies a hedge at an inappropriate time or judges market
conditions incorrectly, options and futures strategies may lower the Fund's
return and the Fund would have been better off without the use of such
strategies. The Fund could also experience losses if the prices of its options
and futures positions were poorly correlated with its other investments or if it
could not close out its positions because of an illiquid secondary market.
Purchasing Put and Call Options. By purchasing a put option, the Fund
--------------------------------
obtains the right (but not the obligation) to sell the option's underlying
instrument at a fixed strike price. In return for this right, the Fund pays the
current market price for the option (known as the option premium). Options have
various types of underlying instruments, including specific securities and
indexes of securities prices. The Fund may terminate its position in a put
option it has purchased by allowing it to expire or by exercising the option.
If the option is allowed to expire, the fund will lose the entire premium it
paid. If the Fund exercises the option, it completes the sale of the underlying
instrument at the strike price. The Fund may also terminate a put option
position by closing it out in the secondary market at its current price, if a
liquid secondary market exists.
The buyer of a put option can expect to realize a gain if security
prices fall substantially. However, if the underlying instruments's price does
not fall enough to offset the cost of purchasing the option, a put buyer can
expect to suffer a loss (limited to the amount of the premium paid, plus related
transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the
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underlying instrument at the option's strike price. A call buyer attempts to
participate in potential price increases of the underlying instrument with risk
limited to the cost of the option if security prices fall. At the same time,
the buyer can expect to suffer a loss if security prices do not rise
sufficiently to offset the cost of the option.
Writing Put and Call Options. When the Fund writes a put option, it takes
-----------------------------
the opposite side of the transaction from the option's purchaser. In return for
receipt of the premium, the Fund assumes the obligation to pay the strike price
for the option's underlying instrument if the other party to the option chooses
to exercise it. The Fund may seek to terminate its position in a put option it
writes before exercise by closing out the option in the secondary market at its
current price. If the secondary market is not liquid for a put option the Fund
has written, however, the Fund must continue to be prepared to pay the strike
price while the option is outstanding, regardless of price changes, and must
continue to set aside assets to cover its position.
If the security's price rises, a put writer would expect to profit,
although its gain would be limited to the amount of the premium it received. If
the security's price remains the same or declines over time, it is likely that
the writer would expect to suffer a loss. This loss should be less than the
loss from purchasing the underlying instrument directly, however, because the
premium received for writing the option should mitigate the effects of the
decline.
Writing a call option obligates the Fund to sell or deliver the
options's underlying instrument, in return for the strike price, upon exercise
of the option. The characteristics of writing call options are similar to those
of writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer mitigates the effects of price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
Futures Contracts. When the Fund purchases a futures contract it agrees
------------------
to purchase a specified underlying instrument at a specified future date. When
the Fund sells a futures contract, it agrees to sell the underlying instruments
at a specified future date. The price at which the purchase and sale will take
place is fixed when the Fund enters into the contract. Futures can be held until
their delivery dates, or can be closed out before then if a liquid secondary
market is available.
The value of a futures contract tends to increase and
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decrease in tandem with the value of its underlying instrument. Therefore,
purchasing futures contracts will tend to increase the Fund's exposure to
positive and negative price fluctuations in the underlying instrument, much as
if the Fund had purchased the underlying instrument directly. When the Fund
sells a futures contract, by contrast, the values of its futures position will
tend to move in a direction contrary to the market. Selling futures contracts,
therefore, will tend to offset both positive and negative market price changes,
much as if the underlying instrument had been sold.
Futures Margin Payments. The purchaser or seller of a futures contract
------------------------
is not required to deliver or pay for the underlying instrument unless the
contract is held until the delivery date. However, both the purchaser and seller
of a futures contract are required to deposit "initial margin" with a futures
broker known as a futures commission merchant(FCM), when the contract is entered
into. Initial margin deposits are equal to a percentage of the contract's value.
If the value of either party's position declines, that party will be required to
make additional "variation margin" payments to settle the change in value on a
daily basis. The party that has a gain may be entitled to receive all or a
portion of this amount. Initial and variation margin payments do not constitute
purchasing securities on margin for purposes of any investment limitations. In
the event of the bankruptcy of a FMC that holds margin on behalf of the Fund,
the Fund may be entitled to return of margin owed to it only in proportion to
the amount received by the FCM's other customers which could potentially result
in losses to the Fund.
Combined Positions. The Fund may purchase and write options in
-------------------
combination with each other or in combination with futures contracts to adjust
the risk and return characteristics of the overall position. For example, the
Fund may purchase a put option and write a call option on the same underlying
instrument, in order to construct a combined position whose risk and return
characteristics are similar to selling a futures contract. Another possible
combined position would involve writing a call option at one strike price and
buying a call option at a lower price, in order to reduce the risk of the
written call option in the event of a substantial price increase. Because
combined option positions involve multiple trades, they result in higher
transaction costs and may be more difficult to open and close out.
Correlation of Price Changes. Because there are a limited number of types
----------------------------
of exchange-traded options and futures contracts, it is likely that the
standardized contracts available will not match the Fund's current or
anticipated investments. The Fund may invest in options and futures contracts
based on securities with different issuers, maturities, or other particular
security with a futures contract reflecting a broad range of stock prices
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in that market-which involves a risk that the options or futures position will
not track the performance of the Fund's investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match the Fund's
investments as well. Options and futures prices are affected by such factors as
current and anticipated short-term interest rates, changes in volatility of the
underlying instrument, and the time remaining until expiration of the contract,
which may not affect security prices the same way. Imperfect correlation may
also result from differing levels of demand in the options and futures markets
and the securities markets, from structural differences in how options and
futures and securities are traded, or from imposition of daily price fluctuation
limits or traditional halts. The Fund may purchase or sell options and futures
contracts with a greater or lesser value than the securities it wishes to hedge
or intends to purchase in order to attempt to compensate for differences in
historical volatility between the contract and the securities, although this may
not be successful in all cases. If price changes in the Fund's options or
futures positions are poorly correlated with its other investments, the
positions may fail to produce anticipated gains or result in losses that are not
offset by gains in other investments.
Liquidity of Options and Futures Contracts. There is no assurance a
-------------------------------------------
liquid secondary market will exist for any particular options or futures
contract at any particular time. Options may have relatively low trading volume
and liquidity if their strike prices are not close to the underlying
instrument's current price. In addition, exchanges may establish daily price
fluctuation limits for options and futures contracts, and may halt trading if a
contract's price moves upward or downward more than the limit in a given day. On
volatile trading days when the price fluctuation limit is reached or a trading
halt is imposed, it may be impossible for the Fund to enter into new positions
or close out existing positions. If the secondary market for a contract is not
liquid because of price fluctuation limits or otherwise, it could prevent prompt
liquidation of unfavorable positions, and potentially could require the Fund to
continue to hold a position until delivery or expiration regardless of changes
in its value. As a result, the Fund's access to other assets held to cover its
options or futures positions could also be impaired.
OTC Options. Unlike exchange-traded options, which are standardized with
------------
respect to the underlying instrument, expiration date, contract size and strike
price, the terms of over-the-counter options(options not traded on exchanges)
generally are established through negotiation with the other party to the option
contract. While this type of arrangement
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allows the Fund greater flexibility to tailor an option to its needs, OTC
options generally involve greater credit risk than exchange traded-options,
which are guaranteed by the clearing organization of the exchanges where they
are traded.
The staff of the Securities and Exchange Commission("SEC") has taken the
position that purchased over-the-counter options and assets used to cover
written over-the-counter options are illiquid and, therefore, together with
other illiquid securities held by the Fund, can not exceed 15% of the Fund's net
assets. Although the Adviser disagrees with this position, the Adviser intends
to limit the Fund's writing of over-the-counter options in accordance with the
following procedure. Except as provided below, the Fund intends to write over-
the-counter options only with primary U.S. government securities dealers
recognized as such by the Federal Reserve Bank of New York. The contracts with
such primary dealers will provide that the Fund has the absolute right to
repurchase an option it writes at any time at a price which represents the fair
market value, as determined in good faith through negotiation between the
parties, but which in no event will exceed a price determined pursuant to a
formula in the contract. Although the specific formula may vary between
contracts with different primary dealers, the formula generally is based on a
multiple of the premium received by the Fund for writing the option, plus the
amount, if any, of the option's intrinsic value(i.e., the amount that the option
is in-the-money). The formula may also include a factor to account for the
difference between the price of the security and the strike price of the option
if the option is written out-of-the-money. The Fund will treat all or a portion
of the formula as illiquid for purposes of the 15% test imposed by the SEC
staff. The Fund may also write over-the-counter options with non-primary
dealers, including foreign dealers(where applicable), and will treat the assets
used to cover these options as illiquid for purposes of such 15% test.
Asset Coverage for Options and Futures Positions. The Fund will comply
-------------------------------------------------
with guidelines established by the Securities and Exchange Commission with
respect to coverage of options and futures strategies by mutual funds, and if
the guidelines so require will set aside appropriate high-grade debt securities
in a segregated custodial account in the amount prescribed. Securities held in a
segregated account cannot be sold while the futures or option strategy is
outstanding.
Limitations on Futures and Options Transactions. The Fund intends to file
------------------------------------------------
a notice of eligibility for exclusion from the definition of the term "commodity
pool operator" with the Commodity Futures Trading Corporation (CFTC) and the
National Futures Association, which regulate trading in the futures markets,
before engaging in any purchases or sales of future contracts.
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Various exchanges and regulatory authorities have undertaken reviews of
options and futures trading in light of market volatility. Among the possible
actions that have been presented are proposals to adopt new or more stringent
daily price fluctuation limits for futures or options transactions, and
proposals to increase the margin requirements for various types of strategies.
It is impossible to predict what actions, if, any, will result from these
reviews at this time.
FOREIGN INVESTMENTS
The Fund may invest in foreign securities, which involve additional risks.
Foreign securities and securities denominated in or indexed to foreign
currencies may be affected by the strength of foreign currencies relative to the
U.S. dollar. Foreign securities are subject to adverse political or economic
developments in foreign countries or possible seizure or nationalization of
foreign deposits. Foreign companies are not subject to accounting standards or
governmental supervision comparable to U.S. companies, and there generally is
less public information about their operations. In addition, foreign markets may
be less liquid or more volatile than U.S. markets and may offer less protection
to investors such as the Fund. These risks are greater for investments in less
developed countries whose governments and financial markets are more susceptible
to adverse political and economic developments. There is no limitation on the
amount of the Fund's assets that may be invested in foreign securities or in any
one country or currency.
The Fund's investments in foreign securities will primarily consist of
equity securities of private issuers, but may include debt instruments as well.
Foreign equity securities expose the Fund to risks relating to the more limited
liquidity and greater price volatility of foreign securities markets relative to
U.S. markets, as well as the other risks set forth above, which can adversely
affect a foreign issuer's financial performance and outlook and limit the Fund's
access to related information. Foreign debt securities are subject to the risk
of adoption of governmental restrictions which might adversely affect payment of
principal and interest on the securities, or restrict such payment to investors
located outside the country of the issuer, whether from currency blockage or
otherwise.
The dollar value of portfolio securities of non-U.S. issuers fluctuates
with changes in relative currency values(when the value of the dollar increases
as compared to a foreign currency, the dollar value of a foreign-denominated
security decreases, and vice versa). Costs may be incurred in connection with
conversions between various currencies. Currency exchange rates may fluctuate
significantly over short periods of time. They generally are
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determined by the forces of supply and demand in the foreign exchange markets
and relative merits of investment in different countries, actual or perceived
changes in interest rates and other complex factors, as seen from an
international perspective. Currency exchange rates also can be affected
unpredictably by intervention by U.S. or foreign governments or central banks or
the failure to intervene or by currency controls or political developments in
the U.S. or abroad. Currency exchange rates will affect the value of Fund shares
irrespective of the performance of the underlying investment.
In selecting investments in foreign securities markets, the Fund considers
various criteria, including the particular foreign country's prospects for
relative economic growth, current and expected levels of inflation and interest
rates, government policies influencing business conditions, and the outlook for
currency relationships, as well as fundamental performance and outlook features
of the issuer in question and the risk factors discussed above.
UNITED STATES GOVERNMENT SECURITIES
United States government securities include United States Treasury
obligations, Government National Mortgage Association(GNMA) certificates,
Federal Housing Authority (FHA) debentures, Federal National Mortgage
Association (FNMA) bonds and Student Loan Mortgage Association (SLMA)
debentures, among others. Some of the foregoing obligations, such as Treasury
bills and GNMA certificates are supported by the full faith and credit of the
United States government; others such as FNMA bonds by the right of the issuer
to borrow from the United States Treasury; still others such as SLMA are
supported only by the credit of the instrumentality. No assurance can be given
that the United States government will provide financial support to an
instrumentality sponsored by the United States when it is not obligated by law,
in certain instances, to do so. The Fund may invest in obligations of United
States government agencies and instrumentalities other than those specifically
listed above.
FIXED INCOME SECURITIES
The value of securities providing fixed returns, such as most bonds("fixed
income securities"), are inversely correlated to changes in interest rates. As
interest rates increase, the value of a fixed income security decreases and,
conversely, as interest rates decrease the value of a fixed income security
increases. Longer term obligations are more dramatically affected by changes in
interest rates than short-term obligations.
In addition, declining interest rates present risk to holders of fixed
income securities that may be redeemed by their issuer prior to maturity. As
interest rates decrease, the issuer
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of such securities is more likely to redeem such securities prior to their
stated maturities by issuing new securities at lower rates. If such securities
are redeemed prior to maturity, the holder of the redeemed securities may be
required to reinvest the proceeds received at less attractive rates and will
incur a loss for any premium paid in acquiring the security.
ILLIQUID INVESTMENTS
The Fmay invest up to 15% of its net assets in illiquid investments.
Under the supervision of the Board of Trustees, the Adviser determines the
liquidity of the Fund's investments. The absence of a trading market can make it
difficult to ascertain a market value for illiquid investments. Disposing of
illiquid investments generally involves time-consuming negotiation and legal
expenses, and it may be difficult or impossible for the Fund to sell them
promptly at an acceptable price.
RESTRICTED SECURITIES
The Fund may purchase securities which cannot be sold to the public without
registration under the Securities Act of 1933(restricted securities). Unless
registered for sale, these securities can only be sold in privately negotiated
transactions or pursuant to an exemption from registrations, such as pursuant to
Rule 144A under the Securities Act. Consequently, there may be a more limited
trading market for these securities and market quotations may be less readily
available. However, as to certain restricted securities, a substantial market of
qualified institutional buyers may develop pursuant to Rule 144A, and the
Trustees may determine that such securities are readily marketable, based upon
trading markets for the specific security. The Fund may invest in restricted
securities as to which the Trustees have made such determination. Where the
Board has not made such a determination, investments in restricted securities
are subject to the 15% limitation on illiquid investments described above.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements in order to earn income on
available cash or as a temporary defensive measure. Under a repurchase
agreement, the Fund acquires securities subject to the seller's agreement to
repurchase at a specified time and price. If the seller becomes subject to a
proceeding under the bankruptcy laws or its assets are otherwise subject to a
stay order, the Fund's right to liquidate the securities may be
restricted(during which time the values of the securities could decline). The
Fund may enter into repurchase agreements with sellers who are member firms(or
subsidiaries thereof) of the New York Stock Exchange, members of the Federal
Reserve System, recognized primary U.S. government securities
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dealers or institutions which the Adviser has determined to be of comparable
creditworthiness.
LENDING OF SECURITIES
The Fund may make loans of its portfolio securities. Such loans will
usually be made only to member banks of the Federal Reserve system and member
firms(or subsidiaries thereof) of the New York Stock Exchange, or institutions
which the Adviser has determined to be of comparable creditworthiness, and would
be required to be secured continuously by collateral in cash, cash equivalents
or U.S.government securities maintained on a current basis at an amount at least
equal to the market value of the securities loaned. The Fund would continue to
collect the equivalent of the interest of the securities loaned and would also
receive either interest(through investment of cash collateral) or a fee(if the
collateral is government securities). In the event of the bankruptcy of the
other party to a securities loan transaction, or if such party breaches its
agreement with the Fund, the Fund could experience loss or delay in recovering
its cash or the securities lent. During these delays, the value of the
securities loaned could decline.
LOWER-RATED DEBT SECURITIES("JUNK BONDS")
The Fund may purchase lower-rated debt securities(those rated Ba or lower
by Moody's Investors Service, Inc. or BB or lower by Standard & Poor's
Corporation) which have poor protection against default or may be in default in
the payment of principal and interest. These securities are often considered to
be speculative and involve greater risk of loss or price changes due to change
in the issuer's capacity to pay. The Market prices of lower-rated debt
securities may fluctuate more than higher-rated securities and may decline
significantly in periods of general economic difficulty which may follow periods
of rising interest rates. The Fund will not invest more than 5% of its net
assets in junk bonds during the coming year.
LEVERAGE THROUGH BORROWING
The Fund 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 the Fund enters into reverse repurchase
agreements described below. The Investment Company Act of 1940 requires the Fund
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, the Fund 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
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sell securities at that time. Leveraging may exaggerate the effect on net asset
value of any increase or decrease in the market value of the Fund'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. The Fund 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 the Fund 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 the Fund of an underlying debt instrument in return for cash
proceeds based on a percentage of the value of the security. The Fund retains
the right to receive interest and principal payments on the security. At an
agreed upon future date, the Fund 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. The Fund 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 the Fund. These agreements, which are treated as if
reestablished each day, are expected to provide the Fund with a flexible
borrowing tool.
SHORT SALES
The Fund may make short sales, which are transactions in which the Fund
sells a security it does not own in anticipation of a decline in the market
value of that security. To complete such a transaction, the Fund must borrow the
security to make delivery to the buyer. The Fund then is obligated to replace
the security borrowed by purchasing it at market price at the time of
replacement. The price at such time may be more or less than the price at which
the security was sold by the Fund. Until the security is replaced, the Fund is
required to pay to the lender amounts equal to any dividends or interest which
accrue during the period of the loan. To borrow the security, the Fund also may
be required to pay a premium, which would increase the cost of the security
sold. The proceeds of the short sale will be retained by the broker, to the
extent necessary to meet margin
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requirements, until the short position is closed out. Until the Fund closes its
short position or replaces the borrowed security, the Fund will: (a) maintain a
segregated account, containing cash or U.S. government securities, at such a
level that(i) the amount deposited in the account plus the amount deposited with
the broker as collateral will equal the current market value of the security
sold short (ii) the amount deposited in the segregated account plus the amount
deposited with the broker as collateral will not be less than the market value
of the security at the time it was sold short; or (b) otherwise cover its short
position.
The Fund will incur a loss as a result of the short sale if the price of
the security increases between the date of the short sale and the date on which
the Fund replaces the borrowed security. The Fund will realize a gain if the
security declines in price between those dates. This result is the opposite of
what one would expect from a cash purchase of a long position in a security. The
amount of any gain will be decreased, and the amount of any loss increased by
the amount of any premium or amounts in lieu of dividends or interest the Fund
may be required to pay in connection with a short sale.
REAL ESTATE
The Fund may invest in commercial, industrial, retail, or residential real
estate properties and related securities, including but not limited to the
securities of real estate investment trusts. Real estate investments are subject
to a number of investment risks, including fluctuations in occupancy rates and
operating expenses, variations in rental schedules, the character of the tenancy
and the possible effect on cash flow from a property if its tenants incur
financial difficulties. These investments may be adversely affected by general
and local economic conditions, the supply of and demand for properties of the
type involved, zoning laws, rent controls, environmental protection laws and
real property tax rates. Real estate investments are generally illiquid and will
be subject to the Fund's 15% limit on illiquid investments.
CONCENTRATION POLICY
It is not the Fund's policy to invest 25% or more of the value of its total
assets in any one industry or group of industries. This is a matter of
fundamental policy. 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.
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Part B
INFORMATION REQUIRED IN A STATEMENT
OF ADDITIONAL INFORMATION
Steadman Investment Fund
1730 K Street N.W.
Washington DC 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 Investment
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 a having been authorized
by the Fund.
This Statement of Additional Information does not constitute an offer
to sell securities.
<TABLE>
<CAPTION>
Table of Contents Page No.
<S> <C>
Investment Techniques................................ B-2
Portfolio Diversification............................ B-3
Tax Status........................................... B-3
Portfolio Turnover................................... B-5
Other Investment Techniques.......................... B-5
Trustees and Officers of the Fund.................... B-6
Principal Shareholders............................... B-7
Investment Advisory and Transfer Agent Fees.......... B-7
Distribution Expense................................. B-9
Portfolio Transactions and Brokerage Commissions..... B-9
Shareholder Investment Plan.......................... B-11
Independent Accountants.............................. B-11
Financial Statements and Related Information......... B-11
</TABLE>
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INVESTMENT TECHNIQUES
The following information supplements and should be read in
conjunction with the section of the Fund's Prospectus entitled "Investment
Policies, Objectives and Techniques".
Options on Stock Indices
Options on stock indices operate in much the same way as options on
common stock, except that the underlying instrument, rather than being a stock,
is a stock index such as the Standard & Poor's 500 Stock Index.
The Fund will utilize various investment techniques involving options
on stock market indices so as to enhance income. Call or put options may be
purchased or sold on these indices depending upon the market conditions as
viewed by the Adviser. 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
Adviser's ability to predict correctly movements in the stock market in general
or the index of underlying stocks in particular, and this requires skills and
techniques different from those involved in predicting the price level change of
individual stocks.
When purchasing a call on an index as an initial transaction, the
maximum gain is unlimited while the risk is limited to the amount of the premium
paid for the call. In selling a call on an index as an initial transaction, the
maximum gain is the amount of the premium realized in the sale of the call
whereas the risk is not limited by the price of an underlying security. When
purchasing a put on an index as an initial transaction, the maximum gain is the
difference between the exercise price and zero while the risk is limited to the
amount of the premium paid for the put. In selling a put on an index as an
initial transaction, the maximum gain is the amount of the premium realized in
the sale of the put whereas the risk is the difference between the exercise
price and zero.
The Fund will cover call options on indexes by owning securities whose
price changes, in the opinion of the Adviser, 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 Adviser will monitor and make appropriate adjustments to insure that
the
B-2
<PAGE>
Fund is adequately covered if the index and the underlying securities diverge.
The Fund will cover put options on indexes by segregating assets equal to the
option's exercise price, or in such other manner as may be in accordance with
the guidelines established by the SEC with respect to coverage of options
strategies.
PORTFOLIO DIVERSIFICATION
The Fund has elected to qualify as a "non-diversified investment
company", as defined under Section 5(b)(2) of the Investment Company Act of
1940, so that the Fund may invest its assets in the securities of a small number
of issuers. This subjects the Fund's portfolio directly to the increase or
decrease in the particular investment. Thus, the opportunity for gain and the
risk of loss are 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 Adviser to take maximum
advantage of investment opportunities which 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 Adviser determines that it is in the best
interest of the Fund to do so.
TAX STATUS
In any year the Fund does not qualify as a regulated investment
company ("RIC") under the Internal Revenue Code of 1986, as amended (the
"Code"), any dividends paid by the Fund are generally taxable to shareholders as
ordinary income.
For years in which the Fund qualifies as a RIC, 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, are 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 carryforwards, they may be distributed to shareholders and, if distributed,
will be taxable to the shareholders as long term capital gain.
Taxable net investment income is not reduced by net operating loss
carryforwards in qualifying years. Further, in qualifying years, to the extent
that long-term capital gains exceed short-term capital losses and any capital
loss carryforwards, they may be distributed to shareholders and, if distributed,
will be taxable to the shareholders as long-term capital gain.
B-3
<PAGE>
Under the Tax Reform Act of 1986 (the "TRA"), effective for calendar
years beginning with 1987, RICs are required to distribute dividends according
to a prescribed formula in order to avoid a 4% non-deductible excise tax on
amounts not so distributed. The formula requires the Fund to distribute each
calendar year at least 98% of its ordinary income(excluding short-term capital
gains) for the calendar year and at least 98% of the excess of its capital gains
over capital losses realized during the one-year period ending October 31 of
such year less any capital loss carryovers. The Fund expects to adjust its
distribution policy to avoid application of this tax.
Distributions of net taxable investment income and new realized
capital gains by the Fund are taxable as described above, whether made in shares
or in cash. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share received equal to the net asset value of a share of the Fund on the
reinvestment date.
Distributions by the Fund reduce the net asset value of the Fund's
shares. Should a distribution reduce the net asset value below a shareholder's
cost basis, such distribution nevertheless would be taxable to the shareholder
as ordinary income or capital gain as described above, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares just prior to a distribution. The price of shares purchased at
that time includes the amount of the forthcoming distribution. Those purchasing
just prior to a distribution will then receive a return of capital upon
distribution which will nevertheless be taxable to them.
Shareholders who redeem or sell shares of the Fund may realize gain or
loss if the proceeds are more or less than the shareholder's purchase price.
Such gain or loss will be a capital gain or loss if the Fund shares were capital
assets in the hands of the shareholder, and will be long or short-term,
depending on the length of time the Fund shares were held. However, if a
shareholder realizes a loss on the sale of a share with respect to which a long-
term capital gain dividend was includable in income after holding such share for
six months or less, such loss will be treated as long-term capital loss to the
extent of the previously recognized long-term capital gain. A gain realized on a
redemption or sale, will not be affected by a reacquisition of shares. A loss
realized on a redemption or sale, however, will be disallowed to the extent the
shares disposed of are replaced within a period of 61 days beginning 30 days
before and ending 30 days after the shares are disposed of. In such a case, the
basis of the shares acquired will be adjusted to reflect the disallowed loss.
B-4
<PAGE>
Under the federal income tax law, the Fund is required to report to
the Internal Revenue Service all distributions of taxable income and capital
gains as well as gross proceeds from the redemption of Fund shares, except in
the case of certain exempt shareholders. Under the backup withholding provisions
of the Energy Policy Act of 1992, enacted October 24, 1992, 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 or proceeds, whether taken in
cash or reinvested in additional shares, will be reduced by the amounts required
to be withheld. Investors may wish to consult their tax advisers 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 adviser 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. Under the laws of
certain states, distributions of new investment income are taxable to
shareholders as dividend income even though a substantial portion of such
distributions may be derived from interest on U.S. Government obligations which,
if received directly by the resident of such state, would be exempt from such
state's income tax. Shareholders should consult their own tax advisers with
respect to the tax status of distributions from the Fund in their own state and
localities.
PORTFOLIO TURNOVER
Because the Fund may engage in short-term trading, its portfolio rates
may exceed 300%. High portfolio turnover (over 100%) may result in
correspondingly higher brokerage costs.
OTHER INVESTMENT TECHNIQUES
The Fund's Trust Indenture provides that the Fund may, in the sole
discretion of the Adviser and to the maximum permissible by the applicable laws
and regulations, engage in all lawful investment activities. Without limitation
on any other investment
B-5
<PAGE>
activities, the Fund reserves freedom of action to engage in the following types
of activities specified in Section (8)(b) of the Investment Company Act of 1940.
(A) The Fund may borrow money from a bank for either investment or emergency
purposes provided that such borrowing does not exceed 33 1/3% of the value of
the Fund's total assets, less its liabilities other than such borrowings; (B)
The Fund may issue senior securities to the extent the borrowing identified in
(A) above constitutes the issuance of senior securities; (C) The Fund may engage
in the business of underwriting securities issued by other persons to the extent
that the purchase of restricted securities constitutes such underwriting; (D)
The Fund may purchase and sell real estate including land and buildings and
securities of companies whose assets consist of real property and interests
therein; (E) The Fund may make both long and short-term loans to others,
including the purchase of non-publicly offered debt securities. The extent to
which the Fund intends to engage in the foregoing activities is entirely
dependent upon the market conditions and the economic environment in which the
Fund must operate. This 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 Adviser 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.
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
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
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, DC(aerospace
manufacturing)(1968-1974)
PAUL F. WAGNER, Trustee, Chairman, Wagner, Hines & Avary, Inc. a
Washington, DC public affairs firm
MAX KATCHER, Executive Vice President, Secretary and Treasurer of the
Fund; Executive Vice President of SSC
B-6
<PAGE>
E. JEAN BELLOSI, Assistant Secretary of the Fund; Secretary of SSC
*Interested person as defined by Section 2(a)(19) of the Investment
Company Act.
The Trustees and officers hold the same positions relative to the
other Funds in the Steadman Family of Mutual Funds.
The address of all of the officers of the Fund is 1730 K Street, NW,
Washington, DC 20006.
On September 30, 1995, the Trustees and Officers of the Fund, as a
group beneficially owned 6848.491 shares in the Fund, which is less than one
percent of the Fund's equity securities.
During the period January 1, 1995 through June 30, 1995, the Fund paid
$4,097 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.
PRINCIPAL SHAREHOLDERS
On September 30, 1995, Tru & Co. beneficially owned 12.9% of the then
outstanding shares of the Fund. No other person beneficially owned more than 5%
of the then outstanding shares of the Fund.
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 are computed as follows: 1% of the first $35,000,000 of net assets;
7/8 of 1% of the next $35,000,000 and 3/4 of 1% of all sums in excess thereof.
The Fund paid investment advisory fees during the last three years as
follows: (1994) $28,041; (1993) $37,544; (1992) $38,968. The Fund's fiscal year
end was changed to June 30, 1995. The fees paid during these six months were
$10,952.
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. 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.
B-7
<PAGE>
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 last three years
as follows: (1994) $ 54,794; (1993) $ 55,744 and (1992) $ 56,993. The Fund's
fiscal year was changed to June 30, 1995. Fees paid during the six month period
January 1, 1995 through June 30, 1995 were $26,752.
The Fund 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 six
months ended June 30, 1995 of $43,379.
SSC assumes no responsibility under the Agreement other than to render
the services called for thereunder, in good faith and is not responsible for any
action of the Fund in following or declining to follow any advice or
recommendation. It is not liable for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with matters to which the
Agreement relates, except for a loss resulting from willful misfeasance, bad
faith, gross negligence or reckless disregard in the performance of its duties
under the Agreement. Trustees, officers and employees of SSC have the unlimited
and unrestricted right to engage in any other business or to devote time and
attention in part to the management or other aspects of any other business,
whether of a similar or dissimilar nature.
The agreement also provides that the Fund will pay all of its ordinary
expenses of operation except specifically excepted, such expenses of operation
including, but not being limited to, the following: (i) the expenses of
maintaining its own books of accounts; (ii) the expenses of its custodian, the
transfer agent and dividend disbursing agent; (iii) the expenses of computing
the daily net asset value of the shares; (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 Adviser 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 Adviser or its subsidiaries; (xiii)
the fees of auditors; (xiv) the fees of legal counsel; (xv) travel,
entertainment,
B-8
<PAGE>
publication, telephone, telegraph, office space rent and (xvi) all other
ordinary expenses of operation. The Fund also will pay all extraordinary
expenses of whatever kind unless such expenses have been specifically assumed by
the Adviser.
DISTRIBUTION EXPENSES
The Fund pays all fees and expenses in connection with registering its
shares under federal and state securities laws; preparing, printing and mailing
its prospectuses and reports to shareholders; and issuing its shares, including
expenses of confirming purchase orders. SSC will pay all fees and expenses in
connection with printing and distributing prospectuses and reports for use in
offering and selling Fund shares; preparing, printing and mailing all sales
literature and advertising; and offering and selling Fund shares, except for
those fees and expenses expressly assumed by the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
SSC makes decisions as to buying and selling investment securities,
subject to supervision by the Fund's Board of Trustees. It is the practice of
the Fund to seek the most favorable prices and execution of orders for the
purchase of sale of portfolio securities, taking into consideration 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 Adviser. 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
Adviser, will be assisted in providing to the Fund more thorough and complete
advisory material. Although such services may tend to reduce the expenses of SSC
in rendering investment advice to the Fund, the value of the services is not
determinable. Such services may also be used in serving the other mutual funds
managed by SSC, and the brokerage commissions of such other mutual funds may
indirectly benefit the Fund. SSC investment personnel determine the overall
reasonableness of commissions paid by rating brokers or dealers on such general
factors as execution capabilities, quality of research and financial condition,
and net results of specific transactions in such terms as price, promptness,
size of order and difficulty of execution.
While the Trustees oversee the portfolio transactions of the Fund in
light of the Fund's investment policies and objectives without regard to any
other Steadman Fund, 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
B-9
<PAGE>
transactions in the same security. In such instances, such transactions are
effected on a prorated basis based on the total assets of each Steadman Fund and
at a prorated cost, if feasible, and in the alternative on a rotating or other
equitable basis. The Adviser makes all such allocations. In some cases this
arrangement could have detrimental effect on the price or volume executed
insofar as a particular Fund is concerned.
The Fund's Investment Adviser, 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 Adviser and the Trustees considers
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 paid brokerage as follows:
<TABLE>
<CAPTION>
Brokerage Transactions
--------- ------------
<S> <C> <C>
06/30/95* $ 8,755 $ 1,205,938
12/31/94 $72,802 $12,691,125
12/31/93 $67,131 $11,624,477
</TABLE>
During the Fund's six months ended June 30, 1995, the Adviser directed
brokerage transactions and paid brokerage commissions as follows because of
research services provided by Reich & Co., Inc., of $ 2,600 on transactions of
$380,000. Brokerage commissions were directed to Reich & Co., Inc. pursuant to
an understanding that quotation services and devices would be provided to the
Adviser in exchange for these brokerage commissions.
The following table details transaction amounts and commissions paid
to brokers during the last fiscal year for the Fund as well as the percentage of
transactions and commissions as related to the total for the Fund.
<TABLE>
<CAPTION>
Broker Transactions % of Total Commissions % of Total
- ------ ------------ ---------- ----------- ----------
<S> <C> <C> <C> <C>
Reich & Co. $ 950,313 78.8 % $6,530 74.6%
Dean Witter $ 255,625 21.2 % $2,225 25.4%
---------- ------ ------ --------
$1,205,938 100.0% $8,755 100.0%
</TABLE>
* The Fund's fiscal year-end was changed to June 30-a period of six months
B-10
<PAGE>
SHAREHOLDER INVESTMENT PLAN
As described under "PURCHASE OF FUND SHARES" in the Prospectus, the
Fund has available a "Systematic Withdrawal" plan. The details of participation
in this plan are contained in the Prospectus.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand, L.L.P., 1800 M Street, NW, Washington, DC, 20036,
has been selected as the independent accountants for the Fund and provides audit
and tax service.
FINANCIAL STATEMENTS AND RELATED INFORMATION
The Fund's Financial Statements and related notes for the period ended
June 30, 1995 follow:
B-11
<PAGE>
================================================================================
Fellow Shareholders:
Opportunities for improvement of national economy are enhanced by a
prevailing low level of inflation and exceptional price stability. Our analysis
indicates that these basic conditions are likely to endure into the foreseeable
future. This has brought forth the conclusion that interest rates will have a
downward trend for an ensuing two to three year period.
Looking at factors dominating interest rates as they existed six months
back we decided that a decline in long term rates was going to occur and this
did in fact happen. Having made that assessment we invested Fund assets early
this year in the 30 year Treasury Bonds. Results have been satisfactory and this
investment is well serving shareholders interests as is shown in the Financial
Highlights section of this report.
We shall continue our endeavor to increase your benefits.
Sincerely,
/s/ Charles W. Steadman
Charles W. Steadman
Chairman of the Board of
Trustees and President
================================================================================
<PAGE>
================================================================================
STEADMAN INVESTMENT FUND
Portfolio of Investments
June 30, 1995
<TABLE>
<CAPTION>
Principal Value
Amount (Note 1)
--------- ----------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS -- 100%
U.S. Treasury Bond, 7.625% due 2/15/25............................... 1,000,000 $1,128,750
U.S. Treasury Bond, 7.5% due 11/15/16................................ 1,000,000 1,088,906
----------
Total Portfolio of Investments (Cost $2,002,031)...... $2,217,656
==========
</TABLE>
The accompanying notes are an integral part of the financial statements
================================================================================
<PAGE>
================================================================================
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Steadman Investment Fund
We have audited the accompanying statement of assets and liabilities of
Steadman Investment Fund, including the portfolio of investments, as of June 30,
1995, and the related statements of operations for the period January 1, 1995
through June 30, 1995 and for the year ended December 31, 1994, the statements
of changes in net assets for the period January 1, 1995 through June 30, 1995
and the years ended December 31, 1994 and 1993, and the financial highlights for
the period January 1, 1995 through June 30, 1995, and each of the five years
ended December 31, 1994. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of June 30, 1995, by correspondence with the
custodian. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Steadman Investment Fund as of June 30, 1995, the results of its operations, the
changes in its net assets, and the financial highlights for each of the
respective periods stated in the first paragraph, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Washington, D.C.
August 18, 1995
================================================================================
<PAGE>
================================================================================
STEADMAN INVESTMENT FUND
Statement of Assets and Liabilities
June 30, 1995
<TABLE>
<S> <C>
Assets:
Investments at value (Cost $2,002,031) (Note 1)............... $ 2,217,656
Interest receivable (Note 1).................................. 38,873
Cash and cash equivalents..................................... 70,957
-----------
Total assets............................................. 2,327,486
-----------
Liabilities:
Accounts payable and accrued expenses......................... 8,169
Investment advisory and service fees payable (Note 4)......... 6,374
Other payable to affiliate (Note 4)........................... 13,975
Payable for Trust shares redeemed............................. 989
-----------
Total liabilities........................................ 29,507
-----------
Net Assets............................................................. $ 2,297,979
===========
Net assets consist of:
Accumulated net investment loss............................... $(1,568,894)
Unrealized appreciation of investments........................ 215,625
Accumulated net realized losses............................... (437,155)
Capital paid in less distributions since inception............ 4,088,403
-----------
$ 2,297,979
===========
Net asset value, offering price and redemption price per share
($2,297,979 / 2,244,088 shares of no par value trust shares)........... $ 1.02
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
================================================================================
<PAGE>
================================================================================
STEADMAN INVESTMENT FUND
Statements of Operations
<TABLE>
<CAPTION>
For the period January 1, For the year ended
1995 through June 30, 1995* December 31, 1994
--------------------------- ------------------
<S> <C> <C>
Investment Income:
Dividends............................................................... $ 2,335 $ 40,693
Interest................................................................ 66,867 22,416
--------- -----------
Total income....................................................... 69,202 63,109
--------- -----------
Expenses:
Salaries and employee benefits (Note 4)................................. 43,379 93,598
Shareholder servicing fee (Note 4)...................................... 26,752 54,463
Investment advisory fee (Note 4)........................................ 10,952 28,041
Professional fees....................................................... 8,280 19,572
Rent.................................................................... 6,189 13,721
Computer services....................................................... 5,826 10,720
Miscellaneous........................................................... 5,141 9,931
Trustees' fees and expenses............................................. 4,097 5,596
Custodian fees.......................................................... 2,629 4,536
Reports to shareholders................................................. 2,415 9,759
--------- -----------
Total expenses.......................................................... 115,660 249,937
--------- -----------
Net investment loss..................................................... (46,458) (186,828)
--------- -----------
Realized and Unrealized Gain/ (Loss) on Investments (Notes 1 and 3):
Net realized loss from investment transactions.......................... (242,568) (194,587)
Change in unrealized depreciation/appreciation of investments........... 491,165 (779,305)
--------- -----------
Net gain (loss) on investments.................................... 248,597 (973,892)
--------- -----------
Net increase (decrease) in net assets resulting from operations... $ 202,139 $(1,160,720)
========= ===========
</TABLE>
* The Fund's fiscal year-end was changed to June 30.
The accompanying notes are an integral part of the financial statements.
================================================================================
<PAGE>
================================================================================
STEADMAN INVESTMENT FUND
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the period For the For the
January 1, 1995 year ended year ended
through June 30, 1995* December 31, 1994 December 31, 1993
---------------------- ----------------- -----------------
<S> <C> <C> <C>
Increase (decrease) in net assets from operations:
Net investment loss........................................ $ (46,458) $ (186,828) $ (169,788)
Net realized gain (loss) from investment transactions...... (242,568) (194,587) 281,152
Change in unrealized depreciation/appreciation net......... 491,165 (779,305) (4,563)
---------- ----------- ----------
Net increase (decrease) in net assets resulting
from operations....................................... 202,139 (1,160,720) 106,801
Decrease in net assets from trust share transactions (Note 2)... (63,007) (230,035) (338,682)
---------- ----------- ----------
Increase (decrease) in net assets............................... 139,132 (1,390,755) (231,881)
Net assets at beginning of period............................... 2,158,847 3,549,602 3,781,483
---------- ----------- ----------
Net assets at end of period (including accumulated net
investment loss of $1,568,894, $204,464
and $17,636 respectively)....................................... $2,297,979 $ 2,158,847 $3,549,602
========== =========== ==========
</TABLE>
* The Fund's fiscal year-end was changed to June 30.
The accompanying notes are an integral part of the financial statements.
================================================================================
<PAGE>
================================================================================
STEADMAN INVESTMENT FUND
Financial Highlights
<TABLE>
<CAPTION>
For the period
January 1, 1995
through June 30, For the years ended December 31,
---------------- ----------------------------------------------------------
1995* 1994 1993 1992 1991 1990
---------------- ----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period........ $.93 $1.42 $1.38 $1.49 $1.12 $1.32
------- ----------------------------------------------------------
Net investment loss......................... (.02) (.08) (.06) (.09) (.06) (.09)
Net realized and unrealized
gain (loss) on investments.......... .11 (.41) .10 (.02) .43 (.11)
------- ----------------------------------------------------------
Total from investment operations........ .09 (.49) .04 (.11) .37 (.20)
------- ----------------------------------------------------------
Net asset value, end of period.............. $1.02 $ .93 $1.42 $1.38 $1.49 $1.12
======= ==========================================================
Ratios/Supplemental Data:
Total return................................ 19.36%** (34.51)% 2.89% (7.05)% 32.95% (15.15)%
Ratio of expenses to average net
assets...................................... 10.54%** 8.90% 6.48% 7.78% 7.88% 10.31%
Ratio of net investment loss to average
net assets.................................. (4.24)%** (6.65)% (4.52)% (6.09)% (5.08)% (7.27)%
Portfolio turnover rate..................... 226%** 282% 179% 263% 245% 144%
Net assets, end of period (in thousands).... $2,298 $2,159 $3,550 $3,781 $4,277 $3,530
</TABLE>
*The Fund's fiscal year-end was changed to June 30.
**Annualized
The accompanying notes are an integral part of the financial statements.
================================================================================
<PAGE>
================================================================================
STEADMAN INVESTMENT FUND
Notes to Financial Statements
1. Significant accounting policies
Steadman Investment Fund (the Fund) is registered under the Investment
Company Act of 1940, as amended, as a non-diversified, open-end investment
company. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles for investment companies.
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. All cash and cash
equivalents are invested in a single money market fund maintained by the
investment custodian.
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.
Fiscal Year
During 1995, the Fund changed its fiscal year end from December 31 to
June 30. The accompanying financial statements include audited financial
statements for the six-month transition period ended June 30, 1995.
Components of net assets
In accordance with Statement of Position 93-2 "Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain,
and Return of Capital Distribution by Investment Companies," the Fund
reclassified to paid-in capital permanent differences between tax and
financial reporting of net investment loss and net realized gains/losses.
The result of operations and net assets are not affected by these
reclassifications.
================================================================================
<PAGE>
================================================================================
STEADMAN INVESTMENT FUND
2. Trust shares
The Trust Indenture does not specify a limit to the number of shares which
may be issued. Transactions in trust shares were as follows:
<TABLE>
<CAPTION>
For the period January 1 For the year ended For the year
1995 through June 30, 1995 December 31, 1994 ended December 31, 1993
-------------------------- ------------------------- ------------------------
Shares Amount Shares Amount Shares Amount
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Shares sold..................... -- 0 -- $ -- 0 -- -- 0 -- $ -- 0 -- -- 0 -- $ -- 0--
Shares redeemed................. (65,380) (63,007) (183,957) (230,035) (238,376) (338,682)
--------- --------- --------- --------- --------- ---------
Net decrease................. (65,380) $ (63,007) (183,957) $(230,035) (238,376) $(338,682)
========= ========= =========
Shares outstanding:
Beginning of period...... 2,309,468 2,493,425 2,731,801
--------- --------- ---------
End of Period............ 2,244,088 2,309,468 2,493,425
========= ========= =========
</TABLE>
3. Purchases and sales of securities
During the six month period ended June 30, 1995, purchases and sales of
investment securities aggregated $2,303,700 and $2,083,522, respectively.
Unrealized appreciation of investments aggregated $215,625, all of which
relates to gross unrealized appreciation.
4. Investment advisory fee and transactions with affiliates
Steadman Security Corporation (SSC) has provided investment advisory
services under an agreement which first became effective in 1972. On February
28, 1984, at the Annual Meeting of the shareholders, a new Investment Advisory
Agreement was approved. Under the new advisory agreement SSC will continue to
provide the same services it provides under the same terms and conditions of the
previous agreement. The agreement will continue in effect subject to the annual
approval by the Board of Trustees or by a majority of the outstanding voting
securities of the Fund. The fee for investment advisory services is based on 1%
of the first $35,000,000 of the average daily net assets of the Fund, 7/8 of 1%
on the next $35,000,000 and 3/4 of 1% on all sums in excess thereof. In addition
to the investment advisory fee, SSC received fees from the Fund for the
performance of delegated services (dividend disbursing agent and transfer agent)
as defined in the Trust Indenture, as amended. The fee for such services was
computed on the basis of the number of shareholder accounts calculated as of the
last business day of each month at $1.35 per account. SSC received
reimbursements from the Fund for the salaries and benefits of its employees who
perform functions other than investment advisory and shareholder service
functions for the Fund.
Certain officers and trustees of the Fund are "affiliated persons" of the
Investment Adviser, as defined by the
================================================================================
<PAGE>
================================================================================
Investment Company Act of 1940.
5. Federal income taxes
In the fiscal period ended June 30, 1995, the Fund did meet the asset
diversification requirements applicable to regulated investment companies. Thus,
the Fund did qualify as a regulated investment company under Subchapter M of the
Internal Revenue Code. However, the Fund had a net investment loss and realized
net capital losses in the fiscal period ended June 30, 1995, therefore no income
tax provision is required. A full valuation allowance has been provided for the
deferred tax assets, totalling approximately $760,000 at June 30, 1995, 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 $1,570,000
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 and (2010) $46,000.
Capital loss carryforwards aggregating approximately $438,000 are available to
offset future capital gains, if any, expiring as follows: (1999) $195,000 and
(2000) $243,000.
6. Unclaimed property
In December 1989, the Fund and other Steadman Funds were contacted by the
Unclaimed Property Clearinghouse (the Clearinghouse), an association of some 45
member states organized to facilitate the collection for the states of unclaimed
property that is considered abandoned under the laws of the member states. The
Clearinghouse requested certain documents and information in order to determine
whether, and if so, to what extent its member states may assert claims for
abandoned accounts of the Fund's shareholders. On the basis of a review of the
documents and information provided in response to this request, the Special
Counsel for the Clearinghouse has informally asserted that the member states are
entitled to certain property of the Fund's shareholders. In addition Steadman
Security Corporation holds certain unclaimed dividends of the Fund's
shareholders. In May 1991, the District of Columbia filed suit in the Superior
Court of the District of Columbia against the Fund, other Steadman Funds,
Steadman Security Corporation and its principal officer under the District of
Columbia Disposition of Unclaimed Property Act. Under this action the District
of Columbia sought possession and custody of the alleged abandoned property as
well as prejudgment interest, an unspecified amount of civil penalties, and
reimbursement for reasonable attorney's fees and costs. On March 25, 1993,
counsel for the District of Columbia, the Clearinghouse and the Fund executed a
settlement agreement, which involves no findings of any violations of law by the
Fund and other defendants. The Superior Court dismissed the suit as of November
30, 1993, although the terms of the settlement agreement do not call for
dismissal until after the closing agreement. The District of Columbia appealed
the dismissal. In accordance with the settlement agreement, record title to
certain shares of the Fund and associated distributions were transferred from
the present shareholders of record to the members of the Clearinghouse on the
closing date, February 14, 1995. The shares will be redeemed over a period of
three years from this date. On May 9, 1995, the Court of Appeals dismissed the
appeal.
================================================================================
<PAGE>
================================================================================
This Page is intentionally Blank
================================================================================
<PAGE>
STEADMAN
Investment
Fund
ANNUAL
REPORT
June 30, 1995
A Steadman NO-LOAD Mutual Fund
[LOGO APPEARS HERE] STEADMAN SECURITY
CORPORATION
Investment Adviser
STEADMAN INVESTMENT FUND
1730 K Street, N.W.
Washington, D.C. 20006
1-800-424-8570
202-223-1000 Washington D.C. area
Transfer Agent
Steadman Security Corporation
1730 K Street, N.W.
Washington, D.C. 20006
Custodian
NationsBank Trust Company, N.A.
1501 Pennsylvania Ave., N.W.
Washington, D.C. 20013
Independent Accountants
Coopers & Lybrand L.L.P
1800 M Street N.W.
Washington D.C. 20036
For more information about
Steadman Investment Fund.
account information or daily
Net Asset Values, call:
Shareholder Services
1-800-424-8570
202-223-1000 Washington, D.C. area
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Financial Statements and information of the Fund listed below are
included in part B hereof.
--Report of Independent Accountants, dated August 18, 1995.
--Portfolio of Investments, June 30, 1995.
--Statement of Assets and Liabilities, June 30, 1995.
--Statement of Operations, six months ended June 30, 1995 and for the
year ended December 31, 1994.
--Statements of Changes in Net Assets, six months ended June 30, 1995
and years ended December 31, 1994 and 1993.
--Financial Highlights, for the period January 1, 1995 through June 30,
1995 and for each of the five years in the period ended December 31.
--Notes to Financial Statements listed above.
(b) Exhibits:
(1) Annotated Declaration of Trust of Steadman Investment Fund dated May
11, 1979 with amendments through June 23, 1993, previously filed.
(2) None
(3) None
(4) Form of Certificate for Share of Beneficial Interest,
previously filed.
(5) Investment Advisory Contract between the trustees of Steadman
Investment Fund and Steadman Security Corporation dated July 3,
1984, previously filed.
(6) None
(7) None
C-1
<PAGE>
(8) Custody Agreement between Steadman Investment Fund and Security
Trust Company, N.A. dated February 4, 1991, previously filed.
(9) None
(10) Not Applicable
(11) Consent of Independent Accountants dated
October 24, 1995 filed herewith.
(12) Not Applicable
(13) None
(14) None
(15) None
(16) Not Applicable
Item 25. The Board of Trustees of the Fund is the same as the boards of other
funds advised by the Adviser, each of which has the Adviser as its
investment adviser. In addition, the officers of these funds are
substantially identical. The Fund takes the position that it is not
under common control with these other funds since the power residing in
the respective boards and officers arises as the result of an official
position with the respective funds.
Item 26. Number of Holders of Securities as of September 30, 1995:
Title of Class No. of Record Holders
Share of Beneficial Interest 3,281
Item 27. Indemnification. The Fund's Declaration of Trust, Sections 2.18 and
5.3, provides that the Fund shall indemnify each of its Trustees,
Adviser, 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
C-2
<PAGE>
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 Adviser 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,
Adviser, 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. Further,
Trustees 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 adviser, including the Adviser, any underwriter of
securities of the Fund or any independent contractor, to such extent as
the Trustees shall determine.
Item 28. Business and Other Connections of Investment Adviser.
The Investment Adviser provides transfer agent and fund accounting
services to the Copley Fund, Inc. of Fall River, Massachusetts and the
Ehrenkrantz Trust of New York City, New York.
Item 29. Principal Underwriter. None
Item 30. Location of Accounts and Records
Steadman Security Corporation
1730 K Street N.W.
Washington, D.C. 20006
Item 31. Management Services. None
Item 32. Undertakings
(a) Not applicable
(b) Not applicable
C-3
<PAGE>
SIGNATURE
Pursuant to the requirements of the Investment Company Act of 1940,
the Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Washington,
District of Columbia on the 24th day of October, 1995.
Steadman Investment Fund
Registrant
By /s/ Charles W. Steadman
---------------------------------
Charles W. Steadman, Trustee,
Chairman of the Board of Trustees
and President, Steadman Investment
Fund
C-4
<PAGE>
EXHIBIT INDEX
-------------
Exhibit (1) Consent of Independent Accountants,
dated October 24,1995
C-5
<PAGE>
Exhibit (1)
Consent of Independent Accountants
To the Board of Trustees of
Steadman Investment Fund
We consent to the inclusion in Post-Effective Amendment No. 12 to the
Registration Statement of Steadman Investment Fund (the "Fund") on Form N-1A
(File Number 811-747) of our report dated August 18, 1995, on our audit of the
financial statements and financial highlights of the Fund, which report is
included in the Annual Report to Shareholders for the period ended June 30, 1995
which is included in the Registration Statement. We also consent to the
reference of our firm under the caption "Independent Accountants" in the
Statement of Additional Information.
/s/ Coopers & Lybrand L.L.P.
Baltimore, Maryland
October 24, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 2,002,031
<INVESTMENTS-AT-VALUE> 2,217,656
<RECEIVABLES> 38,873
<ASSETS-OTHER> 70,957
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,327,486
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 29,507
<TOTAL-LIABILITIES> 29,507
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,088,403
<SHARES-COMMON-STOCK> 2,244,088
<SHARES-COMMON-PRIOR> 2,309,468
<ACCUMULATED-NII-CURRENT> (1,568,894)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (437,155)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 215,625
<NET-ASSETS> 2,297,979
<DIVIDEND-INCOME> 2,335
<INTEREST-INCOME> 66,867
<OTHER-INCOME> 0
<EXPENSES-NET> 115,660
<NET-INVESTMENT-INCOME> (46,458)
<REALIZED-GAINS-CURRENT> (242,568)
<APPREC-INCREASE-CURRENT> 491,165
<NET-CHANGE-FROM-OPS> 202,139
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 65,380
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 139,132
<ACCUMULATED-NII-PRIOR> (204,464)
<ACCUMULATED-GAINS-PRIOR> (5,663,296)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 10,952
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 115,660
<AVERAGE-NET-ASSETS> 2,193,527
<PER-SHARE-NAV-BEGIN> 0.93
<PER-SHARE-NII> (0.02)
<PER-SHARE-GAIN-APPREC> 0.11
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.02
<EXPENSE-RATIO> 10.54
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
