As filed with the Securities and Exchange Commission on July 27, 1997
Securities Act File No. 333-20889
Investment Company Act File No. 811-00018
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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Pre-Effective Amendment No. 3 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.
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 Statement and Cover Page; Cross Reference Sheet
Outside Front Cover Page of Prospectus
2. Beginning and Outside Back Cover Page of Table of Contents
Prospectus
3. Synopsis and Risk Factors Synopsis; Principal Risk Factors
4. Information about the Transaction Synopsis; Approval of the Merger;
Capitalization Table; Difference
Between Operations of SST as an
Open-End and Closed-End
Investment Company; Exhibit A
5. Information about the Registrant Synopsis; Comparison of
Investment Objectives, Policies
and Techniques of the Funds;
Principal Risk Factors; Legal
Proceedings; Miscellaneous.
6. Information about the Company Synopsis; Comparison of
Being Acquired Investment 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 the Item 12. Additional Information
Registrant about the Registrant
13. Additional Information about the Item 13. Additional Information
Company Being Acquired about the Company Being Acquired.
14. Financial Statements Item 14. Financial Statements
Part C: Other Information
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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
JULY ____, 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, FOLLOWING THE APPROVAL OF THE SST
SHAREHOLDERS AT THE MEETING, SST WILL OPERATE AS A SINGLE CLOSED-END FUND.
CONSOLIDATION OF THE FOUR FUNDS WILL POTENTIALLY RESULT IN LOWER OPERATING
EXPENSES. A MANAGEMENT ANALYSIS ESTIMATES THAT MERGING THE FOUR OPEN-END FUNDS
INTO ONE CLOSED-END FUND SHOULD PERMIT THE FUNDS, WHEN MERGED AND OPERATING AS A
CLOSED-END FUND, TO REDUCE ANNUAL OPERATING COSTS FROM ABOUT $1,322,000 TO
$684,000. EVEN THOUGH THE MERGER AND CONVERSION WILL NOT ENSURE THAT THE
COMBINED SST WILL BE PROFITABLE, THE TRUSTEES BELIEVE IT HAS A BETTER
OPPORTUNITY FOR EARNINGS THAN CONTINUING WITH FOUR FUNDS SEPARATELY. THE
TRUSTEES ANTICIPATE THAT AFTER THE MERGER, OPERATING EXPENSES MAY EXCEED INCOME
AND IN ORDER TO OPERATE PROFITABLY, SST WILL HAVE TO RELY UPON CAPITAL
APPRECIATION, IF ANY. SST HAS APPLIED TO BE LISTED ON THE CHICAGO STOCK
EXCHANGE, PENDING COMPLIANCE WITH THE LISTING REQUIREMENTS, AND IF NOT LISTED ON
THE CHICAGO STOCK EXCHANGE, SHARES OF THE NEW SST MAY TRADE IN THE OPEN MARKET.
HOWEVER, A MARKET MAY NOT DEVELOP IN WHICH CASE IT MAY BE VERY DIFFICULT TO SELL
YOUR SHARES. MANAGEMENT HAS BEEN UNABLE TO LOCATE ANY BROKER-DEALERS WHO WILL
AGREE TO ACT AS MARKET-MAKERS FOR SST SHARES.
REDEMPTION--THIS MAY BE A SHAREHOLDER'S LAST CHANCE TO REDEEM SHARES AT NET
ASSET VALUE AND A SHAREHOLDER WHO WANTS TO REDEEM SHARES MUST DO SO BEFORE THE
EFFECTIVE DATE OF THE MERGER OR THE OPPORTUNITY WILL BE LOST FOR AT LEAST FIVE
YEARS.
MARKET FOR FUND SHARES - A SHAREHOLDER WHO DOES NOT REDEEM BEFORE THE MERGER
PROBABLY WILL NOT BE ABLE TO SELL SHARES, BECAUSE MANAGEMENT DOES NOT ANTICIPATE
THAT A MARKET WILL DEVELOP FOR SST SHARES; AND IF A MARKET DOES DEVELOP, SST
SHARES
WILL PROBABLY TRADE AT A SUBSTANTIAL DISCOUNT FROM NET ASSET VALUE.
POSSIBLE REDUCTION IN FUND SIZE--THE COMBINED ASSETS OF THE FUNDS MAY
CONTINUE TO SHRINK AFTER THE MERGER BECAUSE THE TRUSTEES ANTICIPATE THAT SST'S
OPERATING EXPENSES MAY EXCEED SST'S INCOME.
SHAREHOLDERS SHOULD UNDERSTAND THAT A CLOSED-END FUND PROVIDES NO RIGHT OF
REDEMPTION OF INDIVIDUAL SHARES AT NET ASSET VALUE AS DO OPEN-END FUNDS, AND
THEY MAY SUFFER SUBSTANTIAL LOSSES UPON THE SALE OF THEIR SHARES IN THE OPEN
MARKET. SST, HOWEVER, WILL PROVIDE SHAREHOLDERS WITH THE ONE-TIME OPPORTUNITY TO
REDEEM THEIR SHARES AT NET ASSET VALUE FOR A THIRTY-DAY PERIOD, COMMENCING ON
THE FIFTH ANNIVERSARY DATE OF THE MERGER. FUTURE NET ASSET VALUE WILL LIKELY
DIFFER FROM THE NET ASSET VALUE SHAREHOLDERS WOULD RECEIVE IF THEY REDEEMED
SHARES PRIOR TO THE MERGER. SHAREHOLDERS SHOULD READ THE ENCLOSED PROXY
STATEMENT AND PROSPECTUS CAREFULLY, PAYING PARTICULAR ATTENTION TO FUND
EXPENSES, FUND PERFORMANCE AND THE MARKET FOR SST SHARES AFTER THE MERGER.
SHAREHOLDERS WHO DO NOT WISH TO PARTICIPATE IN THE MERGER CAN EITHER REDEEM
THEIR SHARES OR VOTE "NO" ON THE ENCLOSED PROXY.
THE TRUSTEES OF EACH OF THE FOUR FUNDS UNANIMOUSLY RECOMMEND SHAREHOLDER
APPROVAL OF THIS MERGER PROPOSAL AND CONVERSION TO A CLOSED-END FUND AND THE
RATIFICATION OF THE SELECTION OF REZNICK FEDDER & SILVERMAN TO SERVE AS
INDEPENDENT AUDITORS TO EXAMINE THE FINANCIAL STATEMENTS OF EACH OF THE FUNDS
FOR THE CURRENT FISCAL YEAR AND SST AFTER COMPLETION OF THE MERGER. THE SST
TRUSTEES ALSO UNANIMOUSLY RECOMMEND THAT THE SST SHAREHOLDERS ELECT THE PERSONS
NOMINATED TO SERVE AS TRUSTEES, AND RATIFY AND CONFIRM THE AMENDED AND RESTATED
TRUST INDENTURE OF SST AND TO CHANGE SST'S FUNDAMENTAL INVESTMENT POLICY.
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
July ___, 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? (the "Special
Meeting").
At these Special Meetings, you will be asked to consider and approve a
very important proposal. Subject to shareholder approval, Steadman American
Industry Fund, Steadman Investment Fund and Steadman Technology and Growth
Fund (the "Merging Funds") will merge into Steadman Associated Fund, which
will be renamed the "Steadman Security Trust" ("SST"). Immediately prior to
the Merger, SST will effect a reverse stock split so that each ten shares of
SST will be converted into one SST share after the reverse split.
Shareholders of the Merging Funds will receive shares of SST on a pro rata
basis in exchange for their shares of the Merging Funds. Upon the completion
of the merger and following the approval of SST shareholders at the Special
Meeting, SST will become a closed-end investment company.
Redemption--This may be a shareholder's last chance to redeem shares at net
asset value and a shareholder who wants to redeem shares must do so before the
effective date of the merger or the opportunity will be lost for at least five
years.
Market for Fund Shares--A shareholder who does not redeem before the merger
probably will not be able to sell shares, because management does not anticipate
that a market will develop for SST shares; and if a market does develop, SST
shares will probably trade at a substantial discount from net asset value.
Possible Reduction in Fund Size--The combined assets of the Funds may
continue to shrink after the merger because the Trustees anticipate that SST's
operating expenses may exceed SST's income.
THE REORGANIZATION WILL PROVIDE SHAREHOLDERS WITH POTENTIAL ECONOMIES:
1. Potential Lower Operating Costs. Operating costs of SST as a
closed-end fund on a post-merger basis will be reduced substantially from the
aggregate expense of operating the Merging Funds and SST separately. The
merger will enable SST to use its assets more
effectively. Because of the Merger and the resulting reduction in the number
of shareholder accounts, Fund accounting fees, stock transfer costs, and
other shareholder service expenses will be reduced significantly. By
converting to a closed-end fund, SEC requirements for daily determination and
reporting of net asset values will be eliminated, as well as the need for
annual securities registration with the states. Management of the Funds
believes that annual operating costs will be reduced principally in the
following areas: shareholder servicing fees, professional fees, expenses
related to reports to shareholders, computer services and data processing
expenses, and custodian fees. Management estimates that SST's annual
operating expenses will be approximately $684,000 or about $638,000 lower
than current total expenses of the four Funds. The estimated reduction in
operating costs cannot guarantee profitable operation of SST.
2. Potential Lower Expense Ratio. The Trustees expect the merger to
reduce the expense ratio of SST. However, there can be no assurance that
reductions in expenses will result in profitable operations for SST.
3. Fully Invested Portfolio With Longer Term View. After the
merger, SST will operate as a closed-end investment company whose shares are
bought and sold in market transactions. Stockholders will not have a right of
redemption except during a thirty-day period commencing on the fifth
anniversary date of the Merger. Future net asset value will likely differ
from the net asset value shareholders would receive if they redeemed their
shares prior to the Merger. In the past, each Fund has kept a prudent portion
of its portfolio in cash or lower-yielding liquid assets to meet the
potential demand for redemptions. Upon consummation of the Merger and the
conversion of SST to a closed-end status, SST will be able to more
effectively use portfolio funds that would otherwise have been invested in
cash or lower-yielding securities that could be readily liquidated. Upon
consummation of the Merger, SST will be able to invest these funds with a
longer-term view without having to be concerned about the possibility of
liquidating a position at an inopportune moment solely to meet redemption
requests thereby creating a higher return on investments for SST. SST has
applied to be listed on the Chicago Stock Exchange, subject to compliance
with the listing requirement, and it is contemplated that if SST shares are
not listed on the Chicago Stock Exchange, SST shares will be traded in the
over-the-counter market. However, there can be no assurance that a market
will develop for SST shares in which case it may be very difficult to sell
your shares. Management has been unable to locate any broker-dealer who will
agree to act as market makers for SST shares. Closed-end funds typically
trade at substantial discounts from their net asset values. Consequently, SST
shareholders could suffer substantial losses if they elect to sell their
shares when the SST market price is below net asset value.
4. Tax Aspects. The reverse stock split will constitute a
recapitalization of SST for tax purposes, but the merger will not qualify as a
tax-deferred reorganization under the Internal Revenue Code. Shareholders of
SAIF, SIF and STGF will recognize gain or loss equal to the difference between
the tax bases of their SAIF, SIF or STGF shares surrendered by them in the
merger and the fair market value of the SST shares they receive in the exchange.
In many cases, the result may be a tax loss rather than a tax gain, but each
shareholder must calculate individually their own gain or loss. Such gain or
loss will be capital gain or loss for shareholders who hold their SAIF, SIF
or STGF shares as capital assets and will be long term or short term gain or
loss depending upon their individual holding periods for the shares
surrendered. SST and its shareholders will not
recognize gain or loss as a result of the exchange of SST shares for SST shares
in the reverse stock split. SAIF, SIF and STGF will be treated for federal
income tax purposes as if they had transferred all of their assets to SST in a
taxable transaction, had recognized all of the built-in gains and losses on
those assets, and had then liquidated. SAIF, SIF and STGF will be able to
offset any net gain from this deemed asset sale with their respective capital
loss and net operating loss carryovers. The Trustees anticipate that there will
be sufficient loss carryovers to offset any net gain recognized by SAIF, SIF or
STGF in the merger. SST will not be taxable as a result of the deemed asset
sale, nor will its shareholders. Any capital loss and net operating loss
carryovers of SAIF, SIF and STGF not used to offset their net gain in the
merger will expire. SST, as the surviving single entity, will be able to
utilize its separate tax loss carryforwards against ordinary income and capital
gains to eliminate or reduce SST's post-merger taxable income. Based upon the
past performance of the Funds, there is little likelihood that SST will be able
to utilize these tax benefits.
The attached Joint Proxy Statement and Prospectus has been prepared to give
you detailed information about this reorganization.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN YOUR PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE SO THAT YOUR VOTE
WILL BE COUNTED.
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 of Special Meetings of the Shareholders of Steadman
American Industry Fund ("SAIF"), Steadman Associated Fund ("SAF"), Steadman
Investment Fund ("SIF") and Steadman Technology and Growth Fund ("STGF"), each
is currently an open-end, investment company (together the "Funds"). The
meetings will be held at Hotel, Washington, D.C. 2000?, at 9:30 a.m.,
Washington, D.C. time, on , 1997, and any adjournments thereof (the
"Meetings"), for the following purposes:
1. FOR THE SHAREHOLDERS OF ALL OF THE FUNDS:
(a) To consider and act upon a proposal to approve the Agreement and Plan of
Merger dated as of May 2, 1997 (the "Merger Agreement") by and among SAIF, SAF,
SIF and STGF whereby SAIF, SIF and STGF will merge into SAF (the "Merger"),
which will be renamed Steadman Security Trust ("SST"); and
(b) To consider and act upon a proposal to ratify the selection of Reznick
Fedder & Silverman as independent auditors of each Fund and SST after the
Merger.
2. SOLELY FOR THE SHAREHOLDERS OF SAF:
(a) To elect three Trustees for terms of unlimited duration; and
(b) To consider and act upon a proposal to ratify and confirm the Amended
and Restated Trust Indenture of SST as of May 2, 1997, which provides, among
other things, for the change from an open-end to a closed-end investment company
and to change SST's fundamental investment policy from capital growth to current
income.
Execution of a proxy in the form enclosed also permits the proxy holder to
vote, in their discretion, upon such other matters that may come before the
Meeting or any adjournment thereof. As of the date of mailing, the Trustees of
the Funds are not aware of any other matters that may come before the Meeting.
The Merger is more fully described in the accompanying Proxy Statement and
Prospectus. A copy of the Merger Agreement is attached as Exhibit A thereto.
Shareholders of record of SAIF, SAF, SIF and STGF at the close of business on
, 1997 are entitled to notice of, and to vote at, the Meetings. Please
read the Proxy Statement and Prospectus carefully before telling us, through
your proxy or in person, how you wish your shares to be voted. The Trustees of
each of SAIF, SAF, SIF and STGF unanimously recommend a vote in favor of the
Merger and for ratification of the selection of Reznick Fedder & Silverman as
independent auditors to examine the financial statements of each of the Funds
for the current fiscal year and for SST after the completion of the Merger. The
Trustees of SST also unanimously recommend that the SST shareholders elect the
persons nominated to serve as Trustees, and ratify and confirm the Amended and
Restated Trust Indenture of SST and the change in SST's fundamental investment
policy.
WE URGE YOU TO SIGN, DATE AND MAIL THE ENCLOSED PROXY PROMPTLY.
BY ORDER OF THE BOARDS OF TRUSTEES,
MAX KATCHER, SECRETARY
July , 1997
YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES YOU OWN
Please indicate your voting instructions on the enclosed proxy card; please
date and sign the card and return it in the envelope provided. If you sign,
date, and return the proxy card but give no voting instructions, your shares
will be voted "FOR" each applicable proposal noticed above. In order to avoid
the additional expense and delay of further solicitation, we ask your
cooperation in mailing your proxy card promptly so that a quorum may be ensured.
Unless proxy cards submitted by corporations and partnerships are signed by the
appropriate persons as indicated in the voting instructions on the proxy card,
such proxy cards cannot be voted.
QUESTIONS AND ANSWERS ABOUT THE PROPOSED MERGER
1. What is the Merger?
The Merger proposes to combine four separate funds into a single
closed-end investment company, the Steadman Associated Fund ("SAF"), whose
name will change to Steadman Security Trust ("SST"). Fund shares no longer
will be sold or redeemed by SST on a request basis, but will be sold to other
investors in market transactions. Management has filed an application to list
SST shares on the Chicago Stock Exchange and expects SST shares will be
traded on that exchange, if accepted for listing, or in the over-the-counter
market; although it cannot ensure that a market will develop for these shares
in which case it may be very difficult to sell your shares. Management has
been unable to locate any broker-dealers who will agree to act as market
makers for the SST shares. Additionally, SST shareholders who wish to sell
their shares may suffer losses from the Fund's net asset value upon their
sale in the over-the-counter market due to the discount from net asset value
at which closed-end funds usually trade, and the potential limited market for
Fund shares, if any. Shareholders will have a one-time opportunity to redeem
their shares at net asset value during a thirty-day period, commencing on the
fifth anniversary date of the Merger. Future net asset value will likely
differ from the net asset value shareholders would receive if they redeemed
their shares prior to the Merger.
The number of shares of SST issued to shareholders of SAIF, SIF and STGF
will be determined on the basis of relative net asset values of SST and each
of the other funds. Immediately prior to the merger, SST will declare a
reverse stock split of ten to one so that each ten outstanding shares of SST
will become one share of the SST. The value of the new 10-to-1 shares of SST
issued to shareholders of the other funds as a result of the Merger will be
equal to the value of shares they held in the other funds on the day before
the closing date of the Merger. Shareholders of SST will continue to hold the
same number of shares before and after the Merger.
2. What are the reasons for the Merger?
After a detailed study of the operations of SAIF, SAF, SIF and STGF, the
Trustees concluded that the Merger would create substantial cost savings and
other economies and would provide shareholders with important benefits:
A. Potential Lower Operating Costs. Operating costs of SST as a closed-end
fund on a post-merger basis will be reduced substantially from the aggregate
costs of operating four funds separately. The Merger will enable SST to use its
assets more effectively and increase shareholder value. Because of the Merger
and the resulting reduction in the number of shareholder accounts, Fund
accounting fees, stock transfer costs, and other shareholder service expenses
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, expenses related
to reports to shareholders, computer services and data processing fees, and
custodian fees. Management estimates that SST annual operating expenses will be
about $684,000 or $638,000 lower than total expenses of the current four
1
Funds, approximately $1,322,000. The estimated reduction in operating
expenses cannot guarantee profitable operation of SST.
B. Potential Lower Expense Ratio. The annual operating expenses for each of
the Funds as a percentage of average net assets at June 30, 1997 were as
follows: SAIF--31.44%, SAF- 12.18%, SIF-15.81%, and STGF- 41.84%. The Trustees
expect the Merger to reduce the expense ratio of SST. If the Merger had taken
place on June 30, 1997, the Trustees believe that as a result of anticipated
savings, the pro forma combined expense ratio of SST would have been 15.89% of
net assets at that date. There can be no assurance, however, that reductions in
expenses will result in profitable operations, and it is anticipated that
operating expenses of SST after the Merger may exceed net operating income of
SST before taking into account capital appreciation, if any.
C. Fully Invested Portfolio With Longer Term View. After the merger, SST
will operate as a closed-end investment company whose shares are bought and
sold in market transactions. Stockholders will not have a right of redemption
except during a thirty-day period commencing on the fifth anniversary date of
the Merger. Future net asset value will likely differ from the net asset
value shareholders would receive if they redeemed their shares prior to the
Merger. In the past, each Fund has kept a prudent portion of its portfolio in
cash or lower-yielding liquid assets to meet the potential demand for
redemptions. Upon consummation of the Merger and the conversion of SST to a
closed-end status, SST will be able to more effectively use portfolio funds
that would otherwise have been invested in cash or securities that could be
readily liquidated. Upon consummation of the Merger, SST will be able to
invest these funds with a longer-term view without having to be concerned
about the possibility of liquidating a position at an inopportune moment
solely to meet redemption requests thereby creating a higher return on
investments for SST. SST has applied to be listed on the Chicago Stock
Exchange, subject to compliance with the listing requirement, and it is
contemplated that if SST shares are not listed on the Chicago Stock Exchange,
SST shares will be traded in the over-the-counter market. However, there can
be no assurance that a market will develop for SST shares in which case it
may be very difficult to sell your shares. Management has been unable to
locate any broker-dealer who will agree to act as market makers for SST
shares. Closed-end funds typically trade at substantial discounts from their
net asset values. Consequently, SST shareholders could suffer substantial
losses if they elect to sell their shares when the SST market price is below
net asset value.
D. Tax Aspects. The ten to one reverse stock split of SST will be a
recapitalization of SST for federal income tax purposes, but the Merger will not
qualify as a tax-deferred reorganization under the Internal Revenue Code. SST
and its shareholders will not recognize gain or loss as a result of the exchange
of SST shares for SST shares in the reverse stock split. Shareholders of SAIF,
SIF and STGF will recognize gain or loss equal to the difference between the tax
bases of their SAIF, SIF or STGF shares surrendered by them in the Merger and
the fair market value of the SST shares they receive in the exchange. For many
SAIF, SIF and STGF shareholders, the result may be a tax loss rather than a tax
gain, but each shareholder's gain or loss calculation must be performed
individually and shareholders are encouraged to consult with their own tax
advisor. SAIF, SIF and STGF will be treated for federal income tax purposes as
if they had transferred all of their assets to SST in a taxable transaction, had
recognized all of the built-in gains
2
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. If the former holders of
SAF represent less than 50% of the total ownership interests of SST after the
Merger, the amount of the above losses which may be used by SST in any one
year will be limited 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 loss limitation rules
to apply. Whether any future events will cause imposition of a restriction in
tax loss utilization for SST cannot be predicted at this point. Based upon
the past performance of the Funds, there is little likelihood that SST will
be able to utilize these tax benefits in full.
3. Who is paying the expenses of the Merger?
Each of the Funds will bear its proportionate share of the expenses of the
Merger of the Funds and the conversion of SST to a closed-end fund. It is
anticipated that the expenses of the Merger, which include, but are not limited
to, legal and accounting fees and expenses, printing, postage, and mailing
expenses for over 18,500 shareholder accounts, state blue-sky and SEC filing
fees, expenses relating to electronic filing with the SEC, and Chicago Stock
Exchange listing fees, will approximate $393,000, which will lower the net asset
value of SST by that sum upon consummation of the Merger.
4. Who will serve as Trustees of SST?
Charles W. Steadman, Dr. Paul A. Bowers and Vice Admiral John T. Hayward USN
(Ret.) will continue to serve as Trustees along with Paul F. Wagner, William
Mark Crain and Richard O. Haase, who have been nominated for election at the
shareholders' meeting.
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.
3
7. After the Merger, whom do I get in touch with about my new SST account or
to initiate a transaction?
Once the Merger is effective, you will be a shareholder of SST. You will be
able to initiate a transaction to buy or sell shares through your representative
at your registered broker-dealer, as it is expected that shares of SST will be
traded in the over-the-counter market; however, there can be no assurance that a
market will develop for shares of SST.
8. Will this Merger result in any tax liability to any of the funds or to me
as a shareholder?
The Merger will not qualify as a tax-deferred reorganization for federal
income tax purposes. The transaction will be treated for federal income tax
purposes as if SAIF, SIF and STGF had transferred all of their assets to SST in
a taxable transaction, had recognized all built-in gains and losses on those
assets, and had distributed SST shares to their respective shareholders in
liquidation. The Trustees believe that the capital loss and net operating loss
carryovers of SAIF, SIF and STGF will be sufficient to offset any net gain of
those entities recognized in the Merger. SST and its shareholders will not
recognize any gain or loss as a result of the deemed asset sale. The
shareholders of SAIF, SIF and STGF will be deemed to have exchanged their SAIF,
SIF and STGF shares for SST shares in a taxable transaction. Such shareholders
will recognize gain or loss equal to the difference between their individual tax
bases for the SAIF, SIF and STGF shares surrendered and the fair market value of
the SST shares received. Such gain or loss will be capital for shareholders who
hold their SAIF, SIF or STGF shares as capital assets and will be long term or
short term gain or loss depending upon their individual holding periods for the
shares surrendered. For many SAIF, SIF and STGF shareholders, the result may be
a tax loss rather than a tax gain, but each shareholder's gain or loss
calculation must be determined individually.
Shareholders of the funds should consult their tax advisors regarding the
effect, if any, of the Merger in light of their individual circumstances. Since
the foregoing relates only to federal income tax consequences of the Merger,
shareholders should also consult their tax advisors as to state and local tax
consequences, if any.
9. When can I redeem my shares?
Shareholders may redeem their shares in each of the Funds at net asset value
at any time prior to the completion of the Merger by following Fund procedures.
Call 1-800-424-8570 to redeem your shares or for more information pertaining to
the redemption of your shares. Once the Merger is completed shareholders will
have a one-time opportunity to redeem their shares at net asset value during a
thirty-day period commencing on the fifth anniversary date of the Merger.
Shareholders are directed to read the accompanying Proxy Statement and
Prospectus for further information about the Merger and related matters.
Additional information about SST is set forth in its accompanying Proxy
Statement and Prospectus.
4
STEADMAN AMERICAN INDUSTRY FUND
STEADMAN ASSOCIATED FUND
STEADMAN INVESTMENT FUND
STEADMAN GROWTH AND TECHNOLOGY FUND
- --------------------------------------------------------------------------------
1730 K Street, N.W. 1-800-424-8570
Washington, D.C. 20006 202-233-1000
PROXY STATEMENT
AND
PROSPECTUS
This Proxy Statement and Prospectus is furnished to shareholders of Steadman
American Industry Fund ("SAIF"), Steadman Associated Fund ("SAF"), Steadman
Investment Fund ("SIF") and Steadman Growth and Technology Fund ("STGF")
(individually referred to herein as "Fund" and collectively referred to as
"Funds") in connection with the solicitation by the Board of Trustees of each of
the Funds ("Trustees") of proxies to be used at Special Shareholders' Meetings.
The meetings will be held at Hotel, Washington, D.C. 2000? at 9:30 a.m.,
Washington, D.C. time, on , 1997, as well as any adjournments thereof (the
"Meetings"). Each of the Funds is currently a non-diversified, registered open-
end investment company. This Proxy Statement and Prospectus will be mailed to
shareholders of the Funds on or about July , 1997.
At the Meetings, shareholders will be asked to consider and vote upon
approval of the Agreement and Plan of Merger, dated as of May 2, 1997 (the
"Merger Agreement") by and among SAIF, SAF, SIF and STGF (the "Merger"). The
Merger Agreement provides for the merger of SAIF, SIF and STGF with and into
SAF, which will be renamed Steadman Security Trust ("SST") and with the approval
of the SST shareholders which will be sought at the Meeting, SST will change
from an open-end investment company to a closed-end investment company and
change its fundamental investment policy from capital growth to current income.
As a result of the proposed Merger, each shareholder of SAIF, SIF and STGF will
receive that number of SST shares equal in value to that shareholder's pro rata
interest in the net assets transferred to SST, as of the Valuation Date (as
defined in the Merger Agreement). The proposed Merger provides that immediately
prior to the effective date of the Merger, SST will effect a reverse split of
its shares so that each ten shares issued and outstanding will be converted to
one share of the Fund. The shareholders of SAF, which will become SST, will
continue to hold the same number of shares before and after the Merger. The
reverse stock split will constitute a tax-free recapitalization of SST, but the
Merger will not qualify as a tax deferred reorganization for federal income tax
purposes for SAIF, SIF, STGF or their respective shareholders. See "Approval of
the Merger--Tax Aspects of the Merger."
REDEMPTION--THIS MAY BE A SHAREHOLDER'S LAST CHANCE TO REDEEM SHARES AT NET
ASSET VALUE AND A SHAREHOLDER WHO WANTS TO
1
REDEEM SHARES MUST DO SO BEFORE THE
EFFECTIVE DATE OF THE MERGER OR THE OPPORTUNITY WILL BE LOST FOR AT LEAST FIVE
YEARS.
MARKET FOR FUND SHARES - A SHAREHOLDER WHO DOES NOT REDEEM BEFORE THE MERGER
PROBABLY WILL NOT BE ABLE TO SELL SHARES, BECAUSE MANAGEMENT DOES NOT ANTICIPATE
THAT A MARKET WILL DEVELOP FOR SST SHARES; AND IF A MARKET DOES DEVELOP, SST
SHARES WILL PROBABLY TRADE AT A SUBSTANTIAL DISCOUNT FROM NET ASSET VALUE.
POSSIBLE REDUCTION IN FUND SIZE--THE COMBINED ASSETS OF THE FUNDS MAY
CONTINUE TO SHRINK AFTER THE MERGER BECAUSE THE TRUSTEES ANTICIPATE THAT SST'S
OPERATING EXPENSES MAY EXCEED SST'S INCOME.
To simplify references herein, SAF in most cases will generally be referred
to as Steadman Security Trust (or "SST") which will be its post-merger name.
As of the date of this Prospectus, SST had 5,768,038 shares of a single
class issued and outstanding pursuant to an Amended and Restated Trust
Indenture, dated May 2, 1997 ("Trust Indenture"). The Trust Indenture provides
for the issuance of an unlimited number of shares. The Merger Agreement
contemplates as a condition precedent to the effectiveness of the Merger that
the shareholders of SST will approve the change of SST from an open-end
investment company to a closed-end investment company. Accordingly, the shares
to be issued upon the effectiveness of the Merger will not be "redeemable
securities" as defined in Section 2(a)(32) of the Investment Company Act of
1940, as amended (the "1940 Act"). Shareholders will be able to purchase and
sell shares of SST in market transactions through their representative at their
registered broker/dealer and may incur a brokerage cost on the sale of shares.
There are no assurances that an adequate and liquid market for Fund shares will
develop upon consummation of the Merger and to date, the Fund's management has
been unable to obtain broker-dealers who will agree to act as market makers for
Fund shares, in which case it may be very difficult to sell SST shares. Further,
it is anticipated that Fund shares will sell at a substantial discount from
their net asset value. As a result, shareholders who wish to sell shares of SST
after the Merger could suffer substantial losses and possibly may not be able to
sell their shares unless an appropriate market develops. Also, they may only be
able to sell such shares at a greater discount than the discounts at which most
closed-end fund shares are sold.
It is anticipated that operating expenses of SST after the Merger may exceed
net operating income of the Fund before taking into account capital
appreciation, if any.
The primary investment objective of three of the Funds, SAIF, STGF and 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. Upon the consummation of the Merger, the new
investment policy of SST will be to seek current income
2
and secondarily to maximize the total return but only to the extent
consistent with the primary objective. All of the Funds currently employ the
same investment management techniques. See "Investment Objectives and
Policies."
SST has filed with the Securities and Exchange Commission (the "SEC") a
Registration Statement on Form N-14 (the "Registration Statement") relating to
the registration of shares of SST to be offered to the shareholders of SAIF, SIF
and STGF pursuant to the Merger Agreement. This Proxy Statement and Prospectus
relating to the Merger also constitutes a Prospectus of SST filed as part of
such Registration Statement. Information contained or incorporated by reference
herein relating to SST has been prepared by and is the responsibility of SST.
Information contained or incorporated by reference herein relating to the SAIF,
SIF or STGF has been prepared by and is the responsibility of the respective
Fund.
This Proxy Statement and Prospectus sets forth certain information about SST
and the other Funds that a prospective investor should know before voting on the
Merger. The following documents are available without charge upon written
request to Steadman Security Company, 1730 K Street, N.W., Washington, D.C.
20006 or by calling the following toll free number 1-800-424-8570: Annual
Reports, dated June 30, 1996 for each of the Funds: SAIF, SAF, SIF and STGF.
Investors are advised to read and retain this Proxy Statement and Prospectus
for future reference.
A Statement of Additional Information, dated the date of this Prospectus,
relating to the proposed transactions described in this Proxy Statement and
Prospectus, has been filed with the SEC and is incorporated by reference herein.
Copies of this Statement of Additional Information may be obtained without
charge by contacting Steadman Security Corporation ("SSC") at 1730 K Street,
N.W., Washington, D.C. 20006 or calling SSC toll free at 1-800-424-8570.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
This Proxy Statement and Prospectus is dated July , 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...................................................... 10
Investment Objectives and Policies.................................................. 10
Investment Advisory Fee............................................................. 11
Purchases of Shares in the Funds.................................................... 11
Chicago Stock Exchange.............................................................. 11
Redemptions......................................................................... 11
PRINCIPAL RISK FACTORS................................................................ 12
Performance of the Funds............................................................ 12
Market For Shares of SST After the Merger........................................... 12
Redemption by States................................................................ 13
Anti-Takeover Provisions............................................................ 13
Absence of Dividends................................................................ 14
Investment Management Techniques.................................................... 14
Non-Diversified Status.............................................................. 14
Closed-End Investment Company--No Redemption Rights................................. 15
Borrowing Policy-Issuance of Senior Securities...................................... 15
Expense Ratios...................................................................... 16
Utilization of Tax Loss Carry Forwards.............................................. 16
Non-Qualification of Merger for Tax Deferral........................................ 17
Non-Qualification as a Regulated Investment Company for Tax Purposes................ 17
DIFFERENCE BETWEEN OPERATIONS OF SST AS ANOPEN-END AND CLOSED-END INVESTMENT
COMPANY............................................................................. 17
Amendment to SST Declaration of Trust............................................... 18
Acquisition and Disposition of Shares............................................... 18
Voting Rights....................................................................... 19
Determination of Net Asset Value.................................................... 19
Portfolio Management................................................................ 20
Blue Sky Restrictions............................................................... 20
Senior Securities................................................................... 20
APPROVAL OF THE MERGER................................................................ 21
Background.......................................................................... 21
4
TABLE OF CONTENTS (cont.)
The Merger.......................................................................... 21
Trustee Approval of the Merger...................................................... 22
Tax Aspects of the Merger........................................................... 24
CAPITALIZATION TABLE (UNAUDITED)...................................................... 26
COMPARATIVE FEE TABLES................................................................ 26
Transaction Charges................................................................. 26
Expenses of the Funds; Pro Forma Projected Operating Expenses....................... 27
Example............................................................................. 29
PRO FORMA FINANCIAL INFORMATION....................................................... 29
FORM OF ORGANIZATION OF THE FUNDS..................................................... 38
COMPARISON OF INVESTMENT OBJECTIVES,POLICIES AND TECHNIQUES OF THE FUNDS.............. 38
CONDENSED FINANCIAL INFORMATIONOF THE FUNDS........................................... 39
SAIF
Management's Discussion of Performance of the Fund................................ 44
SAF
Management's Discussion of Performance of the Fund................................ 44
SIF
Management's Discussion of Performance of the Fund................................ 45
STGF
Management's Discussion of Performance of the Fund................................ 46
DESCRIPTION OF CAPITAL STRUCTURE OF THE FUNDSAND SHAREHOLDER RIGHTS................... 51
Special Provisions of SST........................................................... 51
Redemption of Shares Prior to Merger................................................ 53
Redemption of Shares After Merger................................................... 54
Market for Shares of SST............................................................ 54
MANAGEMENT OF THE FUNDS............................................................... 55
LEGAL PROCEEDINGS..................................................................... 55
5
TABLE OF CONTENTS (cont.)
SELECTION OF INDEPENDENT AUDITORS..................................................... 56
ELECTION OF TRUSTEESOF STEADMAN ASSOCIATED FUND....................................... 57
Election of Trustees................................................................ 57
Committee and Meetings of Trustees.................................................. 58
Interested Persons.................................................................. 58
Compensation of Trustees............................................................ 58
Officers of SST..................................................................... 59
RATIFICATION OF AMENDED AND RESTATEDTRUST INDENTURE OF STEADMAN SECURITY TRUST........ 59
INFORMATION CONCERNING THE MEETINGS................................................... 60
The Meetings........................................................................ 60
Record Date; Vote Required; Share Information....................................... 61
Proxies............................................................................. 61
Costs of the Solicitation and the Reorganization.................................... 62
MISCELLANEOUS......................................................................... 62
Financial Information............................................................... 62
Public Information.................................................................. 62
OTHER BUSINESS........................................................................ 63
PART B: INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION............... B-1
PART C: OTHER INFORMATION........................................................... C-1
Exhibit A--Agreement and Plan of Merger, dated as of May 2, 1997, by and
among Steadman American Industry Fund, Steadman Investment Fund,
Steadman Growth and Technology Fund and Steadman Security Trust
Exhibit B--Amended and Restated Trust Indenture of Steadman Security Trust
(formerly, Steadman Associated Fund) and Declaration of Trust with
Amendments through May 2, 1997.
6
AGREEMENT AND PLAN OF MERGER
SYNOPSIS
Following is a synopsis of certain information contained in or incorporated
by reference in this Proxy Statement and Prospectus. It presents key
considerations to assist shareholders of SAIF, SAF, SIF and STGF in determining
whether to approve the Merger. This synopsis is only a summary and is qualified
in its entirety by the more detailed information contained in or incorporated by
reference in this Proxy Statement and Prospectus and the Exhibits hereto.
Shareholders should carefully review this Proxy Statement and Prospectus and the
Exhibits hereto in their entirety.
PARTIES TO THE MERGER
Each of the Funds, SAIF, SIF, STGF and SST is a common law trust, domiciled
in the District of Columbia. Each is currently a non-diversified open-end
investment company; however, a required condition of the Merger is that the
shareholders of SAF (which will become SST) must approve its change from an
open-end investment company to a closed-end investment company. After this
change, the SST shares will not be "redeemable securities" as that term is
defined in the Investment Company Act of 1940, as amended (the "1940 Act"). As a
result, shareholders of SST after the Merger will be able to liquidate their
investment through sales on the Chicago Stock Exchange, if SST shares are
accepted for listing, or in the over-the-counter market, if a market develops.
In such case, the shareholder may incur a brokerage cost on the sale of shares.
However, SST will provide shareholders with a one-time opportunity to redeem
their shares at net asset value during a thirty-day period commencing on the
fifth anniversary date of the Merger. Future net asset value will likely differ
from the net asset value shareholders would receive if they redeemed shares
prior to the Merger. Management has been unable to locate any broker-dealers who
will agree to act as market maker for SST shares; and accordingly there can be
no assurance that a market will develop or at what price SST shareholders would
be able to liquidate their investment in SST.
THE MERGER
The Merger Agreement provides for the merger of SAIF, SIF and STGF into SAF,
which will be named SST. Each shareholder of SAIF, SIF and STGF will receive
that number of SST shares equal in value to his pro rata interest in the net
assets transferred to SST as of the Valuation Date (as defined in the Merger
Agreement). Cash will be paid in lieu of fractional shares. The Merger Agreement
provides that immediately prior to the effective date of the Merger SST will
effect a reverse stock split so that each ten shares issued and outstanding will
be converted into one share of the Fund.
The Trustees of each Fund, including Trustees who are not "interested
persons" of the Fund (the "Independent Trustees"), as that term is defined in
the 1940 Act, have concluded that the Merger is in the best interests of each of
the Funds and their shareholders. They also believe that the interests of
existing shareholders will not be diluted as a result of the Merger except for
expenses of the Merger and for conversion of SST into a closed-end fund, which
will be shared proportionately
7
by the Funds. The Trustees unanimously recommend
approval of the Merger by the shareholders of each Fund.
The Trustees' recommendation is based on the following conclusions:
First, operating costs of the Funds will be reduced substantially from
the aggregate costs of operating the four funds functioning separately.
However, it is anticipated that operating expenses of SST after the Merger
may exceed net operating income of the Fund before taking into account
capital appreciation, if any. The Merger may enable SST to use its assets
more effectively and increase shareholder value. Fund accounting fees, stock
transfer costs, and other shareholder service expenses 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, expenses related to
reports to shareholders, computer services and data processing expenses, and
custodian fees. Management of the Funds estimates that SST annual operating
expenses will be approximately $684,000 which is $638,000 lower than total
aggregate expenses of the current four Funds. The estimated reduction in
operating expenses cannot guarantee profitable operation of SST.
Second, The annual operating expenses for each of the Funds as a percentage
of average net assets at June 30, 1997 were as follows: SAIF--31.44%, SAF-
12.18%, SIF- 15.81% and STGF- 41.84%. The Trustees expect the Merger to reduce
the expense ratio of SST. If the Merger had taken place on June 30, 1997, the
Trustees believe that as a result of anticipated savings, the pro forma combined
expense ratio of SST would have been 15.89%. There can be no assurance, however,
that reductions in expenses will result in profitable operations, and it is
anticipated that operating expenses of SST after the Merger may exceed net
operating income of SST before taking into account capital appreciation, if any.
Third, after the Merger, SST will operate as a closed-end investment company
whose shares are bought and sold in market transactions. Stockholders will not
have a right of redemption except during a thirty-day period commencing on the
fifth anniversary date of the Merger. Future net asset value will likely differ
from the net asset value shareholders would receive if they redeemed their
shares prior to the Merger. In the past, each Fund has kept a prudent portion of
its portfolio in cash or lower-yielding liquid assets to meet the potential
demand for redemptions. Upon consummation of the Merger and the conversion of
SST to a closed-end status, SST will be able to more effectively use portfolio
funds that would otherwise have been invested in cash or securities that could
be readily liquidated. Upon consummation of the Merger, SST will be able to
invest these funds with a longer-term view without having to be concerned about
the possibility of liquidating a position at an inopportune moment solely to
meet redemption requests thereby creating a higher return on investments for
SST. SST has applied to be listed on the Chicago Stock Exchange, subject to
compliance with the listing requirement, and it is contemplated that if SST
shares are not listed on the Chicago Stock Exchange, SST shares will be traded
in the over-the-counter market. However, there can be no assurance that a market
will develop for SST shares in which case it may be very difficult to sell your
shares. Management has been unable to locate any broker-dealer who will agree to
act as market makers for SST shares. Closed-end funds typically trade
8
at substantial discounts from their net asset values. Consequently, SST
shareholders could suffer substantial losses if they elect to sell their
shares when the SST market price is below net asset value.
Fourth, The reverse stock split of SST will constitute a recapitalization
of SST, but the Merger will not qualify as a tax-deferred reorganization
under the Internal Revenue Code. SST and its shareholders will not recognize
any gain or loss as a result of the exchange of SST shares for SST shares in
the reverse stock split. Shareholders of SAIF, SIF and STGF will recognize
gain or loss equal to the difference between the tax bases of their SAIF, SIF
or STGF shares surrendered by them in the Merger and the fair market value of
the SST shares they receive in the exchange. For many SAIF, SIF and STGF
shareholders, the result may be a tax loss rather than a tax gain, but each
shareholder's gain or loss calculation must be determined individually and
shareholders are encouraged to consult their own tax advisor. SAIF, SIF and
STGF will be treated for federal income tax purposes as if they had
transferred all of their assets to SST in a taxable transaction, had
recognized all of the built-in gains and losses on those assets, and had then
liquidated. SAIF, SIF and STGF will be able to offset any net gain from this
deemed asset sale with their respective capital loss and net operating loss
carryovers. The Trustees anticipate that there will be sufficient loss
carryovers to offset any net gain recognized by SAIF, SIF or STGF in the
Merger. SST will not recognize any gain or loss as a result of the deemed
asset sale, nor will its shareholders. Any capital loss and net operating
loss carryovers of SAIF, SIF and STGF not used to offset their net gain in
the Merger will expire. SST, as the surviving single entity, will be able to
utilize its separate tax loss carryforwards against ordinary income and
capital gains to eliminate or reduce SST's post-merger taxable income.
Management estimates that after the Merger, a maximum of $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.
If the former holders of SAF represent less than 50% of the total ownership
interests of SST after the Merger, the amount of the above losses which may
be used by SST in any one year will be limited to $258,396. Assuming that no
shareholders other than the Shareholder States redeem their shares,
management expects the assets of SAF to represent more than 50% of the assets
of SST upon consummation of the Merger. In addition, other transactions
subsequent to the Merger could result in a change in the ownership of SST
(combined with the change resulting from the Merger) that causes the loss
limitation rules to apply. 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. The Trustees of each Fund recommend a vote "FOR" the
Merger. 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
9
to a closed-end investment company. Accordingly, if the Merger is approved,
SST will be a closed-end investment company. Management expects that SAF
shareholders will represent more than 50% of the total assets of SST after
the Merger. However, if the Merger is not approved by the shareholders of
each of the Funds, SST will not convert to closed-end status. Open-end
investment companies issue redeemable securities, which can be surrendered at
any time in exchange for their proportionate value of net assets. The shares
of a closed-end fund are not redeemable, but they may be purchased or sold in
market transactions. SST will provide shareholders with the opportunity to
redeem their shares at net asset value during a thirty-day period commencing
on the fifth anniversary date of the Merger. Future net asset value will
likely differ from the net asset value shareholders would receive if they
redeemed shares prior to the Merger. See "Difference between the Operations
of SST as an Open-End and Closed-End Investment Company."
TAX CONSEQUENCES OF THE MERGER
The reverse stock split of SST will constitute a tax-free recapitalization
of SST, but the Merger will not qualify as a tax-deferred reorganization for
federal income tax purposes. The transaction will be treated for federal income
tax purposes as if SAIF, SIF and STGF had transferred all of their assets to SST
in a taxable transaction, had recognized all of the built-in gains and losses on
those assets, and had distributed SST shares to their respective shareholders in
liquidation. The Trustees believe that the capital loss and net operating loss
carryovers of SAIF, SIF and STGF will be sufficient to offset any net gain of
those entities recognized in the Merger. Loss carryforwards of SAIF, SIF and
STGF not utilized in the Merger will expire, but SST will be able to use its
separate loss carryforwards after the Merger. SST and its shareholders will not
recognize any gain or loss as a result of the deemed asset sale and liquidation.
The shareholders of SAIF, SIF and STGF will be deemed to have exchanged their
SAIF, SIF and STGF shares for SST shares in a taxable transaction. Such
shareholders will recognize gain or loss equal to the difference between their
individual tax bases for the SAIF, SIF and STGF shares surrendered and the fair
market value of the SST shares received. Such gain or loss will be capital for
shareholders who hold their SAIF, SIF or STGF shares as capital assets and will
be long term or short term gain depending upon their individual holding periods
for the shares surrendered. For many SAIF, SIF and STGF shareholders, the result
may be a tax loss rather than a tax gain, but each shareholder's gain or loss
calculation must be performed individually and shareholders are encouraged to
consult with their own tax advisor.
INVESTMENT OBJECTIVES AND POLICIES
Three of the Funds (SAIF, STGF and SST) share a common investment objective,
which is capital growth through the use of a broad range of investment vehicles
and techniques including, but not limited to, purchase and sale of put and call
options. The realization of current income is secondary to each Fund's efforts
in pursuing its goal of capital appreciation. The current primary investment
objective of the fourth Fund, SIF, however, is to seek current income, and
secondarily to maximize total return consistent with its primary objective. Upon
the consummation of the Merger, the new investment objective of SST will be to
seek current income and secondarily to maximize the total return but only to the
extent consistent with its primary objective. All of the Funds employ the same
investment management techniques.
10
Shareholders of the Funds should consider these similarities and differences
in investment objectives and policies of the Funds. See "Comparison of
Investment Objectives and Techniques of the Funds."
INVESTMENT ADVISORY FEE
Each Fund obtains investment management services from the same investment
advisor, Steadman Security Corporation ("SSC"), pursuant to substantially
similar investment advisory agreements. A management fee is payable to the
investment advisor monthly and is computed on the net asset value of the Fund.
Each Fund pays a management fee at the annual rate of 1% of the first $35
million of net assets, 0.875% of the next $35 million and $0.75% on all assets
more than $70 million. Upon effectiveness of the Merger, SSC will continue to
provide investment advisory services to SST pursuant to its existing Investment
Advisory Agreement.
None of the Funds has a separate service and/or distribution plan pursuant
to Rule 12b-1 under the 1940 Act.
PURCHASES OF SHARES IN THE FUNDS
SAIF, SIF and STGF have not accepted new subscriptions for shares since May,
1988. Shares of SAF were available for purchase under a Prospectus dated
January, 1996 through October 31, 1996.
CHICAGO STOCK EXCHANGE
SST has filed an application to list its shares on the Chicago Stock
Exchange and has been advised that approval for listing must await completion of
the Merger to assess the impact of redemptions of shares prior to the Merger as
well as SST's ability to meet the Exchange's requirements for adequate annual
earnings. If the SST shares are not accepted for listing in the Chicago Stock
Exchange, the Trustees expect the shares to be traded in the over-the-counter
market if a market develops, however, management has been unable to locate a
broker-dealer who will act as a market maker in SST shares.
REDEMPTIONS
Prior to the closing date of the Merger, shares of each Fund may be redeemed
at their respective net asset values calculated after the redemption order is
received and accepted. Upon completion of the Merger and the change of SST to a
closed-end investment company, no shares of SST may be redeemed. It is expected
that shares of SST will be traded either on the Chicago Stock Exchange, or in
the over-the-counter market; however, there can be no assurance that a market
will develop for shares of SST. Moreover, if shares of SST are traded, it is
anticipated that shares of SST will trade at a substantial discount from their
net asset value, which discount will be greater than the discount applicable to
shares of most closed-end funds. Shareholders will have a one-time opportunity
to redeem their SST shares at net asset value during a thirty-day period
commencing on the fifth anniversary date of the Merger. Future net asset value
will likely differ from the net asset value shareholders would receive if they
redeemed shares prior to the Merger.
11
PRINCIPAL RISK FACTORS
In evaluating whether to approve the Merger, shareholders should carefully
consider the following summary of risk factors relating to SST in addition to
the other information set forth in this Proxy Statement and Prospectus.
PERFORMANCE OF THE FUNDS
The historical performance of each of the Funds during the past ten years
has been substantially less than the performance of the S&P 500 index for the
same period. (See "Management's Discussion of Performance of the Funds").
The following table shows performance of each Fund and reflects reinvestment
of distributions.
PER SHARE PERCENTAGE
NET ASSET INCREASE
FUND BEGINNING DATE PRICE ENDING DATE VALUE (DECREASE)
- --------------------------------------------------- -------------- --------- ------------ ----------- -------------
SAIF............................................... 2/1/86 $ 2.89 4/15/97 $ 0.69 (76%)
SAF................................................ 10/1/86 $ 0.82 4/15/97 $ 0.70 (15%)
SIF................................................ 1/1/86 $ 1.46 4/15/97 $ 0.76 (48%)
STGF............................................... 1/1/86 $ 5.06 4/15/97 $ 0.61 (88%)
From January 1, 1986, through April 15, 1997, the S&P 500 Index increased by
272% from 202.83 to 754.72 (which does not include the reinvestment of
dividends). Except for (a) SAF which paid a dividend in 1986, 1987 and 1989 and
made a capital distribution in 1988 and (b) SIF which paid a dividend in 1988,
none of the Funds paid dividends or made distributions to shareholders during
those years. There can be no assurance that as a result of the Merger,
performance of the SST will differ from past performance of the Funds.
MARKET FOR SHARES OF SST AFTER THE MERGER
The market for shares of SST after the Merger will be substantially affected
by conditions beyond the control of the Fund's management. Due to the small size
of SST after the Merger (approximately $6.3 million in net asset value as of
June 30, 1997), it is anticipated that there will be a limited market for SST
shares if a market develops at all. The size of SST is expected to be further
reduced by about $1,000,000 if all of the States holding shares of the Funds
request redemption of such shares and seek redemption prior to the Merger. (See
"--Redemption by States.") Furthermore, because of the limitations imposed on
the (a) voting rights of an investor who acquires more than 10% of SST's shares
and (b) the ability of SST to engage in certain business transactions if an
investor acquires more than 10% of the Fund's shares without the required
trustee and shareholder approvals, an additional discount may be applied by the
marketplace to the value of the Funds' shares. (See "Description of Capital
Structure of the Funds and Shareholder Rights--Special Provisions of SST.") As a
result, due to a change from an open-end fund to a closed-end
12
fund, shareholders of SST after the Merger likely will not be able to
liquidate their investment in SST at net asset value but might suffer
substantial losses if they elect to liquidate their shares, and might, in
fact, be unable to sell their shares if an active trading market does not
develop.
REDEMPTION BY STATES
In 1993, the Funds entered into a Settlement Agreement with approximately
47 states with respect to the recovery of shares and distributions owned by
persons who had allegedly abandoned these properties. The Settlement
Agreement provides among other things, that forty-three of these
jurisdictions ("Shareholder States") will not request redemption of their
shares until February 14, 1998. The Shareholder States currently own shares
in the Funds, which have a net asset value of approximately $1 million. The
Shareholder States are represented by the Unclaimed Property Clearing House
("UPCH"), which has advised the Funds that it does not believe the Merger
should take place because the UPCH believes that after the Merger SST shares
will trade at a substantial discount from net asset value, and the
Shareholder States will receive substantially less from the sale of their
shares after the Merger than if those shares were redeemed at net asset
value. The UPCH told the Funds that it is prepared to recommend to the
Shareholder States that they commence litigation to prevent the consummation
of the Merger unless the restriction on their ability to redeem shares of the
Funds prior to February 14, 1998 is removed. The Trustees believe that the
delay and further expense which would result from such potential litigation
is not in the best interest of the shareholders. Accordingly, the Funds have
unconditionally agreed to remove the restriction on the redemption of shares
and to redeem prior to the Merger all of the shares of the Funds owned by the
Shareholder States upon their request. The Shareholder States do not have any
rights, priorities, or preferences regarding redemption of fund shares that
differ from any other shareholder of the Funds. If all the Shareholder States
redeem all of their shares, the net asset value of SST after the Merger would
be reduced by approximately $1 million.
ANTI-TAKEOVER PROVISIONS
Certain existing and proposed provisions of the Amended and Restated SST
Trust Indenture help the Fund maintain its status as an independent,
publicly-owned investment company, and render a hostile takeover more difficult,
particularly the provisions relating to super majority voting in connection with
certain business combinations and the limitations imposed on the voting rights
of any investor who acquires more than 10% of SST's shares. These provisions
include unlimited terms for trustees, limitations on the ability of shareholders
to remove trustees, limitations on the calling of special meetings and non-
cumulative voting in the election of trustees. See "Description of Capital
Structure of the Funds and Shareholders Rights--Special Provisions of SST."
Although these provisions do not preclude a hostile takeover, they could
discourage a takeover attempt through which shareholders might be offered a
premium over prevailing market prices. These provisions also render removal of
Trustees, management, and the investment advisor more difficult. The Trustees,
however, concluded that potential benefits of the provisions outweigh possible
disadvantages. They believe such provisions encourage potential acquirors to
negotiate directly with the Trustees, who are in the best position to act on
behalf of all shareholders. Furthermore, the Trustees have the ability to waive
certain of these restrictions. Not redeeming your shares prior to the Merger
will result in the above anti-takeover provisions applying to
13
all shareholders equally should the Merger be consummated and the Amended and
Restated Trust Indenture be approved by shareholders of SST at the Meeting.
ABSENCE OF DIVIDENDS
SAIF and STGF have not paid a dividend or made a capital distribution for at
least ten years. SAF has not paid a dividend or made a capital distribution
since 1989 and SIF has not paid a dividend or made a capital distribution since
1988. See "Condensed Financial Information of the Funds." Following the Merger
of the Funds, SST does not anticipate paying any cash dividends or distributions
in the foreseeable future.
INVESTMENT MANAGEMENT TECHNIQUES
An investment in SST involves greater risk than an investment in many
other mutual funds because the investment objectives and policies of SST
afford management wide possible latitude in choosing investment vehicles and
techniques. This latitude is greater than that afforded many other investment
companies. Many of the vehicles and techniques--including but not limited to
option activities, investment in foreign securities, borrowing to increase
investment funds, and short-selling--are highly specialized and involve
significant risks. For a full discussion of the risks attendant to particular
investments and techniques, please refer to the Statement of Additional
Information. Use of such techniques may also produce higher (100% or more)
than normal portfolio turn-over which will generate additional brokerage
commissions and expenses for SST. Moreover, SST is not restricted from making
investments in real estate, precious metals, oil and gas limited
partnerships, or commodities and commodities contracts (including futures
contracts), all of which are considered speculative. Currently, SST and two
of the Funds, SAIF and STGF, share the same investment objective and
techniques; while SIF's principal objective is different - to seek current
income rather than capital growth--all four Funds use the same investment
techniques. Upon completion of the Merger, the primary investment objective
of SST will change to seek current income and secondarily 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 assets of SST that may be invested in securities of a
single issuer is not limited by the 1940 Act. A "diversified investment company"
is required by the Investment Company Act of 1940 generally to invest, with
respect to 75% of its total assets, not more than 5% of such assets in the
securities of a single issuer. Moreover, SST has not elected to conduct its
operations so as to qualify as a "regulated investment company" for purposes of
the Internal Revenue Code of 1986, as amended (the "Code"). Thus, unlike many
mutual funds, it is not restricted by certain diversification requirements
imposed by the Code. A relatively high percentage of SST's assets may be
invested in obligations of a limited number of issuers, some of which may be
within the same economic sector. Therefore, SST's portfolio will be more
susceptible to any single economic, political, or regulatory occurrence than the
portfolio securities of a diversified investment company.
14
CLOSED-END INVESTMENT COMPANY--NO REDEMPTION RIGHTS
As a closed-end investment company SST will not redeem any of its
outstanding shares. SST shares will be traded either on the Chicago Stock
Exchange, if accepted for listing, or in the over-the-counter market; but there
can be no assurance that a market will develop. See "--Chicago Stock Exchange."
Closed-end investment company shares frequently trade at a discount from net
asset value and shareholders may incur a brokerage cost on the sale of shares.
The shares of SST have never traded publicly. Therefore, SST cannot predict
whether its shares will trade in the future at a premium or at a discount from
net asset value or the extent of either. The risk of its shares trading at a
discount is separate from the risk of a decline in net asset value. Shareholders
will have a one-time opportunity to redeem their SST shares at net asset value
during a thirty-day period commencing on the fifth anniversary date of the
Merger. Future net asset value will likely differ from the net asset value
shareholders would receive if they redeemed shares prior to the Merger.
BORROWING POLICY-ISSUANCE OF SENIOR SECURITIES
The Fund's borrowing policy is that SST may borrow from banks for investment
purposes. This borrowing, which is a speculative technique known as leveraging,
generally will be unsecured, except to the extent SST enters into reverse
repurchase agreements described below. The 1940 Act required SST to maintain
continuous asset coverage (that is, total assets including borrowings, less
liabilities exclusive of borrowings) of 300% of the amount borrowed. If the 300%
asset coverage should decline as a result of market fluctuations or other
reasons, SST is required to sell some of its portfolio holdings within three
days to reduce the debt and restore the 300% asset coverage, even though it may
be disadvantageous from an investment standpoint to sell securities at that
time. Leveraging may exaggerate the effect on net asset value of any increase or
decrease in the market value of SST's portfolio. Money borrowed for leveraging
will be subject to interest costs which may or may not be recovered by
appreciation of the securities purchased. SST also may be required to maintain
minimum average balances in connection with such borrowing or to pay a
commitment or other fee to maintain a line of credit; either of these
requirements would increase the cost of borrowing over the stated interest rate.
Among the forms of borrowing in which SST may engage is the entry into
reverse repurchase agreements with members of the New York Stock Exchange (or
subsidiaries thereof), members of the Federal Reserve System, recognized primary
U.S. government securities dealers or institutions which the Fund's Adviser has
determined to be of comparable creditworthiness. These transactions involve the
transfer by SST of an underlying debt instrument in return for cash proceeds
based on a percentage of the value of the security. SST retains the right to
receive interest and principal payments on the security. At an agreed upon
future date, SST repurchases the security at principal, plus accrued interest.
In certain types of agreements, there is no agreed-upon repurchase date and
interest payments are calculated daily, often based on the prevailing overnight
repurchase rate. SST will maintain in a segregated custodial account cash, cash
equivalents or U.S. government securities or other high quality liquid debt
securities at least equal to the aggregate amount of its reverse repurchase
obligations, plus accrued interest, in certain cases, in accordance with
releases promulgated by the Securities and Exchange Commission. The Securities
and Exchange Commission views
15
reverse repurchase transactions as collateralized borrowings by SST. These
agreements, which are treated as if reestablished each day, are expected to
provide SST with a flexible borrowing tool.
As a closed-end investment company, SST may borrow from a bank or other
entity in a privately arranged transaction to the maximum extent permitted under
the 1940 Act. Loans would involve additional risk to SST, since the interest
expense may be greater than the income from or appreciation of the securities
carried by the borrowings and since the value of the securities carried may
decline below the amount borrowed.
SST WILL HAVE AUTHORITY TO ISSUE SENIOR SECURITIES. The 1940 Act requires
SST to maintain "asset coverage" of not less than 300% if a "class of senior
securities represents indebtedness," as those terms are defined and used in the
1940 Act. In addition, if SST issues a class of senior security that is stock,
SST may not declare any dividends (other than a dividend payable in common
stock). Neither can it make any cash distributions to its shareholders if, after
the distribution, the senior security would have less than 300% asset coverage.
SST has no present intention of issuing any class of senior security; however,
it may be in the best interests of the Fund to do so in the future.
Any investment gains made with the proceeds obtained from borrowings in
excess of interest will increase net income per share and net asset value per
share of SST's shares to be greater than would otherwise be the case. On the
other hand, if the investment performance fails to cover the cost of the
additional securities purchased (including any interest paid on the money
borrowed), net income per share and net asset value per share of the shares of
SST will be less than would otherwise be the case.
EXPENSE RATIOS
The Merger will create economies that will substantially reduce operating
costs of the four Funds, but SST will still have a high ratio of expenses to
average net assets relative to other funds because of its small size. The result
may be continuing operating losses.
UTILIZATION OF TAX LOSS CARRY FORWARDS
Although SST will be able to use its existing net operating loss and
capital loss carryforwards each year against income earned by SST, there can
be no assurance that sufficient income will be earned to utilize in their
entirety the loss carryforwards which are available, as the ability to use
certain loss carryforwards will expire on specific dates in the future. In
addition, the Merger is not a tax-deferred reorganization for federal income
tax purposes. As a result, the loss carryforwards of SAIF, SIF and STGF will
not be available to offset SST income after the Merger. Management estimates
that after the Merger, a maximum of $4,648,795 of net operating losses and a
maximum of $1,109,769 of capital loss carryovers will be available to be used
by SST based upon June 30,1996 financial statements. If the former holders of
SAF represent less than 50% of the total ownership interests of SST after the
Merger, the amount of the above losses which may be used by SST in any one
year will be limited 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 loss limitation rules
to apply. Whether any future events will cause imposition of a
16
restriction in tax loss utilization for SST cannot be
predicted at this point. Based upon the past performance of the Funds, there is
little likelihood that SST will be able to utilize these tax benefits in full.
NON-QUALIFICATION OF MERGER FOR TAX DEFERRAL
Shareholders of SAIF, SIF, and STGF will have a fully taxable exchange when
they surrender their shares in exchange for SST shares. Their individual gain or
loss will be measured by the difference between the tax bases of their SAIF, SIF
and STGF shares they surrender and the fair market value of the SST shares they
receive. Each shareholder's computation of gain or loss will depend on his
specific circumstances regarding factors such as share basis, holding period,
and income, gain, loss or deductions in the year of the exchange which may be
wholly unrelated to the Merger. Although many SAIF, SIF and STGF shareholders
may recognize tax losses in the exchange, some shareholders may have net income
as a result of the exchange. In addition, if the exchange creates a recognized
capital loss for a shareholder, the shareholder may be subjected to restrictions
on use of that recognized capital loss. Shareholders are encouraged to consult
their own tax advisor regarding the individual tax consequences of the
transactions described in this Proxy Statement and Prospectus.
NON-QUALIFICATION AS A REGULATED INVESTMENT COMPANY FOR TAX PURPOSES
SST, the entity surviving the Merger, is not expected to qualify for special
Federal income tax rules applicable to electing qualified regulated investment
companies. While this factor permits SST to utilize certain loss carryforwards,
it will not be able to take advantage of certain potentially favorable tax rules
applicable to electing qualified regulated investment companies.
DIFFERENCE BETWEEN OPERATIONS OF SST AS AN
OPEN-END AND CLOSED-END INVESTMENT COMPANY
All of the Funds are currently registered as open-end investment companies
under the 1940 Act. Open-end investment companies issue redeemable securities.
The holders of these securities have the right to surrender, effectively at any
time, all, or any part of their shares in the open-end fund and obtain their
proportionate share of the value of the fund's net assets (sometimes referred to
as the "net asset value") less any redemption fee. This has been the way the
Funds have operated since their inception.
In contrast, a closed-end investment company neither redeems its outstanding
stock nor engages in the continuous sale of new securities; it operates with a
relatively fixed capitalization. Conversely, open-end investment companies are
obligated to calculate a daily net asset value and manage their portfolios to
provide sufficient liquidity for possible redemptions.
Some of the legal and practical differences between operation of SST as an
open-end and a closed-end investment company are as follows:
17
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.
The foregoing provisions will be replaced with the following new
Sections 8.3.
Section 8.3. Redemption of Shares. Option of Shareholder. Upon the fifth
anniversary date of the Merger, as defined in Section 1.4, the Trustees
shall publish a notice in a national newspaper of general circulation
informing Shareholders of the right to redeem all or any part of their
Shares. For a period of thirty days commencing on the date of publication of
the notice, a Shareholder may redeem all or any part of his Shares at net
asset value as defined in Section 2.8, determined as of the close of
business on the thirtieth day following the publication of such notice, or
if such day is a Saturday, Sunday, or legal holiday, then such determination
will be made on the first business day immediately preceding such thirtieth
day.
ACQUISITION AND DISPOSITION OF SHARES
Currently, none of the four funds continuously offers its shares, which is
standard procedure for open-end funds. Closed-end funds do not continuously
offer their shares, and neither will SST. Shareholders thereby would lose the
possible benefit of an expanding pool of money from the sale of additional
shares, which SST as an open-end fund would have to invest. As a practical
matter, however, SST has no principal underwriter. It does not, and has not,
actively marketed its securities over the past several years, and infrequently
sold new shares. The Trustees of the Funds believe the very remote possibility
of selling shares of SST in the future is outweighed by the burden of costs.
These include the cost (a) to determine a daily net asset value and (b) to keep
Fund securities registered for sales in a continuous offering with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
and under "Blue Sky" or state securities laws in states which the Funds were
active in the past. In reality, the investment base of the Funds is generally
static, which is the hallmark of a true closed-end investment company.
18
In an open-end fund, shareholders desiring to realize the value of their
shares are able to do so by exercising their right of redemption; that is, their
right to require the fund to repurchase their shares at current net asset value
(less such redemption fee as may be determined by the fund's Trustees). An open-
end fund's net asset value is calculated by dividing (i) the value of its
portfolio securities plus all cash and other assets (including accrued interest
and dividends received but not collected) less all liabilities (including all
accrued expenses) by (ii) the number of outstanding shares of such fund.
Shareholders of a closed-end fund have no such right of redemption. Unless
shares are admitted to trading on a securities exchange, or some other regular
trading market develops, shareholders may be unable to dispose of their shares
easily or at all. Even if a market should develop, the share price would be
affected by market forces. The shares of most closed-end funds trade at a
discount from net asset value.
SST has applied to be listed on the Chicago Stock Exchange, subject to the
shares being accepted for listing. In the event shares of SST are not so listed,
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 has been unable to locate a broker-dealer that will agree to make a
market in shares of SST. Shareholders wishing to sell shares in SST after
conversion may be able to sell in market transactions. Shares of SST are
expected to trade at a substantial discount from net asset value, however, the
extent of that discount cannot be predicted at this time. Shareholders of SST
will have the opportunity to redeem their shares at net asset value during a
thirty-day period commencing on the fifth anniversary date of the Merger.
VOTING RIGHTS
Currently, the shareholders of each Fund have equal voting rights with every
other shareholder of the same Fund. Upon consummation of the Merger, each
shareholder of SST will have equal voting rights with every other shareholder of
SST. However, the voting rights of shareholders of SST will be subject to
certain limitation provisions that may be deemed to have an anti-takeover
effect. See "Description of Capital Structure of the Funds and Shareholder
Rights." Not redeeming your shares prior to the Merger will result in the
anti-takeover provisions applying to all shareholders equally should the Merger
be consummated and the Amended and Restated Trust Indenture be approved by
shareholders of SST at the Meeting.
DETERMINATION OF NET ASSET VALUE
Currently, as open-end funds, each Fund determines its per share net asset
value on each business day. Upon consummation of the Merger and the conversion
of SST to a closed-end fund, SST would no longer need to compute daily net asset
value; this cost savings will benefit SST.
PORTFOLIO MANAGEMENT
As a closed-end investment company, SST would not be subject to pressures to
sell portfolio securities at disadvantageous times in order to meet redemptions.
There would be no need to
19
maintain cash reserves, or cash equivalents, in order
to meet redemptions. As a closed-end fund, SST will be able to keep cash
reserves at a minimum, depending primarily on management's perception of market
conditions.
In the past, each Fund has kept a prudent portion of its portfolio in cash
or lower-yielding liquid assets to meet the potential demand for redemptions.
Upon consummation of the Merger and the conversion of SST to a closed-end
status, SST will be able to more effectively use portfolio funds that would
otherwise have been invested in cash or lower-yielding assets that could be
readily liquidated. Upon consummation of the Merger, SST will be able to invest
these funds with a longer-term view without having to be concerned about the
possibility of liquidating a position at an inopportune moment solely to meet
redemption requests thereby creating a higher return on investments for SST.
For the five fiscal years ended June 30, 1996, the annual portfolio turnover
rate for SST has ranged from 505% to 231%. Management of SST believes that the
expected portfolio turnover rate for SST after the Merger is likely to be in the
lower end of the range indicated above. This is because Management will
completely change the portfolio of the Funds upon completion of the Merger in
implementation of SST's new investment policy, which is to seek current income,
and secondarily to maximize the total return but only to the extent consistent
with its primary objective. Accordingly, SST's new portfolio of securities
following the merger is expected to consist of securities which offer higher
yields combined with price stability.
BLUE SKY RESTRICTIONS
As open-end fund, each Fund is required to register its shares of common
stock under applicable state securities, or "Blue Sky" laws. Upon consummation
of the Merger and the conversion of SST to a closed-end fund, SST will not be
required to keep such registrations current and will thereby benefit from a
reduction in costs and expenses.
SENIOR SECURITIES
The 1940 Act prohibits open-end funds from issuing "senior securities"
representing indebtedness (i.e., bonds, debentures, notes, and other similar
securities), other than indebtedness to banks where asset coverage is at
least 300% in relation to all borrowings. Closed-end investment companies, on
the other hand, are permitted to issue senior securities representing
indebtedness to any lender if the 300% asset coverage is met. In addition,
closed-end investment companies may issue preferred stock (subject to various
limitations), whereas open-end investment companies generally may not. This
ability to issue senior securities gives closed-end investment companies more
flexibility than open-end funds in "leveraging" their stockholders'
investments. See "Principal Risk Factors-Borrowing Policy-Issuance of
Securities." However, SST has no present intention of issuing any class of
senior security.
20
APPROVAL OF THE MERGER
PROPOSAL NO. 1
(TO BE VOTED ON BY SHAREHOLDERS OF ALL FUNDS)
BACKGROUND
The Trustees of the Funds reviewed operations of each Fund with a view to
determining how best to reduce costs of operation, increase asset value and
enhance investment opportunities while preserving the investment objectives of
the Funds. The Trustees concluded that it has become increasingly difficult for
small funds to compete, especially because of operating costs which must be
incurred by each Fund. Among other things, the Trustees concluded that by
merging the Funds into a single fund, SST, significant economies of scale can be
achieved to reduce costs. In addition, 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 reserves of cash and
lower-yielding liquid securities would no longer be maintained to meet
redemptions.
Accordingly, the Trustees unanimously recommend that shareholders approve
the Merger as set forth in the Merger Agreement. This Agreement provides, among
other things, that the shareholders of each of the Funds must approve the
Merger. If the Merger is not approved, the Trustees will take such further
action as they, in their discretion, deem necessary or advisable.
THE MERGER
The following summary of the Merger Agreement is qualified in its entirety
by reference to the Merger Agreement, a copy of which is set forth in full as
Exhibit A to this Proxy Statement and Prospectus. The Merger Agreement
contemplates a reorganization whereby SIF, SAIF and STGF (the "Merging Funds")
will merge into SST, and SST will survive the Merger.
Shareholders of the Merging Funds will receive shares of SST determined by
dividing the net asset value of each of the Merging Fund's shares by the net
asset value of SST's shares as of the Valuation Date, which is defined in the
Merger Agreement as the business day preceding the Closing Date. In addition, on
the Valuation Date, SST will effect a reverse split so that each ten issued and
outstanding shares of SST will become one share.
The Merger will be effective ten days after all shareholder and regulatory
approvals have been received by the Funds. The Amended and Restated Trust
Indenture of SST will be the Trust Indenture of the Surviving Fund, and the
Trustees of SST will be the Trustees of the Surviving Fund.
The consummation of the Merger is subject to conditions set forth in the
Merger Agreement. Without limitation, it includes approval of the Merger by
shareholders of the Merging Funds and of SST, and ratification by shareholders
of SST of the Restated and Amended Trust Indenture of SST, which provides for
the change of SST from an open-end fund to a closed-end fund.
Notwithstanding approvals of shareholders of the Funds, the Merger may be
terminated at any time prior to the Closing: (a) by the mutual written consent
of all of the Funds, or (b) by either SST
21
or the Merging Funds if (i) the other party fails to perform in any material
respect its agreements in the Merger Agreement required to be performed on or
prior to the Closing Date, (ii) SST or the Merging Funds, respectively,
materially breaches or shall have breached any of its representations,
warranties or covenants contained herein, or (iii) any other condition
precedent to the obligations of the terminating party has not been met and it
reasonably appears that it will not or cannot be met.
Termination of the Merger Agreement will end all obligations of the parties
thereto without liability except that any party in breach of the Merger
Agreement, upon demand, will reimburse the other party for all reasonable
out-of-pocket fees and expenses incurred in connection with the transactions
contemplated by the Merger Agreement, including legal, accounting and filing
fees.
Approval of the Merger will require the vote specified below in "Information
Concerning the Meetings--Record Date; Vote Required; Share Information." If the
Merger is not approved by the shareholders of the Funds, the Trustees of the
Funds will consider other possible courses of action.
TRUSTEE APPROVAL OF THE MERGER
At meetings held on May 2, 1997, the Trustees of SAIF, SAF, SIF and STGF,
including the Independent Trustees, unanimously approved the Merger and the
Merger Agreement, determined that the Merger is in the best interests of each of
the Funds and their shareholders, and resolved to recommend that shareholders
vote for approval of the Merger. The Trustees of SAF further resolved to change
the Fund's name to Steadman Security Trust upon the Merger, to change SST from
an open-end investment company to a closed-end investment company, to change
SST's fundamental investment policy from capital growth to current income, and
to recommend the latter changes 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 effectively; the change from an
open-end investment company to a closed-end investment company; the potential
for increasing shareholder value; the potential for increasing the return on
investments; the terms and conditions of the Merger Agreement; and the fact that
the Merger will not qualify as a tax-deferred reorganization under the Code.
Also, the Merger would afford the shareholders of SST the continued capabilities
and resources of SSC in investment management and shareholder servicing. The
Trustees also considered the ability of shareholders of SST to purchase and sell
their shares on an established stock exchange or in the over-the-counter market.
Finally, all expenses of the
22
Merger and the conversion of SST to a closed-end fund will be shared
proportionately by the Funds.
A. Potential Lower Operating Costs. Operating costs of SST as a
closed-end fund on a post-merger basis will be substantially reduced from the
aggregate cost of operating the four funds separately. The Merger will enable
SST to use its assets more effectively to increase shareholder value. Because
of the Merger and the resulting reduction in the number of shareholders'
accounts, Fund accounting fees, stock transfer costs, and other shareholder
service expenses 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
$1,322,000 for the year ended June 30, 1997, would be reduced to $684,000 if
the Merger had taken place June 30, 1997. These savings will be achieved
principally in the following areas: shareholder servicing fees, professional
fees, expenses related to reports to shareholders, computer services and data
processing expenses, and custodian fees. Reduced expenses will, however, not
necessarily result in profitable operations for SST. See "Comparative Fee
Tables--Expenses of the Funds; Pro Forma Expenses." Furthermore, due to the
size of SST after the Merger, and the anticipated portfolio income, SST may
continue to suffer operating losses and will need to rely upon capital
appreciation of its portfolio securities to be profitable. There is no
assurance that the portfolio securities will have capital appreciation in a
sufficient amount to offset any operating losses, if the portfolio securities
have any capital appreciation at all.
B. Closed-End Investment Company. The newly merged fund, SST, will operate
as a closed-end investment company. Shares will be traded either on the Chicago
Stock Exchange, if accepted for listing, or in the over-the-counter market;
however, there can be no assurance that a market will develop for SST shares.
Management has been unable to locate a broker-dealer that will agree to make a
market in SST shares. This new status will eliminate the need for each of the
Funds to maintain reserves of cash and lower-yielding liquid assets to fund the
repurchase of shares as this right of redemption will no longer exist 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 thereby creating a higher return on
investments for SST. The shareholders will be able to purchase and sell their
shares in market transactions provided that a market develops and may incur a
brokerage cost on the sale of shares. However, shareholders will have the
opportunity to request redemption of their shares at net asset value during a
thirty-day period commencing on the fifth anniversary date of the Merger. Future
net asset value will likely differ from the net asset value shareholders would
receive if they redeemed shares prior to the Merger. As a closed-end investment
company, SST will have greater flexibility in utilizing its portfolio assets.
This versatility includes the ability to issue senior securities as permitted by
the 1940 Act, which will permit greater leveraging of the Fund's assets. There
is no assurance, however, that the use of such techniques will result in
increased performance by SST and as of the date hereof, SST has no intention of
issuing senior securities.
23
C. 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, 1997, ranged from approximately $345,000 (STGF) to
$972,000 (SAIF) to $1,646,000 (SIF) and $4,408,000 (SAF). By combining these
resources in a single fund and changing SST's primary investment objective from
capital appreciation to current income, the Trustees believe that the
shareholders will benefit from the greater resources available to enable a wider
range of investment and greater flexibility in managing this portfolio.
D. Federal Tax Aspects. The reverse stock split of SST will constitute a
recapitalization of SST, but the Merger will not qualify as a tax-deferred
reorganization for federal income tax purposes. SST and its shareholders will
not recognize gain or loss as a result of the exchange of SST shares for SST
shares in the reverse stock split. The Merger transaction will be treated for
federal income tax purposes as if SAIF, SIF and STGF had transferred all of
their assets to SST in a taxable transaction, had recognized all of the
built-in gains and losses on those assets, and had distributed SST shares to
their respective shareholders in liquidation. The Trustees believe that the
capital loss and net operating loss carryovers of SAIF, SIF and STGF will be
sufficient to offset any net gain of those entities recognized in the Merger.
The loss carryforwards of SAIF, SIF and STGF not utilized in the Merger will
expire, but SST, as the surviving single entity, will be able to utilize its
separate tax loss carryforwards after the Merger. Based upon the past
performance of the Funds, there is little likelihood that SST will be able to
utilize these tax benefits. SST and its shareholders will not recognize any
gain or loss as a result of the deemed asset sale and liquidation. The
shareholders of SAIF, SIF and STGF will be deemed to have exchanged their
SAIF, SIF and STGF shares for SST shares in a taxable transaction. Such
shareholders will recognize gain or loss equal to the difference between
their individual tax bases for the SAIF, SIF and STGF shares surrendered and
the fair market value of 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
and shareholders are encouraged to consult their own tax advisor.
Based upon the foregoing considerations, the Trustees of each of the Funds,
including the Independent Trustees, unanimously approved the Merger and the
change of SST from an open-end investment company to a closed-end investment
company. They determined that the Merger is in the best interests of each of the
Funds and their shareholders. The Trustees further determined that the Merger
would not result in dilution of any shareholders' interest, and that by the
Merger, an increase in the asset base of SST should benefit the shareholders
because of the economies of scale available to a larger fund.
TAX ASPECTS OF THE MERGER
The following discussion summarizes certain of the material federal income
tax consequences of the Merger. It is intended to provide only a general summary
and does not include a complete
24
analysis of all potential federal income tax consequences or consequences
that are contingent upon individual circumstances, such as the taxpayer being
subject to certain special provisions of the Internal Revenue Code of 1986,
as amended (the "Code"). This discussion does not address any aspects of
state, local, or foreign tax laws or any federal tax laws other than those
pertaining to income tax.
None of the Funds has requested a ruling from the Internal Revenue Service
(the "Service") with respect to any of the matters discussed in this summary. It
is unlikely that the Service would be willing to issue a ruling regarding the
Merger. However, the Funds have received an opinion letter from Manatt, Phelps &
Phillips, LLP, as "Tax Counsel" regarding certain material federal income tax
consequences of the Merger. This summary, however, is not an opinion of Tax
Counsel or tax advice and does not in any way constitute an assurance that the
federal income tax consequences discussed herein will be accepted by the Service
or the courts.
The opinion of Tax Counsel provides that the reverse stock split of SST will
constitute a recapitalization of SST, but the Merger will not qualify as a
tax-deferred reorganization for federal income tax purposes. SST and its
shareholders will not recognize gain or loss as a result of the exchange of SST
shares for SST shares in the reverse stock split. The Merger 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. If the former holders of SAF represent less than
50% of the total ownership interests of SST after the Merger, the amount of the
above losses that may be used by SST in any one year will be limited. In
addition, other transactions subsequent to the Merger could result in a change
in ownership of SST (combined with the change resulting from the Merger) that
causes the loss limitation rules to apply. Whether any future events will cause
imposition of a restriction in tax loss utilization for SST cannot be predicted
at this point. Based on certain representations to Tax Counsel, the Merger
itself will not constitute an "ownership change" for SST within the meaning of
Section 382 of the Code.
The foregoing discussion of the expected federal income tax consequences of
the Merger and the opinion of Tax Counsel are based on current authorities. The
opinion of Tax Counsel has no binding effect or official status, and no
assurance can be given that the conclusions reached in the opinion would be
sustained by a court if contested by the Service. There is no assurance that
legislative or administrative changes or court decisions may not be forthcoming
that would significantly change these expected consequences. Any such changes
may or may not be retroactive
25
with respect to transactions prior to the date of those changes. The opinion
of Tax Counsel is also based on certain factual assumptions and factual
representations to Tax Counsel by the Funds. The opinion of Tax Counsel could
change if such assumptions and representations proved to be inaccurate.
THE SUMMARY FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY. IT DOES NOT CONSTITUTE TAX ADVICE OR AN OPINION OF TAX
COUNSEL. EACH SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE
SPECIFIC TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT AND THE MERGER APPLICABLE
TO HIM OR HER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND
OTHER TAX LAWS.
CAPITALIZATION TABLE (UNAUDITED)
The table below sets forth the capitalization of the Funds and indicates the
pro forma combined capitalization of SST as of June 30, 1997 as if the Merger
had occurred on that date, the reverse split of ten for one had taken place, and
all shares held by the Shareholder States had been redeemed.
SHARES SHARES
OUTSTANDING OUTSTANDING NET ASSET NET BOOK
BEFORE AFTER VALUE VALUE
NET ASSETS MERGER MERGER PER SHARE AFTER MERGER
---------- ----------- ----------- ----------- -------------
SAIF............................................ $ 972,201 1,346,814 99,814 $ 0.72 --
SAF............................................. 4,408,088 5,768,038 515,935 0.76 --
SIF............................................. 1,646,009 1,928,493 181,370 0.85 --
STGF............................................ 344,784 510,385 37,776 0.68 --
SST Pro Forma................................... 6,280,514 -- 834,895 7.52 $ 7.52
COMPARATIVE FEE TABLES
TRANSACTION CHARGES
Because each Fund is a no-load fund, shareholders are not required to pay
any sales charges or other fees in connection with the purchase of shares in any
of the Funds. Moreover, because there is no current Prospectus available for
SAIF, SIF or STGF, shares in these funds have not been offered or sold to the
public since May, 1988. Shares of SAF were available for purchase under a
Prospectus dated January 1, 1996 through October 31, 1996. It is expected that
shares of SST will be traded on the Chicago Stock Exchange, if SST's shares are
accepted for listing, or in the over-the-counter market; however, there can be
no assurance that a market will develop for shares of SST. Management has been
unable to locate a broker-dealer that will agree to make a market in SST shares.
If shares of SST are trade, shares may be purchased or sold in normal brokerage
26
transactions with appropriate brokerage and other fees charged in connection
with such transactions.
EXPENSES OF THE FUNDS; PRO FORMA PROJECTED OPERATING EXPENSES
The Funds each pay a variety of expenses directly for management of their
assets, administration, distribution of their shares and other services; and
those expenses are reflected in the net asset value per share of each Fund.
The following calculations are based on the expenses of each Fund for the 12
months ended June 30, 1997. These amounts are shown as a percentage of the
average net assets of each Fund for such periods.
Pro Forma Fee Table for Shareholders
of SAIF, SAF, SIF and STGF
as of June 30, 1997 (Unaudited)
PRO
FORMA
FOR
SAIF SAF SIF STGF SST
---------- ---------- ---------- ---------- ------------
Shareholder Transaction Expenses................... -0- -0- -0- -0- -0-
Investment Advisory Fees........................... 1.00% 1.00% 1.00% 1.00% 1.00%
Custodian Fees..................................... 0.19% 0.14% 0.12% 0.32% 0.06%
Miscellaneous...................................... 30.25% 11.04% 14.69% 40.52% 14.83%
Annual Fund Operating Expenses (as a percentage of
average net assets at June 30, 1997) (1)......... 31.44% 12.18% 15.81% 41.84% 15.89%
Merger Expenses.................................... $ 38,605 $ 60,668 $ 14,075 $ 179,211 $ 392,559
---------- ---------- ---------- ---------- ------------
---------- ---------- ---------- ---------- ------------
Total Annual Operating Expenses (1)................ $ 329,294 $ 549,338 $ 268,716 $ 174,729 $ 1,076,794
---------- ---------- ---------- ---------- ------------
---------- ---------- ---------- ---------- ------------
- ------------------------
(1) Including expenses relating to the Merger.
Based on management's analysis, the Trustees believe that the principal
aggregate operating expenses of the four Funds, which totaled approximately
$1,322,000 for the year ended June 30, 1997, would have been reduced by $684,235
to about $637,765 if the Merger had taken place on that date (excluding expenses
related to the Merger). The pro forma statement of SST is based on the following
assumptions: (1) assets of SST post-Merger are $6.3 million due to (a)
Shareholder States, which currently hold approximately $1.0 million of shares,
redeeming all shares then held and (b) the payment of cash in lieu of fractional
shares as a result of the 10 for 1 reverse stock split and no other shareholders
receiving cash in lieu of fractional shares resulting in a total reduction in
assets of SST of $40,000; (2) no other shareholders redeem their shares prior to
the Merger; (3) SSC has agreed to reduce shareholder servicing fees, which
include record management and transfer services, from $16.20 per account to
$10.00 per account, annually, or from an aggregate pre-Merger total of $302,006
to a post-Merger total of $186,423, resulting in annual savings of $115,583; (5)
salaries and employment benefits will be reduced from an aggregate pre-Merger
total of $338,099 to a post-Merger total of $275,000,
27
resulting in savings of $63,099 because fewer employees will be needed after
the Merger; (6) professional fees (not including professional fees incurred
as a result of the Merger) were reduced from an aggregate pre-Merger total of
$114,715 to a post-Merger total of $30,000 based upon anticipated needs for
accounting, legal, and other professional services, resulting in savings of
$84,715; (7) the expense of preparing, printing, and mailing reports to
shareholders (including annual reports and semi-annual reports) will be
reduced from a pre-Merger total of $33,167 to a post-Merger total $8,000,
resulting in savings of $25,167 due to the reduction in the number of
shareholder accounts; (7) the expense for computer services, including
outside data processing services, will be reduced from an aggregate
pre-Merger total of $44,630 to a post-Merger total of $16,000 resulting in a
savings of $28,630 due to the decrease in the number of shareholder accounts
and the absence of a need to calculate net asset value on a daily basis; (8)
rental expense, which is reimbursed to SSC, will be reduced from an aggregate
pre-Merger total of $53,039 to a post-Merger total of $25,000, resulting in a
savings of $28,039 due to SSC agreeing to seek less reimbursement from SST
for rent expense; (9) trustees' fees and expenses will be reduced from an
aggregate pre-Merger total of $22,276 to a post-Merger total of $15,000
resulting in savings of $7,276 due to the fact that there will be one fund
instead of four paying trustees' fees; and (10) custodian's fees, which are
based both on the size of the fund and the number of transactions engaged in
by the fund, will be reduced from an aggregate pre-Merger total of $11,774 to
a post-Merger total of $4,000, resulting in savings of $7,774, due to an
agreement with the custodian to reduce the percentage the custodian will
charge based on the size of the SST after the Merger and the reduction in the
size of SST after the Merger due to the redemption by the Shareholder States
and the payment of cash in lieu of fractional shares following the 10 for 1
reverse stock split. In addition, an additional expense of $15,000 was added
as the estimated cost for listing SST's shares on the Chicago Stock Exchange,
subject to compliance with the listing requirements. Accordingly, the
foregoing $345,283 of adjustments to total annual operating expenses, which
do not include additional expenses related to the Merger, contributed to the
pro forma result for the combined entity as of June 30, 1997.
There can be no assurance that reductions in expenses outlined above will be
fully realized or will result in profitable operations for SST. Furthermore, due
to the size of SST after the Merger and the portfolio income anticipated to be
generated by SST after the Merger, it is anticipated that SST will have to rely
upon capital appreciation of its portfolio securities to be profitable. There is
no assurance that the portfolio securities will have capital appreciation in a
sufficient amount to offset any operating losses, if the portfolio securities
have any capital appreciation at all.
28
EXAMPLE
To attempt to show the effect of these expenses on an investment over time,
the example shown below has been created. Assume that you make a $1,000
investment in any of the Funds or in the new merged fund and that the annual
return on Fund investments is 5% and that the operating expenses for each Fund
are the ones shown in the chart above for the 12 months ended June 30, 1997. If
you were to continue to hold your shares at the end of each period shown below,
your investment would incur the following expenses by the end of each period
shown:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------
SAIF......................................................................... $ 273 $ 621 $ 810 $ 984
SAF.......................................................................... 117 386 524 888
SIF.......................................................................... 150 402 603 943
STGF......................................................................... 341 693 833 917
Pro Forma SST................................................................ 141 383 579 925
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial statements give effect to the
Merger in a transaction which will be accounted for as a pooling of interests.
The unaudited pro forma statement of assets and liabilities and the pro forma
portfolio of investments are based on the individual balance sheets and
portfolios of investments of SAIF, SIF, STGF and SST (formerly SAF) appearing
elsewhere in this Registration Statement and has been prepared to reflect the
Merger as of June 30, 1997. The unaudited pro forma statements of operations and
statements of changes in net assets is based on the individual statements of
operations and statements of net assets of SAIF, SIF, STGF and SST, appearing
elsewhere in this Registration Statement, and combines the results of operations
and changes in net assets of SAIF, SIF, STGF and SST for the for the years ended
June 30, 1997 and 1996, as if the Merger had occurred at the beginning of each
respective period. The unaudited pro forma financial statements for 1996 should
be read in conjunction with the historical financial statements and notes
thereto of SAIF, SIF, STGF and SST included elsewhere in this Registration
Statement. The pro forma combined financial data is intended for informational
purposes only and is not necessarily indicative of the financial position,
portfolio of investments, or future results of operations and changes in net
assets of the combined entity or of the financial position or the results of
operations and changes in net assets of the combined entity that would have
actually occurred had the Merger been in effect as of the date or for the
periods presented.
29
SURVIVING ENTITY
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997
(UNAUDITED)
PRO FORMA
SAIF SIF STGF SAF ADJUSTMENTS COMBINED
----------- ----------- ----------- ----------- ---------------- ----------
ASSETS
Investments in
securities, at
value--(cost:
$5,175,513)..... $ 955,375 $ 1,554,164 $ 343,375 $ 4,255,244 $ (548,100)(3j) $6,560,058
Cash and cash
equivalents..... 71,008 140,023 36,627 236,975 (40,000)(2) 42,163
548,100(3j)
(950,569)(3k)
Interest and
dividends
receivable...... 769 788 146 560 2,263
----------- ----------- ----------- ----------- ---------------- ----------
Total
assets...... $ 1,027,151 $ 1,694,974 $ 380,148 $ 4,492,779 $ (990,569) $6,280,514
----------- ----------- ----------- ----------- ---------------- ----------
LIABILITIES
Accounts payable
and accrued
expenses........ $ 54,950 $ 48,965 $ 35,364 $ 84,691 $ 100,000(3m) $ 323,970
Investment
advisory and
service fee
payable......... -- -- -- -- --
Other payable to
affiliate....... -- -- -- -- --
----------- ----------- ----------- ----------- ---------------- ----------
Total
liabilities... $ 54,950 $ 48,965 $ 35,364 $ 84,691 100,000 $ 323,970
----------- ----------- ----------- ----------- ---------------- ----------
NET ASSETS.......... $ 972,201 $ 1,646,009 $ 344,784 $ 4,408,088 $ (1,090,569) $6,280,514
----------- ----------- ----------- ----------- ---------------- ----------
----------- ----------- ----------- ----------- ---------------- ----------
NET ASSETS
Net assets consist
of:
Accumulated net
investment
loss............ $(4,224,215) $(1,930,939) $(2,836,044) $(5,168,868) $ 14,160,066(3l) --
(100,000)(3m)
Unrealized
appreciation of
investments..... 319,814 362,642 87,362 1,161,577 (1,931,395)(3l) --
Accumulated net
realized
losses.......... (951,213) (574,661) (390,993) (821,035) 2,737,901(3l) --
Capital paid in
less
distributions
since
inception....... 5,827,815 3,788,967 3,484,458 9,236,413 ($40,000)(2) --
(950,569)(3k)
(21,347,084)(3j)
Capital
stock--$0.001
par value; total
authorized
shares-unlimited;
834,895 shares
issued and
outstanding..... -- -- -- -- 6,280,514(3l) 6,280,514
----------- ----------- ----------- ----------- ---------------- ----------
Net assets.... $ 972,201 $ 1,646,009 $ 344,784 $ 4,408,088 $ (1,090,569) $6,280,514
----------- ----------- ----------- ----------- ---------------- ----------
----------- ----------- ----------- ----------- ---------------- ----------
NET ASSET VALUE PER
SHARE............. $ 0.72 $ 0.85 $ 0.68 $ 0.76 $ 7.52
----------- ----------- ----------- ----------- ----------
----------- ----------- ----------- ----------- ----------
SHARES
OUTSTANDING....... 1,346,814 1,928,493 510,386 5,768,038 (4,933,143)(2) 834,895
----------- ----------- ----------- ----------- ---------------- ----------
----------- ----------- ----------- ----------- ---------------- ----------
See Notes To Pro Forma Financial Statements
30
SURVIVING ENTITY
PRO FORMA PORTFOLIO OF INVESTMENTS
JUNE 30, 1997
(UNAUDITED)
COMBINED TOTAL ADJUSTMENTS PRO FORMA COMBINED
------------------- ------------------------------ -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------- ---------- ---------- ------------- ------- ----------
COMMON STOCK--99.91%
Computer Communications
Equip.--4.25%
Cisco Systems (a)........... 4,500 $ 302,063 4,500 $ 302,063
Computer and Office
Equipment--4.02%
Champion Technology Holding
Ltd. (a).................. 100,000 62,000 100,000 62,000
Hewlett Packard............. 4,000 224,000 4,000 224,000
Electronic Computers--11.50%
Gateway 2000 (a)............ 8,000 259,500 8,000 259,500
Sun Microsystems (a)........ 15,000 558,270 15,000 558,270
Computer Storage
Devices--20.61%
Microsoft Corporation (a)... 9,000 1,137,375 9,000 1,137,375
Oracle Corporation (a)...... 6,500 327,438 6,500 327,438
Aircraft--4.85%
Boeing Corporation.......... 6,500 344,906 6,500 344,906
Motor Vehicles and Car
Bodies--9.62%
Ford Motors................. 10,000 377,500 10,000 377,500
General Motors Class "H'.... 5,300 306,075 5,300 306,075
Real Estate Investment
Trusts--0.87%
Capstead Mortgage........... 2,500 61,719 2,500 61,719
Semi-Conductor and Related
Devices--23.37%
Intel Corp. Warrants (a).... 14,000 1,421,000 (5,400)(3j) $ (548,100)(3j) 8,600 872,900
LSI Logic (a)............... 7,500 240,000 7,500 240,000
Telephone
Communications--17.23%
Lucent Technology........... 7,000 504,438 7,000 504,438
Worldcom Inc. (a)........... 22,500 720,000 22,500 720,000
Telephone and Telegraph
Apparatus--3.59%
Xylan Corporation (a)....... 15,000 255,000 15,000 255,000
------- ---------- ------- ------------ -------- ---------
Total Common Stocks
(Cost $5,112,487)...... 237,300 7,101,284 (5,400) (548,100) 231,900 6,553,184
------- ---------- ------- ------------ -------- ---------
CALL OPTIONS
PURCHASED--0.09%
LSI Logic, 4/11/97............ 2,500 4,688 2,500 4,688
Seagate Technology, 2/11/97... 5,000 2,186 5,000 2,186
------- ---------- ------- ------------ -------- ---------
Total Call Options
Purchased (Cost
$63,025)............... 7,500 6,874 7,500 6,874
------- ---------- ------- ------------ -------- ---------
Total Portfolio of Investments
(Cost $5,175,512)........... 244,800 $7,108,158 (5,400) $ (548,100) 239,400 $6,560,058
------- ---------- ---------- ------------- ------- ----------
------- ---------- ---------- ------------- ------- ----------
(a) Non-income producing security.
See Notes To Pro Forma Financial Statements
31
SURVIVING ENTITY
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
JUNE 30, 1997
(UNAUDITED)
PRO FORMA
SAIF SIF STGF SAF ADJUSTMENTS COMBINED
---------- ----------- ----------- ---------- ----------- ------------
INVESTMENT INCOME
Dividends............................ $ 20,974 $ 5,670 $ 5,957 $ 12,759 $ 45,360
Interest............................. 3,117 7,447 2,826 14,647 28,036
---------- ----------- ----------- ---------- ----------- ------------
TOTAL INCOME....................... $ 24,090 $ 13,117 $ 8,783 $ 27,405 -- $ 73,396
---------- ----------- ----------- ---------- ----------- ------------
EXPENSES
Shareholder servicing fee............ $ 149,345 $ 47,647 $ 68,155 $ 36,859 $(115,583)(3a) $ 186,423
Salaries and employee benefits....... 53,181 76,653 30,124 178,141 (63,099)(3b) 275,000
Professional fees.................... 38,211 26,956 29,169 20,379 (84,715)(3c) 30,000
Reports to shareholders.............. 11,909 6,169 8,271 6,818 (25,167)(3d) 8,000
Computer services.................... 8,322 8,662 7,882 19,764 (28,630)(3e) 16,000
Investment advisory fee.............. 10,521 17,117 4,109 45,410 77,157
Rent................................. 7,244 11,734 2,804 31,257 (28,039)(3f) 25,000
Trustees' fees and expenses.......... 5,944 5,744 5,744 4,844 (7,276)(3g) 15,000
Custodian fees....................... 1,966 2,050 1,322 6,447 (7,774)(3h) 4,000
Exchange fees........................ -- -- -- -- 15,000 (3i) 15,000
Merger expenses...................... 38,605 60,668 14,075 179,211 100,000 (3m) 392,559
Miscellaneous........................ 4,057 5,316 3,074 20,208 32,655
---------- ----------- ----------- ---------- ----------- ------------
TOTAL EXPENSES..................... $ 329,294 $ 268,716 $ 174,729 $ 549,338 $(245,283) $ 1,076,794
---------- ----------- ----------- ---------- ----------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized (loss) gain from
investment transactions............ $ 8,916 $ (185,331) $ (54,880) $ 306,022 $ 74,728
Change in unrealized
appreciation/(depreciation) of
investment......................... 300,735 418,152 38,748 683,263 1,400,000
---------- ----------- ----------- ---------- ----------- ------------
NET GAIN ON INVESTMENTS............ 309,651 232,821 (16,132) 949,285 -- 1,475,000
---------- ----------- ----------- ---------- ----------- ------------
Net increase (decrease) in net assets
resulting from operations.......... $ 4,447 $ (22,778) $ (182,078) $ 427,352 $ 245,283 $ 472,228
---------- ----------- ----------- ---------- ----------- ------------
---------- ----------- ----------- ---------- ----------- ------------
See Notes To Pro Forma Financial Statements
32
SURVIVING ENTITY
PRO FORMA STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
JUNE 30, 1997
(UNAUDITED)
PRO FORMA
SAIF SIF STGF SAF ADJUSTMENTS COMBINED
----------- ------------ ----------- ------------ ----------- -------------
Increase (decrease) in net assets
from operations
Net investment loss.............. $ (305,204) $ (255,599) $ (165,946) $ (521,933) $ 245,283(3) $ (1,003,398)
Net realized gain (loss) from
investment transactions........ 8,916 (185,331) (54,880) 306,022 74,728
Change in unrealized
(depreciation) appreciation.... 300,735 418,152 38,748 643,263 1,400,898
----------- ------------ ----------- ------------ ----------- -------------
Net increase (decrease) in net
assets resulting from
operations..................... 4,447 (22,778) (182,078) 427,352 245,283 472,228
Decrease in net assets from trust
share transactions............... (40,054) (94,680) (15,546) (600,756) (990,569)(2)(3k) (1,741,605)
----------- ------------ ----------- ------------ ----------- -------------
Net decrease in net assets......... (35,607) (117,458) (197,624) (173,404) (745,286) (1,269,377)
Net assets of beginning of
period........................... 1,007,808 1,763,467 542,407 4,581,491 7,895,173
----------- ------------ ----------- ------------ ----------- -------------
Net assets at end of period........ $ 972,201 $ 1,646,009 $ 344,784 $ 4,408,088 $(745,286) $ 6,625,798
----------- ------------ ----------- ------------ ----------- -------------
----------- ------------ ----------- ------------ ----------- -------------
See Notes To Pro Forma Financial Statements
33
SURVIVING ENTITY
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
JUNE 30, 1996
(UNAUDITED)
PRO FORMA
SAIF SIF STGF SAF ADJUSTMENTS COMBINED
----------- ----------- ----------- ----------- ----------- ------------
INVESTMENT INCOME
Dividends........................... $ 1,270 $ 1,530 $ 855 $ 23,904 $ 27,559
Interest............................ 4,979 112,558 1,979 10,242 129,758
----------- ----------- ----------- ----------- ----------- ----------
TOTAL INCOME...................... $ 6,249 $ 114,088 $ 2,834 $ 34,146 $ 157,317
----------- ----------- ----------- ----------- ----------- ----------
EXPENSES
Shareholder servicing fee........... $ 160,315 $ 50,666 $ 72,446 $ 41,214 $(124,245)(4a) $ 200,396
Salaries and employee benefits...... 55,920 84,139 37,679 184,729 (87,467)(4b) 275,000
Professional fees................... 26,297 30,275 27,222 56,679 (110,473)(4c) 30,000
Reports to shareholders............. 10,841 5,149 7,472 6,383 (21,845)(4d) 8,000
Computer services................... 6,589 7,943 7,225 8,713 (14,470)(4e) 16,000
Investment advisory fee............. 12,209 21,259 6,870 51,706 92,044
Rent................................ 7,548 13,163 4,260 32,281 (32,252)(4f) 25,000
Trustees' fees and expenses......... 6,998 3,528 3,528 5,328 (4,382)(4g) 15,000
Custodian fees...................... 3,225 400 1,838 11,186 (12,649)(4h) 4,000
Exchange fees....................... 7,000 (4i) 7,000
Merger expenses..................... 392,559 392,559
Miscellaneous....................... 10,512 8,671 7,156 24,289 50,628
----------- ----------- ----------- ----------- ----------- ----------
TOTAL EXPENSES.................... $ 300,454 $ 225,193 $ 175,696 $ 422,508 $ (8,224) $1,115,627
----------- ----------- ----------- ----------- ----------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) from
investment transactions........... $ 73,821 $ 47,825 $ (129,743) $ 517,110 $ 509,013
Change in unrealized (depreciation)
appreciation of investment........ (10,496) (271,135) 84,018 (352,459) (550,072)
----------- ----------- ----------- ----------- ----------- ------------
NET GAIN (LOSS) ON INVESTMENTS.... 63,325 (223,310) (45,725) 164,651 -- (41,059)
----------- ----------- ----------- ----------- ----------- ------------
Net (decrease) in net assets resulting
from operations..................... $ (230,880) $ (334,415) $ (218,587) $ (223,711) $ 8,224 ($ 999,369)
----------- ----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ----------- ------------
See Notes To Pro Forma Financial Statements
34
SURVIVING ENTITY
PRO FORMA STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
JUNE 30, 1996
(UNAUDITED)
PRO FORMA
SAIF SIF STGF SAF ADJUSTMENTS COMBINED
------------ ------------ ----------- ------------- ----------- ---------------
Decrease in net assets from
operations................... $ (294,205) $ (111,105) $ (172,862) $ (388,362) $ 8,224(4) $ (958,310)
Net investment loss.......... 73,821 47,825 (129,743) 517,110 509,013
Net realized gain (loss) from
investment transactions.... (10,496) (271,135) 84,018 (352,459) (550,072)
------------ ------------ ----------- ------------- ----------- ----------
Change in unrealized
(depreciation) appreciation
Net (decrease) increase in
net assets resulting from
operations................. (230,880) (334,415) (218,587) (223,711) 8,224 (999,369)
Decrease in net assets from
trust share transactions..... (102,199) (200,097) (37,546) (929,919) (990,569)(2)(4k) (2,260,330)
------------ ------------ ----------- ------------- ----------- ----------
Net decrease in net assets..... (333,079) (534,512) (256,133) (1,153,630) (982,344) (3,259,698)
Net assets of beginning of
period....................... 1,340,887 2,297,979 798,540 5,735,121 10,172,527
------------ ------------ ----------- ------------- ----------- ----------
Net assets at end of
period..................... $ 1,007,808 $ 1,763,467 $ 542,407 $ 4,581,491 $(982,344) $ 6,912,831
------------ ------------ ----------- ------------- ----------- ----------
------------ ------------ ----------- ------------- ----------- ----------
See Notes To Pro Forma Financial Statements
35
SURVIVING ENTITY
JUNE 30, 1997 AND JUNE 30, 1996
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited pro forma combined financial statements assume consummation of
the transaction described in this Registration Statement and, except as
described in Notes 3 and 4 hereto, no SAIF, SIF, STGF and SST (formerly SAF)
shares are redeemed.
The following unaudited pro forma financial statements give effect to the
Merger in a transaction which will be accounted for as a pooling of interests.
The unaudited pro forma statement of assets and liabilities and pro forma
portfolio of investments are based on the individual balance sheets and
portfolios of investments of SAIF, SIF, STGF and SST appearing elsewhere in this
Registration Statement and has been prepared to reflect the Merger as of June
30, 1997. The unaudited pro forma statements of operations and statements of
changes in net assets is based on the individual statements of operations and
statements of net assets of SAIF, SIF, STGF and SST, appearing elsewhere in this
Registration Statement, and combines the results of operations and changes in
net assets of SAIF, SIF, STGF and SST for the years ended June 30, 1997 and
1996, as if the merger had occurred at the beginning of each respective period.
The unaudited pro forma financial statements for 1996 should be read in
conjunction with the historical financial statements and notes thereto of SAIF,
SIF, STGF and SST included elsewhere in this Registration Statement. The pro
forma combined financial data is intended for informational purposes only and is
not necessarily indicative of the financial position, portfolio of investments,
or future results of operations and changes in net assets of the combined entity
that would have actually occurred had the merger been in effect as of the date
or for the periods presented.
2. SST REVERSE STOCK SPLIT
Immediately prior the merger SST will declare a reverse stock split of ten
shares to one share, so that each ten outstanding shares of SST will become one
share of SST (5,932,375 divided by 10 equals 593,238). Shareholders owning a
number of shares not equally divisible by 10 will receive cash in lieu of
fractional shares.
Shareholders of the merging funds (SAIF, SIF, and STGF) will be issued
shares of SST on a pro rata basis in exchange for their shares.
36
SURVIVING ENTITY
JUNE 30, 1997 AND JUNE 30, 1996
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
3. ADJUSTMENTS TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
AS OF JUNE 30, 1997 AND FOR THE YEAR THEN ENDED
(a) To record reduction in transfer agent fees from $16.20 per account annually to $10
per account annually.
(b) To record reduction in salaries and benefits to $275,000 annually.
(c) To record reduction in professional fees to $30,000 annually.
(d) To record reduction in reports to shareholders to $8,000 annually.
(e) To record reduction in computer services fees to $16,000 annually.
(f) To record reduction in rent to $25,000 annually.
(g) To record reduction in trustees fees and expenses to $15,000 annually.
(h) To record reduction in custodian fees to $4,000 annually.
(i) To record exchange fees expense of $15,000 annually.
(j) To record sale of investments to meet cash requirement to affect redemption.
(k) To record redemption of shares by Shareholder States.
(l) To record reclassification of equity accounts to affect conversion from open ended
funds to a closed end fund.
(m) To record estimated merger costs to be incurred.
4. ADJUSTMENTS TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
AS OF JUNE 30, 1996 AND FOR THE YEAR THEN ENDED
(a) To record reduction in transfer agent fees from $16.20 per account annually to $10
per account annually.
(b) To record reduction in salaries and benefits to $275,000 annually.
(c) To record reduction in professional fees to $30,000 annually.
(d) To record reduction in reports to shareholders to $8,000 annually.
(e) To record reduction in computer services fees to $16,000 annually.
(f) To record reduction in rent to $25,000 annually.
(g) To record reduction in trustees fees and expenses to $15,000 annually.
(h) To record reduction in custodian fees to $4,000 annually.
(i) To record exchange fees expense of $7,000 annually.
(j) To record estimated merger costs to be incurred.
(k) To record redemption of shares by Shareholder States.
5. REDEMPTION OF SHARES BY SHAREHOLDER STATES
In connection with the Funds agreement to allow for the redemption of shares
owned by the Shareholder States, the Funds anticipate the following redemptions
prior to the Merger: SAIF -290,000 shares; SIF--305,000 shares; STGF--83,000
shares; and SAF--1,234,000 shares.
37
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, the
new investment objective of SST will be to seek current income as its principal
investment objective and secondarily to maximize the total return, but only to
the extent consistent with its primary objective.
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.
38
- Corporate bonds and debentures of all kinds; and debt securities issued or
guaranteed by the U.S. government of its agencies or instrumentalities
("U.S. government securities").
- Money market instruments (commercial paper, bank certificates of deposits,
and U.S. government securities).
In choosing portfolio investments, none of the Funds is restricted to any
particular criteria or quality standards except as expressly stated in this
Prospectus. With respect to equity investments, the investment advisor for
each Fund generally looks for issuers that show growth potential, based on
fundamental analysis of the relevant industries and the issuers' financial
position. In selecting debt instruments (other than short-term debt for
defensive purposes), the advisor considers interest rate movements and may
choose investment grade instruments the yield of which exceeds that of
short-term U.S. Treasury securities.
Each Fund has the flexibility to employ a broad range of investment
techniques, including but not limited to the purchase and sale of put and call
options (primarily for premium income but also for hedging purposes), investing
in foreign securities, transactions in repurchase agreements, investments in
government securities, investments in high yield bonds ("junk bonds"),
acquisition of restricted or illiquid securities, purchase and sale of real
estate and related loans, borrowing to increase investment funds, short sales,
and lending portfolio securities. For a discussion of the characteristics and
risks of these vehicles and techniques, please refer to the Statement of
Additional Information. Each Fund may invest in these instruments and use these
techniques without limit, except as expressly stated in the Statement of
Additional Information.
The effect of such techniques can produce portfolio turnover rates of 100%
or more. The portfolio turnover for the year ended June 30, 1996 was 339% for
SAIF, 382% for SIF, 333% for STGF and 231% for SST. High portfolio turnover
(100% or more) increases brokerage costs and increases the likelihood of
short-term gains and losses.
The investment objective of each Fund may be changed by its Board of
Trustees without shareholder approval.
CONDENSED FINANCIAL INFORMATION
OF THE FUNDS
The following financial highlights of each of the Funds for the year ended
June 30, 1996 and the nine previous years have been audited and have been
derived from the audited financial statements of the Funds, which were audited
by Coopers & Lybrand L.L.P., independent certified public accountants, whose
reports thereon are included with each Fund's Form N-SAR filings, and are
available to shareholders upon request.
39
FINANCIAL HIGHLIGHTS
SAIF
FOR THE PERIOD
UNAUDITED FEBRUARY 1,
NINE MONTHS ENDED FOR THE YEAR 1995
ENDED THROUGH JUNE
MARCH 31, JUNE 30, 30,
-------------------- ------------- ---------------
1997 1996 1996 1995*
--------- --------- ------------- ---------------
Per Share Operating Performance:
Net asset value, beginning of period.......................... $ 0.72 $ 0.88 $ 0.88 $ 0.96
Net investment income (loss).................................. (.16) (.20) (.41) (.12)
Net realized and unrealized gain (loss) on investments........ .18 .10 .25 .04
--------- --------- ------ ---------------
Total from investment operations.............................. .02 (.10) (.16) (.08)
Dividends and distributions paid:
From net realized gain........................................ -- -- -- --
From net investment income.................................... -- -- -- --
From capital.................................................. -- -- -- --
--------- --------- ------ ---------------
Total distributions........................................... -- -- -- --
--------- --------- ------ ---------------
Net asset value, end of period.................................. $ 0.74 $ 0.78 $ 0.72 $ 0.88
--------- --------- ------ ---------------
--------- --------- ------ ---------------
Ratio/Supplemental Data: Total return (1)..................... 4.17%** (14.77)%** (18.48)% (20.01)%**
Net Assets, end of period (in thousands).................... $ 1,005 $ 1,111 $ 1,008 $ 1,341
Ratio of expenses to average net assets......................... 30.98%** 27.32%** 24.61% 24.62%**
Ratio of net investment income (loss) to average net assets..... (28.40)%** (26.89)%** (24.10)% (22.86)%**
Portfolio turnover............................................ 149%** 343%** 339% 617%**
FOR THE YEARS ENDED JANUARY 31,
--------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989
------- -------- -------- --------- --------- --------- ---------
Per Share Operating Performance:
Net asset value, beginning of period...................... $1.65 $ 1.50 $ 1.54 $ 1.59 $ 1.94 $ 2.21 $ 2.24
Net investment income (loss).............................. (.26) (.24) (.19) (.20) (.19) (.19) (.11)
Net realized and unrealized gain (loss) on investments.... (.43) .39 .15 .15 (.16) (.08) .08
------- -------- -------- --------- --------- --------- ---------
Total from investment operations.......................... (.69) .15 (.04) (.05) (.35) (.27) (.03)
Dividends and distributions paid:
From net realized gain.................................... -- -- -- -- -- -- --
From net investment income................................ -- -- -- -- -- -- --
From capital.............................................. -- -- -- -- -- -- --
------- -------- -------- --------- --------- --------- ---------
Total distributions....................................... -- -- -- -- -- -- --
------- -------- -------- --------- --------- --------- ---------
Net asset value, end of period.............................. $0.96 $ 1.65 $ 1.50 $ 1.54 $ 1.59 $ 1.94 $ 2.21
------- -------- -------- --------- --------- --------- ---------
------- -------- -------- --------- --------- --------- ---------
Ratio/Supplemental Data: Total return (1).................(41.82)% 10.00% (2.60)% (3.14)% (18.04)% (12.22)% (1.34)%
Net Assets, end of period (in thousands)................$1,472 $ 2,627 $ 2,496 $ 2,648 $ 2,844 $ 3,691 $ 4,563
Ratio of expenses to average net assets..................... 17.69% 12.66% 14.83% 15.13% 13.75% 12.74% 9.37%
Ratio of net investment income (loss) to average net assets.(15.63) (11.40)% (13.52)% (13.13)% (10.25%) (8.75)% (4.84)%
Portfolio turnover........................................ 289% 134% 221% 460% 211% 258% 121%
1988 1987
--------- ---------
Per Share Operating Performance:
Net asset value, beginning of period.......................... $ 2.68 $ 2.89
Net investment income (loss).................................. (.12) (.14)
Net realized and unrealized gain (loss) on investments........ (.32) (.07)
--------- ---------
Total from investment operations.............................. (.44) (.21)
Dividends and distributions paid:
From net realized gain........................................ -- --
From net investment income.................................... -- --
From capital.................................................. -- --
--------- ---------
Total distributions........................................... -- --
--------- ---------
Net asset value, end of period.................................. $ 2.24 $ 2.68
--------- ---------
--------- ---------
Ratio/Supplemental Data: Total return (1)..................... (16.42)% (7.27)%
Net Assets, end of period (in thousands).................... $ 4,943 $ 6,480
Ratio of expenses to average net assets......................... 7.00% 6.26%
Ratio of net investment income (loss) to average net assets..... (3.64)% (3.39)%
Portfolio turnover............................................ 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
40
FINANCIAL HIGHLIGHTS
SAF
UNAUDITED
NINE MONTHS ENDED FOR THE YEAR FOR THE PERIOD
ENDED OCTOBER 1, 1994
MARCH 31, JUNE 30, THROUGH JUNE 30,
-------------------- ------------- -----------------
1997 1996 1996 1995*
--------- --------- ------------- -----------------
Per Share Operating Performance:
Net asset value, beginning of period................... $ 0.70 $ 0.73 $ 0.73 $ 0.72
--------- --------- ------ ------
Net investment income (loss)........................... (.06) (.05) (.17) (.03)
Net realized and unrealized gain (loss) on investments .07 .14 .04
--------- --------- ------ ------
Total from investment operations....................... .01 (.05) (.03) .01
Dividends and distributions paid:
From net realized gain................................. -- -- -- --
From net investment income............................. -- -- -- --
From capital........................................... -- -- -- --
--------- --------- ------ ------
Total distributions.................................... -- -- -- --
--------- --------- ------ ------
Net asset value, end of period............................. $ 0.71 $ 0.68 $ 0.70 $ 0.73
--------- --------- ------ ------
--------- --------- ------ ------
Ratio/Supplemental Data: Total return (1).............. 1.43%** (9.59)%** (4.38)% 1.85%**
Net Assets, end of period (in thousands)............. $ 4,227 $ 4,609 $ 4,581 $ 5,735
Ratio of expenses to average net assets.................... 12.19%** 8.80%** 8.14% 8.17%**
Ratio of net investment income (loss) to average net
assets................................................... (11.64)%** (8.08)%** (7.48)% (7.23)%**
Portfolio turnover..................................... 214%** 250%** 231% 505%**
FOR THE YEARS ENDED SEPTEMBER 30,
----------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988
----- --------- --------- --------- --------- --------- --------
Per Share Operating Performance:
Net asset value, beginning of period...................$0.87 $ 0.64 $ 0.67 $ 0.57 $ 0.84 $ 0.60 $ 0.91
------ --------- ------- -------- -------- -------- --------
Net investment income (loss)........................... (.08) (.05) (.03) (.02) (.03) -- --
Net realized and unrealized gain (loss) on investments (.07) .28 -- (.12) (.24) .27 (.25)
------ --------- ------- -------- -------- -------- --------
Total from investment operations....................... (.15) .23 (.03) .10 (.27) .27 (.25)
Dividends and distributions paid:
From net realized gain................................. -- -- -- -- -- (.03) --
From net investment income............................. -- -- -- -- -- -- --
From capital........................................... -- -- -- -- -- -- (.06)
------ --------- ------- -------- -------- -------- --------
Total distributions.................................... -- -- -- -- -- (.03) (.06)
------ --------- ------- -------- -------- -------- --------
Net asset value, end of period.............................$0.72 $ 0.87 $ 0.64 $ 0.67 $ 0.57 $ 0.84 $ 0.60
------ --------- ------- -------- -------- -------- --------
------ --------- ------- -------- -------- -------- --------
Ratio/Supplemental Data: Total return (1).............(17.24)% 35.88% (4.47)% 17.51% (32.27)% 47.50% (27.86)%
Net Assets, end of period (in thousands)............$6,307 $ 8,844 $ 7,254 $ 8,539 $ 8,392 $ 16,035 $ 13,572
Ratio of expenses to average net assets.................... 7.76% 5.79% 6.92% 7.16% 6.08% 6.65% 4.10%
Ratio of net investment income (loss) to average net
assets...................................................(6.09)% (4.63)% (5.14)% (3.29)% (4.54)% (.24)% (.33)%
Portfolio turnover..................................... 241% 300% 301% 267% 86% 208% 367%
1987 1986
--------- ---------
Per Share Operating Performance:
Net asset value, beginning of period................... $ 0.85 $ 0.82
--------- ---------
Net investment income (loss)........................... .02 (.01)
Net realized and unrealized gain (loss) on investments .12 .11
--------- ---------
Total from investment operations....................... .14 .10
Dividends and distributions paid:
From net realized gain................................. (.06) (.07)
From net investment income............................. (.02) --
From capital........................................... -- --
--------- ---------
Total distributions.................................... (.08) (.07)
--------- ---------
Net asset value, end of period............................. $ 0.91 $ 0.85
--------- ---------
--------- ---------
Ratio/Supplemental Data: Total return (1).............. 15.83% 11.44%
Net Assets, end of period (in thousands)............. $ 20,662 $ 19,866
Ratio of expenses to average net assets.................... 3.06% 2.88%
Ratio of net investment income (loss) to average net
assets................................................... (2.13)% (0.82)%
Portfolio turnover..................................... 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
41
FINANCIAL HIGHLIGHTS
SIF
UNAUDITED FOR THE YEAR FOR THE PERIOD
NINE MONTHS ENDED ENDED JANUARY 1, 1995
MARCH 31, JUNE 30, THROUGH JUNE 30,
-------------------- ------------- -----------------
1997 1996 1996 1995*
--------- --------- ------------- -----------------
Per Share Operating Performance:
Net asset value, beginning of period........................ $ 0.86 $ 1.02 $ 1.02 $ 0.93
--------- --------- ------ -------
Net investment income (loss)................................ (.10) (.03) (.13) (.02)
Net realized and unrealized gain (loss) on investments...... .04 (.04) (.03) .11
--------- --------- ------ -------
Total from investment operations............................ (.06) (.07) (.16) .09
Dividends and distributions paid:
From net realized gain...................................... -- -- -- --
From net investment income.................................. -- -- -- --
From capital................................................ -- -- -- --
--------- --------- ------ -------
Total distributions............................................. -- -- -- --
--------- --------- ------ -------
Net asset value, end of period.................................. $ 0.80 $ 0.95 $ 0.86 $ 1.02
--------- --------- ------ -------
--------- --------- ------ -------
Ratio/Supplemental Data: Total return (1)................... (9.30)%** (8.82)%** (15.53)% 19.36%**
Net Assets, end of period (in thousands).................. $ 1,574 $ 1,990 $ 1,763 $ 2,298
Ratio of expenses to average net assets......................... 15.47%** 11.75%** 10.60% 10.54%**
Ratio of net investment income (loss) to average net assets..... (14.76)%** (4.91)%** (5.23)% (4.24)%**
Portfolio turnover.......................................... 146** 316%** 382% 226%**
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988
----- --------- --------- --------- --------- --------- ------
Per Share Operating Performance:
Net asset value, beginning of period........................$1.42 $ 1.38 $ 1.49 $ 1.12 $ 1.32 $ 1.22 $ 1.32
----- --------- --------- --------- --------- --------- ------
Net investment income (loss)................................ (.08) (.06) (.09) (.06) (.09) (.08) --
Net realized and unrealized gain (loss) on investments...... (.41) .10 (.02) .43 (.11) .18 (.09)
----- --------- --------- --------- --------- --------- ------
Total from investment operations............................ (.49) .04 (.11) .37 (.20) .10 (.09)
Dividends and distributions paid:
From net realized gain...................................... -- -- -- -- -- -- --
From net investment income.................................. -- -- -- -- -- -- (.01)
From capital................................................ -- -- -- -- -- -- --
----- --------- --------- --------- --------- --------- ------
Total distributions............................................. -- -- -- -- -- -- (.01)
----- --------- --------- --------- --------- --------- ------
Net asset value, end of period..................................$0.93 $ 1.42 $ 1.38 $ 1.49 $ 1.12 $ 1.32 $ 1.22
----- --------- --------- --------- --------- --------- ------
----- --------- --------- --------- --------- --------- ------
Ratio/Supplemental Data: Total return (1)..................(34.51)% 2.89% (7.05)% 32.95% (15.15)% 8.13% (6.82)%
Net Assets, end of period (in thousands).................$2,159 $ 3,550 $ 3,791 $ 4,277 $ 3,530 $ 4,627 $ 4,812
Ratio of expenses to average net assets........................ 8.90% 6.48% 7.78% 7.88% 10.31% 8.95% 5.59%
Ratio of net investment income (loss) to average net assets.....(6.65)% (4.52) (6.09)% (5.08%) (7.27)% (6.15)% .13%
Portfolio turnover.......................................... 282% 179% 263% 245% 144% 165% 128%
1987 1986
--------- ---------
Per Share Operating Performance:
Net asset value, beginning of period........................ $ 1.61 $ 1.46
--------- ---------
Net investment income (loss)................................ .01 .06
Net realized and unrealized gain (loss) on investments...... (.30) .09
--------- ---------
Total from investment operations............................ (.29) .13
Dividends and distributions paid:
From net realized gain...................................... -- --
From net investment income.................................. -- --
From capital................................................ -- --
--------- ---------
Total distributions............................................. -- --
--------- ---------
Net asset value, end of period.................................. $ 1.32 $ 1.61
--------- ---------
--------- ---------
Ratio/Supplemental Data: Total return (1)................... (18.01)% 10.27%
Net Assets, end of period (in thousands).................. $ 5,659 $ 8,133
Ratio of expenses to average net assets......................... 4.32% 3.97%
Ratio of net investment income (loss) to average net assets..... .53% 1.84%
Portfolio turnover.......................................... 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
42
FINANCIAL HIGHLIGHTS
STGF
FOR THE PERIOD
UNAUDITED FOR THE YEAR JANUARY 1, 1995
NINE MONTHS ENDED THROUGH JUNE
ENDED MARCH 31, JUNE 30, 30,
-------------------- ------------- ---------------
1997 1996 1996 1995*
--------- --------- ------------- ---------------
Per Share Operating Performance:
Net asset value, beginning of period................. $ 1.02 $ 1.43 $ 1.43 $ 1.57
--------- --------- ------------- ---------------
Net investment income (loss)......................... (.24) (.24) (.58) (.22)
Net realized and unrealized gain (loss) on
investments.......................................... (.13) (.07) .17 .08
--------- --------- ------------- ---------------
Total from investment operations..................... (.37) (.31) (.41) (.14)
Dividends and distributions paid:
From net realized gain............................... -- -- -- --
From net investment income........................... -- -- -- --
From capital......................................... -- -- -- --
--------- --------- ------------- ---------------
Total distributions.................................. -- -- -- --
--------- --------- ------------- ---------------
Net asset value, end of period........................... $ 0.65 $ 1.12 $ 1.02 $ 1.43
--------- --------- ------------- ---------------
--------- --------- ------------- ---------------
Ratio/Supplemental Data: Total return (1)............ (48.04)%** (28.67)%** (28.29)% (17.84)%**
Net Assets, end of period (in thousands)........... $ 332 $ 599 $ 542 $ 799
Ratio of expenses to average net assets.................. 40.64%** 30.14%** 25.19% 22.28%**
Ratio of net investment income (loss) to average net
assets................................................. (38.41)%** (29.67)%** (24.78)% (20.90)%**
Portfolio turnover................................... 441%** 396%** 333% 615%**
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988
------ ------- --------- --------- --------- --------- ---------
Per Share Operating Performance:
Net asset value, beginning of period.................$2.48 $ 2.69 $ 2.84 $ 2.21 $ 3.92 $ 3.03 $ 4.12
----- --------- -------- -------- -------- ------- --------
Net investment income (loss)......................... (.45) (.40) (.33) (.30) (.41) (.37) (.30)
Net realized and unrealized gain (loss) on
investments.......................................... (.46) .19 .18 .93 (1.30) 1.26 (.79)
----- --------- -------- -------- -------- ------- --------
Total from investment operations..................... (.91) (.21) (.15) .63 (1.71) .89 (1.09)
Dividends and distributions paid:
From net realized gain............................... -- -- -- -- -- -- --
From net investment income........................... -- -- -- -- -- -- --
From capital......................................... -- -- -- -- -- -- --
----- --------- -------- -------- -------- ------- --------
Total distributions.................................. -- -- -- -- -- -- --
----- --------- -------- -------- -------- ------- --------
Net asset value, end of period...........................$1.57 $ 2.48 $ 2.69 $ 2.84 $ 2.21 $ 3.92 $ 3.03
----- --------- -------- -------- -------- ------- --------
----- --------- -------- -------- -------- ------- --------
Ratio/Supplemental Data: Total return (1)...........(36.69)% (7.81)% (5.28)% 28.51% (43.62)% 29.37% (26.46)%
Net Assets, end of period (in thousands)........... $894 $ 1,467 $ 1,634 $ 1,786 $ 1,443 $ 2,675 $ 2,178
Ratio of expenses to average net assets..................16.34% 11.94% 13.33% 14.10% 14.97% 12.14% 9.90%
Ratio of net investment income (loss) to average net
assets................................................(14.79)% (11.38)% (12.45)% (11.70)% (12.60)% (9.97)% (8.55)%
Portfolio turnover................................... 274% 128% 157% 318% 184% 116% 164%
1987 1986
--------- ---------
Per Share Operating Performance:
Net asset value, beginning of period................. $ 4.48 $ 5.06
--------- ---------
Net investment income (loss)......................... (.27) (.33)
Net realized and unrealized gain (loss) on
investments.......................................... (.09) (.25)
--------- ---------
Total from investment operations..................... (.36) (.58)
Dividends and distributions paid:
From net realized gain............................... -- --
From net investment income........................... -- --
From capital......................................... -- --
--------- ---------
Total distributions.................................. -- --
--------- ---------
Net asset value, end of period........................... $ 4.12 $ 4.48
--------- ---------
--------- ---------
Ratio/Supplemental Data: Total return (1)............ (8.04)% (11.46)%
Net Assets, end of period (in thousands)........... $ 3,119 $ 3,779
Ratio of expenses to average net assets.................. 6.34% 5.81%
Ratio of net investment income (loss) to average net
assets................................................. (4.88)% (4.87)%
Portfolio turnover................................... 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-end was changed to June 30.
** Annualized
43
SAIF
Management's Discussion of
Performance of the Fund
During its fiscal year ended June 30, 1996, the Fund's net asset value per
share decreased 18.48%. The Fund experienced a net decrease in net assets from
operations of approximately $231,000 as a result of a net realized gain from
investment transactions of $74,000 offset by a net investment loss of $294,000
and unrealized depreciation of investments of $11,000.
Portfolio turnover during the year, although high, was about half of the
rate for the prior period and at year's end the Fund's portfolio consisted of
investments in segments of the computer industry, communications,
pharmaceutical, and radio and television equipment industries. The Fund
maintained an aggressive trading position with its assets almost fully invested
in equity securities most of the year. The Fund's net investment loss of
approximately $294,000 resulted from expenses after taking into account the
Fund's investment income from dividends and interest of approximately $6,000.
The Fund's primary goal is to maximize capital appreciation.
From time to time the Fund may quote its total return in advertisements or
in reports or other communications to shareholders. A mutual fund's total return
is a measurement of the overall change in value, including changes in share
price and assuming reinvestment of all distributions, of an investment in the
fund. Cumulative total return shows the fund's performance over a specific
period of time. Average annual total return is the average annual compounded
return that would have produced the same cumulative total return if the fund's
performance had been constant over the entire period. The returns shown are
based on historical results and are not intended to indicate future performance.
The investment 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 and television equipment industries. In addition, the Fund purchased call
options in the expectation that the Fund would benefit from rising prices in
these positions. The Fund maintained an aggressive trading position with its
assets almost fully invested in equity securities most of the year. The Fund's
net investment loss of approximately $388,000 resulted from expenses after
44
taking into account 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.
From time to time the Fund may quote its total return in advertisements or
in reports or other communications to shareholders. A mutual fund's total return
is a measurement of the overall change in value, including changes in share
price and assuming reinvestment of all distributions, of an investment in the
fund. Cumulative total return shows the fund's performance over a specific
period of time. Average annual total return is the average annual compounded
return that would have produced the same cumulative total return if the fund's
performance had been constant over the entire period. The returns shown are
based on historical results and are not intended to indicate future performance.
The investment return and principal value of an investment in the fund will
fluctuate that an investor's shares when redeemed may be worth more or less than
their original cost. Average annual returns, which differ from actual
year-to-year results, tend to smooth out variations in a fund's returns.
SIF
Management's Discussion of
Performance of the Fund
During its fiscal year ended June 30, 1996, the Fund's net asset value per
share decreased 15.53%. The Fund experienced a net decrease in net assets from
operations of approximately $334,000 as a result of a net realized gain from
investment transactions of $48,000 offset by a net investment loss of $111,000
and unrealized depreciation of investments of $271,000.
Portfolio turnover during the year was higher than the rate for the prior
period as a result of positioning from U.S. Treasury Bonds to investments in
stocks of various segments of the computer industry, communications, and medical
instruments industries. The Fund maintained an aggressive trading position with
its assets almost fully invested in equity securities most of the year. The
Fund's net investment loss of approximately $111,000 resulted from expenses
after taking into account the Fund's investment income from dividends and
interest of approximately $114,000. Realization of capital appreciation is
secondary to the Fund's primary goal of current income.
From time to time the Fund may quote its total return in advertisements or
in reports or other communications to shareholders. A mutual fund's total return
is a measurement of the overall change in value, including changes in share
price and assuming reinvestment of all distributions, of an investment in the
fund. Cumulative total return shows the fund's performance over a specific
period of time. Average annual total return is the average annual compounded
return that would have produced the same cumulative total return if the fund's
performance had been constant over the entire period. The returns shown are
based on historical results and are not intended to indicate future performance.
The investment return and principal value of an investment in the fund will
fluctuate so that an investor's shares when redeemed may be worth more or less
than their original cost. Average annual returns which differ from actual
year-to-year results, tend to smooth out variations in a fund's returns.
45
STGF
Management's Discussion of
Performance of the Fund
During its fiscal year ended June 30, 1996, the Fund's net asset value per
share decreased 28.29%. The Fund experienced a net decrease in net assets from
operations of approximately $219,000 as a result of a net realized loss from
investment transactions of $130,000 and a net investment loss of $173,000 offset
by unrealized appreciation of investments of $84,000.
Portfolio turnover during the year, although high, was about half of the
rate for the prior period and at year's end the Fund's portfolio consisted of
investments in the computer industry, communications, pharmaceutical, and radio
and television equipment industries. The Fund maintained an aggressive trading
position with its assets almost fully invested in equity securities most of the
year. The Fund's net investment loss of approximately $173,000 resulted from
expenses after taking into account the Fund's investment income from dividends
and interest of approximately $3,000. Realization of current income is secondary
to the Fund's pursuit of its primary goal of capital appreciation.
From time to time the Fund may quote its total return in advertisements or
in reports or other communications to shareholders. A mutual fund's total return
is a measurement of the overall change in value, including changes in share
price and assuming reinvestment of all distributions, of an investment in the
fund. Cumulative total return shows the fund's performance over a specific
period of time. Average annual total return is the average annual compounded
return that would have produced the same cumulative total return if the fund's
performance had been constant over the entire period. The returns shown are
based on historical results and are not intended to indicate future performance.
The investment return and principal value of an investment in the fund will
fluctuate so that an investor's shares when redeemed may be worth more or less
than their original cost. Average annual returns which differ from actual
year-to-year results, tend to smooth out variations in a fund's returns.
46
SAIF Total Return vs S&P 500 Index
Comparison of change in the value of a $10,000 investment in the Fund
and the same investment in the S&P 500 Index for each
fiscal year from February 1, 1986 to January 1, 1996; February
1, 1995 to June 30, 1995; July 1, 1995 to June 30, 1996
[A GRAPH APPEARS HERE WITH THE FOLLOWING PLOTTING POINTS]
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
47
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
- --------------------------------------------------------------------------------
48
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
- --------------------------------------------------------------------------------
49
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
50
DESCRIPTION OF CAPITAL STRUCTURE OF THE FUNDS
AND SHAREHOLDER RIGHTS
Each Fund is organized as a common law trust under the laws of the District
of Columbia and has outstanding only one class of shares of beneficial interest.
All shareholders have equal voting rights, and all shares participate equally in
dividends and other distributions by the respective Fund, and in the residual
assets of such Fund in the event of liquidation. Fractional shares have the same
rights proportionately as do full shares. Shares of the Funds have no preemptive
rights and no conversion or subscription rights. The Funds do not hold regularly
scheduled annual shareholders' meetings. Special meetings are called when
required by applicable laws and regulations. No shareholder of any Fund shall be
subject to any liability to any person in connection with the property or
affairs of any such Fund.
In addition, the governing documents of the Funds contain several other
provisions relating to shareholders' rights that are uncommon to most other
mutual funds. (a) Trustees hold office for a term of unlimited duration, (b)
shareholders are not entitled to vote for or against any amendments to the Trust
Indenture, (c) shareholders are not entitled to vote for or against a
termination of the Fund, and (d) except as otherwise required by law,
shareholders may call special meetings only upon a vote of 90% of the
outstanding shares.
As interpreted by the staff of the Securities and Exchange Commission, the
1940 Act provides shareholders of the Funds with certain rights with respect to
removal of Trustees. Under these provisions, shareholders may remove one or more
Trustees by declaration or vote of two-thirds of each Fund's outstanding shares.
The Trustees will promptly call a meeting of shareholders for the purpose of
voting upon the question of removal of Trustees when requested to do so by the
record holders of not less than 10% of the outstanding shares of the Fund. Such
Fund will comply with these procedures.
SPECIAL PROVISIONS OF SST
Senior Securities. As a closed-end investment company, SST will have the
authority to issue senior securities, including preferred shares, subject to
the rules and regulations of the 1940 Act. The Trustees of the Fund have the
authority to issue such senior securities upon such terms and in such amounts
as they shall determine, subject to the 1940 Act. As of the date hereof, no
such senior securities have been issued by SST, and the Trustees have no
present intention of authorizing the issuance of senior securities.
Anti-Takeover Provisions. Certain provisions of the Amended and Restated
Trust Indenture of SST may be regarded as having an anti-takeover effect.
Although the Trustees are not aware of any effort that might be made to obtain
control of the Fund upon consummation of the Merger, the Trustees believe it is
appropriate to include certain provisions as part of the Fund's Amended and
Restated Trust Indenture. These provisions have the effect of virtually
precluding any type of takeover attempt not negotiated with the Trustees
pursuant to which shareholders might be offered a premium over prevailing market
prices. In addition, these provisions will have the
51
effect of rendering it more difficult to remove a Trustee and may have the
effect of perpetuating the current management and investment advisor. The
Trustees, however, concluded that potential benefits of the provisions
outweigh possible disadvantages and that such provisions are in the best
interests of SST and the shareholders. The Trustees believe the adoption of
these provisions encourage potential acquirors to negotiate directly with the
Trustees, who the Trustees believe are in the best position to act on behalf
of all shareholders. Furthermore, the Trustees have the ability to waive
certain of these restrictions, provided that certain transactions are
approved by the Trustees prior to any person acquiring 10% or more of the
outstanding shares of SST.
The following discussion is a general summary of the material provisions of
the Amended and Restated Trust Indenture of SST, which may be deemed to have
such an "anti-takeover" effect. The description of these provisions is
necessarily general and reference should be made in each case to the complete
documents set forth in Exhibit B hereto.
1. Election and Removal of Trustees. Trustees are chosen for a term of
unlimited duration. Trustees may only be removed by a vote of 90% of the
remaining Trustees or a vote of two-thirds of the shareholders.
2. Meetings of Shareholders. Special meetings of the Shareholders may
be called at any time by the Chairman or by a majority of the Trustees, and
shall be called upon written request of shareholders holding in the
aggregate not less than ninety percent (90%) of the outstanding shares
having voting rights. The Trustees shall promptly call a meeting of
shareholders for the purpose of voting upon the question of removal of
Trustees when requested to do so by the record holders of not less than 10%
of the outstanding shares of the Fund.
3. Absence of Cumulative Voting. The Amended and Restated Trust
Indenture provides that there shall not be cumulative voting by shareholders
for the election of Trustees. The absence of cumulative voting rights means
that holders of a majority of the shares voted at a meeting of shareholders
may, if they so choose, elect all Trustees to be selected, thus precluding
minority shareholder representation among the Trustees. Other than a
provision of the Act requiring every shareholder to have equal voting power,
no provision of the Act requires cumulative voting.
4. Restrictions on Acquisitions of Shares of SST. The Amended and
Restated Trust Indenture provides that for a period of five years from the
effective date of the approval of the Merger, no person may acquire,
directly or indirectly, the beneficial ownership of more than 10% of the
Fund shares, unless such offer or acquisition shall have been approved in
advance by a two-thirds vote of the Fund's Continuing Trustees. In addition,
no shares beneficially owned in violation of the foregoing percentage
limitation, as determined by the Trustees, shall be entitled to vote in
connection with any matter submitted to shareholders for a vote. The
restriction on voting shares beneficially owned in violation of the
foregoing limitation is imposed automatically. In order to prevent the
imposition of such restriction, the
52
Trustees must take affirmative action approving in advance a particular
offer to acquire or acquisition.
5. Approval of Certain Business Combinations. If an individual or other
entity, together with its affiliates, acquires 10% or more of the
outstanding shares of SST ("Related Person"), certain transactions with the
Related Person, as well as the decision to reclassify or recapitalize shares
of SST or dissolve or liquidate SST require the affirmative vote of either
(a) two-thirds of the Trustees who are not affiliated with the Related
Person and were Trustees prior to the date the Related Person became a
Related Person or (b) at least 80% of the outstanding shares of SST entitled
to vote and at least a majority of such outstanding shares not including
shares deemed beneficially owned by the Related Person.
Not redeeming your shares prior to the Merger will result in the above
anti-takeover provisions applying to all shareholders equally should the Merger
be consummated and the Amended and Restated Trust Indenture be approved by
shareholders of SST at the Meeting.
REDEMPTION OF SHARES PRIOR TO MERGER
Shareholders of the Funds do not have appraisal or other dissenter's rights
with respect to the Merger. Any Fund shareholder however may redeem his or her
shares prior to the closing date of the Merger at net asset value. The proceeds
will be paid by check within seven business days after receipt of a redemption
request.
The current redemption procedures are as follows:
Accounts without share certificates--A signed request (all joint owners must
sign) stating the amount to be withdrawn must be made to Steadman Security
Corporation, 1730 K Street, N.W., Washington, D.C. 20006. For amounts more
than $1,000, a "signature guarantee" will be necessary from a commercial
bank or trust company. Signature guarantees shall be accepted from all
eligible guarantor institutions, which include domestic banks, brokers,
dealers, credit unions, national securities exchanges, registered
securities associations, clearing agencies and savings associations.
Instant Liquidity (by telephone)--Any amount may be withdrawn by telephone
by calling 1-800-424-8570 on any business day if telephone withdrawals
have been previously authorized on the Investment Application. Telephone
instructions from any person representing himself or herself to be a
shareholder or a shareholder's representative, and believed by SSC, as
Transfer Agent for the Fund, to be genuine will be acted upon. No Fund
nor the Transfer Agent will be liable for following unauthorized
instructions communicated by telephone that they reasonably believe to
be genuine. The Funds will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine.
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
53
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.
REDEMPTION OF SHARES AFTER MERGER
Shareholders of SST will have a one-time opportunity to redeem their SST
shares at net asset value during a thirty-day period commencing on the fifth
anniversary date of the Merger.
This one-time redemption procedure will be as follows:
On the fifth anniversary date of the Merger, SST will publish a notice
in a national newspaper of general circulation that all SST shareholders
shall have the right to redeem all or such portion of their shares of
SST as may be submitted to SST on or before the thirtieth day following
the date of publication of such notice. The purchase price for each such
share so redeemed will be the net asset value of the shares of SST
determined as of the close of business on the thirtieth day following
the date of publication of such notice, or if such day is a Saturday,
Sunday, or legal holiday, then such determination will be made as of the
close of the business on the first business day immediately preceding
such thirtieth day. Net asset value per share will be calculated by
determining the aggregate value of SST's assets less its total unpaid
liabilities as of such date, which amount will be divided by the total
number of SST shares then outstanding.
MARKET FOR SHARES OF SST
Currently SST Shares Are Not Traded In Any Market. As of June 30, 1997,
the pro forma net asset value of SST was $7.52 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
54
that shares of SST will be traded either on the Chicago Stock Exchange, if
accepted for listing, or in the over-the-counter market; however, there can
be no assurance that a market will develop for shares of SST or if a market
develops, at what price SST shares may be bought or sold. Management has been
unable to locate a broker-dealer who will agree act as a market maker in SST
shares. It is anticipated that shares of SST will trade at a substantial
discount from their net asset value, which discount may be greater than the
discount at which shares of closed-end funds are normally traded.
The Trustees have the authority to use up to $500,000 of SST assets to
purchase SST shares in the open market, from time to time, in such amounts as
the Trustees determine to be in the best interests of the Fund. Such purchases
will be made at the market price for SST shares, which may be at a substantial
discount from net asset value.
MANAGEMENT OF THE FUNDS
Under the laws of the District of Columbia, the Trustees are responsible for
managing the business and affairs of the Funds. Each Fund has entered into an
investment advisory agreement (the "Advisory Agreement") with SSC (sometimes
referred to herein as the "Advisor") which has its principal offices at 1730 K
Street, N.W., Washington, D.C. 20006. Upon the effectiveness of the Merger, SSC
will continue to be the Advisor to SST.
All voting stock of SSC is owned by United Securities, Inc., a Maryland
corporation whose sole shareholders are two of Mr. Charles W. Steadman's adult
children, Carole S. Kinney and Charles T.W. Steadman, and Mrs. Consuelo M.
Steadman, Mr. Charles W. Steadman's wife. Mr. Steadman has a long-term
employment contract with the Advisor under which he may be deemed a control
person.
Since commencing business through its predecessor, William Allen Steadman &
Company, in 1932, the Advisor has principally engaged in the business of
providing continuous investment supervision for the Funds. Under the terms of
the Advisory Agreement, the Advisor manages the investments of each Fund and is
responsible for overall management of its business affairs subject to
supervision of the Trustees. Charles W. Steadman, Chairman of the Board of
Trustees and President of each Fund, is primarily responsible for the day-to-day
management of the Funds' portfolios. He has been in mutual fund management for
the past 29 years as Chairman of the Board and President of Steadman Security
Corporation. As compensation for its services, each Fund pays to the Advisor a
monthly advisory fee at the annual rate of 1% of the first $35,000,000 of the
average daily net asset value of the Fund, 7/8 of 1% on the next $35,000,000 and
3/4 of 1% on all on all sums in excess thereof. The advisory fee is higher than
that paid by many other investment companies. SSC also receives certain other
fees, which are described in the Statement of Additional Information.
The Advisor also receives reimbursements from each Fund for salaries and
benefits of its employees who perform directly attributable functions to such
Fund other than investment advisory and shareholder services. These functions
include: fund accounting, reviewing the Fund's internal financial reports;
coordinating the editing, printing and mailing of reports to the Fund's
shareholders; internal audit of the Fund's books, transactions, and daily
pricing; compliance with SEC regulation,
55
including registration; preparation of materials for Trustees' meetings;
legal and other administrative functions; and clerical assistance.
LEGAL PROCEEDINGS
The Funds are not parties to any material legal proceedings; however, the
Funds have been threatened with litigation to prevent consummation of the
Merger. In 1993 the Funds entered into a Settlement Agreement with approximately
47 states with respect to the recovery of shares and distributions owned by
persons who had allegedly abandoned these properties. The Settlement Agreement
provides among other things, that the Shareholder States will not request
redemption of their shares until February 14, 1998. The Shareholder States
currently own shares in the Funds, which as of March 31, 1997 had a net asset
value of approximately $1 million. The Shareholder States are represented by the
UPCH, which has advised the Funds that it does not believe the Merger should
take place because the UPCH believes that after the Merger SST shares will trade
at a substantial discount from net asset value, and the Shareholder States will
receive substantially less from the sale of their shares after the Merger than
if those shares were redeemed at net asset value. The UPCH told the Funds that
it is prepared to recommend to the Shareholder States that they commence
litigation to prevent the consummation of the Merger unless the restriction on
their ability to redeem shares of the Funds prior to February 14, 1998 is
removed. The Trustees believe that the delay and further expense which would
result from such potential litigation is not in the best interest of the
shareholders. Accordingly, the Funds have unconditionally agreed to remove the
restriction on the redemption of shares and to redeem prior to the Merger all of
the shares of the Funds owned by the Shareholder States upon their request. The
Shareholder States have no rights, priorities, or preferences over any other
shareholders of the Funds.
SELECTION OF INDEPENDENT AUDITORS
PROPOSAL NO. 2
(TO BE VOTED ON BY SHAREHOLDERS OF ALL FUNDS)
The Trustees of all of the Funds including a majority of the Trustees who
are not Interested Persons have selected the firm of Reznick Fedder &
Silverman as independent auditors to examine the financial statements of each
of the Funds for the current fiscal year and for SST after completion of the
Merger. The Trustees know of no direct or indirect financial interest of such
firm in the Funds. The firm of Coopers & Lybrand L.L.P., which had been the
independent auditors for the year ended June 30, 1996, advised the Trustees
on January 13, 1997 that they had resigned as auditor of the Funds. In its
letter of resignation, the firm of Coopers & Lybrand, L.L.P. stated that it
had no disagreements with the Funds' management concerning the scope of its
services to the Funds or with the Funds' accounting policies.
The selection of independent auditors is subject to the ratification or
rejection by the shareholders of each of the Funds. If the shareholders approve,
the firm of Reznick Fedder & Silverman will serve as the independent auditors of
each of the Funds until the next meeting of shareholders. Unless otherwise
indicated, signed proxies will be voted in favor of the
56
ratification of the selection of such independent auditors. The Trustees
recommend that shareholders of the Funds for "FOR" proposal 2.
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.
ELECTION OF TRUSTEES
OF
STEADMAN ASSOCIATED FUND
PROPOSAL NO. 3
(TO BE VOTED ON BY SHAREHOLDERS OF
STEADMAN ASSOCIATED FUND ONLY)
ELECTION OF TRUSTEES
Three Trustees have been nominated for election by the shareholders of SST.
Pursuant to the terms of the Amended and Restated Trust Indenture of SST,
Trustees shall be chosen for a term of unlimited duration, and shall hold office
until their successors shall be elected and qualified, provided that the term of
office will be terminated in the event of death, resignation, bankruptcy,
adjudicated incompetence or other incapacity to serve. The Trustees of SST
recommend that shareholders vote "FOR" the nominees being proposed.
Currently the Fund has four Trustees, one of whom, Paul F. Wagner, was
appointed by the remaining trustees October 14, 1992 to fill a vacancy. This is
the first shareholders meeting since that date, and accordingly the shareholders
are being asked to approve Mr. Wagner's appointment. Two additional persons have
been nominated to serve as Trustee, William Mark Crain and Richard O. Haase. It
is intended that all properly executed proxies will be voted (unless such
authority has been withheld in the proxy) in favor of the persons designated as
Trustees to be elected by the shareholders.
The Trustees of SST know of no reason why any of these nominees will be
unable to serve, but in the event of any such unavailability, the proxies
received will be voted for such substitute nominee or nominees as the Trustees
may recommend.
57
Certain information concerning the Trustees and the nominees is set forth
below.
SHARES OF
PRINCIPAL SST
OCCUPATION DURING BENEFICIALLY
PAST FIVE YEARS AND TRUSTEE OWNED AT
NAME AND ADDRESS AGE PUBLIC DIRECTORSHIPS SINCE APRIL 15, 1997
- ---------------------------------------- --- ---------------------------------------- ----------- ---------------
Paul A. Bowers, M.D. 85 Emeritus Professor, Obstetrics and
Gynecology, Jefferson Medical College
(ret.); Trustee of each of the Steadman
Funds 1978 -0-
William Mark Crain* 45 Professor of Economics and Research
Associate with the Center for Study of
Public Choice, George Mason University -- -0-
Richard O. Haase* 62 Vice President, Maiden, Haase & Smith, a
real estate valuation company -- -0-
Vice Admiral John T. Hayward USN (Ret.) 85 Vice Admiral, U.S.N. (ret.); Trustee of
each of the Steadman Funds 1973 -0-
Charles W. Steadman 82 Chairman of the Board and President of
Steadman Security Corporation and of
each of the Steadman Funds 1968 16,425
Paul F. Wagner* 78 Chairman, Wagner, Hines & Avery, Inc., a
Washington, D.C. public affairs firm,
Trustee of each of the Steadman Funds 1992 -0-
- ------------------------
* 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, 1997, the Trustees of the Fund held six meetings. All of the
Trustees then in office attended at least 80% of the total number of meetings of
the Trustees during such period.
INTERESTED PERSONS
SST considers Mr. Charles W. Steadman to be an "interested person" of the
Fund within the meaning of Section 2(a)(19) of the 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
58
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, 1997 totaled $4,844. 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
DURING THE PAST FIVE OFFICER
YEARS OFFICE AGE SINCE SALARY BONUS OTHER
- ----------------------------------- -------------------------- ------- ----------- --------- --------- ----------
Charles W. Steadman President** 82 1968 $ 75,000 -0- -0-
Max Katcher Executive Vice President,
Treasurer and Secretary** 67 1972 $ 26,000 -0- -0-
- ------------------------
* For the year ended June 30, 1997
** Upon consummation of the Merger, Mr. Steadman's annual salary to be paid by
SST will be $113,000 and Mr. Katcher's annual salary to be paid by SST will
be $60,000.
RATIFICATION OF AMENDED AND RESTATED
TRUST INDENTURE OF STEADMAN SECURITY TRUST,
DATED MAY 2, 1997
PROPOSAL NO. 4
(TO BE VOTED ON BY SHAREHOLDERS OF
STEADMAN ASSOCIATED FUND ONLY)
In connection with the proposed Merger, the Trustees of SST have amended and
restated the Trust Indenture of the Fund to provide among other things for the
change of the Fund's name from Steadman Associated Fund to Steadman Security
Trust and the change from an open-end investment company to a closed-end
investment company. A complete copy of the Amended and Restated Trust Indenture
of Steadman Security Trust with amendments through May 2, 1997 ("Amended and
Restated Trust Indenture") is set forth on Exhibit B to this Proxy Statement and
Prospectus. The shareholders of SST are being asked to ratify and confirm the
Amended and Restated Trust Indenture.
The following summary of the Amended and Restated Trust Indenture is
qualified in its entirety by reference to Exhibit B to this Proxy Statement and
Prospectus. For a discussion of the change from an open-end investment company
to a closed-end investment company, see "Difference Between Operations of SST as
an Open-End and Closed-End Investment Company."
59
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. In addition, the duration of the
Fund has been extended to February 23, 2034.
The Amended and Restated Trust Indenture eliminates the obligation of SST to
redeem outstanding shares of the funds as required of an open-end investment but
not required of a closed-end investment company. However, shareholders will have
a one-time opportunity to redeem their SST shares at net asset value during a
thirty-day period commencing on the fifth anniversary date of the Merger.
The Amended and Restated Trust Indenture also reflects 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.
By ratifying the Amended and Restated Trust Indenture, shareholders are
voting to change the fundamental investment policy of SST from capital growth to
current income. Upon the receipt of shareholder approval, the fundamental
investment policy of the Fund will be changed to seek current income as its
primary objective. As its secondary objective, SST seeks to maximize total
return but only to the extent consistent with its primary objective.
By ratifying the Amended and Restated Trust Indenture, shareholders are
ratifying certain existing and proposed provisions of the Amended and Restated
SST Trust Indenture that help the Fund maintain its status as an independent,
publicly-owned investment company, and render a hostile takeover more difficult,
particularly the provisions relating to super majority voting in connection with
certain business combinations and the limitations imposed on the voting rights
of any investor who acquires more than 10% of SST's shares. These provisions
include unlimited terms for trustees, limitations on the ability of shareholders
to remove trustees, limitations on the calling of special meetings and
non-cumulative voting in the election of trustees. For a more detailed
discussion of these provisions and their effect on shareholder rights, see
"Description of Capital Structure of the Funds and Shareholders Rights--Special
Provisions of SST."
60
INFORMATION CONCERNING THE MEETINGS
THE MEETINGS
The Meetings of the Funds will be held at Hotel, Washington, D.C.
2000? at 9:30 a.m., Washington, D.C. time, on , 1997 and any adjournments
thereof. At the Meetings, shareholders of the Funds will be asked to consider
and vote upon Proposal No. 1, approval of the Merger Agreement, and the
transactions contemplated thereby, and (b) ratification of the selection of
independent auditors for each Fund (Proposal No. 2), and in addition
shareholders of SST will be asked to (c) elect trustees (Proposal No. 3), and
(d) ratify the Amended and Restated Trust Indenture of SST, which includes the
change of SST from an open-end investment company to a closed-end investment
company and changing the Fund's fundamental investment policy from capital
growth to current income (Proposal No. 4).
RECORD DATE; VOTE REQUIRED; SHARE INFORMATION
The Trustees of each Fund have fixed the close of business on , 1997
as the record date (the "Record Date") for the determination of shareholders
entitled to notice of, and to vote at, the Meetings. Pursuant to the
requirements of the 1940 Act, the affirmative vote of a majority of the
outstanding shares of each of the Funds, voting separately, cast in person or by
proxy at the Meetings and entitled to vote at the Meetings is required for
approval of Proposal No. 1. Each shareholder of a Fund will be entitled to one
vote for each share held of record at the close of business on the Record Date.
Shareholders of each of the Funds will vote on the Merger and the Selection of
Independent Auditors. Only shareholders of SST will vote on the election of
Trustees of SST and the ratification of the Amended and Restated Trust
Indenture, including changing the fundamental investment policy of SST. Proposal
No. 2 requires 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. Proposals No. 3 and No. 4 require the affirmative vote of a majority
of the outstanding shares of SST cast in person or by proxy at the Meetings.
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
33% of shares of each Fund constitutes a quorum for the transaction of
business at such Fund's Meeting. To the knowledge of the Trustees, as of the
Record Date, no person owned 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 a Proposal and all signed proxies to which no instruction on a
Proposal is given, in favor of an adjournment for the
61
purpose of considering such Proposal at such adjourned meeting, and will vote
all shares which they are required to vote against the Proposal, against an
adjournment for the purpose of considering such Proposal at such adjourned
meeting.
PROXIES
The enclosed form of proxy, if properly executed and returned, will be voted
(or counted as an abstention or withheld from voting) in accordance with the
choices specified thereon, and will be included in determining whether there is
quorum to conduct the Meeting. Signed proxies for which no instruction is given
on a particular Proposal will be voted "FOR" the Proposal.
Shares owned of record by broker-dealers for the benefit of their customers
("street account shares") will be voted by the broker-dealer based on
instructions received from its customers. If no instructions are received, the
broker-dealer may, as record holder, vote such shares on the respective Proposal
in the same proportion as that broker-dealer votes street account shares for
which voting instructions were received in time to be voted ("broker
non-votes"). Abstentions will be counted as present for purposes of determining
a quorum, will be counted as a vote cast at the Meeting, and will have the same
effect as a vote against such Proposal. Broker non-votes will be counted as
present for determining a quorum but will not be counted as a vote cast. The
proxy may be revoked at any time prior to the voting thereof by: (i) writing to
the Secretary of the Fund at 1730 K Street, N.W., Washington, D.C. 20006; (ii)
attending the Meeting and voting in person; or (iii) signing and returning a new
proxy (if returned and received in time to be voted).
COSTS OF THE SOLICITATION AND THE REORGANIZATION
All expenses of this solicitation, including the cost of printing and
mailing this Proxy Statement and Prospectus to over 18,500 shareholders, will be
shared proportionately by the Funds, based upon the net asset value of each of
the Funds as of the date the Merger Agreement is signed. In addition to the
solicitation of proxies by mail, proxies may be solicited by officers and
employees of SSC, the Trust's investment adviser, personally or by telephone or
telegraph.
Expenses of the Merger and the conversion of SST to a closed-end fund will
be paid as set forth in the Merger Agreement. All out-of-pocket expenses of the
Funds associated with the Merger, including Fund accounting and transfer agent
expenses, printing, postage, and mailing expenses for over 18,500 shareholder
accounts, filing and application fees, and legal fees will be borne by the Funds
proportionately to each Fund's net asset value.
MISCELLANEOUS
FINANCIAL INFORMATION
Financial information as to 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.
62
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 have been
filed with the SEC and are of public record, can be inspected and copied at
public reference facilities maintained by the SEC in Washington, D.C. and
certain of its regional offices, and copies of such materials can be obtained at
prescribed rates from the Public Reference Branch, Office of Consumer Affairs
and Information Services, SEC, 450 Fifth Street, N.W., Washington, D.C. 20549.
This registration statement, including all exhibits and schedules, and such
other information as may have been incorporated by reference herein, may also be
accessed electronically by means of the SEC's site on the World Wide Web at
http://www.sec.gov.
OTHER BUSINESS
The Trustees of the Funds know of no business other than the matters
specified above which will be presented at the Meetings. Since matters not known
at the time of the solicitation may come before the Meetings, the proxy as
solicited confers discretionary authority with respect to such matters as
properly come before the Meetings, including any adjournment or adjournments
thereof, and it is the intention of the persons named as attorneys-in-fact in
the proxy to vote this proxy in accordance with their judgment on such matters.
By Order of the Boards of Trustees
of
Steadman American Industry Fund
Steadman Associated Fund
Steadman Investment Fund
Steadman Technology and Growth Fund
Max Katcher, Secretary
July , 1997
63
PART B: INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
ITEM 10. COVER PAGE
STATEMENT OF ADDITIONAL INFORMATION
July ____ , 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-4
Other Investment Techniques............... B-5
Performance Information .................. B-5
Trustees and Officers of the Fund......... B-5
Principal Shareholders.................... B-6
Investment Advisory and Transfer Agent
Fees.................................... B-6
Distribution Expense...................... B-8
B-1
Portfolio Transactions and Brokerage
Commissions............................. B-8
Shareholder Investment Plan............... B-10
Independent Accountants B-10
Financial Statements and Related
Information............................. B-10
ITEM 12. ADDITIONAL INFORMATION ABOUT THE REGISTRANT.
ITEM 13. ADDITIONAL INFORMATION ABOUT THE COMPANY BEING ACQUIRED.
The following information relates to the Fund and the Other Funds being
merged into the Fund. Upon completion of the merger of the Fund and the Other
Funds, the Fund will become a close-end management investment company under the
name Steadman Security Trust. The Other Funds comprise the Steadman Investment
Fund, the Steadman American Industry Fund and the Steadman Technology and Growth
Fund.
INVESTMENT TECHNIQUES
The following information supplements and should be read in conjunction with
the section of the Fund's Prospectus entitled "Investment Policies, Objectives
and Techniques".
OPTIONS ON STOCK INDICES
Options on stock indices operate in much the same way as options on common
stock, except that the underlying instrument, rather than being a stock, is a
stock index such as the Standard & Poor's 500 Stock Index.
The Fund will utilize various investment techniques involving options on
stock market indices so as to enhance income. Call or put options may be
purchased or sold on these indices depending upon the market conditions as
viewed by the Advisor. The opportunity to realize a gain or loss on the
purchase or sale of an index option is based upon movements in the level of
prices in the stock market generally rather than changes in price of an
individual stock. Successful use of index option techniques is therefore
dependent upon the Advisor's ability to predict correctly movements in the
stock market in general or the index of underlying stocks in particular, and
this requires skills and techniques different from those involved in
predicting the price level change of individual stocks.
When purchasing a call on an index as an initial transaction, the maximum
gain is unlimited while the risk is limited to the amount of the premium paid
for the call. In selling a call on an. index as an initial transaction, the
maximum gain is the amount of the premium realized in the sale of the call
whereas the risk is not limited by the price of an underlying security. When
purchasing a put on an index as an initial transaction, the maximum gain is the
difference between the exercise price and zero while the risk is limited to the
amount of the premium paid for the put. In selling a put on an index as an
initial transaction, the maximum gain is the. amount of the premium realized in
the sale of the put whereas the risk is the difference between the exercise
price and zero.
B-2
The Fund will cover call options on indexes by owning securities whose price
changes, in the opinion of the Advisor, are expected to be similar to those of
the index, or in such other manner as may be in accordance with the guidelines
established by the SEC with respect to coverage of options strategies.
Nevertheless, where the Fund covers a call option on an index through ownership
of securities, such securities may not match the composition of the index. In
that event, the Fund will not be fully covered and could be subject to risk of
loss in the event of adverse changes in the value of the index. The Advisor will
monitor and make appropriate adjustments to insure that the Fund is adequately
covered if the index and the underlying securities diverge.
The Fund will cover put options on indexes by segregating assets equal to
the option's exercise price, or in such other manner as may be in accordance
with the guidelines established by the SEC with respect to coverage of options
strategies.
PORTFOLIO DIVERSIFICATION
The Fund has elected to qualify as a "non-diversified investment company",
as defined under Section 5(b)(2) of the Investment Company Act of 1940, so that
the Fund may invest its assets in the securities of a small number of issuers.
This subjects the Fund's portfolio directly to the increase or decrease in the
particular investment. Thus, the opportunity for gain and the risk of loss arc
not spread over as broad a base as would be the case in a "diversified" company.
While diversification spreads the risk of loss over a broader base, it also
restricts the ability of the Advisor to take maximum advantage of investment
opportunities that it determines are in the best interest of the Fund.
The Fund will limit its investments in the securities of a small number of
issuers only when the Advisor determines that it is in the best interest of the
Fund to do so.
TAX STATUS
Currently, the Fund does not qualify as a regulated investment company
("RIC") taxable under the rules of Sections 851-855 of the Internal Revenue Code
of 1986, as amended (the "Code"). The Fund is taxed under the normal rules of
the Code applicable to C corporations. It is anticipated that such tax status as
a non-RIC shall continue indefinitely.
In the event the Fund qualifies as a RIC in the future, distributions of
any taxable net investment income and of any excess of net short-term capital
gain over net long-term capital loss and capital loss carryovers, if any,
will be taxable to shareholders as ordinary income. Further, in qualifying
years, to the extent that long-term capital gains exceed short-term capital
losses and any capital loss carry forwards, they may be distributed to
shareholders and, if distributed, will be taxable to the shareholders as
long-term capital gain.
Distributions from the Fund currently are taxable under the normal corporate
tax rules because the Fund is not a RIC for federal income tax purposes.
Non-redemption cash distributions to shareholders constitute ordinary dividend
income if such distributions are out of the corporation's current or accumulated
earnings and profits. Thereafter, the distributions are a non-taxable return of
basis to the extent of the recipient's tax basis for the recipient's shares. Any
distributions in excess
B-3
of earnings and profits and in excess of such tax basis constitute gain from
a deemed sale or exchange of the shares.
Redemption distributions may be taxable under the rules described above, or
such redemptions may be treated for federal income tax purposes as a sale or
exchange of the redeemed shares. Such characterization depends upon the
application to the recipient of Section 302(b) of the Code. A redemption
distribution may be a sale or exchange of the redeemed shares for tax purposes
if it is not essentially equivalent to a dividend, is a substantially
disproportionate redemption, is in complete termination of a shareholder's
interest in the corporation, or is a redemption from a noncorporate shareholder
in partial liquidation of the distributor (all within the technical meanings of
Section 302(b)). Such determinations are highly individualized. Shareholders
must consult with their own tax advisors concerning the effect to them of any
redemption distribution from the Fund.
Special rules apply for federal income tax purposes if the Fund makes a
distribution of its assets in kind (which could be a liquidating distribution
from the Fund or a non-liquidating distribution). Other special tax rules apply
if the Fund makes a distribution of its shares or rights to acquire its shares
to its shareholders with respect to their Fund shares. No such distributions are
contemplated currently by the Fund so an explanation of these rules is beyond
the scope of this discussion.
Under the federal income tax law, the Fund is required to report to the
Internal Revenue Service all dividend distributions. Under the backup
withholding provisions, all distributions by the Fund may be subject to
withholding of federal income tax at the rate of 31 % in the case of non-exempt
shareholders who fail to furnish the Fund with their correct taxpayer
identification numbers and with required certifications regarding their status
under federal income tax laws. If the withholding provisions are applicable, any
such distributions will be reduced by the amounts required to be withheld.
Investors should consult their tax advisors about the applicability of the
backup withholding provisions.
The foregoing discussion relates solely to U.S. federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic
corporations, partnerships, trusts and estates). Each shareholder who is not a
U.S. person should consult his or her tax advisor regarding the U.S. and foreign
tax consequences of ownership of shares of the Fund, including the likelihood
that such a shareholder would be subject to a U.S. withholding tax at a rate of
30% (or at a lower rate under a tax treaty) on amounts constituting ordinary
income to him or her, where such amounts are treated as income from U.S. sources
under the Code.
In addition to federal taxes, shareholders of the Fund may be subject to
state and local taxes on distributions from the Fund. Shareholders should
consult their own tax advisors with respect to the tax status of distributions
from the Fund in their own state and localities.
PORTFOLIO TURNOVER
Because the Fund may engage in short-term trading, its portfolio rates may
exceed 300%. High portfolio turnover (over 100%) may result in correspondingly
higher brokerage costs.
B-4
OTHER INVESTMENT TECHNIQUES
The Fund's Trust Indenture provides that the Fund may, in the sole
discretion of the Advisor and to the maximum extent permissible by the
applicable laws and regulations, engage in all lawful investment
activities. Without limitation on any other investment activities, the Fund
reserves freedom of action to engage in the following types of activities
specified in Section (8)(b) of the Investment Company Act of 1940. (A) The Fund
may borrow money from a bank for either investment or emergency purposes
provided that such borrowing does not exceed 33 1/3% of the value of the Fund's
total assets, less its liabilities other than such borrowings; (B) The Fund may
issue senior securities to the extent the borrowing identified in (A) above
constitutes the issuance of senior securities; (C) The Fund may engage in the
business of underwriting securities issued by other persons to the extent that
the purchase of restricted securities constitutes such underwriting; (D) The
Fund may purchase and sell real estate including land and buildings and
securities of companies whose assets consist of real property and interests
therein; (E) The Fund may make both long and short-term loans to others,
including the purchase of non-publicly offered debt securities. The extent to
which the Fund intends to engage in the foregoing activities is entirely
dependent upon the market conditions and the economic environment in which the
Fund must operate. Thus it is not practical to predict the extent to which the
Fund will or may engage in such activities. The Fund intends to engage in these
activities to the maximum extent permissible under applicable laws and
regulations when, in the judgment of the Advisor such activities appear to be
beneficial to the Fund and its shareholders. Accordingly, the risks involved in
an investment in the Fund may be greater than the risks generally associated
with many other mutual funds.
PERFORMANCE INFORMATION
The Fund will calculate its total rate of return for certain periods by
determining the average annual compounded rates of return over these periods
that would cause an investment of $1,000 (with all distributions reinvested) to
reach the value of that investment at the end of the periods. The Fund may also
calculate total rates of return which represent aggregate performance over a
period or year-by-year performance. The average annual total rate of return for
the shares of SST for the one year, five year, and ten year periods ended June
30, 1996 are (4.38%), 2.83%, and 4.55% respectively. The average annual total
rate of return for the Other Funds shares for the one year, five years, and ten
years periods ended June 30, 1996 are (18.48)%, (13.67)% and (12.52)%
respectively for SAIF, (15.53)%, (4.61)%, and (4.79)%, respectively for SIF, and
(28.29)%, (13.04)% and (14.11)% respectively for STGF.
TRUSTEES AND OFFICERS OF THE FUND
*CHARLES W. STEADMAN, Chairman of the Board of Trustees and President of the
fund; Chairman of the Board, President and Treasurer, Steadman Security
Corporation (SSC) and subsidiaries. Age 82.
PAUL A. BOWERS, M.D., Trustee, 9 Sandringham Road, Bala Cynwyd,
Pennsylvania; Retired from private medical practice and as a Professor,
Obstetrics and Gynecology, Jefferson Medical College, Philadelphia,
Pennsylvania. Age 84.
B-5
JOHN T. HAYWARD, Trustee, 3 Barclay Square, Newport, Rhode Island, Vice
Admiral, U.S.N. (ret); Management Consultant; formerly Vice President,
General Dynamics Corporation, Washington, D.C. (aerospace manufacturing)
(1968-1974). Age 85.
PAUL F. WAGNER, Trustee, Chairman, Wagner, Hines & Avery, Inc. a Washington,
D.C. Public Affairs firm. Age 78.
MAX KATCHER, Executive Vice President, Secretary and Treasurer of the Fund,
Executive Vice President of SSC. Age 67.
E. JEAN BELLOSI, Assistant Secretary of the Fund, Secretary of SSC. Age 57.
*Interested person as defined by Section 2(a)(19) of the Investment Company
Act.
The Trustees and officers hold the same positions relative to the Other
Funds, which Other Funds are proposed to be merged into the Fund.
The address of all of the officers of the Fund is 1730 K Street, NW,
Washington, DC 20006.
On June 30, 1997, the Trustees and Officers of the Fund, as a group
beneficially owned 16,434.691 shares in the Fund and 1,821.711 shares of the
Other Funds which is less than one percent of each of the Fund's equity
securities.
During the fiscal year ended June 30, 1997, the Fund paid $4,844 in fees and
expenses to all Trustees except Mr. Steadman who received no such fees or
expenses. Trustees are paid $300 per meeting attended, except Mr. Steadman.
During the fiscal year ended June 30, 1997, the Other Funds paid $17,432 in fees
and expenses to all Trustees except Mr. Steadman, who received no such fees or
expenses. The Other Funds Trustees are paid $300 per meetings attended, except
Mr. Steadman. Upon the merger into the Fund, the Trustees will be compensated at
the same level.
PRINCIPAL SHAREHOLDERS
On June 30, 1997, no person beneficially owned more than 5% of the then
outstanding shares of the Fund or each of the Other Funds.
INVESTMENT ADVISORY AND TRANSFER AGENT FEES
SSC provides investment advisory services under an agreement which continues
in effect subject to annual approval by the Trustees or by a majority of the
outstanding voting securities of the Fund, provided that in either event, the
continuance is also approved by a majority of the Trustees who are not
"interested persons" of the Fund or of SSC. The fees for investment advisory
services arc computed as follows: 1% of the first $35,000,000 of net assets, 7/8
of 1% of the next $35,000,000 and 3/4 of 1% of all sums in excess thereof.
B-6
The Fund paid investment advisory fees during the fiscal year ended June 30,
1996, the fiscal period ended June 30, 1995*, and the fiscal year ended
September 30, 1994 as follows: 1996-$51,706; 1995-$41,902; and 1994-$74,029. The
Other Funds paid aggregate investment advisory fees during the fiscal year ended
June 30, 1996, the fiscal period ended June 30, 1995*, and in the case of SAIF,
the fiscal year ended January 31, 1994 and in the case of SIF and STGF, the
fiscal year ended December 31, 1994 as follows: $1996-$40,338; 1995-$20,833; and
1994-$59,119.
Under an agreement with the Fund which is contained in the approved minutes
of the Fund, SSC serves as Transfer and Dividend Disbursing Agent and Agent for
Administration of Shareholder Accounts (hereinafter "delegated services") for
the Fund and the Other Funds. The fee for such services is computed on the basis
of the number of shareholder accounts calculated as of the last business day of
each month at $1.35 per account, per month. This agreement is embodied in
resolutions by the Trustees. The last increase in fee amount was made on May
21,1986 (effective retroactive to May 1, 1986) and renewed annually by the
Trustees since that date.
The Fund paid fees for delegated services during the fiscal year ended June
30, 1996, the fiscal period ended June 30, 1995*, and the fiscal year ended
September 30, 1994 as follows: 1996-$41,214; 1995-$33,620; and 1994-$47,679. The
Other Funds paid aggregate fees for delegated services during the fiscal year
ended June 30, 1996, the fiscal period ended June 30, 1995*, and in the case of
SAIF the fiscal year ended January 31, 1994 and in the case of SIF and STGF, the
fiscal year ended December 31, 1994 as follows: 1996-$283,427; 1995-$135,292;
and 1994-$303,110.
The Fund and the Other Funds also reimbursed SSC for salaries and fringe
benefits, including payroll taxes and group insurance, of its employees who
perform functions other than investment advisory and shareholder services during
the fiscal year ended June 30, 1996 of $184,729 and $177,738, respectively.
SSC assumes no responsibility under the Agreement other than to render
the services called for thereunder, in good faith, and is not responsible for
any action of the Fund in following or declining to follow any advice or
recommendation. It is not liable for any error of judgment or mistake of law
or for any loss suffered by the Fund in connection with matters to which the
Agreement relates, except for a loss resulting from willful misfeasance, bad
faith, gross negligence or reckless disregard in the performance of its
duties under the Agreement. Trustees, officers and employees of SSC have the
unlimited and unrestricted right to engage in any other business or to devote
time and attention in part to the management or other aspects of any other
business, whether of a similar or dissimilar nature.
The Agreement also provides that the Fund will pay all of its ordinary
expenses of operation except specifically excepted, such expenses of operation
including, but not being limited to, the following: (i) the expenses of
maintaining its own books of accounts; (ii) the expenses of its 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,
- ------------------------
*The Funds' fiscal year was changed to June 30.
B-7
contrary to most other funds, the fees of those Trustees who also may be
directors of the Advisor or its subsidiary corporation; (v) the expenses of
meetings of shareholders; (vi) the expenses of printing and mailing of all
shareholder reports and other required reports and documents provided
shareholders, including the cost of printing and mailing prospectuses to
shareholders; (vii) taxes of any kind assessed against the Fund; (viii)
interest and commissions; (ix) Securities and Exchange Commission
registration fees; (x) state registration fees; (xi) the expenses of trust
existence; (xii) all or part of the salaries of the fund officers and other
employees who also may be directors or officers or employees of the Advisor
or its subsidiaries; (xiii) the fees of auditors; (xiv) the fees of legal
counsel; (xv) travel, entertainment, publication, telephone, telegraph, and
office space rent; and (xvi) all other ordinary expenses of operation. The
Fund also will pay all extraordinary expenses of whatever kind unless such
expenses have been specifically assumed by the Advisor. The Other Funds have
similar agreements.
DISTRIBUTION EXPENSES
The Fund and the Other Funds pays all fees and expenses in connection with
registering their shares under federal and state securities laws; preparing,
printing and mailing its prospectuses and reports to shareholders; and issuing
its shares, including expenses of confirming purchase orders. Upon completion of
the merger of the Other Funds into the Fund, the Fund will be a close-end fund
and will not be offering fund shares on a regular basis except pursuant to a
dividend reinvestment plan, if offered by the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
SSC makes decisions as to buying and selling investment securities, subject
to supervision by the Fund's Board of Trustees. It is the practice of the Fund
to seek the most favorable prices and execution of orders for the purchase or
sale of portfolio securities, taking the facilities and services of a particular
broker or dealer. Subject to these into considerations, the Fund has authorized
SSC to place a portion of such business on a principal or agency basis with
eligible brokers who have provided statistical, quote and research material to
the Advisor. Research services include written and oral advice, analyses and
reports concerning issuers, industries, securities, markets, economic factors
and trends and portfolio strategy. The Fund has been informed that, to the
extent brokerage is allocated to obtain statistical, investment, research, or
quotation services, SSC, as Advisor, will be assisted in providing to the Fund
more thorough and complete advisory material. Although such services may tend to
reduce the expenses of SSC in rendering investment advice to the Fund, the value
of the services is not determinable. Such services may also be used in serving
the other mutual funds managed by SSC, and the brokerage commissions of such
other mutual funds may indirectly benefit the Fund. SSC investment personnel
determine the overall reasonableness of commissions paid by rating brokers or
dealers on such general factors as execution capabilities, quality of research
and financial condition, and net results of specific transactions in such terms
as price, promptness, size of order and difficulty of execution.
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
B-8
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 understanding that quotation services and devices would be
provided to the Advisor in exchange for these brokerage commissions.
B-9
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 0.7 500 0.4
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 0.6 3,350 3.6
William Blair & Co.......................................... 91,975 0.6 1,074 1.1
Wertheim, Inc............................................... 81,375 0.5 210 0.2
------------- ----- ------------ -----
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:
B-10
Financial Statements and information of the Fund and the Other Funds listed
below are included in part B hereof.
--Report of Independent Accountants, dated July 29, 1996, except for
Steadman Associated Fund for which the date is August 6, 1996.
--Portfolio of Investments, June 30, 1996.
--Statement of Assets and Liabilities, June 30, 1996.
--Statement of Operations, for the year ended June 30, 1996
-- Statements of Changes in Net Assets, for the year ended June 30, 1996,
for the period October 1, 1994 through June 30,1995 and the year ended
September 30, 1994.
--Financial Highlights, for the year ended June 30, 1996, for the period
October 1, 1994 through June 30, 1995 and for each of the four years ended
September 30.
--Notes to Financial Statements listed above.
The following documents have been previously filed with the Securities and
Exchange Commission and are incorporated herein by reference in response to this
Item 14:
Semi-annual Report to Shareholders on Form N-30D of the Steadman Associated
Fund dated December 31, 1996 (SEC file no. 811-00018).
Semi-annual Report to Shareholders on Form N-30D of the Steadman American
Industry Fund dated December 31, 1996 (SEC file no. 811-00855).
Semi-annual Report to Shareholders on Form N-30D of the Steadman Investment
Fund dated December 31, 1996 (SEC file no. 811-00747).
Semi-annual Report to Shareholders on Form N-30D of the Steadman Technology
and Growth Fund dated December 31, 1996 (SEC file no. 811-01542).
B-11
STEADMAN ASSOCIATED FUND
1730 K Street, N.W.
Washington, D.C. 20006
1-800-424-8570
202-223-1000 Washington D.C. area
TRANSFER AGENT
Steadman Security Corporation
1730 K Street, N.W.
Washington, D.C. 20006
CUSTODIAN
Crestar Bank, N.A.
1445 New York Avenue, N.W.
Washington, D.C. 20005
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
1800 M Street N.W.
Washington D.C. 20036
For more information about
STEADMAN ASSOCIATED FUND.
account information or daily
Net Asset Values, call:
Shareholder Services
1-800-424-8570
202-223-1000 Washington, D.C. area
STEADMAN
ASSOCIATED
FUND
ANNUAL
REPORT
JUNE 30, 1996
A STEADMAN NO-LOAD MUTUAL FUND
STEADMAN SECURITY
CORPORATION
[LOGO]
INVESTMENT ADVISER
Fellow Shareholders:
The forces most dominant in present market behavior have continued to be a
low level of inflation and behavior of interest rates.
The economy generally is moving at a pace that is slowing. Although
employment levels remain high, there are indications that some of this can be
accounted for by a fact of two jobs among wage earners in many households. This
of course casts a question about the dependability of recent employment reports.
It also may support indications of there being a lesser rather than greater
likelihood that there will be an incentive for the Federal Reserve to initiate
any near term move to tighten money and raise rates.
These conditions suggest that the interest rates are going to decline.
Looking to the 30 year Treasury Bond for guidance we are beginning to see a
pattern of declining yield, of course with the Bond rising in price. We expect
this trend of declining interest rates to continue and bear with it very
favorable market consequences for your Fund.
Thank you for your confidence and continued support.
Sincerely,
/s/ Charles W. Steadman
Charles W. Steadman
Chairman of the Board of
Trustees and President
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
STEADMAN ASSOCIATED FUND
We have audited the accompanying statement of assets and liabilities of
Steadman Associated Fund, including the portfolio of investments, as of June 30,
1996, and the related statement of operations for the year ended, the statements
of changes in net assets for the year then ended and the periods October 1, 1994
through June 30, 1995, and October 1, 1993 through September 30, 1994, and the
financial highlights for the year ended June 30, 1996 and the period October 1,
1994 through June 30, 1995, and each of the four years ended September 30, 1994.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of June 30, 1996, by correspondence
with the custodian and broker. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Steadman Associated Fund as of June 30, 1996, the results of its operations, the
changes in its net assets, and the financial highlights for each of the
respective periods stated in the first paragraph, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Washington, D.C.
August 6, 1996
STEADMAN ASSOCIATED FUND
PORTFOLIO OF INVESTMENTS
June 30, 1996
VALUE
SHARES (NOTE 1)
-------- ---------
COMMON STOCKS -- 96.6%
Communications Equipment -- 11.3%
Electronic Data Systems. . . . . . . . . . . . . . 2,000 $ 107,500
Motorola . . . . . . . . . . . . . . . . . . . . . 2,500 157,188
Precision Systems (a) . . . . . . . . . . . . . . 19,000 223,250
---------
Total Communications Equipment 487,938
---------
Computer Equipment -- 9.2%
Hewlett Packard. . . . . . . . . . . . . . . . . . 4,000 398,500
---------
Total Computer Equipment 398,500
---------
Computer Storage Equipment -- 12.0%
Iomega Corp. (a) . . . . . . . . . . . . . . . . . 4,000 116,000
Seagate Technology (a) . . . . . . . . . . . . . . 9,000 405,000
---------
Total Computer Storage Equipment 521,000
---------
Computer Systems -- 32.3%
Microsoft Corp. (a). . . . . . . . . . . . . . . . 7,500 900,937
Sun Microsystems (a) . . . . . . . . . . . . . . . 8,500 500,437
---------
Total Computer Systems 1,410,374
---------
Medical Instruments -- 1.9%
Boston Scientific (a). . . . . . . . . . . . . . . 1,800 81,000
---------
Total Medical Instruments 81,000
---------
Motor Vehicles -- 10.4%
General Motors "H".. . . . . . . . . . . . . . . . 7,500 450,938
---------
Total Motor Vehicles 450,938
---------
Oil & Gas Drilling -- 1.6%
Global Marine (a). . . . . . . . . . . . . . . . . 5,000 69,375
---------
Total Oil & Gas Drilling 69,375
---------
STEADMAN ASSOCIATED FUND
PORTFOLIO OF INVESTMENTS
June 30, 1996
VALUE
SHARES (NOTE 1)
-------- ---------
Pharmaceutical -- 4.4%
Elan Corp. Warrants (a). . . . . . . . . . . . . . 2,500 59,687
Regeneron Pharmaceuticals (a). . . . . . . . . . . 7,500 130,313
---------
Total Pharmaceutical 190,000
---------
Radio & TV Equipment -- 6.0%
Geotek Communications, Inc. (a). . . . . . . . . . 7,500 102,656
Qualcomm Inc. (a). . . . . . . . . . . . . . . . . 3,000 159,375
---------
Total Radio & TV Equipment 262,031
---------
Semiconductor -- 7.5%
Intel Corp. Warrants (a) . . . . . . . . . . . . . . . 9,000 326,250
---------
Total Semiconductor 326,250
---------
Total Common Stocks (Cost $3,630,405). . . . . . . . . 4,188,406
---------
CALL OPTIONS PURCHASED -- 3.4%
Applied Materials, 1/17/97 at $30. . . . . . . . . . . 2,500 13,750
Applied Materials, 10/18/96 at $30 . . . . . . . . . . 1,500 6,000
American Tel. and Tel., 7/19/96 at $70 . . . . . . . . 20,000 1,250
IBM, 7/19/96 at $90. . . . . . . . . . . . . . . . . . 5,000 50,000
Iomega Corp., 11/15/96 at $30. . . . . . . . . . . . . 2,500 19,688
LAM Research, 12/20/96 at $25. . . . . . . . . . . . . 2,500 12,813
LSI Logic, 1/17/97 at $25. . . . . . . . . . . . . . . 2,500 13,750
Seagate Technology, 12/20/96 at $45. . . . . . . . . . 2,500 14,687
Sun Microsystems, 10/18/96 at $60. . . . . . . . . . . 2,500 15,625
---------
Total Call Options Purchased (Cost $187,250) . . . 147,563
---------
Total Portfolio of Investments (Cost $3,817,655) $ 4,335,969
---------
---------
(a) Non-income producing security.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996
ASSETS:
Investments at value (Cost $3,817,655) (Note 1). . . . . . . $ 4,335,969
Cash and cash equivalents (Note 1). . . . . . . . . . . . . 314,978
Dividends receivable . . . . . . . . . . . . . . . . . . . . 1,860
Interest receivable. . . . . . . . . . . . . . . . . . . . . 449
Receivable for trust shares subscribed . . . . . . . . . . . 100
-----------
Total assets. . . . . . . . . . . . . . . . . . . . . . 4,653,356
-----------
LIABILITIES:
Payable for investments purchased. . . . . . . . . . . . . . 32,325
Accounts payable and accrued expenses. . . . . . . . . . . . 12,804
Investment advisory and service fees payable (Note 4). . . . 7,271
Other payable to affiliate (Note 4). . . . . . . . . . . 17,711
Payable for Trust shares redeemed. . . . . . . . . . . . . . 1,754
-----------
Total liabilities . . . . . . . . . . . . . . . . . . . 71,865
-----------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,581,491
-----------
-----------
NET ASSETS CONSIST OF:
Undistributed net investment loss. . . . . . . . . . . . . . $(4,646,935)
Unrealized appreciation of Investments . . . . . . . . . . . 518,314
Accumulated net realized losses from security transactions . (1,127,057)
Paid-in capital. . . . . . . . . . . . . . . . . . . . . . . 9,837,169
-----------
$9,837,169
-----------
-----------
NET ASSET VALUE, offering price and redemption price per share
($4,581,491 DIVIDED BY 6,580,298 shares of
no par value trust shares) . . . . . . . . . . . . . . . . $ .70
-----------
-----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
STEADMAN ASSOCIATED FUND
STATEMENT OF OPERATIONS
for the year ended June 30, 1996
INVESTMENT INCOME:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 23,904
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,242
--------
Total income . . . . . . . . . . . . . . . . . . . . . . $ 34,146
EXPENSES:
Salaries and employee benefits (Note 4). . . . . . . . . . . . . 184,729
Investment advisory fee (Note 4) . . . . . . . . . . . . . . . . 51,706
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . 56,679
Shareholder servicing fee (Note 4) . . . . . . . . . . . . . . . 41,214
Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,281
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . 12,469
Blue Sky Registration Fees . . . . . . . . . . . . . . . . . . . 11,820
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . 11,186
Computer services. . . . . . . . . . . . . . . . . . . . . . . . 8,713
Reports to shareholders. . . . . . . . . . . . . . . . . . . . . 6,383
Trustees' fees and expenses (Note 4) . . . . . . . . . . . . . . 5,328
--------
Total expenses. . . . . . . . . . . . . . . . . . . . . . . 422,508
---------
Net investment loss . . . . . . . . . . . . . . . . . . . . (388,362)
---------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS (NOTES 1 AND 3):
Net realized gain from investment transactions . . . . . . . . . 517,110
Change in unrealized appreciation/(depreciation) of investments (352,459)
---------
Net gain on investments. . . . . . . . . . . . . . . . . . . . . 164,651
---------
Net decrease in net assets resulting from operations . . . . . . $(223,711)
---------
---------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
STEADMAN ASSOCIATED FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the period
For the year October 1, 1994 For the
ended June 30, through year ended
1996 June 30, 1995* September 30, 1994
----------------- ---------------- ------------------
Decrease in net assets from operations:
Net investment loss. . . . . . . . . . . . . . . . . . . . . $ (388,362) $ (240,379) $ (450,758)
Net realized gain (loss) from investment transactions. . . . 517,110 (451,689) (1,192,478)
Change in unrealized appreciation/depreciation . . . . . . . (352,459) 689,335 232,086
---------- ---------- ----------
Net increase (decrease) in net assets resulting
from operations. . . . . . . . . . . . . . . . . . (223,711) (2,733) (1,411,150)
---------- ---------- ----------
Decrease in net assets from trust share transactions (Note 2). . (929,919) (568,786) (1,125,963)
---------- ---------- ----------
Increase (decrease) in net assets. . . . . . . . . . . . . . (1,153,630) (571,519) (2,537,113)
Net assets at beginning of period. . . . . . . . . . . . . . . . 5,735,121 6,306,640 8,843,753
---------- ---------- ----------
Net assets at end of period (including accumulated
net investment loss of $4,635,886, $4,247,524 and
- - $0 -, respectively . . . . . . . . . . . . . . . . . . . . . . $4,581,491 $ 5,735,121 $ 6,306,640
---------- ---------- ----------
---------- ---------- ----------
* The Fund's fiscal year-end was changed to June 30.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
STEADMAN ASSOCIATED FUND
FINANCIAL HIGHLIGHTS
For the
period
October 1,
For the year 1994
ended through For the years ended September 30,
June 30 June 30,
---------- ---------- -------------------------------------------
1996 1995* 1994 1993 1992 1991
---------- ---------- -------------------------------------------
Per Share Operating Performance:
Net asset value, beginning of period . . . . . . . $.73 $.72 $.87 $.64 $.67 $.57
---------- ---------- -------------------------------------------
Net investment loss . . . . . . . . . . . . . (.17) (.03) (.08) (.05) (.03) (.02)
Net realized and unrealized
gain (loss) on investments . . . . . . . . .14 .04 (.07) .28 - .12
---------- ---------- -------------------------------------------
Total from investment operations. . . . . . . (.03) .01 (.15) .23 (.03) .10
---------- ---------- -------------------------------------------
Net asset value, end of period . . . . . . . . . . $.70 $.73 $.72 $.87 $.64 $.67
---------- ---------- -------------------------------------------
---------- ---------- -------------------------------------------
Ratios/Supplemental Data:
Total return . . . . . . . . . . . . . . . . . . . (4.38) 1.85%** (17.24)% 35.9% (4.5)% 17.5%
Ratio of expenses to average net assets. . . . . . 8.14% 8.17%** 7.76% 5.79% 6.92% 7.16%
Ratio of net investment income (loss)
to average net assets . . . . . . . . . . . . (7.48)% (7.23)%** (6.09)% (4.63)% (5.14)% (3.29)%
Portfolio turnover rate. . . . . . . . . . . . . . 231% 505%** 241% 300% 301% 267%
Net assets, end of period (in thousands) . . . . . $4,581 $5,735 $6,307 $8,844 $7,254 $8,539
* The Fund's fiscal year-end was changed to June 30.
** Annualized
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
STEADMAN ASSOCIATED FUND
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
- -
Steadman Associated Fund (the Fund) is registered under the Investment
Company Act of 1940, as amended, as a non-diversified, open-end investment
company. During 1995, the Fund changed its fiscal year end from September 30 to
June 30.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies consistently followed by the Fund in the
preparation of its financial statements
CASH AND CASH EQUIVALENTS
Management defines cash equivalents as investments that mature in three
months or less. All cash and cash equivalents are invested in a single money
market fund maintained by the investment custodian.
SECURITY VALUATION
Investments in securities traded on a national securities exchange are valued
at the last reported sales price on the last business day of the period.
Investments for which no sale was reported on that date are valued at the mean
between the latest bid and asked prices.
SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are recorded on the trade date. Realized gains and
losses from security transactions are reported on an identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income and
expenses are recorded on the accrual basis.
Call options give the holder the right to purchase a security at a specified
price on a certain date. Risks arise from possible illiquidity of the options
market and from movements in security values. Options are reflected in the
accompanying Statement of Assets and Liabilities at market value.
INCOME TAXES
The Fund is subject to income taxes in years when it does not qualify as a
regulated investment company under subchapter M of the Internal Revenue Code.
The Fund accounts for income taxes using the liability method, whereby deferred
tax assets and liabilities arise from the tax effect of temporary differences
between the financial statement and taxes bases of assets and liabilities,
measured using presently enacted tax rates. If it is more likely than not that
some portion or all of a deferred tax asset will not be realized, a valuation
allowance is recognized.
STEADMAN ASSOCIATED FUND
2. TRUST SHARES
The Trust Indenture does not specify a limit to the number of shares which
may be issued. Transactions in trust shares were as follows:
For the year For the period October 1, 1994 For the year
ended June 30, 1996 through June 30, 1995 ended September 30, 1994
------------------------- ------------------------- -------------------------
Shares Amount Shares Amount Shares Amount
---------- ---------- ---------- ---------- ---------- ----------
Shares sold. . . . . . . . . 269 $ 200 581 $ 413 -- 0 -- $ -- 0--
Shares redeemed. . . . . . . (1,295,786) (930,119) (845,933) (569,199) (1,426,814) (1,125.963)
---------- ---------- ---------- ----------- ----------- -----------
Net decrease. . . . . . . (1,295,517) $ (929,919) (845,352) $ (568,786) (1,426,814) $(1,125,963)
---------- ----------- -----------
---------- ----------- -----------
Shares outstanding:
Beginning of period . . . 7,875,815 8,721,167 10,147,981
---------- ---------- ----------
End of period . . . . . . 6,580,298 7,875,815 8,721,167
---------- ---------- ----------
---------- ---------- ----------
3. PURCHASES AND SALES OF SECURITIES
During the year ended June 30, 1996, purchases and proceeds from sales of
investment securities aggregated $11,790,716 and $12,530,500, respectively.
Unrealized appreciation of investments aggregated $501,026 of which $648,718
related to gross unrealized appreciation where there is an excess of value over
tax cost and $147,692 related to gross unrealized depreciation where there is an
excess of tax cost over value.
4. INVESTMENT ADVISORY FEE AND TRANSACTIONS WITH AFFILIATES
Steadman Security Corporation (SSC), the affiliate, has provided advisory
services under an agreement which first became effective in 1972. On February
28, 1984, at the Annual Meeting of the shareholders, a new Investment Advisory
Agreement was approved. Under the new advisory agreement SSC will continue to
provide the same services it provided under the same terms and conditions of the
previous agreement. The agreement will continue in effect subject to the annual
approval by the Board of Trustees or by a majority of the outstanding voting
securities of the Fund. The fee for investment advisory services is based on 1%
of the first $35,000,000 of the average daily net assets of the Fund, 7/8 of 1 %
on the next $35,000,000 and 3/4 of 1% on all sums in excess thereof. In addition
to the investment advisory fee, SSC received fees from the Fund for the
performance of delegated services. (dividend disbursing agent and transfer
agent) as defined in the Trust Indenture, as amended. The fee for such services
was computed on the basis of the number of shareholder accounts calculated as of
the last business day of each month at $1.35 per accounts. SSC received
reimbursements from the Fund for the salaries and benefits of its employees who
perform functions other than investment advisory and shareholder service
functions for the Fund.
STEADMAN ASSOCIATED FUND
Certain officers and trustees of the Fund are "affiliated persons" of the
Investment Advisor, as defined by the Investment Company Act of 1940.
5. FEDERAL INCOME TAXES
In the fiscal period ended June 30, 1996, the Fund did not meet asset
diversification requirements applicable to regulated investments companies.
Thus, the Fund did not qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code. However, the Fund had a net
investment loss for the fiscal period ended June 30, 1996, therefore no income
tax provision is required. A full valuation allowance has been provided for
deferred tax assets, totalling approximately $2,194,000 at June 30, 1996, which
arise principally from net operating loss carryforwards and capital loss
carryforwards available for income tax purposes.
For income tax purposes, the Fund has net operating loss carryforwards
approximating $4,647,000 which are available to offset future net operating
income in non-qualifying years, if any, which expire as follows: (2000)
$443,000; (2001) $499,000; (2003) $328,000; (2004) $476,000; (2005) $534,000;
(2006) $324,000; (2007) $381,000; (2008) $539,000; (2009) $437,000; (2010)
$287,000 and (2011) $401,000. Capital loss carryforwards aggregating
approximately $1,110,000 are available to offset future capital gains, if any
which expire as follows: (2001) $658,000 and (2000) $452,000.
6. UNCLAIMED PROPERTY
In December 1989, the Fund and other Steadman Funds were contacted by the
Unclaimed Property Clearinghouse (the Clearinghouse), an association of some 45
member states organized to facilitate the collection for the states of unclaimed
property that is considered abandoned under the laws of the member states. The
Clearinghouse requested certain documents and information in order to determine
whether, and if so, to what extent its member states may assert claims for
abandoned accounts of the Fund's shareholders. On the basis of a review of the
documents and information provided in response to this request, the Special
Counsel for the Clearinghouse has informally asserted that the member states are
entitled to certain property of the Fund's shareholders. In addition, Steadman
Security Corporation holds certain unclaimed dividends of the Fund's
shareholders. In May 1991, the District of Columbia filed suit in the Superior
Court of the District of Columbia against the Fund, other Steadman Funds,
Steadman Security Corporation and its principal officer under the District of
Columbia Disposition of Unclaimed Property Act. Under this action the District
of Columbia sought possession and custody of the alleged abandoned property as
well as prejudgment interest, an unspecified amount of civil penalties, and
reimbursement for reasonable attorney's fees and costs. On March 25, 1993,
counsel for the District of Columbia, the Clearinghouse and the Fund executed a
settlement agreement, which involves no findings of any violations of law by the
Fund and other defendants. The Superior Court dismissed the suit as of November
30, 1993, although the terms of the settlement agreement do not call for
dismissal until after the closing of the agreement. The District of Columbia has
appealed the dismissal. In accordance with the settlement agreement, record
title to certain shares of the Fund and associated distributions were
transferred from the present shareholders of record to the members of the
Clearinghouse on the closing date, February 14, 1995. The shares will be
redeemed over a period of three years from this date. On May 9, 1995 the Court
of appeals dismissed the appeal.
STEADMAN AMERICAN
INDUSTRY FUND
1730 K Street, N.W.
Washington, D.C. 20006
1-800-424-8570
202-223-1000 Washington D.C. area
TRANSFER AGENT
Steadman Security Corporation
1730 K Street, N.W.
Washington, D.C. 20006
CUSTODIAN
Crestar Bank, N.A.
1445 New York Avenue, N.W.
Washington, D.C. 20005
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
1800 M Street N.W.
Washington D.C. 20036
FOR MORE INFORMATION ABOUT
STEADMAN AMERICAN INDUSTRY FUND,
account information or daily
Net Asset Values, call:
SHAREHOLDER SERVICES
1-800-424-8570
202-223-1000 Washington, D.C. area
STEADMAN
AMERICAN
INDUSTRY
FUND
ANNUAL
REPORT
June 30, 1996
A STEADMAN NO-LOAD MUTUAL FUND
STEADMAN SECURITY
CORPORATION
[LOGO]
Investment Adviser
Fellow Shareholders:
The forces most dominant in present market behavior have continued to be a
low level of inflation and behavior of interest rates.
The economy generally is moving at a pace that is slowing. Although
employment levels remain high, there are indications that some of this can be
accounted for by a fact of two jobs among wage earners in many households. This
of course casts a question about the dependability of recent employment reports.
It also may support indications of there being a lesser rather than greater
likelihood that there will be an incentive for the Federal Reserve to initiate
any near term move to tighten money and raise rates.
These conditions suggest that the interest rates are going to decline.
Looking to the 30 year Treasury Bond for guidance we are beginning to see a
pattern of declining yield, of course with the Bond rising in price. We expect
this trend of declining interest rates to continue and bear with it very
favorable market consequences for your Fund.
Thank you for your confidence and continued support.
Sincerely,
/s/ Charles W. Steadman
Charles W. Steadman
Chairman of the Board of
Trustees and President
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
STEADMAN AMERICAN INDUSTRY FUND
We have audited the accompanying statement of assets and liabilities of
Steadman American Industry Fund, including the portfolio of investments, as of
June 30, 1996, and the related statement of operations for the year then ended,
the statements of changes in net assets for the year then ended and the periods
February 1, 1995 through June 30, 1995, and February 1, 1994 through January 31,
1995 and the financial highlights for the year then ended and for the period
February 1, 1995 through June 30, 1995 and each of the four years ended January
31, 1995. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of June 30, 1996, by correspondence
with the custodian and broker. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Steadman American Industry Fund as of June 30, 1996, the results of its
operations, the changes in its net assets, and the financial highlights for each
of the respective periods stated in the first paragraph, in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Washington, D.C.
July 29, 1996
STEADMAN AMERICAN INDUSTRY FUND
PORTFOLIO OF INVESTMENTS
June 30, 1996
Value
Shares (Note 1)
-------- ----------
COMMON STOCKS -- 100%
Communications Equipment -- 7.0%
Precision Systems (a) . . . . . . . . . . . . . . . . . 5,000 $ 58,750
--------
Total Communications Equipment 58,750
--------
Computer Peripherals -- 10.1%
Cisco Systems (a). . . . . . . . . . . . . . . . . . . . 1,500 84,938
--------
Total Computer Peripherals 84,938
--------
Computer Storage Equipment -- 21.4%
Seagate Technology (a) . . . . . . . . . . . . . . . . . 4,000 180,000
--------
Total Computer Storage Equipment 180,000
--------
Pharmaceutical -- 14.2%
Elan Corp. Warrants (a). . . . . . . . . . . . . . . . . 5,000 119,375
--------
Total Pharmaceutical 119,375
--------
Radio & TV Equipment -- 8.2%
Geotek Communications (a). . . . . . . . . . . . . . . . 5,000 68,437
--------
Total Radio & TV Equipment 68,437
--------
Semiconductor -- 32.4%
Intel Corp. Warrants (a).. . . . . . . . . . . . . . . . 7,500 271,875
--------
Total Semiconductor 271,875
--------
Telecom Services -- 6.7%
Champion Technology Holding Ltd. . . . . . . . . . . . . 100,000 56,500
--------
Total Telecom Services 56,500
--------
Total Portfolio of Investments (Cost $820,796) $839,875
--------
--------
(a) Non-income producing security.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
STEADMAN AMERICAN INDUSTRY FUND
Statement of Assets and Liabilities
June 30, 1996
Assets:
Investments at value (Cost $820,796) (Note 1) . . . . . . . $ 839,875
Dividends receivable. . . . . . . . . . . . . . . . . . . . 120
Interest receivable . . . . . . . . . . . . . . . . . . . . 256
Cash and cash equivalents (Note 1) . . . . . . . . . . . . 200,513
-----------
Total assets . . . . . . . . . . . . . . . . . . . . . 1,040,764
-----------
Liabilities:
Accounts payable and accrued expenses . . . . . . . . . . . 14,013
Investment advisory and service fees payable (Note 4) . . . 13,523
Other payable to affiliate (Note 4) . . . . . . . . . . . . 4,956
Payable for Trust shares redeemed . . . . . . . . . . . . . 464
-----------
Total liabilities. . . . . . . . . . . . . . . . . . . 32,956
-----------
Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,007,808
-----------
-----------
Net assets consist of:
Accumulated net investment loss . . . . . . . . . . . . . . $(3,919,011)
Unrealized appreciation of investments. . . . . . . . . . . 19,079
Accumulated net realized losses plus distributions
from realized gains. . . . . . . . . . . . . . . . . . . . (960,129)
Capital paid in less distributions since inception . . . . 5,867,869
-----------
$ 1,007,808
-----------
-----------
Net asset value, offering price and redemption price per share
($1,007,808 DIVIDED BY 1,398,489 shares of no par value
trust shares) . . . . . . . . . . . . . . . . . . . . . . . $ .72
-----------
-----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
STEADMAN AMERICAN INDUSTRY FUND
STATEMENT OF OPERATIONS
for the year ended June 30, 1996
Investment Income:
Dividends . . . . . . . . . . . . . . . . . . . . $ 1,270
Interest. . . . . . . . . . . . . . . . . . . . . 4,979
--------
Total income . . . . . . . . . . . . . . . $ 6,249
---------
Expenses:
Shareholder servicing fee (Note 4). . . . . . . . 160,315
Salaries and employee benefits (Note 4) . . . . . 55,920
Professional fees . . . . . . . . . . . . . . . . 26,297
Miscellaneous . . . . . . . . . . . . . . . . . . 10,512
Investment advisory fee (Note 4). . . . . . . . . 12,209
Reports to shareholders . . . . . . . . . . . . . 10,841
Rent . . . . . . . . . . . . . . . . . . . . . . 7,548
Trustees' fees and expenses (Note 4). . . . . . . 6,998
Computer services . . . . . . . . . . . . . . . . 6,589
Custodian fees. . . . . . . . . . . . . . . . . . 3,225
--------
Total expenses . . . . . . . . . . . . . . . 300,454
---------
Net investment loss . . . . . . . . . . . . . . . (294,205)
---------
Realized and Unrealized Gain (Loss) on Investments
(Notes 1 and 3):
Net realized gain from investment transactions. . 73,821
Change in unrealized appreciation/(depreciation)
of investments . . . . . . . . . . . . . . . . (10,496)
---------
Net gain on investments . . . . . . . . . . . . . 63,325
---------
Net decrease in net assets resulting from
operations. . . . . . . . . . . . . . . . . . . $(230,880)
---------
---------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
STEADMAN AMERICAN INDUSTRY FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the period
For the year February 1, 1995 For the year
ended June 30, through June 30, ended January 31,
1996 1995* 1995
-------------- ---------------- ----------------
Decrease in net assets from operations:
Net investment loss . . . . . . . . . . . . . . . . . . . . . . . . . $ (294,205) $ (131,469) $ (304,379)
Net realized gain (loss) from investment transactions . . . . . . . . 73,821 (69,865) (84,960)
Change in unrealized appreciation/depreciation. . . . . . . . . . . . (10,496) 91,916 (700,806)
----------- ----------- ------------
Net increase (decrease) in net assets resulting
from operations . . . . . . . . . . . . . . . . . . . . . . . . . . (230,880) (109,418) (1,090,145)
Decrease in net assets from trust share transactions (Note 2). . . . . . (102,199) (22,155) (64,452)
----------- ----------- ------------
Increase (decrease) in net assets. . . . . . . . . . . . . . . . . . . . (333,079) (131,573) 1,154,597
Net assets at beginning of period. . . . . . . . . . . . . . . . . . . . 1,340,887 1,472,460 2,627,057
----------- ----------- ------------
Net assets at end of period, including accumulated net
investment loss of $3,918,641, $3,624,436 and $3,018,368
respectively. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,007,808 $1,340,887 $1,472,460
----------- ----------- ------------
----------- ----------- ------------
* The Fund's fiscal year-end was changed to June 30.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
STEADMAN AMERICAN INDUSTRY FUND
FINANCIAL HIGHLIGHTS
For the year For the period
ended February 1, 1995
June 30, through June 30, For the years ended January 31,
-------- ---------------- ---------------------------------------
1996 1995* 1995 1994 1993 1992
-------- ---------------- ----------------------------------------
Per Share Operating Performance:
Net asset value, beginning of period. . . . . . $.88 $.96 $1.65 $1.50 $1.54 $1.59
-------- -------- -------- -------- -------- --------
Net investment loss . . . . . . . . . . . . . . (.41) (.12) (.26) (.24) (.19) (.20)
Net realized and unrealized
gain (loss) on investments. . . . . . . . . .25 .04 (.43) .39 .15 .15
-------- -------- -------- -------- -------- --------
Total from investment operations. . . . . . (.16) (.08) (.69) .15 (.04) (.05)
-------- -------- -------- -------- -------- --------
Net asset value, end of period. . . . . . . . . $.72 $.88 $.96 $1.65 $1.50 $1.54
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Ratios/Supplemental Data:
Total return. . . . . . . . . . . . . . . . . . (18.48)% (20.01)%** (41.82)% 10.00% (2.60)% (3.14)%
Ratio of expenses to average net
assets . . . . . . . . . . . . . . . . . . . 24.61% 24.62%** 17.69% 12.66% 14.83% 15.13%
Ratio of net investment loss to average
net assets . . . . . . . . . . . . . . . . . (24.10)% (22.86)%** (15.63)% (11.40)% (13.52)% (13.13)%
Portfolio turnover rate . . . . . . . . . . . . 339% 617%** 289% 134% 221% 460%
Net assets, end of period (in thousands). . . . $1,008 $1,341 $1,472 $2,627 $2,496 $2,648
* The Fund's fiscal year-end was changed to June 30.
** Annualized
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
STEADMAN AMERICAN INDUSTRY FUND
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Steadman American Industry Fund (the Fund) is registered under the
Investment Company Act of 1940, as amended, as a non-diversified, open-end
investment company. During 1995, the Fund changed its fiscal year end from
January 31 to June 30.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates. The following is a
summary of significant accounting policies consistently followed by the Fund in
the preparation of its financial statements.
CASH AND CASH EQUIVALENTS
Management defines cash equivalents as investments that mature in
three months or less. All cash and cash equivalents are invested in a
single money market fund maintained by the investment custodian.
SECURITY VALUATION
Investments in securities traded on a national securities exchange are
valued at the last reported sales price on the last business day of the
period. Investments for which no sale was reported on that date are valued
at the mean between the latest bid and asked prices.
SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are recorded on the trade date. Realized gains
and losses from security transactions are reported on an identified cost
basis. Dividend income is recorded on the ex-dividend date. Interest income
and expenses are recorded on the accrual basis.
INCOME TAXES
The Fund is subject to income taxes in years when it does not qualify
as a regulated investment company under subchapter M of the Internal
Revenue Code. The Fund accounts for income taxes using the liability
method, whereby deferred tax assets and liabilities arise from the tax
effect of temporary differences between the financial statement and tax
bases of assets and liabilities, measured using presently enacted tax
rates. If it is more likely than not that some portion or all of a
deferred tax asset will not be realized, a valuation allowance is
recognized.
STEADMAN AMERICAN INDUSTRY FUND
2. TRUST SHARES
The Trust Indenture does not specify a limit to the number of shares which
may be issued. Transactions in trust shares were as follows:
For the year For the period February 1, 1995 For the year
ended June 30, 1996 through June 30, 1995 ended January 31, 1995
------------------- -------------------------------- ----------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
Shares sold. . . . . . . -- 0 -- $ -- 0 -- -- 0 -- $ -- 0 -- -- 0-- $ -- 0--
Shares redeemed. . . . . (117,686) (102,199) (24,096) (22,155) (51,912) (64,452)
--------- ---------- --------- --------- --------- ---------
Net decrease . . . . . (117,686) $(102,199) (24,096) $(22,155) (51,912) $(64,452)
---------- --------- ---------
---------- --------- ---------
Shares outstanding:
Beginning of period . 1,516,175 1,540,271 1,592,183
--------- --------- ---------
End of period . . . . 1,398,489 1,516,175 1,540,271
--------- --------- ---------
--------- --------- ---------
3. PURCHASES AND SALES OF SECURITIES
During the year ended June 30, 1996, purchases and proceeds from sales of
investment securities aggregated $3,929,931 and $4,387,838, respectively.
Unrealized appreciation of investment aggregated $19,079 of which $51,388
related to gross unrealized appreciation in which market value exceeded tax cost
and $32,309 related to gross unrealized depreciation in which tax cost exceeded
market value.
4. INVESTMENT ADVISORY FEE AND TRANSACTIONS WITH AFFILIATES
Steadman Security Corporation (SSC), the affiliate, has provided advisory
services under an agreement which first became effective in 1972. On February
28, 1984, at the Annual Meeting of the shareholders, a new Investment Advisory
Agreement was approved. Under the new advisory agreement, SSC will continue to
provide the same services it provided under the same terms and conditions of the
previous agreement. The agreement will continue in effect subject to the annual
approval by the Board of Trustees or by a majority of the outstanding voting
securities of the Fund. The fee for investment advisory services is based on 1%
of the first $35,000,000 of the average daily net assets of the Fund, 7/8 of 1%
on the next $35,000,000 and 3/4 of 1% on all sums in excess thereof. In addition
to the investment advisory fee, SSC received fees from the Fund for the
performance of delegated services (dividend disbursing agent and transfer agent)
as defined in the Trust Indenture, as amended. The fee for such services was
computed on the basis of the number of shareholder accounts calculated as of the
last business day of each month at $1.35 per account. SSC received
reimbursements from the Fund for the salaries and benefits of its employees who
perform functions other than investment advisory and shareholder service
functions for the Fund.
Certain officers and trustees of the Fund are "affiliated persons" of the
Investment Adviser, as defined by the Investment Company Act of 1940.
STEADMAN AMERICAN INDUSTRY FUND
5. FEDERAL INCOME TAXES
In the fiscal year ended June 30, 1996, the Fund did not meet the asset
diversification requirements applicable to regulated investment companies. Thus,
the Fund did not qualify as a regulated investment company under Subchapter M of
the Internal Revenue Code. However, the Fund had a net investment loss in fiscal
1996, therefore no income tax provision is required. A full valuation allowance
was provided for deferred tax assets, totalling approximately $1,854,000 at June
30, 1996, which arise principally from net operating loss carryforwards and
capital carryforwards available for income tax purposes.
For income tax purposes, the Fund has net operating loss carryforwards
approximating $3,919,000 which are available to offset future net operating
income in non-qualifying years, if any, which expire as follows: (1999) $74,000;
(2000) $239,000; (2001) $139,000; (2002) $353,000; (2003) $371,000; (2004)
$235,000; (2005) $384,000; (2006) $365,000; (2007) $360,000; (2008) $335,000;
(2009) $322,000; (2010) $447,000 and (2011) $295,000. Capital loss carryforwards
aggregating approximately $960,000 are available to offset future capital gains,
if any, which expire as follows: (1997) $119,000; (1999) $771,000, and (2000)
$70,000.
6. UNCLAIMED PROPERTY
In December 1989, the Fund and other Steadman Funds were contacted by the
Unclaimed Property Clearinghouse (the Clearinghouse), an association of some 45
member states organized to facilitate the collection for the states of unclaimed
property that is considered abandoned under the laws of the member states. The
Clearinghouse requested certain documents and information in order to determine
whether, and if so, to what extent its member states may assert claims for
abandoned accounts of the Fund's shareholders. On the basis of a review of the
documents and information provided in response to this request, the Special
Counsel for the Clearinghouse has informally asserted that the member states are
entitled to certain property of the Fund's shareholders. In addition, Steadman
Security Corporation holds certain unclaimed dividends of the Fund's
shareholders. In May 1991, the District of Columbia filed suit in the Superior
Court of the District of Columbia against the Fund, other Steadman Funds,
Steadman Security Corporation and its principal officer under the District of
Columbia Disposition of Unclaimed Property Act. Under this action the District
of Columbia sought possession and custody of the alleged abandoned property as
well as prejudgment interest, an unspecified amount of civil penalties, and
reimbursement for reasonable attorney's fees and costs. On March 25, 1993,
counsel for the District of Columbia, the Clearinghouse and the Fund executed a
settlement agreement, which involves no findings of any violations of law by the
Fund and other defendants. The Superior Court dismissed the suit as of November
30, 1993, although the terms of the settlement agreement do not call for
dismissal until after the closing of the agreement. The District of Columbia
appealed the dismissal. In accordance with the settlement agreement, record
title to certain shares of the Fund and associated distributions were
transferred from the present shareholders of record to the members of the
Clearinghouse on the closing date, February 14, 1995. The shares will be
redeemed over a period of three years from this date. On May 9, 1995, the Court
of Appeals dismissed the appeal.
STEADMAN INVESTMENT FUND
1730 K Street, N.W.
Washington, D.C. 20006
1-800-424-8570
202-223-1000 Washington D.C. area
TRANSFER AGENT
Steadman Security Corporation
1730 K Street, N.W.
Washington, D.C. 20006
CUSTODIAN
Crestar Bank, N.A.
1445 New York Avenue, N.W.
Washington, D.C. 20005
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P
1800 M Street N.W.
Washington D.C. 20005
For more information about
STEADMAN INVESTMENT FUND.
account information or daily
Net Asset Values, call:
Shareholder Services
1-800-424-8570
202-223-1000 Washington, D.C. area
Fellow Shareholders:
STEADMAN
Investment
Fund
ANNUAL
REPORT
June 30, 1996
A STEADMAN NO-LOAD MUTUAL FUND
STEADMAN SECURITY
[LOGO] CORPORATION
Investment Adviser
Fellow Shareholders:
The forces most dominant in present market behavior have continued to be a
low level of inflation and behavior of interest rates.
The economy generally is moving at a pace that is slowing. Although
employment levels remain high, there are indications that some of this can be
accounted for by a fact of two jobs among wage earners in many households. This
of course casts a question about the dependability of recent employment reports.
It also may support indications of there being a lesser rather than greater
likelihood that there will be an incentive for the Federal Reserve to initiate
any near term move to tighten money and raise rates.
These conditions suggest that the interest rates are going to decline.
Looking to the 30 year Treasury Bond for guidance we are beginning to see a
pattern of declining yield, of course with the Bond rising in price. We expect
this trend of declining interest rates to continue and bear with it very
favorable market consequences for your Fund.
Thank you for your confidence and continued support.
Sincerely,
/s/ Charles W. Steadman
Charles W. Steadman
Chairman of the Board of
Trustees and President
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
STEADMAN INVESTMENT FUND
We have audited the accompanying statement of assets and liabilities of
Steadman Investment Fund, including the portfolio of investments, as of June 30,
1996, and the related statement of operations for the year ended June 30, 1996,
the statements of changes in net assets for the year then ended and the periods
January 1, 1995 through June 30, 1995, and January 1, 1994 through December 31,
1994 and the financial highlights for the year ended June 30, 1996 and the
period January 1, 1995 through June 30, 1995, and each of the four years ended
December 31, 1994. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of June 30, 1996, by correspondence
with the custodian and broker. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Steadman Investment Fund as of June 30, 1996, the results of its operations, the
changes in its net assets, and the financial highlights for each of the
respective periods stated in the first paragraph, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Washington, D.C.
July 29, 1996
STEADMAN INVESTMENT FUND
PORTFOLIO OF INVESTMENTS
June 30, 1996
Value
Shares (Note 1)
---------- ------------
COMMON STOCK -- 100%
Communications Equipment -- 18.3%
Electronic Data Systems. . . . . . . . . . . . . . . 2,000 $ 107,500
Motorola, Inc. . . . . . . . . . . . . . . . . . . . 2,000 125,750
Precision Systems (a). . . . . . . . . . . . . . . . 5,000 58,750
----------
Total Communications Equipment 292,000
----------
Computer Equipment -- 6.2%
Hewlett-Packard. . . . . . . . . . . . . . . . . . . 1,000 99,625
----------
Total Computer Equipment 99,625
----------
Computer Peripherals -- 10.6%
Cisco Systems (a). . . . . . . . . . . . . . . . . . 3,000 169,875
----------
Total Computer Peripherals 169,875
----------
Computer Storage Equipment -- 13.3%
Iomega Corp. (a) . . . . . . . . . . . . . . . . . . 5,000 145,000
Seagate Technology (a) . . . . . . . . . . . . . . . 1,500 67,500
----------
Total Computer Storage Equipment 212,500
----------
Computer Systems Design -- 7.4%
Sun Microsystems (a) . . . . . . . . . . . . . . . . 2,000 117,750
----------
Total Computer Systems Design 117,750
----------
Medical Instruments -- 5.6%
Boston Scientific (a). . . . . . . . . . . . . . . . 2,000 90,000
----------
Total Medical Instruments 90,000
----------
STEADMAN INVESTMENT FUND
PORTFOLIO OF INVESTMENTS
June 30, 1996
Value
Shares (Note 1)
---------- ------------
Motor Vehicles -- 9.4%
General Motors Class "H" . . . . . . . . . . . . . . 2,500 150,313
----------
Total Motor Vehicles 150,313
----------
Oil & Gas Drilling -- 8.7%
Global Marine (a). . . . . . . . . . . . . . . . . . 10,000 138,750
----------
Total Oil & Gas Drilling 138,750
----------
Pharmaceutical -- 8.1%
Regeneron Pharmaceutical (a) . . . . . . . . . . . . 7,500 130,312
----------
Total Pharmaceutical 130,312
----------
Radio and TV Equipment -- 4.3%
Geotek Communications, Inc. (a). . . . . . . . . . . 5,000 68,438
----------
Total Radio and TV Equipment 68,438
----------
Semiconductor -- 3.4%
Intel Corp. Warrants (a) . . . . . . . . . . . . . . 1,500 54,375
----------
Total Semiconductor 54,375
----------
Telephone Communications --4.7%
Lucent Technology. . . . . . . . . . . . . . . . . . 2,000 75,750
----------
Total Telephone Communications 75,750
----------
Total Portfolio of Investments (Cost $1,655,198) $ 1,599,688
----------
----------
(a) Non-Income producing security
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
STEADMAN INVESTMENT FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996
Assets:
Investments at value (Cost $1,655,198) (Note 1). . . . . . . . . . . $ 1,599,688
Cash and cash equivalents (Note 1) . . . . . . . . . . . . . . . . . 261,004
Interest receivable . . . . . . . . . . . . . . . . . . . . . . . . 567
Dividends receivable . . . . . . . . . . . . . . . . . . . . . . . . 630
-----------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,861,889
-----------
Liabilities:
Accounts payable and accrued expenses. . . . . . . . . . . . . . . . 14,858
Investment advisory and service fees payable (Note 4). . . . . . . . 5,571
Other payable to affiliate (Note 4). . . . . . . . . . . . . . . . . 7,593
Payable for securities purchased . . . . . . . . . . . . . . . . . . 70,400
-----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . 98,422
-----------
Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,763,467
-----------
-----------
Net assets consist of:
Accumulated net investment loss. . . . . . . . . . . . . . . . . . . $(1,675,340)
Unrealized depreciation of investments . . . . . . . . . . . . . . . (55,510)
Accumulated net realized losses. . . . . . . . . . . . . . . . . . . (389,330)
Capital paid in less distributions since inception . . . . . . . . . 3,883,647
-----------
$ 1,763,467
-----------
-----------
Net asset value, offering price and redemption price per share
($1,763,467 DIVIDED BY 2,038,728 shares of no par value trust shares). . . $ .86
-----------
-----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
STEADMAN INVESTMENT FUND
STATEMENT OF OPERATIONS
for the year ended June 30, 1996
Investment Income:
Dividends . . . . . . . . . . . . . . . . . . . . . . . $ 1,530
Interest. . . . . . . . . . . . . . . . . . . . . . . . 112,558
---------
Total income . . . . . . . . . . . . . . . . . . . . $ 114,088
Expenses:
Salaries and employee benefits (Note 4) . . . . . . . . 84,139
Shareholder servicing fee (Note 4). . . . . . . . . . . 50,666
Professional fees . . . . . . . . . . . . . . . . . . . 30,275
Investment advisory fee (Note 4). . . . . . . . . . . . 21,259
Miscellaneous . . . . . . . . . . . . . . . . . . . . . 8,671
Rent. . . . . . . . . . . . . . . . . . . . . . . . . . 13,163
Computer services . . . . . . . . . . . . . . . . . . . 7,943
Reports to shareholders . . . . . . . . . . . . . . . . 5,149
Trustees' fees and expenses (Note 4). . . . . . . . . . 3,528
Custodian fees. . . . . . . . . . . . . . . . . . . . . 400
---------
Total expenses. . . . . . . . . . . . . . . . . . . . 225,193
-----------
Net investment loss . . . . . . . . . . . . . . . . . (111,105)
-----------
Realized and Unrealized Gain (Loss) on Investments (Notes 1 and 3):
Net realized gain from investment transactions. . . . . 47,825
Change in unrealized appreciation/(depreciation) of investments (271,135)
-----------
Net loss on investments . . . . . . . . . . . . . . . (223,310)
-----------
Net decrease in net assets resulting from operations. $ (334,415)
-----------
-----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
STEADMAN INVESTMENT FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the year For the period For the
ended June 30, January 1, 1995 year ended
1996 through June 30, 1995* December 31, 1994
---------------- ------------------- -----------------
Increase (decrease) in net assets from operations:
Net investment loss. . . . . . . . . . . . . . . . . . . . . . $ (111,105) $ (46,958) $ (46,458)
Net realized gain (loss) from investment transactions. . . . . 47,825 (242,568) (194,587)
Change in unrealized depreciation/appreciation . . . . . . . . (271,135) 491,165 (779,305)
----------- ----------- -----------
Net increase (decrease) in net assets resulting
from operations . . . . . . . . . . . . . . . . . . . . . . . (334,415) 202,139 (1,160,720)
Decrease in net assets from trust share transactions (Note 2). . (200,097) (63,007) (230,035)
----------- ----------- -----------
Increase (decrease) in net assets. . . . . . . . . . . . . . . . (534,512) 139,132 (1,390,755)
Net assets at beginning of period. . . . . . . . . . . . . . . . 2,297,979 2,158,847 3,549,602
----------- ----------- -----------
Net assets at end of period (including accumulated net
investment loss of $1,679,999, $1,568,894
and $204,464 respectively) . . . . . . . . . . . . . . . . . . . $1,763,467 $2,297,979 $2,158,847
----------- ----------- -----------
----------- ----------- -----------
* The Fund's fiscal year-end was changed to June 30.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
STEADMAN INVESTMENT FUND
FINANCIAL HIGHLIGHTS
For the year For the period
ended January 1, 1995 For the years ended December 31,
June 30, through June 30,
------------ ---------------- -------------------------------------
1996 1995* 1994 1993 1992 1991
------------ ---------------- -------------------------------------
Per Share Operating Performance:
Net asset value, beginning of period . . . . . $1.02 $.93 $1.42 $1.38 $1.49 $1.12
------------ ---------------- -------------------------------------
Net investment loss. . . . . . . . . . . . . . (.13) (.02) (.08) (.06) (.09) (.06)
Net realized and unrealized
gain (loss) on investments. . . . . . . . . (.03) 11 .(.41) .10 .(.02) .43
------------ ---------------- -------------------------------------
Total from investment operations . . . (.16) .09 (.49) .04 (.11) .37
------------ ---------------- -------------------------------------
Net asset value, end of period . . . . . . . . $.86 $1.02 $ .93 $1.42 $1.38 $1.49
------------ ---------------- -------------------------------------
------------ ---------------- -------------------------------------
Ratios/Supplemental Data:
Total return . . . . . . . . . . . . . . . . . (15.53)% 19.36%** (34.51)% 2.89% (7.05)% 32.95%
Ratio of expenses to average net
assets. . . . . . . . . . . . . . . . . . . 10.60% 10.54%** 8.90% 6.48% 7.78% 7.88%
Ratio of net investment loss to average
net assets. . . . . . . . . . . . . . . . . (5.23)% (4.24)%** (6.65)% (4.52)% (6.09)% (5.08)%
Portfolio turnover rate. . . . . . . . . . . . 382% 226%** 282% 179% 263% 245%
Net assets, end of period (in thousands) . . . $1,763 $2,298 $2,159 $3,550 $3,781 $4,277
*The Fund's fiscal year-end was changed to June 30.
**Annualized
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
STEADMAN INVESTMENT FUND
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Steadman Investment Fund (the Fund) is registered under the Investment Company
Act of 1940, as amended, as a non-diversified, open-end investment company.
During 1995, the Fund changed its fiscal year end from December 31 to June 30.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The following is a summary of
significant accounting policies consistently followed by the Fund in the
preparation of its financial statements.
CASH AND CASH EQUIVALENTS
Management defines cash equivalents as investments that mature in three
months or less. All cash and cash equivalents are invested in a single money
market fund maintained by the investment custodian.
SECURITY VALUATION
Investments in securities traded on a national securities exchange are
valued at the last reported sales price on the last business day of the
period. Investments for which no sale was reported on that date are valued at
the mean between the latest bid and asked prices.
SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are recorded on the trade date. Realized gains and
losses from security transactions are reported on an identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income and
expenses are recorded on the accrual basis.
INCOME TAXES
The Fund is subject to income taxes in years when it does not qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code.
The Fund accounts for income taxes using the liability method, whereby
deferred tax assets and liabilities arise from the tax effect of temporary
differences between the financial statement and tax bases of assets and
liabilities, measured using presently enacted tax rates. If it is more likely
than not that some portion or all of a deferred tax asset will not be
realized, a valuation allowance is recognized.
STEADMAN INVESTMENT FUND
2. TRUST SHARES
The Trust Indenture does not specify a limit to the number of shares which
may be issued. Transactions in trust shares were as follows:
For the year For the period January 1 For the year
ended June 30, 1996 1995 through June 30, 1995 ended December 31, 1994
----------------------- -------------------------- -----------------------
Shares Amount Shares Amount Shares Amount
-------- -------- -------- -------- -------- --------
Shares sold. . . . . . . . . -- 0 -- $ -- 0 -- -- 0 -- $ -- 0 -- -- 0 -- $ -- 0--
Shares redeemed. . . . . . . (205,360) (200,097) (65,380) (63,007) (183,957) (230,035)
------- ---------- -------- ---------- --------- ---------
Net decrease. . . . . . . (205,360) $ (200,097) (65,380) $ (63,007) (183,957) $(230,035)
. . . . . . . . . . . . ========== ========== =========
Shares outstanding:
Beginning of period. . . 2,244,088 2,309,468 2,493,425
--------- --------- ---------
End of Period. . . . . . 2,038,728 2,244,088 2,309,468
--------- --------- ---------
--------- --------- ---------
3. PURCHASES AND SALES OF SECURITIES
During the year ended June 30, 1996, purchases and sales proceeds of
investment securities aggregated $7,862,972 and $8,232,376, respectively.
The net unrealized depreciation of investments aggregated $55,510 of which
$75,670 related to gross unrealized appreciation where there is an excess of
value over tax cost and $131,180 related to gross unrealized depreciation of
investments where there is an excess of tax cost over value.
4. INVESTMENT ADVISORY FEE AND TRANSACTIONS WITH AFFILIATES
Steadman Security Corporation (SSC), the affilate, has provided investment
advisory services under an agreement which first became effective in 1972. On
February 28, 1984, at the Annual Meeting of the shareholders, a new Investment
Advisory Agreement was approved. Under the new advisory agreement SSC will
continue to provide the same services it provides under the same terms and
conditions of the previous agreement. The agreement will continue in effect
subject to the annual approval by the Board of Trustees or by a majority of the
outstanding voting securities of the Fund. The fee for investment advisory
services is based on 1% of the first $35,000,000 of the average daily net assets
of the Fund, 7/8 of 1% on the next $35,000,000 and 3/4 of 1% on all sums in
excess thereof. In addition to the investment advisory fee, SSC received fees
from the Fund for the performance of delegated services (dividend disbursing
agent and transfer agent) as defined in the Trust Indenture, as amended. The
fee for such services was computed on the basis of the number of shareholder
accounts calculated as of the last business day of each month at $1.35 per
account. SSC received reimbursements from the Fund for the salaries and
benefits of its employees who perform functions other than investment advisory
and shareholder service functions for the Fund.
Certain officers and trustees of the Fund are "affiliated persons" of the
Investment Adviser, as defined by the Investment Company Act of 1940.
5. FEDERAL INCOME TAXES
In the fiscal year June 30, 1996, the Fund did not meet the asset
diversification requirements applicable to regulated investment companies. Thus,
the Fund did not qualify as a regulated investment company under Subchapter M of
the Internal Revenue Code. However, the Fund had a net investment loss in the
fiscal period ended June 30, 1996, therefore no income tax provision is
required. A full valuation allowance has been provided for the deferred tax
assets, totalling approximately $784,000 at June 30, 1996, which arise
principally from net operating loss carryforwards and capital loss carryforwards
available for income tax purposes.
The Fund has net operating loss carryforwards approximating $1,675,000 which
are available to offset future net operating income in non-qualifying years, if
any, which expire as follows: (2004) $299,000; (2005) $304,000; (2006)
$222,000; (2007) $278,000; (2008) $217,000; (2009) $204,000; (2010) $46,000 and
(2011) 112,000. Capital loss carryforwards aggregating approximately $389,000
are available to offset future capital gains, if any, expiring as follows:
(1999) $147,000 and (2000) $243,000.
6. UNCLAIMED PROPERTY
In December 1989, the Fund and other Steadman Funds were contacted by the
Unclaimed Property Clearinghouse (the Clearinghouse), an association of some 45
member states organized to facilitate the collection for the states of unclaimed
property that is considered abandoned under the laws of the member states. The
Clearinghouse requested certain documents and information in order to determine
whether, and if so, to what extent its member states may assert claims for
abandoned accounts of the Fund's shareholders. On the basis of a review of the
documents and information provided in response to this request, the Special
Counsel for the Clearinghouse has informally asserted that the member states are
entitled to certain property of the Fund's shareholders. In addition Steadman
Security Corporation holds certain unclaimed dividends of the Fund's
shareholders. In May 1991, the District of Columbia filed suit in the Superior
Court of the District of Columbia against the Fund, other Steadman Funds,
Steadman Security Corporation and its principal officer under the District of
Columbia Disposition of Unclaimed Property Act. Under this action the District
of Columbia sought possession and custody of the alleged abandoned property as
well as prejudgment interest, an unspecified amount of civil penalties, and
reimbursement for reasonable attorney's fees and costs. On March 25, 1993,
counsel for the District of Columbia, the Clearinghouse and the Fund executed a
settlement agreement, which involves no findings of any violations of law by
the Fund and other defendants. The Superior Court dismissed the suit as of
November 30, 1993, although the terms of the settlement agreement do not call
for dismissal until after the closing agreement. The District of Columbia
appealed the dismissal. In accordance with the settlement agreement, record
title to certain shares of the Fund and associated distributions were
transferred from the present shareholders of record to the members of the
Clearinghouse on the closing date, February 14, 1995. The shares will be
redeemed over a period of three years from this date. On May 9, 1995, the Court
of Appeals dismissed the appeal.
STEADMAN TECHNOLOGY
AND GROWTH FUND
1730 K Street, N.W.
Washington, D.C. 20006
1-800-424-8570
202-223-1000 Washington D.C. area
TRANSFER AGENT
Steadman Security Corporation
1730 K Street, N.W.
Washington, D.C. 20006
CUSTODIAN
Crestar Bank, N.A.
1445 New York Avenue, N.W.
Washington, D.C. 20005
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
1800 M Street, N.W.
Washington, D.C. 20036
For more information about
STEADMAN TECHNOLOGY AND GROWTH FUND,
account information or daily
Net Asset Values, call:
Shareholder Services
1-800-424-8570
202-223-1000 Washington, D.C. area
STEADMAN
TECHNOLOGY
AND GROWTH
FUND
ANNUAL
REPORT
June 30, 1996
A Steadman NO-LOAD Mutual Fund
STEADMAN SECURITY
CORPORATION
[LOGO]
Investment Adviser
Fellow Shareholders:
The forces most dominant in present market behavior have continued to be a
low level of inflation and behavior of interest rates.
The economy generally is moving at a pace that is slowing. Although
employment levels remain high, there are indications that some of this can be
accounted for by a fact of two jobs among wage earners in many households. This
of course casts a question about the dependability of recent employment reports.
It also may support indications of there being a lesser rather than greater
likelihood that there will be an incentive for the Federal Reserve to initiate
any near term move to tighten money and raise rates.
These conditions suggest that the interest rates are going to decline.
Looking to the 30 year Treasury Bond for guidance we are beginning to see a
pattern of declining yield, of course with the Bond rising in price. We expect
this trend of declining interest rates to continue and bear with it very
favorable market consequences for your Fund.
Thank you for your confidence and continued support.
Sincerely,
/s/ Charles W. Steadman
Charles W. Steadman
Chairman of the Board of
Trustees and President
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
STEADMAN TECHNOLOGY AND GROWTH FUND
We have audited the accompanying statement of assets and liabilities of
Steadman Technology and Growth Fund, including the portfolio of investments, as
of June 30, 1996, and the related statement of operations for the year then
ended, the statements of changes in net assets for the year then ended and the
periods January 1, 1995 through June 30, 1995, and January 1, 1994 through
December 31, 1994 and the financial highlights for the year ended June 30, 1996,
and the period January 1, 1995 through June 30, 1995, and each of the four years
ended December 31, 1994. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of June 30, 1996, by correspondence with the
custodian and broker. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Steadman Technology and Growth Fund as of June 30, 1996, the results of its
operations, the changes in its net assets, and the financial highlights for each
of the respective periods stated in the first paragraph, in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Washington, D.C.
July 29, 1996
STEADMAN TECHNOLOGY AND GROWTH FUND
PORTFOLIO OF INVESTMENTS
June 30, 1996
Value
Shares (Note 1)
------ --------
COMMON STOCKS -- 100%
Communications Equipment -- 6.9%
Precision Systems (a) . . . . . . . . . . . . . . 3,000 $ 35,250
--------
Total Communications Equipment 35,250
--------
Computer Storage Equipment -- 26.4%
Seagate Technology (a). . . . . . . . . . . . . . 3,000 135,000
--------
Total Computer Storage Equipment 135,000
--------
Pharmaceutical -- 43.1%
Elan Corp. Warrants (a) . . . . . . . . . . . . . 4,500 107,437
Regeneron Pharmaceuticals (a) . . . . . . . . . . 6,500 112,938
--------
Total Pharmaceutical 220,375
--------
Radio & TV Equipment -- 9.4%
Geotek Communications (a) . . . . . . . . . . . . 3,500 47,906
--------
Total Radio & TV Equipment 47,906
--------
Semiconductor -- 14.2%
Intel Corp. Warrants (a). . . . . . . . . . . . . 2,000 72,500
--------
Total Semiconductor 72,500
--------
Total Portfolio of Investments (Cost $462,417). . $511,031
--------
--------
(a) Non-income producing security
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
STEADMAN TECHNOLOGY AND GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996
ASSETS:
Investments at value (Cost $462,417) (Note 1). . . . . . . . . . . $ 511,031
Cash and cash equivalents (Note 1). . . . . . . . . . . . . . . . 53,877
Interest receivable. . . . . . . . . . . . . . . . . . . . . . . . 131
-----------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . 565,039
-----------
LIABILITIES:
Accounts payable and accrued expenses. . . . . . . . . . . . . . . 13,050
Investment advisory and service fees payable (Note 4). . . . . . . 6,353
Other payable to affiliate (Note 4). . . . . . . . . . . . . . . . 3,229
-----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . 22,632
-----------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 542,407
-----------
-----------
Net assets consist of:
Accumulated net investment loss. . . . . . . . . . . . . . . . . . $(2,670,098)
Unrealized appreciation of investments . . . . . . . . . . . . . . 48,614
Accumulated net realized losses . . . . . . . . . . . . . . . . . (336,113)
Capital paid in less distributions since inception.. . . . . . . . 3,500,004
-----------
$ 542,407
-----------
-----------
NET ASSET VALUE, offering price and redemption price per share
($542,407 DIVIDED BY 529,419 shares of no par value trust
shares). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.02
-----------
-----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
STEADMAN TECHNOLOGY AND GROWTH FUND
STATEMENT OF OPERATIONS
for the year ended June 30, 1996
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 855
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,979
------
Total income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,834
EXPENSES:
Shareholder servicing fee (Note 4). . . . . . . . . . . . . . . . . . . 72,446
Salaries and employee benefits (Note 4) . . . . . . . . . . . . . . . . 37,679
Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,222
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,156
Reports to shareholders . . . . . . . . . . . . . . . . . . . . . . . . 7,472
Computer services . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,225
Investment advisory fee (Note 4). . . . . . . . . . . . . . . . . . . . 6,870
Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,260
Trustees' fees and expenses (Note 4). . . . . . . . . . . . . . . . . . 3,528
Custodian fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,838
------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 175,696
----------
Net investment loss . . . . . . . . . . . . . . . . . . . . . . . . . . (172,862)
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTES 1 AND 3):
Net realized loss from investment transactions. . . . . . . . . . . . . (129,743)
Change in unrealized appreciation/(depreciation) of investments . . . . 84,018
----------
Net loss on investments . . . . . . . . . . . . . . . . . . . . . (45,725)
----------
Net decrease in net assets resulting from operations. . . . . . . $(218,587)
----------
----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
STEADMAN TECHNOLOGY AND GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the year For the period For the year
ended June 30, January 1, 1995 ended December
1996 through June 30,1995* 31, 1994
-------------- --------------------- --------------
Decrease in net assets from operations:
Net investment loss. . . . . . . . . . . . . . . . . . . . . $(172,862) $(85,892) $ (174,615)
Net realized gain (loss) from investment transactions. . . . (129,743) (55,337) 15,713
Change in unrealized appreciation/depreciation . . . . . . . 84,018 59,947 (369,931)
---------- --------- -----------
Net decrease in net assets resulting
from operations. . . . . . . . . . . . . . . . . . (218,587) (81,282) (528,833)
Decrease in net assets from trust share transactions (Note 2). . . (37,546) (14,277) (44,346)
---------- --------- -----------
Decrease in net assets . . . . . . . . . . . . . . . . (256,133) (95,559) (573,179)
Net assets at beginning of period. . . . . . . . . . . . . . . . . 798,540 894,099 1,467,278
---------- --------- -----------
Net assets at end of period, including accumulated net
investment loss of $2,668,357, $2,495,495
and $2,284,399, respectively . . . . . . . . . . . . . . . . $542,407 $798,540 $ 894,099
---------- --------- -----------
---------- --------- -----------
* The Fund's fiscal year-end was changed to June 30.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
STEADMAN TECHNOLOGY AND GROWTH FUND
FINANCIAL HIGHLIGHTS
For the For the period
year ended January 1, 1995
June 30, through June 30 For the years ended December 31,
---------- ---------------------------------------------------------
1996 1995 1994 1993 1992 1991
---------- ---------------------------------------------------------
Per Share Operating Performance:
Net asset value, beginning of period. . . . $1.43 $1.57 $2.48 $2.69 $2.84 $2.21
---------- ---------------------------------------------------------
Net investment loss . . . . . . . . . . . . (.58) (.22) (.45) (.40) (.33) (.30)
Net realized and unrealized
gain (loss) on investments. . . . . . .. .17 08 (.46) .19 .18 .93
---------- ---------------------------------------------------------
Total from investment operations. . . . (.41) (.14) (.91) (.21) (.15) .63
---------- ---------------------------------------------------------
Net asset value, end of period. . . . . . . $1.02 $1.43 $1.57 $2.48 $2.69 $2.84
---------- ---------------------------------------------------------
---------- ---------------------------------------------------------
Ratios/Supplemental Data:
Total return. . . . . . . . . . . . . . . . (28.29)% (17.84)%** (36.69)% (7.81)% (5.28)% 28.51%
Ratio of expenses to average net
assets. . . . . . . . . . . . . . . . . 25.19% 22.28%** 16.34% 11.94% 13.33% 14.10%
Ratio of net investment loss
to average net assets . . . . . . . . . (24.78)% (20.90)%** (14.79)% (11.38)% (12.45)% (11.70)%
Portfolio turnover rate . . . . . . . . . . 333% 615%** 274% 128% 157% 318%
Net assets, end of period (in thousands). . $542 $799 $894 $1,467 $1,634 $1,786
* The Fund's fiscal year-end was changed to June 30.
** Annualized
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
STEADMAN TECHNOLOGY AND GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Steadman Technology and Growth Fund (the Fund) is registered under the
Investment Company Act of 1940, as amended, as a nondiversified, open-end
investment company. During 1995, the Fund changed its fiscal year end from
December 31 to June 30.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies consistently followed
by the Fund in the preparation of its financial statements.
CASH AND CASH EQUIVALENTS
Management defines cash equivalents as investments that mature in
three months or less. All cash and cash equivalents are invested in a
single money market fund maintained by the investment custodian.
SECURITY VALUATION
Investments in securities traded on a national securities exchange are
valued at the last reported sales price on the last business day of the
period. Investments for which no sale was reported on that date are valued
at the mean between the latest bid and asked prices.
SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are recorded on the trade date. Realized gains
and losses from security transactions are reported on an identified cost
basis. Dividend income is recorded on the ex-dividend date. Interest
income and expenses are recorded on the accrual basis.
INCOME TAXES
The Fund is subject to income taxes in years when it does not qualify
as a regulated investment company under Subchapter M of the Internal
Revenue Code. The Fund accounts for income taxes using the liability
method, whereby deferred tax assets and liabilities arise from the tax
effect of temporary differences between the financial statement and tax
bases of assets and liabilities, measured using presently enacted tax
rates. If it is more likely than not that some portion or all of a deferred
tax asset will not be realized, a valuation allowance is recognized.
STEADMAN TECHNOLOGY AND GROWTH FUND
2. TRUST SHARES
The Trust Indenture does not specify a limit to the number of shares which
may be issued. Transactions in trust were as follows:
For the year For the period January 1, 1995 For the year ended
ended June 30, 1996 through June 30, 1995 December 31, 1994
----------------------- ------------------- --------------------
Shares Amount Shares Amount Shares Amount
--------- -------- -------- -------- -------- --------
Shares sold. . . . . . . . . -- 0 -- $ -- 0 -- -- 0 -- $ -- 0 -- -- 0 -- $ -- 0 --
Shares redeemed. . . . . . . (29,474) (37,546) (9,910) (14,277) (22,286) (44,346)
---------- ----------- -------- ---------- -------- -----------
Net decrease . . . . . . . . (29,474) $ (37,546) (9,910) $ (14,277) (22,286) $ (44,346)
----------- ---------- -----------
----------- ---------- -----------
Shares outstanding:
Beginning of period. . . . . 558,893 568,803 591,089
------- ------- -------
End of period. . . . . . . . 529,419 558,893 568,803
------- ------- -------
------- ------- -------
3. PURCHASES AND SALES OF SECURITIES
During the year ended June 30, 1996, purchases and proceeds from sales of
investment securities aggregated $2,259,821 and $2,531,447, respectively.
The net unrealized appreciation of investments aggregated $48,614 of which
$62,237 related to gross unrealized appreciation where there is an excess of
value over tax cost and $13,623 related to gross unrealized depreciation where
there is an excess of tax cost over value.
4. INVESTMENT ADVISORY FEE AND TRANSACTIONS WITH AFFILIATES
Steadman Security Corporation (SSC), the affiliate, has provided advisory
services under an agreement which first became effective in 1972. On February
28, 1984, at the Annual Meeting of the shareholders, a new Investment Advisory
Agreement was approved. Under the new advisory agreement, SSC will continue to
provide the same services it provided under the same terms and conditions of the
previous agreement. The agreement will continue in effect subject to the annual
approval by the Board of Trustees or by a majority of the outstanding voting
securities of the Fund. The fee for investment advisory services is based on 1%
of the first $35,000,000 of the average daily net assets of the Fund, 7/8 of 1%
on the next $35,000,000 and 3/4 of 1% on all sums in excess thereof. In
addition to the investment advisory fee, SSC received fees from the Fund for the
performance of delegated services (dividend disbursing agent and transfer agent)
as defined in the Trust Indenture, as amended. The fee for such services was
computed on the basis of the number of shareholder accounts calculated as of the
last business day of each month at $1.35 per account. SSC received
reimbursements from the Fund for the salaries and benefits of its employees who
perform functions other than investment advisory and shareholder service
functions for the Fund.
Certain officers and trustees of the Fund are "affiliated persons" of the
Investment Adviser, as defined by the Investment Company Act of 1940.
5. FEDERAL INCOME TAXES
In the fiscal year ended June 30, 1996, the Fund did not meet the asset
diversification requirements applicable to regulated investment companies. Thus,
the Fund did not qualify as a regulated investment company under Subchapter M of
the Internal Revenue Code. However, the Fund had a net investment loss in the
fiscal period ended June 30, 1996 and realized net capital losses in the fiscal
period ended June 30, 1996, therefore no income tax provision is required. A
full valuation allowance was provided throughout the fiscal period ended June
30, 1996 for deferred tax assets, totalling approximately $1,142,000 at June 30,
1996, which arise principally from net operating loss carryforwards and capital
loss carryforwards available for income tax purposes.
The Fund has net operating loss carryovers approximating $2,670,000 which
are available to offset future net operating income in non-qualifying years, if
any, which expire as follows: (1999) $111,000; (2000) $272,000; (2001) $264,000;
(2002) $252,000; (2003) $236,000; (2004) $240,000; (2005) $254,000; (2006)
$194,000; (2007) $212,000; (2008) $198,000; (2009) $177,000; (2010) $86,000 and
(2011) 174,000. Capital loss carryforwards aggregating approximately $336,000
are available to offset future capital gains, if any, which expire as follows:
(1997) $151,000; (2000) $55,000 and (2001) 130,000.
6. UNCLAIMED PROPERTY
In December 1989, the Fund and other Steadman Funds were contacted by the
Unclaimed Property Clearinghouse (the Clearinghouse), an association of some
45 member states organized to facilitate the collection for the states of
unclaimed property that is considered abandoned under the laws of the member
states. The Clearinghouse requested certain documents and information in order
to determine whether, and if so, to what extent its member states may assert
claims for abandoned accounts of the Fund s shareholders. On the basis of a
review of the documents and information provided in response to this request,
the Special Counsel for the Clearinghouse has informally asserted that the
member states are entitled to certain property of the Fund s shareholders. In
addition, Steadman Security Corporation holds certain unclaimed dividends of
the Fund s shareholders. In May 1991, the District of Columbia filed suit in
the Superior Court of the District of Columbia against the Fund, other
Steadman Funds, Steadman Security Corporation and its principal officer under
the District of Columbia Disposition of Unclaimed Property Act. Under this
action the District of Columbia sought possession and custody of the alleged
abandoned property as well as prejudgment interest, an unspecified amount of
civil penalties, and reimbursement for reasonable attorney s fees and costs.
On March 25, 1993, counsel for the District of Columbia, the Clearinghouse and
the Fund executed a settlement agreement, which involves no findings of any
violations of law by the Fund and other defendants. The Superior Court
dismissed the suit as of November 30, 1993, although the terms of the
settlement agreement do not call for dismissal until after the closing of the
agreement. The District of Columbia appealed the dismissal. In accordance
with the settlement agreement, record title to certain shares of the Fund and
associaled distributions were transferred from the present shareholders of
record to the members of the Clearinghouse on the closing date, February 14,
1995. The shares will be redeemed over a period of three years from this date.
On May 9, 1995, the Court of Appeals dismissed the appeal.
PART C: OTHER INFORMATION
ITEM 15. INDEMNIFICATION.
Section 5.3 of the Amended Restated Trust Indenture of Steadman Security
Trust and Declaration of Trust (the "Trust Agreement") of the Steadman
Associated Fund, which will be renamed the Steadman Security Trust (the "Fund"
or the "Registrant"), provides that the Fund shall indemnify each of its
trustees, advisors, officers, employees, and agents (including any person who
serves at the request of the Fund as a director, officer, partner, trustee or
the like of another organization in which the Fund has any interest as a
shareholder, creditor or otherwise) against all liabilities and expenses,
including amounts paid in satisfaction of judgments, in compromise, as fines or
penalties and as counsel fees, reasonably incurred by such person in connection
with the defense or disposition of any action, suit or other proceeding, whether
civil or criminal, in which the person may be involved or with which the person
may be threatened, while acting as a trustee or advisor, or as an officer,
employee, or agent of the Fund or the trustees, or thereafter, by reason of the
person being or having been a trustee, advisor, officer, employee or agent.
However, indemnification shall not be available with respect to any matter as to
which such person has been adjudicated to have acted in bad faith or with
willful misconduct or reckless disregard of such person's duties or gross
negligence or not to have acted in good faith in the reasonable belief that such
person's action was in the best interest of the Fund. If the matter is disposed
of by a compromise payment, pursuant to a consent decree or otherwise, no
indemnification either for said payment or for any other expenses shall be
provided unless such compromise shall have been approved as in the best
interests of the Fund by a majority of the disinterested trustees or the Fund
has received a written opinion of independent legal counsel to the effect that
the person to be indemnified appears to have acted in good faith in the
reasonable belief that such person's action was in the best interests of the
fund. A provision of this section of the Trust Agreement also provides that the
Trust Agreement is not the sole means of indemnification and that the Fund may
indemnify persons as provided by applicable law.
The District of Columbia Code does not contain a provision relating to the
indemnification of trustees, officers, employees, or agents of a trust. However,
under general common law trust principles, a trustee is normally entitled to
reimbursement from the trust for all necessary and reasonable expenditures made
in the execution of the trust if the trustee acted in good faith for the benefit
of the trust. However, under common law trust principles, property of the trust
cannot be used to reimburse the trustee for losses or expenses incurred by the
trustee, unless the trustee has exercised good faith and common prudence.
In addition, the Agreement and Plan of Merger (the "Agreement") by and among
the Registrant, and the Steadman Investment Fund, the Steadman American Industry
Fund, and the Steadman Technology and Growth Fund (the "Other Funds") provides
at Section 14. Indemnification for, in certain circumstances, the
indemnification of the respective officers, directors, trustees, and
shareholders of the Other Funds. A copy of the Agreement is attached as Exhibit
4 to this Registration Statement.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be provided to directors, officers, or
controlling persons of the Registrant, the
C-1
Registrant has been advised that in the opinion of the Securities and
Exchange Commission ("SEC"), such indemnification is against public policy as
expressed in the Act and, therefore, is unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
ITEM 16. EXHIBITS:
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)*
99.1 Form of Proxies of Funds*
- ------------------------
* Previously filed.
**To be filed by amendment.
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ITEM 17. UNDERTAKINGS
(1) The undersigned registrant agrees that prior to any public reoffering of
the securities registered through the use of a prospectus which is a part of
this registration statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act [17 CFR
230.145c], the reoffering prospectus will contain the information called for by
the applicable registration form for the reofferings by persons who may be
deemed underwriters, in addition to the information called for by the other
items of the applicable form.
(2) The undersigned registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each
post-effective amendment shall be deemed to be a new registration statement
for the securities offered therein, and the offering of the securities at
that time shall be deemed to be the initial bona fide offering of them.
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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 25th day of July, 1997.
Steadman Security Trust
Registrant
/s/ CHARLES W. STEADMAN
-----------------------------------------
Charles W. Steadman, Trustee,
Chairman of the Board of Trustees and
President, Steadman Security Trust
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
(SIGNATURE) (TITLE) (DATE)
- ------------------------------ -------------------------- -------------------
/s/ CHARLES W. STEADMAN Chairman of the Board, July 25, 1997
- ------------------------------ President and Trustee
Charles W. Steadman Principal Executive
Officer
/s/ MAX KATCHER Executive Vice President July 25, 1997
- ------------------------------ Treasurer & Secretary
Max Katcher Principal Financial
Officer
Principal Accounting
Officer
/s/ PAUL A. BOWERS Trustee July 25, 1997
- ------------------------------
Paul A. Bowers*
/s/ JOHN T. HAYWARD Trustee July 25, 1997
- ------------------------------
John T. Hayward*
/s/ PAUL E. WAGER Trustee July 25, 1997
- ------------------------------
Paul E. Wagner*
- -------------------
* Signed pursuant to power of attorney.