As filed with the Securities and Exchange Commission on January 31, 1997
Securities Act File No. 333-________
Investment Company Act File No. 811-00018
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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Pre-Effective Amendment No. __ Post-Effective Amendment No. __
(Check Appropriate Box of Boxes)
STEADMAN ASSOCIATED FUND
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(Exact Name of Registration as Specified in its Charter)
(202) 223-1000
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(Area Code and Telephone Number)
1730 K Street, N.W.
Washington, D.C. 20006
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(Address of Principal Executive Offices, including Zip Code)
Max Katcher
Steadman Associated Fund
1730 K Street, N.W.
Washington, D.C. 20006
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(Name and Address of Agent for Service)
Copies to:
Peter R. Gilbert, Esq.
Manatt, Phelps & Phillips, LLP
1501 M Street, N.W., Suite 700
Washington, D.C. 20005
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(Name and Address of Agent for Service)
Approximate date of proposed public offering: As soon as practicable after
the Registration Statement has been declared effective under the Securities Act
of 1933.
CALCULATION OF THE REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933:
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Proposed Maximum
Title of Securities Amount Being Proposed Maximum Aggregate Offering Amount of Registration
Being Registered Registered(1) Offering Price Per Unit Price(2) Fee (3)
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Shares of Common Law 836,469 $4.13 $3,454,617 $1191.25
Trust
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(1) Represents the maximum additional number of shares to be issued in exchange
for shares of Steadman Investment Fund, Steadman American Industry Fund, and
Steadman Technology and Growth Fund (the "Acquired Funds"), pursuant to the
Agreement and Plan of Merger dated as of January 28, 1997, between the
Registrant and the Acquired Funds.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(d) under the Securities Act of 1933 based on the market
value of the assets of the Acquired Funds calculated in accordance with the
method used in calculating the daily offering price on January 27, 1997, a date
within 15 days prior to the filing of this Registration Statement.
(3) Previously paid by wire transfer to the designated lockbox of the Securities
and Exchange Commission in Pittsburgh, Pennsylvania.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
STEADMAN ASSOCIATED FUND
REGISTRATION STATEMENT ON FORM N-14
CROSS REFERENCE SHEET
N-14 Location in
Item No. Registration Statement
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Part A: Information Required
in Prospectus/Proxy Statement
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1. Beginning of Registration Cover Page; Cross Reference Sheet
Statement and Outside Front Cover
Page of Prospectus
2. Beginning and Outside Back Cover Table of Contents
Page of Prospectus
3. Synopsis and Risk Factors Synopsis; Principal Risk Factors
4. Information about the Transaction Synopsis; Approval of the Merger;
Capitalization Table; Difference
Between Operations of SST as an
Open-End and Closed-End Investment
Company; Appendix A
5. Information about the Registrant Synopsis; Comparison of Investment
Objectives, Policies and
Techniques of the Funds; Principal
Risk Factors; Legal Proceedings;
Miscellaneous.
6. Information about the Company Synopsis; Comparison of Investment
Being Acquired Objectives, Policies and
Techniques of the Funds; Principal
Risk Factors; Miscellaneous.
7. Voting Information Synopsis; Approval of the Merger;
Information concerning the
Meetings.
8. Interest of Certain Persons and Not Applicable.
Experts
9. Additional Information Required for Not Applicable.
Reoffering by Persons Deemed to be
Underwriters
N-14 Location in
Item No. Registration Statement
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Part B: Information Required in
Statement of Additional Information
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10. Cover Page Cover Page
11. Table of Contents Item 11. Table of Contents
12. Additional Information about Item 12. Additional Information
the Registrant about the Registrant
13. Additional Information about the Item 13. Additional Information
Company Being Acquired about the Company being acquired.
14. Financial Statements Item 14. Financial Statements
Part C: Other Information
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15. Indemnification Item 15. Indemnification
16. Exhibits Item 16. Exhibits
17. Undertakings Item 17. Undertakings
STEADMAN AMERICAN INDUSTRY FUND
STEADMAN ASSOCIATED FUND
STEADMAN INVESTMENT FUND
STEADMAN TECHNOLOGY AND GROWTH FUND
February ___, 1997
DEAR SHAREHOLDER:
ENCLOSED IS A PROXY STATEMENT AND PROSPECTUS AND A MORE DETAILED
SHAREHOLDER LETTER CONCERNING A PROPOSED MERGER OF: STEADMAN AMERICAN INDUSTRY
FUND ("SAIF"), STEADMAN INVESTMENT FUND ("SIF"), AND STEADMAN TECHNOLOGY AND
GROWTH FUND ("STGF") into STEADMAN ASSOCIATED FUND, WHICH WILL BE RENAMED
STEADMAN SECURITY TRUST ("SST")
THE MERGER WILL BE ACCOMPLISHED BY EXCHANGING SAIF, SIF AND STGF SHARES ON
A PRO RATA BASIS FOR SHARES OF SST. THEREAFTER, SST WILL OPERATE AS A SINGLE
CLOSED-END FUND.
CONSOLIDATION OF THE FOUR FUNDS WILL PROVIDE AN OPPORTUNITY FOR YOU TO
BENEFIT FROM THE LOWER OPERATING EXPENSES RESULTING FROM THE ECONOMIES INHERENT
IN THE LARGER, CLOSED-END FUND.
THE TRUSTEES OF EACH OF THE FOUR FUNDS UNANIMOUSLY RECOMMEND SHAREHOLDER
APPROVAL OF THIS MERGER PROPOSAL.
PLEASE REVIEW THE ATTACHED MATERIALS CAREFULLY AND RETURN YOUR PROXY AS
SOON AS POSSIBLE.
FOR THE BOARD OF TRUSTEES
OF
STEADMAN AMERICAN INDUSTRY FUND
STEADMAN ASSOCIATED FUND
STEADMAN INVESTMENT FUND
STEADMAN TECHNOLOGY AND GROWTH FUND
Charles W. Steadman
Chairman of the Boards of Trustees
and President
To the Shareholders of:
STEADMAN AMERICAN INDUSTRY FUND
STEADMAN ASSOCIATED FUND
STEADMAN INVESTMENT FUND
STEADMAN TECHNOLOGY AND GROWTH FUND
February __, 1997
Dear Shareholder:
We are pleased to invite you to the Special Meetings of Shareholders of
Steadman American Industries Fund, Steadman Associated Fund, Steadman Investment
Fund and Steadman Technology and Growth Fund. The meetings are scheduled to be
held on ______, 1997, at 9:30 a.m., Washington, D.C. time, at ____________
Hotel, Washington, D.C. 2000?.
At these Special Meetings, you will be asked to consider and approve a very
important proposal. Subject to shareholder approval, Steadman American Industry
Fund, Steadman Investment Fund and Steadman Technology and Growth Fund (the
"Merging Funds") will merge into Steadman Associated Fund which will be renamed
the "Steadman Security Trust" ("SST"). Immediately prior to the Merger, SST
will effect a reverse stock split so that each five shares of SST issued and
outstanding will be converted into one Fund share after the reverse split.
Shareholders of the Merging Funds will receive shares of SST on a pro rata basis
in exchange for their shares of the Merging Funds. Upon the completion of the
merger, SST will become a closed-end investment company.
THE REORGANIZATION WILL RESULT IN SIGNIFICANT COST SAVINGS AND OTHER
ECONOMIES AND WILL PROVIDE SHAREHOLDERS WITH IMPORTANT BENEFITS:
1. LOWER OPERATING COSTS. Operating costs of the Funds will be
reduced substantially from the costs of operating four funds functioning
separately. The merger will enable SST to use its assets more efficiently and
increase shareholder value. Fund accounting, stock transfer costs and other
shareholder services will be reduced significantly. By converting to a closed-
end fund, SEC requirements for daily determination of net asset values will be
eliminated, as well as the need for annual securities registration with the
states. The Trustees believe that annual operating costs will be reduced
principally in the following areas: shareholder servicing fees, professional
fees, reports to shareholders, computer services and custodian fees. A study by
management of the Funds estimated that SST operating expenses will be
approximately $650,000 lower annually than the total expenses of the current
four Funds.
2. LOWER EXPENSE RATIO. The Trustees expect the merger to reduce
the expense ratio of SST and increase its capacity for growth. However, there
can be no assurance that reductions in expenses will result in profitable
operations for SST.
3. IMPROVED PORTFOLIO MANAGEMENT FLEXIBILITY. After the merger, SST
will operate as a closed-end investment company. It is expected that shares of
SST will be traded in the over-the-counter market; however, there can be no
assurance that a market will develop for shares of SST. Shares of closed-end
funds have no right of redemption. They are bought and sold in market
transactions. Consequently, liquid reserves no longer will be needed to finance
share redemptions as with open-end funds. Greater resources will be available
for long-term investments consistent with the SST's objectives and management's
perception of market conditions. SST will be able to invest with a longer term
view without being concerned about the possibility of liquidating some
investments at an inopportune time solely to redeem fund shares.
4. TAX ASPECTS. The reverse stock split will constitute a
recapitalization of SST for tax purposes, but the merger will not qualify as a
tax-deferred reorganization under the Internal Revenue Code. Shareholders of
SAIF, SIF and STGF will recognize gain or loss equal to the difference between
the tax bases of their SAIF, SIF or STGF shares surrendered by them in the
merger and the fair market value of the SST shares they receive in the exchange.
In many cases, the result may be a tax loss rather than a tax gain, but each
shareholder must calculate individually their own gain or loss. Such gain or
loss will be capital gain or loss for shareholders who hold their SAIF, SIF or
STGF shares as capital assets and will be long term or short term gain or loss
depending upon their individual holding periods for the shares surrendered. SST
and its shareholders will not recognize gain or loss as a result of the exchange
of SST shares for SST shares in the reverse stock split. SAIF, SIF and STGF
will be treated for federal income tax purposes as if they had transferred all
of their assets to SST in a taxable transaction, had recognized all of the
built-in gains and losses on those assets, and had then liquidated. SAIF, SIF
and STGF will be able to offset any net gain from this deemed asset sale with
their respective capital loss and net operating loss carryovers. The Trustees
anticipate that there will be sufficient loss carryovers to offset any net gain
recognized by SAIF, SIF or STGF in the merger. SST will not be taxable as a
result of the deemed asset sale, nor will its shareholders. Any capital loss
and net operating loss carryovers of SAIF, SIF and STGF not used to offset their
net gain in the merger will expire. SST, as the surviving single entity, will
be able to utilize its separate tax loss carryforwards against ordinary income
and capital gains to eliminate or reduce SST's post-merger taxable income.
The attached Joint Proxy Statement and Prospectus has been prepared to give
you detailed information about this reorganization.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN YOUR PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE SO THAT YOUR VOTE
WILL BE COUNTED.
We appreciate your continued support and confidence in our funds.
FOR THE BOARDS OF TRUSTEES
OF
STEADMAN AMERICAN INDUSTRY FUND
STEADMAN ASSOCIATED FUND
STEADMAN INVESTMENT FUND
STEADMAN TECHNOLOGY AND GROWTH FUND
Charles W. Steadman
Chairman of the Boards of Trustees
and President
STEADMAN AMERICAN INDUSTRY FUND
STEADMAN ASSOCIATED FUND
STEADMAN INVESTMENT FUND
STEADMAN TECHNOLOGY AND GROWTH FUND
1730 K STREET, N.W.
WASHINGTON, D.C. 20006
1-800-424-8570
NOTICE OF SPECIAL MEETINGS OF SHAREHOLDERS
TO BE HELD _______, 1997
To the Shareholders:
Notice is hereby given that Special Meetings of the Shareholders of
Steadman American Industry Fund ("SAIF"), Steadman Associated Fund ("SAF"),
Steadman Investment Fund ("SIF") and Steadman Technology and Growth Fund
("STGF"), each of which is currently an open-end, investment company (together
the "Funds") will be held at ______________ Hotel, Washington, D.C. 2000?, at
9:30 a.m., Washington, D.C. time, on _______, 1997, and any adjournments thereof
(the "Meetings"), for the following purposes:
1. FOR THE SHAREHOLDERS OF ALL OF THE FUNDS: To consider and act upon a
proposal to approve the Agreement and Plan of Merger dated as of
January 28, 1997 (the "Merger Agreement") by and among SAIF, SAF, SIF
and STGF whereby SAIF, SIF and STGF will merge into SAF (the
"Merger"), which fund will be renamed Steadman Security Trust ("SST")
and change to a closed-end investment fund; and
2. SOLELY FOR THE SHAREHOLDERS OF SAF:
(a) To elect four Trustees for terms of unlimited duration;
(b) To consider and act upon a proposal to ratify and confirm the
Amended and Restated Trust Indenture of SST as of January 28,
1997, which provides, among other things, for the change from an
open-end to a closed-end investment company; and
(c) To consider and act upon a proposal to ratify the selection of
Reznick Fedder & Silverman to serve as independent auditors of
SST.
3. To act upon such other matters as may properly come before the
Meetings or any adjournments thereof.
The Merger is more fully described in the accompanying Proxy Statement and
Prospectus. A copy of the Merger Agreement is attached as Exhibit A thereto.
Shareholders of record of SAIF, SAF, SIF and STGF at the close of business on
February __, 1997 are entitled to notice of, and to vote at, the Meetings.
Please read the Proxy Statement and Prospectus carefully before telling us,
through your proxy or in person, how you wish your shares to be voted. The
Trustees of each of SAIF, SAF, SIF and STGF unanimously recommend a vote in
favor of the Merger.
WE URGE YOU TO SIGN, DATE AND MAIL THE ENCLOSED PROXY PROMPTLY.
By Order of the Boards of Trustees
Max Katcher, Secretary
February __, 1997
YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES YOU OWN
PLEASE INDICATE YOUR VOTING INSTRUCTIONS ON THE ENCLOSED PROXY CARD; PLEASE
DATE AND SIGN THE CARD AND RETURN IT IN THE ENVELOPE PROVIDED. IF YOU SIGN,
DATE, AND RETURN THE PROXY CARD BUT GIVE NO VOTING INSTRUCTIONS, YOUR SHARES
WILL BE VOTED "FOR" EACH APPLICABLE PROPOSAL NOTICED ABOVE. IN ORDER TO AVOID
THE ADDITIONAL EXPENSE AND DELAY OF FURTHER SOLICITATION, WE ASK YOUR
COOPERATION IN MAILING IN YOUR PROXY CARD PROMPTLY SO THAT A QUORUM MAY BE
ENSURED. UNLESS PROXY CARDS SUBMITTED BY CORPORATIONS AND PARTNERSHIPS ARE
SIGNED BY THE APPROPRIATE PERSONS AS INDICATED IN THE VOTING INSTRUCTIONS ON THE
PROXY CARD, SUCH PROXY CARDS CANNOT BE VOTED.
QUESTIONS AND ANSWERS ABOUT THE PROPOSED MERGER
1. WHAT IS THE MERGER?
The Merger proposes to combine four separate funds into a single fund, the
Steadman Associated Fund ("SAF"), whose name will change to Steadman Security
Trust ("SST"). It also proposes to change SST from an open-end to a closed-end
investment company. Fund shares no longer will be sold or redeemed by SST on a
request basis, but will be sold to other investors in market transactions. It
is expected that shares of SST will be traded in the over-the-counter market;
however, there can be no assurance that a market will develop for shares of SST.
The number of shares of SST issued to shareholders of SAIF, SIF and STGF
will be determined on the basis of the relative net asset values of SST and each
of the other funds. Immediately prior to the merger, SST will declare a reverse
stock split of five to one so that each five outstanding shares of SST will
become one share of the SST. The value of the new 5-to-1 shares of SST issued
to shareholders of the other funds as a result of the Merger will be equal to
the value of shares held in the other funds on the day before the closing date
of the Merger. Shareholders of SST will continue to hold the same number of
shares before and after the Merger.
2. WHAT ARE THE REASONS FOR THE MERGER?
After a detailed study of the operations of SAIF, SAF, SIF and STGF, the
Trustees concluded that the merger would create substantial cost savings and
other economies and would provide shareholders with important benefits:
A. LOWER OPERATING COSTS. Operating costs of the Funds will be
reduced substantially from the costs of operating four funds functioning
separately. The merger will enable SST to use its assets more efficiently and
increase shareholder value. Fund accounting, stock transfer costs and other
shareholder services will be reduced significantly. By converting to a closed-
end fund, SEC requirements for daily determination of net asset values will be
eliminated, as well as the need for annual securities registration with the
states. The Trustees believe that annual operating costs will be reduced
principally in the following areas: shareholder servicing fees, professional
fees, reports to shareholders, computer services and custodian fees. A study by
management of the Funds estimated that SST operating expenses will be
approximately $650,000 lower annually than the total expenses of the current
four Funds.
B. LOWER EXPENSE RATIO. The Trustees expect the merger to reduce
the expense ratio of SST and increase its capacity for growth. However, there
can be no assurance that reductions in expenses will result in profitable
operations for SST.
1
C. IMPROVED PORTFOLIO MANAGEMENT FLEXIBILITY. After the merger, SST
will operate as a closed-end investment company, whose shares will be traded in
the over-the-counter market; however, there can be no assurance that a market
will develop for shares of SST. Shares of closed-end funds have no right of
redemption. They are bought and sold through markets for fund shares.
Consequently, liquid reserves no longer will be needed to finance share
redemptions as with open-end funds. Greater resources will be available for
long-term investments consistent with the SST's objectives and management's
perception of market conditions. SST will be able to invest with a longer term
view without being concerned about the possibility of liquidating some
investments at an inopportune time solely to redeem fund shares.
D. TAX ASPECTS. The five to one reverse stock split of SST will be
a recapitalization of SST for federal income tax purposes, but the Merger will
not qualify as a tax-deferred reorganization under the Internal Revenue Code.
SST and its shareholders will not recognize gain or loss as a result of the
exchange of SST shares for SST shares in the reverse stock split. Shareholders
of SAIF, SIF and STGF will recognize gain or loss equal to the difference
between the tax bases of their SAIF, SIF or STGF shares surrendered by them in
the Merger and the fair market value of the SST shares they receive in the
exchange. For many SAIF, SIF and STGF shareholders, the result may be a tax
loss rather than a tax gain, but each shareholder's gain or loss calculation
must be performed individually. SAIF, SIF and STGF will be treated for federal
income tax purposes as if they had transferred all of their assets to SST in a
taxable transaction, had recognized all of the built-in gains and losses on
those assets, and had then liquidated. SAIF, SIF and STGF will be able to offset
any net gain from this deemed asset sale with their respective capital loss and
net operating loss carryovers. The Trustees anticipate that there will be
sufficient loss carryovers to offset any net gain recognized by SAIF, SIF or
STGF in the Merger. SST will not recognize any gain or loss as a result of the
deemed asset sale, nor will its shareholders. Any capital loss and net
operating loss carryovers of SAIF, SIF and STGF not used to offset their net
recognized gain in the Merger will expire. SST, as the surviving single entity,
will be able to utilize its separate tax loss carryforwards against ordinary
income and capital gains to eliminate or reduce SST's post-Merger taxable
income. Management estimates that after the Merger, a maximum of $4,648,795 of
net operating losses and a maximum of $1,109,769 of capital loss carryovers will
be available to be used by SST based upon June 30,1996 financial statements.
To the extent that the former holders of SAF represent less than 50% of the
total assets of SST after the Merger, the amount of the above losses which may
be used by SST in any one year will be limited to $258,396. In addition, other
transactions subsequent to the Merger could result in a change in the ownership
of SST (combined with the change resulting from the Merger) that causes the
amount loss limitation rules to apply. Whether any future events will cause
imposition of a restriction in tax loss utilization for SST cannot be predicted
at this point.
3. WHO IS PAYING THE EXPENSES OF THE MERGER?
Each of the Funds will bear its proportionate share of the expenses of the
Merger.
2
4. WHO WILL SERVE AS TRUSTEES OF SST?
Charles W. Steadman, Dr. Paul A. Bowers and Vice Admiral John T. Hayward
USN (Ret.) will continue to serve as Trustees along with Paul F. Wagner, William
Mark Crain, Gordon T. Getsinger and Richard O. Haase, who have been nominated
for election at the shareholders' meeting.
5. WHO WILL SERVE AS INVESTMENT ADVISOR TO SST?
Steadman Security Corporation is the current investment advisor to each of
the funds. It will serve as the investment advisor to SST.
6. WHERE CAN I GET FURTHER INFORMATION ABOUT SST?
Call SST at 1-(800) 424-8570. The Steadman Security Corporation will be
pleased to furnish any additional information that you want.
7. AFTER THE MERGER, WHOM DO I GET IN TOUCH WITH ABOUT MY NEW SST ACCOUNT OR
TO INITIATE A TRANSACTION?
Once the Merger is effective, you will be a shareholder of SST. You will
be able to initiate a transaction to buy or sell shares through your
representative at your registered broker-dealer, as it is expected that shares
of SST will be traded in the over-the-counter market; however, there can be no
assurance that a market will develop for shares of SST.
8. WILL THIS MERGER RESULT IN ANY TAX LIABILITY TO ANY OF THE FUNDS OR TO ME
AS A SHAREHOLDER?
The Merger will not qualify as a tax-deferred reorganization for federal
income tax purposes. The transaction will be treated for federal income tax
purposes as if SAIF, SIF and STGF had transferred all of their assets to SST in
a taxable transaction, had recognized all of the built-in gains and losses on
those assets, and had distributed SST shares to their respective shareholders in
liquidation. The Trustees believe that the capital loss and net operating loss
carryovers of SAIF, SIF and STGF will be sufficient to offset any net gain of
those entities recognized in the Merger. SST and its shareholders will not
recognize any gain or loss as a result of the deemed asset sale. The
shareholders of SAIF, SIF and STGF will be deemed to have exchanged their SAIF,
SIF and STGF shares for SST shares in a taxable transaction. Such shareholders
will recognize gain or loss equal to the difference between their individual tax
bases for the SAIF, SIF and STGF shares surrendered and the fair market value
of the SST shares received. Such gain or loss will be capital for shareholders
who hold their SAIF, SIF or STGF shares as capital assets and will be long term
or short term gain or loss depending upon their individual holding periods for
the shares surrendered. For many SAIF, SIF and STGF shareholders, the result
may be a tax loss rather than a tax gain, but each shareholder's gain or loss
calculation must be determined individually.
3
Shareholders of the funds should consult their tax advisors regarding the
effect, if any, of the Merger in light of their individual circumstances. Since
the foregoing relates only to federal income tax consequences of the Merger,
shareholders should also consult their tax advisors as to state and local tax
consequences, if any.
Shareholders are directed to read the accompanying Proxy Statement and
Prospectus for further information about the Merger and related matters.
Additional information about SST is set forth in its accompanying Proxy
Statement and Prospectus.
4
STEADMAN AMERICAN INDUSTRY FUND
STEADMAN ASSOCIATED FUND
STEADMAN INVESTMENT FUND
STEADMAN GROWTH AND TECHNOLOGY FUND
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1730 K Street, N.W. 1-800-424-8570
Washington, D.C. 20006 202-233-1000
PROXY STATEMENT
AND
PROSPECTUS
This Proxy Statement and Prospectus is being furnished to shareholders of
the Steadman American Industry Fund ("SAIF"), Steadman Associated Fund ("SAF"),
Steadman Investment Fund ("SIF") and Steadman Growth and Technology Fund
("STGF") (individually referred to herein as "Fund" and collectively referred to
as "Funds") in connection with the solicitation by the Board of Trustees of each
of the Funds ("Trustees") of proxies to be used at Special Meetings of
Shareholders of each of the Funds to be held at _____________ Hotel, Washington,
D.C. 2000? at 9:30 a.m., Washington, D.C. time, on _______, 1997, and any
adjournments thereof (the "Meetings"). Each of the Funds is currently a non-
diversified, registered open-end investment company. It is expected that this
Proxy Statement and Prospectus will be mailed to shareholders of the Funds on or
about February __, 1997.
At the Meetings, shareholders of the Funds will be asked to consider and
vote upon approval of the Agreement and Plan of Merger, dated as of January 28,
1997 (the "Merger Agreement") by and among SAIF, SAF, SIF and STGF (the
"Merger"). The Merger Agreement provides for the merger of SAIF, SIF and STGF
with and into SAF, which will be renamed Steadman Security Trust ("SST"); and
SST will change from an open-end investment company to a closed-end investment
company. As a result of the proposed Merger, each shareholder of SAIF, SIF and
STGF will receive that number of SST shares equal in value to that shareholder's
pro rata interest in the net assets transferred to SST, as of the Valuation Date
(as defined in the Merger Agreement). The proposed Merger provides that
immediately prior to the effective date of the Merger, SST will effect a reverse
split of its shares so that each five shares issued and outstanding will be
converted to one share of the Fund. The shareholders of SAF, which will become
SST, will continue to hold the same number of shares before and after the
Merger. The reverse stock split of SST will constitute a tax-free
recapitalization of SST, but the Merger transaction will not qualify as a tax
deferred reorganization for federal income tax purposes with respect to SAIF,
SIF, STGF or their respective shareholders. See "Approval of the Merger--Tax
Aspects of the Merger."
1
To simplify references herein, SAF in most cases will generally be referred
to herein as Steadman Security Trust (or "SST") which will be its post-merger
name.
As of the date of this Prospectus, SST had _________ shares of a single
class issued and outstanding pursuant to an Amended and Restated Trust
Indenture, dated January 28, 1997 ("Trust Indenture"). The Trust Indenture
provides for the issuance of an unlimited number of shares. The Merger
Agreement contemplates as a condition precedent to the effectiveness of the
Merger that the shareholders of SST will approve the change of SST from an open-
end investment company to a closed-end investment company. Accordingly, the
shares to be issued upon the effectiveness of the Merger will not be "redeemable
securities" as defined in Section 2(a)(32) of the Investment Company Act of
1940, as amended (the "1940 Act"). Shareholders will be able to purchase and
sell shares of SST in market transactions through their representative at their
registered broker/dealer.
The primary investment objective of three of the Funds, SAIF, STGF and SST,
is substantially the same--capital growth through the utilization of a broad
range of investment vehicles and techniques including, but not limited to, the
purchase and sale of put and call options. The realization of current income is
secondary to each fund's efforts in pursuing its goal of capital appreciation.
However, the current primary objective of the fourth Fund, SIF, is to seek
current income, and secondarily to maximize total return but only consistent
with its primary objective. This latter objective will become the new
investment objective of SST upon the Merger. All of the Funds currently employ
the same investment management techniques. See "Investment Objectives and
Policies."
SST has filed with the Securities and Exchange Commission (the "SEC") a
Registration Statement on Form N-14 (the "Registration Statement") relating to
the registration of shares of SST to be offered to the shareholders of SAIF, SIF
and STGF pursuant to the Merger Agreement. This Proxy Statement and Prospectus
relating to the Merger also constitutes a Prospectus of SST filed as part of
such Registration Statement. Information contained or incorporated by reference
herein relating to SST has been prepared by and is the responsibility of SST.
Information contained or incorporated by reference herein relating to the SAIF,
SIF or STGF has been prepared by and is the responsibility of the respective
Fund.
This Proxy Statement and Prospectus concisely sets forth information about
SST and the other Funds that a prospective investor should know before voting on
the Merger. The following documents are available without charge upon written
request to Steadman Security Company, 1730 K Street, N.W., Washington, D.C.
20006 or by calling the following toll free number 1-800-424-8570: Annual
Reports, dated June 30, 1996 for each of the Funds: SAIF, SAF, SIF and STGF.
INVESTORS ARE ADVISED TO READ AND RETAIN THIS PROXY STATEMENT AND
PROSPECTUS FOR FUTURE REFERENCE.
A STATEMENT OF ADDITIONAL INFORMATION, DATED THE DATE OF THIS PROSPECTUS,
RELATING TO THE PROPOSED TRANSACTIONS DESCRIBED IN THIS PROXY STATEMENT AND
PROSPECTUS, HAS BEEN FILED WITH
2
THE SEC AND IS INCORPORATED BY REFERENCE HEREIN. COPIES OF THIS STATEMENT OF
ADDITIONAL INFORMATION MAY BE OBTAINED WITHOUT CHARGE BY CONTACTING STEADMAN
SECURITY CORPORATION ("SSC") AT 1730 K STREET, N.W., WASHINGTON, D.C. 20006 OR
CALLING SSC TOLL FREE AT 1-800-424-8570.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
This Proxy Statement and Prospectus is dated February __, 1997.
3
TABLE OF CONTENTS
PROXY STATEMENT AND PROSPECTUS
AGREEMENT AND PLAN OF MERGER . . . . . . . . . . . . . . . . . . . . . . . . . 7
SYNOPSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Parties to the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . 7
The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Change to a Closed-End Fund . . . . . . . . . . . . . . . . . . . . . . . 9
Tax Consequences of the Merger. . . . . . . . . . . . . . . . . . . . . . 9
Investment Objectives and Policies. . . . . . . . . . . . . . . . . . . .10
Investment Advisory Fee . . . . . . . . . . . . . . . . . . . . . . . . .10
Purchases of Shares in the Funds. . . . . . . . . . . . . . . . . . . . .10
Redemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
PRINCIPAL RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Investment Management Techniques. . . . . . . . . . . . . . . . . . . . .11
Non-Diversified Status. . . . . . . . . . . . . . . . . . . . . . . . . .11
Closed-End Investment Company - No Redemption Rights. . . . . . . . . . .12
Borrowing-Issuance of Senior Securities . . . . . . . . . . . . . . . . .12
Expense Ratios; Performance of the Funds. . . . . . . . . . . . . . . . .12
Utilization of Tax Loss Carry Forwards. . . . . . . . . . . . . . . . . .13
Non-Qualification of Merger for Tax Deferral. . . . . . . . . . . . . . .13
Non-Qualification as a Regulated Investment Company for Tax Purposes. . .13
DIFFERENCE BETWEEN OPERATIONS OF SST AS AN OPEN-END AND CLOSED-END
INVESTMENT COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Amendment to SST Declaration of Trust . . . . . . . . . . . . . . . . . .14
Acquisition and Disposition of Shares . . . . . . . . . . . . . . . . . .14
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Determination of Net Asset Value. . . . . . . . . . . . . . . . . . . . .15
Portfolio Management. . . . . . . . . . . . . . . . . . . . . . . . . . .16
Blue Sky Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . .16
Senior Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
APPROVAL OF THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Background. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Trustee Approval of the Merger. . . . . . . . . . . . . . . . . . . . . .18
Tax Aspects of the Merger . . . . . . . . . . . . . . . . . . . . . . . .20
4
CAPITALIZATION TABLE (UNAUDITED) . . . . . . . . . . . . . . . . . . . . . . .22
COMPARATIVE FEE TABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
Transaction Charges . . . . . . . . . . . . . . . . . . . . . . . . . . .22
Expenses of the Funds; Pro Forma Expenses . . . . . . . . . . . . . . . .22
Example . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
FORM OF ORGANIZATION OF THE FUNDS. . . . . . . . . . . . . . . . . . . . . . .24
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND TECHNIQUES OF THE FUNDS. . .24
CONDENSED FINANCIAL INFORMATION OF THE FUNDS . . . . . . . . . . . . . . . . .25
DESCRIPTION OF CAPITAL STRUCTURE OF THE FUNDS AND SHAREHOLDER RIGHTS . . . . .37
Special Provisions of SST . . . . . . . . . . . . . . . . . . . . . . . .37
Over-the-Counter Market . . . . . . . . . . . . . . . . . . . . . . . . .39
MANAGEMENT OF THE FUNDS. . . . . . . . . . . . . . . . . . . . . . . . . . . .39
LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
ELECTION OF TRUSTEES OF STEADMAN ASSOCIATED FUND . . . . . . . . . . . . . . .41
Election of Trustees. . . . . . . . . . . . . . . . . . . . . . . . . . .41
Committee and Meetings of Trustees. . . . . . . . . . . . . . . . . . . .42
Interested Persons. . . . . . . . . . . . . . . . . . . . . . . . . . . .42
Compensation of Trustees. . . . . . . . . . . . . . . . . . . . . . . . .42
Officers of SST . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
RATIFICATION OF AMENDED AND RESTATED TRUST INDENTURE OF STEADMAN
SECURITY TRUST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
SELECTION OF INDEPENDENT AUDITORS. . . . . . . . . . . . . . . . . . . . . . .44
INFORMATION CONCERNING THE MEETINGS. . . . . . . . . . . . . . . . . . . . . .44
The Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
Record Date; Vote Required; Share Information . . . . . . . . . . . . . .44
Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
Costs of the Solicitation and the Reorganization. . . . . . . . . . . . .45
5
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . .46
Public Information. . . . . . . . . . . . . . . . . . . . . . . . . . . .46
OTHER BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
Exhibit A--Agreement and Plan of Merger, dated as of January 28, 1997, by and
among Steadman American Industry Fund, Steadman Investment Fund, Steadman
Growth and Technology Fund and Steadman Security Trust
Exhibit B--Amended and Restated Trust Indenture of Steadman Security Trust
(formerly, Steadman Associated Fund) and Declaration of Trust with
Amendments through January 28, 1997.
6
AGREEMENT AND PLAN OF MERGER
SYNOPSIS
The following is a synopsis of certain information contained in or
incorporated by reference in this Proxy Statement and Prospectus. It presents
key considerations for shareholders of SAIF, SAF, SIF and STGF to assist them in
determining whether to approve the Merger. This synopsis is only a summary and
is qualified in its entirety by the more detailed information contained in or
incorporated by reference in this Proxy Statement and Prospectus and the
Exhibits hereto. Shareholders should carefully review this Proxy Statement and
Prospectus and the Exhibits hereto in their entirety.
PARTIES TO THE MERGER
Each of the Funds, SAIF, SIF, STGF and SST is a common law trust, domiciled
in the District of Columbia. Each is currently a non-diversified open-end
investment company; however, a required condition of the Merger is that the
shareholders of SAF (which will become SST) will approve its change from an
open-end investment company to a closed-end investment company. After this
change, the SST shares will not be "redeemable securities" as that term is
defined in the Investment Company Act of 1940, as amended (the "1940 Act").
THE MERGER
The Merger Agreement provides for the merger of SAIF, SIF and STGF into
SAF, which will be named SST. Each shareholder of SAIF, SIF and STGF will
receive that number of SST shares equal in value to that shareholder's pro rata
interest in the net assets transferred to SST as of the Valuation Date (as
defined in the Merger Agreement). Cash will be paid in lieu of fractional
shares. The proposed Merger provides that immediately prior to the effective
date of the Merger SST will effect a reverse stock split so that each five
shares issued and outstanding will be converted into one share of the Fund.
The Trustees of each Fund, including Trustees who are not "interested
persons" of the Fund (the "Independent Trustees"), as that term is defined in
the 1940 Act, have concluded that the Merger is in the best interests of each of
the Funds and their shareholders. They also believe that the interests of
existing shareholders will not be diluted as a result of the Merger. The
Trustees unanimously recommend approval of the Merger by the shareholders of
each Fund.
The Trustees' recommendation is based on the following conclusions:
FIRST, operating costs of the Funds will be reduced substantially from
costs of operating the four funds functioning separately. The merger will
enable SST to use its assets more efficiently and increase shareholder value.
Fund accounting, stock transfer costs and other shareholder services will be
reduced significantly. By converting to a closed-end fund, SEC requirements for
daily
7
determination of net asset values will be eliminated, as well as the need for
annual securities registration with the states. The Trustees believe that
annual operating costs will be reduced principally in the following areas:
shareholder servicing fees, professional fees, reports to shareholders, computer
services and custodian fees. A study by management of the Funds estimated that
SST operating expenses will be approximately $650,000 lower annually than the
total expenses of the current four Funds.
SECOND, the Trustees expect the merger to reduce the expense ratio of SST
and increase its capacity for growth. However, there can be no assurance that
reductions in expenses will result in profitable operations for SST.
THIRD, after the merger, SST will operate as a closed-end investment
company. It is expected that shares of SST will be traded in the over-the-
counter market; however, there can be no assurance that a market will develop
for shares of SST. Shares of closed-end funds have no right of redemption.
They are bought and sold in market transactions. Consequently, liquid reserves
no longer will be needed to finance share redemptions as with open-end funds.
Greater resources will be available for long-term investments consistent with
the SST's objectives and management's perception of market conditions. SST will
be able to invest with a longer term view without being concerned about the
possibility of liquidating some investments at an inopportune time solely to
redeem fund shares.
FOURTH, The reverse stock split of SST will constitute a recapitalization
of SST, but the Merger will not qualify as a tax-deferred organization under the
Internal Revenue Code. SST and its shareholders will not recognize any gain or
loss as a result of the exchange of SST shares for SST shares in the reverse
stock split. Shareholders of SAIF, SIF and STGF will recognize gain or loss
equal to the difference between the tax bases of their SAIF, SIF or STGF shares
surrendered by them in the Merger and the fair market value of the SST shares
they receive in the exchange. For many SAIF, SIF and STGF shareholders, the
result may be a tax loss rather than a tax gain, but each shareholder's gain or
loss calculation must be determined individually. SAIF, SIF and STGF will be
treated for federal income tax purposes as if they had transferred all of their
assets to SST in a taxable transaction, had recognized all of the built-in gains
and losses on those assets, and had then liquidated. SAIF, SIF and STGF will be
able to offset any net gain from this deemed asset sale with their respective
capital loss and net operating loss carryovers. The Trustees anticipate that
there will be sufficient loss carryovers to offset any net gain recognized by
SAIF, SIF or STGF in the Merger. SST will not recognize any gain or loss as a
result of the deemed asset sale, nor will its shareholders. Any capital loss
and net operating loss carryovers of SAIF, SIF and STGF not used to offset their
net gain in the Merger will expire. SST, as the surviving single entity, will
be able to utilize its separate tax loss carryforwards against ordinary income
and capital gains to eliminate or reduce SST's post-merger taxable income.
Management estimates that after the Merger, a maximum of $4,648,795 of net
operating losses and a maximum of $1,109,769 of capital loss carryovers will be
available to be used by SST based upon June 30,1996 financial statements. To
the extent that the former holders of SAF represent less than 50% of the total
assets of SST after the Merger, the amount of the above losses which may be used
by SST in any one year will be limited to $258,396. In addition, other
8
transactions subsequent to the Merger could result in a change in the
ownership of SST (combined with the change resulting from the Merger) that
causes the amount loss limitation rules to apply. Whether any future events
will cause imposition of a restriction in tax loss utilization for SST cannot
be predicted at this point. See "Approval of the Merger--Trustees Approval
of the Merger" and "Tax Aspects of the Merger." If the Merger is not
approved by the shareholders of each of the Funds, the Funds will continue in
existence, and the Trustees of each Fund will determine whether to pursue
alternative actions.
Approval of the Merger will require the affirmative vote of a majority of
the outstanding shares of each Fund, voting separately, represented in person or
by proxy at the Meeting and entitled to vote at the Meeting. See "Information
Concerning the Meetings--Record Date; Vote Required; Share Information."
CHANGE TO A CLOSED-END FUND
Each of the Funds is currently registered as an open-end investment company
under the 1940 Act. The shareholders of SAF (which will be renamed SST) are
being asked to approve the change to a closed-end investment company.
Accordingly, if the Merger is approved by the requisite vote of shareholders of
the Funds, SST will be a closed-end investment company. Whereas open-end
investment companies issue redeemable securities, which can be surrendered at
any time in exchange for their proportionate value of the net assets of the
fund, the shares of a closed-end fund are not redeemable, but they may be
purchased or sold in market transactions. See "Difference between the
Operations of SST as an Open-End and Closed-End Investment Company."
TAX CONSEQUENCES OF THE MERGER
The reverse stock split of SST will constitute a tax-free recapitalization
of SST, but the Merger will not qualify as a tax-deferred reorganization for
federal income tax purposes. The transaction will be treated for federal income
tax purposes as if SAIF, SIF and STGF had transferred all of their assets to SST
in a taxable transaction, had recognized all of the built-in gains and losses on
those assets, and had distributed SST shares to their respective shareholders in
liquidation. The Trustees believe that the capital loss and net operating loss
carryovers of SAIF, SIF and STGF will be sufficient to offset any net gain of
those entities recognized in the Merger. Loss carryforwards of SAIF, SIF and
STGF not utilized in the Merger will expire, but SST will be able to use its
separate loss carryforwards after the Merger. SST and its shareholders will not
recognize any gain or loss as a result of the deemed asset sale and liquidation.
The shareholders of SAIF, SIF and STGF will be deemed to have exchanged their
SAIF, SIF and STGF shares for SST shares in a taxable transaction. Such
shareholders will recognize gain or loss equal to the difference between their
individual tax bases for the SAIF, SIF and STGF shares surrendered and the fair
market value of the SST shares received. Such gain or loss will be capital for
shareholders who hold their SAIF, SIF or STGF shares as capital assets and will
be long term or short term gain depending upon their individual holding periods
for the shares surrendered. For many SAIF, SIF and STGF shareholders, the
result may be
9
a tax loss rather than a tax gain, but each shareholder's gain or loss
calculation must be performed individually.
INVESTMENT OBJECTIVES AND POLICIES
Three of the Funds (SAIF, STGF and SST) share a common investment
objective, which is capital growth through the utilization of a broad range of
investment vehicles and techniques including, but not limited to, the purchase
and sale of put and call options. The realization of current income is
secondary to each Fund's efforts in pursuing its goal of capital appreciation.
However, the current primary investment objective of the fourth Fund, SIF, is to
seek current income, and secondarily to maximize total return but only
consistent with its primary objective. Upon the Merger, the latter objective
will become the new investment objective of SST as SST will be the surviving
Fund. All of the Funds employ the same investment management techniques.
Shareholders of the Funds should consider these similarities and
differences in investment objectives and policies of the funds. See "Comparison
of Investment Objectives and Techniques of the Funds."
INVESTMENT ADVISORY FEE
Each Fund obtains investment management services from the same investment
advisor, Steadman Security Corporation ("SSC"), pursuant to substantially
similar investment advisory agreements. A management fee is payable to the
investment advisor monthly and is computed on the net asset value of the Fund.
Each Fund pays a management fee which declines on additional assets as the Fund
increases its asset base, at the annual rate of 1% of the first $35 million of
net assets, 0.875% of the next $35 million and $0.75% on all sums in excess
thereof. Upon the effectiveness of the Merger, SSC will continue to provide
investment advisory services to SST pursuant to its existing Investment Advisory
Agreement.
None of the Funds has a separate service and/or distribution plan pursuant
to Rule 12b-1 under the 1940 Act.
PURCHASES OF SHARES IN THE FUNDS
SAIF, SIF and STGF have not accepted new subscriptions for shares since
May, 1988. Shares of SAF were available for purchase under a Prospectus dated
January, 1996 through October 31, 1996.
REDEMPTIONS
Prior to the closing date of the Merger, shares of each Fund may be
redeemed at their respective net asset values per share calculated after the
redemption order is received and accepted. Upon completion of the Merger and
the change of SST to a closed-end investment company, no
10
shares of SST may be redeemed. It is expected that shares of SST will be traded
in the over-the-counter market; however, there can be no assurance that a market
will develop for shares of SST.
PRINCIPAL RISK FACTORS
In evaluating whether to approve the Merger, shareholders should carefully
consider the following summary of risk factors relating to SST in addition to
the other information set forth in this Proxy Statement and Prospectus.
INVESTMENT MANAGEMENT TECHNIQUES
An investment in SST involves greater risk than an investment in many other
mutual funds because the investment objectives and policies of SST afford
management wide possible latitude in choosing investment vehicles and
techniques. This latitude is greater than that afforded many other investment
companies. Many of the vehicles and techniques -- including but not limited to
option activities, investment in foreign securities, borrowing to increase
investment funds, and short-selling -- are highly specialized and involve
significant risks. For a full discussion of the risks attendant to particular
investments and techniques, please refer to the Statement of Additional
Information. Use of such techniques may also produce higher than normal
portfolio turn-over (100% or more), which will generate additional brokerage
commissions and expenses for SST. Moreover, SST is not restricted from making
investments in real estate, precious metals, oil and gas limited partnerships,
or commodities and commodities contracts (including futures contracts), all of
which are considered speculative. Currently, SST and two of the Funds, SAIF and
STGF, share the same investment objective and techniques; and while SIF's
principal objective is different - to seek current income, rather than capital
growth - all four Funds use the same investment techniques. Upon completion of
the Merger, the primary investment objective of SST will change to seek current
income. As a secondary objective, SST will seek to maximize the total return,
but only to the extent consistent with its primary objective.
NON-DIVERSIFIED STATUS
The classification of SST as a "non-diversified" investment company means
that the proportion of the assets of SST that may be invested in the securities
of a single issuer is not limited by the 1940 Act. A "diversified investment
company" is required by the Investment Company Act of 1940 generally to invest,
with respect to 75% of its total assets, not more than 5% of such assets in the
securities of a single issuer. Moreover, SST has not elected to conduct its
operations so as to qualify as a "regulated investment company" for purposes of
the Internal Revenue Code of 1986, as amended (the "Code"), and thus, unlike
many mutual funds, it is not restricted by certain diversification requirements
imposed by the Code. Since a relatively high percentage of SST's assets may be
invested in the obligations of a limited number of issuers, some of which may be
within the same economic sector, SST's portfolio will be more susceptible to any
single economic, political or regulatory occurrence than the portfolio
securities of a diversified investment company.
11
CLOSED-END INVESTMENT COMPANY - NO REDEMPTION RIGHTS
As a closed-end investment company SST will not redeem any of its
outstanding shares. It is expected that shares of SST will be traded in the
over-the-counter market; however, there can be no assurance that a market will
develop for shares of SST. Shares of closed-end investment companies frequently
trade at a discount from net asset value. The shares of SST have never traded
publicly. Therefore, SST cannot predict whether its shares will in the future
trade at a premium above or at a discount from net asset value; and if the
shares do trade at a discount, the extent of such discount. The risk of its
shares trading at a discount is a risk separate from the risk of a decline in
net asset value.
BORROWING-ISSUANCE OF SENIOR SECURITIES
As a closed-end investment company, SST may borrow from a bank or other
entity in a privately arranged transaction to the maximum extent permitted under
the 1940 Act. Were such borrowings to be made, they would involve additional
risk to SST, since the interest expense may be greater than the income from or
appreciation of the securities carried by the borrowings and since the value of
the securities carried may decline below the amount borrowed.
SST will have the authority to issue senior securities. The 1940 Act
requires SST to maintain "asset coverage" of not less than 300% if a "class of
senior securities represents indebtedness," as those terms are defined and used
in the 1940 Act. In addition, if SST issues a class of senior security which is
stock, SST may not declare any dividends (other than a dividend payable in
common stock) or make any cash distributions to its shareholders if, after the
distribution, there would be less than 300% asset coverage of that senior
security. SST has no present intention of issuing any class of senior security;
however, it may be in the best interests of the Fund to do so in the future.
Any investment gains made with the proceeds obtained from borrowings in
excess of interest paid on the borrowings will cause the net income per share
and the net asset value per share of the SST's shares to be greater than would
otherwise be the case. On the other hand, if the investment performance of the
additional securities purchased fails to cover their cost (including any
interest paid on the money borrowed) to SST, then the net income per share and
net asset value per share of the shares of SST will be less than would otherwise
be the case.
EXPENSE RATIOS; PERFORMANCE OF THE FUNDS
Although the Merger will create economies which will reduce the operating
costs of the Funds, SST will still have a relatively high ratio of expenses to
average net assets because of its relatively small size when compared to larger
funds. The historical performance of each of the Funds during the past ten
years has been less than the results of the S&P 500 Index for the same period.
(See "Management's Discussion of Performance of the Funds.") There can be no
assurance that as a result of the Merger, the performance of SST will differ
substantially from its past performance.
12
UTILIZATION OF TAX LOSS CARRY FORWARDS
Although SST will be able to use its existing net operating loss and
capital loss carryforwards each year against income earned by SST, there can be
no assurance that sufficient income will be earned to utilize in their entirety
the loss carryforwards which are available, as the ability to use certain loss
carryforwards will expire on specific dates in the future. In addition, the
Merger is not a tax-deferred reorganization for federal income tax purposes. As
a result, the loss carryforwards of SAIF, SIF and STGF will not be available to
offset SST income after the Merger. Management estimates that after the Merger,
a maximum of $4,648,795 of net operating losses and a maximum of $1,109,769 of
capital loss carryovers will be available to be used by SST based upon June
30, 1996 financial statements. To the extent that the former holders of SAF
represent less than 50% of the total assets of SST after the Merger, the amount
of the above losses which may be used by SST in any one year will be limited to
$258,396. In addition, other transactions subsequent to the Merger could result
in a change in the ownership of SST (combined with the change resulting from the
Merger) that causes the amount loss limitation rules to apply. Whether any
future events will cause imposition of a restriction in tax loss utilization for
SST cannot be predicted at this point.
NON-QUALIFICATION OF MERGER FOR TAX DEFERRAL
Shareholders of SAIF, SIF and STGF will have a fully taxable exchange when
they surrender their SAIF, SIF and STGF shares in exchange for SST shares.
Their individual gain or loss will be measured by the difference between the tax
bases of their SAIF, SIF and STGF shares they surrender and the fair market
value of the SST shares they receive. Each shareholder's computation of gain or
loss will depend upon the unique circumstances of that shareholder regarding
factors such as share basis, holding period, and income, gain, loss or
deductions for that shareholder in the year of the exchange that may be wholly
unrelated to the Merger. While it is anticipated that many SAIF, SIF and STGF
shareholders may recognize tax losses in the exchange, some SAIF, SIF or STGF
shareholders may have net income as a result of the exchange. In addition, if
the exchange creates a recognized capital loss for a shareholder, that
shareholder may be subjected to restrictions on utilization of that recognized
capital loss.
NON-QUALIFICATION AS A REGULATED INVESTMENT COMPANY FOR TAX PURPOSES
The entity surviving the Merger is not expected to qualify for special
Federal income tax rules applicable to electing qualified regulated investment
companies. While this factor permits the surviving entity to utilize certain
loss carryforwards, the surviving entity will not be able to take advantage of
certain potentially favorable tax rules applicable to electing qualified
regulated investment companies.
13
DIFFERENCE BETWEEN OPERATIONS OF SST AS AN
OPEN-END AND CLOSED-END INVESTMENT COMPANY
All of the Funds are currently registered as open-end investment companies
under the 1940 Act. Open-end investment companies issue redeemable securities.
The holders of redeemable securities have the right to surrender, effectively at
any time, all, or any part of their shares in the open-end fund and obtain their
proportionate share of the value of the fund's net assets (sometimes referred to
as the "net asset value") less any redemption fee charged by the fund. This has
been the way all of the Funds have operated since their inception.
In contrast, a closed-end investment company neither redeems its
outstanding stock nor engages in the continuous sale of new securities, thus
operating with a relatively fixed capitalization. Because of their status as
open-end investment companies, the Funds are obligated to calculate a daily net
asset value and manage their portfolios to provide sufficient liquidity for
possible redemptions.
Some of the legal and practical differences between operation of SST as an
open-end and a closed-end investment company are as follows:
AMENDMENT TO SST DECLARATION OF TRUST
Upon approval of the shareholders of SST to ratify and confirm the Amended
and Restated Trust Indenture of SST, among other things, SECTIONS 8.3(a) AND (b)
WILL BE DELETED. These sections currently provide as follows:
Section 8.3. REDEMPTION OF SHARES. (a) OPTION OF SHAREHOLDER.
A Shareholder may redeem all or any part of his Shares at net asset
value as defined in Section 2.8 less a withdrawal fee of $1.00 to be
paid to the Fund, including the proportionate brokerage, if any,
necessary in order to redeem such Shares. Payment shall be made
within five days (the five days to be five consecutive days during
which the New York Stock Exchange shall be open).
(b) RESERVE FOR CONTINGENT LIABILITIES. The Trustees are
authorized in their discretion to retain, at the time of such
redemption, a sufficient reserve for taxes and other contingent
liabilities, provided that the Trustees shall pay to the person
entitled thereto the pro rata share of any excess after determination
and payment of such taxes and contingent liabilities.
ACQUISITION AND DISPOSITION OF SHARES
Currently, none of the four Funds is making a continuous offering of its
shares which is standard procedure for open-end funds. Closed-end funds do not
continuously offer their shares. As a closed-end fund, SST will not be making
a continuous offering of its shares. The shareholders
14
would thereby lose the theoretical benefit of an expanding pool of money from
the sale of additional shares, which SST would have to invest. As a practical
matter, however, SST has no principal underwriter, does not, and has not,
actively marketed its securities over the last several years and in reality has
very infrequently sold new shares. The Trustees of the Funds believe that the
burden of costs (a) to determine a daily net asset value and (b) to keep the
Funds' securities registered for sales in a continuous offering with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
and under the "Blue Sky" or state securities laws, of the several states in
which the Funds have been active in the past, outweighs the theoretical
advantage of an increasing pool of investment capital. The reality is that the
investment capital base of the Funds is static, which is the hallmark of a true
closed-end investment company.
In an open-end fund, shareholders desiring to realize the value of their
shares are able to do so by exercising their right of redemption; that is, their
right to require the fund to repurchase its shares at current net asset value or
at such net asset value less such redemption fee as may be determined by the
fund's Trustees. An open-end fund's net asset value is calculated by dividing
(i) the value of its portfolio securities plus all cash and other assets
(including accrued interest and dividends received but not collected) less all
liabilities (including all accrued expenses) by (ii) the number of outstanding
shares of such fund.
Shareholders of a closed-end fund have no such right of redemption and
unless shares are admitted to trading on a securities exchange or some other
arranged and regular trading market develops, shareholders may be unable to
dispose of their shares easily or at all. In addition, even if a market should
develop, the price at which such shares would trade may be affected by market
forces which would establish a price at a premium or, as is often the case, a
discount from net asset value.
It is expected that shares of SST will be traded in the over-the-counter
market should the Fund be converted to a closed-end fund; however, there can be
no assurance that a market will develop for shares of SST. Shareholders wishing
to sell shares in SST after conversion would be able to sell in market
transactions. If the shares of SST were to trade at a discount from net end
value, there is no way of predicting the extent of that discount at this time.
VOTING RIGHTS
The voting rights of holders of shares of common stock of SST will not
change if SST converts to a closed-end fund. See "Description of Capital
Structure of the Funds and Shareholder Rights."
DETERMINATION OF NET ASSET VALUE
Currently, as an open-end fund, SST determines its per share net asset
value on each business day. If SST were to convert to a closed-end fund, there
would no longer be a need to compute daily net asset value, and this cost
savings will benefit SST.
15
PORTFOLIO MANAGEMENT
As a closed-end investment company, SST would not be subject to pressures
to sell portfolio securities at disadvantageous times in order to meet
redemptions. Also, there would be an elimination of the need to maintain cash
reserves, or cash equivalents, in order to meet redemptions as they arise. As a
closed-end fund, SST will be able to keep cash reserves at a minimum, depending
primarily on management's perception of market conditions.
In the past, SST has kept a prudent portion of its portfolio liquid to meet
redemptions. By changing to a closed-end status, SST will be able to more
efficiently use such portfolio funds. Likewise, SST will be able to invest with
a longer-term view by not having to be concerned about the possibility of
liquidating a position at an inopportune moment solely to meet redemption
requests.
BLUE SKY RESTRICTIONS
As an open-end fund, SST is required to register its shares of common stock
under applicable state securities, or "Blue Sky" laws. Upon conversion to a
closed-end fund, SST will not be required to keep such registrations current and
will thereby benefit from a reduction in costs and expenses.
SENIOR SECURITIES
The 1940 Act prohibits open-end funds from issuing "senior securities"
representing indebtedness (i.e. bonds, debentures, notes, and other similar
securities), other than indebtedness to banks where there is an asset coverage
of at least 300% to all borrowings. Closed-end investment companies, on the
other hand, are permitted to issue senior securities representing indebtedness
to any lender if the 300% asset coverage is met. In addition, closed-end
investment companies may issue preferred stock (subject to various limitations),
whereas open-end investment companies generally may not issue preferred stock.
This ability to issue senior securities gives closed-end investment companies
more flexibility than open-end funds in "leveraging" their stockholders'
investments. However, SST has no present intention of issuing any class of
senior security.
APPROVAL OF THE MERGER
PROPOSAL NO. 1
(TO BE VOTED ON BY SHAREHOLDERS OF ALL FUNDS)
BACKGROUND
The Trustees of the Funds reviewed the operations of each Fund with a view
to determining how best to reduce the costs of operation, increase asset value
and enhance investment opportunities while preserving the investment objectives
of the Funds. The Trustees concluded that it has become increasingly difficult
for small funds to compete, especially because of the operating costs which must
be incurred by each Fund. Among other things, the Trustees concluded that by
merging the Funds
16
into a single fund, SST, significant economies of scale can be achieved to
reduce costs. By changing SST from an open-end investment company to a closed-
end investment company, greater financial flexibility and investment latitude
can be achieved as liquid reserves would no longer have to be maintained for
shareholders who exercise their right of redemption.
Accordingly, the Trustees have unanimously adopted and recommend to the
shareholders of the Funds for their approval, the Merger as set forth in the
Merger Agreement. The Merger Agreement provides, among other things, that as a
condition to the consummation of the Merger, all of the Funds must approve the
Merger. If the Merger is not approved, the Trustees will take such further
action as they, in their discretion, deem necessary or advisable. The
description of the Merger Agreement set forth below is a summary only.
THE MERGER
The following summary of the Merger Agreement is qualified in its entirety
by reference to the Merger Agreement, a copy of which is set forth in full as
Exhibit A to this Proxy Statement and Prospectus. The Merger Agreement
contemplates a reorganization whereby SIF, SAIF and STGF (the "Merging Funds")
will merge into SST, and SST will survive the Merger.
Shareholders of the Merging Funds will receive shares of SST determined by
dividing the net asset value of each of the Merging Fund's shares by the net
asset value of SST's shares as of the Valuation Date, which is defined in the
Merger Agreement as the business day preceding the Closing Date. In addition,
on the Valuation Date, SST will effect a reverse split of its shares so that
each five issued and outstanding shares of SST will become one share.
The Merger will be effective ten days after all shareholder and regulatory
approvals have been received by the Funds. The Amended and Restated Trust
Indenture of SST will be the Trust Indenture of the Surviving Fund, and the
Trustees of SST will be the Trustees of the Surviving Fund.
The consummation of the Merger is subject to the conditions set forth in
the Merger Agreement including without limitation the approval of the Merger by
the shareholders of the Merging Funds and of SST and the ratification by the
shareholders of SST of the Restated and Amended Trust Indenture of SST, which
provides for the change of SST from an open-end fund to a closed-end fund.
Notwithstanding the approvals of the shareholders of the Funds, the Merger
may be terminated at any time prior to the Closing: (a) by the mutual written
consent of all of the Funds, or (b) by either SST or the Merging Funds if (i)
the other party fails to perform in any material respect its agreements in the
Merger Agreement required to be performed on or prior to the Closing Date, (ii)
SST or the Merging Funds, respectively, materially breaches or shall have
breached any of its representations, warranties or covenants contained herein,
or (iii) any other condition precedent to the obligations of the terminating
party has not been met and it reasonably appears that it will not or cannot be
met.
17
Termination of the Merger Agreement will terminate all obligations of the
parties thereto without liability except that any party in breach of the Merger
Agreement will, upon demand, reimburse the non-breaching party for all
reasonable out-of-pocket fees and expenses incurred in connection with the
transactions contemplated by the Merger Agreement, including legal, accounting
and filing fees.
Approval of the Merger will require the vote specified below in
"Information Concerning the Meetings--Record Date; Vote Required; Share
Information." If the Merger is not approved by the shareholders of the Funds,
the Trustees of the Funds will consider other possible courses of action.
TRUSTEE APPROVAL OF THE MERGER
At meetings held on January 28, 1997, the Trustees of SAIF, SAF, SIF and
STGF, including the Independent Trustees, unanimously approved the Merger and
the Merger Agreement, determined that the Merger is in the best interests of
each of the Funds and their shareholders, and resolved to recommend that
shareholders vote for approval of the Merger. The Trustees of SAF further
resolved to change the Fund's name to Steadman Security Trust upon the Merger
and to change SST from an open-end investment company to a closed-end investment
company and to recommend the latter change to the shareholders of SST for their
approval. The Trustees further determined that the Merger would not result in
dilution of any shareholders' interest in any Fund.
In evaluating the Merger, the Trustees requested and reviewed materials
which included financial statements as well as other written information
regarding each of the Funds and their personnel, operations and financial
condition. The Trustees also considered information with respect to the
relative historical performance of the Funds. In addition, the Trustees
reviewed and discussed the terms and provisions of the investment advisory
agreements pursuant to which SSC provides investment management services to the
Funds. The Trustees also reviewed the differences between open-end investment
companies and closed-end companies.
In making their determination to approve the Merger, the Trustees of the
Funds gave careful consideration to the following factors: the investment
objective of each of the Funds; the cost savings to each of the Funds; the
ability to use the resources of the Funds more efficiently; the change from an
open-end investment company to a closed-end investment company; the potential
for increasing shareholder value; the terms and conditions of the Merger
Agreement; and the fact that the Merger will not qualify as a tax-deferred
reorganization under the Code. Also, the Merger would afford the shareholders
of SST the continued capabilities and resources of SSC in the area of investment
management and shareholder servicing. The shareholders of SST will be able to
purchase and sell their shares on an established stock exchange. Finally, all
expenses of the Merger will be shared proportionately by the Funds.
A. INVESTMENT POLICY. Three of the Funds have as their stated
investment policy the same objective: "capital appreciation." The fourth Fund,
SIF, has the investment objective of current income. The net assets of the four
constituent funds, as of June 30, 1996, ranged from
18
approximately $.5 million (STGF) to $1 million (SAIF) to $1.8 million (SIF) and
$4.6 million (SAF). By combining these resources in a single fund and changing
SST's primary investment objective from capital appreciation to income, the
Trustees believe that the shareholders will benefit from the greater resources
available to enable a wider range of investment and greater flexibility in
managing this portfolio.
B. OPERATING COSTS. Operating costs of the Funds will be
substantially reduced if they are merged into SST. This will enable SST to use
its assets more efficiently to increase shareholder value. Fund accounting,
stock transfer costs and other shareholder services will be significantly
reduced. By converting to a closed-end fund, daily determination of net asset
values will be eliminated, as well as the need for annual state securities
registration. Based upon management's analysis of the Funds, the Trustees
believe that the aggregate annual operating expenses of the four Funds which
amounted to approximately $1,130,000 for the year ended June 30, 1996 would be
reduced to $480,000 if the Merger had taken place at June 30, 1996. These
savings will be achieved principally in the following areas: shareholder
servicing fees, professional fees, reports to shareholders, computer services
and custodian fees. However, there can be no assurance that reductions in
expenses will result in profitable operations for SST. See "Comparative Fee
Tables--Expenses of the Funds; Pro Forma Expenses." Fuirthermore, due to the
size of SST after the Merger, and the portfolio income anticipated to be
generated by SST after the Merger, it is anticipated that SST will have to rely
upon capital appreciation of its portfolio securities to be profitable.
C. CLOSED-END INVESTMENT COMPANY. The newly merged fund, SST, will
operate as a closed-end investment company. It is expected that shares of SST
will be traded in the over-the-counter market; however, there can be no
assurance that a market will develop for shares of SST. This will eliminate the
need for maintaining liquid reserves to fund the repurchase of shares when
shareholders exercise their right of redemption, as this right of redemption
will no longer exist for SST following the Merger. Accordingly, greater
resources will be available for long-term investment consistent with the Fund's
objectives and management's perception of market conditions. SST will be able
to invest with a longer term view without being concerned about the possibility
of liquidating at an inopportune time solely to meet redemption requests. The
shareholders will be able to purchase and sell their shares in market
transactions. As a closed-end investment company, SST will have greater
flexibility in utilizing its portfolio assets including the ability to issue
senior securities as permitted by the 1940 Act, which will permit greater
leveraging of the Fund's assets. There is no assurance, however, that the use
of such techniques will result in increased performance by SST.
D. FEDERAL TAX ASPECTS. The reverse stock split of SST will
constitute a recapitalization of SST, but the Merger will not qualify as a tax-
deferred reorganization for federal income tax purposes. SST and its
shareholders will not recognize gain or loss as a result of the exchange of SST
shares for SST shares in the reverse stock split. The Merger transaction will
be treated for federal income tax purposes as if SAIF, SIF and STGF had
transferred all of their assets to SST in a taxable transaction, had recognized
all of the built-in gains and losses on those assets, and had distributed SST
shares to their respective shareholders in liquidation. The Trustees believe
that
19
the capital loss and net operating loss carryovers of SAIF, SIF and STGF will be
sufficient to offset any net gain of those entities recognized in the Merger.
The loss carryforwards of SAIF,SIF and STGF not utilized in the Merger will
expire, but SST, as the surviving single entity, will be able to utilize its
separate tax loss carryforwards after the Merger. SST and its shareholders will
not recognize any gain or loss as a result of the deemed asset sale and
liquidation. The shareholders of SAIF, SIF and STGF will be deemed to have
exchanged their SAIF, SIF and STGF shares for SST shares in a taxable
transaction. Such shareholders will recognize gain or loss equal to the
difference between their individual tax bases for the SAIF, SIF and STGF shares
surrendered and the fair market value of the SST shares received. Such gain or
loss will be capital for shareholders who hold their SAIF, SIF or STGF shares as
capital assets and will be long term or short term gain or loss depending upon
their individual holding periods for the shares surrendered. For many SAIF, SIF
and STGF shareholders, the result may be a tax loss rather than tax gain, but
each shareholder's gain or loss calculation must be performed individually.
Based upon the foregoing considerations, the Trustees of each of the Funds,
including the Independent Trustees, unanimously approved the Merger and the
change of SST from an open-end investment company to a closed-end investment
company and determined that the Merger is in the best interests of each of the
Funds and their shareholders. The Trustees further determined that the Merger
would not result in dilution of any shareholders' interest and that by the
Merger, an increase in the asset base of SST should benefit the shareholders
because of the economies of scale available to a larger fund.
TAX ASPECTS OF THE MERGER
The following discussion summarizes certain of the material federal income
tax consequences of the Merger. It is intended to provide only a general
summary and does not include a complete analysis of all the potential federal
income tax consequences or consequences that may vary with or are contingent
upon, individual circumstances, such as the taxpayer's being subject to certain
special provisions of the Internal Revenue Code of 1986, as amended (the
"Code"). This discussion does not address any aspects of state, local, or
foreign tax laws or any federal tax laws other than those pertaining to income
tax.
None of the Funds has requested a ruling from the Internal Revenue Service
(the "Service") with respect to any of the matters discussed in this summary.
It is unlikely that the Service would be willing to issue a ruling regarding the
Merger. However, the Funds have received an opinion letter from Manatt, Phelps
& Phillips, LLP, as "Tax Counsel" regarding certain material federal income tax
consequences of the Merger.
Tax Counsel has advised the Funds that, in its opinion, the legal issues
discussed in this federal income tax summary are correct in all material
respects. However, the summary itself is not an opinion of Tax Counsel or tax
advice and does not in any way constitute an assurance that the federal income
tax consequences discussed herein will be accepted by the Service or the courts.
20
In the opinion of Tax Counsel, the reverse stock split of SST will
constitute a recapitalization of SST, but the Merger will not qualify as a tax-
deferred reorganization for federal income tax purposes. SST and its
shareholders will not recognize gain or loss as a result of the exchange of SST
shares for SST sh ares in the reverse stock split. The Merger transaction will
be treated for federal income tax purposes as if SAIF, SIF and STGF had
transferred all of their assets to SST in a taxable transaction, had recognized
all of the built-in gains and losses on those assets, and had distributed SST
shares to their respective shareholders in liquidation. Capital loss and net
operating loss carryovers of SAIF, SIF and STGF may be utilized to offset any
net gain of those entities recognized in the Merger. SST and its shareholders
will not recognize any gain or loss as a result of the deemed asset sale and
liquidation. The shareholders of SAIF, SIF and STGF will be deemed to have
exchanged their SAIF, SIF and STGF shares for SST shares in a taxable
transaction. Such shareholders will recognize gain or loss equal to the
difference between their individual tax bases for the SAIF, SIF and STGF shares
surrendered and the fair market value of the SST shares received. Such gain or
loss will be capital for shareholders who hold their SAIF, SIF or STGF shares as
capital assets and will be long term or short term gain or loss depending upon
their individual holding periods for the shares surrendered. The loss
carryforwards of SST will survive the Merger for use in the post-Merger period,
but the loss carryforwards of SAIF, SIF and STGF will not. To the extent that
the former holders of SAF represent less than 50% of the total assets of SST
after the Merger, the amount of the above losses which may be used by SST in any
one year will be limited. In addition, other transactions subsequent to the
Merger could result in a change in the ownership of SST (combined with the
change resulting from the Merger) that causes the amount loss limitation rules
to apply. Whether any future events will cause imposition of a restriction in
tax loss utilization for SST cannot be predicted at this point. The Merger will
not constitute an "ownership change" for SST within the meaning of Section 382
of the Code.
The foregoing discussion of the expected federal income tax consequences of
the Merger and the opinion of Tax Counsel are based on current authorities.
There is no assurance that legislative or administrative changes or court
decisions may not be forthcoming that would significantly change these expected
consequences. Any such changes may or may not be retroactive with respect to
transactions prior to the date of those changes. The opinion of Tax Counsel is
also based on certain factual assumptions and factual representations to Tax
Counsel by the Funds. The opinion of Tax Counsel could change if such
assumptions and representations proved to be inaccurate.
THE SUMMARY FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY. IT DOES NOT CONSTITUTE TAX ADVICE OR AN OPINION OF
TAX COUNSEL. EACH SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO
THE SPECIFIC TAX CONSEQUENCES OF THE MERGER APPLICABLE TO HIM OR HER, INCLUDING
THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER TAX LAWS.
21
CAPITALIZATION TABLE (UNAUDITED)
The table below sets forth the capitalization of the Funds and indicates
the pro forma combined capitalization of SST as of January 27, 1997 as if the
Merger had occurred on that date, and the reverse split of five for one had
taken place.
Net
Book
Shares Net Asset Value
Shares After Value After
Net Assets Outstanding Merger Per Share Merger
---------- ----------- ------ --------- ------
SAIF 1,189,478 1,366,133 288,112 .87 --
SAF 5,023,559 6,078,693 1,215,739 .83 --
SIF 1,860,401 1,992,384 450,578 .93 --
STGF 403,694 515,746 97,779 .78 --
SST Pro Forma 8,477,132 --- 2,052,208 .83 4.13
COMPARATIVE FEE TABLES
TRANSACTION CHARGES
Because each Fund is a no-load fund, shareholders are not required to pay
any sales charges or other fees in connection with the purchase of shares in any
of the Funds. Moreover, since there is no current Prospectus available for
SAIF, SIF or STGF, shares in these funds have not been offered or sold to the
public since May, 1988. Shares of SAF were available for purchase under a
Prospectus dated January 1, 1996 through October 31, 1996. It is expected that
shares of SST will be traded in the over-the-counter market; however, there can
be no assurance that a market will develop for shares of SST. Shares of SST may
be purchased or sold in normal brokerage transactions with appropriate fees
charged in connection with such transactions.
EXPENSES OF THE FUNDS; PRO FORMA EXPENSES
The Funds each pay a variety of expenses directly for management of their
assets, administration, distribution of their shares and other services; and
those expenses are reflected in the net asset value per share of each Fund. The
following calculations are based on the expenses of each Fund for the 12 months
ended June 30, 1996. These amounts are shown as a percentage of the average net
assets of each class of shares of such periods.
22
Pro Forma Fee Table for Shareholders
of SAIF, SAF, SIF and STGF
as of June 30, 1996 (Unaudited)
Pro Forma
for
SAIF SAF SIF STGF SST
---- --- --- ---- --------
Shareholder Transaction Expenses -0- -0- -0- -0- -0-
Annual Fund Operating Expenses 24.61 8.14 10.60 25.19 8.00
(as a percentage of average net
assets at June 30, 1996)
Investment Advisory Fees 1.00 1.00 1.00 1.00 1.00
Custodian Fees .26 .22 .02 .26 .01
Miscellaneous 23.35 6.92 9.58 23.93 6.99
Total Annual Operating Expenses $300,454 $422,508 $225,193 $175,696 $480,000
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
EXAMPLE
Based on management's analysis, the Trustees believe that the principal
aggregate annual operating expenses of the four Funds, which amounted to
approximately $1.2 million for the year ended June 30, 1996, would have been
reduced to $480,000 had the Merger taken place. However, there can be no
assurance that reductions in expenses will result in profitable operations for
SST. Furthermore, due to the size of SST after the Merger and the portfolio
income anticipated to be generated by SST after the Merger, it is anticipated
that SST will have to rely upon capital appreciation of its portfolio securities
to be profitable.
To attempt to show the effect of these expenses on an investment over time,
the example shown below has been created. Assume that you make a $1,000
investment in any of the Funds or in the new merged fund and that the annual
return is 5% and that the operating expenses for each Fund are the ones shown in
the chart above for the 12 months ended June 30, 1996. If you were to continue
to hold your shares at the end of each period shown below, your investment would
incur the following expenses by the end of each period shown:
1 year 3 years 5 years 10 years
------ ------- ------- --------
SAIF $222 $544 $752 $1,004
SAF 80 233 376 697
SIF 103 292 461 806
STGF 226 551 758 1,004
Pro Forma SST 79 229 371 690
23
FORM OF ORGANIZATION OF THE FUNDS
Each Fund is a common law trust fund formed under a declaration of trust
and domiciled in the District of Columbia. SST (formerly SAF) was originally
organized under a Trust Indenture in the State of Missouri in 1939. It now
exists as a common law trust under the laws of the District of Columbia pursuant
to a Trust Indenture approved by shareholders on January 8, 1979. SAIF was
originally organized as a Delaware corporation on November 3, 1959. It now
exists as a common law trust under the laws of the District of Columbia pursuant
to a Trust Indenture approved by the shareholders on May 24, 1978. SIF was
originally organized as a Delaware corporation on August 6, 1956. It now exists
as a common law trust under the laws of the District of Columbia pursuant to a
Trust Indenture approved by the shareholders on May 11, 1979. STGF was
originally organized as a Delaware corporation in 1967. It now exists as a
common law trust under the laws of the District of Columbia pursuant to a Trust
Indenture approved by the shareholders on May 11, 1979.
Each of the Funds is operated as a non-diversified open-end investment
company; however, upon the effectiveness of the Merger, SST will change to a
closed-end investment company. None of the Funds is taxed for federal income
tax purposes under the special rules for electing and qualifying regulated
investment companies under Code Sections 851-855. All the Funds are taxed under
the normal federal income tax rules applicable to C corporations.
COMPARISON OF INVESTMENT OBJECTIVES,
POLICIES AND TECHNIQUES OF THE FUNDS
The investment objective of the SST is to maximize capital growth through
the utilization of a broad range of investment vehicles and techniques,
including but not limited to the purchase and sale of put and call options. SST
may also make substantial temporary defensive investments in high grade debt
securities of all types, U.S. government securities and repurchase agreements
when market conditions warrant, such as when a severe downturn in the stock
market is anticipated. Both SAIF and STGF have substantially similar investment
objectives. SIF has a different investment objective, which is to seek current
income. As a secondary objective, SIF seeks to maximize the total return but
only consistent with its primary objectives. Similar to the other Funds, SIF
may also make substantial temporary defensive investments in debt securities and
money market instruments when market conditions warrant. Upon the Merger, SST
will have current income as its principal investment objective and capital
appreciation as its secondary objective, but only to the extent consistent with
its primary objective.
In seeking to achieve their objectives, all of the Funds may use the
following investment vehicles, without limitation:
* Common stock of issuers of all kinds.
* Preferred stocks, warrants, and convertible securities.
24
* Corporate bonds and debentures of all kinds; and debt securities
issued or guaranteed by the U.S. government of its agencies or
instrumentalities ("U.S. government securities").
* Money market instruments (commercial paper, bank certificates of
deposits, and U.S. government securities).
In choosing portfolio investments, none of the Funds is restricted to any
particular criteria or quality standards except as expressly stated in this
Prospectus. With respect to equity investments, the investment advisor for each
Fund generally looks for issuers that show growth potential, based on
fundamental analysis of the relevant industries and the issuers' financial
position. In selecting debt instruments (other than short-term debt for
defensive purposes), the advisor considers interest rate movements and may
choose investment grade instruments the yield of which exceeds that of short-
term U.S. Treasury securities.
Each Fund has the flexibility to employ a broad range of investment
techniques, including but not limited to the purchase and sale of put and call
options (primarily for premium income but also for hedging purposes), investing
in foreign securities, transactions in repurchase agreements, investments in
government securities, investments in high yield bonds ("junk bonds"),
acquisition of restricted or illiquid securities, purchase and sale of real
estate and related loans, borrowing to increase investment funds, short sales,
and lending portfolio securities. For a discussion of the characteristics and
risks of these vehicles and techniques, please refer to the Statement of
Additional Information. Each Fund may invest in these instruments and use these
techniques without limit, except as expressly stated in the Statement of
Additional Information.
The effect of such techniques can produce portfolio turnover rates of 100%
or more. The portfolio turnover for the year ended June 30, 1996 was 339% for
SAIF, 382% for SIF, 333% for STGF and 231% for SST. High portfolio turnover
(100% or more) increases brokerage costs and increases the likelihood of short-
term gains and losses.
The investment objective of each Fund may be changed by its Board of
Trustees without shareholder approval.
CONDENSED FINANCIAL INFORMATION
OF THE FUNDS
The following financial highlights of each of the Funds for the year ended
June 30, 1996 and the nine previous years ended June 30 have been audited by
Coopers & Lybrand L.L.P., independent certified public accountants, whose
reports thereon are included with each Fund's Form N-SAR filings, and are
available to shareholders upon request.
25
FINANCIAL HIGHLIGHTS
SAIF
Unaudited For the year For the period
Three Months Ended ended February 1, 1995
September 30, June 30, through June 30,
------------------------ ------------------------------
1996 1995 1996 1995*
--------- --------- --------- ---------
Per Share Operating Performance:
Net asset value, beginning of period $ 0.72 $ 0.88 $ 0.88 $ 0.96
Net investment income (loss) (.05) (.06) (.41) (.12)
Net realized and unrealized gain (loss) on investments .06 .09 .25 .04
--------- --------- --------- ---------
Total from investment operations .01 .03 (.16) (.08)
Dividends and distributions paid:
From net realized gain - - - - - - - -
From net investment income - - - - - - - -
From capital - - - - - - - -
--------- --------- --------- ---------
Total distributions - - - - - - - -
--------- --------- --------- ---------
Net asset value, end of period $ 0.73 $ 0.91 $ 0.72 $ 0.88
--------- --------- --------- ---------
--------- --------- --------- ---------
Ratio/Supplemental Data: Total return (1) 5.56** 13.64** (18.48)% (20.01)%**
Net Assets, end of period (in thousands) $1,011.00 $1,368.00 $1,008.00 $1,341.00
Ratio of expenses to average net assets 25.52%** 23.10%** 24.61% 24.62%**
Ratio of net investment income (loss)
to average net assets (24.49)%** (22.59)%** (24.10)% (22.86)%**
Portfolio turnover 425%** 556%** 339% 617%**
For the years ended January 31,
---------------------------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
Per Share Operating Performance:
Net asset value, beginning of period $ 1.65 $ 1.50 $ 1.54 $ 1.59 $ 1.94
Net investment income (loss) (.26) (.24) (.19) (.20) (.19)
Net realized and unrealized gain (loss) on
investments (.43) .39 .15 .15 (.16)
--------- --------- --------- --------- ---------
Total from investment operations (.69) .15 (.04) (.05) (.35)
Dividends and distributions paid:
From net realized gain - - - - - - - - - -
From net investment income - - - - - - - - - -
From capital - - - - - - - - - -
--------- --------- --------- --------- ---------
Total distributions - - - - - - - - - -
--------- --------- --------- --------- ---------
Net asset value, end of period $ 0.96 $ 1.65 $ 1.50 $ 1.54 $ 1.59
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Ratio/Supplemental Data:
Total return (1) (41.82)% 10.00% (2.60)% (3.14)% (18.04)%
Net Assets, end of period (in thousands) $1,472.00 $2,627.00 $2,496.00 $2,648.00 $2,844.00
Ratio of expenses to average net assets 17.69% 12.66% 14.83% 15.13% 13.75%
Ratio of net investment income (loss)
to average net assets (15.63)% (11.40)% (13.52)% (13.13)% (10.25%)
Portfolio turnover 289% 134% 221% 460% 211%
For the years ended January 31,
------------------------------------------------------
1990 1989 1988 1987
--------- ---------- ---------- ---------
Per Share Operating Performance:
Net asset value, beginning of period $ 2.21 $ 2.24 $ 2.68 $ 2.89
Net investment income (loss) (.19) (.11) (.12) (.14)
Net realized and unrealized gain (loss) on investments (.08) .08 (.32) (.07)
--------- ---------- --------- ---------
Total from investment operations (.27) (.03) (.44) (.21)
Dividends and distributions paid:
From net realized gain - - - - - - - -
From net investment income - - - - - - - -
From capital - - - - - - - -
--------- ---------- --------- ---------
Total distributions - - - - - - - -
--------- ---------- --------- ---------
Net asset value, end of period $ 1.94 $ 2.21 $ 2.24 $ 2.68
--------- ---------- --------- ---------
--------- ---------- --------- ---------
Ratio/Supplemental Data:
Total return (1) (12.22)% (1.34)% (16.42)% (7.27)%
Net Assets, end of period (in thousands) $3,691.00 $4,563.00 $4,943.00 $6,480.00
Ratio of expenses to average net assets 12.74% 9.37% 7.00% 6.26%
Ratio of net investment income (loss)
to average net assets (8.75)% (4.84)% (3.64)% (3.39)%
Portfolio turnover 258% 121% 228% 420%
(1) Total return on the changes in net value of a share during the period and
assumes reinvestment of distributions at net asset value.
* The Fund's fiscal year-end was changed to June 30.
** Annualized.
26
FINANCIAL HIGHLIGHTS
SAF
Unaudited For the year For the period
Three Months Ended ended October 1, 1994
September 30, June 30, through June 30,
------------------------ ------------------------------
1996 1995 1996 1995*
--------- --------- --------- ---------
Per Share Operating Performance:
Net asset value, beginning of period $ 0.70 $ 0.73 $ 0.73 $ 0.72
--------- --------- --------- ---------
Net investment income (loss) (.02) (.02) (.17) (.03)
Net realized and unrealized gain (loss) on investments .01 .07 .14 .04
--------- --------- --------- ---------
Total from investment operations (.01) .05 (.03) .01
Dividends and distributions paid:
From net realized gain - - - - - - - -
From net investment income - - - - - - - -
From capital - - - - - - - -
--------- --------- --------- ---------
Total distributions - - - - - - - -
--------- --------- --------- ---------
Net asset value, end of period $ 0.69 $ 0.78 $ 0.70 $ 0.73
--------- --------- --------- ---------
--------- --------- --------- ---------
Ratio/Supplemental Data: Total return (1) (5.71)%** 27.40%** (4.38)% 1.85%**
Net Assets, end of period (in thousands) $4,470.00 $5,914.00 $4,581.00 $5,735.00
Ratio of expenses to average net assets 8.13%** 9.31%** 8.14% 8.17%**
Ratio of net investment income (loss)
to average net assets (7.18)%** (8.30)%** (7.48)% (7.23)%**
Portfolio turnover 526%** 348%** 231% 505%**
For the years ended September 30,
---------------------------------------------------------------------
1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
Per Share Operating Performance:
Net asset value, beginning of period $ 0.87 $ 0.64 $ 0.67 $ 0.57 $ 0.84
--------- --------- --------- --------- ---------
Net investment income (loss) (.08) (.05) (.03) (.02) (.03)
Net realized and unrealized gain (loss) on investments (.07) .28 - - .12 (.24)
--------- --------- --------- --------- ---------
Total from investment operations (.15) .23 (.03) .10 (.27)
Dividends and distributions paid:
From net realized gain - - - - - - - - - -
From net investment income - - - - - - - - - -
From capital - - - - - - - - - -
--------- --------- --------- --------- ---------
Total distributions - - - - - - - - - -
--------- --------- --------- --------- ---------
Net asset value, end of period $ 0.72 $ 0.87 $ 0.64 $ 0.67 $ 0.57
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Ratio/Supplemental Data: Total return (1) (17.24)% 35.88% (4.47)% 17.51% (32.27)%
Net Assets, end of period (in thousands) $6,307.00 $8,844.00 $7,254.00 $8,539.00 $8,392.00
Ratio of expenses to average net assets 7.76% 5.79% 6.92% 7.16% 6.08%
Ratio of net investment income (loss)
to average net assets (6.09)% (4.63)% (5.14)% (3.29)% (4.54)%
Portfolio turnover 241% 300% 301% 267% 86%
For the years ended September 30,
-------------------------------------------------------
1989 1988 1987 1986
---------- ----------- ----------- ----------
Per Share Operating Performance:
Net asset value, beginning of period $ 0.60 $ 0.91 $ 0.85 $ 0.82
---------- ----------- ----------- ----------
Net investment income (loss) - - - - .02 (.01)
Net realized and unrealized gain (loss) on investments .27 (.25) .12 .11
---------- ----------- ----------- ----------
Total from investment operations .27 (.25) .14 .10
Dividends and distributions paid:
From net realized gain (.03) - - (.06) (.07)
From net investment income - - - - (.02) - -
From capital - - (.06) - - - -
---------- ----------- ----------- ----------
Total distributions (.03) (.06) (.08) (.07)
---------- ----------- ----------- ----------
Net asset value, end of period $ 0.84 $ 0.60 $ 0.91 $ 0.85
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
Ratio/Supplemental Data: Total return (1) 47.50% (27.86)% 15.83% 11.44%
Net Assets, end of period (in thousands) $16,035.00 $13,572.00 $20,662.00 $19,866.00
Ratio of expenses to average net assets 6.65% 4.10% 3.06% 2.88%
Ratio of net investment income (loss)
to average net assets (.24)% (.33)% (2.13)% (0.82)%
Portfolio turnover 208% 367% 302% 375%
(1) Total return on the changes in net value of a share during the period and
assumes reinvestment of distributions at net asset value.
* The Fund's fiscal year-end was changed to June 30.
** Annualized.
27
FINANCIAL HIGHLIGHTS
SIF
Unaudited For the year For the period
Three Months Ended ended January 1, 1995
September 30, June 30, through June 30,
------------------------ ------------------------------
1996 1995 1996 1995*
--------- --------- --------- ---------
Per Share Operating Performance:
Net asset value, beginning of period $ 0.86 $ 1.02 $ 1.02 $ 0.93
--------- --------- --------- ---------
Net investment income (loss) (.02) - - (.13) (.02)
Net realized and unrealized gain (loss) on investments .02 - - (.03) .11
--------- --------- --------- ---------
Total from investment operations - - - - (.16) .09
Dividends and distributions paid:
From net realized gain - - - - - - - -
From net investment income - - - - - - - -
From capital - - - - - - - -
--------- --------- --------- ---------
Total distributions - - - - - - - -
--------- --------- --------- ---------
Net asset value, end of period $ 0.86 $ 1.02 $ 0.86 $ 1.02
--------- --------- --------- ---------
--------- --------- --------- ---------
Ratio/Supplemental Data: Total return (1) -0- -0- (15.53)% 19.36%**
Net Assets, end of period (in thousands) $1,738.00 $2,257.00 $1,763.00 $2,298.00
Ratio of expenses to average net assets 11.56%** 8.89%** 10.60% 10.54%**
Ratio of net investment income (loss)
to average net assets (10.52)%** (2.03)%** (5.23)% (4.24)%**
Portfolio turnover 342%** 84%** 382% 226%**
For the years ended December 31,
---------------------------------------------------------------------
1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
Per Share Operating Performance:
Net asset value, beginning of period $ 1.42 $ 1.38 $ 1.49 $ 1.12 $ 1.32
--------- --------- --------- --------- ---------
Net investment income (loss) (.08) (.06) (.09) (.06) (.09)
Net realized and unrealized gain (loss) on investments (.41) .10 (.02) .43 (.11)
--------- --------- --------- --------- ---------
Total from investment operations (.49) .04 (.11) .37 (.20)
Dividends and distributions paid:
From net realized gain - - - - - - - - - -
From net investment income - - - - - - - - - -
From capital - - - - - - - - - -
--------- --------- --------- --------- ---------
Total distributions - - - - - - - - - -
--------- --------- --------- --------- ---------
Net asset value, end of period $ 0.93 $ 1.42 $ 1.38 $ 1.49 $ 1.12
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Ratio/Supplemental Data: Total return (1) (34.51)% 2.89% (7.05)% 32.95% (15.04)%
Net Assets, end of period (in thousands) $2,159.00 $3,550.00 $3,791.00 $4,277.00 $3,530.00
Ratio of expenses to average net assets 8.90% 6.48% 7.78% 7.88% 10.31%
Ratio of net investment income (loss)
to average net assets (6.65)% (4.52)% (6.09)% (5.08%) (7.27)%
Portfolio turnover 282% 179% 263% 245% 144%
For the years ended December 31,
------------------------------------------------------
1989 1988 1987 1986
--------- ---------- ---------- ---------
Per Share Operating Performance:
Net asset value, beginning of period $ 1.22 $ 1.32 $ 1.61 $ 1.46
--------- ---------- ---------- ---------
Net investment income (loss) (.08) - - .01 .06
Net realized and unrealized gain (loss) on investment .18 (.09) (.30) .09
--------- ---------- ---------- ---------
Total from investment operations .10 (.09) (.29) .15
Dividends and distributions paid:
From net realized gain - - - - - - - -
From net investment income - - (.01) - - - -
From capital - - - - - - - -
--------- ---------- ---------- ---------
Total distributions - - (.01) - - - -
--------- ---------- ---------- ---------
Net asset value, end of period $ 1.32 $ 1.22 $ 1.32 $ 1.61
--------- ---------- ---------- ---------
--------- ---------- ---------- ---------
Ratio/Supplemental Data: Total return (1) 8.13% (6.82)% (18.01)% 10.27%
Net Assets, end of period (in thousands) $4,627.00 $4,812.00 $5,659.00 $8,133.00
Ratio of expenses to average net assets 8.95% 5.59% 4.32% 3.97%
Ratio of net investment income (loss)
to average net assets (6.15)% .13% .53% 1.84%
Portfolio turnover 165% 128% 96% 129%
(1) Total return on the changes in net value of a share during the period and
assumes reinvestment of distributions at net asset value.
* The Fund's fiscal year-end was changed to June 30.
** Annualized.
28
FINANCIAL HIGHLIGHTS
STGF
Unaudited For the year For the period
Three Months Ended ended January 1, 1995
September 30, June 30, through June 30,
------------------------ ------------------------------
1996 1995 1996 1995*
--------- --------- --------- ---------
Per Share Operating Performance:
Net asset value, beginning of period $ 1.02 $ 1.43 $ 1.43 $ 1.57
--------- --------- --------- ---------
Net investment income (loss) (.07) (.07) (.58) (.22)
Net realized and unrealized gain (loss) on investments (.09) .19 .17 .08
--------- --------- --------- ---------
Total from investment operations (.16) .12 (.41) (.14)
Dividends and distributions paid:
From net realized gain - - - - - - - -
From net investment income - - - - - - - -
From capital - - - - - - - -
--------- --------- --------- ---------
Total distributions - - - - - - - -
--------- --------- --------- ---------
Net asset value, end of period $ 0.86 $ 1.55 $ 1.02 $ 1.43
--------- --------- --------- ---------
--------- --------- --------- ---------
Ratio/Supplemental Data: Total return (1) (62.75)%** 33.57%** (28.29)% (17.84)%**
Net Assets, end of period (in thousands) $ 451.00 $ 861.00 $ 542.00 $ 799.00
Ratio of expenses to average net assets 29.64%** 18.79%** 25.19% 22.28%**
Ratio of net investment income (loss)
to average net assets (28.47)%** (18.31)%** (24.78)% (20.90)%**
Portfolio turnover 715%** 333%** 333% 615%**
For the years ended December 31,
---------------------------------------------------------------------
1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
Per Share Operating Performance:
Net asset value, beginning of period $ 2.48 $ 2.69 $ 2.84 $ 2.21 $ 3.92
--------- --------- --------- --------- ---------
Net investment income (loss) (.45) (.40) (.33) (.30) (.41)
Net realized and unrealized gain (loss) on investments (.46) .19 .18 .93 (1.30)
--------- --------- --------- --------- ---------
Total from investment operations (.91) (.21) (.15) .63 (1.71)
Dividends and distributions paid:
From net realized gain - - - - - - - - - -
From net investment income - - - - - - - - - -
From capital - - - - - - - - - -
--------- --------- --------- --------- ---------
Total distributions - - - - - - - - - -
--------- --------- --------- --------- ---------
Net asset value, end of period $ 1.57 $ 2.48 $ 2.69 $ 2.84 $ 2.21
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Ratio/Supplemental Data: Total return (1) (36.69)% (7.81)% (5.28)% 28.51% (43.62)%
Net Assets, end of period (in thousands) $ 894.00 $1,467.00 $1,634.00 $1,786.00 $1,443.00
Ratio of expenses to average net assets 16.34% 11.94% 13.33% 14.10% 14.97%
Ratio of net investment income (loss)
to average net assets (14.79)% (11.38)% (12.45)% (11.70)% (12.60)%
Portfolio turnover 274% 128% 157% 318% 184%
For the years ended December 31,
------------------------------------------------------
1989 1988 1987 1986
--------- ---------- ---------- ---------
Per Share Operating Performance:
Net asset value, beginning of period $ 3.03 $ 4.12 $ 4.48 $ 5.06
--------- --------- --------- ---------
Net investment income (loss) (.37) (.30) (.27) (.33)
Net realized and unrealized gain (loss) on investments 1.26 (.79) (.09) (.25)
--------- ---------- ---------- ---------
Total from investment operations .89 (1.09) (.36) (.58)
Dividends and distributions paid:
From net realized gain - - - - - - - -
From net investment income - - - - - - - -
From capital - - - - - - - -
--------- ---------- ---------- ---------
Total distributions - - - - - - - -
--------- ---------- ---------- ---------
Net asset value, end of period $ 3.92 $ 3.03 $ 4.12 $ 4.48
--------- ---------- ---------- ---------
--------- ---------- ---------- ---------
Ratio/Supplemental Data: Total return (1) 29.37% (26.46)% (8.04)% (11.46)%
Net Assets, end of period (in thousands) $2,675.00 $2,178.00 $3,119.00 $3,779.00
Ratio of expenses to average net assets 12.14% 9.90% 6.34% 5.81%
Ratio of net investment income (loss)
to average net assets (9.97)% (8.55)% (4.88)% (4.87)%
Portfolio turnover 116% 164% 196% 197%
(1) Total return on the changes in net value of a share during the period and
assumes reinvestment of distributions at net asset value.
* The Fund's fiscal year was changed to June 30.
** Annualized.
29
SAIF
MANAGEMENT'S DISCUSSION OF
PERFORMANCE OF THE FUND
During its fiscal year ended June 30, 1996, the Fund's net asset value per
share decreased 18.48%. The Fund experienced a net decrease in net assets from
operations of approximately $231,000 as a result of a net realized gain from
investment transactions of $74,000 offset by a net investment loss of $294,000
and unrealized depreciation of investments of $11,000.
Portfolio turnover during the year, although high, was about half of the
rate for the prior period and at year's end the Fund's portfolio consisted of
investments in segments of the computer industry, communications,
pharmaceutical, and radio & TV equipment industries. The Fund maintained an
aggressive trading position with its assets almost fully invested in equity
securities most of the year. The Fund's net investment loss of approximately
$294,000 resulted from expenses excluding the Fund's investment income from
dividends and interest of approximately $6,000. The Fund's primary goal is to
maximize capital appreciation.
From time to time the Fund may quote its total return in advertisements or
in reports or other communications to shareholders. A mutual fund's total
return is a measurement of the overall change in value, including changes in
share price and assuming reinvestment of all distributions, of an investment in
the fund. Cumulative total return shows the fund's performance over a specific
period of time. Average annual total return is the average annual compounded
return that would have produced the same cumulative total return if the fund's
performance had been constant over the entire period. The returns shown are
based on historical results and are not intended to indicate future performance.
The investment return and principal value of an investment in the fund will
fluctuate so that an investor's shares when redeemed may be worth more or less
than their original cost. Average annual returns which differ from actual year-
to-year results, tend to smooth out variations in a fund's returns.
SAF
MANAGEMENT'S DISCUSSION OF
PERFORMANCE OF THE FUND
During its fiscal year ended June 30, 1996, the Fund's net asset value per
share decreased 4.38%. The Fund experienced a net decrease in net assets from
operations of approximately $224,000, as a result of a net realized gain from
investment transactions of $517,000 offset by a net investment loss of $388,000
and unrealized depreciation of investments of $353,000.
Portfolio turnover during the year, although high, was less than half of
the rate for the prior period and at year's end the Fund's portfolio consisted
of investments in various segments of the computer industry, communications,
medical instruments, motor vehicles, oil & gas drilling, pharmaceutical, and
radio & TV equipment industries. In addition, the Fund purchased call options
in the expectation that the Fund would benefit from rising prices in these
positions. The Fund maintained an aggressive trading position with its assets
almost fully invested in equity securities most of the year. The Fund's net
investment loss of approximately $388,000 resulted from expenses excluding the
Fund's investment income from dividends and interest of approximately $34,000.
Realization of current income is secondary to the Fund's pursuit of its primary
goal of capital appreciation.
30
From time to time the Fund may quote its total return in advertisements or
in reports or other communications to shareholders. A mutual fund's total
return is a measurement of the overall change in value, including changes in
share price and assuming reinvestment of all distributions, of an investment in
the fund. Cumulative total return shows the fund's performance over a specific
period of time. Average annual total return is the average annual compounded
return that would have produced the same cumulative total return if the fund's
performance had been constant over the entire period. The returns shown are
based on historical results and are not intended to indicate future performance.
The investment return and principal value of an investment in the fund will
fluctuate that an investor's shares when redeemed may be worth more or less than
their original cost. Average annual returns, which differ from actual year-to-
year results, tend to smooth out variations in a fund's returns.
SIF
MANAGEMENT'S DISCUSSION OF
PERFORMANCE OF THE FUND
During its fiscal year ended June 30, 1996, the Fund's net asset value per
share decreased 15.53%. The Fund experienced a net decrease in net assets from
operations of approximately $334,000 as a result of a net realized gain from
investment transactions of $48,000 offset by a net investment loss of $111,000
and unrealized depreciation of investments of $271,000.
Portfolio turnover during the year was higher than the rate for the
prior period as a result of positioning from U.S. Treasury Bonds to investments
in stocks of various segments of the computer industry, communications, and
medical instruments industries. The Fund maintained an aggressive trading
position with its assets almost fully invested in equity securities most of the
year. The Fund's net investment loss of approximately $111,000 resulted from
expenses excluding the Fund's investment income from dividends and interest of
approximately $114,000. Realization of capital appreciation is secondary to the
Fund's primary goal of current income.
From time to time the Fund may quote its total return in
advertisements or in reports or other communications to shareholders. A mutual
fund's total return is a measurement of the overall change in value, including
changes in share price and assuming reinvestment of all distributions, of an
investment in the fund. Cumulative total return shows the fund's performance
over a specific period of time. Average annual total return is the average
annual compounded return that would have produced the same cumulative total
return if the fund's performance had been constant over the entire period. The
returns shown are based on historical results and are not intended to indicate
future performance. The investment return and principal value of an investment
in the fund will fluctuate so that an investor's shares when redeemed may be
worth more or less than their original cost. Average annual returns which
differ from actual year-to-year results, tend to smooth out variations in a
fund's returns.
STGF
MANAGEMENT'S DISCUSSION OF
PERFORMANCE OF THE FUND
During its fiscal year ended June 30, 1996, the Fund's net asset value per
share decreased 28.29%. The Fund experienced a net decrease in net assets from
operations of approximately
31
$219,000 as a result of a net realized loss from investment transactions of
$130,000 and a net investment loss of $173,000 offset by unrealized appreciation
of investments of $84,000.
Portfolio turnover during the year, although high, was about half of the
rate for the prior period and at year's end the Fund's portfolio consisted of
investments in the computer industry, communications, pharmaceutical, and radio
& TV equipment industries. The Fund maintained an aggressive trading position
with its assets almost fully invested in equity securities most of the year.
The Fund's net investment loss of approximately $173,000 resulted from expenses
excluding the Fund's investment income from dividends and interest of
approximately $3,000. Realization of current income is secondary to the Fund's
pursuit of its primary goal of capital appreciation.
From time to time the Fund may quote its total return in advertisements or
in reports or other communications to shareholders. A mutual fund's total
return is a measurement of the overall change in value, including changes in
share price and assuming reinvestment of all distributions, of an investment in
the fund. Cumulative total return shows the fund's performance over a specific
period of time. Average annual total return is the average annual compounded
return that would have produced the same cumulative total return if the fund's
performance had been constant over the entire period. The returns shown are
based on historical results and are not intended to indicate future performance.
The investment return and principal value of an investment in the fund will
fluctuate so that an investor's shares when redeemed may be worth more or less
than their original cost. Average annual returns which differ from actual year-
to-year results, tend to smooth out variations in a fund's returns.
32
SAIF TOTAL RETURN VS S&P 500 INDEX
Comparison of change in the value of a $10,000 investment in the Fund
and the same investment in the S&P 500 Index for each
fiscal year from February 1, 1986 to January 31, 1996; February
1, 1995 to June 30, 1995; July 1, 1995 to June 30, 1996
[A GRAPH APPEARS HERE WITH THE FOLLOWING PLOTTING POINTS]
- -------------------------------------------------------------------------
SAIF S&P
- -------------------------------------------------------------------------
Status of Status of
$10,000 $10,000
Period End Percent Change Investment Percent Change Investment
- -------------------------------------------------------------------------
2/1/86 --.-- $10,000 -- $10,000
1/31/87 (7.27) 9,273 33.87 13,387
1/31/88 (16.42) 7,750 (3.32) 12,943
1/31/89 (1.34) 7,646 20.07 15,541
1/31/90 (12.22) 6,712 14.46 17,788
1/31/91 (18.04) 5,501 8.40 19,282
1/31/92 (3.14) 5,328 22.69 23,657
1/31/93 (2.60) 5,189 10.58 26,160
1/31/94 10.00 5,708 12.88 29,529
1/31/95 (41.82) 3,321 2.59 30,294
6/30/95 (8.33) 3,044 17.17 35,495
6/30/96 (18.48) 2,481 26.00 44,724
- -------------------------------------------------------------------------
33
SAF TOTAL RETURN VS S&P 500 INDEX
Comparison of change in the value of a $10,000 investment in the Fund
and the same investment in the S&P 500 Index for each fiscal year
from October 1, 1985 to September 30, 1994; October 1, 1994 to June 30, 1995
and July 1, 1995 to June 30, 1996
[A GRAPH APPEARS HERE WITH THE FOLLOWING PLOTTING POINTS]
- ----------------------------------------------------------------------
SAF S&P
- ----------------------------------------------------------------------
Status of Status of
$10,000 $10,000
Period End Percent Change Investment Percent Change Investment
- ----------------------------------------------------------------------
10/1/85 --.-- $10,000 --.-- $10,000
9/30/86 11.44 11,144 31.51 13,151
9/30/87 15.83 12,908 43.27 18,841
9/30/88 (27.86) 9,312 (12.54) 16,478
9/30/89 47.50 13,735 32.97 21,911
9/30/90 (32.27) 9,303 (9.23) 19,889
9/30/91 17.51 10,932 31.17 26,088
9/30/92 (4.47) 10,443 11.05 28,971
9/30/93 35.88 14,190 13.00 32,737
9/30/94 17.24 16,636 3.68 33,942
6/30/95 1.39 16,867 20.19 40,795
6/30/96 (4.38) 16,128 26.00 51,401
- ----------------------------------------------------------------------
34
SIF TOTAL RETURN VS S&P 500 INDEX
Comparison of change in the value of a $10,000 investment in the Fund
and the same investment in the S&P 500 Index for each
fiscal year from January 1, 1986 to December 31, 1994;
January 1, 1995 to June 30, 1995
and July 1, 1995 to June 30, 1996
[A GRAPH APPEARS HERE WITH THE FOLLOWING PLOTTING POINTS]
- ------------------------------------------------------------------------------
SIF S&P
- ------------------------------------------------------------------------------
Status of Status of
$10,000 $10,000
Period End Percent Change Investment Percent Change Investment
- ------------------------------------------------------------------------------
1/1/86 --.-- $10,000 --.-- $10,000
12/31/86 10.27 11,027 18.56 11,856
12/31/87 (18.01) 9,041 5.10 12,461
12/31/88 (6.82) 8,424 16.61 14,530
12/31/89 8.13 9,109 31.69 19,135
12/31/90 (15.04) 7,739 (3.10) 18,542
12/31/91 32.95 10,289 30.47 24,192
12/31/92 (7.05) 9,564 7.62 26,035
12/31/93 2.89 9,840 10.08 28,660
12/31/94 (34.51) 6,444 1.38 29,056
6/30/95 9.68 7,068 20.21 34,928
6/30/96 (15.53) 5,970 26.00 44,010
- ------------------------------------------------------------------------------
35
STGF TOTAL RETURN VS S&P 500 INDEX
Comparison of change in the value of a $10,000 investment in the Fund
and the same investment in the S&P 500 Index for each fiscal year from
January 1, 1986 to December 31, 1994; January 1, 1995 to June 30, 1995
July 1, 1995 to June 30, 1996
[A GRAPH APPEARS HERE WITH THE FOLLOWING PLOTTING POINTS]
- ---------------------------------------------------------------------------
STGF S&P
- ---------------------------------------------------------------------------
Status of Status of
$10,000 $10,000
Period End Percent Change Investment Percent Change Investment
- ---------------------------------------------------------------------------
1/1/86 --.-- $10,000 --.-- $10,000
12/31/86 (11.46) 8,854 18.56 11,856
12/31/87 (8.04) 8,142 5.10 12,461
12/31/88 (26.46) 5,988 16.61 14,530
12/31/89 29.37 7,747 31.69 19,135
12/31/90 (43.62) 4,368 (3.10) 18,542
12/31/91 28.51 5,613 30.47 24,192
12/31/92 (5.28) 5,317 7.62 26,035
12/31/93 (7.81) 4,902 10.08 28,660
12/31/94 (36.69) 3,103 1.38 29,056
6/30/95 (8.92) 2,826 20.21 34,928
6/30/96 (28.29) 2,026 26.00 44,010
- ---------------------------------------------------------------------------
36
DESCRIPTION OF CAPITAL STRUCTURE OF THE FUNDS
AND SHAREHOLDER RIGHTS
Each Fund is organized as a common law trust under the laws of the District
of Columbia and has outstanding only one class of shares of beneficial interest.
Each share has one vote, and all shares participate equally in dividends and
other distributions by the respective Fund, and in the residual assets of such
Fund in the event of liquidation. Fractional shares have the same rights
proportionately as do full shares. Shares of the Funds have no preemptive
rights and no conversion or subscription rights. The Funds do not hold
regularly scheduled annual shareholders' meeting. Special meetings are called
when required by applicable laws and regulations. No shareholder of any Fund
shall be subject to any liability to any person in connection with the property
or affairs of any such Fund.
In addition, the governing documents of the Funds contain several other
provisions relating to shareholders' rights that are uncommon to most other
mutual funds. (a) Trustees hold office for a term of unlimited duration, (b)
shareholders are not entitled to vote for or against any amendments to the Trust
Indenture, (c) shareholders are not entitled to vote for or against a
termination of the Fund, and (d) except as otherwise required by law,
shareholders may call special meetings only upon a vote of 90% of the
outstanding shares.
As interpreted by the staff of the Securities and Exchange Commission, the
1940 Act provides shareholders of the Funds with certain rights with respect to
removal of Trustees. Under these provisions, shareholders may remove one or
more Trustees by declaration or vote of two-thirds of each Fund's outstanding
shares. The Trustees will promptly call a meeting of shareholders for the
purpose of voting upon the question of removal of Trustees when requested to do
so by the record holders of not less than 10% of the outstanding shares of the
Fund. Such Fund will comply with these procedures.
SPECIAL PROVISIONS OF SST
SENIOR SECURITIES. As a closed-end investment company, SST will have the
authority to issue senior securities, including preferred shares, subject to the
rules and regulations of the 1940 Act. The Trustees of the Fund have the
authority to issue such senior securities upon such terms and such amounts as
they shall determine subject to the 1940 Act. As of the date hereof, no such
senior securities have been issued by SST, and the Trustees have no present
intention of authorizing the issuance of senior securities.
ANTI-TAKEOVER PROVISIONS. Certain provisions of the Amended and Restated
Trust Indenture of SST may be regarded as anti-takeover provisions. While the
Trustees of SST are not aware of any effort that mights be made to obtain
control of the Fund upon completion of the Merger, the Trustees believe that it
is appropriate to include certain provisions as part of the Fund's Amended and
Restated Trust Indenture, which may have the effect of discouraging a future
takeover attempt which is not approved by the Trustees but which individual
shareholders may deem to be in their best interests or in which shareholders may
receive a substantial premium for their shares over then current market prices.
The following discussion is a general summary of the material provisions of
the Amended and Restated Trust Indenture of SST which may be deemed to have such
an "anti-takeover" effect. The description of these provisions is necessarily
general and reference should be made in each case to the complete documents set
forth in Exhibit B hereto.
37
1. TRUSTEES. Trustees are chosen for a term of unlimited duration.
2. MEETINGS OF SHAREHOLDERS. Special meetings of the Shareholders may be
called at any time by the Chairman or by a majority of the Trustees and
shall be called upon the written request of shareholders holding in the
aggregate not less than ninety percent (90%) of the outstanding shares
having voting rights. The Trustees will promply call a meeting of
shareholders for the purpose of voting upon the question of removal of
Trustees when requested to do so by the record holders of not less than 10%
of the outstanding shares of the Fund.
3. ABSENCE OF CUMULATIVE VOTING. The Amended and Restated Trust
Indenture provides that there shall not be cumulative voting by
shareholders for the election of Trustees. The absence of cumulative
voting rights effectively means that the holders of a majority of the
shares voted at a meeting of shareholders may, if they so choose, elect all
Trustees to be selected at that meeting, thus precluding minority
shareholder representation among the Trustees.
4. RESTRICTIONS ON ACQUISITIONS OF SHARES OF SST. The Amended and
Restated Trust Indenture provides that from and after the effective date of
the approval of the Merger, no person may acquire, directly or indirectly,
the beneficial ownership of more than 5% of the Fund shares, unless such
offer or acquisition shall have been approved in advance by a two-thirds
vote of the Fund's Continuing Trustees. In addition, no shares
beneficially owned in violation of the foregoing percentage limitation, as
determined by the Trustees, shall be entitled to vote in connection with
any matter submitted to shareholders for a vote. The restriction on
voting shares beneficially owned in violation of the foregoing limitation
is imposed automatically. In order to prevent the imposition of such
restriction, the Trustees must take affirmative action approving in advance
a particular offer to acquire or acquisition.
REDEMPTION OF SHARES PRIOR TO MERGER. Shareholders of the Funds do not
have appraisal or other dissenter's rights with respect to the Proposal.
However, any Fund shareholder may redeem his or her shares prior to the closing
date of the Merger at the net asset value next calculated after the request has
been received and found to be in good order, and the proceeds will be paid by
check within seven days after receipt of a redemption request. The redemption
procedures are as follows:
ACCOUNTS WITHOUT SHARE CERTIFICATES - A signed request (all joint owners
must sign) stating the amount to be withdrawn must be made to Steadman
Security Corporation, 1730 K Street, N.W., Washington, D.C. 20006. For
amounts 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 a
shareholder or a shareholder's representative, and believed by SSC, as
Transfer Agent for the Fund, to be genuine will be acted upon. No Fund nor
the Transfer Agent will be liable for following unauthorized instructions
communicated
38
by telephone that they reasonably believe to be genuine. The Funds will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine.
ACCOUNTS WITH SHARE CERTIFICATES - The signed share certificates (all joint
owners must sign) together with a "signature guarantee" from an eligible
guarantor institution (see "Accounts without share Certificates," above)
and a written request that the certificates be redeemed, must be submitted
to SSC at the above address.
Requests for redemption by corporations, executors, administrators,
trustees or guardians may require further documentation.
The proceeds of redemptions are paid by check within seven days after
receipt of a request for redemption that complies with the procedures set forth
above. Proceeds may also be wired to a bank or trust company if wire transfers
have been previously authorized on the Investment Application. When a personal
or corporate check was used to purchase the shares, redemption proceeds will be
released only when bank clearance on the check has been received. This
procedure could take up to seven days after the purchase date and can be avoided
by submitting a certified check along with the purchase order. Also, there may
be a charge if a shareholder uses a broker-dealer to repurchase the Fund's
shares.
The right of redemption may be suspended during any period when: (a)
trading on the New York Stock Exchange is restricted as determined by the
Securities and Exchange Commission or such Exchange is closed for other than
weekends and holidays; or (b) as permitted by the Securities and Exchange
Commission.
OVER-THE-COUNTER MARKET
Currently SST shares are not traded in any market. As of January 13, 1997,
the net asset value of SST was $.80 per share. Upon the effectiveness of the
Merger, SST will become a closed-end investment company, and shares of SST will
not be redeemable. It is expected that shares of SST will be traded in the
over-the-counter market; however, there can be no assurance that a market will
develop for shares of SST.
MANAGEMENT OF THE FUNDS
Under the laws of the District of Columbia, the Trustees of the Fund are
responsible for managing the business and affairs of the Funds. Each Fund has
entered into an investment advisory agreement (the "Advisory Agreement") with
SSC (sometimes referred to herein as the "Advisor") which has its principal
offices at 1730 K Street, N.W., Washington, D.C. 20006. Upon the effectiveness
of the Merger, SSC will continue to be the Advisor to SST.
All voting stock of SSC is owned by United Securities, Inc., a Maryland
corporation whose sole shareholders are two of Mr. Charles W. Steadman's adult
children-Carole S. Kinney, Charles T.W. Steadman and Mrs. Consuelo M. Steadman,
Mr. Charles W. Steadman's wife. Mr. Steadman has a long-term employment
contract with the Advisor under which he may be deemed a control person.
Since commencing business through its predecessor, William Allen Steadman &
Company, in 1932, the Advisor has principally engaged in the business of
providing continuous investment
39
supervision for the Funds. Under the terms of the Advisory Agreement, the
Advisor manages the investments of each Funds and is responsible for overall
management of the business affairs of each Fund subject to the supervision of
the Trustees. Charles W. Steadman, Chairman of the Board of Trustees and
President of each Fund, is primarily responsible for the day-to-day management
of the Funds' portfolios. He has been in mutual fund management for the past 29
years as Chairman of the Board and President of Steadman Security Corporation.
As compensation for its services, each Fund pays to the Advisor a monthly
advisory fee at the annual rate of 1% of the first $35,000,000 of the average
daily net asset value of the Fund, 7/8 of 1% on the next $35,000,000 and 3/4 of
1% on all on all sums in excess thereof. The advisory fee is higher than that
paid by many other investment companies. SSC also receives certain other fees
which are described in the Statement of Additional Information.
The Advisor also receives reimbursements from each Fund for salaries and
benefits of its employees who perform functions directly attributable to such
Fund other than investment advisory and shareholder service functions. 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.
LEGAL PROCEEDINGS
The Funds are not parties to any material legal proceedings.
40
ELECTION OF TRUSTEES
OF
STEADMAN ASSOCIATED FUND
PROPOSAL NO. 2
(TO BE VOTED ON BY SHAREHOLDERS OF
STEADMAN ASSOCIATED FUND ONLY)
ELECTION OF TRUSTEES
Four Trustees have been nominated for election by the shareholders of SST.
Pursuant to the terms of the Amended and Restated Trust Indenture of SST,
Trustees shall be chosen for a term of unlimited duration, and shall hold office
until their successors shall be elected and qualified, provided that the term of
office will be terminated in the event of death, resignation, bankruptcy,
adjudicated incompetence or other incapacity to serve.
Currently the Fund has four Trustees, one of whom, Paul F. Wagner, was
appointed by the remaining trustees October 14, 1992 to fill a vacancy. This is
the first shareholders meeting since that date, and accordingly the shareholders
are being asked to approve Mr. Wagner's appointment. Three additional persons
have been nominated to serve as Trustee, William Mark Crain , Gordon T.
Getsinger and Richard O. Haase. It is intended that all properly executed
proxies will be voted (unless such authority has been withheld in the proxy) in
favor of the persons designated as Trustees to be elected by the shareholders.
The Trustees of SST know of no reason why any of these nominees will be
unable to serve, but in the event of any such unavailability, the proxies
received will be voted for such substitute nominee or nominees as the Trustees
may recommend.
Certain information concerning the Trustees and the nominees is set forth
below.
PRINCIPAL SHARES
OCCUPATION DURING OF SST
PAST FIVE YEARS AND TRUSTEE BENEFICIALLY OWNED AT
NAME AND ADDRESS AGE PUBLIC DIRECTORSHIPS SINCE NOVEMBER 15, 1996
- ---------------- ---- ---------------------- ----- -----------------
Paul A. Bowers, M.D. 85 Emeritus Professor, Obstetrics
and Gynecology, 1978 -0-
Jefferson Medical College
(ret.); Trustee of each of
the Steadman Funds
William Mark Crain* 45 Professor of Economics and Research -- -0-
Associate with the Center for
Study of Public Choice,
George Mason University
Gordon T. Getsinger* 75 -- -0-
Consultant to each of the Steadman
Funds
Richard O. Haase* 62 Vice Prsident, Maiden, Haase & Smsith, --- -0-
a real estate valuation company
Vice Admiral John T.
Hayward USN (Ret.) 85 Vice Admiral, U.S.N. (ret.); Trustee 1973 -0-
of each of the Steadman Funds
41
Charles W. Steadman 82 Chairman of the Board and President 1968 16,425
of Steadman Security Corporation and
of each of the Steadman Funds
Paul F. Wagner* 78 Chairman, Wagner, Hines & Avery, Inc., 1992 -0-
a Washington, D.C. public affairs firm,
Trustee of each of the Steadman Funds
_____________________
*Nominee for election.
COMMITTEE AND MEETINGS OF TRUSTEES
The Board of Trustees of SST acts as a committee of the whole, and
accordingly there are no special committees of the Board. During the fiscal
year ended June 30, 1996, the Trustees of the Fund held five meetings. All of
the Trustees then in office attended at least 80% of the total number of
meetings of the Trustees during such period.
INTERESTED PERSONS
SST considers Mr. Charles W. Steadman to be an "interested person" of the
Fund within the meaning of Section 2(a)(19) of the Investment Company Act as a
result of the position he holds with Steadman Security Corporation ("SSC"), the
Fund's investment adviser. Mr. Steadman is the Chairman and President of the
Fund.
COMPENSATION OF TRUSTEES
SSC, the investment adviser for SST, pays all compensation of all officers
of the Fund and all Trustees of the Fund who are affiliated with SSC. The Fund
pays each Trustee who is not affiliated with SSC a fee of $300 for each meeting
attended, together with such Trustee's actual out-of-pocket expenses relating to
attendance at meetings. These fees and expenses for the fiscal year ended
June 30, 1996 totaled $5,328. After the Merger, the Trustees will continue to
be compensated at the same level.
OFFICERS OF SST
The Trustees of SST have elected the following persons as executive
officers of the Fund. The principal business address of each officer is 1730 K
Street, N.W., Washington, D.C. 20005. The following sets forth information
concerning each of these officers:
TOTAL COMPENSATION*
---------------------------------
NAME AND PRINCIPAL OCCUPATION OFFICER
DURING THE PAST FIVE YEARS OFFICE AGE SINCE SALARY BONUS OTHER
- ----------------------------- ------ --- ----- ------ ----- ------
Charles W. Steadman President** 82 1968 $75,000 -0- -0-
Max Katcher Executive Vice 67 1972 $26,000 -0- -0-
President,
Treasurer and
Secretary**
*For the year ended June 30, 1996
**Upon the Merger, Mr. Steadman's annual salary will be increased to $105,000
and Mr. Katcher's annual salary will be increased to $50,000.
42
RATIFICATION OF AMENDED AND RESTATED
TRUST INDENTURE OF STEADMAN SECURITY TRUST,
DATED JANUARY 28, 1997
PROPOSAL NO. 3
(TO BE VOTED ON BY SHAREHOLDERS OF
STEADMAN ASSOCIATED FUND ONLY)
In connection with the proposed Merger, the Trustees of SST have amended
and restated the Trust Indenture of the Fund to provide among other things for
the change of the Fund's name from Steadman Associated Fund to Steadman Security
Trust and the change from an open-end investment company to a closed-end
investment company. A complete copy of the Amended and Restated Trust Indenture
of Steadman Security Trust with amendments through January 28, 1997 ("Amended
and Restated Trust Indenture") is set forth on Exhibit B to this Proxy Statement
and Prospectus. The shareholders of SST are being asked to ratify and confirm
the Amended and Restated Trust Indenture.
The following summary of the Amended and Restated Trust Indenture is
qualified in its entirety by reference to Exhibit B to this Proxy Statement and
Prospectus. For a discussion of the change from an open-end investment company
to a closed-end investment company, see "Difference Between Operations of SST as
an Open-End and Closed-End Investment Company."
The Amended and Restated Trust Indenture incorporates all prior amendments
to the trust indenture which have taken place since it was previously adopted by
SST (or its predecessor fund) in 1939. The Amended and Restated Trust Indenture
reflects the change of SST from an open-end investment company to a closed-end
investment company and incorporates such other changes as are necessary to
operate SST as a closed-end investment company.
The Amended and Restated Trust Indenture eliminates the requirement of
computing the net asset value of shares of SST on a daily basis and instead
provides for such computation at any required valuation date in order to
properly operate and administer SST. The Amended and Restated Trust Indenture
eliminates the obligation of SST to redeem outstanding shares of the funds as
required of an open-end investment but not required of a closed-end investment
company.
The Amended and Restated Trust Indenture also reflect the current fee
arrangements entered into with Steadman Security Corporation, SST's advisor.
Additionally, it permits SST's advisor to execute portfolio transactions for SST
through such entities as the advisor determines, in its discretion, will render
satisfactory service to SST at standard and/or negotiated commission rates. The
Amended and Restated Trust Indenture also reflects renaming of SST from the
Steadman Associated Fund to the Steadman Security Trust.
The investment objective of the Fund has been changed to seek current
income as its primary objective and capital apprecaition as its secondary
objective, but only to the extent consistent with its primary objective.
The duration of the Fund has been extended to February 23, 2034.
Certain anti-takeover provisions have been added as more fully described in
"Description of Capital Structure of the Funds and Shareholder Rights--Special
Provisions of SST."
43
SELECTION OF INDEPENDENT AUDITORS
PROPOSAL NO. 4
(TO BE VOTED ON BY SHAREHOLDERS OF
STEADMAN ASSOCIATED FUND ONLY)
The Trustees of SST including a majority of the Trustees who are not
Interested Persons have selected the firm of Reznick Fedder & Silverman as
independent auditors to examine the financial statements of SST for the current
fiscal year and thereafter. The Trustees know of no direct or indirect
financial interest of such firm in SST. The firm of Coopers & Lybrand L.L.P.,
which had been the independent auditors for the year ended June 30, 1996,
advised the Trustees on January 13, 1997 that they had resigned as auditor of
the Funds. In its letter of resignation, the firm of Coopers & Lybrand, L.L.P.
stated that it had no disagreements with the Funds' management concerning the
scope of its services to the Funds or with the Funds' accounting policies.
The selection of independent auditors is subject to the ratification or
rejection by the shareholders of SST. If the shareholders approve, the firm of
Reznick Fedder & Silverman will serve as the independent auditors of SST until
the next meeting of shareholders. Unless a contrary specification is made, the
accompanying proxy will be voted in favor of the ratification of the selection
of such independent auditors.
Representatives of Reznick Fedder & Silverman are expected to be present at
the Meeting and will have the opportunity to make a statement if they so desire
and to respond to questions from shareholders.
INFORMATION CONCERNING THE MEETINGS
THE MEETINGS
The Meetings of the Funds will be held at ____________ Hotel, Washington,
D.C. 2000? at 9:30 a.m., Washington, D.C. time, on ______, 1997 and any
adjournments thereof. At the Meetings, shareholders of the Funds will be asked
to consider and vote upon approval of the Merger Agreement, and the transactions
contemplated thereby, and in addition shareholders of SST will be asked to (a)
elect trustees, (b) ratify the Amendment and Restated Trust Indenture of SST,
which includes the change of SST from an open-end investment company to a
closed-end investment company, and (c) ratify the selection of independent
auditors for SST.
RECORD DATE; VOTE REQUIRED; SHARE INFORMATION
The Trustees of each Fund have fixed the close of business on February __,
1997 as the record date (the "Record Date") for the determination of
shareholders entitled to notice of, and to vote at, the Meetings. Pursuant to
the requirements of the 1940 Act, the affirmative vote of a majority of the
outstanding shares of each of the Funds, voting separately, cast in person or by
proxy at the Meetings and entitled to vote at the Meetings is required for
approval of Proposal No. 1. Each shareholder of a Fund will be entitled to one
vote for each share held of record at the close of business on the Record Date.
Only shareholders of the Funds will vote on the Merger. Only shareholders of
SST will vote on the election of Trustees of SST, the ratification of the
Amended and Restated Trust Indenture and the Selection of Independent Auditors
for SST.
44
At the close of business on the Record Date, there were _______ shares of
SAIF, ________ shares of SAF, ________ shares of SIF and ________ shares of STGF
issued and outstanding. The presence in person or by proxy of the holders of a
majority of shares of each Fund constitutes a quorum for the transaction of
business at such Fund's Meeting. To the knowledge of the Trustees, as of the
Record Date, no person owned or record or beneficially more than 5% of the
outstanding shares of any Fund and no person could be deemed a "control person"
as defined in the 1940 Act.
In the event a quorum does not exist as to one or more of the Funds on the
date originally scheduled for its Meeting, or, subject to approval of the
Trustees, for other reasons, one or more adjournments of the Meetings may be
sought by the Trustees. Any adjournment would require a vote in favor of the
adjournment by the holders of a majority of the shares present at such Meeting
(or any adjournment thereof) in person or by proxy. The persons named as
proxies will vote all shares represented by proxies which they are required to
vote in favor of the respective Proposal, in favor of an adjournment, and will
vote all shares which they are required to vote against the respective Proposal,
against an adjournment.
PROXIES
The enclosed form of proxy, if properly executed and returned, will be
voted (or counted as an abstention or withheld from voting) in accordance with
the choices specified thereon, and will be included in determining whether there
is quorum to conduct the Meeting. If a shareholder executes and returns a proxy
but fails to indicate how the votes should be cast, the proxy will be voted in
favor of the respective Proposal.
Shares owned of record by broker-dealers for the benefit of their customers
("street account shares") will be voted by the broker-dealer based on
instructions received from its customers. If no instructions are received, the
broker-dealer may, as record holder, vote such shares on the respective Proposal
in the same proportion as that broker-dealer votes street account shares for
which voting instructions were received in time to be voted ("broker non-
votes"). Abstentions and broker non-votes will be counted as present for
purposes of determining a quorum and will have the same effect as a vote against
such Proposal. The proxy may be revoked at any time prior to the voting thereof
by: (i) writing to the Secretary of the Fund at 1730 K Street, N.W.,
Washington, D.C. 20006; (ii) attending the Meeting and voting in person; or
(iii) signing and returning a new proxy (if returned and received in time to be
voted).
COSTS OF THE SOLICITATION AND THE REORGANIZATION
All expenses of this solicitation, including the cost of printing and
mailing this Proxy Statement and Prospectus, will be shared proportionately by
the Funds, based upon the net asset value of each of the Funds as of the date
the Merger Agreement is signed. In addition to the solicitation of proxies by
mail, proxies may be solicited by officers and employees of SSC, the Trust's
investment adviser, personally or by telephone or telegraph.
Expenses of the Merger will be paid as set forth in the Merger Agreement.
All out-of-pocket expense of the Funds associated with the Merger, including
Fund, accounting and transfer agent expenses, legal fees and tax opinion will be
borne by the Funds proportionately.
45
MISCELLANEOUS
FINANCIAL INFORMATION
Financial information as to SST and the other Funds is available without
charge upon written request to the Fund at 1730 K Street, N.W., Washington, D.C.
20006, and in its audited financial statements as of June 30, 1996 which are
included in the Statement of Additional Information.
PUBLIC INFORMATION
SST is registered under the 1940 Act and is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended, and in
accordance therewith, files reports, proxy statements and other information with
the SEC. SIF, SAIF and STGF are also registered under the 1940 Act and are
required to file reports with the SEC under the 1940 Act. Proxy materials,
reports and other information about SST, SIF, SAIF and STGF which are of public
record, can be inspected and copied at public reference facilities maintained by
the SEC in Washington, D.C. and certain of its regional offices, and copies of
such materials can be obtained at prescribed rates from the Public Reference
Branch, Office of Consumer Affairs and Information Services, SEC, 450 Fifth
Street, N.W., Washington, D.C. 20549.
OTHER BUSINESS
The Trustees of the Funds know of no business other than the matters
specified above which will be presented at the Meetings. Since matters not
known at the time of the solicitation may come before the Meetings, the proxy as
solicited confers discretionary authority with respect to such matters as
properly come before the Meetings, including any adjournment or adjournments
thereof, and it is the intention of the persons named as attorneys-in-fact in
the proxy to vote this proxy in accordance with their judgment on such matters.
By Order of the Boards of Trustees
of
Steadman American Industry Fund
Steadman Associated Fund
Steadman Investment Fund
Steadman Technology and Growth Fund
Max Katcher, Secretary
February __, 1997
46
PART B: INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
Item 10. Cover Page
STATEMENT OF ADDITIONAL INFORMATION
January 31, 1997
STEADMAN SECURITY TRUST
(formerly the Steadman Associated Fund)
1730 K Street N.W.
Washington, D.C. 20006
Telephone: (202) 223-1000
Toll Free: (800) 424-8570
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the prospectus of the Steadman Security Trust (formerly
the Steadman Associated Fund) bearing the same date. Requests for copies of the
prospectus should be made by writing to Steadman Security Corporation, 1730 K
Street NW, Washington DC 20006, or by calling one of the telephone numbers
listed above.
No person has been authorized to give any information or to make any
representations other than those contained in this Statement of Additional
Information and the Prospectus bearing the same date and, if given or made, such
information or representations may not be relied upon as having been authorized
by the Fund.
This Statement of Additional Information does not constitute an offer to
sell securities.
Item 11. Table of Contents
Table of Contents. . . . . . . . . . . . . . . . . . . .Page No.
Investment Techniques . . . . . . . . . . . . . . . . B-2
Options on Stock Indices. . . . . . . . . . . . . . . B-2
Portfolio Diversification . . . . . . . . . . . . . . B-3
Tax Status. . . . . . . . . . . . . . . . . . . . . . B-3
Portfolio Turnover. . . . . . . . . . . . . . . . . . B-5
Other Investment Techniques . . . . . . . . . . . . . B-5
Performance Information . . . . . . . . . . . . . . . B-5
Trustees and Officers of the Fund . . . . . . . . . . B-6
Principal Shareholders. . . . . . . . . . . . . . . . B-7
Investment Advisory and Transfer Agent Fees . . . . . B-7
Distribution Expense. . . . . . . . . . . . . . . . . B-8
Portfolio Transactions and Brokerage Commissions. . . B-8
Shareholder Investment Plan . . . . . . . . . . . . . B-10
Independent Accountants . . . . . . . . . . . . . . . B-11
Financial Statements and Related Information. . . . . B-11
47
Item 12. Additional Information about the Registrant.
Item 13. Additional Information about the Company Being Acquired.
The following information relates to the Fund and the Other Funds being
merged into the Fund. Upon completion of the merger of the Fund and the Other
Funds, the Fund will become a close-end management investment company under the
name Steadman Security Trust. The Other Funds comprise the Steadman Investment
Fund, the Steadman American Industry Fund and the Steadman Technology and Growth
Fund.
INVESTMENT TECHNIQUES
The following information supplements and should be read in conjunction
with the section of the Fund's Prospectus entitled "Investment Policies,
Objectives and Techniques".
OPTIONS ON STOCK INDICES
Options on stock indices operate in much the same way as options on common
stock, except that the underlying instrument, rather than being a stock, is a
stock index such as the Standard & Poor's 500 Stock Index.
The Fund will utilize various investment techniques involving options on
stock market indices so as to enhance income. Call or put options may be
purchased or sold on these indices depending upon the market conditions as
viewed by the Advisor. The opportunity to realize a gain or loss on the
purchase or sale of an index option is based upon movements in the level of
prices in the stock market generally rather than changes in price of an
individual stock. Successful use of index option techniques is therefore
dependent upon the Advisor's ability to predict correctly movements in the stock
market in general or the index of underlying stocks in particular, and this
requires skills and techniques different from those involved in predicting the
price level change of individual stocks.
When purchasing a call on an index as an initial transaction, the maximum
gain is unlimited while the risk is limited to the amount of the premium paid
for the call. In selling a call on an. index as an initial transaction, the
maximum gain is the amount of the premium realized in the sale of the call
whereas the risk is not limited by the price of an underlying security. When
purchasing a put on an index as an initial transaction, the maximum gain is the
difference between the exercise price and zero while the risk is limited to the
amount of the premium paid for the put. In selling a put on an index as an
initial transaction, the maximum gain is the. amount of the premium realized in
the sale of the put whereas the risk is the difference between the exercise
price and zero.
The Fund will cover call options on indexes by owning securities whose
price changes, in the opinion of the Advisor, are expected to be similar to
those of the index, or in such other manner as may be in accordance with the
guidelines established by the SEC with respect to coverage of options
strategies. Nevertheless, where the Fund covers a call option on an index
through ownership of securities, such securities may not match the composition
of the index. In that event, the Fund will not be fully covered and could be
subject to risk of loss in the event of adverse changes in the value of the
index. The Advisor will monitor and make appropriate adjustments to insure that
the Fund is adequately covered if the index and the underlying securities
diverge.
48
The Fund will cover put options on indexes by segregating assets equal to
the option's exercise price, or in such other manner as may be in accordance
with the guidelines established by the SEC with respect to coverage of options
strategies.
PORTFOLIO DIVERSIFICATION
The Fund has elected to qualify as a "non-diversified investment company",
as defined under Section 5(b)(2) of the Investment Company Act of 1940, so that
the Fund may invest its assets in the securities of a small number of issuers.
This subjects the Fund's portfolio directly to the increase or decrease in the
particular investment. Thus, the opportunity for gain and the risk of loss arc
not spread over as broad a base as would be the case in a "diversified" company.
While diversification spreads the risk of loss over a broader base, it also
restricts the ability of the Advisor to take maximum advantage of investment
opportunities that it determines are in the best interest of the Fund.
The Fund will limit its investments in the securities of a small number of
issuers only when the Advisor determines that it is in the best interest of the
Fund to do so.
TAX STATUS
Currently, the Fund does not qualify as a regulated investment company
("RIC") taxable under the rules of Sections 851-855 of the Internal Revenue Code
of 1986, as amended (the "Code"). The Fund is taxed under the normal rules of
the Code applicable to C corporations. It is anticipated that such tax status
as a non-RIC shall continue indefinitely.
In the event the Fund qualifies as a RIC in the future, distributions of
any taxable net investment income and of any excess of net short-term capital
gain over net long-term capital loss and capital loss carryovers, if any, will
be taxable to shareholders as ordinary income. Further, in qualifying years, to
the extent that long-term capital gains exceed short-term capital losses and any
capital loss carry forwards, they may be distributed to shareholders and, if
distributed, will be taxable to the shareholders as long-term capital gain.
Distributions from the Fund currently are taxable under the normal
corporate tax rules because the Fund is not a RIC for federal income tax
purposes. Non-redemption cash distributions to shareholders constitute ordinary
dividend income if such distributions are out of the corporation's current or
accumulated earnings and profits. Thereafter, the distributions are a non-
taxable return of basis to the extent of the recipient's tax basis for the
recipient's shares. Any distributions in excess of earnings and profits and in
excess of such tax basis constitute gain from a deemed sale or exchange of the
shares.
Redemption distributions may be taxable under the rules described above, or
such redemptions may be treated for federal income tax purposes as a sale or
exchange of the redeemed shares. Such characterization depends upon the
application to the recipient of Section 302(b) of the Code. A redemption
distribution may be a sale or exchange of the redeemed shares for tax purposes
if it is not essentially equivalent to a dividend, is a substantially
disproportionate redemption, is in complete termination of a shareholder's
interest in the corporation, or is a redemption from a noncorporate shareholder
in partial liquidation of the distributor (all within the technical meanings of
Section 302(b)). Such determinations are highly individualized. Shareholders
must consult with their own tax advisors concerning the effect to them of any
redemption distribution from the Fund.
49
Special rules apply for federal income tax purposes if the Fund makes a
distribution of its assets in kind (which could be a liquidating distribution
from the Fund or a non-liquidating distribution). Other special tax rules apply
if the Fund makes a distribution of its shares or rights to acquire its shares
to its shareholders with respect to their Fund shares. No such distributions
are contemplated currently by the Fund so an explanation of these rules is
beyond the scope of this discussion.
Under the federal income tax law, the Fund is required to report to the
Internal Revenue Service all dividend distributions. Under the backup
withholding provisions, all distributions by the Fund may be subject to
withholding of federal income tax at the rate of 31 % in the case of non-exempt
shareholders who fail to furnish the Fund with their correct taxpayer
identification numbers and with required certifications regarding their status
under federal income tax laws. If the withholding provisions are applicable,
any such distributions will be reduced by the amounts required to be withheld.
Investors should consult their tax advisors about the applicability of the
backup withholding provisions.
The foregoing discussion relates solely to U.S. federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic
corporations, partnerships, trusts and estates). Each shareholder who is not a
U.S. person should consult his or her tax advisor regarding the U.S. and foreign
tax consequences of ownership of shares of the Fund, including the likelihood
that such a shareholder would be subject to a U.S. withholding tax at a rate of
30% (or at a lower rate under a tax treaty) on amounts constituting ordinary
income to him or her, where such amounts are treated as income from U.S. sources
under the Code.
In addition to federal taxes, shareholders of the Fund may be subject to
state and local taxes on distributions from the Fund. Shareholders should
consult their own tax advisors with respect to the tax status of distributions
from the Fund in their own state and localities.
PORTFOLIO TURNOVER
Because the Fund may engage in short-term trading, its portfolio rates may
exceed 300%. High portfolio turnover (over 100%) may result in correspondingly
higher brokerage costs.
OTHER INVESTMENT TECHNIQUES
The Fund's Trust Indenture provides that the Fund may, in the sole
discretion of the Advisor and to the maximum extent permissible by the
applicable laws and regulations, engage in all lawful investment activities.
Without limitation on any other investment activities, the Fund reserves freedom
of action to engage in the following types of activities specified in Section
(8)(b) of the Investment Company Act of 1940. (A) The Fund may borrow money from
a bank for either investment or emergency purposes provided that such borrowing
does not exceed 33 1/3% of the value of the Fund's total assets, less its
liabilities other than such borrowings; (B) The Fund may issue senior securities
to the extent the borrowing identified in (A) above constitutes the issuance of
senior securities; (C) The Fund may engage in the business of underwriting
securities issued by other persons to the extent that the purchase of restricted
securities constitutes such underwriting; (D) The Fund may purchase and sell
real estate including land and buildings and securities of companies whose
assets consist of real property and interests therein; (E) The Fund may make
both long and short-term loans to others, including the purchase of non-publicly
offered debt securities. The extent to which the Fund intends to engage in the
foregoing activities is entirely dependent upon the market
50
conditions and the economic environment in which the Fund must operate. Thus it
is not practical to predict the extent to which the Fund will or may engage in
such activities. The Fund intends to engage in these activities to the maximum
extent permissible under applicable laws and regulations when, in the judgment
of the Advisor such activities appear to be beneficial to the Fund and its
shareholders. Accordingly, the risks involved in an investment in the Fund may
be greater than the risks generally associated with many other mutual funds.
PERFORMANCE INFORMATION
The Fund will calculate its total rate of return for certain periods by
determining the average annual compounded rates of return over these periods
that would cause an investment of $1,000 (with all distributions reinvested) to
reach the value of that investment at the end of the periods. The Fund may also
calculate total rates of return which represent aggregate performance over a
period or year-by-year performance. The average annual total rate of return for
the Fund shares for the one year, five year, and ten year periods ended June 30,
1996 are (4.38%), 2.83%, and 4.55% respectively. The average annual total rate
of return for the Other Funds shares for the one year, five years, and ten years
periods ended June 30, 1996 are (18.48)%, (13.67)% and (12.52)% respectively for
SAIF, (15.53)%, (4.61)%, and (4.79)%, respectively for SIF, and (28.29)%,
(13.04)% and (14.11)% respectively for STGF.
TRUSTEES AND OFFICERS OF THE FUND
*CHARLES W. STEADMAN, Chairman of the Board of Trustees and President of
the fund; Chairman of the Board, President and Treasurer, Steadman Security
Corporation (SSC) and subsidiaries. Age 82.
PAUL A. BOWERS, M.D., Trustee, 9 Sandringham Road, Bala Cynwyd,
Pennsylvania; Retired from private medical practice and as a Professor,
Obstetrics and Gynecology, Jefferson Medical College, Philadelphia,
Pennsylvania. Age 84.
JOHN T. HAYWARD, Trustee, 3 Barclay Square, Newport, Rhode Island, Vice
Admiral, U.S.N. (ret); Management Consultant; formerly Vice President,
General Dynamics Corporation, Washington, D.C. (aerospace
manufacturing)(1968-1974). Age 85.
PAUL F. WAGNER, Trustee, Chairman, Wagner, Hincs & Avary, Inc. a
Washington, D.C. Public Affairs firm. Age 78.
MAX KATCHER, Executive Vice President, Secretary and Treasurer of the Fund,
Executive Vice President of SSC. Age 67.
E. JEAN BELLOSI, Assistant Secretary of the Fund, Secretary of SSC. Age
57.
*Interested person as defined by Section 2(a)(19) of the Investment Company
Act.
The Trustees and officers hold the same positions relative to the Other
Funds, which Other Funds are proposed to be merged into the Fund.
The address of all of the officers of the Fund is 1730 K Street, NW,
Washington, DC 20006.
51
On September 30, 1996, the Trustees and Officers of the Fund, as a group
beneficially owned 16,434.691 shares in the Fund and 1,821.711 shares of the
Other Funds which is less than one percent of each of the Fund's equity
securities.
During the fiscal year ended June 30, 1996, the Fund paid $5,328 in fees
and expenses to all Trustees except Mr. Steadman who received no such fees or
expenses. Trustees are paid $300 per meeting attended, except Mr. Steadman.
During the fiscal year ended June 30, 1996, the Other Funds paid $14,054 in fees
and expenses to all Trustees except Mr. Steadman, who received no such fees or
expenses. The Other Funds Trustees are paid $300 per meetings attended, except
Mr. Steadman. Upon the merger into the Fund, the Trustees will be compensated
at the same level.
PRINCIPAL SHAREHOLDERS
On September 30, 1996, no person beneficially owned more than 5% of the
then outstanding shares of the Fund or each of the Other Funds.
INVESTMENT ADVISORY AND TRANSFER AGENT FEES
SSC provides investment advisory services under an agreement which
continues in effect subject to annual approval by the Trustees or by a majority
of the outstanding voting securities of the Fund, provided that in either event,
the continuance is also approved by a majority of the Trustees who are not
"interested persons" of the Fund or of SSC. The fees for investment advisory
services arc computed as follows: 1% of the first $35,000,000 of net assets, 7/8
of 1% of the next $35,000,000 and 3/4 of 1% of all sums in excess thereof.
The Fund paid investment advisory fees during the last three fiscal years
ended as follows: June 30, 1996, $51,706, June 30, (1995)* $41,902; (1994)
$74,029. The Other Funds paid aggregate investment advisory fees during the
last three fiscal years ended as follows: June 30, 1996, $40,338; June 30
(1995)* $20,833; (1994) $59,119.
Under an agreement with the Fund which is contained in the approved minutes
of the Fund, SSC serves as Transfer and Dividend Disbursing Agent and Agent for
Administration of Shareholder Accounts (hereinafter "delegated services") for
the Fund and the Other Funds. The fee for such services is computed on the
basis of the number of shareholder accounts calculated as of the last business
day of each month at $1.35 per account, per month. This agreement is embodied
in resolutions by the Trustees. The last increase in fee amount was made on May
21,1986 (effective retroactive to May 1, 1986) and renewed annually by the
Trustees since that date.
The Fund paid fees for delegated services during the fiscal year ended June
30, 1996, the the fiscal period ended June 30, 1995, and the fiscal year ended
September 30, 1994 as follows: (1996) $41,214; (1995) $33,620; and (1994)
$47,679. The Other Funds paid fees for delegated services during the fiscal
year ended June 30, 1996, the fiscal period ended June 30, 1995 and the fiscal
year ended September 30, 1994 as follows: (1996) $283,427, (1995) $135,292 and
(1994) $303,110.
*The Funds' fiscal year was changed to June 30.
52
The Fund and the Other Funds also reimbursed SSC for salaries and fringe
benefits, including payroll taxes and group insurance, of its employees who
perform functions other than investment advisory and shareholder services during
the fiscal year ended June 30, 1996 of $184,729 and $177,738, respectively.
SSC assumes no responsibility under the Agreement other than to render the
services called for thereunder, in good faith, and is not responsible for any
action of the Fund in following or declining to follow any advice or
recommendation. It is not liable for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with matters to which the
Agreement relates, except for a loss resulting from willful misfeasance, bad
faith, gross negligence or reckless disregard in the performance of its duties
under the Agreement. Trustees, officers and employees of SSC have the unlimited
and unrestricted right to engage in any other business or to devote time and
attention in part to the management or other aspects of any other business,
whether of a similar or dissimilar nature.
The Agreement also provides that the Fund will pay all of its ordinary
expenses of operation except specifically excepted, such expenses of operation
including, but not being limited to, the following: (i) the expenses of
maintaining its own books of accounts; (ii) the expenses of its custodian, the
transfer agent and dividend disbursing agent; (iii) the expenses of computing
the net asset value of the shares at any required valuation date; (iv) the fees
and expenses of the Trustees and, contrary to most other funds, the fees of
those Trustees who also may be directors of the Advisor or its subsidiary
corporation; (v) the expenses of meetings of shareholders; (vi) the expenses of
printing and mailing of all shareholder reports and other required reports and
documents provided shareholders, including the cost of printing and mailing
prospectuses to shareholders; (vii) taxes of any kind assessed against the Fund;
(viii) interest and commissions; (ix) Securities and Exchange Commission
registration fees; (x) state registration fees; (xi) the expenses of trust
existence; (xii) all or part of the salaries of the fund officers and other
employees who also may be directors or officers or employees of the Advisor or
its subsidiaries; (xiii) the fees of auditors; (xiv) the fees of legal counsel;
(xv) travel, entertainment, publication, telephone, telegraph, office space
rent; and (xvi) all other ordinary expenses of operation. The Fund also will
pay all extraordinary expenses of whatever kind unless such expenses have been
specifically assumed by the Advisor. The Other Funds have similar agreements.
DISTRIBUTION EXPENSES
The Fund and the Other Funds pays all fees and expenses in connection with
registering their shares under federal and state securities laws; preparing,
printing and mailing its prospectuses and reports to shareholders; and issuing
its shares, including expenses of confirming purchase orders. Upon completion of
the merger of the Other Funds into the Fund, the Fund will be a close-end fund
and will not be offering fund shares on a regular basis except pursuant to a
dividend reinvestment plan, if offered by the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
SSC makes decisions as to buying and selling investment securities, subject
to supervision by the Fund's Board of Trustees. It is the practice of the Fund
to seek the most favorable prices and execution of orders for the purchase or
sale of portfolio securities, taking the facilities and services of a particular
broker or dealer. Subject to these into considerations, the Fund has authorized
SSC to place a portion of such business on a principal or agency basis with
eligible brokers who have
53
provided statistical, quote and research material to the Advisor. Research
services include written and oral advice, analyses and reports concerning
issuers, industries, securities, markets, economic factors and trends and
portfolio strategy. The Fund has been informed that, to the extent brokerage is
allocated to obtain statistical, investment, research, or quotation services,
SSC, as Advisor, will be assisted in providing to the Fund more thorough and
complete advisory material. Although such services may tend to reduce the
expenses of SSC in rendering investment advice to the Fund, the value of the
services is not determinable. Such services may also be used in serving the
other mutual funds managed by SSC, and the brokerage commissions of such other
mutual funds may indirectly benefit the Fund. SSC investment personnel
determine the overall reasonableness of commissions paid by rating brokers or
dealers on such general factors as execution capabilities, quality of research
and financial condition, and net results of specific transactions in such terms
as price, promptness, size of order and difficulty of execution.
While the Trustees oversee the portfolio transactions of the Fund in light
of the Fund's investment policies and objectives without regard to the Other
Funds, it is possible that at certain times the Fund and one or more of the
Other Funds managed by SSC or its subsidiaries will seek to effect similar
portfolio transactions in the same security. In such instances, such
transactions are effected on a prorated basis based on the total assets of the
Fund and the Other Funds and at a prorated cost, if feasible, and in the
alternative on a rotating or other equitable basis. The Advisor makes all such
allocations. In some cases this arrangement could have detrimental effect on
the price or volume executed insofar as a particular Fund is concerned.
The Fund's Investment Advisor, acting on behalf of the Fund, is authorized
to pay a brokerage commission in excess of that which another broker might have
charged for effecting the same transaction, in recognition of the value of
brokerage or research services. The Advisor and the Trustees consider the above
allocation of brokerage to be consistent with the Fund's brokerage policy.
Brokers do not exercise investment discretion as to the Fund's portfolio
securities, hence no brokerage is allocated for such service.
During the last three fiscal years the Fund and Other Funds paid brokerage
as follows:
Fund Other Funds (2)
---- -----------
Brokerage Transactions Brokerage Transactions
---------- ------------ --------- ------------
06/30/96 $ 126,558 $ 22,887,207 $ 94,626 $ 15,689,513
06/30/95(1) $ 154,535 $ 33,592,600 $ 54,910 $ 9,660,951
09/30/94 $ 161,884 $ 31,907,181 $170,195 $ 27,232,365
(1) For the fiscal period October 1, 1994 through June 30, 1995
(2) Prior to June 30,1995, the fiscal years were:
SAIF - January 31; SIF and STGF - December 31.
During the Fund's fiscal year ended June 30, 1996, the Advisor directed
brokerage transactions and paid brokerage commissions as follows because of
research services provided by Reich & Co., Inc. of $32,500 on transactions of
$7,000,000. During the Other Funds' fiscal year ended June 30, 1996, the
Advisor directed brokerage transactions and paid brokerage commissions as
follows because of research services provided by Reich & Co., Inc. of $31,700 on
transactions of $5,601,700. Brokerage commissions were directed to Reich & Co.,
Inc. pursuant to an
54
understanding that quotation services and devices would be provided to the
Advisor in exchange for these brokerage commissions.
The following table details transaction amounts and commissions paid to
brokers during the last fiscal year for the Fund and the Other Funds as well as
the percentage of transactions and commissions as related to the total for the
Fund and the Other Funds.
Fund
- -----
Broker Transactions % of Total Commissions % of Total
- ------ ------------ ---------------------- ----------
Reich & Co. $ 17,558,532 76.7 $ 81,551 64.5
Dean Witter $ 4,696,238 20.5 33,207 26.2
Drexel Burnham 162,813 .7 500 .4
Ryan Hartley
& Lee $ 469,625 2.1 11,300 8.9
-----------------------------------------------------------
Totals $ 22,887,208 100.0% $126,558 100.0%
-----------------------------------------------------------
-----------------------------------------------------------
Other Funds
- -----------
Broker Transactions % of Total Commissions % of Total
- ------ ------------ ---------------------- ----------
Reich & Co. $ 13,922,221 88.7 $ 79,078 83.6
Dean Witter 1,499,629 9.6 10,914 11.5
Ryan Hartley
& Lee, Inc. 94,312 .6 3,350 3.6
William Blair
&Co. 91,975 .6 1,074 1.1
Wertheim, Inc. 81,375 .5 210 .2
------------ ------ --------- -----
Totals $ 15,689,512 100.0% $ 94,626 100.0%
------------ --------------------------- -------------
------------ --------------------------- -------------
SHAREHOLDER INVESTMENT PLAN
Fund and the Other Funds currently have available a "Systematic Withdrawal"
plan which will be abolished upon the merger of the Other Funds into the Fund
which will become a closed-end management investment company.
INDEPENDENT ACCOUNTANTS
Reznick Fedder & Silverman, 4520 East West Highway, Bethesda, Maryland
20814, has been selected as the independent accountants for the Fund and
provides audit and tax service.
Item 14. Financial Statements.
FINANCIAL STATEMENTS AND RELATED INFORMATION
The Fund's Financial Statements and related notes for the fiscal year ended
June 30, 1996 follow:
55
Financial Statements and information of the Fund and the Other Funds listed
below are included in part B hereof.
--Report of Independent Accountants, dated August 6, 1996.
--Portfolio of Investments, June 30, 1996.
--Statement of Assets and Liabilities, June 30, 1996.
--Statement of Operations, for the year ended June 30, 1996
--Statements of Changes in Net Assets, for the year ended June 30, 1996,
for the period October 1, 1994 through June 30,1995 and the year ended
September 30, 1994.
--Financial Highlights, for the year ended June 30, 1996, for the period
October 1, 1994 through June 30, 1995 and for each of the four years ended
September 30.
--Notes to Financial Statements listed above.
56
PART C: OTHER INFORMATION
Item 15. Indemnification.
Section 5.3 of the Amended Restated Trust Indenture of Steadman Security
Trust and Declaration of Trust (the "Trust Agreement") of the Steadman
Associated Fund, which will be renamed the Steadman Security Trust (the "Fund"
or the "Registrant"), provides that the Fund shall indemnify each of its
trustees, advisors, officers, employees, and agents (including any person who
serves at the request of the Fund as a director, officer, partner, trustee or
the like of another organization in which the Fund has any interest as a
shareholder, creditor or otherwise) against all liabilities and expenses,
including amounts paid in satisfaction of judgments, in compromise, as fines or
penalties and as counsel fees, reasonably incurred by such person in connection
with the defense or disposition of any action, suit or other proceeding, whether
civil or criminal, in which the person may be involved or with which the person
may be threatened, while acting as a trustee or advisor, or as an officer,
employee, or agent of the Fund or the trustees, or thereafter, by reason of the
person being or having been a trustee, advisor, officer, employee or agent.
However, indemnification shall not be available with respect to any matter as to
which such person has been adjudicated to have acted in bad faith or with
willful misconduct or reckless disregard of such person's duties or gross
negligence or not to have acted in good faith in the reasonable belief that such
person's action was in the best interest of the Fund. If the matter is disposed
of by a compromise payment, pursuant to a consent decree or otherwise, no
indemnification either for said payment or for any other expenses shall be
provided unless such compromise shall have been approved as in the best
interests of the Fund by a majority of the disinterested trustees or the Fund
has received a written opinion of independent legal counsel to the effect that
the person to be indemnified appears to have acted in good faith in the
reasonable belief that such person's action was in the best interests of the
fund. A provision of this section of the Trust Agreement also provides that the
Trust Agreement is not the sole means of indemnification and that the Fund may
indemnify persons as provided by applicable law.
The District of Columbia Code does not contain a provision relating to the
indemnification of trustees, officers, employees, or agents of a trust.
However, under general common law trust principles, a trustee is normally
entitled to reimbursement from the trust for all necessary and reasonable
expenditures made in the execution of the trust if the trustee acted in good
faith for the benefit of the trust. However, under common law trust principles,
property of the trust cannot be used to reimburse the trustee for losses or
expenses incurred by the trustee, unless the trustee has exercised good faith
and common prudence.
In addition, the Agreement and Plan of Merger (the "Agreement") by and
among the Registrant, and the Steadman Investment Fund, the Steadman American
Industry Fund, and the Steadman Technology and Growth Fund (the "Other Funds")
provides at Section 14. Indemnification for, in certain circumstances, the
indemnification of the respective officers, directors, trustees, and
shareholders of the Other Funds. A copy of the Agreement is attached as Exhibit
4 to this Registration Statement.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be provided to directors, officers, or
controlling persons of the Registrant, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission ("SEC"), such
indemnification is against public policy as expressed in the Act and, therefore,
is unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant
57
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 16. Exhibits:
Number Description
------ -----------
1 Amended and Restated Trust Indenture of Steadman Associated
Fund and Declaration of Trust
4 Agreement and Plan of Merger
5 Specimen share certificate
6 Steadman Security Trust Amended and Restated Investment
Advisory Agreement
9 Custodian agreement and depository contract with Crestar
Bank N.A.
11.1 Opinion of Manatt, Phelps & Phillips, LLP as to the legality
of the securities being registered
11.2 Consent of Manatt, Phelps & Phillips, LLP
12.1 Opinion of Manatt, Phelps & Phillips, LLP, regarding tax
matters and consequences
12.2 Consent of Coopers & Lybrand, L.L.P.
16 Power of Attorney (reference is made to the signature page)
Item 17. Undertakings
(1) The undersigned registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is a part of
this registration statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act [17 CFR
230.145c], the reoffering prospectus will contain the information called for by
the applicable registration form for the reofferings by persons who may be
deemed underwriters, in addition to the information called for by the other
items of the applicable form.
(2) The undersigned registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
58
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement has
been signed on behalf of the registrant, in the City of Washington, District of
Columbia, on the 31st day of January, 1997.
Steadman Security Trust
Registrant
/s/ Charles W. Steadman
-------------------------------------
Charles W. Steadman, Trustee,
Chairman of the Board of Trustees and
President, Steadman Security Trust
We the undersigned trustees and officers of Steadman Associated Fund do
hereby severally constitute and appoint Charles W. Steadman our true and lawful
attorney and agent, to do any and all things and acts in our names in the
capacities indicated below and to execute all instruments for us and in our
names in the capacities indicated below which said Charles W. Steadman may deem
necessary or advisable to enable Steadman Associated Fund to comply with the
Securities Act of 1933, as amended, and any rules, regulations, and requirements
of the Securities and Exchange Commission, in connection with the registration
statement on Form N-14 relating to the offering of share interests in Steadman
Associated Fund, including specifically but not limited to, power and authority
to sign for us or any of us in our names in the capacities indicated below the
registration statement and any and all amendments (including post-effective
amendments) thereto; and we hereby ratify and confirm all that Charles W.
Steadman shall do or cause to be done by virtue hereof.
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
(Signature) (Title) (Date)
/s/ Charles W. Steadman Chairman of the Board, January 31, 1997
- ------------------------ President and Trustee
Charles W. Steadman Principal Executive Officer
/s/ Max Katcher Executive Vice President,
- ------------------------ Treasurer & Secretary January 31, 1997
Max Katcher Principal Financial Officer
Principal Accounting Officer
/s/ Paul A. Bowers
- ------------------------
Paul A. Bowers
Trustee January 31, 1997
/s/ John T. Hayward
- ------------------------
John T. Hayward
Trustee January 31, 1997
/s/ Paul E. Wagner
- ------------------------
Paul E. Wagner Trustee January 31, 1997