SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 10 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT CO ACT OF 1940 [X]
Amendment No. 10 [X]
THE ELITE GROUP
1325-4th Avenue, Suite 2144, Seattle, Washington 98101
(206) 624-5863
AGENT FOR SERVICE:
Richard S. McCormick
1325-4th Avenue, Suite 2144, Seattle Washington 98101
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[X] on January 2, 1997 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on __________ pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF SECURITIES UNDER THE
SECURITIES ACT OF 1933, PURSUANT TO RULE 24F-2 UNDER THE SECURITIES ACT OF 1933.
THE RULE 24F-2 NOTICE FOR THE REGISTRANT'S MOST RECENT FISCAL YEAR WAS FILED ON
NOVEMBER 15, 1996.
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PROSPECTUS January 2, 1997
THE ELITE GROUP
INCOME FUND
GROWTH & INCOME FUND
INVESTOR INFORMATION DEPARTMENT
1325 4th Avenue, Suite 2144
Seattle, Washington 98101
1-800-423-1068 Toll-Free
1-206-624-5863 Local Seattle Area
INVESTMENT OBJECTIVES AND POLICIES
The Elite Group (the "Trust") offers investors two portfolios ("Funds") from
which to choose. Investors may "switch" between these Funds as they perceive
market conditions warrant.
The Elite Income Fund -- for investors desiring to achieve the highest
income return obtainable over the long term commensurate with
investment in a diversified portfolio consisting primarily of
investment grade debt securities.
The Elite Growth & Income Fund -- for investors desiring to maximize total
returns (capital growth plus current income) through an aggressive
approach to the equity and debt securities markets.
TO OPEN AN ACCOUNT
Simply complete the Account Application Form accompanying the Prospectus. Each
Fund's minimum initial investment is $2,500 ($1,000 for investors using the
Automatic Investment Plan and for Individual Retirement Accounts). The Funds are
true "NO LOAD" funds, which means that there are no sales, redemption or
"hidden" charges whatsoever. If you need assistance, please call the numbers
shown above.
ABOUT THIS PROSPECTUS
This Prospectus is designed to set forth concisely the information you should
know about the Elite Group before you invest. It should be retained for future
reference. A "Statement of Additional Information" containing additional
information about the Elite Group has been filed with the Securities and
Exchange Commission. Such Statement is dated January 2, 1997, and is
incorporated in its entirety by reference into this Prospectus. It may be
obtained, without charge, by writing to The Elite Group or by calling the
numbers shown above.
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 UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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Table of Contents
Highlights 1
Synopsis of Costs and Expenses 2
Financial Highlights 2
The Trust 4
Investment Objectives and Policies 4
Other Fund Information 6
Investment Limitations 8
How to Invest 8
How to Sell Shares 10
Exchange Privilege 11
Other Shareholder Services 12
How Net Asset Value is Determined 13
Dividends, Capital Gain Distributions and Taxes 13
Management 14
Voting 15
Operation 15
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HIGHLIGHTS
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THE ELITE INCOME FUND attempts to achieve its objectives (see the cover page)
by investing principally in U.S. Government obligations and Investment Grade
corporate debt securities, including those having equity conversion privileges.
There are other permitted investments, including equity securities, short-term
cash equivalents and lower-rated debt securities ("junk bonds"). The Fund may,
during times when the Investment Manager believes the Fund's investment
portfolio would be subject to a significant market risk, hold cash and
short-term securities without percentage limitation. You should buy shares of
this Fund if you wish to maximize income, principally from fixed-income
securities, and are willing to accept the risks of owning a diversified
portfolio of the debt securities the Fund intends to hold. A substantial portion
of your returns will be in the form of dividends paid to you from the interest
earnings of the Fund. See "Investment Objectives and Policies."
THE ELITE GROWTH & INCOME FUND attempts to achieve its investment objective
(see cover page) by investing principally in equity securities and Investment
Grade debt securities. The Fund's aggressive policies also permit purchasing and
selling options, purchasing options on stock indices and investing in warrants
and short-term securities. See "Investment Objectives and Policies" for
information about these policies. For temporary defensive or emergency purposes,
the Fund may be completely invested in short-term securities. You should buy
shares of this Fund if you wish to maximize total return without regard to the
nature of that income (current income or capital gains) and are able to sustain
the risk of the aggressive investment policies pursued by the Fund.
There can be no guarantee that either Fund's investment objective will be
achieved, and neither Fund is designed to be a complete investment program.
Therefore, the Funds are not suitable for all investors. To protect against
certain risks, each Fund is subject to certain investment limitations which
may not be changed without approval of the shareholders.
See "Investment Limitations."
THE INVESTMENT MANAGER is McCormick Capital Management, Inc. The Investment
Manager's compensation, net of expense reimbursements, was 1% from the Growth &
Income Fund and 0.70% from the Income Fund during the last full fiscal year,
based upon each Fund's daily average net assets. For more information about fees
and expense reimbursements, see "Synopsis of Costs and Expenses," "Management"
and "Operation".
INVESTING IN AND REDEEMING SHARES. Purchase and redemption is handled by the
Funds' transfer agent at the net asset value next determined after receipt of
your order or instructions. The minimum initial purchase in either Fund is
$2,500 ($1,000 for investors using the Automatic Investment Plan and for
Individual Retirement Accounts). There is no minimum for additional purchases.
Please see "How to Invest" and "How to Sell Shares" for details. See "Exchange
Privilege" and "Other Shareholder Services" for other services offered to
shareholders.
NET ASSET VALUE. The total of a Fund's assets, valued at current fair
market value, less its liabilities, divided by the number of shares
outstanding, is the net asset value per share. It is determined each business
day. See "How Net Asset Value is Determined."
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SYNOPSIS OF COSTS AND EXPENSES
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Shareholder Transaction Expenses
NONE
Annual Fund Operating Expenses
(As a percentage of net assets)
Elite Growth Elite
& Income Fund Income Fund
Management Fees 1.00% 0.65%
Other Expenses 0.33% 0.35%
----- -----
Total Fund Operating Expense 1.33% 1.00%
===== =====
EXAMPLE: You would pay the following expenses on a $1,000 investment in a Fund,
assuming 5% annual return, whether or not you redeem at the end of
each time period:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Growth & Income Fund $14 $42 $73 $160
Income Fund 10 32 55 122
The purpose of the foregoing table is to assist the investor in understanding
the various costs and expenses that an investor in either the Growth & Income
Fund or the Income Fund will bear directly or indirectly. Neither Fund imposes
fees for purchases, redemptions or exchanges. See "Operation", page 15, for more
information about the fees and costs of operating the Funds. The example shown
should not be considered a representation of past or future expenses. Actual
expenses may be greater or lesser than those shown.
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FINANCIAL HIGHLIGHTS
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The per share data on the following page for the Elite Growth & Income
Fund and the Elite Income Fund for the most recent five years have been audited
by Tait, Weller & Baker, independent accountants, whose Report appears in the
Annual Report to Shareholders, which is incorporated herein by reference and may
be obtained without charge from the Fund.
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The Elite Growth & Income Fund
For a share outstanding throughout each period
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Years ended September 30, 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987(1)
Net asset value, beginning of year $16.64 $15.29 $14.44 $13.07 $12.52 $ 9.71 $12.07 $ 9.44 $11.37 $10.00
Income from investment
operations:
Net investment income .11 .18 .11 .10 .12 .16 .12 .13 .16 .05
Net gains or losses on securities
(both realized and unrealized) 3.92 2.52 1.56 1.65 .81 2.91 (1.41) 2.73 (1.31) 1.32
Total from investment operations 4.03 2.70 1.67 1.75 .93 3.07 (1.29) 2.86 (1.15) 1.37
Less distributions:
Dividends from net investment
income (.12) (.18) (.10) (.09) (.11) (.14) (.21) (.23) (.19) ---
Distributions from capital gains -- (1.17) (.72) (.29) (.27) (.12) (.86) --- (.59) ---
Total distributions (.12) (1.35) (.82) (.38) (.38) (.26) (1.07) (.23) (.78) ---
Net asset value, end of year $20.55 $16.64 $15.29 $14.44 $13.07 $12.52 $ 9.71 $12.07 $ 9.44 $11.37
Total Return(2) 24.26% 19.92% 11.80% 13.54% 7.50% 31.93% (11.92%) 30.78% (8.87%) 18.45%
Ratios/Supplemental Data:
Net assets, end of year (in 000's) $44,799 $31,182 $25,380 $17,989 $12,673 $8,878 $4,222 $3,798 $2,229 $1,724
Ratio of expenses to average
net assets 1.33% 1.42%* 1.42% 1.36% 1.37% 1.64% 1.84% 1.96% 2.00% 2.00%
Ratio of net investment income to
average net assets 0.61% 1.18% 0.73% 0.69% 0.91% 1.33% 1.04% 1.26% 1.74% 0.61%
Portfolio turnover rate(2) 156.93% 137.56% 153.34% 172.00% 168.01% 175.53% 248.27% 211.05% 203.62% 229.03%
Average brokerage commissions$3) .06
</TABLE>
The Elite Income Fund
For a share outstanding throughout each period
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Years ended September 30, 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987(1)
Net asset value, beginning of year $10.03 $9.48 $10.61 $10.28 $10.08 $ 9.55 $ 9.63 $ 9.67 $ 9.44 $10.00
Income from investment
operations:
Net investment income .60 .62 .61 .59 .61 .65 .69 .70 .76 .53
Net gains or losses on securities
(both realized and unrealized (.23) .54 (1.03) .35 .23 .53 ( .05) .14 .17 ( .83)
Total from investment operations .37 1.16 (.42) .94 .84 1.18 .64 .84 .93 (.30)
Less distributions:
Dividends from net investment
income (.62) (.61) (.61) (.58) (.61) (.65) (.69) (.88) (.69) (.26)
Distributions from capital gains (.05) - (.10) (.03) (.03) - (.03) - (.01) -
Total distributions (.67) (.61) (.71) (.61) (.64) (.65) (.72) (.88) (.70) (.26)
Net asset value, end of year $9.73 $10.03 $9.48 $10.61 $10.28 $10.08 $ 9.55 $ 9.63 $ 9.67 $9.44
Total Return(2) 3.79% 12.56% (4.07%) 9.41% 8.67% 12.70% 6.94% 9.20% 10.27% (4.12%)
Ratios/Supplemental Data:
Net assets, end of year (in 000's) $12,618 $12,366 $11,505 $11,751 $10,090 $6,957 $3,302 $2,559 $1,443 $292
Ratio of expenses to average
net assets(2) 1.00% 1.12% * 1.11% 1.02% 0.98% 1.21% 0.88% 0.47% 0.37% 0.00%
Ratio of net investment income to
average net assets(2) 6.01% 6.34% 5.98% 5.66% 6.03% 6.48% 7.07% 7.21% 7.23% 6.79%
Portfolio turnover rate(2) 43.37% 42.24% 40.88% 73.26% 21.83% 17.79% 30.91% 23.79% 0.00% 1.61%
</TABLE>
(1) For the period January 2, 1987 (commencement of operations) to September 30,
1987. (2) Annualized for 1987. (3) Not required information prior to 1996. *
Ratio reflects fees paid through a directed brokerage arrangement. Expense
ratios for 1994 - 1987 exclude these payments. No fees were paid through a
directed brokerage arrangement for 1996. Expense ratio for 1995, after reduction
of fees paid through the directed brokerage arrangement, was 1.35% for the
Growth & Income Fund and 1.08% for the Income Fund.
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THE TRUST
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The Elite Group (the "Trust") is an open-end, diversified, management
investment company, commonly known as a "mutual fund". Organized in 1986 as a
Massachusetts business trust, it currently offers two series of portfolios
(herein called "Funds"). Each Fund of the Trust is diversified and hereby are
shares of the Elite Income Fund and the Elite Growth & Income Fund. operates
much like a separate mutual fund, having its own investment objective and
policies. The securities offered
You may choose one or both of the Funds in which to invest. Proceeds from
the sale of shares of each Fund will be invested in accordance with the Fund's
investment objective and policies. Each shareholder is entitled to his pro rata
share of all dividends and distributions arising from the assets of the Fund(s)
in which shares are owned.
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INVESTMENT OBJECTIVES AND POLICIES
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THE ELITE INCOME FUND
The Elite Income Fund ("Income Fund") seeks to achieve the highest income
return obtainable over the long term commensurate with investment in a
diversified portfolio consisting primarily of investment grade debt securities.
Consistent with this objective, the Fund will invest in equity and debt
securities having various risk attributes. Generally, debt securities will range
from the higher quality investment grades to the higher yielding medium and
lower quality grades. Lower quality debt securities have speculative
characteristics or are speculative. See "Credit Analysis", page 6, for
additional information on the quality ratings of fixed income obligations.
Because the Fund will be investing principally in interest sensitive securities,
the value of the Fund's assets (and therefore, the net asset value per share)
can be expected to vary inversely with interest rates; as interest rates fall
the value of the Fund's assets will rise, and conversely, as interest rates rise
the value of the Fund's assets will fall. The Investment Manager will seek to
reduce risk through diversification, credit analysis, analysis of current trends
in interest rates and other factors. Growth of capital may be considered a
factor in security selection, but only when consistent with the objective of
high income.
Management will seek to achieve the Fund's objective, under normal
conditions, by investing at least 70% of the Fund's total assets in:
o U.S. Government obligations; and
o Corporate debt securities of "Investment Grade"--those enjoying
one of the four highest quality ratings assigned by Moody's
Investors Service, Inc. ("Moody's") or Standard & Poor's
Corporation ("S&P")--including those which have equity conversion
privileges.
Other Investments may include:
o Corporate debt securities rated lower than Investment Grade, but
no lower than Moody's Ca or S&P's CC (or non-rated obligations
believed by the Investment Manager to be of comparable quality),
including those with equity conversion privileges (but such
securities will be limited to 5% of the Fund's total assets);
o Preferred stocks, including those which have equity conversion
privileges;
o Common stocks which, at the time of purchase, have a dividend
yield higher than that of the average yield of the stocks
comprising the S&P 500 Index (such common stocks may include those
which normally carry higher than average yields, such as utility
stocks, and may also include special situations).
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o Foreign securities which, if debt obligations, are believed by
the Investment Manager to be Investment Grade equivalent (however,
foreign securities not denominated in U.S. dollars and traded
in U.S. securities markets will not exceed 5% of the Fund's
total assets); and
o Short-term securities, including repurchase agreements and money
market mutual funds. (Please see "Cash Reserves," page 6.)
There is no predetermined allocation of security types. Rather the
Investment Manager will allocate investments based primarily upon obtaining the
highest current income return. See "Other Fund Information," page 6, for
definitions and additional policies.
THE ELITE GROWTH & INCOME FUND
The Elite Growth & Income Fund ("Growth & Income Fund") seeks to maximize
total return through an aggressive approach to the equity and debt securities
markets. Total return means any combination of capital growth and current
income.
In order to achieve this objective, the Investment Manager is granted
considerable discretion and latitude in determining the Fund's portfolio mix and
the extent to which options and other investment strategies will be employed.
Economic, market and other conditions may favor certain investment types or
strategies. For example, certain market cycles offer the best total return in
utility stocks while small growth companies out-perform large capitalization
stocks in other cycles. Best total return is the Fund's objective. Therefore,
depending upon the Fund's current strategy, current income received from
dividends and interest on portfolio securities may be significant or it may be
very little.
In seeking to achieve the Fund's objective, the following types of
securities would, under normal conditions, comprise at least 65% of the Fund's
total assets:
o Common stocks, or securities convertible into common stocks;
o Preferred stocks; and
o Corporate debt securities of Investment Grade--those enjoying one
of the four highest grades assigned by Moody's or S&P.
Other investments may include:
o Foreign securities not denominated in U.S. dollars and not
publicly traded in the U.S., but only up to 5% of the Fund's
total assets (American Depository Receipts "ADR's" are not
considered for this purpose to be foreign securities);
o Options on stocks and stock indices, which may include purchasing
as well as writing options, but with limitations described herein;
o Warrants, up to 5% of the Fund's net assets; and
Short-term securities, including repurchase agreements (but see
"Cash Reserves," page 6).
There is no predetermined allocation of security types. Debt securities rated
lower than A may possess speculative characteristics. See "Credit Analysis,"
page 6, for more information on quality grades. The Investment Manager may
allocate investments based upon its judgment of all relevant factors,
consistent with the Fund's investment objective. The Investment Manager
seeks to identify issuers that, for a variety of reasons, may be out of favor
with the investment community but which, in the Investment Manager's
judgment, offer excellent prospects for capital gain or above average income.
Examples of criteria which would be considered favorable for prospective Fund
investment are lower than average price-to-earnings ratio, higher than average
yield (or an indication that, in the Manager's judgment, a higher yield is
likely in the near future), lower price-to-book value ratio and current
pricing at the low end of a security's historic trading range. See
"Other Fund Information", page 6, for definitions and additional policies. The
Fund generally will not trade actively for short-term profits, but may at times
select securities for short-term investment when such action is believed by
management to be desirable in light of the Fund's investment objective, and
consistent with sound investment practice. The Fund's approach to investing
assumes commensurately high investment risk in its security selection which it
seeks to moderate to some extent through diversification. The value of an
investment in the Fund can be expected to fluctuate in accordance with the
market value of its portfolio investments. The investor is not protected against
loss in value in a declining market
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and will incur a loss if he terminates his investment and redeems his interest
when his pro rata share of the Fund's assets is less than his cost.
OPTIONS
The Growth and Income Fund (but not the Income Fund) may purchase options
and may sell (write) covered options on stocks and stock indices, only if listed
on an Exchange or NASDAQ. The Fund uses options in an attempt to increase its
total return and to protect Fund assets from anticipated adverse market action.
The risk to the Fund in purchasing an option is limited to the cost of the
option, called the premium. If the option is never exercised by the Fund, the
cost of the premium is totally lost. In return for the premium it receives on
the sale of a covered call option, the Fund, during the option period, gives up
its opportunity for profit from an increase in the value of the underlying
security above the exercise price, but retains a risk of loss from a price
decline. The Fund's gain on the sale of a covered put option is limited to the
premium received plus interest earned on its deposit, while its risk is not less
than the exercise price of the option reduced by the current market price of the
underlying security when the put is exercised. Because the use of options
involves the assumption of investment risk beyond that normally associated with
the direct ownership of securities alone, the Fund has adopted policies limiting
its activities in utilizing options. These policies, designed to limit risk
exposure, and additional information about the Fund's use of options, are
discussed in the Statement of Additional Information.
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OTHER FUND INFORMATION
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CREDIT ANALYSIS. The Growth & Income Fund and the Income Fund may invest in
"Investment Grade" corporate debt obligations--those rated no lower than Baa by
Moody's or BBB by S&P. The Income Fund may invest no more than 5% of its total
assets in lower-rated obligations (so-called "Junk Bonds"), but no lower than
Moody's Ca or S&P's CC. Junk Bonds range in quality from those having some
speculative characteristics to those which must be regarded as primarily
speculative. Bonds rated BBB or Baa have the least degree, and those rated Ca or
CC the greatest degree, of speculation. Junk Bonds generally involve more risk
of loss of principal and income than higher-rated securities. Also their yields
and market value tend to fluctuate more because investors, generally, perceive
the issuers of lower-rated and unrated securities to be less credit worthy. In
selecting debt securities for the Funds, the investment manager will perform its
own credit analysis of each issuer and issue, in addition to relying on ratings
assigned by recognized rating services (Moody's and S&P). Ratings are
indications of investment quality, but do not reflect the "fine shadings of
risks" among the various bonds. Therefore, two bonds identically rated are
unlikely to be precisely the same in investment quality. The Investment
Manager's credit analysis is intended to identify those bonds within a credit
rating which represent improving financial situations and, therefore, represent
less risk. Interest rate trends and specific developments which may affect
individual issuers will also be analyzed. For a further discussion of the
implications of investment in Junk Bonds and a description of the ratings issued
by Moody's and S&P, please see the Appendix in the Statement of Additional
Information.
CASH RESERVES. Each Fund may hold short-term cash reserves and short-term
securities, including repurchase agreements and money market funds ("Money
Market Funds," for this purpose means investment companies investing principally
in money market instruments maturing within one year) without percentage
limitations, if the Investment Manager believes that it is advisable for
temporary defensive or emergency purposes. Repurchase agreements and Money
Market Funds, however, if utilized at all, will each comprise no more than 5% of
a Fund's net assets (taken at cost at the time of acquisition).
U.S. GOVERNMENT OBLIGATIONS. Each Fund may purchase (a) direct obligations
of the United States Government such as bills, notes and bonds issued by the
United States Treasury; (b) obligations of United States
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Government agencies and instrumentalities which are secured by the full faith
and credit of the United States Treasury such as securities of the Government
National Mortgage Association ("GNMA") or the Export-Import Bank (c) obligations
which are secured by the right of the issuer to borrow from the treasury, such
as securities issued by the Federal Financing Bank or the Student Loan Marketing
Association; and (d) obligations which are supported by the credit of the
government agency or instrumentality itself, such as securities of the Federal
Home Loan Mortgage Corporation ("FHLMC") or the Federal National Mortgage
Association ("FNMA"). While each Fund reserves the right to do so in the future,
each presently intends to limit its direct investment in mortgage pass-through
certificates (GNMA's, FNMA's, and FHLMC's) to no more than 5% of its total
assets. Direct investment does not include the ownership of such securities
through repurchase agreement transactions. Shareholders would be notified and a
prospectus amended prior to implementing a change in this policy.
SHORT-TERM SECURITIES. Each Fund may purchase commercial paper, bank
certificates of deposit or bankers' acceptances. Investment in bank certificates
of deposit and bankers' acceptances will be limited to those instruments issued
by domestic banks which have total assets at the time of investment in excess of
$1 billion and are members of the Federal Reserve System or such securities
which may be issued by holding companies of such banks. The commercial paper
purchased by the Fund will consist only of (a) obligations rated Prime-1 by
Moody's or A-1 by Standards & Poor's; or (b) unrated obligations issued by
companies having an outstanding unsecured debt issue currently rated A or better
by Moody's or by Standard & Poor's. See "Credit Analysis", page 6.
LENDING OF SECURITIES. Each Fund may lend its investment securities (up to
33% of its total assets) to qualified brokers, dealers, banks or other financial
organizations for the purpose of realizing additional income.
RESTRICTED AND OTHER ILLIQUID SECURITIES. Each Fund reserves the right to
invest, from time to time, in restricted and other illiquid securities for the
purpose of enhancing the income or growth potential of its portfolio. Restricted
securities are those which would require registration under the Securities Act
of 1933 prior to sale.
SECURITIES OF UNSEASONED ISSUERS. Each Fund may invest up to 5% of the
Fund's total assets (at the time of investment) in the securities of unseasoned
issuers. An unseasoned issuer is one which, together with its predecessors, has
been in business for less than three years. Notwithstanding this, if a debt
issuer's security has been guaranteed by an organization in business for more
than three years, that security shall not be considered "unseasoned".
SPECIAL SITUATIONS. Each Fund may invest no more than 5% of its total
assets in "special situations;" that is, equity or debt securities which may be
affected by particular developments unrelated to general market trends.
Management changes, merger possibilities, bankruptcies and new products or
inventions represent some examples of special situations the Fund may seek to
benefit from.
LEVERAGE. The Growth & Income Fund's policies permit it to use
leverage--borrowing from banks to purchase or carry portfolio securities. The
Fund has not employed leverage in the past and has no present intention of doing
so. Should the Fund determine to utilize leverage in the future, the Prospectus
would be amended and shareholders would be provided 60 day's written notice
prior to implementing such use.
PORTFOLIO TURNOVER. Generally, the Funds intend to invest for long-term
purposes. However, the rate of portfolio turnover will depend upon market and
other conditions, and there are no restrictions when the Investment Manager
believes that portfolio changes are appropriate. During the fiscal years ended
September 30, 1996 and 1995, portfolio turnover for the Income Fund was 43.37%
and 42.24%, respectively. For the same fiscal periods, portfolio turnover for
the Growth and Income Fund was 156.93% and 137.56%, respectively. It is
anticipated that the annual portfolio turnover rate for the Income Fund will
generally not exceed 100%. Portfolio turnover of the
Growth & Income Fund can be expected to range between 100% and 300%. The
volatility of the stock market together with the Growth & Income's investment
policies (including use of options) may involve selling portfolio holdings
within six months of their purchase. As a result, the Fund's brokerage costs may
be higher than those of
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many other investment companies. A 100% turnover rate could occur, for example,
if all of the securities in a Fund are replaced within a period of one year.
Fixed income securities will be purchased and sold primarily in response to
their appropriateness in meeting each Fund's investment objective. The Funds may
engage in short-term trading but only when it is appropriate to do so in
attempting to achieve a Fund's investment objective. In response to changing
conditions in fixed income markets, the Income Fund, and to some extent the
Growth & Income Fund, will make modest shifts in terms of anticipated interest
rate and sector spread changes. Individual issues will not be purchased or sold
for short-term gain, but only in light of changing investment fundamentals or
anticipated changes in income.
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INVESTMENT LIMITATIONS
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The investment objectives and policies of both Funds may be changed at any
time without shareholder approval, although shareholders will be notified in
writing, beforehand, of any material change and the Prospectus will be
supplemented. Each Fund has adopted certain limitations designed to reduce its
exposure to specific situations. Some of these limitations are that a Fund will
not:
(1) Invest more than 5% of the value of its total assets in the securities
of any single issuer;
(2) Purchase more than 10% of the voting securities of any issuer except
securities issued or guaranteed by the U.S. Government or any of
its agencies or instrumentalities;
(3) Invest more than 5% of its total assets in the securities of companies
that have a continuous operating history of less than 3 years
(including predecessors);
(4) Invest 25% or more of its total assets in any one industry or group of
industries, provided that: (i) this limitation does not apply to
obligations issued or guaranteed by the U.S. Government, or its
agencies or instrumentalities and (ii) utility companies will be
divided according to their services (for example, gas, gas
transmission, electric, electric and gas, and telephone will each be
considered a separate industry) and will not be considered a group of
industries for this purpose;
(5) Invest more than 10% of its net assets in restricted and other illiquid
securities; and
(6) Purchase securities for the purpose of exercising control or
management over the company issuing the securities.
The investment limitations described here and in the Statement of
Additional Information may be changed for a Fund only with the approval of the
holders of a majority of the shares of that Fund.
- -------------------------------------------------------------------------------
HOW TO INVEST
- -------------------------------------------------------------------------------
Payment for shares purchased should accompany the Account Application or
funds should be wired to our Transfer Agent as described herein. Payment, other
than by wire transfer, must be made by check or money order drawn on a U.S.
bank. Checks or money orders must be payable, in U.S. dollars, to "The Elite
Group" (to "Semper Trust Company" for IRA accounts). Assistance in opening an
account may be obtained from The Elite Group at the address and phone numbers
shown on the cover.
The Funds are distributed on a "NO LOAD" basis, which means that there no
sales commissions or other distribution charges deducted from your investment
and 100% of your investment is used to purchase shares at our net asset value
next determined after your order is received. If it is more convenient for you,
you may invest through a broker-dealer, who may charge you a fee for its
services.
8
<PAGE>
To open an Individual Retirement Account (initial minimum investment of
$1,000) or to start a corporate or self-employed retirement account in either
Fund a separate application must be used. Please call The Elite Group for
details.
As a condition of the offering, if an order to purchase shares is canceled
due to nonpayment (for example on account of a check returned for "not
sufficient funds"), the person who made the order will be responsible for any
loss incurred by a fund by reason of such cancellation, and if such person is a
shareholder, the Fund shall have the authority as Agent of the shareholder to
redeem shares in his account at their then-current net asset value per share to
reimburse the Trust for the loss incurred. Investors whose purchase orders have
been canceled due to nonpayment may be prohibited from placing future orders.
BY MAIL
Please complete and sign the Account Application Form, enclose your check
made payable to The Elite Group and mail it to our Transfer Agent, FPS Services,
Inc., 3200 Horizon Drive, P.O. Box 61503, King of Prussia, PA 19406-0903.
However, as a convenience, if you wish to mail or deliver the new account
applications and check to our Seattle office, we will forward the material to
our Transfer Agent. Your check and application do not become effective until
they are processed by the Transfer Agent. The initial minimum investment is
$2,500 for either Fund ($1,000 for investors using the Automatic Investment
Plan).
BY WIRE
Please first call toll-free at 1-800-441-6580 to advise the Transfer Agent
of your investment and to receive an account number. Failure to call first could
result in your investment being delayed or lost. Immediately after wiring your
investment, complete and send the Account Application Form to FPS Services, Inc,
P.O. Box 61503, King of Prussia, PA 19406-0903 so we will have all the
information needed for your account. Your investment wire ($3,000 minimum)
should be wired by your bank to:
United Missouri Bank KC NA
ABA Number 10-10-00695
Attn: Fund Plan Services, Inc.
A/C 98-7037-071-9
(Name of Fund)
For the account of (investor's name(s))
Account No. ___________________________
ADDITIONAL INVESTMENTS
You may add to your account at any time by purchasing shares at the then
current net asset value by mail or by wire (minimum wire investment $1,000).
Follow the instructions shown above. It is very important that the name of the
Fund and your account number be specified in the letter or wire to assure proper
crediting to your account. In order to insure that your wire orders are invested
promptly, you are requested to notify the Transfer Agent, toll-free at
1-800-441-6580. Mail orders should include, when possible, the "Invest by Mail"
stub which is attached to your Fund confirmation statement.
STOCK CERTIFICATES
Certificates will not be issued for your shares unless requested. In order
to facilitate redemptions and transfers, most shareholders elect not to receive
certificates. If you lose your certificate, you may incur delay and expense in
replacing it.
9
<PAGE>
- -------------------------------------------------------------------------------
HOW TO SELL SHARES
- -------------------------------------------------------------------------------
Shares of either Fund may be redeemed by mail or telephone. There is no
charge for redemptions; consequently you receive actual net asset value for your
shares without any charge or penalty. A redemption, however, may be more or less
than the purchase price of your shares depending on the market value of the
particular Fund's portfolio securities at the time of your redemption. You may,
if it is more convenient for you, redeem your shares through a broker-dealer who
may charge you a fee for its services. Your redemption proceeds will ordinarily
be sent to you within seven days after receipt of your redemption request. The
Fund may suspend the right of redemption or postpone the date at times when the
New York Stock Exchange is closed, or under any emergency circumstances as may
be determined by the Securities and Exchange Commission.
Although the Board of Trustees has the right to impose a redemption fee of
up to 2% of the net asset value of shares being redeemed, no such redemption fee
is presently being imposed. Shareholders would be provided at least 60 days
written notice prior to instituting such a fee. The Board of Trustees reserves
the right to redeem any account having net asset value of less than $1,000 (due
to redemptions, exchanges or transfers, and not due to market action) upon 60
days' written notice. If the shareholder brings his account net asset value up
to $1,000 or more during the notice period, the account will not be redeemed.
If you are uncertain of the requirements for redemption, please contact The
Elite Group for assistance.
BY MAIL
Shares may be redeemed at the net asset value next determined after your
redemption request is received in "Good Order." Your request should be addressed
to the Transfer Agent, FPS Services, Inc, P.O. Box 61503, King of Prussia, PA
19406-0903. "Good Order" means the request for redemption must include:
(a) your share certificates, if issued;
(b) your letter of instruction or a stock assignment specifying the
account number, and the number of shares or dollar amount to be
redeemed. This request must be signed by all registered shareholders
in the exact names in which they are registered;
(c) any required signature guarantees (see "Signature Guarantees" page 11);
and
(d) other supporting legal documents, if required in the case of estates,
trusts, guardianships, custodianships, corporations, partnerships,
pension or profit sharing plans, and other organizations.
Payments to investors redeeming shares which were purchased by check will
not be made until the Transfer Agent can verify that the payment(s) for the
purchase have been, or will be collected. It will normally take up to three days
to clear local personal or corporate checks and up to seven days to clear other
personal or corporate checks.
BY TELEPHONE
AUTHORIZING THE TELEPHONE REDEMPTION PRIVILEGE. You must activate this
privilege in advance, in writing, in order to use it. By activating this
privilege, you authorize the Fund and the Transfer Agent to act upon any
telephone instructions it believes to be genuine, to (1) redeem shares from your
account and (2) to mail or wire the redemption proceeds. Your written activation
request will specify the person(s), bank, account number and/or address to
receive your redemption proceeds. You may activate this privilege when
completing your initial Account Application. But once your account has been
opened you must use a separate Telephone Redemption Authorization Form
(available from the Fund) to activate the privilege or to change the person(s),
bank, account number and/or address designated to receive your redemption
proceeds. Each shareholder must sign the Telephone Redemption Authorization Form
with signature(s) guaranteed (see "Signature Guarantees," below). Further
documentation may be requested from corporations, executors, administrators,
trustees and guardians. There is no charge for establishing or using this
privilege. You may cancel the privilege at any time by telephone or letter.
10
<PAGE>
USING THE TELEPHONE REDEMPTION PRIVILEGE. Once you have authorized the
Telephone Redemption Privilege, you may redeem shares by calling the Transfer
Agent at 1-800-441-6580. The Transfer Agent will employ reasonable procedures to
confirm the identity of shareholders using the privilege and a written
confirmation of the transaction will be sent to the shareholder's address of
record. When you call to redeem shares, you will be asked how many shares, or
dollars worth of shares, you wish to redeem, to whom you wish the proceeds to be
sent, and whether the proceeds are to be mailed or wired. To protect you, your
redemption proceeds will only be sent to you at your address of record or to the
bank account or person(s) specified in your Account Application or Telephone
Authorization Form currently on file with the Transfer Agent.
TELEPHONE REDEMPTION FACTORS TO CONSIDER. Redeeming by Telephone is a
convenient service enjoyed by many shareholders. There are important factors to
consider before activating the privilege, however. The Funds and the Transfer
Agent believe that the foregoing procedures it has established for telephone
redemptions reasonably protect shareholders from fraudulent transactions.
Shareholders should be aware of the Funds' policy that neither the Fund nor any
of its service contractors will be liable for any loss or expense in acting upon
any telephone instructions that are reasonably believed to be genuine. The Trust
reserves the right to restrict or cancel telephone redemption privileges, or to
modify the telephone redemption procedures, for any shareholder or all
shareholders, without notice, if the Trustees believe it to be in the best
interest of the shareholders to do so.
You cannot redeem shares by telephone if you hold the stock certificates
representing the shares you are redeeming or if you paid for the shares with a
personal, corporate, or government check and your payment has been on the
Transfer Agent's books for less than 15 days. During drastic economic and market
changes, telephone redemption services may be difficult to implement. If an
investor is unable to contact the Transfer Agent by telephone, shares may also
be redeemed by delivering the redemption request to the transfer agent in person
or by mail as described under "How to Sell Shares," above.
SIGNATURE GUARANTEES
To protect your account, The Elite Group and those who administer The Elite
Group from fraud, signature guarantees are required to be sure that you are the
person who has authorized a redemption from your account. Signature guarantees
are required for (1) all mail order redemptions, (2) change of registration
requests, and (3) requests to establish or change telephone redemption service
other than through your initial account application. Signature guarantees must
appear either (a) on the written request for redemption, or (b) on a separate
instrument of assignment ("stock power") which should specify the total number
of shares to be redeemed, or (c) on all stock certificates tendered for
redemption and, if shares held by the Transfer Agent are also being redeemed, on
the letter or stock power.
Signatures must be guaranteed by an "eligible guarantor institution" as
defined in Rule 17Ad-15 under the Securities and Exchange Act. Eligible
Guarantor Institutions include banks, brokers, dealers, credit unions, national
securities exchanges, registered securities associations, clearing agencies and
savings associations. A broker-dealer guaranteeing signatures must be a member
of a clearing corporation or maintain net capital of at least $100,000. Credit
unions must be authorized to issue signature guarantees. Signature guarantees
will be accepted from any eligible guarantor institution which participates in a
signature guarantee program.
- -------------------------------------------------------------------------------
EXCHANGE PRIVILEGE
- -------------------------------------------------------------------------------
Shareholders may exchange their shares in amounts worth $1,000 or more for
shares of either Fund in The Elite Group. An Exchange Privilege Authorization
From must have been completed and on file with the Transfer Agent, FPS Services,
Inc. in advance. To make an exchange, simply call the transfer Agent at
1-800-441-6580
11
<PAGE>
before 4 p.m. Eastern Time. Your exchange will take effect as of the next
determination of net asset value per share of each fund involved (usually at the
close of business on the same day). The Trust reserves the right to limit the
number of exchanges or to otherwise prohibit or restrict shareholders from
making exchanges at any time, with notice to shareholders, should the Trustees
determine that it would be in the best interest of our shareholders to do so. An
exchange, for tax purposes, constitutes the sale of the shares of one fund and
the purchase of those of another; consequently, the sale will usually involve
either a capital gain or loss to the shareholder for Federal income tax
purposes.
- -------------------------------------------------------------------------------
OTHER SHAREHOLDER SERVICES
- -------------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN enables an automatic monthly or quarterly
deduction (minimum of $50) from your checking account, the proceeds of which are
used to purchase shares of the Elite Fund of your choice. To use this service,
you authorize the Funds' Transfer Agent to draw a check on your bank (or other
financial institution which is a member of the Automated Clearing House system
checking account. There is currently no fee for this service. An application may
be obtained by calling Elite Group.
SYSTEMATIC WITHDRAWAL PLAN provides for regular monthly or quarterly checks
to be sent to you (or your designee). Shareholders owning shares of any Fund
with a value of $10,000 or more may establish a Systematic Withdrawal Plan. A
shareholder may receive monthly payments, in amounts of not less than $50 per
payment, by authorizing the Transfer Agent to redeem the necessary number of
shares either monthly or quarterly in order to make the payments requested.
Share certificates for the shares being redeemed must be held by the Transfer
Agent. If the recipient is other than the registered shareholder, the signature
of each shareholder must be guaranteed on the application (see "Signature
Guarantees"). A corporation (or partnership) must also submit a "Corporate
Resolution" (or "Certification of Partnership") indicating the names, titles and
required number of signatures authorized to act on its behalf. The application
must be signed by a duly authorized officer(s) and the corporate seal affixed.
No redemption fees are charged to shareholders under this plan. Costs in
conjunction with the administration of the plan are borne by the Fund to which
the redemption applies. Shareholders should be aware that such systematic
withdrawals may deplete or use up entirely the initial investment and may result
in realized long-term or short-term capital gains or losses. The Systematic
Withdrawal Plan may be terminated at any time by the Transfer Agent or a Fund
upon thirty day's written notice or by a shareholder upon written notice to the
Fund or its Transfer Agent. Applications and further details may be obtained by
writing or calling The Elite Group.
IRA AND OTHER RETIREMENT PLANS are offered to enable shareholders to set
aside tax-deferred investments in the Fund. Please call the Elite Group for
information and an application.
TOLL-FREE INFORMATION LINES are available 24 hours-a-day, every day of the
year. During business hours, friendly, experienced personnel answer your
questions, solve problems and provide prices. After hours, current quotes are
provided on tape and you may leave messages for our service personnel, which
will be addressed the next business day. The local Seattle number is
1-206-624-5863, and the toll-free number is 1-800-423-1068.
12
<PAGE>
- -------------------------------------------------------------------------------
HOW NET ASSET VALUE IS DETERMINED
- -------------------------------------------------------------------------------
The Net Asset Value of each Fund is determined as of the close of trading
of the New York Stock Exchange (currently 4:00 p.m., New York City time) on each
Business Day (other than a day during which no security was tendered for
redemption and no order to purchase or sell such security was received by the
Fund) in which there is a sufficient degree of trading in the Fund's portfolio
securities that the current net asset value of the Fund's shares might be
materially affected by changes in the value of such portfolio securities. A
Business Day means any day, Monday through Friday, except for the following
holidays: New Year's Day, President's Day, Good Friday, Memorial Day, Fourth of
July, Labor Day, Election Day, Thanksgiving Day and Christmas. Net asset value
per share is determined by dividing the total value of all Fund securities and
other assets, less liabilities, by the total number of shares then outstanding.
Net asset value includes interest on fixed income securities which is accrued
daily. Securities which are traded over-the-counter and on a stock exchange will
be valued according to the broadest and most representative market, and it is
expected that for bonds and other fixed income securities this ordinarily will
be the over-the-counter market. However, in the event that market value
quotations are not readily available, bonds and other fixed income securities
may be valued on the basis of prices provided by a pricing service when such
prices are believed to reflect the fair market value of such securities. The
prices provided by a pricing service are determined without regard to bid or
last sale prices but take into account institutional size trading in similar
groups of securities and any developments related to specific securities.
Over-the-counter securities are priced at the most recent quoted bid price.
Stock exchange securities are priced at the latest quoted sale price on the
principal exchange where the security is traded on the date of valuation.
Short-term instruments are valued at cost, which approximates market. Other
assets and securities, for which no quotations are readily available, will be
valued in good faith at fair value using methods determined by the Board of
Trustees. Our management may compute the net asset value per share more
frequently than once per day if necessary to protect our shareholders'
interests.
- -------------------------------------------------------------------------------
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES
- -------------------------------------------------------------------------------
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
It is each Fund's current policy to pay dividends to its shareholders from
net investment income quarterly. The fiscal year end of both Funds is September
30. Each Fund will also distribute net realized capital gains, including
short-term gains, if any, during September and December.
Shareholders will automatically receive all dividend and capital gain
distributions in additional shares of the particular Fund at the then current
net asset value, except that, upon written notice to the Transfer Agent or by
indicating on the Account Application Form, a shareholder may choose to receive
dividend distributions and/or capital gain distributions in cash. Dividends and
capital gains distributions are typically reinvested on "ex-date", which is
normally the day following the record date. With respect to cash distributions,
shareholders can authorize another person or entity to receive such
distributions. The name and address of where to send the distributions should be
indicated in the Account Application Form.
Dividends and distributions are paid on a per-share basis. At the time of
such a payment, therefore, the value of each share will be reduced by the amount
of the payment. Keep in mind that if you purchase shares shortly before the
payment of a dividend or the distribution of capital gains, you will pay the
full price for the shares and then receive some portion of the price back as a
taxable dividend or distribution.
13
<PAGE>
TAX STATUS OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Each Fund intends to comply with the provisions of Subchapter M of the
Internal Revenue Code applicable to regulated investment companies so that it
will not be liable for federal income tax with respect to amounts distributed to
shareholders. The Fund intends to distribute all of its investment company
taxable income and its net capital gain to shareholders. Shareholders may be
proportionately liable for taxes on income and capital gains of the Fund that
are distributed to them. Each Fund of the Trust is treated for tax purposes on a
separate taxable entity and, accordingly, each Fund will file its own Federal
tax return. Shareholders not subject to tax on their income will not be required
to pay taxes on the amounts distributed to them.
Net investment income and net option income will be distributed to
shareholders as dividends. Such dividends, along with any short-term capital
gains distributed, will be taxable to shareholders (except IRA's, Keogh Plans,
Simplified Employee Pension Plans and corporate retirement plans) as ordinary
income, whether received in cash or invested in additional Fund shares.
Long-term capital gains distributions are taxable as long-term capital gains
regardless of how long shares of the Fund have been held. Investors should refer
to the Statement of Additional Information, which contains additional
information about dividends, distributions and taxes.
Federal law requires that each Fund withhold 31% of reportable payments
(which may include dividends, capital gains distributions, and redemptions) paid
to certain shareholders who have not complied with Internal Revenue Service
regulations. Therefore, you will be asked to certify on your application that
the social security or tax identification number you provide is correct and that
you are not subject to the backup withholding for previous under-reporting to
the IRS.
Shareholders will receive federal tax information regarding dividends and
capital gains distributions after the end of each year. Dividends and capital
gains distributions may also be subject to state and local taxes. Shareholders
are urged to consult their attorneys or tax advisers regarding specific
questions as to Federal, state or local taxes.
For Federal income tax purposes, exchanges and redemptions are taxable
events, and accordingly, capital gains or losses may be realized. In addition to
Federal taxes, you may be subject to state taxes on your dividends and
distributions, depending on the laws of your home state.
- -------------------------------------------------------------------------------
MANAGEMENT
- -------------------------------------------------------------------------------
The Elite Group (the "Trust") is an open-end diversified management
investment company commonly known as a "mutual fund". Organized in 1986 as a
Massachusetts Business Trust, it is a "series" company, which means it offers a
choice of series or portfolios ("Funds"). Capital of the Trust consists of an
unlimited number of no par shares of beneficial interest ("shares") which may be
classified or reclassified by the Board of Trustees among the Funds or to any
new Funds as they deem appropriate. Currently the Trustees have authorized two
such Funds, described herein, and have authorized an unlimited number of shares
which may be sold to the public. Although they reserve the right to do so, the
Trustees have no present intention to create any additional Funds of the Trust.
Each Fund is governed by the Investment Company Act of 1940 and rules thereunder
and is preferred over all other Funds in respect to assets allocated to such
Fund. Shares are issued fully paid and non-assessable and each share represents
an equal proportionate interest in its particular Fund with every other share of
that Fund outstanding. Each share of each Fund has no preference as to
conversion, dividends or interest and has no preemptive rights. Under
Massachusetts law, shareholders of a trust may, under certain circumstances, be
held personally liable as partners for the obligations of the Trust. The
Declaration of Trust, therefore, contains provisions which are intended to
mitigate such liability. See the Statement of Additional Information for
additional information. Our general Trust expenses are allocated among all Funds
in proportion to net assets or as determined
14
<PAGE>
in good faith by the Board of Trustees. The Elite Group has chosen September 30
as the fiscal year-end for each of its Funds.
- -------------------------------------------------------------------------------
VOTING
- -------------------------------------------------------------------------------
Each outstanding share, of whatever Fund, is entitled to one vote for each
full share of stock and a fractional vote for each fractional share of stock, on
all matters which concern the Trust as a whole. On any matter submitted to a
vote of shareholders, all shares of the Trust then issued and outstanding and
entitled to vote, irrespective of the Fund, shall be voted in the aggregate and
not by Fund; except (i) when required by the Investment Company Act of 1940,
shares shall be voted by individual Fund; and (ii) when the matter does not
affect any interest of a particular Fund, then only shareholders of the affected
Fund or Funds shall be entitled to vote thereon. Examples of matters which
affect only a particular Fund could be a proposed change in the fundamental
investment objectives of that Fund or a proposed change in the investment
management agreement for a particular Fund. The shares of the Funds will have
non-cumulative rights, which means that the holders of more than 50% of the
shares voting for the election of trustees can elect all of the trustees if they
choose so. The Declaration of Trust provides that, if elected, the Trustees will
hold office for the life of the Trust, except that: (1) any Trustee may resign
or retire; (2) any Trustee may be removed with or without cause at any time: (a)
by a written instrument, signed by at least two-thirds of the number of Trustees
prior to such removal; (b) by vote of shareholders holding not less than
two-thirds of the outstanding shares of the Trust, cast in person or by proxy at
a meeting called for that purpose; or (c) by a written declaration signed by
shareholders holding not less than two-thirds of the outstanding shares of the
Trust and filed with the Trust's custodian. In case a vacancy or an anticipated
vacancy shall for any reason exist, the vacancy shall be filled by a majority of
the remaining Trustees, subject to the provisions of Section 16(a) of the 1940
Act. Otherwise there will normally be no meeting of shareholders for the purpose
of electing Trustees, and none of the Funds expected to have an annual meeting
of shareholders.
- -------------------------------------------------------------------------------
OPERATION
- -------------------------------------------------------------------------------
The Elite Group's operations are conducted under the general direction of
the Board of Trustees. The Elite Group has employed McCormick Capital
Management, Inc. as Investment Manager for both Funds. The Investment Manager
provides continuous management of the Funds' investment portfolio, is
responsible for overall management of the Trust's business affairs (subject, of
course, to the supervision of the Trustees), provides certain of the Trust's
executive officers and supplies office space and equipment not otherwise
provided by the Trust. Richard S. McCormick is the President and Chief Executive
Officer of the Investment Manager. Mr. McCormick owns 60% of the outstanding
shares of the Investment Manager and John W. Meisenbach owns 40%. The Investment
Manger's address and phone number is the same as the Trust's. The Investment
Manager's compensation, net of expense reimbursements, was 1.00% from the Growth
& Income Fund and 0.70% from the Income Fund during the last full fiscal year,
based upon each Fund's daily average net assets.
The Portfolio Manager of the Elite Growth & Income Fund is Richard S.
McCormick, the founder of the Elite Group of Mutual Funds. Mr. McCormick has
managed the Growth & Income Fund since its inception, and managed the Income
Fund from inception to March 1993. Mr. McCormick has extensive investment
management experience dating from 1969, managing numerous bank common trust
funds, large pools of capital for labor unions, corporations, university
endowment funds and major municipalities. Mr. McCormick graduated from the
University of Washington with a finance degree. He is a Chartered Financial
Analyst.
15
<PAGE>
The Portfolio Manager of the Elite Income Fund is Bruce Church. Mr. Church
joined McCormick Capital Management, Inc. in March 1993 to manage the Income
Fund. Mr. Church has been managing bonds and other fixed income securities since
1977. In 1985 and 1986 Mr. Church received the Lipper Award for the top
performing mutual fund in his category. Mr. Church has a Master of Business
Administration in Finance.
FPS Services serves as Transfer and Dividend Paying Agent for each Fund.
Their address is , P.O. Box 61503, King of Prussia, PA 19406-0903.
United Missouri Bank NA is the Trust's Custodian. Their address is 1010
Grand Avenue, Kansas City, Missouri 64141.
In addition to paying the Investment Manager, each Fund pays all its
expenses not assumed by the Investment Manager. These expenses include, among
others, the fees and expenses, if any, of the trustees and officers who are not
"affiliated persons" of the Investment Manager, fees of the Fund's Custodian,
and Transfer and Dividend Paying Agent, the Funds' interest expense, taxes, fund
accounting and daily pricing service fees, brokerage fees and commissions, fees
and expenses of qualifying and registering the Funds' shares for distribution
under Federal and state laws, expenses of preparing, printing and distributing
prospectuses and reports to existing shareholders, auditing and legal expenses,
insurance expense, association dues, and the expense of shareholders' meetings
and proxy solicitations. The Funds also are liable for any non-recurring
expenses as may arise such as litigation to which a Fund may be a party. The
Trust or a Fund may be obligated to indemnify its Trustees and officers with
respect to such litigation. All expenses of the Funds are accrued daily on the
books of the Fund at a rate which, to the best of the Investment Manager's
belief, is equal to the actual expenses expected to be incurred by each Fund in
accordance with generally accepted accounting practices. The total expenses of
the Growth & Income Fund and the Income Fund for the fiscal year ended September
30, 1996, were 1.33% and 1.00% of the Funds' net assets, respectively.
Securities transactions are effected through broker-dealers selected by the
Investment Manager, who is permitted to prefer brokers who sell or recommend our
shares to their clients.
16
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for your notes.
<PAGE>
THE
ELITE GROUP
OF MUTUAL FUNDS
------------------------------------
Income Fund
Growth & Income Fund
------------------------------------
Investment Manager
McCORMICK CAPITAL MANAGEMENT, INC.
1325 4th Avenue, Suite 2144
Seattle, Washington 98101
TRANSFER AGENT
FPS Services, Inc.
P. O. Box 61503
King of Prussia, PA 19406-0903
1-800-441-6580
CUSTODIAN
United Missouri Bank NA
Kansas City, Missouri
FUND COUNSEL
Foster, Pepper & Shefelman
Seattle, Washington
INDEPENDENT AUDITORS
Tait, Weller & Baker
Philadelphia, Pennsylvania
------------------------------------
INVESTOR INFORMATION
1-800-423-1068 Toll-Free
1-206-624-5863 Local Seattle Area
------------------------------------
A True No-Load Investment Company
<PAGE>
PART B
THE ELITE GROUP
FORM N-1A
Post-Effective Amendment No. 10
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
THE ELITE GROUP
INCOME FUND
GROWTH & INCOME FUND
------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
January 2, 1997
1325 4th Avenue, Suite 2144
Seattle, Washington 98101
1-800-423-1068 Toll-Free
1-206-624-5863 Local Seattle Area
A copy of the Funds' Prospectus is available upon written or telephone
request to The Elite Group, at the address and phone numbers shown above, at no
charge.
The Elite Group (the "Trust") offers investors two series or portfolios
("Funds") from which to choose. Investors may "switch" among these Funds as they
perceive market conditions warrant:
The Elite Income Fund - for investors desiring to achieve the highest income
return obtainable over the long term, commensurate with investment in a
diversified portfolio consisting primarily of investment grade debt
securities.
The Elite Growth & Income Fund - for investors desiring to maximize total
returns (capital growth plus current income) through an aggressive approach
to the equity and debt securities markets.
------------------------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
IN CONNECTION WITH THE FUNDS' PROSPECTUS DATED DECEMBER 1, 1995. RETAIN THIS
STATEMENT OF ADDITIONAL INFORMATION FOR FUTURE REFERENCE.
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 UPON THE
ACCURACY OR ADEQUACY OF THIS STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
THE
ELITE
GROUP OF MUTUAL FUNDS
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
INVESTMENT POLICIES........................................................1
Fixed Income Securities..................................................1
Options..................................................................2
Leverage.................................................................3
Lending Portfolio Securities.............................................4
Foreign Securities.......................................................4
American Depository Receipts.............................................5
New Companies and Special Situations.....................................5
Repurchase Agreements....................................................5
Conversion and Other Rights..............................................6
INVESTMENT RESTRICTIONS....................................................6
SPECIAL SHAREHOLDER SERVICES...............................................8
Regular Account..........................................................8
Systematic Withdrawal Plan...............................................8
Retirement Plans.........................................................9
Exchange Privilege......................................................10
Telephone Redemption Privilege..........................................10
Redemptions in Kind.....................................................10
Transfer of Registration................................................11
PURCHASE AND REDEMPTION OF SHARES.........................................11
TRUSTEES AND OFFICERS.....................................................12
5% OWNERS.................................................................13
INVESTMENT MANAGER........................................................13
MANAGEMENT AND OTHER SERVICES.............................................14
ALLOCATION OF TRUST EXPENSES..............................................14
BROKERAGE.................................................................15
ADDITIONAL TAX INFORMATION................................................16
CAPITAL STOCK AND VOTING..................................................16
FINANCIAL STATEMENTS AND REPORTS..........................................17
APPENDIX..................................................................18
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INVESTMENT POLICIES
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In addition to the investment policies discussed in the Prospectus, the
following are intended to supplement that information for both The Elite Income
Fund ("Income Fund") and The Elite Growth & Income Fund ("Growth & Income
Fund"). There of course, can be no assurance that the Funds' investment policies
will result in the achievement of its investment objectives. There is an element
of risk in all investments. The value of the Funds' portfolios will fluctuate
based on market conditions and, although each Fund seeks to reduce risks by
diversifying holdings, all risks will not be eliminated. Investors should
carefully evaluate each Fund's investment objectives and policies to determine
if they are compatible with their needs.
FIXED INCOME SECURITIES
Investors in the Income Fund and, to the extent it is invested in fixed
income securities, the Growth & Income Fund are exposed to three types of risk
associated with fixed income investment. Interest Rate Risk is the potential for
bond prices to fluctuate when interest rates change. When interest rates rise,
bond prices fall. When interest rates fall, bond prices rise. Interest Rate Risk
increases as a Fund's average portfolio maturity increases. The following chart
illustrates the probable effect of a 2% change in interest rates on three
investment grade bonds of varying maturities:
Percent Increase (Decrease) in the Price of a Par Bond Yielding 8.5%
Stated 2% Increase in 2% Decrease in
Maturity Interest Rates Interest Rates
Short-term (2.5 years) (4%) 5%
Intermediate-term (10 years) (12%) 15%
Long-term (20 years) (17%) 22%
Thus, to the extent a Fund is invested in long-term maturities, its interest
rate risk will be high. The Investment Manager invests in such securities only
when it believes interest rates will be stable or declining. Credit Risk is
associated with a borrower failing to make payments of interest and principal
when due. A Fund's Credit Risk will increase as its overall portfolio quality
decreases. Thus to the extent that a Fund is invested in Investment Grade
corporate bonds and U.S. Government Securities, it will experience minimal
credit risk, but to the extent it invests in lower quality bonds, it is exposed
to increased Credit Risk. Call Risk for corporate bonds (or prepayment risk for
mortgage-backed securities) is the possibility that borrowers will prepay (call)
their debt prior to the scheduled maturity date, resulting in the necessity to
reinvest the proceeds at lower interest rates. Call Risk generally occurs during
declining interest rates and is greater when a Fund is invested in long-term
maturities. Thus, the longer a Fund's average portfolio maturity is, accompanied
by a decline in prevailing interest rates, the Call Risk will increase.
Investors should be aware that the widespread expansion of government,
consumer and corporate debt within our economy has made the corporate sector,
especially cyclically sensitive industries, more vulnerable to economic
downturns or increased interest rates. An economic downturn could severely
disrupt the market for junk bonds and adversely affect the value of outstanding
bonds and the ability of the issuers to repay principal and interest, leading to
an increased risk of default. If the issuer of a bond defaulted, the Fund may
incur additional expenses to seek
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recovery. Periods of economic uncertainty and change can be expected to result
in increased volatility of market prices of junk bonds and, consequently, the
value of the Fund. Junk bonds structured as zero coupon securities are affected
to a greater extent by interest rate changes and thereby tend to be more
volatile than securities which pay interest periodically.
Junk bonds may contain redemption or call provisions. If an issuer exercises
these in a declining interest rate market, the Fund would have to replace the
security with a lower yielding security, resulting in a decreased return for the
shareholders. Conversely, a junk bond's value will decrease in a rising interest
rate market, as will the value of the Fund's assets. If the Fund experiences
unexpected net redemptions, it may be forced to sell its junk bonds at a time
when the Investment Manager would not otherwise sell them based upon their
investment merits, thereby decreasing the total return expected from the
investment. Junk bonds may be subject to market value fluctuation based upon
adverse publicity and investor perceptions (whether or not based on fundamental
analysis), exposing investors to a increased risk of decreased values and
liquidity, especially in a thinly traded market.
The Investment Manager relies in part on the credit ratings of Moody's and
S&P when investing directly in fixed income investments. There are a number of
risks associated with such reliance. Credit ratings evaluate the safety of
principal and interest payments but not the market value of high yield bonds.
Rating agencies may fail to timely change the credit ratings to reflect
subsequent events. For this reason, the Investment Manager performs its own
evaluation of fundamental and other factors establishing value prior to making
direct investments in fixed income securities and continuously monitors the
issuers of securities actually held in the Funds' portfolio. For a description
of the Moody's and S&P bond ratings, see the Appendix.
The Income Fund limits its investments in lower rated debt securities (so
called "junk bonds") to no more than 5% of its total assets.) The Growth &
Income Fund, except as a "special situation," does not normally invest in junk
bonds. Junk bonds carry greater risks than Investment Grade securities and, to
the extent the Fund owns junk bonds, it will assume such increased risks. An
economic downturn or increasing interest rates could have an adverse affect upon
less financially secure issuers' ability to repay interest and principal and
could result in increased junk bond defaults. Junk bonds have been found to be
less sensitive to interest rate changes than Investment Grade issues, but more
sensitive to adverse economic or corporate developments. The Call Risk
associated with junk bonds may be increased when the issuer's financial position
improves, because of its potential to refinance its debt at lower rates, even
when market interest rates are stable. Junk bonds may be thinly traded, which
could pose increased difficulty for the Fund in valuation, because of less
reliable, objective data available.
OPTIONS
AN "OPTION" ... means a call or put option issued by or through the Options
Clearing Corporation ("Clearing Corporation") and listed on a domestic
securities exchange (an "Exchange") or quoted on the quotation system of
the National Association of Securities Dealers, Inc. ("NASDAQ").
A "CALL OPTION" ... gives the holder the right to buy, for a specified
period of time, shares of the underlying security covered by the "call" at the
stated exercise price.
A "PUT OPTION" ... gives the holder the right to sell, for a specified
period of time, shares of the underlying security covered by the "put" at the
stated exercise price.
A "COVERED CALL OPTION" .. is a Call Option sold (or written) against a
security which is owned by the seller of the option. If the option is exercised
by the purchaser during the option period, the seller is required to deliver the
underlying security against payment of the exercise price.
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A "COVERED PUT OPTION" ... is a Put Option sold (or written) against a fully
covered collateral account in which the seller deposits and maintains, with a
securities depository, U.S. Government securities of equal or greater value than
the exercise price of the option. If the option is exercised during the option
period, the seller is required to purchase the optioned securities at the
exercise price.
PURCHASE OF OPTIONS. The Growth and Income Fund may purchase put and call
options on stocks, whether or not related to securities held by the Fund, only
if listed on an Exchange or NASDAQ, and only when the Investment Manager
believes the Fund's total return would be enhanced. The risk to the Fund in
purchasing an option is the cost of the option, called the "premium". If the
option is never exercised by the Fund, the cost of the premium is totally lost.
WRITING OPTIONS. The Growth and Income Fund may sell (write) Covered Call
Options and Covered Put Options only if listed on an Exchange or NASDAQ and only
when the Investment Manager believes the Fund's total return would be enhanced.
In return for the premium it receives on the sale of a Covered Call Option, the
Fund, during the option period, gives up its opportunity for profit from an
increase in the value of the underlying security above the exercise price, but
retains a risk of loss from a price decline. The Fund's gain on the sale of a
Covered Put Option is limited to the premium received plus interest earned on
its deposit, while its risk is not less than the exercise price of the option
reduced by the current market price of the underlying security when the put is
exercised.
STOCK INDEX OPTIONS. The Growth and Income Fund may purchase put or call
options on broadly-based stock indices. A stock index is "broadly-based" if it
includes stocks that are not limited to issues in any particular industry or
group of industries. Stock index options would be purchased only when, in the
opinion of the Investment Manager, the total return of the Fund would likely be
enhanced. Such transactions could enhance total return, for example, by hedging
against adverse price movements in the stock market generally. Options on stock
indices are similar to options on stock except that when an index option is
exercised, the exercise is settled by the payment of cash rather than the
delivery of stock. As with stock options, the risk to the Fund in purchasing
index options is limited to the cost, or premium, paid for the option. The Fund
will not purchase stock index options if, as a result of such purchase, more
than 5% of its net assets (based on cost at the time of purchase) would be
invested in any one index, or if more than 10% of its net assets would be
invested in stock indices, totally.
LEVERAGE
The Growth and Income Fund' fundamental investment policies permit it to
borrow money from banks on a secured or unsecured basis to purchase or carry
securities and to pay interest thereon. The Fund has not employed leverage in
the past and has no current intention of employing it in the future. The Fund
reserves the right, however, to use leverage in the future. Shareholders will
receive 60 day's written notice and the Prospectus will be amended prior to any
such change in its leverage practices.
In the event leverage were employed, and to the extent securities are
purchased or carried with borrowed money, the net asset value of Fund shares
will increase or decrease at a greater rate than would be the case if borrowed
money were not used. The Fund may borrow from a bank to purchase or carry
securities only if, immediately after such borrowing, the value of the Fund's
assets, including all borrowings then outstanding, less its liabilities
(excluding all borrowings), is equal to at least 300% of the aggregate amount of
borrowings then outstanding. The amount of borrowing will also be limited by the
applicable margin limitations imposed by the
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Federal Reserve Board. If for any reasons the value of the Fund's assets fall
below the coverage requirement of the Investment Company Act of 1940, the Fund
will, within three business days, reduce such borrowings to the extent
necessary. In such event the Fund may be required to liquidate positions at
times when it may not be desirable to do so. The use of leverage must be
considered a speculative investment activity. The degree to which it is used,
therefore, will be carefully evaluated by the Investment Manager, for each such
transaction, in terms of the relevant potential for enhancing the total return
of the Fund.
LENDING PORTFOLIO SECURITIES
Each Fund is permitted to lend its portfolio securities for the purpose of
generating additional income. Loans of portfolio securities will be in
accordance with applicable regulatory requirements. Such loans may be made only
to banks and member firms of the New York Stock Exchange deemed by the
Investment Manager to be credit worthy and of good standing. Loans of portfolio
securities must be secured by collateral equal to the market value of the
securities loaned. If the market value of the loaned securities increases over
the value of the collateral, the borrower must promptly put up additional
collateral; if the market value declines, the borrower is entitled to a return
of the excess collateral. The types of collateral currently permitted are cash,
securities issued or guaranteed by the U.S. Government or its agencies,
irrevocable stand-by letters of credit issued by banks acceptable to management,
or any combination thereof. Both Funds limit the quantity of loaned portfolio
securities so that the aggregate market value, at the time the loan is made, of
all portfolio securities on loan will not exceed 33% of the value of the Fund's
net assets.
During the existence of a loan, the Fund will continue to receive a payment
equal to the interest or dividends paid by the issuer on the securities loaned.
In addition, the Fund will receive a negotiated loan fee or premium from the
borrower or, in the case of loans collateralized by cash or government
securities, will retain part or all of the income realized from the investment
of cash collateral or the interest on the government securities.
Under the terms of its securities loans, the Funds have the right to call
the loan and obtain the securities loaned at anytime from the borrower within
five trading days of notice. Voting rights may pass with the lending of
securities. However, the Fund will retain the right either to call the loan in
time to vote or consent, or to otherwise obtain rights to vote or consent, if a
material event affecting the investment is to occur. The Funds pay reasonable
finder's, custodian and/or administrative fees in connection with the securities
loaned.
As with other extensions of credit there are risks of delay in recovery or
even loss of rights in the collateral should the borrower of the securities fail
financially. Loans of portfolio securities will be made only when, in the
judgment of the Fund's Investment Manager, the income to be generated by the
transactions justifies the attendant risk.
FOREIGN SECURITIES
In making foreign investments, the Funds will give appropriate consideration
to the following factors, among others.
Foreign securities markets are generally not as developed or efficient as
those in the United States. Securities of some foreign companies are less liquid
and more volatile than securities of comparable U.S. companies. Similarly,
volume and liquidity in most foreign securities markets is less than in the
United States and, at times volatility of price can be greater than in the
United States. In addition, there may be less publicly available information
about non-U.S. issuers, and non-U.S. issuers are not generally subject to
uniform accounting and financial reporting standards, practices and requirements
comparable to those applicable to U.S. issuers.
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Because stock certificates and other evidences of ownership of such
securities may be held outside the United States, the Funds may be subject to
additional risks which include possible adverse political and economic
developments, possible seizure or nationalization of foreign deposits and
possible adoption of governmental restrictions which might adversely affect the
payment of principal and interest on the foreign securities or might restrict
the payment of principal and interest to investors located outside the country
of the issuer, whether from currency blockage or otherwise.
Since foreign securities often are purchased with and payable in currencies
of foreign governments, the Fund would be subject to the risk of the exchange
value of the dollar dropping against the value of the currency in which a
particular security is traded. This would have the effect of increasing the cost
of such investment and would reduce the realized gain or increase the loss on
such securities at the time of sale. Custodial expenses for a portfolio of
non-U.S. securities are generally higher than for a portfolio of U.S.
securities. Dividend and interest payments from certain foreign securities may
be subject to foreign withholding taxes on interest income payable on the
securities. Dividends received by the Funds on foreign securities are not
qualified income for purposes of calculating the amount of the 80% dividends
received deduction allowable to corporations.
AMERICAN DEPOSITORY RECEIPTS
The Funds may invest in American Depository Receipts (ADR's) or other
securities convertible into the securities of foreign issuers. These convertible
securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. Generally ADR's in registered form,
are designed for use in American securities markets.
NEW COMPANIES AND SPECIAL SITUATIONS
We may, from time to time, invest in new companies. The management of new
companies frequently does not have substantial business experience. Furthermore,
they may be competing with other companies who are well established, more
experienced and better financed. The funds may also invest in "special
situations"; that is, securities which may be affected by particular
developments unrelated to general market trends. Examples of special situations
are companies being reorganized or merged, having unusual new products, enjoying
particular tax advantage, or acquiring new management. New companies and special
situations may not be readily marketable and, if so, would be subject to
investment restrictions described below. The extent, if at all, to which the
funds will invest in new companies or special situations will be determined by
the Investment Manager in light of all the pertinent facts and circumstances,
with special consideration given to the risk involved in such investments.
REPURCHASE AGREEMENTS
Each Fund may invest in repurchase agreements ("Repos"). Repos, for the
Funds' purposes, are arrangements whereby U.S. Government obligations may be
purchased from, and simultaneously committed to be resold at a specified time in
the future (usually seven days or less), to a bank or recognized securities
dealer who agrees to repurchase the securities at the Fund's cost plus a
specified rate of interest. In Repo transactions, the underlying securities are
held as collateral by our custodian bank until repurchased. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, the Fund
could experience both delays in liquidating the underlying securities and losses
including: (a) possible decline in value of the underlying security during the
period we seek to enforce the Fund's rights; (b) possible subnormal levels of
income and lack of access to income during this period; and (c) expense of
enforcing the Fund's rights. There is also a risk of losing all rights to the
collateral upon the
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bankruptcy or default of a seller of a Repo if the Fund is considered as not
having perfected its security interest. The Funds attempt to mitigate this risk
by requiring the Custodian bank to verify delivery to it of the collateral on
the date of settlement.
CONVERSION AND OTHER RIGHTS
A Fund may exchange securities, exercise conversion or subscription rights,
warrants or other rights to purchase common stock or other equity securities and
may hold, except to the extent limited by the Investment Act of 1940 ("1940
Act"), any such securities so acquired without regard to the Funds investment
policies and restrictions. The original cost of the securities so acquired will
be included in any subsequent determination of a Fund's compliance with the
investment percentage limitations referred to herein and in the Prospectus. A
Fund will not knowingly exercise rights or otherwise acquire securities when to
do so would jeopardize the Fund's status under the 1940 Act as a "diversified"
investment company.
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INVESTMENT RESTRICTIONS
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Each Fund has adopted the Investment Restrictions set forth below which
cannot be changed without the approval of a majority of the outstanding voting
securities of the particular Fund. As provided in the Investment Company Act of
1940 a "vote of a majority of the outstanding voting securities" of a Fund means
the affirmative vote of the lesser of (i) more than 50% of the outstanding
shares of the Fund or (ii) 67% or more of the shares present at a meeting if
more than 50% of the outstanding shares are represented at the meeting in person
or by proxy. The investment restrictions provide that the Fund will not:
1. Make loans, except that each Fund may (a) purchase publicly distributed
bonds and debt securities, which shall not be considered the making of a loan,
(but restricted debt securities are considered the making of a loan); (b) lend
its portfolio securities as described in "Lending Portfolio Securities," page 4;
and (c) engage in repurchase agreement transactions as described herein;
2. Invest in securities of other investment companies except; (i) by
purchase in the open market involving only customary brokers commission, or as
part of a merger, consolidation, or acquisition of assets; and (ii) that
securities of other investment companies may be purchased, provided: (a) that
the investment policies of such other investment company restricts such company
to purchasing debt securities maturing in one year or less; (b) that the
securities of each company are offered and redeemed without the imposition of
sales commissions; and (c) that no such investment will be made if, after making
the investment, more than 5% of the Fund's net assets (taken at cost at the time
of purchase) would be invested in the securities of such investment companies.
3. Buy or sell commodities, commodity contracts, real estate, or real
estate mortgage loans, but we may purchase securities of companies engaged in
the real estate business;
4. Purchase or retain the securities of any company if the officers or
trustees of the Trust or the officers or directors of the investment manager,
who own individually more than .5% of such securities of such company, together,
own as much as 5% of the securities of such company;
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5. Issues senior securities;
6. Engage in short sales;
7. Participate on a joint or a joint and several basis in any securities
trading account (but the "bunching" of orders for sale or purchase of portfolio
securities among the Funds or with other accounts under the management of the
Investment Manager to save brokerage costs or to average prices among them is
not deemed to result in a securities trading account);
8. Borrow money, except (a) for temporary or emergency purposes not in
excess of 5% of the value of the total assets of the Fund taken at the lower of
then market value or cost and (b) to purchase or carry securities as described
under "Special Risk Considerations Leverage," in the Prospectus;
9. Underwrite the sale of securities, except that we may acquire
non-controlling blocks of securities from issuers for investment purposes, and
if at a subsequent date, in our management's opinion, it becomes desirable for
us to sell such blocks (securities acquired in private transactions can be sold
either (a) publicly, pursuant to Rule 144, another exemption, or an effective
registration under the Securities Act of 1933 or (b) privately, without
registration) we may do so, and in connection therewith, may incur expenses
relating to the registration or disposition (or both) of the securities.
10. Purchase securities on margin, except that borrowing from banks (see
Item 8 above) shall be permitted. Notwithstanding this restriction, the Funds
may utilize such short-term credits as may be necessary for clearance of
purchases or sales of securities.
11. Purchase warrants if such purchase would exceed 5% of its net assets,
including, within that limitation, 2% of its net assets of warrants not listed
on the New York or American Stock Exchanges. For the purpose of this limitation,
warrants acquired in units or attached to securities may be deemed to be without
value;
12. Engage in arbitrage transactions; or
13. Write or purchase options, except that the Growth and Income Fund may
purchase options on stocks and stock indices and may write (sell) covered call
options and covered put options provided that, the aggregate value of the
securities underlying the calls sold or obligations underlying the puts sold
(determined as of the date the options are sold) shall not exceed 25% of the
Fund's net assets, the Fund must limit its aggregate premiums paid on the
purchase of options held at any one time to 20% of the Fund's net assets and the
aggregate margin deposits required on all such options held at any one time may
not exceed 5% of the Fund's total assets.
It may be difficult to sell restricted securities (see "Investment
Restrictions" in the Prospectus, and Items 5 and 9, above) at prices
representing their fair market value. If registration of restricted securities
is necessary, a considerable period of time may elapse between the decision to
sell and the effective date of the registration statement. During that time, the
price of the securities to be sold may be affected by adverse market conditions.
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SPECIAL SHAREHOLDER SERVICES
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As noted in our prospectus, each Fund offers the following shareholder
services;
REGULAR ACCOUNT
The regular account allows for voluntary investments to be made at any time.
Available to individuals, custodians, corporations, trusts, estates, corporate
retirement plans and others, investors are free to make additions and
withdrawals to or from their account as often as they wish. When an investor
makes an initial investment in a Fund, a shareholder account is opened in
accordance with the investor's registration instructions. Each time there is a
transaction in a shareholder account, such as an additional investment or the
reinvestment of a dividend or distribution, the shareholder will receive from
the Transfer Agent a confirmation statement showing the current transaction and
all prior transactions in the shareholder account during the calendar year to
date, along with a summary of the status of the account as of the transaction
date. Shareholder certificates are issued only for full
shares and only upon the specific request of the shareholder. Issuance of
certificates representing all or only part of the full shares in a shareholder
account may be requested by a shareholder.
SYSTEMATIC WITHDRAWAL PLAN
Shareholders owning shares of any Fund with a value of $10,000 or more may
establish a Systematic Withdrawal Plan. A shareholder may receive monthly
payments, in amounts of not less than $50 per payment, by authorizing our
Transfer Agent to redeem the necessary number of shares on the 25th of each
month in order to make the payments requested. In the event that the 25th day
falls on a Saturday, Sunday or holiday, the redemption will take place on the
next business day. Share certificates for the shares being redeemed must be held
by the Transfer Agent. Checks will be made payable to the designated recipient
and mailed within 7 days of the valuation date. If the recipient is other than
the registered shareholder, the signature of each shareholder must be guaranteed
on the application (see "Signature Guarantees"). A corporation (or partnership)
must also submit a "Corporate Resolution" (or "Certification of Partnership")
indicating the names, titles and required number of signatures authorized to act
on its behalf. The application must be signed by a duly authorized officer(s)
and the corporate seal affixed. No redemption fees are charged to shareholders
under this plan. Costs in conjunction with the administration of the plan are
borne by the Fund to which the redemption applies. Shareholders should be aware
that such systematic withdrawals may deplete or use up entirely the initial
investment and may result in realized long-term or short-term capital gains or
losses. The Systematic Withdrawal Plan may be terminated at any time by the
Transfer Agent or a Fund upon thirty day's written notice or by a shareholder
upon written notice to the Fund or its Transfer Agent. Applications and further
details may be obtained by writing or calling the Elite Group.
RETIREMENT PLANS
As noted in the Fund's Prospectus, an investment in Fund shares may be
appropriate for IRA's, Keogh Plans and corporate retirement plans. Unless the
Fund is otherwise directed, capital gains distributions and dividends received
on Fund shares held by any of these plans will be automatically reinvested in
additional Fund shares and will be exempt from taxation until distributed from
the plans. Investors who are considering establishing such a
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plan may wish to consult their attorneys or tax advisers with respect to
individual tax questions. The Elite Group intends to offer pre-qualified plans
as described herein.
INDIVIDUAL RETIREMENT ACCOUNT - IRA. The Internal Revenue Code of 1986
imposes substantial restrictions on your ability to make deductible
contributions to an IRA. Under the law, an individual who is an active
participant in an Employer Plan and who has an adjusted gross income of $25,000
or more, but not exceeding $35,000, is allowed to deduct a portion of his IRA
contribution. That portion decreases proportionately to the extent the
individual's income exceeds $25,000. A married couple filing a joint return
whose adjusted gross income is $40,000 or more, but not exceeding $50,000 is
also allowed to deduct a portion of their IRA contributions, which portion
decreases proportionately to the extent the couple's adjusted gross income
exceeds $40,000. An individual with an adjusted gross income exceeding $35,000
and who is an active participant in an Employer Plan is not allowed to deduct
any portion of his IRA contributions, and a married couple filing a joint return
whose adjusted gross income exceeds $50,000 is not able to deduct any portion of
their IRA contributions if either spouse is an active participant in an Employer
Plan. Individuals may make nondeductible contributions to the extent they are
not eligible to make deductible IRA contributions.
An investment in Fund shares through IRA contributions, whether deductible
or nondeductible, is advantageous because all income, dividends and capital
gains distributions earned on your Fund shares are not immediately taxable to
your or the IRA, but will be taxable, as are all IRA distributions, as ordinary
income when distributed. To avoid penalties, your interest in an IRA must be
distributed, or start to be distributed, to you not later than April 1 following
the taxable year in which you attain age 70-1/2. Most distributions made before
age 59-1/2 are subject to a penalty equal to 10% of the distribution, except in
the case of death or disability or where the distribu tion is rolled over into
another IRA in accordance with certain rules specified in Section 406 (d) of the
Internal Revenue Code.
Shares of the Fund may be purchased as an investment for an IRA account.
Information concerning an IRA account. including fees charged for maintaining an
IRA, more detailed information and disclosures made pursuant to requirements of
the Internal Revenue Code, and assistance in opening an IRA may be obtained from
The Elite Group.
KEOGH PLANS AND CORPORATE RETIREMENT PLANS. Shares of either Fund may also
be purchased as an investment for Self-Employed and Corporate Retirement Plans,
including SIMPLE (Savings Incentive Match Plan) plans. There are tax penalties
imposed for most premature distributions from such plans prior to age 59-1/2,
except in the case of death or disability.
OTHER PLANS AND SERVICES. In addition to the foregoing plans, our Investment
Manger makes available to shareholders in connection with their investment in
the Fund(s), through its associates, a full range of consulting and plan
administrative services, on a fee basis. Information is available to explain and
assist you with the establishment of various types of corporate retirement
plans, education and charitable organizations deferred compensation plans,
thrift and savings plans. Also available are automated record keeping and
actuarial services for tax-sheltered plan sponsors which fulfill all appropriate
accounting and record keeping requirements. These services can also accommodate
so called "split-funding" options, where plan assets may be invested in various
investments in addition to The Elite Group.
HOW TO ESTABLISH RETIREMENT ACCOUNTS. All the foregoing retirement plan
options require special applications or plan documents. Please call the Elite
Group to obtain information regarding the establishment of retirement plan
accounts. In the case of IRA and certain other pre-qualified plans, nominal fees
will be charged in connection with
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plan establishment, custody and maintenance, all of which are detailed in plan
documents. You may wish to consult with your attorney or other tax advisor for
specific advice concerning your tax status and plans.
EXCHANGE PRIVILEGE
Shareholders may exchange shares (in amounts of $1,000 or more) of one Fund
for shares of another Elite Fund. A current prospectus of the other fund(s)
should be obtained and read prior to seeking any such exchange. Your special
authorization form must have been completed and must be on file with our
Transfer Agent. To make an exchange, an exchange order must comply with the
requirements for a redemption or repurchase order and must specify the value or
number of the shares to be exchanged. Your exchange will take effect as of the
next determina tion of net asset value per share of each fund involved (usually
at the close of business on the same day). There is currently no service charge
levied for exchanges, but the Transfer Agent has reserved the right to levy such
a fee in the future. Shareholders will be given at least 60 days written notice
prior to instituting an exchange fee. The Trust reserves the right to limit the
number of exchanges or to otherwise prohibit or restrict shareholders from
making exchanges at any time, without notice, should the Trustees determine that
it would be in the best interest of shareholders to do so. For tax purposes an
exchange constitutes the sale of the shares of one fund and the purchase of
those of the second fund. Consequently, the sale will likely involve either a
capital gain or loss to the shareholder for Federal income tax purposes.
TELEPHONE REDEMPTION PRIVILEGE
The Prospectus describes the procedures the Funds follow to establish and
operate the telephone redemption privilege. To protect the Funds, their agents
and shareholders from liability, the Funds employ reasonable procedures to help
ascertain that the instructions communicated by telephone are genuine. Among
other things, the Transfer Agent will require the caller to provide verifying
information unique to the shareholder. Such information could include a password
or other form of personal identification. In addition, the call/transaction will
be recorded.
REDEMPTIONS IN KIND
Neither Fund intends, under normal circumstances, to redeem its securities
by payment in kind. It is possible that conditions may arise in the future which
would, in the opinion of the Trustees, make it undesirable for a Fund to pay for
all redemptions in cash. In such case, the Board of Trustees may authorize
payment to be made in portfolio securities or other property of the Fund.
Securities delivered in payment of redemptions would be valued at the same value
assigned to them in computing the net asset value per share. Shareholders
receiving them would incur brokerage costs when these securities are sold. An
irrevocable election has been filed under Rule 18f-1 of the Investment Company
Act of 1940, wherein the Funds committed themselves to pay, in cash, to any
shareholder of record during any ninety-day period the lesser of (a) $250,000 or
(b) one percent (1%) of the Fund's net asset value at the beginning of such
period.
TRANSFER OF REGISTRATION
If you wish to transfer shares to another owner, send a written request to
the Transfer Agent, FPS Services, Inc., P.O. Box 61503, King of Prussia, PA
19406-0903. Your request should include the following: (1) the Fund name and
existing account registration; (2) signature(s) of the registered owner(s)
exactly as the signature(s) appear(s) on
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the account registration; (3) the new account registration, address, social
security or taxpayer identification number and how dividends and capital gains
are to be distributed; (4) any stock certificates which have been issued for the
shares being transferred; (5) signature guarantees (See "Signature Guarantees"
in the Prospectus); and (6) any additional documents which are required for
transfer by corporations, administrators, executors, trustees, guardians, etc.
If you have any questions about transferring shares, call the Transfer Agent,
toll-free at (800) 441- 6580.
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PURCHASE AND REDEMPTION OF SHARES
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The purchase price of shares of each Fund of the Trust is the net asset
value next determined after the order is received. An order received prior to
the close of the New York Stock Exchange ("Exchange") will be executed at the
price computed on the date of receipt; and an order received after the close of
the Exchange will be executed at the price computed on the next Business Day. An
order to purchase shares is not binding on the Trust until it has been confirmed
in writing by our Transfer Agent (or other arrangements made with the Trust, in
the case of orders utilizing wire transfer of funds, as described above) and
payment has been received.
Each Fund reserves the right in its sole discretion (i) to suspend the
offering of its shares, (ii) to reject purchase orders when in the judgment of
management such rejection is in the best interest of the Fund, and (iii) to
reduce or waive the minimum for initial and subsequent investments for certain
fiduciary accounts such as employee benefit plans or under circumstances where
certain economies can be achieved in sales of the Fund's shares.
The Income Fund follows the accounting practice known as "equalization," by
which a portion of the proceeds from sales and costs from redemptions is
credited or charged to income on the date of the transaction so that
undistributed net income per share is unaffected by shares of the Fund sold or
repurchased.
Each Fund may suspend redemption privileges or postpone the date of payment
(i) during any period that the New York Stock Exchange is closed, or trading on
the Exchange is restricted as determined by the Securities and Exchange
Commission (the "Commission"), (ii) during any period when an emergency exists
as defined by the rules of the Commission as a result of which it is not
reasonably practicable for a Fund to dispose of securities owned by it, or
fairly to determine the value of its assets, and (iii) for such other periods as
the Commission may permit.
No charge is made by a Fund for redemptions, although, as disclosed in the
Prospectus, the Trustees could impose a redemption charge in the future. Any
redemption may be more or less than the shareholder's cost depending on the
market value of the securities held by the Fund.
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TRUSTEES AND OFFICERS
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The following is a list of the Trustees and Officers of the Elite Group, and
a brief statement of their present positions and principal occupations during
the past five years:
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NAME AND ADDRESS PRINCIPAL OCCUPATION(S)
POSITION WITH TRUST DURING PAST 5 YEARS
Richard S. McCormick 1, 2 Since June 1986, President, McCormick Capital Management, Inc.
1325 4th Avenue, Suite 2144 (investment manager of the Funds); February 1978 to October 1986, Vice
Seattle, WA 98101 President, Kennedy Associates, Inc., Seattle investment advisory firm.
Chairman, Board of Trustees Portfolio Manager and Chartered Financial Analyst.
and President
John W. Meisenbach 1, 2 Partner in MCM Financial, a Seattle full-service insurance brokerage and
2100 Washington Bldg financial planning firm. Also a director of Costco Wholesale and Expeditors
Seattle, WA 98101 International.
Trustee, Treasurer
and Secretary
Lee A. Miller
P.O. Box 1882 Private Investor. From 1961 to December 1995, Vice President, Merrill
Vashon Island, WA 98070 Lynch & Co.
Trustee
Morgan J. O'Brien 2
1244 20th Avenue, East Faculty member, Seattle University; from June 1986 to January 1989.
Seattle, WA Private investor.
Trustee
John M. Parker 3
1819 38th East
Seattle, WA 98112 Since May 1988, Sr. Vice President, Kennedy Associates, Inc., Seattle, real
Trustee estate acquisition and management.
Jack R. Policar 3
1111 3rd Avenue, Suite 1465
Seattle, WA 98121 Since 1979, President and Chief Executive Officer of J. R. Policar, Inc.,
Trustee Certified Public Accounting firm.
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1 These Trustees are "interested persons" of the Fund.
2 These trustees are members of the Executive Committee.
3 These Trustees are members of the Audit Committee.
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Trustees and officers of the Trust who are interested persons of the Trust
receive no salary or fees from the Trust. Trustees of the Trust who are not
interested persons of the Trust receive $1400 per meeting of the Board of
Trustees attended by them, $150 per hour for services rendered, plus related
expenses. For the year ended September 30, 1996, the Trustees received, in the
aggregate, a total of $13,500. As of September 30, 1996, the Trustees and
Officers of the Trust, in the aggregate, owned 8.1% of the shares of the Trust.
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5% OWNERS
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The Trust is aware of the following persons who owned, of record and
beneficially, more than 5% of the outstanding shares of any Fund at September
30, 1996:
Income Fund John W. Meisenbach 8.8%
2100 Washington Bldg, Seattle, WA 98101
Growth & Income Fund Virginia Wyman 5.2%
600 - 1st Avenue, #600, Seattle, WA 98104
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INVESTMENT MANAGER
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McCormick Capital Management, Inc. (the "Investment Manager") manages the
Funds' investments pursuant to an Investment management Agreement (the
"Management Agreement") as is described in the Prospectus. The Management
Agreement is effective until January 1, 1998, and will be renewed thereafter
only so long as such renewal and continuance is specifically approved at least
annually by the Board of Trustees or by vote of a majority of our outstanding
voting securities, provided the continuance is also approved by a majority of
the Trustees who are not "interested persons" of the Trust or the Investment
Manager by vote cast in person at a meeting called for the purpose of voting on
such approval. The Management Agreement, last approved by the shareholders of
both Funds on April 13, 1989, is terminable without penalty on sixty days notice
by the Board of Trustees of the Trust or by the Investment Manager. The
Management Agreement provides that it will terminate automatically in the event
of its assignment.
Compensation of the Investment Manager, based upon each Fund's daily average
net assets, is at the following annual rates: (1) for the Income Fund, 0.70% on
the first $250 million, 0.625% on the next $250 million and 0.50% on all above
$500 million; and (2) for the Growth & Income Fund, 1% on the first $250
million, 0.75% on the next $250 million and 0.50% on all above $500 million. The
advisory fee for The Growth & Income Fund is higher than that paid by most
investment companies. Investment Management fees are accrued daily on the books
of the Funds and are paid monthly.
Management fees for the Growth & Income Fund were $379,920, $265,060
and $214,790, respectively, for the fiscal years ended September 30, 1996, 1995
and 1994. Management fees for the Income Fund for the same periods,
respectively, were $90,041, $80,695 and $82,758.
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Richard S. McCormick, President, owns 60% and John W. Meisenbach, Treasurer,
owns 40% of the Investment Manager. Officers and control persons of the
Investment Manager may also serve as officers and/or trustees of the Trust. See
"Trustees and Officers", page 12, for details.
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MANAGEMENT AND OTHER SERVICES
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The firm of Tait, Weller & Baker of Philadelphia, PA has been retained by
the Board of Trustees to perform an independent audit of the books and records
of the Trust, to prepare each Fund's federal and state tax returns for the
fiscal year ending September 30, 1997, and to consult with the Trust as to
matters of accounting and federal and state income taxation for the fiscal year
ending September 30, 1997.
United Missouri Bank NA, 1010 Grand Avenue, Kansas City, Missouri, 64141,
serves as custodian for both Funds. As such it holds all cash and securities of
the Funds (either in its possession or in its favor through "book entry systems"
authorized by the Funds in accordance with the Investment Company Act of 1940),
collects all income and effects all securities transactions on behalf of the
Funds.
FPS Services, Inc., P.O. Box 61503, King of Prussia, PA 19406-0903, serves
as Transfer and Dividend Paying Agent for both Funds. FPS Services effects all
transactions in shareholder accounts, maintains all shareholder records and pays
income dividends and capital gains distributions as directed by the Board of
Trustees.
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ALLOCATION OF TRUST EXPENSES
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The Investment Manager, in addition to providing investment management
services, furnishes the services and pays the compensation and travel expenses
of persons to perform the executive, administrative and clerical functions of
the Trust, provides suitable office space, necessary small office equipment,
utilities, general purpose forms and supplies used at the offices of the Trust.
Each Fund will pay all of its own expenses not assumed by the Investment
Manager, including, but not limited to, the following: custodian, stock transfer
and dividend disbursing fees and expenses; taxes; expenses of the issuance and
redemption of shares of the Fund (including stock certificates, registration and
qualification fees and expenses); legal and auditing expenses; fund accounting
and pricing; and the cost of stationery and forms prepared exclusively for the
Fund. General Trust expenses are allocated among the Funds on a fair and
equitable basis by the Board of Trustees, which may be based on relative net
assets of the Funds or the nature of the services performed and the relative
applicability to each Fund.
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BROKERAGE
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It is the Funds' intention to seek the best possible price and execution for
securities bought and sold. The Investment Manager (subject to the general
supervision of the Board of Trustees) directs the execution of portfolio
transactions. Neither the Trust nor the Investment Manager is affiliated with
any securities broker-dealer. With respect to securities traded only in the
over-the counter market, orders will be executed on a principal basis with
primary market makers in such securities except for fixed price offerings and
except where better prices or
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executions may be obtained on a commission basis or by dealing with other than a
primary market maker. The Funds may direct commission trades to brokers who
provide the Fund or the Investment Manager with services useful to the Funds'
daily operations. Such services may include the payment of certain operating
expenses of the Funds or the provision of, for example, quotations and
communications services and equipment, data processing services and equipment,
investment recommendations, statistical analyses and securities and economic
research services. Many of these services are useful in varying degrees to the
Funds, but may be of indeterminable value. Services received by a Fund through
directed commission trades may also be used by the Investment Manager for the
benefit of the other Fund or any other client it may have. Conversely, a Fund
may also benefit from such transactions effected for the benefit of the other
Fund or other clients of the Investment Manager. The Trust may also prefer
brokers who recommend or sell Fund shares.
Notwithstanding the foregoing, it is the policy of the Trust not to pay
higher commissions to any broker in consideration of research or other services
or sales assistance provided than it would pay, all other things being equal, to
a broker not providing such services. Total brokerage commissions paid by the
Growth & Income Fund during the fiscal years ended September 30, 1996, 1995 and
1994, were $289,497, $211,263 and $210,238, respectively, of which $-0-, $33,896
and $51,956, respectively, were paid to Capital Institutional Services, a
Dallas, Texas broker-dealer, in respect to the receipt of research and other
services. Brokerage commissions paid by the Income Fund during the fiscal years
ended September 30, 1996, 1995 and 1994, were $15,343, $11,615 and $44,936,
respectively, of which $-0-, $7,640 and $5,981, respectively, were paid to
Capital Institutional Services, in respect to the receipt of research and other
services. No operating expenses were paid under directed commission arrangements
for the most recent fiscal year.
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ADDITIONAL TAX INFORMATION
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Each Fund intends to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code). As a
regulated investment company, a Fund will not be subject to federal income tax
to the extent it distributes its net taxable income and its net capital gains to
its shareholders. In order to qualify for tax treatment as a regulated
investment company under the code, a fund will be required, among other things,
to distribute annually at least 90% of its taxable income other than its net
capital gains to shareholders and to derive less than 30% of its gross income
from the sale or other disposition of securities held for less than three
months.
A 4% non-deductible excise tax is imposed on a regulated investment company
that fails to distribute in each calendar year an amount equal to 98% of
ordinary taxable income for the calendar year and 98% of capital gain net income
for the one-year period ended on October 31 of such calendar year. The Fund
intends to make sufficient distributions of its ordinary taxable income and
capital gain net income prior to the end of each calendar year to avoid
liability for the excise tax.
Each Fund of the Trust is treated as a separate tax entity for Federal
Income Tax purposes. As explained in the Prospectus, dividends from net
investment income and from net option income, and
distributions of any capital gains will be taxable to shareholders (except
Individual Retirement Accounts ("IRA's"), Self Employed Individual Retirement
Plans ("Keogh Plans"), Simplified Employee Pension Plans ("SEP's") and corporate
retirement plans), whether received in cash or invested in additional Fund
shares. For corporate shareholders, the 70% dividends received deduction should
apply to dividends from the Funds. The Fund will send you information each year
on the tax status of dividends and disbursements.
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A dividend or capital gains distribution paid shortly after shares have been
purchased, although in effect a return of investment, is subject to federal
income taxation. Dividends from net investment income and from net option
income, along with capital gains, will be taxable to shareholders, whether
received in cash or shares and no matter how long you have held the Fund shares,
even if they reduce the net asset value of shares below your cost and thus in
effect result in a return of a part of your investment. Any loss realized upon
the redemption or exchange of shares within six months from their date of
purchase will be treated as a long-term capital loss to the extent of
distributions received of net long-term capital gains during such six-month
period.
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CAPITAL SHARES AND VOTING
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Shares of each Fund when issued are fully paid and non-assessable and have
no preemptive or conversion rights. Shareholders are entitled to one vote for
each full share and a fractional vote for each fractional share held. Shares
have non-cumulative voting rights, which means that the holders of more than 50%
of the shares voting for the election of Trustees can elect 100% of the Trustees
and, in this event, the holders of the remaining shares voting will not be able
to elect any Trustees. The Declaration of Trust provides that, if elected, the
Trustees will hold office for the life of the Trust, except that: (1) any
Trustee may resign or retire; (2) any Trustee may be removed with or without
cause at any time: (a) by a written instrument, signed by at least two-thirds of
the number of Trustees prior to such removal; or (b) by vote of shareholders
holding not less than two-thirds of the outstanding shares of the Trust, cast in
person or by proxy at a meeting called for that purpose; (c) by a written
declaration signed by shareholders holding not less than two-thirds of the
outstanding shares of the Trust and filed with the Trust's custodian. In case a
vacancy or an anticipated vacancy shall for any reason exist, the vacancy shall
be filled by a majority of the remaining Trustees, subject to the provisions of
Section 16(a) of the 1940 Act. Otherwise there will normally be no meeting of
shareholders for the purpose of electing Trustees, and none of the Funds expects
to have an annual meeting of shareholders. The Trustees have agreed, if
requested to do so by the holders of at least 10% of the Trust's outstanding
shares, to call a meeting of shareholders for the purpose of voting upon the
question of removal of a trustee or trustees and to assist shareholders in
communication with other shareholders for this purpose. On any matter submitted
to a vote of shareholders, all shares of a Fund shall be voted by a Fund's
shareholders individually when the matter affects the specific interests of that
particular Fund (such as approval of the Investment Management Agreement with
the Investment Manager), except as otherwise required by the 1940 Act (such as
voting for Trustees).
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FINANCIAL STATEMENTS AND REPORTS
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The books of each Fund will be audited at least once each year by
independent public accountants. Financial Statements of each Fund, as of
September 30, 1996, together with the Report of the Fund's independent
accountants thereon, are reflected in the Trust's Annual Report to Shareholders,
a copy of which will accompany the Prospectus or Statement of Additional
Information at no charge whenever requested by a shareholder or prospective
shareholder. Shareholders will receive annual audited and semi-annual unaudited
reports when published and will receive written confirmation of all confirmable
transactions in their account.
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APPENDIX
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DESCRIPTION OF COMMERCIAL PAPER RATINGS
MOODY'S INVESTORS SERVICE, INC., in rating commercial paper, considers
various factors including the following: (1) evaluation of the management of the
issuer; (2) evaluation of the issuer's industry or industries and an appraisal
of the risks which may be inherent in certain areas; (3) evaluation of the
issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount, type and maturity of schedules of long-term debt; (6)
trend of earnings over a period of years; (7) financial strength of a parent
company and the relationships which exist with the issuer; and (8) recognition
by the management of obligations which may be present or may arise as a result
of public interest questions and preparation to meet such obligations. Based on
the foregoing, "P-1", "P-2" and "P-3" represent relative rankings (P-1 being the
highest) of companies that receive a Moody's rating.
STANDARD & POOR'S CORPORATION describes its highest ("A") rating for
commercial paper, with the numbers 1, 2 and 3 being used to denote relative
strength within the "A" classification as follows: liquidity ratios are adequate
to meet cash requirements; long-term senior debt rating should be "A" or better;
in some instances "BBB" credit ratings may be allowed if other factors outweigh
the "BBB rating. The issuer should have access to at least two additional
channels of borrowing. Basic earnings and cash flow should have an upward trend,
with allowances made for unusual circumstances. Typically, the issuer' s
industry should be well established and the issuer should have a strong position
within its industry. The reliability and quality of management should be
unquestioned.
DESCRIPTION OF BOND RATINGS
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS:
AAA: Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
AA: Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements that make the long-term risks
appear somewhat larger than in Aaa securities.
A: Bonds rated A possess many favorable investment attributes and are to be
considered upper medium-grade obligations. Factors giving security to principal
and interest are considered adequate but elements may be present that suggest a
susceptibility to impairment sometime in the future.
BAA: Bonds rated Baa are considered as medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interested payments and principal
security appear adequate for the present but certain protective
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elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA: Bonds rated Ba are judged to have speculative elements; their future cannot
be considered as well assured. Often the protection of interest and principal
payments may be very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
B: Bonds rated B generally lack characteristics of a desirable investment.
Assurance of interest and principal payments or of maintenance of other terms
of the contract over any long period of time may be small.
CAA: Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to payment of principal
or interest.
CA: Bonds rated Ca represent obligations that are speculative in a high degree.
Such issues are often in default or have other marked shortcomings.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S BOND RATINGS:
AAA: This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA: Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.
A: Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.
BB, B, CCC, CC: Bonds rated BB, B, CCC an CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and CC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major exposures or adverse conditions.
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THE ELITE GROUP
Income Fund
Growth & Income Fund
------------------------------------
Investment Manager
McCormick Capital Management, Inc.
1325 4th Avenue, Suite 2144
Seattle, Washington 98101
For account information,
wire purchase or redemptions,
call our Transfer Agent
FPS Services, Inc.
3200 Horizon Drive
P. O. Box 61503
King of Prussia, PA 19406-0903
(800) 441-6580
For 24-hour, 7 day-a-week price
information or for information
on any of our funds, investment
plans, retirement plans and
other shareholder services,
call the ELITE GROUP
1-800-423-1068 Toll-Free
1-206-624-5863 Local Seattle Area
Fund Counsel
Foster, Pepper & Shefelman
Seattle, Washington
Independent Auditors
Tait, Weller & Baker
Philadelphia, Pennsylvania
<PAGE>
McCORMICK CAPITAL MANAGEMENT, INC.
October 25, 1996
Dear Shareholders:
Attached with this letter is the audited annual report for the Elite Group
stock Growth & Income Fund and the bond Income Fund.
The fiscal year for the Elite Funds ended on September 30, completing The
Elite Mutual Funds ninth year. Many of you have been invested with us for the
majority of those years and some of you are new this year. We sincerely
appreciate everyone's support and patronage.
When we established the Elite Funds/McCormick Capital Management our goal
was to deliver a quality financial product that was cost effective for the
client and void of sales commissions. A financial product that would perform
well and avoid excessive risk. A financial product that was simple and flexible
in its format. We think we have been able to successfully deliver such a
product and we will continue to make it even better in the coming years.
The Elite Growth & Income Fund
(stock fund)
The financial statements that make up the Annual Report give us an opportunity
to review what has happened in the past and what may happen in the future.
Looking back, we are pleased to report that the stock Growth & Income Fund
appreciated 24.26% for the fiscal year. The five year annualized rate of
return is now 15.25% per year.
Health care companies continue to represent a larger portion of the Growth &
Income portfolio. The long-term investment story continues to be that an
increasing portion of our income is going to health care goods and services.
Something new in the Growth & Income Fund is a U.S. Government zero coupon bond
maturing in twenty three years. This investment represents 13.4% of the
portfolio. In my estimation this U.S. Government bond over the next year will
give us returns equal to, or greater than those returns available in the stock
market, but at a much lower level of risk.
The investment story we have outlined in numerous shareholder letters
continues to unfold. A competitive corporate America, international trade,
conservative politics and demographics are the forces that continue to
positively affect investment returns. The important thing about these trends
is that we expect them to continue well past the year 2000.
<PAGE>
The Elite Income Fund
(bond fund)
The last three years have seen increased volatility in the bond market.
1994 was down, 1995 was great and this most recent fiscal year 1996 was
disappointing, up only 3.79%. The fear of increasing inflation pushed
interest rates higher lowering bond prices. We think this fear of higher
inflation is misplaced. As we explained in shareholder letters we think
the long-term trend for inflation and interest is down which will produce
higher returns for the bond fund
Performance Comparisons
On the following pages are two charts that show the growth in value of a
hypothetical $10,000 investment in the Elite Income Fund, Growth & Income Fund
and various indices. The chart starts on 9/30/87 which was the beginning of
our first complete fiscal year. As an investor your investment results may
differ significantly depending on when you initiated your investment and if
there were subsequent investments.
Management of the funds does not think that there is only one index (stocks
or bonds) that accurately reflects the management of The Elite Funds. Our
funds are managed to our clients' objectives within the parameters of our
prospectus, following the rules and regulations of various regulatory agencies.
The various stock and bond indices are unmanaged, make no allowance for
operating expenses and are free from regulation and tax implications.
Regards,
\s\ Dick McCormick
Richard S. McCormick
<PAGE>
THE FOLLOWING TWO TABLES, INCLUDING AVERAGE ANNUAL TOTAL RETURN INFORMATION,
WERE PRESENTED AS GRAPHS IN THE SEPTEMBER 30, 1996 ANNUAL REPORT:
__________________________________________________________________________
ELITE GROWTH AND INCOME FUND AS COMPARED TO THE STANDARD & POORS 500
INDEX AND THE LIPPER GROWTH & INCOME FUND INDEX
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9/1987 9/1988 9/1989 9/1990 9/1991 9/1992 9/1993 9/1994 9/1995 9/1996
Elite Growth & Income Fund 10,000 9,112 11,917 10,496 13,848 14,886 16,902 18,896 22,660 28,156
Standard & Poors 500 Index 10,000 8,789 11,683 10,608 13,900 15,432 17,433 18,075 23,445 28,209
Lipper Growth & Income Fund Index 10,000 9,326 11,729 10,302 13,319 14,627 16,961 17,448 21,475 25,244
(Figures represent annual total return and are in thousands of dollars.)
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
1 Year 24.26%
3 Years 18.55%
5 Years 15.25%
9 Years 12.19%
__________________________________________________________________________
ELITE INCOME FUND AS COMPARED TO THE LEHMAN SHORT-TERM GOVT. INDEX
AND THE LEHMAN INTERMEDIATE GOVT. INDEX
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9/1987 9/1988 9/1989 9/1990 9/1991 9/1992 9/1993 9/1994 9/1995 9/1996
Elite Income Fund 10,000 11,027 12,041 12,877 14,513 15,771 17,254 16,552 18,631 19,337
Lehman Intermediate Govt. Index 10,000 11,063 12,080 13,117 14,901 16,758 18,038 17,767 19,650 20,652
Lehman Short-Term Govt. Index 10,000 10,875 11,841 12,945 14,403 15,829 16,611 16,802 18,178 19,207
(Figures represent annual total return and are in thousands of dollars.)
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
1 Year 3.79%
3 Years 3.87%
5 Years 5.91%
9 Years 7.59%
__________________________________________________________________________
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees
The Elite Group
We have audited the accompanying statements of assets and liabilities
of The Elite Growth and Income Fund and The Elite Income Fund, each a
series of shares of beneficial interest of The Elite Group, including the
portfolios of investments as of September 30, 1996, and the related
statements of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended
and the financial highlights for each of the five years in the period then
ended. These financial statements and financial highlights are the
responsibility of the Funds' 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 audits
to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of September 30, 1996 by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
The Elite Growth and Income Fund and The Elite Income Fund as of
September 30, 1996, the results of their operations for the year then
ended, the changes in their net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in
the period then ended in conformity with generally accepted accounting
principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
October 15, 1996
<PAGE>
Portfolio of Investments
The Elite Growth & Income Fund
September 30, 1996
Market Value
SHARES Note 2A
------------
COMMON STOCK 83.5%
BASIC INDUSTRY 7.6%
12,000 Dow Chemical $ 963,000
50,000 Longview Fiber Co 787,500
10,000 Ply-Gem Industries 122,500
10,000 Potash of Saskatchewan 731,250
40,000 Seagull Energy Corp* 785,000
--------------
Total Basic Industry 3,389,250
--------------
CAPITAL GOODS 19.5%
24,000 Arrow Electronics* 1,068,000
12,000 General Electric 1,092,000
24,000 Hewlett Packard 1,170,000
8,000 International Business Machines 996,000
9,500 Microsoft Corporation* 1,251,625
24,000 Seagate Technology* 1,341,000
12,000 U.S. Robotics Corp* 775,500
180,000 XactLabs Corporation* (a) 90,000
18,000 Xerox Corporation 965,250
--------------
Total Capital Goods 8,749,375
--------------
CONSUMER GOODS & SERVICES 23.4%
50,000 Cadmus Communication Corp 837,500
135,000 Coffee Station Inc.* (a) 303,750
45,000 Exide Corporation 1,164,375
60,000 Fingerhut Corporation 795,000
50,000 First Brands 1,306,250
24,000 Ford Motor Co. 750,000
16,000 General Motors Corp 768,000
50,000 H & R Block, Inc 1,487,500
20,000 Manpower Inc. 665,000
35,000 Optiva Corporation* (a) 420,000
50,000 Resound Corporation* 375,000
50,000 Singer Company N.V. 1,031,250
16,000 Viacom -B, Inc.* 568,000
--------------
Total Consumer Goods & Services 10,471,625
--------------
<PAGE>
Portfolio of Investments
The Elite Growth & Income Fund
September 30, 1996 - Continued
Market Value
SHARES Note 2A
--------------
FINANCIAL INTERMEDIARIES 11.3%
24,000 A.C.E. Limited (Insurance) 1,269,000
10,000 Dean Witter Discover & Co 550,000
36,000 Federal National Mortage 1,255,500
20,000 Mellon Bank 1,185,000
50,000 Pioneer Financial 818,750
-----------
Total Financial Intermediaries 5,078,250
-----------
HEALTH CARE GOODS & SERVICES 21.7%
12,000 American Home Products 765,000
16,000 Bristol-Myers Squibb 1,542,000
36,000 Foundation Health* 1,219,500
24,000 McKesson Corporation 1,137,000
13,800 Merck & Co. 971,175
16,000 Pfizer Inc. 1,266,000
8,000 Schering - Plough Corp 492,000
30,000 Sierra Health Services* 1,031,250
70,000 Value Health* 1,312,500
-----------
Total Health Care Goods & Services 9,736,425
-----------
Total Common Stock (Cost $27,518,337) 37,424,925
-----------
OPTIONS - COVERED CALLS ( 1.2%)
9,500 Microsoft Corp ($115 10-19-96) (165,062)
16,000 Pfizer Corp ($ 70 12-20-96) (162,000)
24,000 Seagate Technology ($55 12-20-96) (132,000)
12,000 U.S. Robotics ($65 11-15-96) ( 73,500)
-----------
Total Value of Calls (Cost $432,848) (532,562)
-----------
<PAGE>
Portfolio of Investments
The Elite Growth & Income Fund
September 30, 1996 - Continued
PAR VALUE Market Value
Note 2A
--------------
U.S. GOVERNMENT TREASURY 13.4%
$30,000,000 Zero Coupon Bond 7.35% - 7.46% (b) 05/15/19
(Cost $5,818,857) 5,976,896
------------
Total Investments
(Cost $32,904,346**) 95.7% 42,869,259
Cash and receivables
in excess of liabilities 4.3% 1,929,930
------ ------------
NET ASSETS 100.0% $ 44,799,189
====== ============
(a) Restricted security ( see note 3)
(b) Represents range of yields to maturity on purchase dates
* Non - income producing
** Cost for Federal Income Tax purposes is the same. At September 30,
1996, unrealized appreciation of securities for Federal Income Tax
purposes is as follows:
Unrealized appreciation $ 10,260,720
Unrealized depreciation (295,807)
------------------
Net unrealized appreciation $ 9,964,913
==================
See Notes to Financial Statement
<PAGE>
Portfolio of Investments
The Elite Income Fund
September 30, 1996
Market Value
Par Value Note 2A
------------
BONDS 92.9%
U.S. GOVERNMENT NOTES AND BONDS 33.8%
$ 900,000 U.S. Treasury Note
6.375% due 01/15/99 $ 904,347
1,750,000 U.S. Treasury Note
7.875% due 11/15/99 1,825,810
1,500,000 U.S. Treasury Bond
7.250% due 05/15/16 1,532,100
---------------
Total U.S. Government Notes and Bonds 4,262,257
---------------
ELECTRIC UTILITIES 20.9%
500,000 Portland General Electric
8.880% due 08/12/99 528,125
500,000 Commonwealth Edison
7.500% due 01/01/01 502,500
520,000 Ohio Power
6.750% due 04/01/03 510,900
500,000 Hawaiian Electric
6.660% due 12/05/05 468,125
650,000 Appalachian Power Co.
6.800% due 03/01/06 626,437
---------------
Total Electric Utility Bonds 2,636,087
---------------
GAS & ELECTRIC UTILITIES 23.0%
250,000 Consumer Power
8.750% due 02/15/98 257,188
500,000 Texas Utilities
5.875% due 04/01/98 496,250
170,000 Consumer Power
8.875% due 11/15/99 179,137
500,000 Louisiana Power & Light
6.000% due 03/01/00 486,875
500,000 Pacificorp
8.900% due 02/15/01 536,250
500,000 Long Island Lighting
7.050% due 03/15/03 459,375
500,000 Pacific Gas Transmission
7.100% due 06/01/05 489,375
---------------
Total Gas & Electric Utility Bonds 2,904,450
---------------
<PAGE>
Portfolio of Investments
The Elite Income Fund
September 30, 1996 - Continued
Market Value
PAR VALUE Note 2A
---------------
FINANCIAL/CORPORATE BONDS 15.2%
500,000 General Motors Acceptance Corp.
8.000% due 10/01/96 500,000
500,000 Ford Motor Credit
8.200% due 02/15/02 526,250
350,000 S. California Edison Capital Note
7.375% due 12/15/03 353,938
550,000 Federal Home Loan (Mortgage Backed)
6.100% due 02/15/24 533,687
------------
Total Financial/Corporate Bonds 1,913,875
------------
Total Value Bonds (Cost $11,846,132) 11,716,669
------------
SHARES
PREFERRED STOCK 4.7%
2,415 Cleveland Electric $9.125 244,820
3,560 Entergy Gulf States Utilities $8.64 350,660
------------
Total Value Preferreds (Cost $ 615,511) 595,480
------------
Total Investments
(Cost $12,461,643**) 97.6% 12,312,149
Cash and receivables
in excess of liabilities 2.4% 306,334
------ ------------
Net Assets 100.0% $12,618,483
====== ============
**Cost for Federal Income Tax purposes is the same.
At September 30, 1996, unrealized appreciation (depreciation) of securities
for Federal Income Tax purposes is as follows:
Unrealized appreciation $ 96,571
Unrealized depreciation (246,065)
-----------
Net unrealized depreciation $ (149,494)
===========
See Notes to Financial Statements
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1996
<TABLE>
<S> <C> <C>
THE ELITE GROWTH THE ELITE
& INCOME FUND INCOME FUND
---------------- -----------
ASSETS:
Investments in securities at value
(Notes 2A, & 3)
(Cost $32,904,346 and $12,461,643) $ 42,869,259 $ 12,312,149
Cash and cash equivalent (Note 2E) 1,853,109 53,629
Receivables:
Interest 8,368 250,965
Dividends 72,835 -
Capital stock sold 14,380 10,498
-------------- --------------
Total Assets 44,817,951 12,627,241
-------------- --------------
LIABILITIES:
Payables:
Capital stock reacquired 2,009 -
Distributions 8,995 4,694
Accrued expenses 7,758 4,064
-------------- --------------
Total Liabilities 18,762 8,758
-------------- --------------
NET ASSETS:
The Elite Growth & Income Fund--applicable to
2,180,397 shares outstanding $ 44,799,189
==============
The Elite Income Fund-applicable to 1,297,321
shares outstanding $ 12,618,483
==============
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
(Net assets / shares outstanding) $ 20.55 $ 9.73
============== ==============
At September 30, 1996 the components of net assets
were as follows:
Paid-in capital $ 29,763,585 $ 12,803,457
Accumulated net realized gain (loss) 5,049,366 (51,074)
Undistributed net investment income 21,325 15,594
Net unrealized appreciation (depreciation) 9,964,913 (149,494)
-------------- --------------
Net assets $ 44,799,189 $ 12,618,483
============== ==============
</TABLE>
See Notes to Financial Statements
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
THE ELITE
GROWTH & INCOME FUND
For the Years Ended September 30,
<TABLE>
<S> <C> <C>
1996 1995
---------------- -------------------
OPERATIONS:
Net investment income $ 230,586 $ 313,361
Net realized gain on investment
securities and options contracts 5,049,366 11,070
Net increase in unrealized
appreciation of investment securities 2,914,785 4,767,526
--------------- ---------------
Net increase in net assets
resulting from operations 8,194,737 5,091,957
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income (252,709) (315,833)
Distributions from net realized gains on
investment transactions - (1,974,649)
CAPITAL SHARE TRANSACTIONS:
Increase in net assets resulting from capital
share transactions (a) 5,674,686 3,000,541
--------------- ---------------
Total increase in net assets 13,616,714 5,802,016
NET ASSETS:
Beginning of period 31,182,475 25,380,459
--------------- ---------------
End of period (including undistributed
net investment income of $21,325 and
$3,015 respectively). $ 44,799,189 $ 31,182,475
=============== ===============
</TABLE>
(a)Transactions in capital stock were as follows:
<TABLE>
<S> <C> <C>
Year Ended Year Ended
September 30, 1996 September 30,1995
----------------------- ----------------------
Shares Value Shares Value
------ ----- ------ -----
Shares sold 430,984 $ 7,948,298 264,266 $ 3,896,405
Shares issued in reinvestment
of distributions 11,903 233,922 169,510 2,258,207
------- ------------ ------- ------------
442,887 8,182,220 433,776 6,154,612
Shares redeemed (136,267) (2,507,534) (220,131) (3,154,071)
------- ------------ ------- ------------
Net increase 306,620 $ 5,674,686 213,645 $ 3,000,541
======= ============ ======= ============
</TABLE>
See Notes to Financial Statements
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
THE ELITE
INCOME FUND
For the Years Ended September 30,
<TABLE>
<S> <C> <C>
1996 1995
-------- --------
OPERATIONS:
Net investment income $ 772,576 $ 731,551
Net realized gain (loss) on investments (45,430) 53,544
Net increase (decrease) in unrealized
appreciation of investment securities (265,285) 570,087
-------------- -------------
Net increase in net assets resulting from
operations 461,861 1,355,182
NET EQUALIZATION CREDITS (DEBITS) (NOTE 2d) (739) (3,798)
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income (798,599) (712,510)
Distributions from net realized gains on
investment transactions (69,581) ---
CAPITAL SHARE TRANSACTIONS:
Increase in net assets resulting from capital
share transactions (a) 660,024 221,770
-------------- -------------
Total increase in net assets 252,966 860,644
NET ASSETS:
Beginning of period 12,365,517 11,504,873
-------------- -------------
End of period (including undistributed
net investment income of $15,594 and
$20,132 respectively). $ 12,618,483 $ 12,365,517
============== =============
</TABLE>
(a)Transactions in capital stock were as follows:
<TABLE>
<S> <C> <C>
Year Ended Year Ended
September 30, 1996 September 30, 1995
------------------- -------------------
Shares Value Shares Value
------ ----- ------ -----
Shares sold 274,284 $ 2,723,932 216,852 $ 2,116,294
Shares issued in reinvestment
of distributions 85,432 844,750 70,878 689,314
------- ------------ ------- ------------
359,716 3,568,682 287,730 2,805,608
Shares redeemed (295,122) (2,908,658) (268,361) (2,583,838)
------- ------------ ------- ------------
Net increase 64,594 $ 660,024 19,369 $ 221,770
======= ============ ======= ============
</TABLE>
See Notes to Financial Statement
<PAGE>
FINANCIAL HIGHLIGHTS
THE ELITE
GROWTH & INCOME FUND
For a share outstanding throughout each period
<TABLE>
Years Ended September 30,
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
Net asset value, beginning of year $16.64 $15.29 $14.44 $13.07 $12.52
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income .11 .18 .11 .10 .12
Net gains on securities
(both realized and unrealized) 3.92 2.52 1.56 1.65 .81
------- ------- ------- ------- --------
Total from investment
operations 4.03 2.70 1.67 1.75 .93
------- ------- ------- ------- --------
Less Distributions
Dividends from net investment
income (.12) (.18) (.10) (.09) (.11)
Distributions from capital gains --- (1.17) (.72) (.29) (.27)
------- ------- ------- ------- -------
Total distributions (.12) (1.35) (.82) (.38) (.38)
------- ------- ------- ------- -------
Net asset value, end of year $ 20.55 $ 16.64 $15.29 $ 14.44 $ 13.07
======= ======= ======= ======= =======
Total Return 24.26% 19.92% 11.80% 13.54% 7.50%
RATIOS/SUPPLEMENTAL DATA
Net asset value, end of year
(in 000's) $ 44,799 $31,182 $25,380 $17,989 $ 12,673
Ratio of expenses to average
net assets 1.33% 1.42%* 1.42% 1.36% 1.37%
Ratio of net investment income
to average net assets .61% 1.18% .73% .69% .91%
Portfolio turnover 156.93% 137.56% 153.34% 172.00% 168.01%
Average Brokerage Commissions $ .06 (1)
</TABLE>
* Ratio reflects fees paid through a directed brokerage arrangement. Expense
Ratios for 1994-1992 exclude these payments. No fees were paid through a
directed brokerage arrangement for 1996. Expense ratio for 1995 after
reduction of fees paid through the directed brokerage arrangement was 1.35%
(1) Not required information prior to 1996
See Notes to Financial Statements
<PAGE>
FINANCIAL HIGHLIGHTS
THE ELITE
INCOME FUND
For a share outstanding throughout each period
Years Ended September 30,
<TABLE>
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
Net asset value, beginning of year $10.03 $ 9.48 $10.61 $10.28 $10.08
------- -------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income .60 .62 .61 .59 .61
Net gain (loss) on securities
(both realized and unrealized) (.23 ) .54 (1.03) .35 .23
-------- -------- ------- ------- -------
Total from investment
operations .37 1.16 (.42) .94 .84
-------- -------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends from net investment
income (.62) (.61) (.61) (.58) (.61)
Distributions from capital gains (.05) -- (.10) (.03) (.03)
-------- -------- ------- ------- --------
Total distributions (.67) (.61) (.71) (.61) (.64)
-------- -------- ------- ------- --------
Net asset value, end of year $ 9.73 $10.03 $ 9.48 $10.61 $10.28
======== ======== ======= ======= ========
Total Return 3.79% 12.56% (4.07%) 9.41% 8.67%
RATIOS/SUPPLEMENTAL DATA
Net asset value, end of year
(in 000's) $12,618 $12,366 $11,505 $11,751 $10,090
Ratio of expenses to average
net assets 1.00% 1.12% * 1.11% 1.02% .98%
Ratio of net investment income
to average net assets 6.01% 6.34% 5.98% 5.66% 6.03%
Portfolio turnover 43.37% 42.24% 40.88% 73.26% 21.83%
</TABLE>
* Ratio reflects fees paid through a directed brokerage arrangement.
Expense Ratios for 1994-1992 exclude these payments. No fees were
paid through a directed brokerage arrangement for 1996. Expense
ratio for 1995 after reduction of fees paid through the directed brokerage
arrangement was 1.08%.
See Notes to Financial Statement
<PAGE>
NOTES TO FINANCIAL STATEMENTS
September 30,1996
NOTE 1 - ORGANIZATION
The Elite Growth and Income Fund and The Elite Income Fund (the FUNDS)
are two series of shares of beneficial interests of The Elite Group (the TRUST)
, which is registered under the Investment Company Act of 1940, as amended,
as a diversified open-end management company. The Trust was organized in
Massachusetts as a business trust on August 8, 1986. The Trust is authorized
to issue an unlimited number of no par shares of beneficial interest of any
number of series. Currently, the Trust has authorized only the two series
above. The Elite Growth & Income Fund investment objective is to maximize
total returns through an aggressive approach to the equity and debt securities
markets. The Elite Income Fund investment objective is to achieve the highest
income return obtainable over the long term commensurate with investments in
a diversified portfolio consisting primarily of investment grade debt
securities.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies
consistently followed by the Funds. The policies are in conformity with
generally accepted accounting principles.
A. Security Valuation - Investments in securities traded on a
national securities exchange are valued at the last reported sales price.
Securities which are traded over the counter are valued at the bid price.
Securities for which reliable quotations are not readily available are valued
at their respective fair value as determined in good faith by, or under
procedures established by the Board of Trustees.
B. Federal Income Taxes - The Funds intend to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and distribute all its taxable income to its shareholders.
Therefore no federal income tax provision is required.
C. Option Accounting Principles (The Elite Growth & Income Fund) -
When the Fund sells an option, an amount equal to the premium received by the
Fund is included as an asset and an equivalent liability. The amount of the
liability is marked-to-market to reflect the current market value of the
options written. The current market value of a traded option is the last
sale price. When an option expires on its stipulated expiration date or the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or loss if the cost of a closing purchase transaction exceeds the premium
received when the option was sold) without regard to any unrealized gain or
loss on the underlying security, and the liability related to such option is
extinguished. If an option is exercised, the Fund realizes a gain or loss
from the sale of the underlying security and the proceeds of the sale are
increased by the premium received. The Elite Growth & Income Fund as a writer
of an option may have no control over whether the underlying security may be
sold (call) or purchased (put) and as a result bears the market risk of an
unfavorable change in the price of the security underlying the written
option.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
September 30,1996
D. Equalization (The Elite income Fund) - The Fund follows the
practice known as EQUALIZATION by which a portion of the proceeds from sales
and costs of repurchases of shares of the Fund is credited or charged to
income on the date of the transaction so that undistributed net income per
share is unaffected by shares of the Fund sold or repurchased.
E. Cash Equivalent - Consists of investment in mutual fund money
market accounts.
F. Other - As is common in the industry, security transactions are
accounted for on the trade date. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. Income distributions and
capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for post -
October losses. Interest income and estimated expenses are accrued daily.
G. Use Of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ
from those estimates.
Note 3 - Restricted Securities
The Funds may invest in restricted securities. Restricted securities
are securities which have not been registered under the Securities Act of
1933, as amended, and as a result are subject to restrictions on resale.
Investments in restricted securities are valued at fair value as determined in
good faith by the Trust's Board of Trustees. There are no unrestricted
securities of these issuers. At September 30, 1996, the Elite Growth and
Income Fund had investments in restricted securities with the date of
acquisition, cost, fair value and percentage of net assets listed below:
<TABLE>
<S> <C> <C> <C> <C>
Dates of Percentage of
Acquisition Cost Value Net Assets
Stocks
180,000 XactLabs Corporation. 08/29/94 $216,000 $ 90,000 .20%
35,000 Optiva Corporation 04/25/94 148,750 420,000 .94%
135,000 Coffee Station, Inc 04/16/96 303,750 303,750 .68%
------------ -------------
Total $668,500 $813,750 1.82%
==================== ============== =======
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
Note 4 - Purchases and Sales of Securities
For the year ended September 30, 1996, purchases and sales of
securities, other than options and short-term notes were as follows:
Purchases Sales
The Elite Growth and Income Fund $63,161,674 $56,517,378
The Elite Income Fund $ 6,396,349 $ 5,701,117
For The Elite Growth & Income Fund, transactions in covered call
options written were as follows:
Number of
Contracts* Premiums
Options outstanding at beginning of year 1,260 $ 789,425
Options written 3,755 2,147,090
Options terminated in closing
purchase transactions (3,143) (2,222,465)
Options exercised (485) (40,895)
Options expired (772) (240,307)
-------- -------------
Options outstanding at September 30,1996 615 $ 432,848
======== =============
* Each contract represents 100 shares of common stock
Note 5 - Investment Management Fee and Other Transactions with Affiliates
The Funds retain McCormick Capital Management Inc. as their Investment
Manager. Under an Investment Management Agreement, the Investment Manager
furnishes each Fund with investment advice, office space and salaries of
non-executive personnel needed by the Funds to provide general office
services. As compensation for its services, the Manager is paid a monthly
fee based upon the average daily net assets of each Fund. For The Elite
Growth & Income Fund and The Elite Income Fund, the rates are 1% and 7/10 of
1%, respectively, up to $250 million; 3/4 of 1% and 5/8% of 1%, respectively,
over $250 million up to $500 million; and 1/2 of 1% over $500
million for each Fund.
The Manager has undertaken that the operating expenses of each Fund
for each fiscal year (including management fees, but excluding taxes, interest
and brokerage commissions), expressed as a percentage of average daily net
assets, will not exceed the lowest rate prescribed by any state in which
shares of the Funds are qualified for sale.
Certain officers and trustees of the Funds are also officers and/or
directors of the Manager. The Law firm of Foster, Pepper & Shefelman, of
which Joseph M. Gaffney, Assistant Secretary of the Funds, is a member,
received fees of $2,738 and $1,125 from the Elite Growth & Income Fund and The
Elite Income Fund, respectively, for legal services rendered for the year
September 30, 1996.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
NOTE 6 - Directed Brokerage Arrangement
In an effort to reduce the total expenses of the Funds, a portion of
the operating expenses may be paid through an arrangement with a third-party
broker-dealer who is compensated through commission trades. Payment of the
operating expenses by the broker-dealer, is based on a percentage of
commissions earned. There were no expenses paid under this arrangement during
the year ended September 30, 1996
NOTE 7 - Concentration
Although both of the funds have a diversified investment portfolio,
there are certain credit risks due to the manner in which the portfolio is
invested which may subject the funds more significantly to economic changes
occurring in certain industries or sectors. The Elite Growth & Income Fund
has investments in excess of 10% in capital goods, consumer goods and services,
financial intermediaries, and health care goods and services industries.
The Elite Income Fund has investments in excess of 10% in electric utilities,
gas & electric utilities and financial industries.
<PAGE>
PART C
THE ELITE GROUP
FORM N-1A
Post-Effective Amendment No. 10
OTHER INFORMATION
<PAGE>
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS: Included in Part A: Selected Per Share Data
and Ratios for the fiscal period ended September 30, 1987 and years ended
September 30, 1988, 1989, 1990, 1991, 1992,1993, 1994, 1995 and 1996.
(b) EXHIBITS
(1) Declaration of Trust - Incorporated by reference Pre-Effective #2 filed
10/23/86.
(2) By Laws - Incorporated by reference as filed 8/19/86, Original
Registration Statement
(3) Not Applicable
(4) Specimen copies of each security
issued by Registrant - Incorporated by reference Pre-Effective #2
filed 10/23/86.
(5) Investment Management Agreement - Incorporated by reference Pre-Effective
#2 filed 10/23/86.
(6) Not Applicable
(7) Not Applicable
(8) Custodian Agreement - Incorporated by reference as filed 12/22/87,
Post-Effective No. 1
(9) Transfer and Dividend Paying Agent Agreement - Incorporated by reference
as filed 8/19/86, Original Registration Statement
(10) Opinion of Counsel - Incorporated by reference Pre-Effective #3 filed
11/5/86.
(11) Consent of Auditors - Enclosed
(12) Financial Statements - Annual Audited Report to Shareholders, September
30, 1996 - Enclosed.
(13) Assurance Letter with respect to Initial Capital -Incorporated by
reference as filed 8/19/86, Original Registration Statement
(14) None - Each Fund uses standard Internal Revenue Service approved IRA
and SEP-IRA Individual Retirement Account Forms and Simplified Employer
Pension Forms.
(15) None - Rule 12b-1 Plan Canceled by Trustees
(16) None - Not Applicable
(17) Financial Data Schedule - Enclosed
(18) Copies of Powers of Attorney - Incorporated by reference as filed
November 16, 1992, Post Effective No. 6, and as filed 11/30/90,
Post-Effective No. 4
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
To the knowledge of Registrant, the Registrant is not controlled by or under
common control with any other person.
ITEM 26. RECORD HOLDERS OF SECURITIES
Number of
Title of Class Date Record Holders
Elite Growth & Income Fund October 31, 1996 1,203
Elite Income Fund October 31, 1996 302
ITEM 27. INDEMNIFICATION
Section 5.3 of the Trust's Declaration of Trust, attached as Exhibit (b)(1) of
Item 24, provides for indemnification of certain persons acting on behalf of the
Trust. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons by
the Trust's Declaration of Trust and By-Laws, or otherwise, the Trust has been
advised that in the opinion of the
1
<PAGE>
Securities and Exchange Commission such indemnification is against public policy
as expressed in said Act, and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Trust of expenses incurred or paid by a director, officer or controlling
person of the Trust 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 Trust 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.
The Trust reserves the right to purchase Professional Indemnity insurance
coverage, the terms and conditions of which would conform generally to the
standard coverage available to the investment company industry. Such coverage
for the Funds would generally include losses incurred on account of any alleged
negligent act, error or omission committed in connection with operation of the
Funds, but excluding losses incurred arising out of any dishonest, fraudulent,
criminal or malicious act committed or alleged to have been committed by the
Trust. Such coverage for trustees and officers would generally include losses
incurred by reason of any actual or alleged breach of duty, neglect, error,
misstatement, misleading statement or other act of omission committed by such
person in such a capacity, but would generally exclude losses incurred on
account of personal dishonesty, fraudulent breach of trust, lack of good faith
or intention to deceive or defraud, or willful failure to act prudently. Similar
coverage by separate policies may be afforded the investment manager and its
directors, officers and employees.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
See Part B, "Trustees and Officers," for the activities and affiliations of the
officers and directors of the Investment Adviser. Currently, the Investment
Adviser's sole business is to serve as Investment Adviser to the Trust.
ITEM 29. PRINCIPAL UNDERWRITERS
Inapplicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All account books and records not normally held by the Custodian and Transfer
Agent are held by the Trust in the care of Richard S. McCormick, 1325 4th
Avenue, Suite 2144, Seattle, Washington 98101.
ITEM 31. MANAGEMENT SERVICES
Inapplicable.
ITEM 32. UNDERTAKINGS
Registrant, if requested to do so by the holders of at least 10% of the
Registrant's outstanding shares, undertakes to call a meeting of shareholders
for the purpose of voting upon the question of removal of a trustee or trustees
and further undertakes to assist in communications with other shareholders as
required by Section 16(c) of the Investment Company Act of 1940.
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Registration
Statement, Post-effective Amendment No. 10, to be signed on its behalf by the
undersigned, duly authorized, in the City of Seattle, and State of Washington on
the XXst day of December , 1996.
THE ELITE GROUP
By: /s/Richard S. McCormick
Richard S. McCormick
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement, Post-effective Amendment No. 10, has been signed below
by the following persons in the capacities and on the date indicated.
/s/Richard S. McCormick Trustee/President (Chief Exec. Officer) 12/XX/95
(Signature) (Title) (Date)
Trustee, Treasurer & Secretary
/s/John Meisenbach** (Chief Financial Officer) 12/XX/95
(Signature) (Title) (Date)
/s/Morgan J. O'Brien* Trustee 12/XX/95
(Signature) (Title) (Date)
/s/John P. Parker* Trustee 12/XX/95
(Signature) (Title) (Date)
/s/Jack R. Policar* Trustee 12/XX/95
(Signature) (Title) (Date)
* Signed by Richard McCormick, Power of Atty dated September 18, 1990
** Signed by Richard McCormick, Power of Atty dated October 30, 1992
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