SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 11 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT CO ACT OF 1940 [X]
Amendment No. 11 [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, 1998 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.
PROSPECTUS January 2, 1998
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 $10,000 ($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, 1998, 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.
<PAGE>
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 12
Other Shareholder Services 12
How Net Asset Value is Determined 13
Dividends, Capital Gain Distributions and Taxes 13
Management 14
Voting 15
Operation 15
<PAGE>
HIGHLIGHTS
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 the 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
$10,000 ($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."
<PAGE>
SYNOPSIS OF COSTS AND EXPENSES
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% 0.70%
Other Expenses
(after reduction of expenses) 0.27% 0.26%
Total Fund Operating Expenses
(after reduction of expenses) 1.27% 0.96%
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 $13 $40 $70 $153
Income Fund 10 31 53 118
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. "Other Expenses" and "Total Fund
Operating Expenses" of the Elite Growth & Income Fund would have been 0.30% and
1.30%, respectively, if fees paid through a directed brokerage arrangement were
included. "Other Expenses" and "Total Fund Operating Expenses" of the Elite
Income Fund prior to expense reimbursement by the Investment Manager were 0.38%
and 1.08%, respectively. 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.
FINANCIAL HIGHLIGHTS
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.
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 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
September 30,
- --------------------------------------------------------------------------------
Net asset value, $20.55 $16.64 $15.29 $14.44 $13.07 $12.52 $9.71 $12.07 $9.44 11.37
beginning of year
- --------------------------------------------------------------------------------
Income from
investment
operations: .29 .11 .18 .11 .10 .12 .16 .12 .13 .16
Net investment
income 6.15 3.92 2.52 1.56 1.65 .81 2.91 (1.41) 2.73 (1.31)
Net gains or
losses on
securities
(both realized
and unrealized)
- --------------------------------------------------------------------------------
Total from 6.44 4.03 2.70 1.67 1.75 .93 3.07 (1.29) 2.86 (1.15)
investment
operations
- --------------------------------------------------------------------------------
Less distributions:
Dividends from
net investment (.29) (.12) (.18) (.10) (.09) (.11) (.14) (.21) (.23) (.19)
income (4.45) --- (1.17) (.72) (.29) (.27) (.12) (.86) --- (.59)
Distributions
from capital gains
- --------------------------------------------------------------------------------
Total distributions(4.74) (.12) (1.35) (.82) (.38) (.38) (.26) (1.07) (.23) (.78)
- --------------------------------------------------------------------------------
Net asset value, $22.25 $20.55 $16.64 $15.29 $14.44 $13.07 $12.52 $9.71 $12.07 $9.44
end of year
================================================================================
Total Return 34.66% 24.26% 19.92% 11.80% 13.54% 7.50% 31.93% (11.92%) 30.78% (8.87%)
Ratios/Supplemental Data:
Net assets, end
of year (in 000's) $67,719 $44,799 $31,182 $25,380 $17,989 $12,673 $8,878 $4,222 $3,798 $2,229
Ratio of expenses
to average net
assets 1.30%* 1.33% 1.42%* 1.42% 1.36% 1.37% 1.64% 1.84% 1.96% 2.00%
Ratio of net
investment income
to average net
assets 1.41% 0.61% 1.18% 0.73% 0.69% 0.91% 1.33% 1.04% 1.26% 1.74%
Portfolio turnover
rate 115.80% 156.93% 137.56% 153.34% 172.00% 168.01% 175.53% 248.27% 211.05 203.62%
Average brokerage
commissions(1) $.0582 $.0600
</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 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
September 30,
- --------------------------------------------------------------------------------
Net asset value, $9.73 $10.03 $9.48 $10.61 $10.28 $10.08 $9.55 $9.63 $9.67 $9.44
beginning of year
- --------------------------------------------------------------------------------
Income from
investment
operations:
Net investment
income .60 .60 .62 .61 .59 .61 .65 .69 .70 .76
Net gains or
losses on
securities
(both
realized and
unrealized) .27 (.23) .54 (1.03) .35 .23 .53 (.05) .14 .17
- --------------------------------------------------------------------------------
Total from
investment
operations .87 .37 1.16 (.42) .94 .84 1.18 .64 .84 .93
- --------------------------------------------------------------------------------
Less distributions:
Dividends from
net investment
income (.60) (.62) (.61) (.61) (.58) (.61) (.65) (.69) (.88) (.69)
Distributions
from capital gains -- (.05) -- (.10) (.03) (.03) --- (.03) --- (.01)
- --------------------------------------------------------------------------------
Total distributions (.60) (.67) (.61) (.71) (.61) (.64) (.65) (.72) (.88) (.70)
- --------------------------------------------------------------------------------
Net asset value, $10.00 $9.73 $10.03 $9.48 $10.61 $10.28 $10.08 $9.55 $9.63 $9.67
end of year
================================================================================
Total Return 9.20% 3.79% 12.56 (4.07%) 9.41% 8.67% 12.70% 6.94% 9.20% 0.27%
Ratios/Supplemental
Data:
Net assets, end of $16,312 $12,618 $12,366 $11,505 $11,751 $10,090 $6,957 $3,302 $2,559 $1,443
year (in 000's)
Ratio of expenses
to average
net assets 0.96% 1.00% 1.12%* 1.11% 1.02% 0.98% 1.21% 0.88% 0.47% 0.37%
Ratio of net
investment income
to average net
assets 6.01% 6.01% 6.34% 5.98% 5.66% 6.03% 6.48% 7.07% 7.21% 7.23%
Portfolio turnover
rate 37.60% 43.37% 42.24% 40.88% 73.26% 21.83% 17.79% 30.91% 23.79% 0.00%
</TABLE>
(1) Not required information prior to 1996. * Ratio reflects fees paid through a
directed brokerage arrangement. Expense ratios for 1994 - 1988 exclude these
payments. The Growth & Income Fund paid no fees through a directed brokerage
arrangement for 1996. The expense ratios for 1997 and 1995 after reduction of
fees paid through the directed brokerage arrangement were 1.27% and 1.35%,
respectively, for The Growth & Income Fund . The Income Fund paid no fees
through a directed brokerage arrangement for 1997 or 1996. Expense ratio for
1995, after reduction of fees paid through the directed brokerage arrangement,
was 1.08% for the Income Fund.
THE TRUST
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.
INVESTMENT OBJECTIVES AND POLICIES
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:
n U.S. Government obligations; and
n 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:
n 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);
n Preferred stocks, including those which have equity conversion
privileges;
n 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).
n 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
n 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:
n Common stocks, or securities convertible into common stocks; n Preferred
stocks; and n 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:
n 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);
n Options on stocks and stock indices, which may include purchasing as
well as writing options, but with limitations described herein;
n 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 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.
OTHER FUND INFORMATION
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 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, 1997 and 1996, portfolio turnover for the Income Fund was 37.60%
and 43.37%, respectively. For the same fiscal periods, portfolio turnover for
the Growth and Income Fund was 115.80% and 156.93%, 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
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.
INVESTMENT LIMITATIONS
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.
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
$10,000 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 $3,000).
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.
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 a net asset value of less than $10,000 (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
$10,000 or more during the notice period, the account will not be redeemed.
Shareholder accounts which were established prior to January 2, 1998, are
subject to a lower minimum account value as specified in the Statement of
Additional Information.
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.
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, provided the Fund
follows such procedures, 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 before the close of trading of the New York Stock Exchange
(currently 4:00 p.m. New York City 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 $100) 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.
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.
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 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 was 1.00% from the Growth & Income Fund and was 0.58%, after
reimbursement of expenses, from the Income Fund during the last full fiscal
year, based upon each Fund's daily average net assets. The Investment Manager
may voluntarily reimburse a portion of the operating expenses of a Fund for any
fiscal year. Voluntary reimbursements may cease at any time. The Income Fund
paid the Investment Manager 0.70% of the Fund's average daily net assets prior
to such expense reimbursements during the last full fiscal year.
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.
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, 1997, were 1.27% and 0.96% 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. In an effort to reduce the total expenses of the Funds,
a portion of the operating expenses may be paid by third-party broker-dealers
through "directed brokerage" arrangements. Under such an arrangement, payment of
operating expenses of a Fund by a broker-dealer is based upon a percentage of
commissions earned. Expenses totaling $16,600 were paid under a directed
brokerage arrangement for the Growth & Income Fund during the last full fiscal
year. None of the Income Fund's expenses were paid under such arrangements
during the last full fiscal year.
<PAGE>
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<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. 11
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
THE ELITE GROUP
INCOME FUND
GROWTH & INCOME FUND
STATEMENT OF ADDITIONAL INFORMATION
January 2, 1998
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 JANUARY 2, 1998. 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...............................8
Exchange Privilege............................10
Telephone Redemption Privilege................11
Redemptions in Kind...........................11
Transfer of Registration......................11
PURCHASE AND REDEMPTION OF SHARES...................12
TRUSTEES AND OFFICERS...............................13
5% OWNERS...........................................14
INVESTMENT MANAGER..................................14
MANAGEMENT AND OTHER SERVICES.......................15
ALLOCATION OF TRUST EXPENSES........................15
BROKERAGE...........................................15
ADDITIONAL TAX INFORMATION..........................16
CAPITAL SHARES AND VOTING...........................17
FINANCIAL STATEMENTS AND REPORTS....................17
APPENDIX............................................18
<PAGE>
INVESTMENT POLICIES
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 7%
Stated 2% Increase in 2% Decrease
Maturity Interest Rates in
Interest
Rates
Short-term
(2.5 years) (4.4%) 4.7%
Intermediate-term (13.0%) 15.6%
(10 years)
Long-term
(20 years) (18.4%) 25.1%
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 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.
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 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.
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 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.
INVESTMENT RESTRICTIONS
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;
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.
SPECIAL SHAREHOLDER SERVICES
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 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). 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 ("the
Code"), and assistance in opening an IRA may be obtained from The Elite Group.
The following discussion is intended as a general and abbreviated summary of the
applicable provisions of the Code and related Treasury regulations currently in
effect. It should not be relied upon as a substitute for obtaining personal tax
or legal advice.
Deductible IRA. Generally, a person may make deductible contributions out of
earned income to an IRA up to $2,000 each year. However, persons who are active
participants in employer sponsored pension plans ("Employer Plans") are subject
to certain restrictions on deductiblilty under the Internal Revenue Code of
1986, as amended by the Taxpayer Relief Act of 1997 ("the Code"),. The
restrictions for the calendar year 1998, applicable to active participants in
Employer Plans, are as follows:
A single person who has an adjusted gross income of $30,000 or more, but not
exceeding $40,000, is allowed to deduct a portion of his IRA contribution. That
portion decreases proportionately to the extent the individual's income exceeds
$30,000. No deduction is allowed where the single person's adjusted gross income
exceeds $40,000.
A married couple filing a joint return with adjusted gross income of $50,000
or more, but not exceeding $60,000, is also allowed to deduct a portion of their
IRA contributions. That portion decreases proportionately to the extent the
couple's adjusted gross income exceeds $50,000. No deduction is allowed where
the couple's adjusted gross income exceeds $60,000.
A married couple filing jointly where one spouse does not participate and the
other spouse does participate in an Employer Plan, the spouse who does not
participate may deduct IRA contributions up to $2,000, but this deduction is
phased out where the couple's adjusted gross income ranges from $150,000 to
$160,000. No deduction is allowed where the couple's adjusted gross income
exceeds $160,000.
Nondeductible Roth IRA. Individuals may make nondeductible contributions to
the extent they are not eligible to make deductible IRA contributions. Effective
for tax years beginning after December 31, 1997, the new Roth IRA allows
individuals to contribute up to $2,000 ($4,000 for joint filers) annually out of
earned income. Eligibility to contribute to a Roth IRA is phased out as adjusted
gross income rises from $95,000 to $110,000 for single filers and from $150,000
to $160,000 for joint filers.
Rollover to a Roth IRA. Amounts from existing deductible or nondeductible
IRAs may be rolled over to a Roth IRA without the 10% early distribution penalty
described below, unless the Taxpayer's adjusted gross income exceeds $100,000.
However, regular income tax will be due on any existing taxable amounts that are
rolled over from a current IRA. If the rollover is done during 1998, the
resulting taxable income may be spread out ratably over a four year period
beginning in 1998.
Taxation of IRAs Upon Distribution. An investment in Fund shares through IRA
deductible or nondeductible contributions is advantageous because the deductible
contributions, income, dividends and capital gains distributions earned on your
Fund shares are generally not taxable to you as long as the Funds remain in your
IRA, but may be taxable to you when distributed.
Distributions from IRAs are generally taxable as ordinary income when
distributed to the extent of earnings and deductible contributions.
Nondeductible contributions are not taxable. Because Roth IRA distributions are
considered to come from nondeductible contributions first, no tax or penalty
will result until all nondeductible contributions have been withdrawn.
Distributions rolled over into another IRA ("Rollover Contributions") in
accordance with certain rules under Section 408(d)(3) of the Code are tax-free,
as are distributions made in the case of death or disability. In addition,
earnings which accumulated tax-free on a Roth IRA are distributed tax-free to
the extent that they are made with respect to Qualified Distributions. Qualified
Distributions are distributions that are made (1) at least five years after the
first year that a contribution was made to the Roth IRA and (2) after the age of
59-1/2, after the death or disability of an individual, or for qualified
first-time home purchase expenses subject to a $10,000 lifetime maximum.
Most distributions from IRAs made before age 59-1/2 are subject to an early
distribution penalty tax equal to 10% of the distribution (in addition to any
regular income tax which may be due). Nondeductible contributions are not
subject to the penalty. Penalty-free distributions are allowed for up to $10,000
of first-time home buying expenses. Penalty-free distributions are also allowed
for money used to pay qualified higher education expenses (including graduate
level course expenses) of the taxpayer, the taxpayer's spouse, or a child or
grandchild of the taxpayer (or of the taxpayer's spouse). Qualified expenses
include tuition, fees, books, supplies, required equipment, and room and board
at a post-secondary educational institutional. Qualified expenses are reduced by
certain scholarships and veterans' benefits and the excluded income on
qualifying U.S. savings bonds. Penalty-free distributions are also allowed for
Rollover Contributions, in the case of death or disability, made in the form of
certain periodic payments, used to pay certain medical expenses or used to
purchase health insurance for an unemployed individual. You will incur other
penalties if you fail to begin distribution of accumulated IRA amounts by April
1 following the year in which you attain age 70-1/2, but this does not apply to
the Roth IRA..
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 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 determination 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 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.
<PAGE>
PURCHASE AND REDEMPTION OF SHARES
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 Board of Trustees has the right to involuntarily redeem any shareholder
account which falls below a minimum account value of $10,000 as discussed in the
Prospectus under "How to Sell Shares." Shareholder accounts established prior to
January 2, 1998, will continue to be subject to a minimum account value of
$2,500 until January 2, 2003, after which date the $10,000 minimum account value
will apply.
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.
<PAGE>
TRUSTEES AND OFFICERS
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: <TABLE>
<S> <C>
Name and Address Principal Occupation(s)
Position with Trust During Past 5 years
Richard S. McCormick 1, 2 Since June 1986, President, McCormick Capital
1325 4th Avenue, Suite Management, Inc. (investment manager of the Funds);
2144 Seattle, WA 98101 February 1978 to October 1986, Vice President,
Chairman, Board of Kennedy Associates, Inc., Seattle investment
Trustees and President advisory firm. Portfolio Manager and Chartered
Financial Analyst.
John W. Meisenbach 1, 2
2100 Washington Bldg Partner in MCM Financial, a Seattle full-service Seattle,
WA 98101 insurance brokerage and financial planning firm.
Trustee, Treasurer Also a director of Costco Wholesale and Expeditors International.
and Secretary
Lee A. Miller Private Investor. From 1961 to December 1995, Vice
P.O. Box 1882 President, Merrill Lynch & Co.
Vashon Island, WA 98070
Trustee
Morgan J. O'Brien 2 Faculty member, Seattle University; from June 1986
1244 20th Avenue, East to January 1989. Private investor.
Seattle, WA
Trustee
John M. Parker 3 Since May 1988, Sr. Vice President, Kennedy
1819 38th East Associates, Inc., Seattle, real estate acquisition
Seattle, WA 98112 and management.
Trustee
Jack R. Policar 3 Since 1979, President and Chief Executive Officer of
1111 3rd Avenue, J. R. Policar, Inc., Certified Public Accounting
Suite 1465 firm.
Seattle, WA 98121
Trustee
</TABLE>
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.
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 $1,500 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, 1997, the Trustees received, in the
aggregate, a total of $20,000. As of November 30, 1997, the Trustees and
Officers of the Trust, in the aggregate, owned 6.4% of the shares of the Trust.
5% OWNERS
The Trust is aware of one person who owned, of record and beneficially, more
than 5% of the outstanding shares of any Fund at November 30, 1997:
Mr. John W. Meisenbach 6.9% Income Fund
2100 Washington Bldg,
Seattle, WA 98101
INVESTMENT MANAGER
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, 1999, 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 $544,948, $379,920 and
$265,060, respectively, for the fiscal years ended September 30, 1997, 1996 and
1995. Management fees for the Income Fund for the same periods, respectively,
were $98,900, $90,041 and $80,695.
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.
MANAGEMENT AND OTHER SERVICES
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, 1998, and to consult with the Trust as to matters of
accounting and federal and state income taxation for the fiscal year ending
September 30, 1998.
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.
ALLOCATION OF TRUST EXPENSES
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.
BROKERAGE
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 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 ("directed brokerage
arrangements"). 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, 1997, 1996 and
1995, were $343,657, $289,497 and $211,263, respectively. With respect to the
directed brokerage arrangements described above, $63,263 was paid to the firm of
Paine Webber during 1997, and $33,896 was paid to Capital Institutional Services
(Dallas, Texas) during 1995. Total brokerage commissions paid by the Income Fund
during the fiscal years ended September 30, 1997, 1996 and 1995, were $6,783,
$15,343 and $11,615, respectively. With respect to the directed brokerage
arrangements described above, $7,640 was paid during 1995 to Capital
Institutional Services.
ADDITIONAL TAX INFORMATION
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.
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 shareholders who are exempt from paying taxes on their
income), whether received in cash or invested in additional Fund shares. For
corporate shareholders, the 70% dividends received deduction may apply to
dividends from the Funds. The Fund will send you information each year on the
tax status of dividends and disbursements.
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.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and related Treasury Regulations currently in effect. For
the complete provisions, reference should be made to the pertinent Code sections
and Treasury Regulations. The Code and Regulations are subject to change by
legislative or administrative action at any time. Investors should consult with
their own advisors for the effect of any state or local taxation and for more
complete information of federal taxation.
CAPITAL SHARES AND VOTING
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).
FINANCIAL STATEMENTS AND REPORTS
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, 1997,
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.
<PAGE>
APPENDIX
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 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.
<PAGE>
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
October 15, 1997
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 tenth 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 34.66% for the fiscal year. The three, five and ten year annualized
rate of return is now 26.13%, 20.56% and 14.26 per year.
The most significant change in our investments has been to reduce the risk in
our portfolio. Given several years of exceptional performance we think the
investment risks have increased. We doubt the stock market is about to "crash"
but we do feel there is an increased possibility of a market correction.
To reduce the risk in the portfolio we have increased the amount invested in
U.S. Government zero coupon bonds to 29.1% of the portfolio. We believe these
U.S. Government bonds will give us returns equal to or greater than those
returns available in the stock market , but at a much lower level of risk.
We continue to have a strong emphasis on technology and growth with virtually no
investments in utilities or cyclical type companies. About two-thirds of our
investments are considered to be larger companies ("big cap") while the
remaining one-third are smaller companies.
<PAGE>
The Elite Income Fund
(bond fund)
Lower interest rates and higher bond prices gave us a 9.20% return in the bond
Income Fund. The three, five and ten year annualized rate of return was 8.46%,
6.01% and 7.75% respectively.
The key to good returns in our bond fund is inflation expectations. We continue
to forecast continued low inflation for the next several years which should
result in good returns for the Income 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>
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, 1997, 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, 1997 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, 1997,
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, 1997
<PAGE>
<TABLE>
Portfolio of Investments
The Elite Growth & Income Fund
September 30, 1997
<S> <C> <C> <C>
Market Value
Shares Note 2A
-----------------------
Common Stock 70.0%
----------------
Basic Industry 2.2%
80,000 Ensearch Exploration* $ 720,000
30,000 Seagull Energy Corp* 765,000
-----------------------
-----------------------
Total Basic Industry 1,485,000
-----------------------
Capital Goods 22.0%
180,000 Atrieva Corporation* (a) 1,800
40,000 Cable Design Technologies* 1,522,500
20,000 Cisco Systems* 1,461,250
20,000 Computer Sciences Corp* 1,415,000
24,000 Hewlett-Packard 1,669,500
12,000 Intel Corporation 1,108,500
16,000 I.B.M. Corporation 1,695,000
16,000 Microsoft Corporation* 2,117,000
20,000 Sun Microsystems* 935,000
45,000 U.S. Filter* 1,937,813
12,000 Xerox Corporation 1,010,250
-----------------------
Total Capital Goods 14,873,613
-----------------------
Consumer Goods & Services 22.5%
50,000 Amway Asia Pacific 1,465,625
40,000 Callaway Golf Co. 1,395,000
Coffee Station, Inc* (a) 303,750
135,000
30,000 CUC International* 930,000
20,000 General Motors 1,338,750
120,000 GT Bicycles* 982,500
30,000 H & R Block, Inc 1,158,750
18,000 Manpower Inc. 711,000
20,000 Mattel Inc. 662,500
35,000 Optiva Corporation* (a) 875,000
70,000 Saks Holdings* 1,461,250
40,000 Samsonite Corporation* 1,755,000
80,000 Singer Company 1,375,000
55,000 Veterinarian Centers of America* 814,687
-----------------------
Total Consumer Goods & Services 15,228,812
-----------------------
-----------------------
-----------------------
</TABLE>
<PAGE>
Portfolio of Investments
The Elite Growth & Income Fund
September 30, 1997- Continued
<TABLE>
<S> <C> <C> <C>
Market Value
Shares Note 2A
---------------------
- ------------------
Financial Intermediaries 12.1%
20,000 A.C.E Limited (Insurance) 1,880,000
40,000 Freddie Mac 1,410,000
32,000 Fannie Mae 1,504,000
24,000 General Electric 1,633,500
Total Financial Intermediaries
32,000 Mellon Bank 1,752,000
---------------------
Total Financial Intermediaries 8,179,500
---------------------
Health Care Goods & Services 11.2%
12,000 American Home Products 876,000
30,000 Genesis Health Ventures* 1,168,125
13,800 Merck & Company 1,379,138
30,000 Pfizer Inc. 1,801,875
40,000 Sierra Health Services* 1,465,000
32,000 U.S. Surgical 934,000
---------------------
Total Health Care Goods & Services 7,624,138
---------------------
Total Common Stock (Cost $29,830,091) 47,391,063
---------------------
Options - Covered Calls (1.6%)
20,000 Cable Design Tech ( $40 01-16-98) ( 62,500)
40,000 Callaway Golf ( $35 11-21-97) ( 67,500)
24,000 Hewlett Packard ( $65 11-21-97) ( 171,000)
16,000 Manpower ( $45 12-19-97) ( 15,000)
16,000 Microsoft ( $130 01-16-98) ( 208,000)
30,000 Pfizer Inc. ( $52.50 12-19-97) ( 266,250)
40,000 Samsonite ( $50 12-19-97) ( 73,750)
50,000 Saks Holdings ( $25 01-16-98) ( 39,063)
30,000 Seagull ( $25 11/21/97) ( 75,000)
20,000 Sun Microsystem ( $47.50 01/16/98) ( 93,750)
---------------------
Total Value of Calls (Cost ($ 1,088,662)) ( 1,071,813)
---------------------
</TABLE>
<PAGE>
Portfolio of Investments
The Elite Growth & Income Fund
September 30, 1997- Continued
<TABLE>
<S> <C> <C>
Par Value Market Value
--------------------
Note 2A
---------------------
U.S. Government Treasury 29.1%
$80,000,000 Zero Coupon Bond due 05/15/19 (b) 19,689,600
---------------------
Total Value of Bonds - (Cost $17,303,982) 19,689,600
Total Investments
(Cost $ 46,045,411**) 66,008,850
97.5%
Cash and receivables
in excess of liabilities 2.5% 1,709,919
------------------- ---------------------
NET ASSETS 100.0% $ 67,718,769
=================== =====================
</TABLE>
(a) Restricted security ( see note 3)
(b) Purchased in a yield to maturity range of 7.05% to 7.46% * Non - income
producing ** Cost for Federal Income Tax purposes is the same. At September 30,
1997 unrealized appreciation of securities for Federal Income Tax purposes is
as follows:
<TABLE>
<S> <C>
Unrealized appreciation $ 21,117,240
Unrealized depreciation (1,153,801)
======================
Net unrealized appreciation $ 19,963,439
======================
</TABLE>
See Notes to Financial Statement
<PAGE>
Portfolio of Investments
The Elite Income Fund
September 30, 1997
<TABLE>
<S><C> <C> <C>
Market Value
Par Value Note 2A
-----------------------
Bonds 93.8%
- ---------------------
U.S. Government Notes and Bonds 58.1%
$ 2,100,000 U.S. Treasury Note
7.875% due 11/15/99 $ 2,183,496
3,150,000 U.S. Treasury Note
6.250% due 02/15/03 3,180,555
3,790,000 U.S. Treasury Bond
7.250% due 05/15/16 4,113,135
-----------------------
Total U.S. Government Notes and Bonds 9,477,186
-----------------------
Electric Utilities 13.4%
500,000 Portland General Electric
8.880% due 08/12/99 523,125
520,000 Ohio Power
6.750% due 04/01/03 525,200
500,000 Hawaiian Electric
6.660% due 12/05/05 485,625
650,000 Appalachian Power Co.
6.800% due 03/01/06 652,438
-----------------------
Total Electric Utility Bonds 2,186,388
-----------------------
Gas Utilities 11.5%
770, 000 Consumer Energy Co.
8.875% due 11/15/99 807,538
450,000 Entergy Arkansas Inc
7.000% due 03/01/02 456,188
600,000 Pacific Gas Transmission
7.100% due 06/01/05 609,750
-----------------------
Total Gas Utilities 1,873,476
-----------------------
</TABLE>
<PAGE>
Portfolio of Investments
The Elite Income Fund
September 30, 1997 - Continued
<TABLE>
<S><C> <C> <C>
Market Value
Par Value Note 2A
-----------------------
- ---------------------
Financial/Corporate Bonds 10.8%
700,000 Ford Motor Credit
8.200% due 02/15/02 746,375
350,000 S. California Edison Capital Notes
7.375% due 12/15/03 354,813
550,000 Federal Home Loan (Mortgage Backed)
6.100% due 02/15/24 547,913
500,000 Federal Home Loan
0.000% due 09/29/17 106,820
-----------------------
Total Financial/Corporate Bonds 1,755,921
-----------------------
Total Value Bonds (Cost $15,048,735) 15,292,971
-----------------------
Shares
Preferred Stock 1.7%
2,844 Entergy Gulf State Utilities $8.64 281,556
----------------------
Total Value Preferreds (Cost $295,111) 281,556
----------------------
Total Investments
(Cost $15,343,846) 95.5% 15,574,527
Cash and receivables
in excess of liabilities 4.5% 737,416
------------ ----------------------
Net Assets 100.0% $ 16,311,943
============ ======================
</TABLE>
**Cost for Federal Income Tax purposes is the same.
At September 30, 1997, unrealized appreciation (depreciation) of securities
for Federal Income Tax purposes is as follows:
<TABLE>
<S> <C>
Unrealized appreciation $ 337,824
Unrealized depreciation (107,143)
---------------------
Net unrealized depreciation $ 230,681
=====================
</TABLE>
See Notes to Financial Statements
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1997
<TABLE>
<S> <C> <C>
THE ELITE GROWTH & INCOME THE ELITE INCOME FUND
FUND
----------------------------- ----------------------
ASSETS:
Investments in securities at value (notes 2A, 3 )
(Cost $46,045,411 and $15,343,846) $ 66,008,850 $ 15,574,527
Cash and cash equivalent (Note 2E) 1,680,521 438,506
Receivables:
Interest 8,125 312,166
Dividends 35,450 ---
Capital stock sold 64,515 ---
----------------------- -----------------------
Total Assets 67,797,461 16,325,199
----------------------- -----------------------
LIABILITIES:
Payables:
Capital stock reacquired 12,009 ---
Distributions 57,010 10,311
Accrued expenses 9,673 2,945
----------------------- ----------------------
Total Liabilities 78,692 13,256
----------------------- ----------------------
NET ASSETS:
The Elite Growth & Income Fund--applicable to
3,043,347 shares outstanding $ 67,718,769
=======================
The Elite Income Fund-applicable to 1,631,791
shares outstanding $ 16,311,943
======================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
(Net assets / shares outstanding)
$ 22.25 $ 10.00
=======================
======================
At September 30, 1997 the components of net assets were as follows:
Paid-in capital $ 47,755,330 $ 16,116,770
Accumulated net realized loss - (46,324)
Undistributed net investment income - 10,816
Net unrealized appreciation 19,963,439 230,681
======================= ======================
Net assets $ 67,718,769 $ 16,311,943
======================= ======================
</TABLE>
See Notes to Financial Statements
<PAGE>
STATEMENT OF OPERATIONS
For the Year Ended September 30, 1997
<TABLE>
<S> <C> <C>
THE ELITE GROWTH & INCOME FUND THE ELITE INCOME FUND
-------------------------- -----------------------
INVESTMENT INCOME:
Income:
Interest $ 1,024,511 $ 942,241
Dividends 433,697 41,777
----------------------- -----------------------
Total Income 1,458,208 984,018
----------------------- -----------------------
Expenses:
Investment management fee 544,948 98,900
Transfer agent fees 33,698 19,367
Custodian fees 27,580 8,360
Professional fees (Note 6) 15,648 4,162
Trustees fees and expenses 16,000 4,000
Record keeping services 49,646 13,800
Shareholder reports 4,447 1,100
Registration fees and other 14,964 3,514
----------------------- -----------------------
Total Expenses 706,931 153,203
----------------------- -----------------------
Fees paid indirectly (Note 6) (16,600) ---
Fees paid by manager (Note 5)
Expenses Reimbursed (17,221)
----------------------- -----------------------
Net Expenses 690,331 135,982
----------------------- -----------------------
Net Investment Income 767,877 848,036
----------------------- -----------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES AND
OPTIONS CONTRACT
Net realized gain (loss):
Investment securities 7,771,305 4,750
Expired and closed covered call
options written (Note 4) (1,863,985) ---
----------------------- ----------------------
Net realized gain on investment securities
and option contracts 5,907,320 4,750
----------------------- ----------------------
Net increase in unrealized appreciation
of investment securities 9,998,526 380,175
======================= ======================
Net increase in net assets resulting
from operations $ 16,673,723 $ 1,232,961
======================= ======================
</TABLE>
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
THE ELITE
GROWTH & INCOME FUND
For the Years Ended September 30
<TABLE>
<S> <C> <C>
1997 1996
----------------------- ------------------------
OPERATIONS:
Net investment income $ 767,877 $ 230,586
Net realized gain on investment
securities and options contracts 5,907,320 5,049,366
Net increase in unrealized appreciation
of investment securities 9,998,526 2,914,785
----------------------- -----------------------
Net increase in net assets resulting
from operations 16,673,723 8,194,737
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income (751,449) (252,709)
Distributions from net realized gains on
investment transactions (11,069,678) ---
CAPITAL SHARE TRANSACTIONS:
Increase in net assets resulting from capital share
transactions (a) 18,066,984 5,674,686
----------------------- -----------------------
Total increase in net assets 22,919,580 13,616,714
NET ASSETS:
Beginning of year 44,799,189 31,182,475
======================= =======================
End of year (including undistributed
net investment income of $ - 0 - and
$21,325 respectively). $ 67,718,769 $ 44,799,189
======================= =======================
</TABLE>
(a) Transactions in capital stock were as follows:
<TABLE>
<S> <C> <C>
Year Ended Year Ended
September 30, 1997 September 30, 1996
Shares Value Shares Value
--------------- ------------------- ------------- -------------------
Shares sold 464,160 $ 9,881,155 430,984 $ 7,948,298
Shares issued in reinvestment
of distributions 563,824 11,716,467 11,903 233,922
--------------- ------------------- ------------- -------------------
1,027,984 21,597,622 442,887 8,182,220
Shares redeemed (165,034) (3,530,638) (136,267) (2,507,534)
--------------- ------------------- ------------- -------------------
Net increase 862,950 $18,066,984 306,620 $ 5,674,686
=============== =================== ============= ===================
</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>
1997 1996
----------------------- ---------------------
OPERATIONS:
Net investment income $ 848,036 $ 772,576
Net realized gain (loss)on investment securities (45,430)
4,750
Net increase (decrease) in unrealized
appreciation of investment securities 380,175 (265,285)
----------------------- ---------------------
Net increase in net assets resulting from
operations 1,232,961 461,861
NET EQUALIZATION CREDITS (DEBITS) (NOTE 2d) 19,511 (739)
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income (872,325) (798,599)
Distributions from net realized gains on
investment transactions --- (69,581)
CAPITAL SHARE TRANSACTIONS:
Increase in net assets resulting from capital
share transactions (a) 3,313,313 660,024
----------------------- ---------------------
Total increase in net assets 3,693,460 252,966
NET ASSETS:
Beginning of year 12,618,483 12,365,517
======================= =====================
End of year (including undistributed net
investment income of $10,816 and $15,594
respectively). $ 16,311,943 $ 12,618,483
======================= =====================
</TABLE>
(a)Transactions in capital stock were as follows:
<TABLE>
<S> <C> <C>
Year Ended Year Ended
September 30,1997 September 30,1996
-------------------------------- --------------------------
Shares Value Shares Value
--------------- ------------------ -------------- ------------------
Shares sold 545,012 $ 5,376,650 274,284 $ 2,723,932
Shares issued in reinvestment
of distributions 85,735 842,573 85,432 844,750
--------------- ------------------ -------------- ------------------
630,747 6,219,223 359,716 3,568,682
Shares redeemed (296,277) (2,905,910) (295,122) (2,908,658)
--------------- ------------------ --------------
==================
Net increase 334,470 $ 3,313,313 64,594 $ 660,024
=============== ================== ============== ==================
</TABLE>
See Notes to Financial Statement
<PAGE>
FINANCIAL HIGHLIGHTS
THE ELITE
GROWTH & INCOME FUND
For a share outstanding throughout each year
<TABLE>
Years Ended September 30,
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
----- ---- ---- ---- ----
Net asset value, beginning of year $ 20.55 $ 16.64 $ 15.29 $ 14.44 $13.07
--------------- ------------- -------------- -------------- ---------------
Income from investment operations
Net investment income .29 .11 .18 .11 .10
Net gains on securities
(both realized and unrealized) 6.15 3.92 2.52 1.56 1.65
--------------- ------------- -------------- -------------- ---------------
Total from investment
operations 6.44 4.03 2.70 1.67 1.75
--------------- ------------- -------------- -------------- ---------------
Less Distributions
Dividends from net investment
income (.29) (.12) (.18) (.10) (.09)
Distributions from capital gains (4.45) --- (1.17) (.72) (.29)
--------------- ------------- -------------- -------------- ---------------
Total distributions (4.74) (.12) (1.35) (.82) (.38)
--------------- ------------- -------------- -------------- ---------------
Net asset value, end of year $ 22.25 $ 20.55 $ 16.64 $ 15.29 $ 14.44
=============== ============= ============== ============== ===============
Total Return 34.66% 24.26% 19.92% 11.80% 13.54%
Ratios/Supplemental Data
Net asset value, end of period
(in 000's) $ 67,719 $ 44,799 $31,182 $25,380 $17,989
Ratio of expenses to average net
assets 1.30%* 1.33% 1.42%* 1.42% 1.36%
to average net assets 1.41% .61% 1.18% .73% .69%
Portfolio turnover 115.80% 156.93% 137.56% 153.34% 172.00%
Average Brokerage Commissions $ .0582 .0600 (1) (1) (1)
</TABLE>
*Ratio reflects fees paid through a directed brokerage arrangement. Expense
Ratios for 1994 and 1993 exclude these payments. No fees were paid through a
brokerage arrangement for 1996. The expense ratios for 1997 and 1995 after
reduction of fees paid through the directed brokerage arrangement were 1.27%
and 1.35%, respectively.
(1)Not required information prior to 1996
See Notes to Financial Statements
FINANCIAL HIGHLIGHTS
THE ELITE
INCOME FUND
For a share outstanding throughout each year
<TABLE>
Years Ended September 30,
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Net asset value, beginning of year $ 9.73 $ 10.03 $ 9.48 $ 10.61 $10.28
---------------- -------------- -------------- -------------- ---------------
Income from investment operations
Net investment income .60 .60 .62 .61 .59
Net gain (loss) on securities
(both realized and unrealized) .27 (.23) .54 (1.03) .35
---------------- -------------- -------------- -------------- ---------------
Total from investment
operations .87 .37 1.16 (.42) .94
---------------- -------------- -------------- -------------- ---------------
Less Distributions
Dividends from net investment
income (.60) (.62) (.61) (.61) (.58)
Distributions from capital gains --- (.05) --- (.10) (.03)
---------------- -------------- -------------- -------------- ---------------
Total distributions (.60) (.67) (.61) (.71) (.61)
---------------- -------------- -------------- -------------- ---------------
Net asset value, end of year $ 10.00 $ 9.73 $ 10.03 $ 9.48 $ 10.61
================ ============== ============== ============== ===============
Total Return 9.20% 3.79% 12.56% (4.07%) 9.41%
Ratios/Supplemental Data
Net asset value, end of year
(in 000's) $ 16,312 $ 12,618 $ 12,366 $ 11,505 $ 11,751
Ratio of expenses to average
net assets .96% 1.00% 1.12%* 1.11% 1.02%
Ratio of net investment income
to average net assets 6.01% 6.01% 6.34% 5.98% 5.66%
Portfolio turnover 37.60% 43.37% 42.24% 40.88% 73.26%
</TABLE>
* Ratio reflects fees paid though a directed brokerage arrangement. Expense
ratios for 1994 and 1993 exclude these payments. No fees were paid through
a directed brokerage arrangement for 1997 or 1996. Expense ratio for 1995
after reduction of fees paid through the directed brokerage arrangement was
1.08%
See Notes to Financial Statement
NOTES TO FINANCIAL STATEMENTS
September 30,1997
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.
NOTES TO FINANCIAL STATEMENTS
September 30,1997
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, 1997, 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> <C>
Dates of Percentage of Net
Acquisition Cost Value Assets
Stocks
180,000 Atriva Corporation. 08/29/94 $216,000 $ 1,800 .00%
35,000 Optiva Corporation 04/25/94 148,750 875,000 1.29%
135,000 Coffee Station, Inc 04/16/96 303,750 303,750 .45%
-------
--------------- ----------------
Total $668,500 $1,180,550 1.74%
=============== ================ ============
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
Note 4 - Purchases and Sales of Securities
For the year ended September 30, 1997, purchases and sales of
securities, other than options and short-term notes were as follows:
<TABLE>
<S> <C> <C>
Purchases Sales
The Elite Growth and Income Fund $66,978,021 $61,817,357
The Elite Income Fund $ 7,959,091 $ 5,081,645
</TABLE>
For The Elite Growth & Income Fund, transactions in covered call options written
were as follows:
<TABLE>
<S> <C> <C>
Number of
Contracts* Premiums
Options outstanding at beginning of year 615 $ 432,848
Options written 8,596 3,555,945
Options terminated in closing purchase transactions (6,061) (2,761,835)
Options exercised (130) (99,597)
Options expired (160) (38,699)
=============== ====================
Options outstanding at September 30,1997 2,860 $ 1,088,662
=============== ====================
</TABLE>
* 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 may voluntary reimburse a portion of the operating expenses
of a Fund for any fiscal year (including management fees, but excluding taxes,
interest and brokerage commissions). Voluntary reimbursements may cease at any
time without prior notice.
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
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. Expenses paid under this arrangement during the year ended September 30,
1997 were $16,600 for the Elite Growth & Income Fund.
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
utilities and financial industries.
PART C
THE ELITE GROUP
FORM N-1A
Post-Effective Amendment No. 11
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 years ended September 30, 1988, 1989, 1990, 1991, 1992,1993,
1994, 1995, 1996 and 1997.
(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,
1997 - Incorporated by reference, filed _________________ , 1997
(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 November 30, 1997 1,475
Elite Income Fund November 30, 1997 313
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 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.
<PAGE>
5
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. 11, 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 , 1997.
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. 11, has been signed below
by the following persons in the capacities and on the date indicated.
Trustee/President
/s/Richard S. McCormick (Chief Exec. Officer) 12/XX/96
(Signature) (Title) (Date)
Trustee, Treasurer & Secretary
/s/John Meisenbach** (Chief Financial Officer) 12/XX/96
(Signature) (Title) (Date)
/s/Morgan J. O'Brien* Trustee 12/XX/96
(Signature) (Title) (Date)
/s/John P. Parker* Trustee 12/XX/96
(Signature) (Title) (Date)
/s/Jack R. Policar* Trustee 12/XX/96
(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
<PAGE>
4
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. 11, to be signed on its behalf by the
undersigned, duly authorized, in the City of Seattle, and State of Washington on
the day of , 19 .
THE ELITE GROUP
By:
Richard S. McCormick
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement, Post-effective Amendment No. 11, has been signed below
by the following persons in the capacities and on the date indicated.
Trustee/President (Chief Exec. Officer)
(Signature) (Title) (Date)
Trustee, Treasurer & Secretary
(Chief Financial Officer)
(Signature) (Title) (Date)
Trustee
(Signature) (Title) (Date)
Trustee
(Signature) (Title) (Date)
Trustee
(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
<PAGE>
EXHIBITS
THE ELITE GROUP
FORM N-1A
INDEX OF EXHIBITS
(Numbers coincide with Item 24(b) of Form N-1A)
(11) Consent of Auditors
(17) Financial Data Schedule
<PAGE>
EXHIBIT 11
CONSENT OF AUDITORS
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the references to our firm in Post-Effective Amendment No. 11
to the Registration Statement on Form N-1A of The Elite Group and to the use of
our report dated October 15, 1997 on the financial statements and financial
highlights of The Elite Income Fund and The Elite Growth & Income Fund, each a
series of shares of The Elite Group. Such financial statements and financial
highlights appear in the 1997 Annual Report to Shareholders which is
incorporated by reference in the Registration Statement and Prospectus.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
December 28, 1997
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