Securities Act of 1933 No. 33-8124
Investment Company Act of 1940 No. 811-4804
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 12 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT CO ACT OF 1940 [X]
Amendment No. 12 [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) [ ] on January 2,
1998 pursuant to paragraph (b) [X] 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 XX, 1999
OF MUTUAL FUNDS
THE ELITE INCOME FUND
The Fund seeks the highest income return obtainable over the long term from a
portfolio consisting primarily of higher quality debt securities.
THE ELITE GROWTH & INCOME FUND
The Fund's seeks the highest total return (capital growth plus current income)
through an aggressive approach to the equity and debt securities markets.
This prospectus has information you should know before you invest. Please read
it carefully and keep it with your investment records.
Although these securities have been registered with the Securities and Exchange
Commission, the Securities and Exchange Commission has not approved or
disapproved them or determined if this prospectus is accurate or complete.
Anyone who informs you otherwise is committing a crime.
<PAGE>
Table of Contents
The Elite Income Fund............................................1
The Elite Growth & Income Fund...................................2
Past Performance .............................................3
Fees and Expenses ...............................................4
How to Buy Shares ...............................................5
How to Sell Shares ..............................................7
Dividends, Distributions and Tax Consequences....................9
Management and Capital..........................................10
Other Strategies and Related Risks..............................11
<PAGE> 2
The Elite Income Fund
Fundamental Goal The Income Fund seeks the highest income return obtainable over
the long term from a portfolio consisting primarily of higher quality debt
securities.
The Income Fund is designed for you:
- - ------------------------------------
o if you are seeking a conservative intermediate-to-long-term investment;
o if you want high income and are willing to forego growth of capital to get it,
and
o if you can accept the risk of aggressive investment of as much as 30% of the
portfolio as a trade-off for boosting income potential.
Don't invest if you are:
- - ------------------------
o seeking growth of capital;
o making short-term investments; or
o investing your emergency reserve money.
Interest Rate Risk:
Percent Increase (Decrease) In
The Price of a Par Bond Yielding 5%:
1% 1%
Interest Interest
Bond Rate Rate
Maturity Increase Decrease
Short
2.5 years -2.29% +2.35%
Intermediate
10 years -7.43% +8.17%
Long
20 years -11.55% +13.67%
Principal Strategies Under normal market conditions, the Fund invests at least
70% of total assets in higher quality debt securities. These may include U.S.
Government obligations and investment grade corporate debt securities (those
rated by Moody's or Standard & Poor's in one of their four highest quality
ratings). Corporate debt securities may include those with equity conversion
privileges.
Up to 30% of total assets may be invested in other securities expected to
greatly enhance portfolio income. Such other securities may include preferred
stocks, including convertibles, and common stocks which have a higher than
average dividend yield (for example, utility stocks).
The Fund may respond to changing market and other conditions by adjusting the
type of securities held and the average portfolio maturity and duration.
Principal Risks Because the Fund invests primarily in debt and other
income-oriented securities, there are three major risks to which you are
exposed; interest rate risk, credit risk and call risk. Any of these can make
the value of the Fund's portfolio rise or fall, which means you could lose
money.
Interest rate risk When interest rates rise, bond prices fall and when interest
rates fall, bond prices rise. Interest rate risk increases as average maturity
increases. Thus, when the Fund emphasizes longer maturing securities, you are
exposed to greater interest rate risk. The table at left illustrates the effect
of a 1% change in interest rates on three investment grade bonds of varying
maturity.
Credit Risk Credit risk is associated with a borrower's failure to pay interest
and principal when due. Credit risk increases as overall portfolio quality
decreases. Thus, when the Fund invests in more lower-quality securities, you are
exposed to increased credit risk.
Call Risk Call risk for corporate bonds (prepayment risk for mortgage-backed
securities) is the possibility that borrowers will prepay their debt prior to
the scheduled maturity date, resulting in the necessity to reinvest the proceeds
at lower interest rates. If interest rates decline when the Fund is emphasizing
longer maturing securities, you are exposed to greater call risk.
<PAGE>
The Elite Growth & Income Fund
Fundamental Goal The Income Growth & Fund seeks to maximize total return
(capital growth plus current income) through an aggressive approach to the
equity and debt securities markets.
The Growth & Income Fund is designed for you:
- - ---------------------------------------------
o if high total return is more important to you than the character (current
income or capital gains) of the return;
o if you can accept the risk accompanying the Fund's aggressive approach to
stock and bond investing;
o you are investing for the long-term.
Don't invest if you are:
- - ------------------------
o seeking either capital growth or high income exclusively;
o desiring to avoid even moderate volatility
o making short-term investments;
o investing your emergency reserve money.
Principal Strategies Under normal market conditions, the Fund invests primarily
in common stocks, including securities convertible into common stocks, preferred
stocks, U.S. Government obligations and investment grade corporate debt
securities (those rated by Moody's or Standard & Poor's in one of their four
highest quality ratings). But there is no predetermined portfolio mix. The
Fund's principal strategy is to aggressively position the portfolio to extract
the maximum total return from any given market and economic condition. For
example, one market cycle may offer the best total return through utility
stocks, another may favor emerging growth and another bonds. The Fund relies on
the portfolio manager's professional judgement to determine appropriate
portfolio allocation. Current income may be significant or very little.
The Fund uses a value-oriented approach in choosing individual portfolio
securities. The portfolio manager seeks out candidates that offer excellent
prospects for capital gain or above-average income for a variety of reasons, the
potential value of which is unrecognized by most of the investment community.
The Fund attempts to increase total return and, to a lesser extent, protect Fund
assets from anticipated adverse market action, by purchasing and writing listed
options on stocks and stock indices.
Principal Risks Because of the Fund's aggressive strategies, the value of its
shares will rise and fall and you could lose money. The Fund allocates its
investments in varying proportions of both debt and equity securities. Its major
risks, therefore, include those associated with both bonds and stocks. To the
extent that the Fund invests in bonds, you will be exposed to the three types of
risk--interest rate risk, credit risk and call risk--explained under the heading
"Principal Risks" on page 1. To the extent it invests in stocks, you will be
exposed to the potential for unpredictable drops in value and periods of
lackluster performance. The Fund's aggressive portfolio allocation strategy may
result in high portfolio turnover and occasional short-term trading, which could
produce higher brokerage commissions to the Fund and taxable distributions to
you.
Because the fund uses value-oriented investment strategies, actively adjusts its
portfolio mix to take advantage of changing market and economic conditions and
uses options, you are more dependent on the portfolio manager's ability than is
the case with many mutual funds.
Although the Fund uses options to increase total return and to protect Fund
assets from decline, such strategies may sometimes have a negative effect on
returns or increase volatility.
<PAGE>
Past Performance
The degree to which performance varies from year to year is one measure of risk.
The bar charts below show this year-to-year performance for the past 10 years
for each Fund. The tables below the bar charts compare each Fund's performance
over time to a broad-based securities market index or to a mutual fund index
having objectives similar to the respective Fund. Both the bar charts and the
tables below assume reinvestment of dividends and distributions. Remember that
past performance is not necessarily an indication of how the Funds will perform
in the future.
<TABLE>
<CAPTION>
THE FOLLOWING IS THE SUPPORTING DATA FOR THE BAR GRAPH THAT SHOWS THE TOTAL
ANNUAL RETURN - Year-by-Year Total Return (%) as of 12/31 each year:
Elite Income Fund
-----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED: 88 89 90 91 92 93 94 95 96 97
5.97 11.65 8.20 9.52 6.91 9.19 -2.89 15.72 3.13 9.76
Best Quarter: Q2 '89 +6.25%
Worst Quarter Q1 '94 -2.23%
Elite Growth & Income Fund
--------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED: 88 89 90 91 92 93 94 95 96 97
16.22 28.94 -3.78 25.59 10.32 11.88 -1.82 37.47 21.23 28.16
Best Quarter: Q2 '97 +15.87%
Worst Quarter Q2 '90 -18.06%
</TABLE>
Average Annual Total Return as of 12/31/97:
Elite Income Fund
-----------------
1 Year 5 Years 10 Years
This Fund 9.76% 6.79% 7.61%
Lipper Short U.S.
Gov't Funds Index 8.67% 6.95% 8.64%
Index
Lipper Intermediate
U.S. Gov't Funds 8.08% 6.05% 7.90%
Index
The Income Fund's year-to-date total return as of 9/30/98 was 9.81%.
Elite Growth & Income Fund
--------------------------
1 Year 5 Years 10 Years
This Fund 28.16% 18.60% 16.71%
Lipper Average
U.S. Stock Fund 24.36% 16.94% 16.15%
S & P 500 33.36% 20.27% 18.05%
The Growth & Income Fund's year-to-date total return as of 9/30/98 was -5.25%.
FINANCIAL HIGHLIGHTS
THE ELITE
GROWTH & INCOME FUND
For a share outstanding throughout each year
<TABLE>
Years Ended September 30,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 22.25 $ 20.55 $ 16.64 $ 15.29 $ 14.44
------ ------ ------ ------ ------
Income from investment operations
Net investment income .18 .29 .11 .18 .11
Net gain (loss) on securities
(both realized and unrealized) (1.24) 6.15 3.92 2.52 1.56
------ ------ ------ ------ ------
Total from investment
operations (1.06) 6.44 4.03 2.70 1.67
------ ------ ------ ------ ------
Less Distributions
Dividends from net investment
income (.17) (.29) (.12) (.18) (.10)
Distributions from capital gains --- (4.45) --- (1.17) (.72)
------ ------ ------ ------ ------
Total distributions (.17) (4.74) (.12) (1.35) (.82)
------ ------ ------ ------ ------
Net asset value, end of year $ 21.02 $ 22.25 $ 20.55 $ 16.64 $ 15.29
====== ====== ====== ====== ======
Total Return (4.82%) 34.66% 24.26% 19.92% 11.80%
</TABLE>
<TABLE>
Ratios/Supplemental Data
Net asset value, end of year
<S> <C> <C> <C> <C> <C>
(in 000's) $ 72,271 $ 67,719 $ 44,799 $ 31,182 $ 25,380
Ratio of expenses to average net
assets 1.23%* 1.30%* 1.42%* 1.42%
1.33%
Ratio of net investment income
To average net assets .71% 1.41% 1.18% .73%
.61%
Portfolio turnover 138.49% 115.80% 156.93% 137.56% 153.34%
</TABLE>
*Ratio reflects fees paid through a directed brokerage arrangement. Expense
ratio for 1994 excludes these payments. No fees were paid through a brokerage
arrangement for 1996. The expense ratios for 1998, 1997 and 1995 after reduction
of fees paid through the directed brokerage arrangement were 1.15%, 1.27% and
1.35%, respectively.
See Notes to Financial Statements
FINANCIAL HIGHLIGHTS
THE ELITE
INCOME FUND
For a share outstanding throughout each year
<TABLE>
Years Ended September 30,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 10.00 $ 9.73 $ 10.03 $ 9.48 $ 10.61
------ ------ ------ ------ ------
Income from investment operations
Net investment income .......... .59 .60 .60 .62 .61
Net gain (loss) on securities
(both realized and unrealized) . .72 .27 (.23 .54 (1.03)
------ ------ ------ ------ ------
Total from investment
operations ................ 1.31 .87 .37 1.16 (.42)
------ ------ ------ ------ ------
Less Distributions
Dividends from net investment
income ......................... (.59) (.60) (.62) (.61) (.61)
Distributions from capital gains -- -- (.05) -- (.10)
------ ------ ------ ------ ------
Total distributions ........ (.59) (.60) (.67) (.61) (.71)
------ ------ ------ ------ ------
Net asset value, end of year ..... $ 10.72 $ 10.00 $ 9.73 $ 10.03 $ 9.48
====== ====== ====== ====== ======
Total Return ............... 13.44% 9.20% 3.79% 12.56% (4.07%)
</TABLE>
<PAGE>
Fees and Expenses
Shareholder Fees Many mutual funds charge shareholder fees such as sales loads,
redemption fees or exchange fees. The Elite Funds are no-load investments, which
means that you will not pay any shareholder fees when you buy or redeem shares
of the Funds.
Annual Fund Operating Expenses Operating expenses are paid out of a Fund's
assets and include fees for portfolio management, maintenance of shareholder
accounts, shareholder servicing, accounting and other services. While the Fund
pays these expenses, you bear them indirectly, as the table below demonstrates.
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Funds.
Income Growth & Income Fund
Fund (1) (2)
Management Fees 0.70% 1.00%
Other Expenses 0.32% 0.23%
------ -----
Total Fund Operating Expenses 1.02% 1.23%
(1) Other Expenses and Total Fund Operating Expenses of the Income Fund were
reduced during the fiscal year end 9/30/98 to 0.10% and 0.92%,
respectively, because of expense reimbursements by the Investment Manager.
This may be terminated at any time by the Investment Manager.
(2) Other Expenses and Total Fund Operating Expenses of the Growth & Income
Fund were reduced during the fiscal year end 9/30/98 to 0.15% and 1.15%,
respectively, because. fees of the Fund were paid through directed
brokerage commissions. The Fund expects this arrangement to continue during
the current fiscal year.
Example This example is intended to help you compare the cost of investing in
the Elite Funds with cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based upon these assumptions your costs would be as follows:
1 Year 3 Years 5 Years 10 Years
Income Fund $104 $325 $563 $1,248
Growth & Income Fund 125 390 676 1,489
<PAGE>
How to Buy Shares
No Load Funds
Unlike many mutual funds, the Elite Funds are true NO LOAD funds. This means
that when you buy shares directly from the Funds, no sales commissions or other
distribution charges will deducted from your investment and 100% of your money
will be used to buy Fund shares. If you prefer, you may buy shares through a
broker-dealer, who may charge you a fee for its services.
Pricing of Shares
The value of Fund shares rises and falls constantly. The price you pay when you
buy Fund shares is determined at the next calculation of net asset value after
your purchase order is received by the transfer agent in proper order. Net asset
value is determined on each day that the New York Stock Exchange is open for
trading, as of the close of the Exchange (currently 4:00 p.m., New York time).
Getting Help You may buy shares by mail or telephone and may use the Automatic
Investment Plan, discussed below, to make periodic share purchases. Individual
Retirement Accounts and corporate or self-employed retirement plans generally
require special or supplemental application forms. Obtain these forms or get
assistance opening accounts by calling toll-free, 1-800-423-1068, or by writing
to The Elite Group, 1325 4th Avenue, Suite 2144, Seattle, WA 98101.
Account Minimums The minimum initial investment in each Fund is $10,000 ($1,000
for IRA accounts). You may add to your account with as little as $100. Please
bear in mind that the Fund may close your account if it falls below the minimum
initial investment (but not if the decline in value is due solely to market
action). You would first be given 60 days written notice. If, during the notice
period, you restore your account to the required minimum, your account will not
be redeemed.
Purchase by Mail To open an account, complete and sign the Account Application
form accompanying the Prospectus. Be sure to indicate in which Fund(s) you wish
your investment to buy shares, and make your check payable to The Elite Group.
Mail the application and your check to the Transfer Agent: First Data, Inc.,
P.O. Box 61503, King of Prussia, PA 19406-0903.
To add to your account ($100 minimum), mail your purchase check to the same
address. Be sure to include the Additional Investment Form which is attached to
your Fund confirmation statement or include a letter identifying the Fund whose
shares you wish to purchase and your account number.
Please note that overnight and express delivery services do not deliver to Post
Office boxes. Please follow the instructions for regular mail orders, but use
the following address to insure prompt delivery:
First Data, Inc., 3200 Horizon Drive, King of Prussia, PA 19406.
Purchase by Bank Wire To open an account or add to an existing account (the
minimum addition by bank wire is $3,000), please call the Transfer Agent, First
Data, Inc., toll-free at 1-800-441-6580, before wiring funds, to advise them of
your forthcoming investment, the dollar amount and the account registration.
They will provide you with and account number for your account. This will insure
prompt and accurate handling of your investment. Following your call to the
Transfer agent, instruct your bank to use the following wiring instructions:
Wire to: United Missouri Bank KC NA, ABA Number 10-10-00695
Attn: First Data, Inc., Account No. 98-7037-071-9
For: (Elite Fund Name)
For the Account of: (Shareholder(s) Name)
Account No. (Your Account No.)
It is important that the bank wire contain all the information and that the
transfer agent receive prior telephone notification to ensure proper credit. The
Fund and its transfer agent are not responsible for the consequences of delays
resulting from the banking or Federal Reserve wire system, or from incomplete
wiring instructions.
Automatic Investment Plan The Automatic Investment Plan allows you to purchase
additional shares by an electronic transfer of funds monthly from your bank
checking account, money market account, NOW account or savings account. You
choose the amount (minimum $100) to be automatically deducted from your bank
account each month, and that amount will be used to purchase additional shares
in the Elite Fund of your choice. You may join the Automatic Investment Plan by
completing an Automatic Investment Plan Application which you may obtain from
the Fund or the transfer agent. At any time you may cancel your participation in
the Plan, change the amount of purchase or change the day each month on which
the shares are purchased by calling 1-800-441-6580 or by writing to the transfer
agent, First Data, Inc., P.O. Box 61503, King of Prussia, PA 19406-0903. The
change or cancellation will be effective five business days following receipt.
For you to participate in the Plan, your bank or other financial institution
must be an Automated Clearing House member. It will take about 15 days for the
transfer agent to process your Automatic Investment Plan enrollment. The Fund
may modify or terminate the Automatic Investment Plan at any time or charge a
service fee, although no such fee is currently contemplated.
Retirement Plans Individual Retirement Accounts ("IRA") and other retirement
plans, including the regular deductible IRA, the Roth nondeductible IRA and
Simplified Employee Pension-Individual Retirement Accounts ("SEP-IRA") are
available to enable individuals and employers to set aside tax-deferred
investments in the Funds. In addition to the plans mentioned above, Fund
accounts may also be opened by all kinds of tax-deferred retirement plans. For
assistance and an application, please call The Elite Group at 1-800-423-1068.
Account Conditions The Funds may reject your application under circumstances or
in amounts considered disadvantageous to shareholders (for example, if you
previously tried to purchase shares with a bad check or failed to provide the
proper social security or tax identification number).
Your purchase request will not be effective until it is actually received in
proper order by the transfer agent. The U. S. Postal Service and other
independent delivery services are not agents of the Funds. Therefore, deposit in
the mail or with such services, or receipt at the transfer agent's post office
box, does not constitute receipt by the transfer agent.
A Social Security or Taxpayer Identification Number (TIN) must be supplied and
certified on the Account Application Form before an account can be established
(unless you have applied for a TIN and the application so indicates). If you
fail to furnish the Trust with a correct TIN, the Trust is required to withhold
taxes at the rate of 31% on all distributions and redemption proceeds.
Payment for purchases must be made in U.S. dollars. Checks must be drawn on U.S.
Banks. Third party checks will not be accepted. If your payment is not received
or you pay with a check or bank wire transfer that does not clear, your purchase
will be canceled and you will be responsible for any losses or expenses incurred
by a Fund including, if applicable, a returned check fee of $25. If you are a
shareholder, the Fund shall act as your Agent to redeem shares from your account
at their then-current net asset value per share to reimburse the Fund for such
losses or expenses.
Certificates will not be issued for your shares unless you request them. In
order to facilitate redemptions and transfers, most shareholders elect not to
receive certificates. If you lose a certificate, you may incur delay and expense
in replacing it.
How to Sell Shares
Getting Help You may sell (redeem) Fund shares by mail or telephone. You also
may use the Systematic Withdrawal Plan to receive regular monthly or quarterly
checks out of your Fund account. There is no charge for redeeming shares; you
receive the full net asset value per share. If you prefer, you may sell your
shares through a broker-dealer, who may charge you a fee for its services. Get
assistance redeeming shares by calling toll-free, 1-800-423-1068, or by writing
to The Elite Group, 1325 4th Avenue, Suite 2144, Seattle, WA 98101.
Price and timing
The value of Fund shares changes constantly. Whether you sell your shares by
mail or telephone, the price you receive is determined at the next calculation
of net asset value per share after your sale order is received by the Transfer
Agent in proper order. To understand how and when shares are priced, see the
sidebar, "Pricing of Shares," on page 5.
The proceeds of your sale will ordinarily be sent to you within one or two days,
but no later than seven (7) days, after receipt of your request.
Selling Shares by Mail Send a written redemption request letter to the Transfer
Agent, First Data, Inc., P.O. Box 61503, King of Prussia, PA 19406-0903. Your
request 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) signature guarantees and other documents (see "Signature Guarantees"
page 9).
Please note that if you paid for the shares you are redeeming by check,
payment will not be made until the transfer agent can verify that the payment
for the purchase has been, or will be, collected. It may take up to twelve
(12)days for your check to clear.
Selling Shares By Telephone Make a toll-free telephone call to the transfer
agent at 1-800-441-6580. 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 and the Fund, 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. Also, the Transfer Agent will use procedures it has established
to confirm your identity and will send a written confirmation of the transaction
to your address of record. Among other things, the transfer agent will require
you to provide identifying information which is unique to you. This could
include a password or other form of personal identification. In addition your
call will be recorded.
The Telephone Redemption Privilege must be authorized in advance. 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 or the transfer agent) 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 Form and provide a
signature guarantee and other required documents (see "Signature Guarantees,"
page 9). You may cancel the privilege at any time by telephone or letter.
Risks associated with Telephone Redemption. Redeeming by Telephone is a
convenient service enjoyed by many shareholders. There are important factors you
should consider before activating the privilege. The Funds and the transfer
agent believe that the procedures it has established for telephone redemption
reasonably protect shareholders from fraudulent transactions. You 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 Funds may restrict or cancel telephone redemption
privileges, or 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.
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 you are
unable to contact the transfer agent by telephone, you may redeem shares by
mail.
If You Exchange Shares:
o The minimum account size requirement, discussed on page 5, applies to each
Fund account affected.
o The account registration for each Fund involved must be identical.
o The exchange request, once made, may not be changed or cancelled.
Exchanging Shares You may, by mail or telephone, exchange shares (in amounts
worth $1,000 or more) of one Elite Fund for shares of the other Elite Fund. To
exchange by mail, follow the procedures for selling by mail and specify in your
letter of instruction that you want the proceeds invested in the other Elite
Fund. Telephone exchange privileges must be authorized in writing, in advance,
with the transfer agent. Once authorized, simply call the transfer agent at
1-800-441-6580 to make an exchange.
Your exchange will take effect as of the next determination of net asset value
per share of each fund involved. To cancel your telephone exchange privilege,
call the transfer agent at 1-800-224-4743, or write to the transfer agent's
address shown on the back cover. The Trust reserves the right to limit the
number of exchanges or to otherwise prohibit or restrict a shareholder, or all
shareholders, from making exchanges at any time, should the Trustees determine
that it would be in the best interest of our shareholders to do so. You will be
given at least 10 days written notice prior to imposing restrictions or
prohibition on exchange privileges. 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. There is currently no service
charge for exchanges, but the Funds reserve the right to impose such a charge in
the future. Shareholders would first be given a 60-day written notice. During
drastic economic and market changes, telephone exchange services may be
difficult to implement. The exchange privilege is only available in states where
the exchange may legally be made.
Systematic Withdrawal Plan You may have regular monthly checks sent to you or
someone you designate by authorizing the transfer agent to redeem the necessary
number of shares from your Fund account on the 25th of each month to make the
payments requested. Payments must be at least $50 and your Fund account must
have a value of at least $10,000 to begin a Systematic Withdrawal Plan. If the
25th day falls on a Saturday, Sunday or holiday, the redemption will take place
the next business day. Your check will usually be mailed within one or two
business days of the redemption date, but in no case later than seven days.
Checks will be made out to you exactly as your account is registered with the
transfer agent. If you designate someone other than yourself to receive the
checks, your signature must be guaranteed on the plan application (see
"Signature Guarantees," page 9). Shares you hold certificates for may not be
included in, or redeemed under, this plan. Costs of administering the plan are
borne by the Fund. You should be aware that, like all sales of Fund shares,
systematic withdrawals reduce the value of your account with the Fund and result
in realized capital gains or losses. You may stop your participation in the Plan
at any time upon written notice to the Fund or transfer agent. The Fund or
transfer agent may terminate the Plan upon thirty day's written notice.
Applications and further details may be obtained by writing or calling The Elite
Group.
Redemptions in Kind You will generally receive cash (or a check) when you redeem
your Fund shares. It is possible, however, that conditions may arise 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. Each
Fund has made an irrevocable commitment 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.
Signature Guarantees A signature guarantee is a widely accepted way to protect
you, the Funds, and the transfer agent from fraud, and to be certain that you
are the person who has authorized a redemption from, or change to, 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, exchange, or systematic withdrawal privileges other than through
your initial account application. The Funds may require a signature guarantee
under other circumstances. The Funds will honor signature guarantees from
acceptable financial institutions such as banks, savings and loan associations,
trust companies, credit unions, brokers and dealers, registered securities
associations and clearing agencies. A signature guarantee may not be provided by
a notary public.
The signature guarantee must appear on:
o your written request;
o a separate instrument of assignment ("stock power") which should specify
the total number of shares to be redeemed; or
o all stock certificates tendered for redemption and, if you are redeeming
shares held for you by the transfer agent, on the letter or stock power.
In addition to requiring signature guarantees for redemptions and certain
shareholder services, other supporting legal documents may be required in the
case of estates, trusts, guardianships, custodianships, corporations,
partnerships, pension or profit sharing plans, and other organizations. For
example, a corporation (or partnership) must 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 or letter of
instruction must be signed by such duly authorized officer(s) and the corporate
seal affixed. You may avoid time delays by calling the transfer agent for
assistance before sending your service request.
Dividends, Distributions and Tax Consequences
Dividends and Distributions You will receive dividends from net investment
income, if any, quarterly. You will also receive net realized capital gains
distributions, including short-term gains, if any, during September and
December. All dividends and distributions will automatically be paid to you in
additional shares of the particular Fund at the then current net asset value on
"ex-date," which is normally the day following the record date. You may choose
to receive dividend distributions and/or capital gain distributions in cash by
checking the appropriate box on the Account Application Form when you open your
account. You may change how you receive dividends and distributions by sending a
letter of instruction to the transfer agent. If you elect payment of
distributions in cash, you may designate a person or entity other than yourself
to receive such distributions. The name and address of the desired recipient
should be indicated in the Account Application Form or in a separate, signed
statement accompanying 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 Consequences During the time you hold a Fund's shares, you may be subject to
Federal tax on the Fund's distributions, whether you receive them in additional
shares or cash. The quarterly and annual distributions that the Funds intend to
make will be taxed as ordinary income and capital gains. Capital gains may be
taxable at different rates, depending upon the length of time a Fund holds its
assets. The Income Fund's distributions will primarily be ordinary income.
Because of its flexible investment strategy, the Growth & Income Fund's
distributions will consist of both ordinary income and capital gains, the
proportion of which will vary from year to year.
When you sell your shares in a Fund, any gain on the transaction may be subject
to Federal tax. This also applies to an exchange, which is considered the sale
of one Fund and the purchase of another.
If you are not subject to tax on your income, you will not be required to pay
taxes on the amounts distributed to you or on gains received when you sell or
exchange shares. Buying, holding, selling and exchanging Fund shares may also be
subject to State tax, depending upon the laws of your home State.
Management and Capital
Investment Manager McCormick Capital Management, Inc. has been investment
manager of each Fund since the Funds were first offered to the public in 1987.
Its duties include on-going management of the Fund's investment portfolio and
business affairs. In addition, the investment manager provides certain executive
officers to The Elite Group and supplies office space and equipment not
otherwise provided by the Funds. The investment manager's compensation during
the last fiscal year was 1.00% from the Growth & Income Fund and 0.70% (0.58%
after expense reimbursements) from the Income Fund, based on each Fund's average
net assets.
Portfolio Managers Richard S. McCormick, founder of The Elite Group, has served
as portfolio manager of the Growth & Income Fund since 1987. Mr. McCormick is
the President and Chief Executive Officer of the investment manager. He is also
Chairman of the Board of Trustees and President of The Elite Group. His
investment management experience dates back to 1969, and includes management of
numerous large capital funds--for banks, labor unions, corporations,
universities and municipalities. He graduated from the University of Washington
with a finance degree and is a Chartered Financial Analyst. Mr. McCormick was
also portfolio manager for the Income Fund from 1987 to 1993.
Bruce Church has served as portfolio manager of the Income Fund since he joined
The Elite Group in March 1993. He has been managing bond and fixed income
portfolios since 1977. In 1985 and 1986 Mr. Church received the Lipper Award for
the top performing manager in his category. He holds an MBA in Finance.
Other Strategies and Related Risks
The Income Fund tempers its goal of maximizing income with its high-quality
objective. Therefore, the portfolio manager allocates the Fund's investments in
debt securities among the four top quality grades of debt instruments in order
to obtain the highest income return available without compromising overall
quality. The portfolio manager will increase the Fund's allocation to lower
quality issues when he believes the potential for increased income does not
compromise the Fund's high-quality objective. In addition to the foregoing
allocation strategy, the portfolio manager will adjust the average maturity,
yield and duration of the bond portion of the Fund's portfolio in response to
anticipated interest rate and economic trend changes. Debt Securities Each Fund
invests in U.S. Government obligations and investment grade corporate debt
securities. U.S. Government obligations, for the Funds' purposes, include:
- - - those backed by the full faith and credit of the United States Treasury
(such as bills, notes and bonds issued by the U.S.
- - - Treasury and certain securities issued by U.S. agencies and
instrumentalities);
- - - those backed by the right of the issuer to borrow from the U.S. Treasury,
(such as securities issued by the Federal Financing Bank or the Student
Loan Marketing Association); and
- - - those backed only 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").
The U.S. Government "full faith" obligations--those listed in the first category
above--are considered "risk-free," with respect to credit and call risk, but are
subject to interest rate risk, and therefore, market price fluctuation. Although
still considered of exceptionally high quality, the credit and call risk
increases, in order of appearance, for the other obligations listed above.
Investment grade corporate debt obligations are generally considered to carry
greater credit and call risk than the U.S. Government obligations cited above,
yet have significant investment merit. Standard & Poor's- descriptions for
their top four ratings, for example, range from "...extremely strong capacity to
pay principal and interest..." for its top rating to "...adequate
capacity...[where] adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay principal and interest..." for
the lowest of its top four grades. Moody's- descriptions include words like
"...guilt-edged..." for its top rating, and the cautionary language "...and in
fact have speculative characteristics..." for the lowest of its top four grades.
For a description of the Moody's and S & P bond ratings, please request the
Statement of Additional Information.
The Growth & Income Fund invests in debt securities in order to maximize the
Fund's total return. The investment manager has broad discretion in allocating
the Fund's portfolio, even to the extent that none or all of the Fund's assets
may be invested in debt securities. Selection of the appropriate quality grade
and maturity for investment is based upon the portfolio manager's judgement of
where the best combination of income and growth may be obtained. To the extent
that the Fund emphasizes bond investment, current income will be a major
contributor to the fund's total return. The portfolio manager may emphasize debt
securities whenever he believes that the total return potential of bonds exceeds
that of stocks.
The investment manager relies, in part, on the quality ratings assigned by these
and other rating services. But there is risk associated with such reliance.
Rating agencies evaluate the credit risk--the safety of principal and interest
payments--but not market value, which is affected by interest rate trends,
economic conditions and other factors, including those unique to an issuer or
industry. Rating agencies may fail to move quickly enough to change ratings in
response to changing circumstances and may not reflect the fine shadings of
risks within a given quality grade. For example, two bonds rated the same are
not likely to be precisely the same in quality. The investment manager performs
independent analyses in attempting to identify issuers within a given quality
grade that, because of improving fundamental or other factors, are likely to
result in improving quality, greater market value and lower risk.
Mortgage-Backed Securities Each Fund's investments in debt securities may
include obligations representing an undivided interest in, or collateralized by,
pools of mortgages. These obligations, in effect, "pass-through" the monthly
interest and principal payments (including prepayments) made by the individual
borrowers on the pooled mortgage loans to the holders of the securities. U.S.
Government agency mortgage-backed issues may include securities of the
Government National Mortgage Association ("GNMA"), the Federal Home Loan
Mortgage Corporation ("FHLMC") and the Federal National Mortgage Association
("FNMA"). They are guaranteed as to payment of principal and interest (but not
as to price and yield) by the U.S. Government or the issuing agency. Each Fund
may also invest in corporate mortgage-backed securities which are investment
grade rated. Mortgage-backed securities are subject to greater call/prepayment
risk (described in the prospectus) than many debt securities, especially when
interest rates decline.
Zero Coupon Securities Each Fund may invest in zero coupon U.S. Government and
corporate bonds ("Zeros"). Such securities do not make periodic interest
payments, but are purchased at a discount from their face, or maturity, value.
Thus, the holder receives only the right to receive the face value upon
maturity. An advantage of Zeros is that a fixed yield is earned on the invested
principal and on all accretion of the discount from the date of purchase until
maturity. The holder of a bond which makes a periodic interest payment, on the
other hand, bears the risk that current interest payments, when received, must
be reinvested at then-current yields, which could be higher or lower than that
of the bond originally purchased. A disadvantage is that the Fund must
recognize, as interest income, the accretion of the discount from the date of
purchase until the date of maturity or sale, even though no interest income is
actually received in cash on a current basis. The Fund must distribute all or
substantially all of such interest income annually to its shareholders. Zeros
are subject to greater price volatility than bonds paying periodic interest
during periods of changing interest rates, more so with longer maturities.
Equity Securities Each Fund may include equity securities (common stocks,
preferred stocks and securities convertible into common stocks) in its
investment portfolio. The investment manager uses a value-oriented approach to
security selection. It seeks to identify issuers that, for a variety of reasons,
appear to be out of favor with most of the investment community but which, in
its judgement, 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 than historic price-to-book value
ratio; and - current pricing at the low end of a security's historic trading
range.
The value-oriented approach to stock selection does not eliminate risk. Even if
the portfolio manager is accurate in his assessment of the intrinsic value of
such issues, undervalued stocks typically fall in price during broad market
declines.
Convertible securities tend to follow the value of the common stocks into which
they may be converted. Thus, they may offer high fixed income, their risk
profile is more like that of common stocks than bonds. Non-convertible preferred
stocks offer the advantage of a relatively high fixed dividend but, without the
option to convert to common, their risk profile is more like bonds than stocks.
The Income Fund purchases equities only to enhance portfolio income. Thus,
equities with dividends higher than the average dividend of the stocks
comprising the S & P 500- would be candidates for Income Fund investment.
While the value of such dividend-paying stocks tends to fluctuate less than
growth stocks, they are subject to some degree of interest rate risk and can be
more volatile than the broad stock market during periods when interest rates are
changing.
The Growth & Income Fund invests with the goal of obtaining the maximum total
return available from any given market scenario. The portfolio manager responds
to changing market conditions by investing the Fund's assets in whatever market
sector combinations he believes currently offer the greatest opportunity for
maximum total return. Some of those sectors, such as emerging growth, carry
higher risks than, say, larger companies. By changing its focus from one sector
combination to another, the Fund runs the risk that any market, economic or
other factor influencing the sectors it is currently emphasizing could greatly
impact performance. While the Fund attempts to reduce such risk through
diversification, the Fund may experience higher volatility than less aggressive
growth and income funds.
Options The Growth & Income Fund (but not the Income Fund) uses options on
stocks and stock indices primarily to increase total return and, to a lesser
extent, to protect the portfolio from anticipated adverse market action. The
Fund will only purchase and write "listed" options. Listed options are traded on
national securities exchanges that maintain a continuous market enabling holders
or writers to close out their positions by offsetting sales and purchases.
Purchase of Options The Growth & Income Fund may purchase put and call options
on stocks, whether or not related to securities held by the Fund. 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.
What is an Option?
o 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.
o 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.
o 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.
o 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. Writing Options The Growth and Income Fund may also write (sell)
Covered Call Options and Covered Put Options. When it writes a put or call
option it receives a premium. When it writes 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. When it writes a Covered Put Option, the Fund
gains the premium received plus interest earned on its deposit, while the risk
it assumes 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. 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; (i) 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 (ii) if more than 10% of its net assets would be
invested in stock indices, totally.
Risks of Options Strategies The use of options entails a number of risks. One
risk is that the skills needed to trade options are different than those needed
to select equity or fixed income securities. There is a liquidity risk--the
possibility that a liquid secondary market may not exist at the time when a fund
may desire to close out an option position. Trading in options might be halted
at times when the securities markets are allowed to remain open. If a closing
transaction cannot be effected because of the lack of a secondary market, the
fund would have to wait to sell the underlying securities until the option
expires or is exercised. An additional risk is the correlation risk--the
possibility that price movements in a fund's portfolio will not correlate
perfectly with the price changes in stock indices and options thereon. At best,
the correlation between changes in prices of (a) stock indices and options
thereon and (b) the portfolio securities being hedged can be only approximate.
Consequently, if a fund has entered into stock index options to hedge portfolio
securities positions, there is a risk that the securities hedged may loose more
value than is offset by the stock index options, resulting in a loss to the
fund.
Defensive Strategy Each Fund may hold short-term cash reserves and short-term
securities to satisfy the liquidity needs of the Fund as determined by the
investment manager. In addition, each Fund may take temporary defensive
positions inconsistent with the Fund's principal investment strategies, by
holding short-term securities and cash without percentage limitations, if the
portfolio manager believes that it is advisable in responding to adverse market,
economic, political or other conditions. During periods when, and to the extent
that, a Fund holds short-term securities and cash, the fundamental goal of the
Fund may not be realized.
<PAGE>
THE ELITE GROUP
OF MUTUAL FUNDS
ADDITIONAL INFORMATION
The Elite Group provides additional information about the Elite Income Fund and
the Elite Growth & Income Fund in its Annual Report to Shareholders and its
Statement of Additional Information (SAI), both of which are incorporated by
reference in their entirety into this Prospectus. The Annual Report includes
financial highlights, intended to help you understand the Funds' performance
over the past 5 years, and management's discussion of the market conditions and
investment strategies that significantly affected the Funds' performance during
its last fiscal year. Please take the time to review them.
Call or Write The Elite Group toll-free 1-800-423-1068 if you want more
information, like the SAI and the Funds' annual and semi-annual reports, which
are available free of charge. During business hours, friendly, experienced
personnel will answer your questions, provide investment forms and applications,
assist with shareholder needs and provide current share prices. After hours,
current prices are provided electronically and you may leave messages for our
service personnel to be addressed the next business day. You may also write to
the Elite Group at 1325 4th Avenue, Suite 2144, Seattle, WA 98101.
Contact the Securities and Exchange Commission to obtain information about The
Elite Group, including the SAI of the Funds. The Elite Group file can be
reviewed and copied at the Securities and Exchange Commission's Public Reference
Room in Washington, DC. Information on the operation of the public reference
room may be obtained by calling the Commission at 1-800-SEC-0330. Reports and
other information about the Elite Group and the Funds are also available on the
Commission's Internet site at http://www.sec.gov, and copies of this information
may be obtained, upon payment of a duplicating fee, by writing the Public
Reference Section of the Commission, Washington, DC 20549-6009.
Investment Company Act File No. 811-4804
PART B
THE ELITE GROUP
FORM N-1A
Post-Effective Amendment No. 12
STATEMENT OF ADDITIONAL INFORMATION
Statement of Additional Information
January XX, 1999
THE ELITE GROUP
OF MUTUAL FUNDS
THE ELITE INCOME FUND
THE ELITE GROWTH & INCOME FUND
1325 4th Avenue, Suite 2144
Seattle, Washington 98101
1-800-423-1068 Toll-Free
1-206-624-5863 Local Seattle Area
This Statement of Additional Information (SAI) is not a prospectus. 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 SAI
should be read in conjunction with the prospectus for an understanding of the
Funds. The Annual Report of The Elite Group is incorporated by reference into
the SAI, and is also available free of charge by calling this toll-free number.
Table of Contents
History of the Funds...........................................1
Investment Strategies and Risks................................1
Investment Limitations.........................................6
Purchase and Redemption of Shares..............................8
Brokerage.....................................................12
Management of the Funds.......................................12
Principal Holders of Securities...............................15
Capital Stock and Voting......................................15
Taxation of the Fund..........................................15
Performance Data..............................................17
Financial Statements..........................................17
Debt Securities Ratings.......................................18
<PAGE> 1
History of the Funds
The Elite Group (the "Trust") is an open-end management investment company,
commonly known as a "mutual fund". Organized in 1986 as a Massachusetts business
trust, it currently offers two Funds from which to choose, the Elite Income Fund
and the Elite Growth & Income Fund. Each Fund is diversified.
Investment Strategies and Risks
The fundamental goal of each Fund, as described in the prospectus, and the
investment limitations, described on page 7 in this Statement of Additional
Information (SAI), may be changed only by the affirmative vote of a majority of
the outstanding securities of the Fund for which a change is proposed.1 All
other strategies and limitations adopted by the Funds may be changed by a
majority vote of the Board of Trustees. However, should a material change be
adopted by the Trustees, shareholders would be provided a 60-day prior notice,
in writing, and the prospectus would be amended.
The Funds employ a number of investment strategies in addition to those
discussed in the prospectus. These strategies, and the risks they bring to the
Funds, are as follows.
Lower Quality Debt Securities The Growth & Income Fund, except as a "special
situation," does not normally invest in lower quality debt securities. The
Income Fund may invest in lower quality debt securities (so-called junk bonds)
in order to significantly boost its income potential. Because of the risks
inherent in lower-quality securities, the Income Fund limits its investments in
them to 5% of its total assets. The Growth & Income Fund limits its investment
in lower quality debt securities--taken together with special situations--to no
more than 5% of its total assets.
Lower quality issues are corporate debt securities that are rated lower than
investment grade. Like their higher-quality counterparts, these securities may
include issues with equity conversion privileges and may be structured as zero
coupon bonds. Because of risk factors, the Fund will not invest in issues rated
lower than Moody's- Ca or S & P's- CC (or non-rated issues the investment
manager believes to be of comparable quality). For more information on the
ratings of debt securities, see "Debt Securities Ratings," page 19. Lower
quality debt securities generally involve greater credit risk than higher rated
securities and are considered by S & P and Moody's to be predominately
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. Such securities may be subject to
greater market fluctuations and risk of loss of income and principal than lower
yielding, higher rated debt securities. The risks of lower quality debt
securities include:
- - - limited liquidity and secondary market support;
- - - significant volatility in market price when prevailing interest rates or
investor perceptions change;
- - - the issuer's low creditworthiness and potential for insolvency during
periods of rising interest rates and economic downturn;
- - - call/redemption and sinking fund provisions which may be exercised during
periods of declining interest rates, which could cause the Fund to have to
reinvest the proceeds in lower yielding securities;
- - - possible subordination to senior claims of banks or other creditors;
- - - the potential that the earnings or cash flow of the issuer may be
inadequate to meet the required payment obligations on its debt issues.
The Fund will invest in lower quality debt securities only when the portfolio
manager believes the assumed risk is justified by the potential for increased
income to the Fund. When such issues are held by the Fund, the issuers of such
securities and the secondary markets in which they are traded will be closely
monitored by the portfolio manager.
Repurchase Agreements Each Fund may enter into repurchase agreements. Repurchase
agreements occur when the Fund acquires a security and the seller (which may be
either (i) a primary dealer in U.S. Government securities or (ii) an
FDIC-insured bank having gross assets in excess of $500 million) simultaneously
commits to repurchase it at an agreed-upon price and on an agreed-upon date
within a specified number of days (usually not more than seven) from the date of
purchase. The repurchase price reflects the purchase price plus an agreed-upon
market rate of interest, which is unrelated to the coupon rate or maturity of
the acquired security. The Funds will only enter into repurchase agreements
involving U.S. Government securities. In Repurchase agreement transactions, the
underlying securities are held as collateral by the Fund's custodian bank until
repurchased. Repurchase agreements involve risks in the event of the bankruptcy
or other default of a seller of a repurchase agreement, including delays or
restrictions on the Fund's ability to dispose of the underlying securities. Each
Fund limits its investment in repurchase agreements to 5% of its total assets.
Defensive Strategy and Short-Term Securities Each Fund may hold cash and
short-term securities in amounts needed to satisfy the liquidity needs of the
Fund and, up to 100% of the Fund's assets, to implement the Funds' defensive
strategy as discussed in the prospectus. Each Fund may purchase short-term money
market securities such as: - repurchase agreements and securities issued or
guaranteed by the U.S Government or its agencies or instrumentalities;
- - - certificates of deposit, time deposits and bankers' acceptances issued by
domestic banks which have total assets (at the time of the Fund's
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);
- - - corporate commercial paper which, at the time of purchase, is rated at
least Prime-1 by Moody's or A-1 by S & P, or unrated obligations issued by
companies having an outstanding unsecured debt issue currently rated A or
better by Moody's or by S & P; or
- - - money market funds (mutual funds classified as money market funds invest
principally in money market instruments maturing within one year).
Repurchase agreements and money market funds, if utilized, will each comprise no
more than 5% of a Fund's net assets (at the time of acquisition).
Foreign Securities and ADRs Each Fund may invest in foreign securities in
amounts up to 5% of its total assets. However, American Depository Receipts
(ADRs) traded on the New York or American Stock Exchanges are not considered
foreign securities by the Funds. ADRs are receipts, typically issued by a U.S.
bank or trust company, which evidence ownership of underlying securities issued
by a foreign corporation or other entity. Generally, ADRs in registered from are
designed for trading in U.S. securities markets. The underlying securities are
not always denominated in the same currency as the ADRs. Although investment in
the form of ADRs facilitates trading in foreign securities, it does not mitigate
all the risks associated with investing in foreign securities.
ADRs are available through facilities which may be either "sponsored" or
"unsponsored." Only sponsored ADRs may be listed on the New York Stock or
American Stock Exchanges. If sponsored, the foreign issuer establishes the
facility, pays some or all of the depository's fees, and usually agrees to
provide shareholder communications. If unsponsored, the foreign issuer is not
involved, and the ADR holders pay the fees of the depository. Sponsored ADRs are
generally more advantageous to the ADR holders and the issuer than unsponsored
arrangements. More and higher fees are generally charged in an unsponsored
arrangement compared to a sponsored arrangement. Unsponsored ADRs are generally
considered more risky due to: (a) the additional costs involved; (b) the
relative illiquidity of the issue in U.S. markets; and (c) the possibility of
higher trading costs associated with trading in the over-the-counter market.
Unsponsored ADRs are considered foreign securities by the Funds for the purpose
of calculating the limitation on Fund investment in foreign securities.
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. Risks could 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 ability of the Fund to collect
principal and interest obligations or to liquidate holdings, 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. The risks
discussed above are generally higher in less-developed countries. 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.
New Companies Each Fund may, from time to time, invest up to 5% of its total
assets in securities issued by new companies. 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 a new company for the sake of the 5%
limitation. 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.
Special Situations Each Fund may, from time to time, invest up to 5% of its
total assets in special situations. Special situations are securities of
companies 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 limitations
described below. The extent, if at all, to which the funds will invest in new
companies or special situations will be determined by the portfolio manager in
light of all the pertinent facts and circumstances, with special consideration
given to the risk involved in such investments.
Warrants Each Fund may invest in warrants, up to 5% of the Fund's net assets. No
more than 2% of a Fund's net assets may be invested in warrants not listed on
the New York or American Stock Exchanges. Warrants are options to purchase
equity securities at specific prices for a specific period of time. Warrants
have no voting rights, receive no dividends and have no rights with respect to
the assets of the issuer. If a warrant is not exercised within the specified
period of time, it will become worthless and the fund will lose both the
purchase price and the right to purchase the underlying security. Prices of
warrants do not necessarily move parallel to the prices of the underlying
securities.
Conversion and Other Rights A Fund may exchange securities or exercise
conversion, subscription, warrants or other rights to purchase common stock or
other equity securities. A Fund may hold, except to the extent limited by the
Investment Company Act of 1940, as amended ("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.
Short-Term Trading and Portfolio Turnover Generally, the Funds intend to invest
for long-term purposes. However, each Fund may engage in short-term trading of
securities and reserves full freedom with respect to portfolio turnover. During
periods of rapid changes in economic conditions and security price levels,
portfolio turnover may be higher than when conditions are more stable. The
Income Fund's portfolio turnover will generally range between 25% and 75%.
Because of the aggressive strategies employed by the Growth & Income Fund,
however, portfolio turnover can be expected to range between 100% and 250%. The
Growth & Income Fund's portfolio turnover rate may involve greater transaction
costs relative to other mutual funds and may have tax and other consequences.
Computer-Related Risks Mutual funds and companies that issue securities, as well
as government entities and other organizations upon which mutual funds depend,
may be adversely affected by computer systems that do not properly process dates
beginning January 1, 2000 ("the year 2000 problem"). The investment manager is
in the process of reviewing its internal computer systems, as they relate to the
Funds' operations, to obtain reasonable assurances that the Fund will not
experience a material adverse impact related to the Year 2000 problem. In
addition, the Fund's service providers have been requested to provide such
assurances to the Funds. The Funds do not currently anticipate that the Year
2000 problem will have a material adverse impact on its portfolio investments,
taken as a whole. There can be no assurances, however, that the problem will not
negatively affect the investment markets or the economy generally.
Restricted Securities It is each Fund's policy not to invest in restricted and
other illiquid securities (including repurchase agreements maturing in more than
seven days) if, as a result, more than 10% of the Fund's total assets are
invested in such securities. It may be difficult to sell restricted securities
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.
Lending Portfolio Securities Although each Fund is permitted to lend its
portfolio securities for the purpose of generating additional income, the Funds
have not done so in the past and have no present intention to lend Fund
securities. If done so in the future, 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.
Leverage The Growth and Income Fund's 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 on such loans. 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.
Investment Limitations
Each Fund has adopted the fundamental investment limitations set forth below
which, as stated earlier, cannot be changed without a vote of shareholders.
Under these limitations, it is each Fund's policy:
- - - not to issue senior securities;
- - - not to borrow money, except (a) for temporary or emergency purposes and, if
so done, 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) as to the Growth
& Income Fund only, to purchase or carry securities as described under
"Leverage," page 6;
- - - not to underwrite the sale of securities of other issuers, but the Funds may
acquire non-controlling blocks of securities from other issuers for
investment purposes and if, at a subsequent date, Fund management determines
that it is desirable to sell such blocks,2 a Fund may do so and may incur
expenses relating to the registration and disposition of such securities;
- - - not to invest more than 25% 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, 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;
- - - not to 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;
- - - not to make loans, except that each Fund: (a) may 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) may engage in repurchase agreement transactions as described
herein; and (c) reserves the right to lend its portfolio securities as
described in "Lending Portfolio Securities," page 5;
- - - not to invest more than 5% of the value of its total assets in the
securities of any single issuer;
- - - not to 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;
- - - not to 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);
- - - not to invest more than 10% of its net assets in restricted and other
illiquid securities;
- - - not to purchase securities for the purpose of exercising control or
management over the company issuing the securities;
- - - not to invest in securities of other investment companies except; (i) open
market purchases involving only customary brokers commissions; (2) as part
of a merger, consolidation, or acquisition of assets; and (iii) money
market mutual fund securities (those whose policies restrict investments to
debt securities maturing in one year or less), provided that (a) the
securities of such company are offered and redeemed without the imposition
of sales commissions, and (b) 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 mutual funds;
- - - not to purchase or retain the securities of any company if the officers or
trustees of The Elite Group or the officers or directors of the investment
manager, who own individually more than 1/2 of 1% of such securities of such
company, together, own as much as 5% of the securities of such company;
- - - not to engage in short sales;
- - - not to 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);
- - - not to purchase securities on margin, except that borrowing from banks in
accordance with the discussion under "Leverage" 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);
- - - not to purchase warrants if, as a result, a Fund would own warrants in
excess of 5% of its net assets, including, within that limitation, 2% of its
net assets in 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);
- - - not to engage in arbitrage transactions;
- - - not to 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;
Purchase and Redemption of Shares
In addition to the following services and procedures, the prospectus describes
basic information you should know about purchasing and redeeming shares of the
Funds.
Regular Account The regular account allows you to make voluntary investments 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 you make an
initial investment in a Fund, a shareholder account is opened in accordance with
your registration instructions. Each time there is a transaction in your
account, such as an additional investment or the reinvestment of a dividend or
distribution, you will receive, from the transfer, agent a confirmation
statement. It will show the current transaction and all prior transactions in
your 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. You may request that the transfer agent issue share certificates
representing all or part of the full shares in your account.
Retirement Plans As noted in the prospectus, an investment in Fund shares may be
appropriate for IRA's 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.
o 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 deductibility 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.
o Nondeductible Roth IRA. 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.
o 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.
o Taxation of IRAs Upon Distribution. It may be advantageous to invest in Fund
shares through deductible or nondeductible IRA contributions. 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. They may be taxable to you when distributed, however.
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 generally 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.
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 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..
Corporate Retirement Plans. Shares of either Fund may be purchased as an
investment for Corporate Retirement 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.
Transfer of Registration If you wish to transfer shares to another owner, send a
written request to the transfer agent, First Data, Inc., P.O. Box 61503, King of
Prussia, PA 19406-0903. Your request should include:
- the Fund name and existing account registration;
- signature(s) of the registered owner(s) exactly as the signature(s)
appear(s) on the account registration;
- the new account registration, address, social security or taxpayer
identification number and how dividends and capital gains are to be
distributed;
- stock certificates, if issued, for the shares being transferred;
- signature guarantees and other documents, if other documents are
required for transfer by corporations, administrators, executors,
trustees, guardians and other entities (See "Signature Guarantees" in
the Prospectus). If you have any questions about transferring shares,
call the transfer agent, toll-free at (800) 441-6580.
Purchase, Redemption and Pricing of Shares The purchase price of shares of each
Fund is the net asset value next determined after a purchase or redemption 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 Fund, 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, to:
- suspend the offering of its shares;
- reject purchase orders when, in the judgment of management, such
rejection is in the best interest of the Fund; and
- 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.
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.
When Shares are Priced 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. The net asset value is computed every day the Exchange is open for
business, except the Fund may not compute net asset value on: - days during
which no Fund shares are tendered for redemption and no order to purchase or
sell Fund shares is received by the Fund; and
- - - days during which there is not a sufficient degree of trading in the Fund's
portfolio securities to materially affect the Fund's current net asset
value.
At this writing, the Exchange is open for business every 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.
How Shares are Priced 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.
Involuntary Redemptions 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.
Equalization The Income Fund follows the accounting practice known as
"equalization" With equalization, a portion of the proceeds from sales and
expenditures from redemptions is credited or charged to income on the date of
the transaction. In this way, undistributed net income per share is unaffected
by the sale or redemption of Fund shares.
Brokerage
It is the Funds' intention to seek the best possible price and execution for
securities bought and sold. The investment manager 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, 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, 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, 1998, 1997 and 1996,
were $539,208, $343,657 and $289,497, respectively. Of those amounts, $137,844
and $63,263 was directed to the firm of Paine Webber for such services during
1998 and 1997, respectively, . The Income Fund paid no brokerage commissions
during the past three fiscal years, but executed its portfolio transactions as
principal transactions.
Management of the Funds
Trustees and Officers The Funds are series of The Elite Group (the "Trust"), a
business trust organized under Massachusetts law. The business of the Funds is
managed by the Board of Trustees. The Trustees elect officers who are
responsible for the day-to-day operations of the Funds and who execute policies
formulated by the Trustees. Some officers and Trustees of the Trust are also
officers and control persons of the Funds' investment manager, as shown below.
<TABLE>
<S><C> <C> <C>
Positions Held Principal Occupation(s)
Name, Address and Age with the Trust During Past 5 Years
Richard S. McCormick * Chairman, Board of Trustees President and Chief Executive Officer of
1325 4th Avenue, Suite 2144 and President (1) the investment manager.
Seattle, WA 98101
Age 52
John W. Meisenbach * Trustee, Treasurer Partner in MCM Financial, a Seattle
2100 Washington Bldg. and Secretary (1) full-service insurance brokerage and
Seattle, WA 98101 financial planning firm. Director of
Age 62 Costco Wholesale and Expeditors
International.
Lee A. Miller Trustee
P.O. Box 1882 Private investor.
Vashon Island, WA 98070 Vice President, Merrill Lynch & Co., a
Age 66 securities broker-dealer, from 1961 to
December 1995.
Morgan J. O'Brien Trustee (1)
1244 20th Avenue, East
Seattle, WA Private investor.
Age 70
John M. Parker Trustee (2)
1819 38th East
Seattle, WA 98112 Sr. Vice President, Kennedy Associates,
Age 50 Inc., real estate acquisition and
management.
Jack R. Policar Trustee (2)
1111 3rd Avenue, Suite 1465
Seattle, WA 98121
Age 51 President and Chief Executive Officer of
J. R. Policar, Inc., Certified Public
Accounting firm.
</TABLE>
* Trustee may be deemed to be an "interested person" of the Fund as defined in
the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may
generally exercise most of the powers of the Board of Trustees.
(2) Member of the Audit Committee. The Audit Committee makes
recommendations to the Board regarding the selection of auditors and
confers with the auditors regarding the scope and results of the
audit.
As of October 30, 1998, the Trustees and Officers of the Trust, in the
aggregate, owned 4.76% and 6.25% of the shares of the Growth & Income Fund and
the Income Fund, respectively.
Trustees and officers of the Trust who are "interested persons" receive no
salary or fees from the Funds. 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.
The Funds do not provide pension or retirement benefits to the Trustees and
officers.
<PAGE>
The compensation of the Trustees, which is borne by the Funds in the ratio of
their respective average net assets, for the fiscal year ended September 30,
1998, was as follows:
<TABLE>
Aggregate Aggregate
Name and Position Compensation from Compensation from the Total Compensation
The Income Fund Growth & Income Fund from Fund Complex
<S> <C> <C> <C>
Richard S. McCormick * --- --- ---
Chairman, Board of
Trustees and President
John W. Meisenbach * --- --- ---
Trustee, Treasurer
and Secretary
Lee A. Miller $1,330 $4,570 $5,900
Trustee
Morgan J. O'Brien $1,330 $4,570 $5,900
Trustee
John M. Parker $1,330 $4,570 $5,900
Trustee
Jack R. Policar $1,330 $4,570 $5,900
Trustee
</TABLE>
* These Trustees are compensated by the investment manager.
Investment Manager The Elite Group has employed McCormick Capital Management,
Inc. as investment manager for both Funds. The duties of the investment manager
include the following, unless otherwise provided by the Trust:
- provision of continuous supervision of the Funds' investment
portfolio;
- overall management of the Trust's business affairs (subject to the
supervision of the Trustees); - provision of certain executive
officers, administrative and clerical functions of the Trust;
- provision of suitable office space, necessary small office equipment,
utilities, general purpose forms and supplies used at the offices of
the Trust.
Richard S. McCormick and John W. Meisenbach are the controlling stockholders of
the investment manager. Mr. McCormick is the President and Chief Executive
Officer of the investment manager and serves as President and Chairman of the
Board of Trustees of The Elite Group. Mr. Meisenbach, serves as Trustee,
Treasurer and Secretary of The Elite Group. He is a partner in MCM Financial, a
Seattle full-service insurance brokerage and financial planning firm and serves
as a Director of Costco Wholesale and Expeditors International.
Compensation of the investment manager, based upon each Fund's daily average net
assets, is at the following annual rates: - 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;
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. Investment Management fees are
accrued daily on the books of the Funds and are paid monthly.
Management fees for the Growth & Income Fund were $766,910, $544,948 and
$379,920, respectively, for the fiscal years ended September 30, 1998, 1997 and
1996. Management fees for the Income Fund for the same periods, respectively,
were $147,936, $98,900 and $90,041. Although not obligated to do so, the
investment manager may reimburse a portion of the operating expenses of a Fund
for any fiscal year. During the fiscal years ended September 30, 1998, 1997 and
1996, such reimbursements were $20,597, $17,221 and $5,926, respectively for the
Income Fund. No such reimbursements were made to the Growth & Income Fund.
Independent Auditors 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. Tait, Weller & Baker will also prepare each
Fund's federal and state tax returns for the fiscal year ending September 30,
1999, and will consult with the Trust as to matters of accounting and federal
and state income taxation for the fiscal year ending September 30, 1999.
Custodian 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.
Transfer Agent First Data, Inc., P.O. Box 61503, King of Prussia, PA 19406-0903,
serves as Transfer and Dividend Paying Agent for both Funds. First Data 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.
Capital Stock and Voting
The 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, the Elite Income Fund and
the Elite Growth & Income Fund, 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.
In the event of liquidation, shareholders of each Fund are entitled to share pro
rate in the net assets of the Fund available for distribution to shareholders.
Shares of each Fund, when issued, are fully paid and non-assessable and have no
preemptive, subscription 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).
Taxation of the Fund
Each Fund of the Trust is treated as a separate tax entity for Federal Income
Tax purposes. 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.
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 the shares have been held,
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.
Performance Data
The Funds may, from time to time, advertise certain total return information.
Such total return data is calculated assuming that all dividends and
distributions by a Fund are reinvested in Fund shares. The average annual total
return for each Fund for the indicated period ended on September 30, 1998, is
set forth below:
One Year Five Year Ten Year
Period Period Period
Income Fund +13.44% -6.78% +8.04%
Growth & Income Fund -4.82% +16.38% +14.76%
Financial Statements
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, 1998,
together with the Report of the Fund's independent accountants thereon, are
reflected in the Trust's Annual Report to Shareholders. A copy of the Annual
Report 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.
Debt Securities Ratings
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.
1 Under the Investment Company Act of 1940, as amended, a "vote of the majority
of the outstanding securities" means the vote, at the annual or a special
meeting of security holders duly called, of (i) 67% or more of the voting
securities present at the meeting, if the holders of more than 50% of the
outstanding voting securities are present or represented by proxy or (ii) more
than 50% of the outstanding voting securities, whichever is less. 2 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.
PART C
THE ELITE GROUP
FORM N-1A
Post-Effective Amendment No. 12
OTHER INFORMATION
ITEM 23. Exhibits
(a) Declaration of Trust - Incorporated by reference Pre-Effective #2 filed
10/23/86.
(b) By Laws - Incorporated by reference as filed 8/19/86, Original Registration
Statement
(c) Specimen copies of each security issued by Registrant - Incorporated by
reference Pre-Effective #2 filed 10/23/86.
(d) Investment Management Agreement - Incorporated by reference Pre-Effective
#2 filed 10/23/86.
(e) Not Applicable
(f) Not Applicable
(g) Custodian Agreement - Incorporated by reference as filed 12/22/87,
Post-Effective No. 1
(h) Transfer and Dividend Paying Agent Agreement - Incorporated by reference as
filed 8/19/86, Original Registration Statement
(i) Opinion of Counsel - Incorporated by reference Pre-Effective #3 filed
11/5/86.
(j) Consent of Auditors - Enclosed
(k) Financial Statements - Annual Audited Report to Shareholders, September 30,
1998 - Incorporated by reference, filed _________________ , 1998
(l) Assurance Letter with respect to Initial Capital -Incorporated by reference
as filed 8/19/86, Original Registration Statement
(m) Not Applicable
(n) Financial Data Schedule - Enclosed
(o) Not Applicable
ITEM 24. 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 25. 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 26. 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 27. Principal Underwriters
Inapplicable.
ITEM 28. 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 29. Management Services
Inapplicable.
ITEM 30. 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.
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment Company
Act, the Registrant has duly caused this registration statement 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 November , 1998.
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 has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<S> <C> <C> <C>
/s/Richard S. McCormick Trustee/President (Chief Exec. Officer) 11/XX/96
(Signature) (Title) (Date)
/s/John Meisenbach** Trustee, Treasurer & Secretary (Chief Financial Officer) 11/XX/96
(Signature) (Title) (Date)
/s/Morgan J. O'Brien* Trustee 11/XX/96
(Signature) (Title) (Date)
/s/John P. Parker* Trustee 11/XX/96
(Signature) (Title) (Date)
/s/Jack R. Policar* Trustee 11/XX/96
(Signature) (Title) (Date)
</TABLE>
* Signed by Richard McCormick, Power of Atty dated September 18, 1990 ** Signed
by Richard McCormick, Power of Atty dated October 30, 1992
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment
Company Act, the Registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, duly authorized, in the City of
Seattle, and State of Washington on the day of November , 1998.
THE ELITE GROUP
By: Richard S. McCormick
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement 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)
EXHIBITS
THE ELITE GROUP
FORM N-1A
INDEX OF EXHIBITS
(Numbers coincide with Item 23 of Form N-1A)
(j) Consent of Auditors
(n) Financial Data Schedule
EXHIBIT j
CONSENT OF AUDITORS
EXHIBIT n
FINANCIAL DATA SCHEDULE
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 21, 1998 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 1998 Annual Report to Shareholders which is
incorporated by reference in the Registration Statement and Prospectus.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
November 13, 1998
October 30, 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 our
eleventh 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,
avoids excessive risk, and is 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 the opportunity
to review what has happened in the past and what may happen in the future.
Looking back on fiscal 1998, we are disappointed to report that the Growth &
Income Fund was down 4.82% for the year ending September 30. The three, five and
ten year annualized rates of return are now 16.78%, 16.38%, and 14.76%,
respectively.
The decline this year did not come as a surprise. After seven years of
uninterrupted advances we became increasingly concerned that the risk in the
stock market was greater than the potential reward. In April of this year we
mailed to shareholders a sobering letter expressing our concern that the stock
market had as much as 30% risk.
Although the stock market has declined as we expected, we still believe that it
is prudent to be defensive. A review of the portfolio will show that we still
retain approximately 10% in cash and 12% in bonds. Compared to this time last
year, we have more invested in smaller companies, believing they represent the
best value in the stock market. We balance the smaller company's investments
against our larger "core" holdings like Microsoft, General Electric, Merck, and
Federal National Mortgage (Fannie Mae).
The Elite Income Fund
(bond fund)
The bond market has been the main beneficiary of the turmoil that plagued the
stock market. As worldwide investors looked for safety, they poured a
significant amount of capital into bonds. The result was higher bond prices and
lower interest rates. For the fiscal year, the bond fund was up 13.44%. The
three, five, and ten year annualized rates of return are 8.74%, 6.78%, and
8.04%, respectively.
Bond fund investors are going to have to understand that the entire level of
interest rates has declined. Looking forward it is going to be difficult to
achieve the same type of return that has been achieved in the past.
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 9/30/88, which gives a ten-year record.
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 there is only one index (stocks or bonds)
that accurately reflects how the Elite Funds are managed. 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,
Richard S. McCormick
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, 1998, 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, 1998 by correspondence with the custodian and brokers. 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, 1998,
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 21, 1998
<TABLE>
<CAPTION>
THE FOLLOW DATA IS THE NUMERIC REPRESENTAION OF THE BENCHMARK COMPARATIVE GRAPH
PRESENTED IN THE ANNUAL REPORT TO SHAREHOLDERS.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sep-88 Sep-89 Sep-90 Sep-91 Sep-92 Sep-93 Sep-94 Sep-95 Sep-96 Sep-97 Sep-98
Elite Income Fund $21,722 10,000 10,920 11,678 13,161 14,302 15,648 15,011 16,896 17,535 19,148 21,722
Lehman Intermediate Govt. Index $22,352 10,000 10,962 11,903 13,521 15,206 16,368 16,122 17,831 18,741 20,208 22,352
Lehman Short-Term Govt. Index $20,375 10,000 10,889 11,904 13,244 14,557 15,276 15,452 16,717 17,663 18,878 20,375
Sep-88 Sep-89 Sep-90 Sep-91 Sep-92 Sep-93 Sep-94 Sep-95 Sep-96 Sep-97 Sep-98
Elite Growth & Income Fund $39,604 10,000 13,078 11,519 15,198 16,337 18,549 20,737 24,868 30,900 41,610 39,604
Standard & Poors 500 Index $49,155 10,000 13,293 12,070 15,815 17,558 19,835 20,565 26,675 32,096 45,076 49,155
Lipper Growth & Income Fund Index $36,880 10,000 12,577 11,047 14,282 15,684 18,187 18,709 23,027 27,068 36,902 36,880
</TABLE>
Portfolio of Investments
The Elite Growth & Income Fund
September 30, 1998
<TABLE>
Market Value
Shares Note 2A
- - ------ -----------
Common Stock 79.3%
Capital Goods 23.1%
<S> <C> <C>
180,000 Atrieva Inc. * (a) ........................... $ 36,000
80,000 C-Cube Corporation* .......................... 1,395,000
80,000 Cable Design Technologies* ................... 1,020,000
30,000 Cisco Systems* ............................... 1,854,375
24,000 General Electric ............................. 1,909,500
24,000 Hewlett-Packard .............................. 1,270,500
16,000 I.B.M. Corporation ........................... 2,048,000
30,000 Microsoft Corporation* ....................... 3,301,875
20,000 SBS Technologies* ............................ 491,250
20,000 Thomas & Betts ............................... 761,250
80,000 U.S. Filter* ................................. 1,280,000
16,000 Xerox Corporation ............................ 1,356,000
-----------
Total Capital Goods .......................... 16,723,750
-----------
Consumer Goods & Services 18.0%
75,000 Budget Group* ................................ 1,710,938
135,000 Coffee Station, Inc* (a) ..................... 168,750
80,000 Eagle Hardware & Garden* ..................... 1,720,000
34,000 FDX Corporation* ............................. 1,534,250
24,000 H.R. Block ................................... 993,000
30,000 Limited, Inc. ................................ 658,125
35,000 Optiva * (a) ................................. 1,575,000
30,000 Promus Hotel* ................................ 826,875
40,000 Starbucks* ................................... 1,450,000
50,000 Sherwin Williams ............................. 1,081,250
50,000 Zale Corporation* ............................ 1,281,250
-----------
Total Consumer Goods & Services .............. 12,999,438
-----------
Financial Intermediaries 13.3%
48,000 A.C.E Limited (Insurance) .................... 1,440,000
30,000 Conseco Incorporated ......................... 916,875
36,000 Fannie Mae ................................... 2,313,000
30,000 Freddie Mac .................................. 1,483,125
32,000 Mellon Bank, Inc. ............................ 1,762,000
50,000 Washington Mutual ............................ 1,678,125
-----------
Total Financial Intermediaries ............... 9,593,125
-----------
Health Care Goods & Services 11.3%
32,000 American Home Products ....................... 1,676,000
16,000 Merck & Co. .................................. 2,073,000
30,000 Pathogenesis* ................................ 997,500
15,000 Pfizer, Inc. ................................. 1,589,062
45,000 Sierra Health Services* ...................... 885,938
150,000 Sun Healthcare Group* ........................ 975,000
-----------
Total Health Care Goods & Services ........... 8,196,500
-----------
</TABLE>
See Notes to Financial Statements
Portfolio of Investments
The Elite Growth & Income Fund
September 30, 1998- Continued
<TABLE>
Market Value
Shares Note 2A
------ -------
Energy 10.9%
<S> <C>
150,000 EEX Corporation* ......................... $ 731,250
25,000 Kerr McGee ............................... 1,137,500
220,000 Ocean Energy* ............................ 2,887,500
90,000 Petroleum Geo Services* .................. 1,428,750
80,000 Tidewater Incorporated ................... 1,660,000
----------
Total Energy ............................. 7,845,000
----------
Basic Goods 2.7%
280,000 National Steel ........................... 1,960,000
----------
Total Basic Goods ........................ 1,960,000
----------
</TABLE>
Total Value of Common Stock (Cost $44,774,075) 57,317,813
<TABLE>
Options - Covered Calls ( 1.8%)
--------------------------------
<S> <C> <C> <C> <C>
30,000 Cisco Systems ....... ( $50.00 01-15-99) (442,500)
30,000 Microsoft ........... ( $90.00 01-15-99) (716,250)
15,000 Pfizer .............. ( $120.00 01-15-99) (59,063)
40,000 Starbucks ........... ( $45.00 01-15-99) (57,500)
16,000 Xerox ............... ( $110.00 01-15-99) (25,000)
----------
Total Value of Calls (Cost $2,114,503) (1,300,313)
----------
</TABLE>
<TABLE>
<S> ---------------------
Par Value
- - ---------
Bonds 12.2%
<C> <C> <C> <C>
$25,000,000 U.S. Government Zero Coupon due 05/15/19 ......... 8,289,865
500,000 Q-Point International 6.00% due 05/01/99 (a) ..... 500,000
----------
Total Value of Bonds (Cost $6,097,681) ........... 8,789,865
----------
</TABLE>
<TABLE>
Total Investments
<S> <C> <C>
(Cost $48,757,253**) ........................ 89.7% 64,807,365
Cash and receivables
in excess of liabilities ................ 10.3% 7,463,342
-----------
NET ASSETS .................................. 100.0% $72,270,707
===== ===========
===========
</TABLE>
(a) Restricted security ( see note 3)
* Non - income producing
** Cost for Federal Income Tax purposes is the same.
At September 30, 1998, unrealized appreciation of securities for Federal Income
Tax purposes is as follows:
Unrealized appreciation $ 23,011,261
Unrealized depreciation (6,961,149)
------------------
Net unrealized appreciation $ 16,050,112
See Notes to Financial Statements
Portfolio of Investments
The Elite Income Fund
September 30,1998
<TABLE>
Market Value
Par Value Note 2A
- - ---------
Bonds 95.1%
U.S. Government Notes and Bonds 62.0%
------------------------------- -----
<S><C>
1,150,000 U.S. Treasury Note
7.875% due 11/15/99 $ 1,191,800
3,870,000 U.S. Treasury Note
6.250% due 02/15/03 4,158,827
6,700,000 U.S. Treasury Note
7.875% due 11/15/04 7,936,983
4,690,000 U.S. Treasury Bond
7.250% due 05/15/16 5,824,719
----------------------
Total U.S. Government Notes and Bonds 19,112,329
</TABLE>
<TABLE>
----------------------
Electric Utilities 8.9%
<S> <C>
945,000 Niagara Mohawk Power
5.875% due 09/01/02 953,269
520,000 Ohio Power
6.750% due 04/01/03 556,400
500,000 Hawaiian Electric
6.660% due 12/05/05 530,625
650,000 Appalachian Power Co.
6.800% due 03/01/06 707,687
----------------------
Total Electric Utilities 2,747,981
</TABLE>
<TABLE>
----------------------
Gas Utilities 4.1%
<S> <C>
450,000 Entergy Arkansas Inc.
7.000% due 03/01/02 475,312
715,000 Pacific Gas Transmission
7.100% due 06/01/05 788,288
----------------------
Total Gas Utilities 1,263,600
</TABLE>
<TABLE>
----------------------
Mortgage Backed 4.6%
<S> <C> <C>
500,000 Fannie Mae (1993-93HA)
6.750% due 01/25/08 516,780
550,000 Federal Home Loan (Mortgage Backed)
6.100% due 02/15/24 558,503
337,394 Donaldson, Lufkin & Jenrette - A
6.500% due 04/25/24 337,596
----------------------
Total Mortgage Backed 1,412,879
</TABLE>
See Notes to Financial Statements
Portfolio of Investments
The Elite Income Fund
September 30, 1998- Continued
<TABLE>
Par Value Note 2A
--------- -------
Financial/Corporate Bonds 15.5%
<S> <C>
150,000 GMAC
9.375% due 04/01/00 $ 159,375
500,000 Heller Financial
6.500% due 05/15/00 509,375
250,000 Fannie Mae
6.375% due 10/13/00 250,092
625,000 Chrysler Financial
5.875% due 02/07/01 637,500
760,000 GMAC
6.875% due 07/15/01 796,100
700,000 Ford Motor Credit
8.200% due 02/15/02 768,250
500,000 Heller Financial
6.440% due 10/06/02 518,125
500,000 Ford Motor Credit
6.375% due 12/15/05 526,875
500,000 Freddie Mac
7.270% due 04/07/06 505,151
500,000 Freddie Mac
0.000% due 09/29/17 114,596
----------------------
Total Financial/Corporate Bonds 4,785,439
----------------------
Total Value Bonds (Cost $27,374,836) 29,322,228
----------------------
----------------------
</TABLE>
<TABLE>
Shares
Preferred Stock 0.7%
<S> <C> <C> <C>
2,123 Entergy Gulf State Utilities $8.64 216,546
----------------------
Total Value of Preferred Stock (Cost $220,261) 216,546
----------------------
Total Investments
(Cost 95.8% 29,538,774
$27,595,097**)
Cash and receivables
in excess of 4.2% 1,302,077
liabilities
------------ ----------------------
NET 100.0% $ 30,840,851
ASSETS
============ ======================
** Cost for Federal Income Tax purposes is the same.
At September 30, 1998, unrealized appreciation (depreciation) of securities
for Federal Income Tax purposes is as follows:
Unrealized appreciation $ 1,954,930
Unrealized depreciation
(11,253)
=================
Net unrealized appreciation $ 1,943,677
=================
</TABLE>
See Notes to Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1998
<TABLE>
THE ELITE
GROWTH & INCOME THE ELITE INCOME
FUND FUND
------------ -----------
ASSETS:
<S> <C> <C>
Investments in securities at value (Notes 2A, 3 )
(Cost $48,757,253 and $27,595,097) .............................. $ 64,807,365 $29,538,774
Cash and cash equivalent (Note 2E) .................................... 8,438,755 794,844
Receivables:
Interest ......................................................... 63,305 556,982
Dividends ........................................................ 45,560 --
------------ -----------
Total Assets ..................................................... 73,354,985 30,890,600
------------ -----------
LIABILITIES:
Payables:
Investment securities purchased ................................. 1,029,644 --
Capital stock reacquired ......................................... 38,390 --
Distributions .................................................... 15,207 46,225
Accrued expenses ................................................. 1,037 3,524
------------ -----------
Total Liabilities ................................................ 1,084,278 49,749
------------ -----------
NET ASSETS:
The Elite Growth & Income Fund--applicable to
3,438,393 shares outstanding ........................................ $ 72,270,707
===========
The Elite Income Fund-applicable to 2,875,973
shares outstanding .................................................. $ 30,840,851
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
(Net assets / shares outstanding)
$ 21.02 $ 10.72
============ ===========
At September 30, 1998 the components of net
assets were as follows:
Paid-in capital ....................................................... $ 57,334,056 $28,869,471
Accumulated net realized gain (loss) .................................. (1,150,223) 3,159
Undistributed net investment income ................................... 36,762 24,544
Net unrealized appreciation .......................................... 16,050,112 1,943,677
============ ===========
Net Assets ....................................................... $ 72,270,707 $30,840,851
============ ===========
See Notes to Financial Statements
</TABLE>
STATEMENT OF OPERATIONS
For the Year Ended September 30, 1998
<TABLE>
THE ELITE THE ELITE
GROWTH & INCOME INCOME FUND
FUND
----------- -----------
INVESTMENT INCOME:
Income:
<S> <C> <C>
Interest .................................................... $ 967,561 $ 1,359,904
Dividends ................................................... 523,850 24,572
----------- -----------
Total Income ............................................ 1,491,411 1,384,476
----------- -----------
Expenses:
Investment management fee ................................... 766,910 147,936
Transfer agent fees ......................................... 29,043 18,940
Custodian fees .............................................. 35,242 10,533
Professional fees (Note 6) .................................. 16,133 4,633
Trustees fees and expenses .................................. 18,280 5,320
Record keeping services ..................................... 57,462 1,216,615
Shareholder reports ......................................... 5,266 845
Registration fees and other ................................. 17,875 9,743
----------- -----------
Total Expenses .......................................... 946,211 214,565
----------- -----------
Fees paid indirectly (Note 6) .................................... (60,647) --
Fees paid by manager (Note 5) ................................... -- (20,597)
Net Expenses ............................................ 885,564 193,968
----------- -----------
Net Investment Income ................................... 605,847 1,190,508
----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES AND OPTIONS CONTRACT
Net realized gain (loss):
Investment securities ............................................ (149,111) 49,483
Expired and closed covered call
options written (Note 4) ....................................... (1,001,112) --
----------- -----------
Net realized gain (loss) on
investment securities and option ............................... (1,150,223) 49,483
contracts
----------- -----------
Net increase (decrease) in unrealized appreciation of
investment securities .......................................... (3,913,327) 1,712,996
=========== ===========
Net increase (decrease) in net assets resulting from
operations ..................................................... $(4,457,703) $ 2,952,987
=========== ===========
See Notes to Financial Statements
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
THE ELITE
GROWTH & INCOME FUND
For the Years Ended September 30
<TABLE>
1998 1997
---- ----
OPERATIONS:
<S> <C> <C>
Net investment income ............................... $ 605,847 $ 767,877
Net realized gain (loss) on investment
securities and options contracts .................. (1,150,223) 5,907,320
Net increase (decrease) in unrealized appreciation of
investment securities .............................. (3,913,327) 9,998,526
------------ ------------
Net increase (decrease) in net assets resulting from
operations ......................................... (4,457,703) 16,673,723
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income ............ (569,085) (751,449)
Distributions from net realized gains on
investment transactions ........................... -- (11,069,678)
CAPITAL SHARE TRANSACTIONS:
Increase in net assets resulting from capital share
transactions (a) ......................................... 9,578,726 18,066,984
------------ ------------
Total increase in net assets .................... 4,551,938 22,919,580
NET ASSETS:
Beginning of year ................................... 67,718,769 44,799,189
============ ============
End of year (including undistributed
net investment income of $36,762 and
$ -0- respectively) .............................. $ 72,270,707 $ 67,718,769
============ ============
</TABLE>
<TABLE>
(a)Transactions in capital stock were as follows:
Year Ended September Year Ended
30,1998 September 30,1997
----------------------------- ---------------------------
Shares Value Shares Value
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold ......................... 868,755 $ 20,261,676 464,160 $ 9,881,155
Shares issued in reinvestment
of distributions .................. 23,665 537,450 563,824 11,716,467
----------- ------------ ----------- ------------
892,420 20,799,126 1,027,984 21,597,622
Shares redeemed ..................... (11,220,400) (165,034) (3,530,638)
(497,374)
----------- ------------ ----------- ------------
Net increase ................... 395,046 $ 9,578,726 862,950 $ 18,066,984
=========== ============ =========== ============
See Notes to Financial Statements
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
THE ELITE
INCOME FUND
For the Years Ended September 30
<TABLE>
1998 1997
------------ ------------
OPERATIONS:
<S> <C> <C>
Net investment income ....................... $ 1,190,508 $ 848,036
Net realized gain on investment securities .. 49,483 4,750
Net increase in unrealized
appreciation of investment securities ..... 1,712,996 380,175
------------ ------------
Net increase in net assets resulting from
Operations ............................... 2,952,987 1,232,961
NET EQUALIZATION CREDITS (NOTE 2D) ............... 108,697 19,511
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income .... (1,285,477) (872,325)
CAPITAL SHARE TRANSACTIONS:
Increase in net assets resulting from capital
share transactions (a) .................... 12,752,701 3,313,313
------------ ------------
Total increase in net assets ............ 14,528,908 3,693,460
NET ASSETS:
Beginning of year ........................... 16,311,943 12,618,483
============ ============
End of year (including undistributed net
investment income of $24,544 and $10,816
respectively) ........................... $ 30,840,851 $ 16,311,943
============ ============
</TABLE>
<TABLE>
(a)Transactions in capital stock were as follows:
Year Ended Year Ended
September 30,1998 September 30,1997
-------------------------------- ---------------------------
Shares Value Shares Value
----------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Shares sold ........................................ 1,603,301 $ 16,408,068 545,012 $ 5,376,650
Shares issued in reinvestment
of distributions ............................... 109,272 1,135,100 85,735 842,573
----------- ------------ ---------- -----------
1,712,573 17,543,168 630,747 6,219,223
Shares redeemed .................................... (468,391) (4,790,467) (296,277) (2,905,910)
----------- ------------ ---------- -----------
Net increase ...................................... 1,244,182 $ 12,752,701 334,470 3,313,313
=========== ============ ========== ===========
See Notes to Financial Statements
</TABLE>
FINANCIAL HIGHLIGHTS
THE ELITE
GROWTH & INCOME FUND
For a share outstanding throughout each year
<TABLE>
Years Ended September 30,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 22.25 $ 20.55 $ 16.64 $ 15.29 $ 14.44
------ ------ ------ ------ ------
Income from investment operations
Net investment income .18 .29 .11 .18 .11
Net gain (loss) on securities
(both realized and unrealized) (1.24) 6.15 3.92 2.52 1.56
------ ------ ------ ------ ------
Total from investment
operations (1.06) 6.44 4.03 2.70 1.67
------ ------ ------ ------ ------
Less Distributions
Dividends from net investment
income (.17) (.29) (.12) (.18) (.10)
Distributions from capital gains --- (4.45) --- (1.17) (.72)
------ ------ ------ ------ ------
Total distributions (.17) (4.74) (.12) (1.35) (.82)
------ ------ ------ ------ ------
Net asset value, end of year $ 21.02 $ 22.25 $ 20.55 $ 16.64 $ 15.29
====== ====== ====== ====== ======
Total Return (4.82%) 34.66% 24.26% 19.92% 11.80%
</TABLE>
<TABLE>
Ratios/Supplemental Data
Net asset value, end of year
<S> <C> <C> <C> <C> <C>
(in 000's) $ 72,271 $ 67,719 $ 44,799 $ 31,182 $ 25,380
Ratio of expenses to average net
assets 1.23%* 1.30%* 1.42%* 1.42%
1.33%
Ratio of net investment income
To average net assets .71% 1.41% 1.18% .73%
.61%
Portfolio turnover 138.49% 115.80% 156.93% 137.56% 153.34%
</TABLE>
*Ratio reflects fees paid through a directed brokerage arrangement. Expense
ratio for 1994 excludes these payments. No fees were paid through a brokerage
arrangement for 1996. The expense ratios for 1998, 1997 and 1995 after reduction
of fees paid through the directed brokerage arrangement were 1.15%, 1.27% and
1.35%, respectively.
See Notes to Financial Statements
FINANCIAL HIGHLIGHTS
THE ELITE
INCOME FUND
For a share outstanding throughout each year
<TABLE>
Years Ended September 30,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 10.00 $ 9.73 $ 10.03 $ 9.48 $ 10.61
------ ------ ------ ------ ------
Income from investment operations
Net investment income .......... .59 .60 .60 .62 .61
Net gain (loss) on securities
(both realized and unrealized) . .72 .27 (.23 .54 (1.03)
------ ------ ------ ------ ------
Total from investment
operations ................ 1.31 .87 .37 1.16 (.42)
------ ------ ------ ------ ------
Less Distributions
Dividends from net investment
income ......................... (.59) (.60) (.62) (.61) (.61)
Distributions from capital gains -- -- (.05) -- (.10)
------ ------ ------ ------ ------
Total distributions ........ (.59) (.60) (.67) (.61) (.71)
------ ------ ------ ------ ------
Net asset value, end of year ..... $ 10.72 $ 10.00 $ 9.73 $ 10.03 $ 9.48
====== ====== ====== ====== ======
Total Return ............... 13.44% 9.20% 3.79% 12.56% (4.07%)
</TABLE>
<TABLE>
Ratios/Supplemental Data
Net asset value, end of year
<S> <C> <C> <C> <C> <C>
(in 000's) ................. $ 30,841 $ 16,312 $ 12,618 $ 12,366 $ 11,505
Ratio of expenses to average
net assets ................. .92% .96% 1.00% 1.12%* 1.11%
Ratio of net investment income
to average net assets ...... 5.63% 6.01% 6.01% 6.34% 5.98%
Portfolio turnover ............. 21.41% 37.60% 42.24% 40.88% 43.37%
</TABLE>
* Ratio reflects fees paid though a directed brokerage arrangement. Expense
ratio for 1994 excludes these payments. No fees were paid through a directed
brokerage arrangement for 1998, 1997 or 1996. Expense ratio for 1995 after
reduction of fees paid through the directed brokerage arrangement was 1.08%
See Notes to Financial Statements
NOTES TO FINANCIAL STATEMENTS
September 30,1998
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's
investment objective is to maximize total returns through an aggressive
approach to the equity and debt securities markets. The Elite Income Fund's
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.
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.
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
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, 1998 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>
Dates of Percentage of
Acquisition Cost Value Net Assets
Stocks
<S> <C> <C> <C> <C> <C>
180,000 Atrieva Corporation ............................. 08/29/94 $ 216,000 $ 36,000 .05%
35,000 Optiva Corporation .............................. 04/25/94 148,750 1,575,000 2.18%
135,000 Coffee Station, Inc ............................. 04/16/96 303,750 168,750 .23%
------- ------- ----
668,500 1,779,750 2.46%
Bonds
$ 500,000 Q Point Intl. 6% 5/1/99 ......................... 10/27/97 500,000 500,000 .69%
---------- ---------- ----
========== ========== ====
Total ................................................... $1,168,500 $2,279,750 3.15%
========== ========== ====
</TABLE>
Note 4 - Purchases and Sales of Securities
For the year ended September 30, 1998, purchases and sales of securities,
other than options and short-term notes were as follows:
<TABLE>
Purchases Sales
--------- -----
<S> <C> <C>
The Elite Growth and Income Fund $102,300,193 $98,987,400
The Elite Income Fund $16,616,540 $4,317,874
</TABLE>
For The Elite Growth & Income Fund, transactions in covered call options
written were as follows:
<TABLE>
Number of
Contracts* Premiums
---------- --------
<S> <C> <C>
Options outstanding at beginning of year ........................ 2,860 $ 1,088,662
Options written ................................................. 14,041 8,599,906
Options terminated in closing purchase transactions ............. (12,861) (6,832,116)
Options exercised ............................................... -- --
Options expired ................................................. (2,730) (741,949)
======= ===========
Options outstanding at September 30,1998 ........................ 1,310 $ 2,114,503
======= ===========
</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, 1998
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, 1998 were $60,647 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, health care goods and services, and
energy industries. The Elite Income Fund has investments in excess of 10%
in the financial industry.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000799196
<NAME> THE ELITE GROUP OF MUTUAL FUNDS
<SERIES>
<NUMBER> 01
<NAME> THE ELITE GROWTH AND INCOME FUND
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 48,757,253
<INVESTMENTS-AT-VALUE> 64,807,365
<RECEIVABLES> 108,865
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 8,438,755
<TOTAL-ASSETS> 73,354,985
<PAYABLE-FOR-SECURITIES> 1,029,644
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 54,634
<TOTAL-LIABILITIES> 1,084,278
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 57,334,056
<SHARES-COMMON-STOCK> 3,438,393
<SHARES-COMMON-PRIOR> 3,043,347
<ACCUMULATED-NII-CURRENT> 36,762
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,150,223)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16,050,112
<NET-ASSETS> 72,270,707
<DIVIDEND-INCOME> 523,850
<INTEREST-INCOME> 967,561
<OTHER-INCOME> 0
<EXPENSES-NET> 885,564
<NET-INVESTMENT-INCOME> 605,847
<REALIZED-GAINS-CURRENT> (1,150,223)
<APPREC-INCREASE-CURRENT> (3,913,327)
<NET-CHANGE-FROM-OPS> (4,457,703)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (569,085)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 868,755
<NUMBER-OF-SHARES-REDEEMED> (497,374)
<SHARES-REINVESTED> 23,665
<NET-CHANGE-IN-ASSETS> 4,551,938
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 766,910
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 946,211
<AVERAGE-NET-ASSETS> 72,271,000
<PER-SHARE-NAV-BEGIN> 22.25
<PER-SHARE-NII> 0.18
<PER-SHARE-GAIN-APPREC> (1.24)
<PER-SHARE-DIVIDEND> (0.17)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 21.02
<EXPENSE-RATIO> 1.23
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000799196
<NAME> THE ELITE INCOME FUND
<SERIES>
<NUMBER> 02
<NAME> THE ELITE GROUP OF MUTUAL FUNDS
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 27,595,097
<INVESTMENTS-AT-VALUE> 29,538,774
<RECEIVABLES> 556,982
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 794,844
<TOTAL-ASSETS> 30,890,600
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 49,749
<TOTAL-LIABILITIES> 49,749
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 28,869,471
<SHARES-COMMON-STOCK> 2,875,973
<SHARES-COMMON-PRIOR> 1,631,791
<ACCUMULATED-NII-CURRENT> 24,544
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,159
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,943,677
<NET-ASSETS> 30,840,851
<DIVIDEND-INCOME> 24,572
<INTEREST-INCOME> 1,359,904
<OTHER-INCOME> 0
<EXPENSES-NET> 193,968
<NET-INVESTMENT-INCOME> 1,190,508
<REALIZED-GAINS-CURRENT> 49,483
<APPREC-INCREASE-CURRENT> 1,712,996
<NET-CHANGE-FROM-OPS> 2,952,987
<EQUALIZATION> 108,697
<DISTRIBUTIONS-OF-INCOME> (1,285,477)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,603,301
<NUMBER-OF-SHARES-REDEEMED> (468,391)
<SHARES-REINVESTED> 109,272
<NET-CHANGE-IN-ASSETS> 14,528,908
<ACCUMULATED-NII-PRIOR> 10,816
<ACCUMULATED-GAINS-PRIOR> (46,324)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 147,936
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 214,565
<AVERAGE-NET-ASSETS> 30,841,000
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.59
<PER-SHARE-GAIN-APPREC> 0.72
<PER-SHARE-DIVIDEND> (0.59)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.72
<EXPENSE-RATIO> 0.92
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
