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. 14
[X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT CO ACT OF 1940
[X]
Amendment No. 14
[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):
[X] immediately upon filing pursuant to paragraph (b) [ ] on __________
pursuant to paragraph (b) [ ] 60 days after filing pursuant to paragraph
(a)(i) [ ] on pursuant to paragraph (a)(i) [ ] 75 days after filing
pursuant to paragraph (a)(ii) [ ] on __________ pursuant to paragraph
(a)(ii) of rule
485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new
effective date for a previously filed
post-effective amendment.
Prospectus
January 30, 1999
(II)
<PAGE>
THE ELITE GROUP
OF MUTUAL FUNDS
THE ELITE INCOME FUND
The Fund seeks to achieve the highest income return obtainable over
the long term commensurate with investment in a diversified
portfolio consisting primarily of investment grade debt securities.
THE ELITE GROWTH & INCOME FUND
The Fund seeks to maximize total return through an aggressive
approach to the equity and debt securities markets. Total return
means any combination of capital growth and current income.
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.
(III)
<PAGE>
Table of Contents
Fundamental Goals and Principal Strategies.................1
The Elite Income Fund.................................1
The Elite Growth & Income Fund........................1
Principal Risks............................................2
Past Performance........................................ 4
Fees and Expenses..........................................6
How to Buy Shares..........................................7
How to Sell Shares.........................................9
Dividends, Distributions and Tax Consequences.............11
Management and Capital....................................12
Other Strategies and Related Risks........................13
Financial Highlights......................................15
(IV)
<PAGE>
Fundamental Goals and
Principal Strategies
The Elite Income Fund
==================================================================
- -> 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.
Fundamental Goal The Fund seeks to achieve the highest income return obtainable
over the long term commensurate with investment in a diversified portfolio
consisting primarily of investment grade debt securities.
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Principal Strategies The Income Fund invests in income-oriented securities with
its primary focus on individual security selection, rather than attempting to
anticipate major interest rate moves. The Fund's value-oriented buy discipline
requires a given security to offer a yield advantage over others of similar
quality or to exhibit stable or improving credit quality unrecognized by most of
the investment community. Individual issues must compliment the portfolio's
maturity structure and meet diversification requirements. Portfolio securities
are sold when price appreciation causes a security to lose its yield advantage,
or when credit quality begins to deteriorate.
The Fund invests most of its assets (core holdings) in U.S. Government
obligations and investment grade corporate debt securities, including those with
equity conversion privileges. An investment grade security is one which is rated
by Moody's or Standard & Poor's in one of their four highest quality ratings. To
maximize the income potential of these core holdings, the portfolio manager
adjusts the portfolio quality mix based upon current yield differentials and his
perception of the overall market risk.
In order to boost portfolio income, the Fund invests in other securities
(non-core holdings) when, in the portfolio manager's judgement, overall market
risk justifies such investment. Such other securities may include common stocks
which have a higher than average dividend yield (for example, utility stocks)
and preferred stocks, including convertibles. Non-core holdings are limited to
30% of the Fund's assets.
The Fund may respond to changing market and other conditions by
adjusting the type of securities held and the average portfolio
maturity and duration. The Fund also uses other investment
strategies and securities. See "Other Strategies and Related
Risks."
The Elite Growth & Income Fund
(1)
<PAGE>
Fundamental Goal The Fund seeks to maximize total return through an aggressive
approach to the equity and debt securities markets. Total return means any
combination of capital growth and current income.
==================================================================
- -> 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 The Growth & Income Fund aggressively adjusts its portfolio
allocation among market sectors in order to extract the maximum total return
from any given market and economic condition. For example, one market or
economic scenario may offer the greatest total return through utility stocks,
another may favor emerging growth and yet another bonds. This means that,
although the Fund invests primarily in equities, U.S. Government obligations and
investment grade corporate debt securities, the portfolio mix of these security
types is not fixed. Rather, the Fund invests in the blend of market sectors the
portfolio manager believes will provide the greatest total return to
shareholders. (For our purposes, equities include common stocks, securities
convertible into common stocks and preferred stocks. Investment grade debt
securities are those rated by Moody's or Standard & Poor's in one of their four
highest quality ratings categories.) Current income may be significant or very
little.
In choosing individual equity and debt securities for its portfolio, the Fund
uses a value-oriented approach. 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. For equities, some of the value-oriented criteria which
would be considered favorable are:
o lower than average price-to-earnings ratio; o higher than average yield; o
lower than historic price-to-book value ratio; and o current pricing at the
low end of a security's historic trading range.
Favorable debt securities criteria would include:
o a yield advantage to the marketplace;
o stable or improving credit quality;
o a maturity which compliments existing portfolio structure; and Portfolio
securities are sold when their price appreciation meets the portfolio
manager's expectations or when they are no longer favorable under the
foregoing criteria
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. The Fund employs other strategies. See
"Other Strategies and Related Risks."
Principal Risks
Risk of Income Investing
(2)
<PAGE>
The Income Fund invests only in debt obligations and other income-oriented
securities. The Growth & Income Fund's investment in such securities may be
significant or very little. Income-oriented securities are exposed to three
major risks; interest rate risk, credit risk and call risk. Shareholders of the
Income Fund will be exposed to these principal risks. Shareholders of the Growth
& Income Fund will be exposed only to the extent that the Fund is invested in
such securities which, at times, could be significant. Any of these can make the
value of the Fund's portfolio rise or fall, which means you could lose money.
- -> Interest Rate Risk
==================================================================
Percent Increase
(Decrease) In
The Price of a Par Bond
Yielding 5%:
1% 1%
InterestInterest
Bond Rate Rate
Maturity IncreaseDecrease
Short
2.5 years -2.29% +2.35%
Intermediate
10 years -7.43% +8.17%
Long
20 years -11.55% +13.67%
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. Any income-oriented security is similarly subject to some degree of
interest rate risk.
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.
Risk of Equity Investing
==================================================================
Investing in equities carries the potential for unpredictable drops in value and
periods of lackluster performance. The value-oriented approach to stock
selection used by both Funds 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.
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(R) 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
(3)
<PAGE>
Fund attempts to reduce such risk through diversification, the Fund may
experience higher volatility than less aggressive growth and income funds. 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.
Both the Income Fund and the Growth & Income Fund invest in convertible
securities and preferred stocks. 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.
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.
Elite Income Fund
Year-by-Year Total Return (%) as of 12/31 each year:
89 90 91 92 93 94 95 96 97 98
Best Quarter: Q2 '89 +6.25% Worst Quarter Q1 '94 -2.23%
(4)
<PAGE>
Average Annual Total Return as of 12/31/98:
1 Year 5 Years 10 Years
Elite Income Fund 9.64% 6.88% 7.97%
Lehman Brothers U.S. Govt. 8.49% 6.45% 8.34%
Intermediate Bonds
Lipper Intermediate U.S. 7.79% 5.95% 7.88%
Govt. Funds Index
(5)
<PAGE>
Elite Growth & Income Fund
Year-by-Year Total Return (%) as of 12/31 each year:
89 90 91 92 93 94 95 96 97 98
Best Quarter: Q2 '97 +15.87% Worst Quarter Q2 '90
- -18.06%
Average Annual Total Return as of 12/31/98:
1 Year 5 Years 10
Years
Elite Growth & Income Fund 7.06% 17.56% 15.76%
S & P 500 28.72% 24.09% 19.22%
Lipper Average U.S. Stock Fund 14.52% 17.36% 16.05%
(6)
<PAGE>
Fees and Expenses
==================================================================
Shareholder Fees (fees paid directly from your investment) 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 (expenses that are deducted from Fund
assets) Operating expenses 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 &
Fund (1) Income Fund
(2)
Management Fees 0.70% 1.00%
Other Expenses 0.32% 0.23%
------ -----
Total Fund Operating 1.02% 1.23%
Expenses
(1)Other Expenses and Total Fund Operating Expenses of the Income Fund were
reduced during the fiscal year ended 9/30/98 to 0.22% 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
(7)
<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.)
(8)
<PAGE>
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.
(9)
<PAGE>
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.
(10)
<PAGE>
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.
(11)
<PAGE>
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.
(12)
<PAGE>
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.
(13)
<PAGE>
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
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:
(R) 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);
(R) 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
(R)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.
(14)
<PAGE>
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(R) 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(R) 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 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.
(15)
<PAGE>
- -> 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. 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.
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.
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.
(16)
<PAGE>
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.
Financial Highlights
The financial highlights table for each Fund (on the following page) is intended
to help you understand the Fund's financial performance for the past five years.
Certain information reflects financial results for a single Fund share. The
total returns in the table represent the rate that an investor would have earned
(or lost) on an investment in the Fund (assuming reinvestment of all dividends
and distributions). This information has been audited by Tait, Weller & Baker,
whose report, along with the Funds' financial statements, are included in the
Annual Report, which is available upon request.
FINANCIAL HIGHLIGHTS
(17)
<PAGE>
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%
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
(18)
<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.
Call or Write The Elite Group toll-free 1-800-423-1068 if you want more
information, like the SAI and the Funds' annual report. 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
Statement of Additional Information
January 30, 1999
(19)
<PAGE>
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.
(I)
<PAGE>
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
(II)
<PAGE>
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(R) Ca or S & P's(R) 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:
(1)
<PAGE>
(R) limited liquidity and secondary market support;
(R) significant volatility in market price when prevailing interest rates
or investor perceptions change;
(R) the issuer's low creditworthiness and potential for insolvency during
periods of rising interest rates and economic downturn;
(R)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;
(R) possible subordination to senior claims of banks or other creditors;
(R)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: (R) repurchase agreements and securities issued or
guaranteed by the U.S Government or its agencies or instrumentalities;
(R) 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);
(R)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
(R)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).
(2)
<PAGE>
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.
(3)
<PAGE>
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.
(4)
<PAGE>
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.
(5)
<PAGE>
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:
(R) not to issue senior securities;
(R) 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;
(6)
<PAGE>
(R) 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;
(R) 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;
(R) 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;
(R) 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;
(R) not to invest more than 5% of the value of its total assets in the
securities of any single issuer;
(R) 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;
(R) 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);
(R) not to invest more than 10% of its net assets in restricted and other
illiquid securities;
(R) not to purchase securities for the purpose of exercising control or
management over the company issuing the securities;
(R) 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;
(7)
<PAGE>
(R) 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;
(R) not to engage in short sales;
(R) 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);
(R) 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);
(R) 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);
(R) not to engage in arbitrage transactions;
(R) 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.
(8)
<PAGE>
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:
(R) 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.
(R) 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.
(R) 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.
(9)
<PAGE>
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.
(10)
<PAGE>
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:
(R) the Fund name and existing account registration;
(R) signature(s) of the registered owner(s) exactly as the signature(s)
appear(s) on the account registration;
(R) the new account registration, address, social security or taxpayer
identification number and how dividends and capital gains are to be
distributed;
(R) stock certificates, if issued, for the shares being transferred;
(R) 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:
(R) suspend the offering of its shares;
(R) reject purchase orders when, in the judgment of management, such
rejection is in the best interest of the Fund; and
(R) 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.
(11)
<PAGE>
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:
(R) 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
(R) 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.
(12)
<PAGE>
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.
(13)
<PAGE>
Positions Held Principal Occupation(s)
Name, Address and with the Trust During Past 5 Years
Age
Richard S. Chairman, Board of President and Chief
McCormick * Trustees Executive Officer of the
1325 4th Avenue, and President (1) investment manager.
Suite 2144
Seattle, WA 98101
Age 52
Trustee, Treasurer Partner in MCM Financial, a
John W. Meisenbach and Secretary (1) Seattle full-service
* insurance brokerage and
2100 Washington financial planning firm.
Bldg. Director of Costco
Seattle, WA 98101 Trustee Wholesale and Expeditors
Age 62 International.
Lee A. Miller Private investor.
P.O. Box 1882 Vice President, Merrill
Vashon Island, WA Trustee (1) Lynch & Co., a securities
98070 broker-dealer, from 1961 to
Age 66 December 1995.
Morgan J. O'Brien
1244 20th Avenue, Trustee (2) Private investor.
East
Seattle, WA
Age 70
John M. Parker Trustee (2) Sr. Vice President, Kennedy
1819 38th East Associates, Inc., real
Seattle, WA 98112 estate acquisition and
Age 50 management.
Jack R. Policar
1111 3rd Avenue,
Suite 1465 President and Chief
Seattle, WA 98121 Executive Officer of J. R.
Age 51 Policar, Inc., Certified
Public Accounting firm.
* 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.
(14)
<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:
Aggregate Aggregate
Name and Position Compensation Compensation Total
from from the Compensation
The Income Fund Growth & Income from Fund
Fund Complex
Richard S. --- --- ---
McCormick *
Chairman, Board
of Trustees and
President --- --- ---
John W.
Meisenbach *
Trustee, $1,330 $4,570 $5,900
Treasurer
and Secretary
$1,330 $4,570 $5,900
Lee A. Miller
Trustee
$1,330 $4,570 $5,900
Morgan J.
O'Brien
Trustee $1,330 $4,570 $5,900
John M. Parker
Trustee
Jack R. Policar
Trustee
* 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:
(R) provision of continuous supervision of the Funds' investment
portfolio;
(R) overall management of the Trust's business affairs (subject to the
supervision of the Trustees);
(R) provision of certain executive officers, administrative and clerical
functions of the Trust;
(R) 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: (R) 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;
(R)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.
(15)
<PAGE>
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.
(16)
<PAGE>
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.
<PAGE> (17)
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 & -4.82% +16.38% +14.76%
Income Fund
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, incorporated herein by
reference. 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.
(18)
<PAGE>
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.
(19)
<PAGE>
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.
(20)
<PAGE>
PART C
THE ELITE GROUP
FORM N-1A
Post-Effective Amendment No. 14
OTHER INFORMATION
(I)
<PAGE>
ITEM 23. Exhibits
(a) Declaration of Trust - enclosed.
(b) By Laws - enclosed.
(c) Instruments Defining Rights of Security Holders - See Declaration of
Trust, Articles V, VI, VII and VIII, enclosed as Exhibit (a) of this
filing; see also By-Laws, Articles I, IV and VI, enclosed as Exhibit (b)
of this filing.
(d) Investment Management Agreement - Enclosed.
(e) Not Applicable
(f) Not Applicable
(g) (1) Custodian Administration and Agency Agreement,
Fund/Plan Services,Inc. - enclosed.
(2) Custody Agreement, United Missouri Bank, N.A. -
enclosed.
(h) (1) Administration Agreement - enclosed.
(2) Accounting Services Agreement - enclosed.
(3) Powers of Attorney - enclosed.
(i) (1) Opinion and Consent of Counsel - enclosed. (2) Consent of Counsel,
January 11, 1999 - enclosed.
(j) Consent of Auditors - enclosed.
(k) Annual Audited Report to Shareholders, September 30, 1998 Incorporated by
reference, filed November 18, 1998, accession number 0000930356-98-000067
(l) Not Applicable
(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.
(1)
<PAGE>
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.
(2)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment Company
Act, the Registrant certifies that it meets all of the requirements for
effectiveness of this registration statement under rule 485(b) under the
Securities Act and 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 22nd day of January , 1999.
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.
/s/Richard S. McCormick Trustee/President (Chief
Exec. Officer) 01/22/99
Richard S. McCormick (Title)
(Date)
Trustee, Treasurer &
Secretary
** (Chief Financial
Officer) 01/22/99
John Meisenbach (Title)
(Date)
* Trustee
01/22/99
Morgan J. O'Brien (Title)
(Date)
* Trustee
01/22/99
John P. Parker (Title)
(Date)
* Trustee
01/22/99
Jack R. Policar (Title)
(Date)
* /s/ Richard McCormick,
Attorney-in-Fact, under Powers of Attorney dated
September 18, 1990
** /s/ Richard McCormick
Attorney-in-Fact, under Powers of Attorney dated October
30, 1992
(3)
<PAGE>
EXHIBITS
THE ELITE GROUP
FORM N-1A
INDEX OF EXHIBITS
(Numbers coincide with Item 23 of Form N-1A)
(a) Declaration of Trust - enclosed.
(b) By Laws - enclosed.
(d) Investment Management Agreement - Enclosed.
(g) (1) Custodian Administration and Agency Agreement,
Fund/Plan Services, Inc. - enclosed.
(2) Custody Agreement, United Missouri Bank, N.A. -
enclosed.
(h) (1) Administration Agreement - enclosed.
(2) Accounting Services Agreement - enclosed.
(3) Powers of Attorney - enclosed.
(i) (1) Opinion and Consent of Counsel - enclosed. (2) Consent of Counsel,
January 11, 1999 - enclosed.
(j) Consent of Auditors - enclosed.
(n) Financial Data Schedule - Enclosed
(4)
<PAGE>
EXHIBIT (a)
Declaration of Trust
DECLARATION OF TRUST
OF
THE ELITE GROUP
Dated as of August 13, 1986
TABLE OF CONTENTS
Page
ARTICLE I NAME AND DEFINITIONS 1
Section 1.1 Name 1
Section 1.2
Definitions 1
ARTICLE II
TRUSTEES
3
Section 2.1 Number of Trustees 3
Section 2.2 Election and Term 3
Section 2.3 Resignation and Removal 3
Section 2.4 Vacancies 4
Section 2.5 Delegation of Power to Other Trustees 4
ARTICLE III POWERS OF TRUSTEES
4
Section 3.1 General 4
Section 3.2 Investments 5
Section 3.3 Legal Title 5
Section 3.4 Issuance and Repurchase of Securities 6
Section 3.5 Borrowing Money; Lending Trust Assets 6
Section 3.6 Delegation; Committees 6
Section 3.7 Collection and Payment 7
Section 3.8 Expenses 7
Section 3.9 Manner of Acting; By-Laws 7
Section 3.10 Miscellaneous Powers 7
Section 3.11 Principal Transactions 8
ARTICLE IV INVESTMENT MANAGER, DISTRIBUTOR AND TRANSFER
AGENT 8
Section 4.1 Investment Manager 8
Section 4.2 Distributor 9
Section 4.3 Transfer Agent 9
Section 4,4 Parties to Contract 9
ARTICLE V LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
TRUSTEES AND OTHERS 10
Section 5.1 No Personal Liability of Shareholders,
Trustees, etc 10
Section 5.2 Non-Liability of Trustees, etc 10
Section 5.3 Indemnification 10
Section 5.4 No Bond Required of Trustees 12
Section 5.5 No Duty of Investigation; Notice in Trust
Instruments, Insurance 12
Section 5.6 Reliance on Experts, etc 12
(i)
<PAGE>
ARTICLE VI SHARES OF BENEFICIAL
INTEREST 13
Section 6.1 Beneficial Interest 13
Section 6.2 Rights of Shareholders 13
Section 6.3 Trust Only 13
Section 6.4 Issuance of Shares 14
Section 6.5 Register of Shares 14
Section 6.6 Transfer of Shares 14
Section 6.7 Notices 15
Section 6.8 Voting Powers 15
Section 6.9 Series or Classes of Shares 15
ARTICLE VII
REDEMPTIONS
18
Section 7.1 Redemptions 18
Section 7.2 Redemption of Shares; Disclosure of Holding 19
Section 7.3 Redemptions of Accounts of Less Than $500 19
Section 7.4 Other Redemptions 19
ARTICLE VIII
DETERMINATION OF NET ASSET VALUE, NET INCOME
AND DISTRIBUTIONS 19
Section 8.1 Net Asset Value 19
Section 8.2 Distributions to Shareholders 20
Section 8.3 Determination of Net Income 20
Section 8.4 Power to Modify Foregoing Procedures 21
ARTICLE IX DURATION; TERMINATION OF TRUST; AMENDMENT;
MERGERS, ETC. 21
Section 9.1 Duration 21
Section 9.2 Termination of Trust 21
Section 9.3 Amendment Procedure 22
Section 9.4 Merger, Consolidation of Sale of Assets 23
Section 9.5 Incorporation 23
ARTICLE X REPORTS TO
SHAREHOLDERS
24
ARTICLE XI
MISCELLANEOUS
24
Section11.1 Filing 24
Section11.2 Resident Agent 24
Section11.3 Governing Law 24
Section11.4 Counterparts 24
Section11.5 Reliance by Third Parties 24
Section11.6 Provisions in Conflict with Law or
Regulations...
24
SIGNATURE PAGE 25
(ii)
<PAGE>
DECLARATION OF TRUST
OF
THE ELITE GROUP
Dated as of August 13, 1986
THE DECLARATION OF TRUST of The Elite Group is made as of the _13th__ day
of __August____, 1986, by the party signatory hereto, as trustee (such person,
so long as he shall continue in office in accordance with the terms of this
Declaration of Trust, and all other persons who at the time in question have
been duly elected or appointed as trustees in accordance with the provisions of
this Declaration of Trust and are then in office, being hereinafter called the
"Trustees").
WITNESSETH
WHEREAS, the Trustees desire to form a trust fund under the laws of
Massachusetts for the investment and reinvestment of funds contributed thereto;
and
WHEREAS, it is proposed that the beneficial interest in the trust assets
be divided into transferable shares of beneficial interest as hereinafter
provided;
NOW, THEREFORE, the Trustees hereby declare that they will hold, in trust,
all money and property contributed to the trust fund to manage and dispose of
the same for the beneficial interest issued hereunder and subject to the
provisions hereof, to wit:
ARTICLE I
NAME AND DEFINITIONS
Section 1.1. Name. The name of the trust created hereby is the
The Elite Group
Section 1.2. Definitions. Wherever they are used herein, the following terms
have the following respective meanings:
(a) "By-Laws" means the By-Laws referred to in Section 3.9 hereof, as from time
to time amended.
(b) The terms "Commission," "Affiliated Person" and "Interested Person" have the
meanings given them in the 1940 Act.
(c) "Custodian" means any Person other than the Trust who has custody of any
Trust Property as required by the Section 17(f) of the 1940 Act, but does not
include a system for the central handling of securities described in said
Section 17(f).
(d) "Declaration" means this Declaration of Trust as amended from time to time.
Reference in this Declaration of Trust to "Declaration", "hereof", "herein" and
"hereunder" shall be deemed to refer to this Declaration rather than the article
or section in which such words appear.
(e) "Distributor" means the party, other than the Trust, to the contract
described in Section 4.2 hereof.
(5)
<PAGE>
(f) "Fundamental Policies" shall mean the investment restrictions set forth in
the Prospectus and designated as fundamental policies therein.
(g) "Investment Manager" means the party, other than the Trust, to the contract
described in Section 4.1 hereof.
(h) "Majority Shareholder Vote" means the vote of the holders of a majority of
Shares which shall consist of: (i) a majority of Shares represented in person or
by proxy and entitled to vote at a meeting of Shareholders at which a quorum, as
determined in accordance with the By-laws, is present; (ii) a majority of Shares
issued and outstanding and entitled to vote when action is taken by written
consent of Shareholders; or (iii) a "majority of the outstanding voting
securities", as that phrase is defined in the 1940 Act, when action is taken by
Shareholders with respect to approval of an investment advisory or management
contract or underwriting or distribution agreement or continuance thereof.
(i ) "Majority of the Trustees" means, as the context directs, a majority of the
Trustees then holding office or a majority of the Trustees present and voting at
a meeting in which a quorum is present and voting.
(j) "1940 Act" means the Investment Company Act of 1940 and the rules and
regulations thereunder as amended from time to time.
(k) "Person" means and includes individuals, corporations, partnerships, trusts,
associations, joint ventures and other entities, whether or not legal entities
and governments and agencies and political subdivisions thereof.
(1) "Prospectus" means the prospectus (including the statement of additional
information to the extent incorporated by reference therein) constituting part
of the Registration Statement of the Trust under the Securities Act of 1933, as
amended, as such prospectus may be amended or supplemented and filed with the
Commission from time to time.
(m) "Shareholder" means a record owner of outstanding Shares.
(n) "Shares" means the units of interest into which the beneficial interest in
the Trust shall be divided from time to time, including the shares of any and
all series or classes which may be established by the Trustees, and includes
fractions of Shares as well as whole Shares.
(o) "Transfer Agent" means the party, other than the Trust, to the contract
described in Section 4.3 hereof.
(p) "Trust" means the The Elite Group.
(q) "Trust Property" means any and all property, real or personal, tangible or
intangible, which is owned or held by or for the account of the Trust or the
Trustees.
(r) "Trustees" means the person or persons who have signed the Declaration, so
long as he or they shall continue in office in accordance with the terms hereof,
and all other persons who may from time to time be duly elected, qualified and
serving as Trustees in accordance with the provisions hereof, and reference
herein to a Trustee or the Trustees shall refer to such person or persons in
their capacity as trustees hereunder.
(6)
<PAGE>
ARTICLE II
TRUSTEES
Section 2.1. Number of Trustees.
The number of Trustees shall be such number as shall be fixed from time to
time by a written instrument signed by a majority of the Trustees,
provided, however, that at all times after the Prospectus of the Trust
first becomes effective, the number of Trustees shall in no event be less
than three (3) nor more than fifteen (15).
Section 2.2. Election and Term.
The Trustees shall be elected by a Majority Shareholder Vote following the
establishment of the Trust. The Trustees shall have the power to set and
alter the terms of office of the Trustees, and they may at any time
lengthen or lessen their own terms or make their terms of unlimited
duration, subject to the resignation and removal of Section 2.3 hereof. In
the absence of any action to otherwise define the term of office of the
Trustees, their terms shall be of unlimited duration, subject to the
resignation and removal provisions of Section 2.3 hereof. Subject to
Section 16(a) of the 1940 Act, the Trustees may elect their own successors
and may pursuant to Section 2.4 hereof, appoint Trustees to fill vacancies.
The Trustees may adopt By-Laws not inconsistent with this Declaration or
any provision of law to provide for election or removal of Trustees by
Shareholders at such time or times as the Trustees shall determine to be
necessary, advisable or required by law.
Section 2.3. Resignation and Removal.
Any Trustee may resign his trust (without need for prior or subsequent
accounting) by an instrument in writing signed by him and delivered to the
other Trustees and such resignation shall be effective upon such delivery,
or at a later date according to the terms of the instrument. Any of the
Trustees may be removed (provided that the aggregate number of Trustees
after such removal shall not be less than the number required by Section
2.1 hereof) with cause, by the action of two-thirds of the remaining
Trustees. Upon the resignation or removal of a Trustee, or his otherwise
ceasing to be a Trustee, he shall execute and deliver such documents as the
remaining Trustees shall require for the purpose of conveying to the Trust
or the remaining Trustees any Trust Property or property of any series of
the Trust held in the name of the resigning or removed Trustee. Upon the
incapacity or death of any Trustees, his legal representative shall execute
and deliver on his behalf such documents as the remaining Trustees shall
require as provided in the preceding sentence. Each Trustee by assuming the
office of Trustee, is deemed to give to the other Trustees an irrevocable
power of attorney to execute on his behalf such documents as the remaining
Trustees shall require as provided in the second preceding sentence.
Section 2.4. Vacancies.
The term of office of a Trustee shall terminate and a vacancy shall occur
in the event of the death, resignation, removal, bankruptcy, adjudicated
incompetence or other incapacity to perform the duties of the office of a
Trustee. No such vacancy shall operate to annul the Declaration or to
revoke any existing agency created pursuant to the terms of the
Declaration. In the case of an existing vacancy, including a vacancy
existing by reason of an increase in the number of Trustees, subject to the
provisions of Section 16(a) of the 1940 Act, the remaining Trustees, or
prior to the public offering of Shares of the Trust, if only one Trustee
shall then remain in office, the remaining Trustee, shall fill such vacancy
by the appointment of such other person as they or he, in their or his
discretion shall see fit, made by a written instrument signed by a majority
of the remaining Trustees or by the remaining Trustee, as the case may be.
Any such appointment shall not become effective, however, until the person
named in the written instrument of appointment shall have accepted in
writing such appointment and agreed in writing to be bound by the terms of
the Declaration. An appointment of a Trustee may be made in anticipation of
a vacancy to occur at a later date by reason of retirement, resignation or
increase in the number of Trustees, provided that such appointment shall
not become effective prior to such retirement, resignation or increase in
the number of Trustees. Whenever a vacancy in the number of Trustees shall
occur, until such vacancy is filled as provided in this Section 2.4, the
Trustees in office, regardless of their number, shall have all the powers
granted to the Trustees and shall discharge all the duties imposed upon the
Trustees by the Declaration. A written instrument certifying the existence
of such vacancy signed by a majority of the Trustees shall be conclusive
evidence of the existence of such vacancy.
(7)
<PAGE>
Section 2.5. Delegation of Power to Other Trustees.
Any Trustee may, by power of attorney, delegate his power for a period not
exceeding six (6) months at any one time to any other Trustee or Trustees;
provided that in no case shall less than two (2) Trustees personally
exercise the powers granted to the Trustees under the Declaration except as
herein otherwise expressly provided.
ARTICLE III
POWERS OF TRUSTEES
Section 3.1. General.
The Trustees shall have exclusive and absolute control over the property
and business of the Trust and of any series of the Trust to the same extent
as if the Trustees were the sole owners of such property and business in
their own right, but with such powers of delegation as may be permitted by
the Declaration. The Trustees shall have power to conduct the business of
the Trust and carry on its operations in any and all of its branches and
maintain offices both within and without the Commonwealth of Massachusetts,
in any and all states of the United States of America, in the District of
Columbia, and in any and all commonwealths, territories, dependencies,
colonies, possessions, agencies or instrumentalities of the United States
of America and of foreign governments, and to do all such other things and
execute all such instruments as they deem necessary, proper or desirable in
order to promote the interests of the Trust although such things are not
herein specifically mentioned. Any determination as to what is in the
interests of the Trust or any series of the Trusts made by the Trustees in
good faith shall be conclusive. In construing the provisions of the
Declaration, the presumption shall be in favor of a grant of power to the
Trustees.
The enumeration of any specific power herein shall not be construed as
limiting the aforesaid power. Such powers of the Trustees may be exercised
without order of or resort to any court.
Section 3.2. Investments.
The Trustees shall have the power to:
(a) conduct, operate and carry on the business of an investment
company;
(b) subscribe for, invest in, reinvest in, purchase or otherwise
acquire, hold, pledge, sell, assign, transfer, exchange, distribute,
lend or otherwise deal in or dispose of negotiable or non-negotiable
instruments, debt and equity securities, certificates of deposit or
indebtedness, commercial paper, repurchase agreements, reverse
repurchase agreements, options and other securities of any kind,
including, without limitation, those issued, guaranteed or sponsored
by any and all Persons including, without limitation, states,
territories and possessions of the United States, the District of
Columbia and any of the political subdivisions, agencies or
instrumentalities thereof, and by the United States Government or its
agencies or instrumentalities, or international instrumentalities, or
by any bank or savings institution, or by any corporation or
organization organized under the laws of the United States or of any
state, territory or possession thereof, and of corporations or
organizations organized under foreign laws, or in "when issued"
contracts for any such securities, or retain assets of the Trust or
any series thereof in cash and from time to time change the
investments of the assets of the Trust or any series thereof; and to
exercise any and all rights, powers and privileges of ownership or
interest in respect of any and all such investments of every kind and
description, including, without limitation, the right to consent and
otherwise act with respect thereto, with power to designate one or
more persons, firms, associations or corporations to exercise any of
said rights powers and privileges in respect of any of said
instruments; and the Trustees shall be deemed to have the foregoing
powers with respect to any additional securities or other assets in
which the Trust or any series of the Trust may invest should the
Fundamental Policies or other investment policies disclosed in the
Prospectus so authorize either explicitly or by implication.
(8)
<PAGE>
The Trustees shall not be limited to investing in obligations maturing before
the possible termination of the Trust, nor shall the Trustees be limited by any
law limiting the investments which may be made by fiduciaries.
Section 3.3. Legal Title.
Legal title to all of the Trust Property, including the property of any
series of the Trust, shall be vested in the Trustees as joint tenants
except that the Trustees shall have the power to cause legal title to any
Trust Property or property of any series of the Trust to be held by or in
the name of one or more of the Trustees, or in the name of the Trust or
series, or that name of any other Person as nominee, on such terms as the
Trustees may determine, provided that the interest of the Trust therein is
appropriately protected. The right, title and interest of the Trustees in
the Trust Property and the property of each series of the Trust shall vest
automatically in each Person who may hereafter become a Trustee. Upon the
resignation, removal or death of a Trustee he shall automatically cease to
have any right, title, or interest in any of the Trust Property or the
property of any series of the Trust, and the right, title and interest of
such Trustees in all such property shall vest automatically in the
remaining Trustees. Such vesting and cessation of title shall be effective
without the requirement that conveyancing documents be executed and
delivered.
Section 3.4. Issuance and Repurchase of Securities.
The Trustees shall have the power to issue, sell, repurchase, redeem,
retire, cancel, acquire, hold, resell, reissue, dispose of, transfer, and
otherwise deal in Shares and, subject to the provisions set forth in
Articles VII, VIII and IX and Section 6.9 hereof, to apply to any such
repurchase, redemption, retirement, cancellation or acquisition of Shares
any funds or property of the particular series of the Trust with respect to
which such Shares are issued, whether capital or surplus or otherwise, to
the full extent now or hereafter permitted by laws of the Commonwealth of
Massachusetts governing business corporations.
Section 3.5. Borrowing Money; Lending Trust Assets.
The Trustees shall have power to borrow money or otherwise obtain credit
and to secure the same by mortgaging, pledging or otherwise subjecting as
security the assets of the Trust or any series thereof, to endorse,
guarantee or undertake the performance of any obligation, contract or
engagement of any other Person and to lend Trust or series assets.
Section 3.6. Delegation; Committees.
(a) The Trustees shall have power, consistent with their continuing
exclusive authority over the management of the Trust and the Trust
Property, to delegate from time to time to such of their number or to
officers, employees or agents of the Trust the doing of such things
and the execution of such instruments either in the name of the Trust
or the names of the Trustees or otherwise as the Trustees may deem
expedient.
(b) Notwithstanding any provisions of Section 3.9 of the Declaration,
and in addition to such provisions or any other provision of this
Declaration or of the By-Laws, the Trustees may by resolution appoint
a committee consisting of less than the whole number of Trustees then
in office, which committee may be empowered to act for and bind the
Trustees and the Trust, as if the acts of such committee were the acts
of all the Trustees then in office, except with respect to:
(i) The approval of any action for which Shareholder approval is
required by law, by this Declaration, by By-laws of the Trust or
by other Trustee action;
(ii) The filling of vacancies in the office of a Trustee or in
any committee;
(iii) The fixing of compensation of the Trustees for serving as
Trustees on any committee;
(9)
<PAGE>
(iv) The amendment or repeal of this Declaration or the By-laws
or the adoption of new provisions for this Declaration or new
By-laws;
(v) The amendment or repeal of any resolution of the Trustees
that by its express terms is not so amendable or repealable;
(vi) A distribution to the Shareholders of the Trust or any
series thereof, except at a rate, in a periodic amount or within
a price range determined by the Trustees; or
(vii) The establishment of other committees of the Trustees or
the appointment of the members thereof.
Section 3.7. Collection and Payment.
The Trustees shall have power to collect all property due to the Trust or
any series of the Trust to pay all claims, including taxes, against the
Trust Property or the property of any series of the Trust; to prosecute,
defend, compromise or abandon any claims relating to the Trust Property or
the property of any series of the Trust; to foreclose any security interest
securing any obligations, by virtue of which any property is owed to the
Trust or any series of the Trust; and to enter into releases, agreements
and other instruments.
Section 3.8. Expenses.
The Trustees shall have the power to incur and pay any expenses which in
the opinion of the Trustees are necessary or incidental to carry out any of
the purposes of the Declaration, and to pay reasonable compensation from
the funds of the Trust and any series of the Trust to themselves as
Trustees. The Trustees shall fix the compensation of all officers,
employees and Trustees.
Section 3.9. Manner of Acting; By-laws.
Except as otherwise provided herein or in the By-Laws or by any provision
of law, any action to be taken by the Trustees may be taken by a majority
of the Trustees present at a meeting of the Trustees (a quorum being
present), including any meeting held by means of a conference telephone
circuit or similar communications equipment by means of which all persons
participating in the meeting can hear each other, or by written consent of
all the Trustees. The Trustees may adopt By-laws not inconsistent with this
Declaration to provide for the conduct of the business of the Trust and may
amend or repeal such By-laws to the extent such power is not reserved to
the Shareholders.
Section 3.10. Miscellaneous Powers.
The Trustees shall have the power to: (a) employ or contract with such
Persons as the Trustees may deem desirable for the transaction of the
business of the Trust to include, by way of illustration, contracting with
one or more Persons to provide discretionary investment management of the
Trust Property and the various series of the Trust; (b) enter into joint
ventures, partnerships and any other combination or associations; (c)
remove Trustees or fill vacancies in or add to their number, elect and
remove such officers and appoint and terminate such agents or employees as
they consider appropriate, and appoint from their own number or otherwise,
and terminate, any one or more committees which may exercise some or all of
the power and authority of the Trustees as the Trustees may determine; (d)
purchase, and pay for out of Trust Property or the property of the
appropriate series of the Trust, insurance policies insuring the
Shareholders, Trustees, officers, employees, agents, investment advisers,
distributors, selected dealers or independent contractors of the Trust
against all claims arising by reason of holding any such position or by
reason of any action taken or omitted to be taken by any such Person in
such capacity, whether or not constituting negligence, or whether or not
the Trust would have the power to indemnify such Person against such
liability; (e) establish pension profit-sharing, Share purchase, or other
retirement, incentive and benefit plans for any Trustees, officers,
employees and agents of the Trust; (f) to the extent permitted by law,
indemnify any person with whom the Trust has dealings, including the
Investment Manager, Distributor, Transfer Agent and selected dealers, to
such extent as the Trustees shall determine; (g) guarantee indebtedness or
contractual obligations of others; (h) determine and change the fiscal year
of the Trust or any series of the Trust and the method by which its
accounts shall be kept; (i). adopt a seal for the Trust, but. the absence
of such seal shall not impair the validity of any instrument executed on
behalf of the Trust; and (j) in general, to carry on any other business in
connection with or incidental to any of the foregoing powers, to do
everything necessary, suitable or proper for the accomplishment of any
purpose or the attainment of any object or the furtherance of any of the
foregoing, either alone or in association with others, and to do every
other act or thing incidental or appurtenant to or growing out of or
connected with the aforesaid business or purposes, objects or powers.
(10)
<PAGE>
The foregoing clauses shall be construed both as objects and powers, and
the foregoing enumeration of specific powers shall not be held to limit or
restrict in any manner the general powers of the Trustees.
Section 3.11. Principal Transactions.
Except in transactions permitted by the 1940 Act or any rule or regulation
thereunder, or any order of exemption issued by the Commission, or effected
to implement the provisions of any agreement to which the Trust is a party,
the Trustees shall not, on behalf of the Trust, buy any securities (other
than Shares) from or sell any securities (other than Shares) to, or lend
any assets of the Trust to, any Trustee or officer of the Trust or any firm
of which any such Trustee or officer is a member acting as principal, or
have such dealings with the Investment Manager, Distributor or Transfer
Agent or with any Affiliated Person of such person; but the Trust may
employ any such Person, or firm or company in which such Person is an
Interested Person, as broker, legal counsel, registrar, transfer agent,
dividend disbursing agent or custodian upon customary terms.
ARTICLE IV
INVESTMENT MANAGER, DISTRIBUTOR AND TRANSFER AGENT
Section 4.1. Investment Manager.
Subject to approval by Majority Shareholder Vote, the Trustees may in their
discretion from time to time enter into an investment advisory or
management contract whereby the other party to such contract shall
undertake to furnish the Trust or any series thereof such management,
investment, advisory, administration, accounting, legal, statistical and
research facilities and services, promotional activities, and such other
facilities and services, if any, as the Trustees shall from time to time
consider desirable and all upon such terms and conditions as the Trustees
may in their discretion determine. Notwithstanding any provisions of the
Declaration, the Trustees may authorize the Investment Manager (subject to
such general or specific instructions as the Trustees may from time to time
adopt) to effect purchases, sales, loans or exchanges of portfolio
securities or other assets of the Trust or any series thereof on behalf of
the Trustees or may authorize any officer, employee or Trustee to effect
such purchases, sales, loans or exchanges pursuant to recommendations of
the Investment Manager and all without further action by the Trustees. Any
such purchases, sales, loans and exchanges shall be deemed to have been
authorized by all of the Trustees. The Trustees may, in their sole
discretion, call a meeting of Shareholders in order to submit to a vote of
Shareholders at such meeting the approval of continuance of any such
investment advisory or management contract.
Section 4.2. Distributor.
The Trustees may in their discretion from time to time enter into a
contract, providing for the sale of Shares to net the Trust or the
applicable series thereof not less than the net asset value per Share (as
described in Article VIII hereof) and pursuant to which the Trust or series
thereof may either agree to sell the Shares to the other party to the
contract or appoint such other party its sales agent for such Shares. In
either case, the contract shall be on such terms and conditions as the
Trustees may in their discretion determine not inconsistent with the
provisions of this Article IV, including, without limitation, the provision
for the repurchase or sale of shares of the Trust or any series thereof by
such other party as principal or as agent of the Trust.
(11)
<PAGE>
Section 4.3. Transfer Agent.
The Trustees may in their discretion from time to time enter into a
transfer agency and shareholder service contract whereby the other party to
such contract shall undertake to furnish transfer agency and shareholder
services to the Trust or any series thereof. The contract shall have such
terms and conditions as the Trustees may in their discretion determine
which are not inconsistent with the Declaration. Such services may be
provided by one or more Persons.
Section 4.4. Parties to Contract.
Any contract of the character described in Section 4.1, 4.2 or 4.3 of this
Article IV and any other contract may be entered into with any Person,
although one or more of the Trustees or officers of the Trust may be an
officer, director, Trustee, Shareholder or member of such other party to
the contract, and no such contract shall be invalidated or rendered
voidable by reason of the existence of any such relationship; nor shall any
Person holding such relationship be liable merely by reason of such
relationship for any loss or expense to the Trust or any series thereof
under or by reason of said contract or accountable for any profit realized
directly or indirectly therefrom, provided that the contract when entered
into was not inconsistent with the provisions of the Article IV. The same
Person may be the other party to any contracts entered into pursuant to
Sections 4.1, 4.2 and 4.3 above or otherwise, and any individual may be
financially interested or otherwise affiliated with Persons who are parties
to any or all of the contracts referred to in this Section 4.4.
ARTICLE V
LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
TRUSTEES AND OTHERS
Section 5.1. No Personal Liability of Shareholder, Trustees, etc.
No Shareholder shall be subject to any personal liability whatsoever to any
Person in connection with Trust Property, including the property of any
series of the Trust, or the acts, obligations or affairs of the Trust or
any series thereof. No Trustee, officer, employee or agent of the Trust
shall be subject to any personal liability whatsoever to any Person, other
than the Trust or applicable series thereof or its Shareholders, in
connection with Trust Property or the property of any series thereof or the
affairs of the Trust or any series thereof, save only that arising from bad
faith, willful misfeasance, gross negligence or reckless disregard of his
duty to such Person; and all such Persons shall look solely to the Trust
Property or the property of the appropriate series of the Trust for
satisfaction of claims of any nature arising in connection with the affairs
of the Trust or any series thereof. If any Shareholder, Trustee, officer,
employee or agent, as such, of the Trust is made a party to any suit or
proceeding to enforce any such liability, he shall not, on account thereof,
be held to any personal liability. The Trustee shall indemnify and hold
each Shareholder harmless from and against all claims by reasons of his
being or having been a Shareholder, and shall reimburse such Shareholder
for all legal and other expenses reasonably incurred by him in connection
with any such claim or liability, provided that any such expenses shall be
paid solely out of the funds and property of the series of the Trust with
respect to which such Shareholder's Shares are issued. The rights accruing
to a Shareholder under this Section 5.1 shall not exclude any other right
to which such Shareholder may be lawfully entitled, nor shall anything
herein contained restrict the right of the Trust to indemnify or reimburse
a Shareholder in any appropriate situation even though not specifically
provided herein.
Section 5.2. Non-Liability of Trustees, etc.
No Trustee, officer, employee or agent of the Trust shall be liable to the
Trust, its Shareholders, or to any Shareholder, Trustee, officer, employee,
or agent thereof for any action or failure to act (including without
limitation the failure to compel in any way any former or acting Trustee to
redress any breach of trust) except for his own bad faith, willful
misfeasance, gross negligence or reckless disregard of his duties.
(12)
<PAGE>
Section 5.3. Indemnification.
(a) Subject to the exceptions and limitat4ons contained in paragraph
(b) below:
(i)The Trustees shall provide for indemnification by the Trust
(or by the appropriate series thereof) to the fullest extent
permitted by law of every person who is, or has been, a Trustee
or officer of the Trust or any series of the Trust against all
liability and against all expenses reasonably incurred or paid by
him in connection with any claim, action suit or proceeding in
which he becomes involved as a party or otherwise by virtue of
his being or having been a Trustee or officer of the Trust or of
any series and against amounts paid or incurred by him in the
settlement thereof;
(ii) The words "claim," "action," "suit," or "proceeding" shall
apply tb all claims, actions, suits or proceedings (civil,
criminal, or other, including appeals), actual or threatened; and
the words "liability" and "expenses' shall include, without
limitation, attorneys fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or
officer:
(i) against any liability to the Trust or the Shareholders by
reason of a final adjudication by the court or any other body
before which the proceeding was brought that he engaged in
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
(ii) with respect to any matter as to which he shall have been
finally adjudicated not to have acted in good faith in the
reasonable belief that his action was in the best interest of the
Trust;
(iii) in the event of a settlement or other disposition not
involving a final adjudication as provided in paragraph (b)(i)
resulting in a payment by a Trustee or officer, unless there has
been a determination that such Trustee or officer did not engage
in willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office:
(A) by the court or other body approving the settlement or
other disposition; or
(B) based upon a review of readily available facts (as
opposed to a full trial-type inquiry) by (x) vote of a
majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees then
in office act on the matter) or (y) written opinion of the
independent legal counsel.
(c) (c) The rights of indemnification herein provided may be
insured against by policies maintained by the Trust, shall
be severable, shall not affect any other rights to which any
Trustee or officer may now or hereafter be entitled, shall
continue as to a person who has ceased to be such Trustee or
officer and shall inure to the benefit of the heirs,
executors, administrators and assigns of such a person.
Nothing contained herein shall affect any rights to
indemnification to which personnel of the Trust other than
Trustees and officers may be entitled by contract or
otherwise under law.
(d) (d) Expenses of preparation and presentation of a
defense to any claim, action, suit or proceeding of the
character described in paragraph (a) of this Section 5.3 may
be advanced by the Trust prior to final disposition thereof
upon receipt of an undertaking by or on behalf of the
recipient to repay such amount if it is ultimately
determined that he is not entitled to indemnification under
this Section 5.3, provided that either:
(13)
<PAGE>
(i)such undertaking is secured by a surety bond or some other
appropriate security provided by the recipient, or the Trust shall be
insured against losses arising out of any such advances; or
(ii) a majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees act on the
matter) or an independent legal counsel in a written opinion shall
determine, based upon a review of readily available facts (as opposed
to a full trial-type inquiry), that there is reason to believe that
the recipient ultimately will be found entitled to indemnification.
As used in this Section 5.3, a "Disinterested Trustee" is one who is
not (i) an "Interested Person" of the Trust (including anyone who has
been exempted from being an "Interested Person" by any rule,
regulation or order of the Commission), or (ii) involved in the claim,
action, suit or proceeding.
Section 5.4. No Bond Required of Trustees.
No Trustee shall be obligated to give any bond or other security for
performance of any of his duties hereunder.
Section 5.5. No Duty of Investigation;
Notice in Trust Instruments, Insurance. No purchaser, lender, transfer
agent or other Person dealing with the Trustees or any officer, employee or
agent of the Trust shall be bound to make any inquiry concerning the
validity of any transaction purporting to be made by the Trustees or by
said officer, employee or agent or be liable for the application of money
or property paid, loaned, or delivered to or on the order of obligation,
contract, instrument, certificate, Share, other security of the Trust or
undertaking, and every other act or be conclusively presumed to have been
executed or done by the executors thereof only in their capacity as
Trustees under the Declaration or in their capacity as officers, employees
or agents of the Trust. Every written obligation, contract, instrument,
certificate, Share, other security of the Trust or undertaking made or
issued by the Trustees shall recite that the same is executed or made by
them not individually, but as Trustees under the Declaration, and that the
obligations of any such instrument are not binding upon any of the Trustees
or Shareholders, individually, but bind only the Trust Property or the
property of the appropriate series of the Trust, and may contain any
further recital which they or he may deem appropriate, but the omission of
such recital shall not operate to bind the Trustees or Shareholders
individually. The Trustees are permitted to maintain insurance for the
protection of the Trust Property, its Shareholders, Trustees, officers,
employees and agents in such coverages and amounts as the Trustees in their
sole judgment shall deem adequate or advisable to cover possible tort
liability, and such other insurance as the Trustees in their sole judgment
shall deem advisable.
Section 5.6. Reliance on Experts, etc.
Each Trustee and officer or employee of the Trust shall, in the performance
of his duties, be fully and completely justified and protected with regard
to any act or any failure to act resulting from reliance in good faith upon
the books of account or other records of the Trust, upon an opinion of
counsel or upon reports made to the Trust by any of its officers or
employees or by the Investment Manager, the Distributor, Transfer Agent,
consultants selected with reasonable care by the Trustees, officers or
employees of the Trust, regardless of whether such counsel or expert may
also be a Trustee.
ARTICLE VI
SHARES OF BENEFICIAL INTEREST
(14)
<PAGE>
Section 6.1. Beneficial Interest.
(a) The interest of the beneficiaries hereunder shall be divided into
transferable shares of the beneficial interest, no par value. The
number such shares of beneficial interest authorized hereunder is
unlimited.
(b) The Trustees may initially issue whole and fractional shares of
two series, or classes, to be known as The Income Fund and The Growth
and Income Fund. Proceeds from the issuance of shares of The Income
Fund and from earnings received from assets of The Income Fund shall
be invested primarily in dividend-paying equity securities and
fixed-income securities, including those convertible into equity
securities. Proceeds from the issuance of shares of The Growth and
Income Fund and from earnings received from assets of The Growth and
Income Fund shall be invested primarily in securities which will
result in a maximum combination of capital growth and current income.
Each whole and fractional share of each series or class shall
represent an equal proportionate share in the Trust with each other
Share. The Trustees may divide or combine the Shares into a greater or
lesser number of Shares without thereby changing the proportionate
interest in the Series. Subject to the provisions of Section 6.9
hereof, the Trustees may also authorize the creation of additional
series of Shares (the proceeds of which may be invested in separate,
independently managed portfolios) and additional classes of shares,
within any series. All Shares issued hereunder including, without
limitation, Shares issued in connection with a dividend in Shares or a
split in Shares, shall be fully paid and nonassessable.
Section 6.2. Rights of Shareholders.
(a) The ownership of the Trust Property and the property of each
series of the Trust of every description and the right to conduct any
business hereinbefore described are vested exclusively in the
Trustees, and the Shareholders shall have no interest therein other
than the beneficial interest conferred by their Shares, and they shall
have no right to call for any partition or division of any property,
profits, rights or interests of the Trust (or series thereof) nor can
they be called upon to assume any losses of the Trust (or series
thereof) or suffer an assessment of any kind by virtue of their
ownership of Shares. The Shares shall be personal property giving only
the rights specifically set forth in the Declaration. The Shares shall
not entitle the holder to preference, preemptive, appraisal,
conversion or exchange rights, except as the Trustees may determine
with respect to any series of the shares.
(b) Notwithstanding anything elsewhere contained in this Declaration
of Trust or in the By-Laws of the Trust, the Shareholders of the Trust
shall have such rights, and the Trust, the Board of Trustees, and the
Trustees shall have such obligations, as would exist if the Trust were
a common law trust covered by Section 16(c) of the 1940 Act or any
successor to Section 16(c). In the event that the Trust has
outstanding two or more classes or series of Shares pursuant to
Section 6.9 below, each such class or series shall be considered as if
it were a separate common law trust covered by Section 16(c). However,
the Trust may at any time or from time to time apply to the Commission
for one or more exemptions from all or part of Section 16(c) and if an
exemptive order or orders are issued by the Commission, such order or
orders shall be deemed part of Section 16(c) for the purposes of this
Section 6.2.
Section 6.3. Trust Only.
It is the intention of the Trustees to create only the relationship of
Trustee and beneficiary between the Trustees and each Shareholder from time
to time. It is not the intention of the Trustees to create a general
partnership, limited partnership, joint stock association, corporation,
bailment or any form of legal relationship other than a trust. Nothing in
the Declaration shall be construed to make the Shareholders, either by
themselves or with the Trustees, partners or members of a joint stock
association.
Section 6.4. Issuance of Shares.
The Trustees, in their discretion may, from time to time without vote of
the Shareholders, issue Shares, in addition to the then issued and
outstanding Shares and Shares held in the treasury, to such party or
parties and for such amount and type of consideration, including cash or
property, at such time or times (including, without limitation, each
business day), and on such terms as the Trustees may deem best, and may in
such manner acquire other assets (including the acquisition of liabilities)
and businesses. In connection with any issuance of Shares, the Trustees may
issue fractional Shares. The Trustees may from time to time divide or
combine the Shares into a greater or lesser number without thereby changing
the proportionate beneficial interests in the Trust. Reductions in the
number of outstanding Shares may be made pursuant to the provisions of
Section 8.3. Contributions to the Trust may be accepted for, and Shares
shall be redeemed as, whole Shares and/or fractions of a Share as described
in the Prospectus.
(15)
<PAGE>
Section 6.5. Register of Shares.
A register shall be kept at the principal office of the Trust or at an
office of the Transfer Agent which shall contain the names and addresses of
the Shareholders and the number of Shares held by each of them and a record
of all transfers thereof. Such register may be in written form or any other
form capable of being converted into written form within a reasonable time
for visual inspection. Such register shall be conclusive as to who are the
holders of the Shares and who shall be entitled to receive dividends or
distributions or otherwise to exercise or enjoy the rights of Shareholders.
No Shareholder shall be entitled to receive payment of any dividend or
distribution, nor to have notice given to him as herein or in the By-Laws
provided, until he had given his address to the Transfer Agent or such
other officer or agent of the Trustees as shall keep the said register for
entry thereon. The Trustees, in their discretion, may authorize the
issuance of Share certificates and promulgate appropriate rules and
regulations as to their use.
Section 6.6. Transfer of Shares.
Shares shall be transferable on the records of the Trust only by the record
holder thereof or by his agent thereunto duly authorized in writing, upon
delivery to the Trustees or the Transfer Agent of a duly executed
instrument of transfer, together with such evidence of the genuineness of
each such execution and authorization and of other matters as may
reasonably be required. Upon such delivery the transfer shall be recorded
on the register of the Trust. Until such record is made, the Shareholder of
record shall be deemed to be the holder of such Shares for all purposes
hereunder and neither the Trustees nor any Transfer Agent or registrar nor
any officer, employee or agent of the Trust shall be affected by any notice
of the proposed transfer.
Any person becoming entitled to any Shares in consequence of the death,
bankruptcy or incompetence of any Shareholder, or otherwise by operation of
law, shall be recorded on the register of Shares as the holder of such
Shares upon production of the proper evidence thereof to the Trustees or
the Transfer Agent, but, until such record is made, the Shareholder of
record shall be deemed to be the holder of such Shares for all purposes
hereunder and neither the Trustees nor any Transfer Agent or registrar nor
any officer or agent of the Trust shall be affected by any notice of such
death, bankruptcy or incompetence, or other operation of law, except as may
otherwise be provided by the laws of the Commonwealth of Massachusetts.
Section 6.7. Notices.
Any and all notices to which any Shareholder may be entitled and any and
all communications shall be deemed duly served or given if mailed, postage
prepaid, addressed to any Shareholder of record at his last known address
as recorded on the register of the Trust.
Section 6.8. Voting Powers.
The Shareholders shall have power to vote only (i) for the election of
Trustees as provided in Section 2.2 hereof, (ii) with respect to any
investment advisory or management contract as provided in Section 4.1
hereof, (iii) with respect to termination of the Trust or any series
thereof as provided in Section 9.2 hereof, (iv) with respect to any
amendment of the Declaration to the extent and as provided in Section 9.3
hereof, (v) with respect to any merger, consolidation or sale of assets as
provided in Section 9.4 hereof, (vi) with respect to incorporation of the
Trust to the extent and as provided in Section 9.5 hereof, (vii) to the
same extent as the stockholders of a Massachusetts business corporation as
to whether or not a court action, proceeding or claim should or should not
be brought or maintained derivatively or as a class action on behalf of the
Trust or the Shareholders and (viii) with respect to such additional
matters relating to the Trust as may be required by the 1940 Act or any
other law, the Declaration, the By-Laws or any registration of the Trust
with the Commission (or any successor agency) or any state, or as and when
the Trustees may consider necessary or desirable. Each whole Share shall be
entitled to one vote as to any matter on which it is entitled to vote and
each fractional Share shall be entitled to a proportionate fractional vote,
except that Shares held in the treasury of the Trust as of the record date,
as determined in accordance with the By-Laws, shall not be voted and except
that the Trustees may, in conjunction with the establishment of any series
or classes of Shares, establish conditions under which the several series
or classes shall have separate voting rights or no voting rights. Unless
and until otherwise determined by the Trustees, any vote of Shareholders
shall be taken on a series by series basis. There shall be no cumulative
voting in the election of Trustees. Until Shares are issued, the Trustees
may exercise all rights of Shareholders and may take any action required by
law, the Declaration or the By-Laws to be taken by Shareholders. The
By-Laws may include further provisions for Shareholders' votes and meetings
and related matters.
(16)
<PAGE>
Section 6.9. Series or Classes of Shares.
So long as there shall be two or more series or two or more classes of any
series outstanding, as provided in Section 6.1 hereof, the following
provisions shall be applicable:
(a) All provisions herein relating to the Trust shall apply equally to
each series of the Trust except as the context otherwise requires.
(b) The number of authorized shares and the number or shares of each
series or of each class that may be issued shall be unlimited. The
Trustees may classify or reclassify any unissued shares or any shares
previously issued and reacquired of any series or class into one or
more series or one or more classes that may be established and
designated from time to time. The Trustees may hold as treasury shares
(of the same or some other series or class), reissue for such
consideration and on such terms as they may determine or cancel any
shares of any series or any class reacquired by the Trust at their
discretion from time to time.
(c) The power of the Trustees to invest and reinvest the Trust
Property shall be governed by Section 3.2 of this Declaration with
respect to any one or more series which represents the interest in the
assets of the Trust immediately prior to the establishment of two or
more series and the power of the Trustees to invest and reinvest
assets applicable to any other series shall be as set forth in the
instrument of the Trustees establishing such series which is
hereinafter described.
(d) All consideration received by the Trust for the issue or sale of
Shares of a particular series or class together with all assets in
which such consideration is invested or reinvested; all income,
earnings, profits, and proceeds thereof, including any proceeds
derived from the sale, exchange or liquidation of such assets, and any
funds or payments derived from any reinvestment of such proceeds in
that series or class for all purposes, subject only to the rights of
creditors of such series and except as may otherwise be required by
applicable tax laws, and shall be so recorded upon the books of
account of the Trust. In the event that there are any assets, income,
earnings, profits, and proceeds thereof, funds, or payments which are
not readily identifiable as belonging to any particular series or
class, the Trustees shall allocate them among any one or more of the
series or classes established and designated from time to time in such
manner and on such basis as they, in their sole discretion, deem fair
and equitable. Each such allocation by the Trustees shall be
conclusive and binding upon the Shareholders of all series or classes
for all purposes.
(e) The assets belonging to each particular series shall be charged
with the liabilities of the Trust in respect of that series and all
expenses, costs, charges and reserves attributable to that series, and
any general liabilities, expenses, costs, charges or reserves of the
Trust which are not readily identifiable as belonging to any
particular series shall be allocated and charged by the Trustees to
and among any one or more of the series established and designated
from time to time in such manner and on such basis as the Trustees in
their sole discretion deem fair and equitable. Each allocation of
liabilities, expenses, costs, charges and reserves by the Trustees
shall be conclusive and binding upon the holders of Shares of all
series for all purposes. The Trustees shall not have full discretion,
to the extent not inconsistent with the 1940 Act, to determine which
items shall be treated as income and which items as capital; and each
such determination and allocation shall be conclusive and binding upon
the Shareholders. The assets of a particular series of the Trust
shall, under no circumstances, be charged with liabilities
attributable to any other series of the Trust. All persons extending
credit to, or contracting with or having any claim against a
particular series of the Trust shall look only to the assets of that
particular series for payment of such credit, contract or claim.
(17)
<PAGE>
(f) The power of the Trustees to pay dividends and make distributions
shall be governed by Section 8.2 of this Declaration with respect to
any one or more series or classes which represents the interests in
the assets of the Trust immediately prior to the establishment of two
or more series or classes. With respect to any other series or class,
dividends and distributions on Shares of a particular series or class
may be paid with such frequency as the Trustees may determine, which
may be daily or otherwise, pursuant to a standing resolution or
resolution adopted only once or with such frequency as the Trustees
may determine, to the holders of Shares of that series or class, from
such of the income or capital gains, accrued or realized, from the
assets belonging to that series or class, as the Trustees may
determine, after providing for actual and accrued liabilities
belonging to that series or class. All dividends and distributions on
Shares of a particular series or class shall be distributed pro rata
to the Shareholders of that series or class in proportion to the
number of Shares of that series or class held by such Shareholders at
the date and time of record establishment for the payment of such
dividends or distribution.
(g) Each Share of a series of the Trust shall represent a beneficial
interest in the net assets of such series. Each holder of Shares of a
series shall be entitled to receive his pro rata share of
distributions of income and capital gains made with respect to such
series. Upon redemption of his Shares or indemnification for
liabilities incurred by reason of his being or having been a
Shareholder of a series, such Shareholder shall be paid solely out of
the funds and property of such series of the Trust. Upon liquidation
or termination of a series of the Trust, Shareholders of such series
shall be entitled to receive a pro rata share of the net assets of
such series. A Shareholder of a particular series of the Trust shall
not be entitled to participate in a derivative or class action on
behalf of any other series or the Shareholders of any other series of
the Trust.
(h) Notwithstanding any other provision hereof, on any matter
submitted to a vote of Shareholders of the Trust, all Shares then
entitled to vote shall be voted by individual series, except that (1)
when required by the 1940 Act, Shares shall be voted in the aggregate
and not by individual series, and (2) when the Trustees have
determined that the matter affects only the interests of Shareholders
of a limited number of series, then only the Shareholders of such
series shall be entitled to vote thereon. Except as otherwise provided
in this Article VI, the Trustees shall have the power to determine the
designations, preferences, privileges, limitations and rights,
including voting and dividend rights, of each class and series of
Shares.
(i) The establishment and designation of any series or class of Shares
shall be effective upon the execution by a majority of the then
Trustees of an instrument setting forth such establishment and
designation and the relative rights and preferences of such series or
class, or as otherwise provided in such instrument. At any time that
there are no Shares outstanding or any particular series or class
previously established and designated, the Trustees may by an
instrument executed by a majority of their number abolish that series
or class and the establishment and designation thereof. Each
instrument referred to in this paragraph shall have the status of an
amendment to this Declaration.
ARTICLE VII
REDEMPTIONS
(18)
<PAGE>
Section 7.1. Redemptions.
(a) All outstanding Shares may be redeemed at the option of the
holders thereof, upon and subject to the terms and conditions provided
in Article VII and Article VIII hereof. The Trust shall, upon
application of any Shareholder or pursuant to authorization from any
Shareholder, redeem or repurchase from such Shareholder outstanding
Shares for an amount per share determined by the Trustees in
accordance with any applicable laws and regulations; provided that (a)
the Trust, at its option, may exchange cash or a portion of the assets
of the Trust for redeemed shares, (b) such amount per share shall not
exceed the cash equivalent of the proportionate interest of each share
or of any class or series of shares in the assets of the Trust at the
time of the redemption or repurchase and (c) if so authorized by the
Trustees, the Trust may, at any time and from time to time, charge
fees for effecting such redemption or repurchase, at such rates as the
Trustees may establish, as and to the extent permitted under the 1940
Act, suspend such right of redemption. The procedures for effecting
and suspending redemption shall be as set forth in the Prospectus from
time to time. Payment will be made in such manner as described in the
Prospectus. Redemption is conditioned upon the Trust having funds
legally available for redemption.
(b) The Trust may declare a suspension of the right of redemption or
postpone the date of payment or redemption for the whole or any part
of any period (i) during which the New York Stock Exchange is closed
other than customary weekend and holiday closings, (ii) during which
trading on the New York Stock Exchange is restricted, (iii) during
which an emergency exists as a result of which disposal by the Trust
of securities owned by it is not reasonably practical or it is not
reasonably practical for the Trust fairly to determine the value of
its net assets, or (iv) during any other period when the Commission
may for the protection of security holders of the Trust by order
permit suspension of the right of redemption or postponement of the
date of payment or redemption; provided that applicable rules and
regulations of the Commission shall govern as to whether the
conditions prescribed in (ii), (iii), or (iv) exist. Such suspension
shall take effect at such time as the Trust shall specify but not
later than the close of business on the business day next following
the declaration of suspension, and thereafter there shall be no right
of redemption or payment or redemption until the Trust shall declare
the suspension at an end, except that the suspension shall terminate
in any event on the first day on which said stock exchange shall have
reopened or the period specified in (ii) or (iii) shall have expired
(as to which in the absence of an official ruling by the Commission,
the determination of the Trust shall be conclusive). In the case of
suspension of the right of redemption, a Shareholder may either
withdraw his request for redemption or receive payment based on the
net asset value existing after the termination of the suspension. Any
suspension as provided above may be with respect to one or more series
of the Trust; as designated by the Trustees, and may vary as between
series as to the terms and conditions, if any, of such suspension.
Section 7.2. Redemption of Shares;
Disclosure of Holding. If the Trustees shall, at any time and in good faith, be
of the opinion that direct or indirect ownership of Shares or other securities
of the Trust or any series thereof has or may become concentrated in any Person
to an extent which would disqualify the Trust or any series thereof as a
regulated investment company under the Internal Revenue Code, then the Trustees
shall have the power by lot or other means deemed equitable by them (1) to call
for redemption by any such Person a number, or principal amount, of Shares or
other securities of the Trust or the appropriate series thereof sufficient, in
the opinion of the Trustees, to maintain or bring the direct or indirect
ownership of the Shares or other securities of the Trust or series thereof into
conformity with the requirements for such qualification and (ii) to refuse to
transfer or issue Shares or other securities of the Trust or any series thereof
to any Person whose acquisition of the Shares or other securities of the Trust
in question would in the opinion of the Trustees result in such
disqualification. The redemption shall be effected at a redemption price
determined in accordance with Section 7.1 hereof.
The holders of Shares or other securities of the Trust shall upon demand
disclosed to the Trustees in writing such information with respect to direct and
indirect ownership of Shares or other securities of the Trust or any series
thereof as the Trustees deem necessary to comply with the provisions of the
Internal Revenue Code, or to comply with the requirements of any other
authority.
(19)
<PAGE>
Section 7.3. Redemptions of Accounts of Less than $500.
The Trustees shall have the power at any time to redeem Shares of any
Shareholder of any series at a redemption price determined in accordance with
Section 7.1 if, at such time, the net asset value of the Shares of such Series
in such Share-holder's account is less than $500. A Shareholder will be notified
that the value of his account is less than $500 and allowed at least sixty (60)
days to make an additional investment before such redemption is processed.
Section 7.4. Other Redemptions.
The Trust may repurchase Shares of its capital stock in the open market, or at
private sale, or otherwise, out of funds legally available therefor, at a price
based upon but not exceeding the net asset value last determined prior to the
purchase, at such times as may be established by the Trustees consistent with
any applicable rules promulgated by the Commission under the 1940 Act. The Trust
may also reduce the number of outstanding Shares pursuant to the provisions of
Section 8.3 hereof.
ARTICLE VIII
DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS
Section 8.1. Net Asset Value.
The net asset value of each outstanding Share of each series of the Trust shall
be determined on such days and at such time or times as the Trustees may
determine. The method of determination of net asset value shall be determined by
the Trustees and shall be as set forth in the Prospectus. The time and methods
of determination of net asset value may vary among each series when the Trustees
deem appropriate. The power and duty to make the daily calculations may be
delegated by the Trustees to the Investment Manager, the Custodian, the Transfer
Agent or such other person as the Trustees by resolution may determine. The
Trustees may suspend the daily determination of net asset value to the extent
permitted by the 1940 Act.
Section 8.2. Distributions to Shareholders.
The Trustees shall from time to time distribute ratably among the Shareholders
of a series such proportion of the net profits, surplus (including paid-in
surplus), capital or assets of such series held by the Trustees as they may deem
proper. Such distribution may be made in cash or property (including without
limitation of any type of obligations of such series or any assets thereof), and
the Trustees may distribute ratably among the Shareholders additional Shares of
such series issuable hereunder in such manner, at such times and on such terms
as the Trustees may deem proper. Such distributions may be among the
Shareholders of record at the time of declaring a distribution or among the
Shareholders of record at such later date as the Trustees shall determine. The
Trustees may always retain from the net profits such amount as they may deem
necessary to pay the debts or expenses of a series or to meet obligations of a
series, or as they may deem desirable to use in the conduct of its affairs or to
retain for future requirements or extension of the business of the Trust or
series. The Trustees may adopt and offer to Shareholders such dividend
reinvestment plans, cash dividend payout plans or related plans as the Trustees
shall deem appropriate.
Inasmuch as the computation of net income and gains for Federal income tax
purposes may vary from the computation thereof on the books, the above
provisions shall be interpreted to give the Trustees the power, exercisable in
their discretion, to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust or the series to avoid or reduce liability for taxes.
(20)
<PAGE>
Section 8.3. Determination of Net Income.
The Trustees shall have the power, which may be exercised or not as the Trustees
determine to be appropriate, to determine the net income of any or all series of
the Trust one or more times on each business day and at each determination
declare such net income as dividends in additional Shares of such series. The
determination of net income and the resultant declaration of dividends shall be
as set forth in the Prospectus. It is expected that each such series will have a
positive net income at the time of each determination. If for any reason the net
income of a series is a negative amount, the Trustees shall have authority to
reduce the number of outstanding Shares of such series. Such reduction will be
effected by having each Shareholder of such series proportionately contribute to
the capital of such series the necessary Shares of such series that represent
the amount of the excess upon such determination. Each Shareholder will be
deemed to have agreed to such contribution in these circumstances by his
investment in such series of the Trust. The Trustees shall have full discretion
to determine whether any cash or property received shall be treated as income or
as principal and whether any item of expenses shall be charged to the income or
the principal account, and their determination made in good faith shall be
conclusive upon the Shareholders. In the case of stock dividends received, the
Trustees shall have full discretion to determine, in the light of the particular
circumstances, how much, if any, of the value thereof shall be treated as
income, with the balance, if any, to be treated as principal.
Section 8.4. Power to Modify Foregoing Procedures.
Notwithstanding any of the foregoing provisions of this Article VIII, the
Trustees may prescribe, in their absolute discretion, such other bases and times
for determining the per Share net asset value of the Shares or net income, or
the declaration and payment of dividends and distributions, as they may deem
necessary or desirable to further the interests of the Trust, any series of the
Trust or of the Shareholders of the Trust or of any series of the Trust, or to
enable any series to comply with any provision of the 1940 Act, or any rule or
regulation thereunder, including any rule or regulation adopted pursuant to
Section 22 of the 1940 Act by the Commission or any securities association
registered under the Securities Exchange Act of 1934, or any order of exemption
issued by said Commission, all as in effect now or hereafter amended or
modified. Without limiting the generality of the foregoing, the Trustees may
establish classes or series of Shares in accordance with Section 6.9 hereof.
ARTICLE IX
DURATION; TERMINATION OF
TRUST; AMENDMENT; MERGERS, ETC.
Section 9.1. Duration.
The Trust and each series of the Trust shall continue without limitation of time
but subject to the provisions of this Article IX.
Section 9.2. Termination of Trust.
(a) The Trust or any series of the Trust may be terminated (1) by the
affirmative vote of the holders of not less than two-thirds of the Shares
of the Trust or such series outstanding and entitled to vote at any meeting
of Shareholders, or (2) by an instrument in writing, without a meeting,
signed by a majority of the Trustees and consented to by the holders of not
less than two-thirds of such Shares or by such other method or vote as may
be established by the Trustees with respect to any class or series of
Shares, or (3) by the unanimous action of the Trustees by written notice to
the Shareholders. Upon the termination of the Trust or any series of the
Trust:
(i) The Trust or series shall carry on no business except for the
purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs of the Trust or
series and all of the powers of the Trustees under this Declaration
shall continue until the affairs of the Trust or series shall have
been wound up, including the power to fulfill or discharge the
contracts of the Trust or series, collect its assets, sell, convey,
assign, exchange, transfer or otherwise dispose of all or any part of
the remaining Trust Property or property of such series to one or more
persons at public or private sale for consideration which may consist
in whole or in part of cash, securities or other property of any kind,
discharge or pay its liabilities, and to do all other acts appropriate
to liquidate its business; provided that any sale, conveyance,
assignment, exchange, transfer or other disposition of all or
substantially all the Trust Property or property of such series shall
require Shareholder approval in accordance with Section 9.4 hereof.
(21)
<PAGE>
(iii) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and
refunding agreements as they deem necessary for their protection, the
Trustees may distribute the remaining Trust Property or property of
such series, in cash or in kind or partly each, among the Shareholders
of the Trust or such series according to their respective rights.
(b) After termination of the Trust or any series and distribution
to the Shareholders of the Trust or such series as herein
provided, a majority of the Trustees shall execute and lodge
among the records of the Trust an instrument in writing setting
forth the fact of such termination, and the Trustees shall
thereupon be discharged from all further liabilities and duties
hereunder with respect to the Trust or such series, and the
rights and interests of all Shareholders of the Trust of such
series shall thereupon cease.
Section 9.3. Amendment Procedure.
(a) This Declaration may be amended by a Majority Shareholder Vote, at a
meeting of Shareholders, or by written consent without a meeting. The
Trustees may also amend this Declaration without the vote or consent of
Shareholders to change the name of the Trust, to supply any omission, to
cure, correct or supplement any ambiguous, defective or inconsistent
provision hereof, or if they deem it necessary to conform this Declaration
to the requirements of applicable federal laws or regulations or the
requirements of the regulated investment company provisions of the Internal
Revenue Code, but the Trustees shall not be liable for failing so to do.
(b) No amendment may be made under this Section 9.3 which would change any
rights with respect to any Shares of the Trust by reducing the amount
payable thereon upon liquidation of the Trust or by diminishing or
eliminating any voting rights pertaining thereto, except with the vote or
consent of the holders of two-thirds of the Shares outstanding and entitled
to vote, or by such other vote as may be established by the Trustees with
respect to any series or class of Shares. Nothing contained in this
Declaration shall permit the amendment of the Declaration to impair the
exemption from personal liability of the Shareholders, Trustees, officers,
employees and agents of the Trust or to permit assessments upon
Shareholders.
(c) A certificate signed by a majority of the Trustees or by the Secretary
or any Assistant Secretary of the Trust, setting forth an amendment and
reciting that it was duly adopted by the Shareholders or by the Trustees as
aforesaid or a copy of the Declaration, as amended, and executed by a
majority of the Trustees or certified by the Secretary or any Assistant
Secretary of the Trust, shall be conclusive evidence of such amendment when
lodged among the records of the Trust.
Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended,
covering the first public offering of securities of the Trust shall have
become effective, this Declaration may be terminated or amended in any
respect by the affirmative vote of a majority of the Trustees or by an
instrument signed by a majority of the Trustees.
Section 9.4. Merger, Consolidation and Sale of Assets.
The Trust or any series may merge or consolidate with, or may acquire the
assets of (whether or not subject to the liabilities of), any other
corporation, association, trust or other organization or may sell, lease or
exchange all or substantially all of the Trust Property or the property of
any series thereof, including its good will, upon such terms and conditions
and for such consideration when and as authorized, at any meeting of
Shareholders called for the purpose, by the affirmative vote of the holders
of not less than two-thirds of such Shares, or, if the proposed action does
not affect all series of the Trust, by such other vote as may be
established by the Trustees with respect to any series or class of Shares;
provided, however, that, if such merger, consolidation, sale, lease or
exchange is recommended by the Trustees, a Majority Shareholder Vote shall
be sufficient authorization; and any such merger, consolidation, sale,
lease or exchange shall be deemed for all purposes to have been
accomplished under and pursuant to the statutes of the Commonwealth of
Massachusetts.
(22)
<PAGE>
Section 9.5. Incorporation.
Notwithstanding the requirements of Section 9.4 above, with approval of a
Majority Shareholder Vote, or by such other vote as may be established by the
Trustees with respect to any series or class of Shares, the Trustees may cause
to be organized or assist in organizing a corporation or corporations under the
laws of any jurisdiction or trust, partnership, association or other
organization to take over all of the Trust Property or the property of any
series thereof or to carry on any business in which the Trust shall directly or
indirectly have any interest, and to sell, convey and transfer the Trust
Property or the property of such series to any such corporation, trust,
association or organization in exchange for the shares or other securities
thereof or otherwise, and to lend money to, subscribe for the shares or other
securities of, and enter into any contracts with any such corporation, trust,
partnership, association or organization in which the Trust holds or is about to
acquire shares or any other interest. The Trustees may also cause a merger or
consolidation between the Trust (or any series thereof) or any successor thereto
and any such corporation, trust, partnership, association or other organization
if and to the extent permitted by law, as provided under the law then in effect.
Nothing contained herein shall be construed as requiring approval of
Shareholders for the Trustees to organize or assist in organizing one or more
corporations, trusts, partnerships, associations or other organizations and
selling, conveying or transferring a portion of the Trust Property to such
organization or entities.
ARTICLE X
REPORTS TO SHAREHOLDERS
The Trustees shall at least semi-annually submit to the Shareholders a written
financial report of the transactions of the Trust, including financial
statements which shall at least annually be certified by independent public
accountants.
ARTICLE XI
MISCELLANEOUS
Section 11.1. Filing.
This Declaration and any amendment hereto shall be filed in the office of the
Secretary of the Commonwealth of Massachusetts and in such other places as may
be required under the laws of Massachusetts and may also be filed or recorded in
such other places as the Trustees deem appropriate. Each amendment so filed
shall be accompanied by a certificate signed and acknowledged by a Trustee or by
the Secretary or any Assistant Secretary of the Trust stating that such action
was duly taken in a manner provided herein, and unless such amendment or such
certificate sets forth some later time for the effectiveness of such amendment,
such amendment shall be effective upon its filing. A restated Declaration,
integrating into a single instrument all of the provisions of the Declaration
which are then in effect and operative, may be executed from time to time by a
majority of the Trustees and shall, upon filing with the Secretary of the
Commonwealth of Massachusetts, be conclusive evidence of all amendments
contained therein and may thereafter be referred to in lieu of the original
Declaration and the various amendment thereto.
(23)
<PAGE>
Section 11.2. Resident Agent.
The Trust may appoint and maintain a resident agent in the Commonwealth of
Massachusetts.
Section 11.3. Governing Law.
This Declaration is executed by the Trustees with reference to the laws of the
Commonwealth of Massachusetts, and the rights of all parties and the validity
and construction of every provision hereof shall be subject to and construed
according to the laws of said Commonwealth, notwithstanding any Massachusetts
law governing choice of law which may require the construction of this
Declaration in accordance with the laws of another state or jurisdiction.
Section 11.4. Counterparts.
The Declaration may be simultaneously executed in several counterparts, each of
which shall be deemed to be an original, and such counterparts, together, shall
constitute one and the same instrument, which shall be sufficiently evidenced by
any such original counterpart.
Section 11.5. Reliance by Third Parties.
Any certificate executed by an individual who, according to the records of the
Trust, appears to be a Trustee hereunder, or Secretary or Assistant Secretary of
the Trust, certifying to: (a) The number or identity of Trustees or
Shareholders, (b) the due authorization of the execution of any instrument or
writing, (c) the form of any vote passed at a meeting of Trustees or
Shareholders, (d) the fact that the number of Trustees or Shareholders present
at any meeting or executing any written instrument satisfies the requirements of
this Declaration, (e) the form of any By-laws adopted by or the identity of any
officers elected by the Trustees, or (f) the existence of any fact or facts
which in any manner relate to the affairs of the Trust, shall be conclusive
evidence as to the matters so certified in favor of any Person dealing with the
Trustees and their successors.
Section 11.6. Provisions in Conflict with Law or
Regulations.
(a) The provisions of the Declaration are severable, and if the Trustees
shall determine, with the advice of counsel, that any of such provisions is
in conflict with the 1940 Act, the regulated investment company provisions
of the Internal Revenue Code or with other applicable laws and regulations,
the conflicting provisions shall be deemed never to have constituted a part
of the Declaration; provided, however, that such determination shall not
affect any of the remaining provisions of the Declaration or render invalid
or improper any action taken or omitted prior to such determination.
(b) If any provision of the Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability
shall affect only such provision in such jurisdiction and shall not in any
manner affect such provision in any other jurisdiction or any other
provisions of the Declaration in any jurisdiction.
(24)
<PAGE>
IN WITNESS WHEREOF, the undersigned Trustee has executed this instrument
this _13th_ of __August__ , 1986.
- ---------------------------------------------
Michael Vario
STATE OF MARYLAND )
)SS.
COUNTY OF MONTGOMERY )
On this __ _ _ day of __ ___ , 1986, before me, a Notary Public in and for said
State, duly commissioned and sworn, personally appeared __Michael Vario__
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to this instrument, and acknowledged
to me that he subscribed his name on the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand an affixed my official
seal on the date in this certificate first above written.
- --------------------------------------------
Notary
Public
My Commission Expires:
- -------------------
(25)
<PAGE>
EXHIBIT (b)
By-Laws
<PAGE>
BY-LAWS
OF
THE ELITE GROUP
ARTICLE I.
STOCKHOLDERS
Section 1.01. Special Meetings. Special meetings of the
stockholders may be called by the Chairman of the Board or the President or by a
majority of the Board of Trustees by vote at a meeting or in writing with or
without a meeting. Special meetings of the stockholders shall be called by the
Secretary (i) upon the written request of the holders of shares entitled to not
less than 25% of all the votes entitled to be cast at such meeting,' provided
that (a) such request shall state the purposes of such meeting and the matters
proposed to be acted on, and (b) the stockholders requesting such meeting shall
have paid to the Trust the reasonably estimated cost of preparing and mailing
the notice thereof, which cost estimate the Secretary shall determine and
specify to such stockholders, or (ii) as may otherwise be required by the 1940
Act, any other law or the Declaration of Trust of this Trust (the "Declaration
of Trust"). No special meeting need be called upon the request of the holders of
shares entitled to less than a majority of all votes entitled to be cast at such
meeting to consider any matter that is substantially the same as a matter voted
upon at any special meeting of the stockholders held during the preceding twelve
months.
Section 1.02. Place of Meeting. Meetings of the stockholders shall be
held at such time and place in the United States of America as shall be
designated from time to time by the Board of Trustees and stated in the notice
of the meeting or in a duly executed waiver of notice thereof.
Section 1.03. Notice of Meeting. Not less than ten days nor more than
ninety days before the date of every stockholders' meeting, the Secretary shall
give to each stockholder entitled to vote at such meeting, written notice
stating the time and place of the meeting and, if notice of the purpose is
required by statute or otherwise, the purpose or purposes for which the meeting
is called, either by mail or by presenting it to the stockholder personally or
by leaving it at the stockholder's residence or usual place of business.
Notwithstanding the foregoing provision, a waiver of notice in writing, signed
by the person or persons entitled to such notice and filed with the records of
the meeting, whether before or after the holding thereof, or actual attendance
at the meeting in person or by proxy, shall be deemed equivalent to the giving
of such notice to such persons. A meeting of stockholders convened on the date
for which it was called may be adjourned from time to time without further
notice to a date not more than 120 days after the original record date.
Section 1.04. Quorum. Unless otherwise required by law or the Declaration
of Trust, at any meeting of stockholders the presence in person or by proxy of
stockholders entitled to cast a majority of the votes thereat shall constitute a
quorum; but this Section shall not affect any requirement under statute or under
the Declaration of Trust for the vote necessary for the adoption of any measure.
In the event that at any meeting a quorum exists for the transaction of other
business, the business as to which a quorum is present may be transacted by the
holders of stock present in person or by proxy who are entitled to vote thereon.
In the absence of a quorum the stockholders present in person or by proxy, a
majority vote and without notice, may adjourn the meeting from time to time
until a quorum shall attend. At any such adjourned meeting at which a quorum
shall be present, any business may be transacted which might have been
transacted at the meeting as originally called.
Section 1.05. Votes Required. Unless otherwise required by law or the
Declaration of Trust, a Majority Shareholder Vote at a meeting of stockholders,
duly called and at which a quorum is present, shall be sufficient to take or
authorize action upon any matter which may properly come before the meeting,
except that a plurality of all the votes cast at a meeting at which a quorum is
present is sufficient to elect a trustee, and unless more than a majority of
votes is cast is required by statute or by the Declaration of Trust. Each
outstanding share of stock shall be entitled to one vote on each matter
submitted to a vote at a meeting of stockholders and fractional shares shall be
entitled to corresponding fractions of one vote on such matters.
(26)
<PAGE>
Section 1.06. Proxies. A stockholder may vote the shares owned of
record by the stockholder either in person or by proxy executed in writing by
the stockholder or by the stockholder's duly authorized attorney-in-fact. No
proxy shall be valid after eleven months from its date, unless otherwise
provided in the proxy. Every proxy shall be in writing, subscribed by the
stockholder or the stockholder's duly authorized attorney, but need not be
sealed, witnessed or acknowledged.
Section 1:07. List of Stockholders. At each meeting of stockholders, a
full, true and complete list in alphabetical order of all stockholders entitled
to vote at such meeting, certifying the number of shares held by each, shall be
made available by the Secretary.
Section 1.08. Voting. In all elections for trustees every stockholder
shall have the right to vote, in person or by proxy, the shares owned of record
by the stockholder, for as many persons as there are trustees to be elected and
for whose election the stockholder has a right to vote provided that no
stockholder may cast more votes for any candidate than the number of shares
owned of record by the stockholder. At all meetings of stockholders, unless the
voting is conducted by inspectors, the proxies and ballots shall be received,
and all questions regarding the qualification of voters and the validity of
proxies and the acceptance or rejection of votes shall be decided by the
chairman of the meeting. If demanded by stockholders, present in person or by
proxy, entitled to cast 10% in number of votes, or if ordered by the chairman,
the vote upon any election or question shall be taken by ballot. Upon like
demand or order, the voting shall be conducted by two inspectors in which event
the proxies and ballots shall be received, and all questions regarding the
qualification of voters and the validity of proxies and the acceptance or
rejection of votes shall be decided, by such inspectors. Unless so demanded or
ordered, no vote need be by ballot, and voting need not be conducted by
inspectors. Inspectors may be elected by the stockholders at their annual
meeting, to serve until the close of the next annual meeting and their election
may be held at the same time as the election of trustees. In case of failure to
elect inspectors, or in case an inspector shall fail to attend, or refuse or be
unable to serve, the stockholders at any meeting may choose an inspector or
inspectors to act at such meeting, and in default of such election the chairman
of the meeting may appoint an inspector or inspectors. No candidate for election
as a trustee at a meeting shall serve as an inspector thereat.
Section 1.09. Action by Stockholders Other than at a Meeting. Any
action required or permitted to be taken at any meeting of stockholders may be
taken without a meeting, if a consent in writing, setting forth such action, is
signed by all the stockholders entitled to vote on the subject matter thereof
and any other stockholders entitled to notice of a meeting of stockholders (but
not to vote thereat) have waived in writing any rights which they may have to
dissent from such action, and such consent and waiver are filed with the records
of the Trust.
ARTICLE II
BOARD OF TRUSTEES
Section 2.01. Regular Meetings. The Board of Trustees shall hold such
regular meetings on such dates and at such places as may be designated from time
to time by the Board of Trustees, provided that the Board of Trustees shall hold
no fewer than four regular meetings annually.
(27)
<PAGE>
Section 2.02. Special Meetings. Special meetings of the Board of
Trustees may be called at any time by the Chairman of the Board, the President
or the Secretary of the Trust, or by a majority of the Board of Trustees by vote
at a meeting, or in writing with or without a meeting. Such special meetings
shall be held at such places as may be designated in the calls.
Section 2.03. Notice of Meetings. Notice of the place, day and hour of
every regular and special meeting shall be given to each trustee five days (or
more) before the meeting, orally in person or by telephone, or in writing by
delivering such written notice to the trustee by telegraph, or by leaving the
same at the trustee residence or usual place of business; in the alternative,
written notice may be given to a trustee by mailing the same ten days (or more)
before the meeting, postage prepaid, and addressed to the trustee at the
trustee's last known business or residence post office address, according to the
records of the Trust. Unless required by these By-Laws or by resolution of the
Board of Trustees, no notice of any meeting of the Board of Trustees need state
the purpose of such meeting or the business to be transacted thereat. No notice
of any meeting of the Board of Trustees need be given to any trustee who
attends, or to any trustee who in writing executed and filed with the records of
the meeting either before or after the holding thereof, waives such notice. Any
meeting of the Board of Trustees, regular or special, may adjourn from time to
time to reconvene at the same or some other place, and no notice need be given
of any such adjourned meeting other than by announcement.
Section 2.04. Quorum. At all meetings of the Board of Trustees,
one-half of the entire Board of Trustees (but in no event fewer than two
trustees) shall constitute a quorum for the transaction of business. Except in
cases in which it is by law, by the Declaration of Trust or by these By-Laws
otherwise provided, the vote of a majority of such quorum at a duly constituted
meeting shall be sufficient to elect and pass any measure. In the absence of a
quorum, the trustees present by majority vote and without notice other than by
announcement at the meeting may adjourn the meeting from time to time until a
quorum shall attend. At any such adjourned meeting at which a quorum shall be
present, any business may be transacted which might have been transacted at the
meeting as originally notified.
Section 2.05. Compensation and Expenses. Trustees may, pursuant to
resolution of the Board of Trustees, be paid fees for their services, which fees
may consist of an annual fee or retainer and/or a fixed fee for attendance at
meetings. In addition, trustees may in the same manner be reimbursed for
expenses incurred in connection with their attendance at meetings or otherwise
in performing their duties as trustees. Members of committees may be allowed
like compensation and reimbursement. Nothing herein contained shall preclude any
trustee from serving the Trust in any other capacity and receiving compensation
therefor.
Section 2.06. Action by Trustees Other than at a Meeting. Any action
required or permitted to be taken at any meeting of the Board of Trustees, or of
any committee thereof, may be taken without a meeting, if a written consent to
such action is signed by all members of the Board of Trustees or of such
committee, as the case may be, and such written consent is filed with the
minutes of proceedings of the Board of Trustees or committee.
Section 2.07. Holding of Meetings by Conference Telephone Call. At any
regular or special meeting of the Board of Trustees or any committee thereof,
members thereof may participate in such meeting by means of conference telephone
or similar communications equipment by means of which all persons participating
in the meeting can hear each other. Participation in a meeting pursuant to this
section shall constitute presence in person at such meeting.
(28)
<PAGE>
ARTICLE III.
OFFICERS
Section 3.01. Executive Officers. The Board of Trustees shall choose a
Chairman of the Board from among the trustees and shall choose a President, a
Secretary and a Treasurer who need not be trustees The Board of Trustees may
choose an Executive Vice President, one or more Senior Vice Presidents, one or
more Vice Presidents, one or more Assistant Secretaries and one or more
Assistant Treasurers, none of whom need be a trustee. Any two or more of the
above-mentioned offices, except those of President and a Vice President, may be
held by the same person, but no officer shall execute, acknowledge or verify any
instrument in more than one capacity if such instrument be required by law, by
the Declaration of Trust, by the By-Laws or by resolution of the Board of
Trustees to be executed by any two or more officers. Each such officer shall
hold office until the officer's successor shall have been duly chosen and
qualified, or until the officer shall have resigned or shall have been removed.
Any vacancy in any of the above offices may be filled for the unexpired portion
of the term by the Board of Trustees at any regular or special meeting.
Section 3.02. Chairman of the Board. The Chairman of the Board, if one
be elected, shall preside at all meetings of the Board of Trustees and of the
stockholders at which the Chairman is present. The Chairman shall have and may
exercise such powers as are, from time to time, assigned to the Chairman by the
Board of Trustees.
Section 3.03. President. In the absence of the Chairman of the Board,
the President shall preside at all meetings of the stockholders and of the Board
of Trustees at which he shall be present; he shall have general charge and
supervision of the assets and affairs of the Trust; he may sign and execute, in
the name of the Trust, all authorized deeds, mortgages, bonds, contracts or
other instruments, except in cases in which the signing and execution thereof
shall have been expressly delegated to some other officer or agent of the Trust;
and, in general, he shall perform all duties incident to the office of a
president of a business trust, and such other duties as are from time to time
assigned by the Board of Trustees.
Section 3.04. Vice Presidents. The Vice President or Vice Presidents,
at the request of the President or in his absence or during the President's
inability or refusal to act, shall perform the duties and exercise the functions
of the President, and when so acting shall have the powers of the President. If
there be more than one Vice President, the Board of Trustees may determine which
one or more of the Vice Presidents shall perform any of such duties or exercise
any of such functions, or if such determination: The Vice President or Vice
Presidents shall have such other powers and perform such other duties as may be
assigned by the Board of Trustees or the President.
Section 3.05. Secretary and Assistant Secretaries. The Secretary shall
keep the minutes of the meetings of the stockholders, of the Board of Trustees
and of any committees, in books provided for the purpose; he shall see that all
notices are duly given in accordance with the provisions of these By-Laws or as
required by law; he shall be custodian of the records of the Trust; he shall see
that the corporate seal is affixed to all documents the execution of which, on
behalf of the Trust, under its seal, is duly authorized, and when so affixed may
attest the same; and in general, he shall perform all duties incident to the
office of a secretary of a business trust, and such other duties, as from time
to time, may be assigned by the Board of Trustees, the Chairman or the
President.
The Assistant Secretary, or if there be more than one, the Assistant
Secretaries in the order determined by the Board of Trustees or the President
shall, in the absence of the Secretary or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the Secretary and
shall perform such other duties and have such other powers as the Board of
Trustees may from time to time prescribe.
Section 3.06. Treasurer and Assistant Treasurer. The Treasurer shall have
charge of and be responsible for all funds, securities, receipts and
disbursements of the Trust, and shall deposit, or cause to be deposited in the
name of the Trust, all moneys or other valuable effects in such banks, trust
companies or other depositories as shall, from time to time, selected by the
Board of Trustees; the Treasurer shall render to the President, the Chairman and
to the Board of Trustees, whenever requested, account of the financial condition
of the Trust, and in general, he shall perform all the duties incident to the
office of a treasurer of a business trust, and such other duties as may be
assigned by the Board of Trustees or the President.
(29)
<PAGE>
The Assistant Treasurer, or if there shall be more than one, the Assistant
Treasurers in the order determined by the Board of Trustees or the President
shall, in the absence of the Treasurer or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the Treasurer and
shall perform other duties and have such other powers as the Board of Trustees
may from time to time prescribe.
Section 3.07. Subordinate Officers. The Board of Trustees may from time to
time appoint such subordinate officers as it may deem desirable. Each such
officer shall hold office for such period and perform such duties as the Board
of Trustees or the President may prescribe. The Board of Trustees may, from time
to time, authorize any committee or officer to appoint and remove subordinate
officers and prescribe the duties thereof.
Section 3.08. Removal. Any officer or agent of the Trust may be removed by
the Board of Trustees whenever, in its judgment, the best interests of the Trust
will be served thereby, but such removal shall be without prejudice to the
contractual rights, if any, of the person so removed.
ARTICLE IV.
STOCK
Section 4.01. Certificates. Each stockholder shall be entitled to a
certificate or certificates which shall represent and certify the number of
shares of stock owned by the stockholder in the Trust. Each stock certificate
shall include on its face the name of the Trust, the name of the stockholder or
other person to whom it is issued, and the class of stock and number of shares
it represents. Such certificates shall be signed by the Chairman of the Board,
President or a Vice President and countersigned by the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer, and sealed with the seal
of the Trust or a facsimile of such seal. The signatures may be either manual or
facsimile signatures and the seal may be either facsimile or any other form of a
seal. No certificates shall be issued for fractional shares. Stock certificates
shall be in such form, not inconsistent with law or with the Declaration of
Trust, as shall be approved by the Board of Trustees. In case any officer of the
Trust who has signed any certificate ceases to be an officer of the Trust,
whether because of death, resignation or otherwise, before such certificate is
issued, the certificate may nevertheless be issued and delivered by the Trust as
if the officer had not ceased to be such officer as of the date of its issue.
Stock certificates need not be issued except to stockholders who request such
issuance in writing.
Section 4.02. Record Dates. The Board of Trustees is hereby empowered
to fix, in advance, a date as the record date for the purpose of determining
stockholders entitled to notice of, or to vote at, any meeting of stockholders,
or stockholders entitled to receive payment of any dividend, capital gains
distribution or the allotment of any rights, or in order to make a determination
of stockholders for any other proper purpose. Such date in any case shall not be
more than ninety days, and in case of a meeting of stockholders, not less than
ten days, prior to the date on which the particular action, requiring such
determination of stockholders, is to be taken.
Section 4.03. Replacement Certificates. The Board of Trustees may
direct a new stock certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Trust alleged to have been
lost, stolen or destroyed, upon the making of an affidavit of the fact by the
person claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Trustees may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the Trust a bond in such sum as it may direct
as indemnity against any claim that may be made against the Trust with respect
to the certificate alleged to have been lost, stolen or destroyed.
(30)
<PAGE>
Stock 4.04. Certification of Beneficial Owners. The Board of Trustees
may adopt by resolution a procedure by which a stockholder of the Trust may
certify in writing to the Trust that any shares of stock registered in the name
of the stockholder are held for the account of a specified person other than the
stockholder. The resolution shall set forth the class of stockholders who may
certify; the purpose for which the certification may be made; the form of
certification and the information to be contained in it; if the certification is
with respect to a record date or closing of the stock transfer books, the time
after the record date or closing of the stock transfer books within which the
certification must be received by the Trust; and any other provisions with
respect to the procedure which the Board considers necessary or desirable. On
receipt of a certification which complies with the procedure adopted by the
Board in accordance with this Section, the person specified in the certification
is, for the purpose set forth in the certification, the holder of record of the
specified stock in place of the stockholder who makes the certification.
ARTICLE V.
GENERAL PROVISIONS
Section 5.01. Checks. All checks or demands for money and notes of the Trust
shall be signed by such officer or officers or such other person or persons as
the Board of Trustees may from time to time designate.
Section 5.02. Custodian. All securities and cash of the Trust shall be held by a
custodian which shall be a bank or trust company having (according to its last
published report) not less than $2,000,000 aggregate capital, surplus and
undivided profits, provided such a custodian can be found ready and willing to
act. The Trust shall enter into a written contract with the custodian regarding
the powers, duties and compensation of the custodian with respect to the cash
and securities of the Trust held by the custodian. Said contract and all
amendments thereto shall be approved by the Board of Trustees. The Trust shall
upon the resignation or inability to serve of the custodian use its best efforts
to obtain a successor custodian; require that the cash and securities owned by
the Trust be delivered directly to the successor custodian; and in the event
that no successor custodian can be found, submit to the stockholders, before
permitting delivery of the cash and securities owned by the Trust to other than
a successor custodian, the question whether the Trust shall be liquidated or
shall function without a custodian.
Section 5.03. Prohibited Transactions. No officer or trustee of the Trust or of
its investment adviser shall deal for or on behalf of the Trust with himself, as
principal or agent, or with any corporation or partnership in which he has a
financial interest. This prohibition shall not prevent: (a) officers or trustees
of the Trust from having a financial interest in the Trust, or its investment
adviser; (b) the purchase of securities for the portfolio of the Trust or the
sale of securities owned by the Trust through a securities dealer, one or more
of whose partners, officers or directors is an officer or trustee of the Trust,
provided such transactions are handled in the capacity of broker only and
provided commissions charged do not exceed customary brokerage charges for such
service; or (c) the employment of legal counsel, registrar, transfer agent,
dividend disbursing agent, or custodian having a partner, officer or trustee who
is an officer or trustee of the Trust, provided only customary fees are charged
for services rendered to or for the benefit of the Trust.
Section 5.04. Seal. The Board of Trustees may provide a suitable seal,
bearing the name of the Trust, which seal, if one is provided, shall be in the
custody of the Secretary. The Board of Trustees may authorize one or more
duplicate seals and provide for the custody thereof. If the Trust is required to
place its corporate seal to a document, it is sufficient to meet the requirement
of any law, rule, or regulation relating to a corporate seal to place the word
"Seal" adjacent to the signature of the person authorized to sign the document
on behalf of the Trust.
(31)
<PAGE>
Section 5.05. Bonds. The Board of Trustees may require any officer, agent
or employee of the Trust to give a bond to the Trust, conditioned upon the
faithful discharge of his duties, with one or more sureties and in such amount
as may be satisfactory to the Board of Trustees. The Board of Trustees shall in
any event, require the Trust to provide and maintain a bond issued by a
reputable fidelity insurance company, against larceny and embezzlement, covering
each officer and employee of the Trust who may singly, or jointly with others,
have access to securities or funds of the Trust, either directly or through
authority to draw upon such funds, or to direct generally the disposition of
such securities, such bond or bonds to be in such reasonable amount as a
majority of the Board of Trustees who are not such officers or employees of the
Trust shall determine with due consideration to the value of the aggregate
assets of the Trust to which any such officer or employee may have access, or in
any amount or upon such terms as the Commission may prescribe by order, rule or
regulation.
Section 5.06. Voting Upon Shares in Other Corporations. Stock of other
corporations or associations, registered in the name of the Trust, may be voted
by the President, a Vice President, or a proxy appointed by either of them. The
Board of Trustees, however, may by resolution appoint some other person to vote
such shares, in which case such person shall be entitled to vote such shares
upon the production of a certified copy of such resolution.
ARTICLE VI.
AMENDMENT OF BY-LAWS
Subject to the Declaration of Trust, these By-Laws of the Trust may be altered,
amended, added to or repealed by Majority Shareholder Vote or by majority vote
of the entire Board of Trustees.
ARTICLE VII.
DEFINITIONS
Unless the context requires otherwise, capitalized terms in these By-Laws have
the same meaning as defined in the Declaration of Trust.
(32)
<PAGE>
EXHIBIT (d)
Investment Management Agreement
(33)
<PAGE>
INVESTMENT MANAGEMENT AGREEMENT
THIS AGREEMENT is entered into as of the date the registration statement
of The Elite Group becomes effective with the Securities and Exchange Commission
by and between THE ELITE GROUP a Massachusetts Business Trust (the "Trust"), and
R. S. McCormick & Co., Inc., a Washington corporation (the "Investment
Manager"), registered as an investment adviser under the Investment Advisers Act
of 1940, as amended.
WHEREAS, the Trust is registered as a no-load, diversified, open-end
management investment company of the series type under the Investment Company
Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Trust desires to retain the Investment Manager to furnish
investment advisory and administrative services to all series of the Trust, and
the Investment Manager is willing to so furnish such services;
NOW THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Trust hereby appoints the Investment Manager to act as
investment adviser to any series (hereinafter called "Funds") of the Trust for
the period and on the terms set forth in this Agreement. The Investment Manager
accepts such appointment and agrees to furnish the services herein set forth,
for the compensation herein provided.
2. Delivery of Documents. The Trust has furnished the Investment Adviser
with copies properly certified or authenticated of each of the following:
(a) The Trust's Declaration of Trust, filed with the State of
Massachusetts on _______________________, 1986 (such Declaration, as
presently in effect and as it shall from time to time be amended, is
herein called the "Declaration");
(b) The Trust's By-Laws (such By-Laws, as presently in effect and as they
shall from time to time be amended, are herein called the "By-Laws");
(c) Resolutions of the Trust's Board of Trustees authorizing the
appointment of the Investment Manager and approving this Agreement;
(d) The Trust's Registration Statement on Form N-lA under the 1940 Act and
under the Securities Act of 1933 as amended, (the "1933 Act"),
relating to shares of beneficial interest of the Trust (herein called
the "Shares") as filed with the Securities and Exchange Commission and
all amendments thereto;
(e) The Trust's Prospectus dated ___________________ 1986 (such
Prospectus, as presently in effect and all amendments and supplements
thereto are herein called the "Prospectus").
(34)
<PAGE>
The Trust will furnish the Investment Manager from time to time with
copies, properly certified or authenticated, of all amendments of or supplements
to the foregoing.
3. Management. Subject to the supervision of the Trust's Board of
Trustees, the Investment Manager will provide a continuous investment program
for each of the Trust's Funds, including investment research and management with
respect to all securities and investments and cash and cash equivalents in each
of the Trust's Funds. The Investment Manager will determine from time to time
what securities and other investments will be purchased, retained or sold by the
Funds. The Investment Manager will provide the services under this Agreement in
accordance with each Fund's investment objectives, policies and restrictions as
stated in its Prospectus. The Investment Manager further agrees that it:
(a) will conform with all applicable Rules and Regulations of the Securities
and Exchange Commission and will, in addition, conduct its activities under
this Agreement in -accordance with regulations of any other Federal and
State agencies which may now or in the future have jurisdiction over its
activities;
(b) will place orders pursuant to its investment determinations for the Funds
either directly with the issuer or with any broker or dealer. In placing
orders with brokers or dealers, the Investment Manager will attempt to
obtain the best net price and the most favorable execution of its orders.
Consistent with this obligation, when the Investment Manager believes two
or more brokers or dealers are comparable in price and execution, the
Investment Manager may prefer brokers and dealers who provide the Funds
with research advice and other services, or who sell Fund shares. In no
instance will portfolio securities be purchased from or sold to the
Investment Manager or any affiliated person of the Investment Manager;
(c) will maintain the account books and records of the Funds as required by
Rule 31a-3 of the 1940 Act, including the performance of daily pricing of
the Funds' shares in accordance with the Funds' prospectus;
(d) will hire all necessary executive personnel for the Trust, the salaries and
expenses of such personnel to be borne by the Investment Manager;
(e) will hire, at the cost of the Trust, all non-executive personnel who will
provide clerical, accounting, and general office services as may be
required by and requested by the Trust, the salaries of such personnel to
be subject to the approval of the Trustees;
(f) will provide, at its own cost, all office space, facilities and equipment
necessary for the activities of the Trust; and
(g) will pay the entire organization expense of the Trust which may be incurred
prior to the Trust's effective date; and will also pay initial state
registration costs for certain states, including legal and other related
services, as may be agreed upon between the Trust and the Investment
Manager.
Notwithstanding the foregoing, the Investment Manager may obtain the services of
an investment counselor or sub-advisor of its choice subject to the Trust's
approval. The cost of employing such counselor or sub-advisor will be paid by
the Investment Manager and not by the Trust.
4. Services Not Exclusive. The investment management services furnished by
the Investment Manager hereunder are not to be deemed exclusive, and the
Investment Manager shall be free to furnish similar services to others so long
as its services under this Agreement are not impaired thereby provided, however,
that without the written consent of the Trustees, the Investment Manager will
not serve as investment adviser to any other investment company having a similar
investment objective to that of any of the Funds of the Trust.
(35)
<PAGE>
5. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Investment Manager hereby agrees that all records which
it maintains for the Trust are the property of the Trust and further agrees to
surrender promptly to the Trust any of such records upon the Trust's request.
The Investment Manager further agrees to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act the records required to be maintained by Rule
31a-1 under the Act.
6. Expenses. During the term of this Agreement, the Investment Manager
will pay expenses incurred by it in connection with the administration and
investment management of the Trust, and, in accordance with any Distribution
Plan then in effect, certain expenses incurred by the Trust in the promotion and
sale of the Shares.
Notwithstanding the foregoing, the Trust shall pay the expenses and costs of the
following:
(a) Taxes;
(b) Brokerage fees and commissions with regard to portfolio transactions
of the Funds;
(c) Interest charges, fees and expenses of the custodian of the Funds'
portfolio securities;
(d) Fees and expenses of the Funds' transfer agent and shareholder
servicing agent;
(e) Auditing and legal expenses;
(f) Cost of maintenance of the Trust's existence as a legal entry;
(g) Compensation of trustees who are not interested persons of the
Investment Manager as that term is defined by law;
(h) Costs of Trust meetings;
(i) Federal and State registration fees and expenses;
(j) Costs of printing and mailing Prospectuses, reports and notices to
existing shareholders;
(k) The Investment Management fee payable to the Investment Manager, as
provided in paragraph 7 herein;
(1) Distribution expenses in accordance with the Distribution Plan as and
if approved by the shareholders of the Funds.
It is understood that the Trust may desire to register its Funds' shares
for sale in certain states which impose expense limitations on mutual funds. The
Trust agrees that it will register shares in such states only with the prior
written consent of the Investment Manager and, if consent is granted, the
Investment Manager agrees to reimburse the Trust for any excess expenses
incurred over the most stringent of such states' limitations.
(36)
<PAGE>
7. Compensation. For the services provided and the expenses assumed by the
Investment Manager pursuant to this Agreement, the Trust will pay the Investment
Manager and the Investment Manager will accept as full compensation a management
fee, based upon the daily average net assets of each Fund of the Trust, computed
at the end of each month and payable within five (5) business days thereafter,
according to the following schedule:
ANNUAL RATE
Net Assets Income Fund Growth &
Income Fund
First $250 Million 7/10 of 1%
1%
Second $250 Million 5/8 of 1%
3/4 of 1%
All over $500 Million 1/2 of 1%
1/2 of 1%
8. Limitation of Liability. The Investment Manager shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Trust in
connection with the performance of this Agreement, except a loss resulting from
a breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Investment Manager in the performance of its
duties or from reckless disregard by it of its obligations and duties under this
Agreement.
9. Duration and Termination. This Agreement shall become effective upon
the date the registration statement of the Trust is declared effective by the
Securities and Exchange Commission and, unless sooner terminated as provided
herein, shall continue in effect for two years. Thereafter, this Agreement shall
be renewable for successive periods of one year each, provided such continuance
is specifically approved annually:
(a) by the vote of a majority of those members of the Board of Trustees
who are not parties to this Agreement or interested persons of any such
party (as that term is defined in the 1940 Act), cast in person at a
meeting called for the purpose of voting on such approval; and
(b) by vote of either the Board or a majority (as) that term is defined in
the 1940 Act) of the outstanding voting securities of each Fund of the
Trust provided, however, that if the holders of any one Fund fail to
approve the agreement, Investment Manager may continue to act as
investment manager of the Fund(s) which did approve the agreement, and may
continue to act as investment manager for the Fund which did not approve
the agreement until new arrangements are made by such Fund.
Notwithstanding the foregoing, this Agreement may be terminated by any
Fund or by the Investment Manager at any time on sixty (60) days' written
notice, without the payment of any penalty, provided that termination by any
Fund of the Trust must be authorized either by vote of the Board of Trustees or
by vote of a majority of the outstanding voting securities of the Fund. This
Agreement will automatically terminate in the event of its assignment (as that
term is defined in the 1940 Act).
10. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by a written
instrument signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. No material amendment of this Agreement
shall be effective until approved by vote of the holders of a majority of the
Funds' outstanding voting securities (as defined in the 1940 Act).
(37)
<PAGE>
11.
Miscellaneous. The captions in this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect. If any provision of this
Agreement shall be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of the Agreement shall not be affected thereby. This
Agreement shall be binding and shall inure to the benefit of the parties hereto
and their respective successors.
12. Applicable Law. This Agreement shall be construed in
accordance with, and governed by, the laws of the State of
Washington.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
ATTEST: THE ELITE GROUP
____________________________________ By:
- --------------------------------
Title: _______________________________ Title:
- -------------------------------
ATTEST:
_____________________________________ By:
- -------------------------------
Title: ________________________________ Title:
- ------------------------------
(38)
<PAGE>
EXHIBIT (g)
Custodian Administration and Agency Agreement, Fund/Plan
Services, Inc.
Custody Agreement, United Missouri Bank, N.A.
(39)
<PAGE>
CUSTODY ADMINISTRATION AND AGENCY AGREEMENT
This AGREEMENT, dated as of the ___2nd____day of November , 1994, made by and
between The Elite Group (the "Trust"), a registered investment company under the
Investment Company Act of 1940, as amended, and duly organized and existing as a
Massachusetts Business Trust and Fund/Plan Services. Inc. ("Fund/Plan"), a
corporation duly organized and existing under the laws of the State of Delaware
(collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, the Trust desires to retain Fund/Plan to
perform certain custody administration services; and
WHEREAS, the Trust desires that Fund/Plan act as its
agent for the specific purpose of taking receipt of, and making
payment for, custody services performed on the Trust's behalf by
United Missouri Bank, NA. pursuant to an agreement between United
Missouri Bank, NA. and the Trust; and
WHEREAS, Fund/Plan is willing to serve in such capacity and perform
such functions upon the terms and conditions set forth below;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the Parties hereto, intending to be legally bound, do hereby
agree as follows:
APPOINTMENT OF FUND/PIAN AS AGENT
Section 1. The Trust hereby grants to Fund/Plan, and
Fund/Plan hereby accepts such grant, as an agent of the for the limited purpose
of: (i) accepting invoices for custody services from United Missouri Bank, N.A.
which invoices reflect charges to the Trust for custody services performed by
United Missouri Bank, NA. on the Trust's behalf, and (ii) remitting payment to
United Missouri Bank, N.A. for such services performed in amounts as set forth
in Schedule "A" attached hereto.
CUSTODY ADMINISTRATION SERVICES
Section 2. As Custody Administrator, Fund/Plan shall:
a) coordinate and process portfolio trades through client terminal links
with United Missouri Bank, NA.
b) input and verify portfolio trades
c) monitor pending and failed security trades
(40)
<PAGE>
d) coordinate communications between brokers and banks to resolve any
operational problems
e) advise the Trust of any corporate action information, address and
follow up on any dividend or interest discrepancies
f) process the Trusts' expenses
g) interface with the Accounting Services and the Transfer Agent to
research and resolve Custody cash problems
h) provide daily and monthly reports
FEES
Section 3. The Trust agrees to pay Fund/Plan compensation for its services and
to reimburse Fund/Plan for actual expenses incurred, at the rates and amounts as
set forth in Schedule "A" attached hereto which the Trust hereby authorizes
Fund/Plan to collect by debiting the Trust's custody account for invoices which
are rendered for the services performed for the applicable function. The
invoices for the services performed will be sent to the Trust after such
debiting with the indication that payment has been made. For the purpose of
determining fees payable to Fund/Plan, the value of the Trust's net assets shall
be computed at the times and in the manner specified in the Trust's then current
Prospectus and Statement of Additional Information. During the term of this
Agreement, should the Trust seek services or functions in addition to those
stated, a written amendment to this Agreement specifying the additional services
and corresponding compensation shall be executed by both Fund/Plan and the
Trust.
GENERAL PROVISIONS
Section 4.
(a) Fund/Plan, its directors, officers, employees, shareholders and agents
shall only be liable for any error of judgment or mistake of law or for any loss
suffered by the Trust in connection with the performance of this Agreement that
results from willful misfeasance, bad faith, negligence or reckless disregard on
the part of Fund/Plan in the performance of its obligations and duties under
this Agreement.
(41)
<PAGE>
(b) Any person, even though also a director, officer, employee, shareholder
or agent of Fund/Plan, who may be or become an officer, trustee, employee, or
agent of the Trust, shall be deemed, when rendering services to such entity or
acting on any business of the Trust, (other than services or business in
connection with Fund/Plan's duties hereunder), to be rendering such services to
or acting solely for the and not as a director, officer, employee, shareholder
or agent of, or one under the control or direction of Fund/Plan even though that
person is being paid salary by Fund/Plan.
(c) Notwithstanding any other provision of this Agreement, the Trust shall
indemnity and hold harmless Fund/Plan, its directors, officers, employees,
shareholders and agents from and against any and all claims, demands, expenses
and liabilities (whether with or without basis in fact or law) of any and every
nature which Fund/Plan may sustain or incur or which may be asserted against
Fund/Plan by any person by reason of, or as a result of (i) any action taken or
omitted to be taken by Fund/Plan in good faith hereunder or (ii) any action
taken or omitted to be taken by Fund/Plan in connection with its appointment
under this agreement, which action or omission was taken in good faith in
reliance upon any law, act, regulation or interpretation of the same even though
the same may thereafter have been altered, changed, amended, or repealed.
Indemnification under this subparagraph, however, shall not apply to actions or
omissions of Fund/Plan or its directors, officers, employees, shareholders, or
agents in cases of its or their own negligence, willful misconduct, bad faith,
or reckless disregard of its or their own duties hereunder.
(d) Fund/Plan shall give written notice to the Trust within ten (10)
business days of receipt by Fund/Plan of a written assertion or claim of any
threatened or pending legal proceeding which may be subject to this
indemnification. The failure to notify the Trust of such written assertion or
claim shall not, however, operate in any manner whatsoever to relieve the Trust
of any liability arising under this Section or otherwise, except to the extent
that failure to give notice prejudices to the Trust.
(e) For any legal proceeding giving rise to this indemnification, the
Trust shall be entitled to defend or prosecute any claim in the name of
Fund/Plan at its own expense and through counsel of its own choosing if it gives
written notice to Fund/Plan within ten (10) business days of receiving notice of
such claim. Notwithstanding the foregoing, Fund/Plan may participate in the
litigation at its own expense through counsel of its own choosing. In the event
the Trust chooses to defend or prosecute such claim, the parties shall cooperate
in the defense or prosecution thereof and shall furnish such records and other
information as are reasonably necessary.
(42)
<PAGE>
(f) The Trust shall not settle any claim under (d) and (e) above without
Fund/Plan's express written consent, which consent shall not be unreasonably
withheld. Fund/Plan shall not settle any such claim under (d) and (e) above
without the Trust's express written consent which likewise shall not be
unreasonably withheld.
Section 5.
(a) The fee schedule Set forth in Schedule "A" attached shall be fixed for
(1) year after the effective date of this Agreement. At the end of the first
year, the fee schedule will be subject to annual review and adjustment.
(b) After one year, the Trust or Fund/Plan may give written notice to the
other of the termination of this Agreement, such termination to take effect at
the time specified in the notice, which date shall not be less than ninety (90)
days after the date of giving notice. Upon the effective termination date, the
Trust shall pay to Fund/Plan such compensation as may be due as of the date of
termination and shall likewise reimburse Fund/Plan for any out-of-pocket
expenses and disbursements reasonably incurred by Fund/Plan to such date.
(c) In the event that a successor to any of Fund/Plan's duties or
responsibilities under this Agreement is designated by the Trust by appropriate
and timely written notice to Fund/Plan, Fund/Plan shall, promptly upon such
termination and at the expense of the Trust, transfer all pertinent records and
shall cooperate in the transfer of such duties and responsibilities.
Section 6. This Agreement may be amended from time to time by a
supplemental agreement executed by the Trust and Fund/Plan.
Section 7. Except as otherwise provided in this Agreement, any notice or
other communication required by or permitted to be given in connection with this
Agreement shall be in writing, and shall be delivered in person or sent by first
class mail, postage prepaid, to the respective parties as follows:
If to the Trust: If to Fund/Plan:
The Elite Group Fund/Plan Services,
Inc. 1325 4th Avenue,
Suite 2144 2 West Elm Street
Seattle, Washington 98101 Conshohocken, PA 19428
Attn: Richard S McCormick, President Attn:
Kenneth J. Kempf, President
(43)
<PAGE>
Section 8. The represents and warrants to Fund/Plan that the execution and
delivery of this Agreement by the undersigned officers of the Trust has been
duly and validly authorized by resolution of the Board of Trustees of the Trust.
Section 9. This Agreement may be executed in two or more counterparts,
each of which when so executed shall be deemed to be an original, but such
counterparts shall together constitute but one and the same instrument.
Section 10. This Agreement shall extend to and shall be binding upon the
Parties and their respective successors and assigns; provided, however, that
this Agreement shall not be assignable by the Trust without the written consent
of Fund/Plan or by Fund/Plan without the written consent of the Trust,
authorized or approved by a resolution of their respective Boards of Trustees.
Section 11. This Agreement shall be governed by the laws of the
Commonwealth of Pennsylvania and the venue of any action arising under this
Agreement shall be Montgomery County, Commonwealth of Pennsylvania.
Section 12. No provision of this Agreement may be amended or modified, in
any manner except in writing, properly authorized and executed by Fund/Plan and
the Trust.
Section 13. If any part, term or provision of this Agreement is held by
any court to be illegal, in conflict with any law or otherwise invalid, the
remaining portion or portions shall be considered severable and not be affected,
and the rights and obligations of the parties shall be construed and enforced as
if the Agreement did not contain the particular part, term or provision held to
be illegal or invalid provided that the basic Agreement is not thereby
substantially impaired.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement, consisting in
its entirety, as of the day and year first above written of six type written
pages, together with Schedule "A," to be signed by their duly authorized
officers
Fund/Plan Services, Inc.
_____/s/ Richard S. McCormick ___________ ______/s/ Kenneth
J. Kempf_________
By: Richard S. McCormick By:
Kenneth J. Kempf
President
President
(44)
<PAGE>
SCHEDULE A
FEE SCHEDULE
FOR
THE ELITE GROUP
Elite Income Fund
Elite Growth and Income Fund
(All fees are quoted for a period of one (1) year)
CUSTODY OF FUND ASSETS (THROUGH UNITED MISSOURI RANK - UMB)
I. Annual Custody Fee Schedule per portfolio (1/12th payable
monthly)
.00065 on first $ 10 million of average net
assets
.00035 on the next $ 20 million of average net
assets
.00025 on the next $ 20 million of average net
assets
.000175 on the next $ 50 million of average net
assets
.00015 on the next $150 million of average net
assets
.000125 over $250 million of average net
assets
Minimum annual fee of $3000 per portfolio
II. Custody Domestic Securities Transaction Charge:
Book Entry DTC, Federal Book Entry $14.00
Physical, Options, GNMA's, RIC's
$24.50
NOW Account
$ 5.00
Money Market Investments $
2.00
III. When Issued. Securities Lending. Options. Futures:
Should any of these investment vehicles require a separate
segregated Custody Account, a fee of $250 per account per
month will apply.
OUT-OF-POCKET EXPENSES
The Funds will reimburse Fund/Plan Services monthly for all reasonable
out-of-pocket expenses, including telephone, postage, telecommunications,
special reports and record retention. The cost of copying and sending materials
to auditors for audits will be an additional expense.
ADDITIONAL SERVICES
To the extent the Funds commences using investment techniques such as Futures,
Security Lending, Swaps, Leveraging, Short Sales, Derivatives, non-US dollar
denominated securities and Precious Metals, additional fees may apply.
Activities of a non-recurring nature such as issuance of multiple classes of
shares, unitholder inkinds, trust consolidations, mergers or reorganizations
will be subject to negotiation. Any additional/enhanced services or reports will
be quoted upon request. Should there be subsequent regulatory
changes/requirements, additional fee revision may be necessary.
(45)
<PAGE>
CUSTODY AGREEMENT
Dated November 2 , 1994
Between
UNITED MISSOURI BANK,
and
THE ELITE GROUP
Prototype Custody Agreement
for
Registered Investment Company
for Fund/Plan Clients Only
(46)
<PAGE>
Table of Contents
SECTION
PAGE
1. Appointment of Custodian 1
2. Definitions 1
(a) Securities 2
(b) Assets 2
(c) Instructions and Special Instructions 2
3. Delivery of Corporate Documents 2
4. Powers and Duties of Custodian and Domestic Subcustodian
(a) Safekeeping 3
(b) Manner of Holding Securities 3
(c) Free Delivery of Assets 4
(d) Exchange of Securities 5
(e) Purchases of Assets 5
(f) Sales of Assets
6
(g) Options 6
(h) Futures Contracts 7
(i) Segregated Accounts 7
(j) Depositary Receipts 8
(k) Corporate Actions, Put Bonds, Called
Bonds, Etc. 8
(1) Interest Bearing Deposits 9
(m) Foreign Exchange Transactions Other than
as Principal 9
(n) Pledges or Loans of Securities 9
(o) Stock Dividends, Rights, Etc.
10
(p) Routine Dealings 10
(q) Collections 10
(r) Bank Accounts 11
(s) Dividends, Distributions and Redemptions 11
(t) Proceeds from Shares Sold 11
(u) Proxies and Notices; Compliance with the
Shareholders
Communication Act of 1985 12
(v) Books and Records
12
(w) Opinion of Fund's Independent Certified
Public Accountants 12
(x) Reports by Independent Certified Public
Accountants 12
(y) Bills and Others Disbursements 13
5. Subcustodians 13
(a) Domestic Subcustodians 13
(b) Foreign Subcustodians 13
(c) Interim Subcustodians 14
(d) Special Subcustodians 14
(e) Termination of a Subcustodian 15
(f) Certification Regarding Foreign
Subcustodians 15
(47)
<PAGE>
6. Standard of Care 15
(a) General Standard of Care 15
(b) Actions Prohibited by Applicable Law, Events Beyond
Custodian's Control, Armed Conflict,
Sovereign Risk, Etc. 15
(c) Liability for Past Records 16
(d) Advice of Counsel 16
(e) Advice of the Fund and Others 16
(f) Instructions Appearing to be Genuine 16
(g) Exceptions from Liability 16
7. Liability of the Custodian for Actions of
Others 17
(a) Domestic Subcustodians
(b) Liability for Acts and Omissions of
Foreign Subcustodians 17
(c) Securities Systems, Interim Subcustodians,
Special Subcustodians, Securities
Depositories and Clearing Agencies 17
(d) Defaults or Insolvencies of Brokers,
Banks, Etc. 17
(e) Reimbursement of Expenses 17
8. Indemnification 18
(a) Indemnification by Fund 18
(b) Indemnification by Custodian 18
9. Advances 18
10. Liens
19
11.Compensation 19
12.Powers of Attorney 19
13.Termination and Assignment 20
14.Notices 20
15.Miscellaneous 20
(48)
<PAGE>
CUSTODY AGREEMENT
This agreement made as of this 2nd day of November, 1994, between The Elite
Group, located at 1325 4th Avenue, Suite 2144, Seattle, Washington (hereinafter
"Fund"), and United Missouri Bank, n.a., a national banking association with its
principal place of business located at Kansas City, Missouri (hereinafter
"Custodian").
WITNESSETH:
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended; and
WHEREAS, the Fund desires to appoint Custodian as its custodian for the
custody of Assets (as hereinafter defined) owned by the Fund which Assets are to
be held in such accounts as the Fund may establish from time to time; and
WHEREAS, Custodian is willing to accept such appointment on the
terms and conditions hereof.
WHEREAS, the Fund represents that by separate agreement between Fund/Plan
Services, Inc. ("Fund/Plan") and the Fund, Fund/Plan (a) has agreed to perform
certain administrative functions which may include the functions of
administrator, transfer agent and accounting services agent and (b) has been
appointed by the Fund to act as its agent in respect of the transactions
contemplated in this Agreement; and
WHEREAS, the Fund represents that (a) Fund/Plan has agreed to act as
Fund's agent in respect of the transactions contemplated in this Agreement and
(b) the Bank is authorized and directed to rely upon and follow directions and
instructions given by Fund/Plan, the Fund's agent, in respect of transactions
contemplated in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the parties hereto, intending to be legally bound, mutually covenant and agree
as follows:
I. APPOINTMENT OF CUSTODIAN.
The Fund hereby constitutes and appoints the Custodian as custodian
of Assets belonging to the Fund which have been or may be from time to time
deposited with the Custodian. Custodian accepts such appointment as a custodian
and agrees to perform the duties and responsibilities of Custodian as set forth
herein on the conditions set forth herein.
2. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the
meanings so indicated:
(a) "Security" or "Securities" shall mean stocks, bonds, bills,
rights1 scrip, warrants, interim certificates and all negotiable or
nonnegotiable paper commonly known as Securities and other instruments
or obligations.
(49)
<PAGE>
(b)"Assets" shall mean Securities, monies and other
property held by the Custodian for the benefit of the
Fund
(c)(l) "Instructions", as used herein, shall mean: (i) a tested telex,
a written (including, without limitation, facsimile transmission)
request, direction, instruction or certification signed or initialed by
or on behalf of the Fund by an Authorized Person; (ii) a telephonic or
other oral communication from a person the Custodian reasonably
believes to be an Authorized Person; or (iii) a communication effected
directly between an electro-mechanical or electronic device or system
(including, without limitation, computers) on behalf of the Fund.
Instructions in the form of oral communications shall be confirmed by
the Fund by tested telex or in writing in the manner set forth in
clause (i) above, but the lack of such confirmation shall in no way
affect any action taken by the Custodian in reliance upon such oral
Instructions prior to the Custodian's receipt of such confirmation. The
Fund authorizes the Custodian to record any and all telephonic or other
oral Instructions communicated to the Custodian.
(2)"Special Instructions", as used herein, shall mean Instructions
countersigned or confirmed in writing by the Treasurer or any Assistant
Treasurer of the Fund or any other person designated by the Treasurer
of the Fund in writing, which countersignature or confirmation shall be
included on the same instrument containing the Instructions or on a
separate instrument relating thereto.
(3)Instructions and Special Instructions shall be delivered to the
Custodian at the address and/or telephone, facsimile transmission or
telex number agreed upon from time to time by the Custodian and the
Fund.
(4)where appropriate, Instructions and Special
Instructions shall be continuing instructions
3. DELIVERY OF CORPORATE DOCUMENTS.
Each of the parties to this Agreement represents that
its execution does not violate any of the provisions of its
respective charter, articles of incorporation, articles of
association or bylaws and all required corporate action to authorize
the execution and delivery of this Agreement has been taken.
The Fund has furnished the Custodian with copies,
properly certified or authenticated, with all amendments or
supplements thereto, of the following documents:
(a) Certificate of Incorporation (or
equivalent document) of the Fund as in effect on the
date hereof;
(b) By-flaws of the Fund as in effect on the
date hereof;
(c)Resolutions of the Board of Directors of the Fund
appointing the Custodian and approving the form of
this Agreement; and
(d) The Fund's current prospectus and statements of
additional information
The Fund shall promptly furnish the custodian with copies of any updates,
amendments or supplements to the foregoing documents.
In addition, the Fund has delivered or will promptly deliver to the
Custodian, copies of the Resolution(s) of its Board of Directors or Trustees and
all amendments or supplements thereto, properly certified or authenticated,
designating certain officers or employees of the Fund who will have continuing
authority to certify to the Custodian: (a) the names, titles, signatures and
scope of authority of all persons authorized to give Instructions or any other
notice, request, direction, instruction, certificate or instrument on behalf of
the Fund, and (b) the names, titles and signatures of those persons authorized
to countersign or confirm Special Instructions on behalf of the Fund (in both
cases collectively, the "Authorized Persons" and individually, an "Authorized
Person"). Such Resolutions and certificates may be accepted and relied upon by
the Custodian as conclusive evidence of the facts set forth therein and shall be
considered to be in full force and effect until delivery to the Custodian of a
similar Resolution or certificate to the contrary. Upon delivery of a
certificate which deletes or does not include the name(s) of a person previously
authorized to give Instructions or to countersign or confirm Special
Instructions, such persons shall no longer be considered an Authorized Person
authorized to give Instructions or to countersign or confirm Special
Instructions. Unless the certificate specifically requires that the approval of
anyone else will first have been obtained, the Custodian will be under no
obligation to inquire into the right of the person giving such Instructions or
Special Instructions to do so. Notwithstanding any of the foregoing, no
Instructions or Special Instructions received by the Custodian from the Fund
will be deemed to authorize or permit any director, trustee, officer, employee,
or agent of the Fund to withdraw any of the Assets of the Fund upon the mere
receipt of such authorization. Special Instructions or Instructions from such
director, trustee, officer, employee or agent.
(50)
<PAGE>
4. POWERS AND DUTIES OF CUSTODIAN AND DOMESTIC
SUBCUSTODIAN.
Except for Assets held by any Subcustodian appointed pursuant to
Sections 5(b), (c), or (d) of this Agreement, the custodian shall have and
perform the powers and duties hereinafter set forth in this Section 4. For
purposes of this Section 4 all references to powers and duties of the
"custodian" shall also refer to any Domestic Subcustodian appointed pursuant to
Section 5(a).
The Bank's performance of its duties hereunder and the day-to-day
operations of the Custody Account shall be in accordance with written service
standards furnished to the Fund, care of the Fund's agent, Fund/Plan, by the
Bank from time to time. Such service standards, as amended from time to time,
are incorporated herein by reference.
(a) Safekeeping.
The Custodian will keep safely the Assets of the Fund which are
delivered to it from time to time. The Custodian shall not be responsible for
any property of the Fund held or received by the Fund and not delivered to the
Custodian.
The Bank shall supply to the Fund, addressed care of its agent,
Fund/Plan, from time to time as mutually agreed upon a written statement with
respect to all of the Property in the Custody Account. In the event that the
Fund, acting through its agent, Fund/Plan, does not inform the Bank in writing
of any exceptions or objections within thirty (30) days after receipt of such
statement, the Fund shall be deemed to have approved such statement.
(b) Manner of Holding Securities.
(1) The Custodian shall at all times hold Securities of the Fund
either: (i) by physical possession of the share certificates or other
instruments representing such Securities in registered or bearer form; or (ii)
in book-entry form by a Securities System (as hereinafter defined) in accordance
with the provisions of sub-paragraph (3) below.
(2) The Custodian may hold registrable portfolio Securities which have
been delivered to it in physical form, by registering the same in the name of
the Fund or its nominee, or in the name of the Custodian or its nominee, for
whose actions the Fund and Custodian, respectively, shall be fully responsible.
Upon the receipt of Instructions, the Custodian shall hold such Securities in
street certificate form, so called, with or without any indication of fiduciary
capacity. However, unless it receives Instructions to the contrary, the
Custodian will register all such portfolio Securities in the name of the
Custodian's authorized nominee. All such Securities shall be held in an account
of the Custodian containing only assets of the Fund or only assets held by the
Custodian as a fiduciary, provided that the records of the Custodian shall
indicate at all times the Fund or other customer for which such Securities are
held in such accounts and the respective interests therein.
(3) The Custodian may deposit and/or maintain domestic Securities
owned by the Fund in, and the Fund hereby approves use of: (a) The Depository
Trust Company; (b) The Participants Trust Company; and (c) any book-entry system
as provided in (i) Subpart 0 of Treasury Circular No. 300, 31 CFR 306.115, (ii)
Subpart B of Treasury Circular Public Debt Series No. 27-76, 31 CYR 350.2, or
(iii) the book-entry regulations of federal agencies substantially in the form
of 31 CER 306.115. Upon the receipt of Special Instructions, the Custodian may
deposit and/or maintain domestic Securities owned by the Fund in any other
domestic clearing agency registered with the Securities and Exchange Commission
('SEC") under Section 17A of the Securities Exchange Act of 1934 (or as may
otherwise be authorized by the SEC to serve in the capacity of depository or
clearing agent for the Securities or other assets of investment companies) which
acts as a Securities depository. Each of the foregoing shall be referred to in
this Agreement as a 'Securities System", and all such Securities Systems shall
be listed on the attached Appendix A. Use of a Securities System shall be in
accordance with applicable Federal Reserve Board and SEC rules and regulations,
if any, and subject to the following provisions:
(i) The Custodian may deposit the Securities directly or through one
or more agents or Subcustodians which are also qualified to act as
custodians for investment companies.
(51)
<PAGE>
(ii) The Custodian shall deposit and/or maintain the Securities in a
Securities System, provided that such Securities are represented in an
account ("Account") of the Custodian in the Securities System that
includes only assets held by the Custodian as a fiduciary, custodian or
otherwise for customers.
(iii) The books and records of the Custodian shall at all times
identify those Securities belonging to the Fund which are maintained in
a Securities System.
(iv) The custodian shall pay for Securities purchased for the
account of the Fund only upon (a) receipt of advice from the Securities
System that such Securities have been transferred to the Account of the
Custodian in accordance with the rules of the Securities System, and
(b) the making of an entry on the records of the Custodian to reflect
such payment and transfer for the account of the Fund. The Custodian
shall transfer Securities sold for the account of the Fund only upon
(a) receipt of advice from the Securities System that payment for such
Securities has been transferred to the Account of the custodian in
accordance with the rules of the Securities System, and (b) the making
of an entry on the records of the Custodian to reflect such transfer
and payment for the account of the Fund. Copies of all advices from the
Securities System relating to transfers of Securities for the account
of the Fund shall be maintained for the Fund by the Custodian. The
Custodian shall deliver to the Fund on the next succeeding business day
daily transaction reports which shall include each day's transactions
in the Securities System for the account of the Fund. Such transaction
reports shall be delivered to the Fund or any agent designated by the
Fund pursuant to Instructions, by computer or in such other manner as
the Fund and Custodian may agree.
(v) The Custodian shall, if requested by the Fund pursuant
toInstructions, provide the Fund with reports obtained by the Custodian
or any Subcustodian with respect to a Securities System's accounting
system, internal accounting control and procedures for safeguarding
Securities deposited in the Securities System.
(vi) Upon receipt of Special Instructions, the Custodian shall
terminate the use of any Securities System on behalf of the Fund as
promptly as practicable and shall take all actions reasonably
practicable to safeguard the Securities of the Fund maintained with
such Securities System.
(c) Free Delivery of Assets.
Notwithstanding any other provision of this Agreement and
except as provided in Section 3 hereof, the Custodian, upon receipt of Special
Instructions, will undertake to make free delivery of Assets, provided such
Assets are on hand and available, in connection with the Fund's transactions and
to transfer such Assets to such broker, dealer, Subcustodian, bank, agent,
Securities System or otherwise as specified in such Special Instructions.
(d) Exchange of Securities.
Upon receipt of Instructions, the Custodian will exchange portfolio
Securities held by it for the Fund for other Securities or cash paid in
connection with any reorganization, recapitalization. merger, consolidation, or
conversion of convertible Securities, and will deposit any such Securities in
accordance with th~ terms of any reorganization or protective plan. Without
Instructions, the Custodian is authorized to exchange Securities held by it in
temporary form for Securities in definitive form, to surrender Securities for
transfer into a name or nominee name as permitted in Section 4(b)(2), to effect
an exchange of shares in a stock split or when the par value of the stock is
changed, to sell any fractional shares, and, upon receiving payment therefor, to
surrender bonds or other Securities held by it at maturity or call.
(e) Purchases of Assets.
(52)
<PAGE>
(1) Securities Purchases. In accordance with Instructions, the
Custodian shall, with respect to a purchase of Securities, pay for such
Securities out of monies held for the Fund's account for which the purchase was
made, but only insofar as monies are available therein for such purpose, and
receive the portfolio Securities so purchased. Unless the Custodian has received
Special Instructions to the contrary, such payment will be made only upon
receipt of Securities by the Custodian, a clearing corporation of a national
Securities exchange of which the Custodian is a member, or a Securities System
in accordance with the provisions of Section 4(b)(3) hereof. Notwithstanding the
foregoing, upon receipt of Instructions: (i) in connection with a repurchase
agreement, the Custodian may release funds to a Securities System prior to the
receipt of advice from the Securities System that the Securities underlying such
repurchase agreement have been transferred by book-entry into the Account
maintained with such Securities System by the Custodian, provided that the
Custodian's instructions to the Securities System require that the Securities
System may make payment of such funds to the other party to the repurchase
agreement only upon transfer by book-entry of the Securities underlying the
repurchase agreement into such Account; (ii) in the case of Interest Bearing
Deposits, currency deposits, and other deposits, foreign exchange transactions,
futures contracts or options, pursuant to Sections 4(g), 4(h), 4(1), and 4(m)
hereof, the Custodian may make payment therefor before receipt of an advice of
transaction; and (iii) in the case of Securities as to which payment for the
Security and receipt of the instrument evidencing the Security are under
generally accepted trade practice or the terms of the instrument representing
the Security expected to take place in different locations or through separate
parties, such as commercial paper which is indexed to foreign currency exchange
rates, derivatives and similar Securities, the Custodian may make payment for
such Securities prior to delivery thereof in accordance with such generally
accepted trade practice or the terms of the instrument representing such
Security.
(2) Other Assets Purchased. Upon receipt of Instructions and except as
otherwise provided herein, the Custodian shall pay for and receive other Assets
for the account of the Fund as provided in Instructions.
(f) Sales of Assets.
(1) Securities Sold. In accordance with Instructions, the Custodian
will, with respect to a sale, deliver or cause to be delivered the Securities
thus designated as sold to the broker or other person specified in the
Instructions relating to such sale. Unless the Custodian has received Special
Instructions to the contrary, such delivery shall be made only upon receipt of
payment therefor in the form of: (a) cash, certified check, bank cashier's
check, bank credit, or bank wire transfer; (b) credit to the account of the
Custodian with a clearing corporation of a national Securities exchange of which
the Custodian is a member; or (c) credit to the Account of the Custodian with a
Securities System, in accordance with the provisions of Section 4(b)(3) hereof.
Notwith-standing the foregoing, Securities held in physical form may be
delivered and paid for in accordance with "street delivery custom" to a broker
or its clearing agent, against delivery to the Custodian of a receipt for such
Securities, provided that the Custodian shall have taken reasonable steps to
ensure prompt collection of the payment for, or return of, such Securities by
the broker or its clearing agent, and provided further that the Custodian shall
not be responsible for the selection of or the failure or inability to perform
of such broker or its clearing agent or for any related loss arising from
delivery or custody of such Securities prior to receiving payment therefor.
(2) Other Assets Sold. Upon receipt of Instructions and except as
otherwise provided herein, the Custodian shall receive payment for and deliver
other Assets for the account of the Fund as provided in Instructions.
(g) Options.
(1) Upon receipt of Instructions relating to the purchase of an option
or sale of a covered call option, the Custodian shall: (a) receive and retain
confirmations or other documents, if any, evidencing the purchase or writing of
the option by the Fund; (b) if the transaction involves the sale of a covered
call option, deposit and maintain in a segregated account the Securities (either
physically or by book-entry in a Securities System) subject to the covered call
option written on behalf of the Fund; and (c) pay, release and/or transfer such
Securities, cash or other Assets in accordance with any notices or other
communications evidencing the expiration, termination or exercise of such
options which are furnished to the Custodian by the Options Clearing Corporation
(the "OCC") , the securities or options exchanges on which such options were
traded, or such other organization as may be responsible for handling such
option transactions.
(53)
<PAGE>
(2) Upon receipt of Instructions relating to the sale of a naked
option (including stock index and commodity options), the Custodian, the Fund
and the broker-dealer shall enter into an agreement to comply with the rules of
the OCC or of any registered national securities exchange or similar
organizations(s). Pursuant to that agreement and the Fund's Instructions, the
Custodian shall: (a) receive and retain confirmations or other documents, if
any, evidencing the writing of the option; (b) deposit and maintain in a
segregated account, Securities (either physically or by book-entry in a
Securities System), cash and/or other Assets; and (c) pay, release and/or
transfer such Securities, cash or other Assets in accordance with any such
agreement and with any notices or other communications evidencing the
expiration, termination or exercise of such option which are furnished to the
Custodian by the OCC, the securities or options exchange on which such options
were traded, or such other organization as may be responsible for handling such
option transactions. The Fund and the broker-dealer shall be responsible for
determining the quality and quantity of assets held in any segregated account
established in compliance with applicable margin maintenance requirements and
the performance of other terms of any option contract.
(h) Futures Contracts.
Upon receipt of Instructions, the Custodian shall enter into a
futures margin agreement among the Fund, the Custodian and the designated
futures merchant (a "Procedural Agreement"). Under the Procedural Agreement the
Custodian shall: (a) receive and retain confirmations, if any, evidencing the
purchase or sale of a futures contract or an option on a futures contract by the
Fund; (b) deposit and maintain in a segregated account cash, Securities and/or
other Assets designated as initial, maintenance or variation "margin" deposits
intended to secure the Fund's performance of its obligations under any futures
contracts purchased or sold, or any options on futures contracts written by the
Fund, in accordance with the provisions of any Procedural Agreement designed to
comply with the provisions of the Commodity Futures Trading Commission and/or
any commodity exchange or contract market (such as the Chicago Board of Trade),
or any similar organization(s), regarding such margin deposits; and (c) release
Assets from and/or transfer Assets into such margin accounts only in accordance
with any such procedural Agreements. The Fund and such futures commission
merchant shall be responsible for determining the type and amount of Assets held
in the segregated account or paid to the broker-dealer in compliance with
applicable margin maintenance requirements and the performance of any futures
contract or option on a futures contract in accordance with its terms.
(i) Segregated Accounts.
Upon receipt of Instructions, the Custodian shall establish and
maintain on its books a segregated account or accounts for and on behalf of the
Fund, into which account or accounts may be transferred Assets of the Fund,
including Securities maintained by the Custodian in a Securities System pursuant
to Paragraph (b)(3) of this Section 4, said account or accounts to be maintained
(i) for the purposes set forth in Sections 4(g), 4(h) and 4(n) and (ii) for the
purpose of compliance by the Fund with the procedures required by the SEC
Investment Company Act Release Number 10666 or any subsequent release or
releases relating to the maintenance of segregated accounts by registered
investment companies, or (iii) for such other purposes as may be set forth, from
time to time, in Special Instructions. The Custodian shall not be responsible
for the determination of the type or amount of Assets to be held in any
segregated account referred to in this paragraph, or for compliance by the Fund
with required procedures noted in (ii) above.
(j) Depositary
Receipts.
Upon receipt of Instructions, the Custodian shall
surrender or cause to be surrendered Securities to the depositary
used for such Securities by an issuer of American Depositary
Receipts or International Depositary Receipts (hereinafter referred
to, collectively, as "ADRs"), against a written receipt therefor
adequately describing such Securities and written evidence
satisfactory to the organization surrendering the same that the
depositary has acknowledged receipt of instructions to issue ADRs
with respect to such Securities in the name of the Custodian or a
nominee of the Custodian, for delivery in accordance with such
instructions.
Upon receipt of Instructions, the Custodian shall
surrender or cause to be surrendered ADRs to the issuer thereof,
against a written receipt therefor adequately describing the ADRs
surrendered and written evidence satisfactory to the organization
surrendering the same that the issuer of the ADRs has acknowledged
receipt of instructions to cause its depository to deliver the
Securities underlying such ADRs in accordance with such
instructions.
(k) Corporate Actions, Put Bonds, Called Bonds, Etc.
Upon receipt of Instructions, the Custodian shall: (a) deliver
warrants, puts, calls, rights or similar Securities to the issuer or trustee
thereof (or to the agent of such issuer or trustee) for the purpose of exercise
or sale, provided that the new Securities, cash or other Assets, if any,
acquired as a result of such actions are to be delivered to the Custodian; and
(b) deposit Securities upon invitations for tenders thereof, provided that the
consideration for such Securities is to be paid or delivered to the Custodian,
or the tendered Securities are to be returned to the Custodian.
(54)
<PAGE>
Notwithstanding any provision of this Agreement to the contrary, the
Custodian shall take all necessary action, unless otherwise directed to the
contrary in Instructions, to comply with the terms of all mandatory or
compulsory exchanges, calls, tenders, redemptions, or similar rights of security
ownership, and shall notify the Fund of such action in writing by facsimile
transmission or in such other manner as the Fund and Custodian may agree in
writing.
The Fund agrees that if it gives an Instruction for the performance of
an act on the last permissible date of a period established by any optional
offer or on the last permissible date for the performance of such act, the Fund
shall hold the Bank harmless from any adverse consequences in connection with
acting upon or failing to act upon such Instructions.
(1) Interest Bearing Deposits.
Upon receipt of Instructions directing the Custodian to purchase
interest bearing fixed term and call deposits (hereinafter referred to,
collectively, as "Interest Bearing Deposits") for the account of the Fund, the
Custodian shall purchase such Interest Bearing Deposits in the name of the Fund
with such banks or trust companies, including the Custodian, any Subcustodian or
any subsidiary or affiliate of the Custodian (hereinafter referred to as
"Banking Institutions"), and in such amounts as the Fund may direct pursuant to
Instructions. Such Interest Bearing Deposits may be denominated in U.S. Dollars
or other currencies, as the Fund may determine and direct pursuant to
Instructions. The responsibilities of the Custodian to the Fund for Interest
Bearing Deposits issued by the Custodian shall be that of a U.S. bank for a
similar deposit. With respect to Interest Bearing Deposits other than those
issued by the Custodian, (a) the Custodian shall be responsible for the
collection of income and the transmission of cash to and from such accounts; and
(b) the Custodian shall have no duty with respect to the selection of the
Banking Institution or for the failure of such Banking Institution to pay upon
demand.
(m) Foreign Exchange Transactions Other than as
Principal.
(1) Upon receipt of Instructions, the Custodian shall settle foreign
exchange contracts or options to purchase and sell foreign currencies for spot
and future delivery on behalf of and for the account of the Fund with such
currency brokers or Banking Institutions as the Fund may determine and direct
pursuant to Instructions. The Fund accepts full responsibility for its use of
third party foreign exchange brokers and for execution of said foreign exchange
contracts and understands that the Fund shall be responsible for any and all
costs and interest charges which may be incurred as a result of the failure or
delay of its third party broker to deliver foreign exchange. The Custodian shall
have no responsibility with respect to the selection of the currency brokers or
Banking Institutions with which the Fund deals or, so long as the Custodian acts
in accordance with Instructions, for the failure of such brokers or Banking
Institutions to comply with the terms of any contract or option.
(2) Notwithstanding anything to the contrary contained herein, upon
receipt of Instructions the Custodian may, in connection with a foreign exchange
contract, make free outgoing payments of cash in the form of U.S. Dollars or
foreign currency prior to receipt of confirmation of such foreign exchange
contract or confirmation that the countervalue currency completing such contract
has been delivered or received.
(n) Pledges or Loans of Securities.
(1) Upon receipt of Instructions from the Fund, the Custodian will
release or cause to be released Securities held in custody to the pledges
designated in such Instructions by way of pledge or hypothecation to secure
loans incurred by the Fund with various lenders including but not limited to
United Missouri Bank, n.a. ; provided, however, that the Securities shall be
released only upon payment to the Custodian of the monies borrowed, except that
in cases where additional collateral is required to secure existing borrowings,
further Securities may be released or delivered, or caused to be released or
delivered for that purpose upon receipt of Instructions. Upon receipt of
Instructions, the Custodian will pay, but only from funds available for such
purpose, any such loan upon re-delivery to it of the Securities pledged or
hypothecated therefor and upon surrender of the note or notes evidencing such
loan. In lieu of delivering collateral to a pledge, the Custodian, on the
receipt of Instructions, shall transfer the pledged Securities to a segregated
account for the benefit of the pledge.
(55)
<PAGE>
(2) Upon receipt of Special Instructions, and execution of a separate
Securities Lending Agreement, the Custodian will release Securities held in
custody to the borrower designated in such Instructions and may, except as
otherwise provided below, deliver such Securities prior to the receipt of
collateral, if any, for such borrowing, provided that, in case of loans of
Securities held by a Securities System that are secured by cash collateral, the
Custodian's instructions to the Securities System shall require that the
Securities System deliver the Securities of the Fund to the borrower thereof
only upon receipt of the collateral for such borrowing. The Custodian shall have
no responsibility or liability for any loss arising from the delivery of
Securities prior to the receipt of collateral. Upon receipt of Instructions and
the loaned Securities, the Custodian will release the collateral to the
borrower.
(0) Stock Dividends, Rights, Etc.
The Custodian shall receive and collect all stock dividends, rights,
and other items of like nature and, upon receipt of Instructions, take action
with same as directed in such Instructions.
(p) Routine Dealings.
The Custodian will, in general, attend to all routine and mechanical
matters in accordance with industry standards in connection with the sale,
exchange, substitution, purchase, transfer, or other dealings with Securities or
other property of the Fund except as may be otherwise provided in this Agreement
or directed from time to time by Instructions from the Fund. The Custodian may
also make payments to itself or others from the Assets for disbursements and
out-of-pocket expenses incidental to handling Securities or other similar items
relating to its duties under this Agreement, provided that all such payments
shall be accounted for to the Fund.
(q) Collections.
The Custodian shall (a) collect amounts due and payable to the Fund
with respect to portfolio Securities and other Assets; (b) promptly credit to
the account of the Fund all income and other payments relating to portfolio
Securities and other Assets held by the Custodian hereunder upon Custodian's
receipt of such income or payments or as otherwise agreed in writing by the
Custodian and the Fund; (c) promptly endorse and deliver any instruments
required to effect such collection; and (d) promptly execute ownership and other
certificates and affidavits for all federal, state, local and foreign tax
purposes in connection with receipt of income or other payments with respect to
portfolio Securities and other Assets, or in connection with the transfer of
such Securities or other Assets; provided, however, that with respect to
portfolio Securities registered in so-called street name, or physical Securities
with variable interest rates, the Custodian shall use its best efforts to
collect amounts due and payable to the Fund. The Custodian shall notify the Fund
in writing by facsimile transmission or in such other manner as the Fund and
Custodian may agree in writing if any amount payable with respect to portfolio
Securities or other Assets is not received by the Custodian when due. The
Custodian shall not be responsible for the collection of amounts due and payable
with respect to portfolio Securities or other Assets that are in default.
(r) Bank Accounts.
Upon Instructions, the Custodian shall open and operate a bank account
or accounts on the books of the Custodian; provided that such bank account(s)
shall be in the name of the Custodian or a nominee thereof, for the account of
the Fund, and shall be subject only to draft or order of the Custodian. The
responsibilities of the Custodian to the Fund for deposits accepted on the
Custodian's books shall be that of a U.S. bank for a similar deposit.
(s) Dividends, Distributions and Redemptions.
To enable the Fund to pay dividends or other distributions to
shareholders of the Fund and to make payment to shareholders who have requested
repurchase or redemption of their shares of the Fund (collectively, the
"Shares"), the Custodian shall release cash or Securities insofar as available.
In the case of cash, the Custodian shall, upon the receipt of Instructions,
transfer such funds by check or wire transfer to any account at any bank or
trust company designated by the Fund in such Instructions. In the case of
Securities, the Custodian shall, upon the receipt of Special Instructions, make
such transfer to any entity or account designated by the Fund in such Special
Instructions.
(t) Proceeds from Shares Sold.
(56)
<PAGE>
The Custodian shall receive funds representing cash payments received
for shares issued or sold from time to time by the Fund, and shall credit such
funds to the account of the Fund. The Custodian shall notify the Fund of
Custodian's receipt of cash in payment for shares issued by the Fund by
facsimile transmission or in such other manner as the Fund and the Custodian
shall agree. Upon receipt of Instructions, the Custodian shall: (a) deliver all
federal funds received by the Custodian in payment for shares as may be set
forth in such Instructions and at a time agreed upon between the Custodian and
the Fund; and (b) make federal funds available to the Fund as of specified
times agreed upon from time to time by the Fund and the Custodian, in the
amount of checks received in payment for shares which are deposited to the
accounts of the Fund.
(u) Proxies and Notices; Compliance with the
Shareholders Communication Act of 1985.
The Custodian shall deliver or cause to be delivered to the Fund all
forms of proxies, all notices of meetings, and any other notices or
announcements affecting or relating to Securities owned by the Fund that are
received by the Custodian, any Subcustodian, or any nominee of either of them,
and, upon receipt of Instructions, the Custodian shall execute and deliver, or
cause such Subcustodian or nominee to execute and deliver, such proxies or other
authorizations as may be required. Except as directed pursuant to Instructions,
neither the Custodian nor any Subcustodian or nominee shall vote upon any such
Securities, or execute any proxy to vote thereon, or give any consent or take
any other action with respect thereto.
The Custodian will not release the identity of the Fund to an issuer
which requests such information pursuant to the Shareholder Communications Act
of 1985 for the specific purpose of direct communications between such issuer
and the Fund unless the Fund directs the Custodian otherwise in writing.
(v) Books and Records.
The Custodian shall maintain such records relating to its activities
under this Agreement as are required to be maintained by Rule 31a-l under the
Investment Company Act of 1940 ("the 1940 Act") and to preserve them for the
periods prescribed in Rule 31a-2 under the 1940 Act. These records shall be open
for inspection by duly authorized officers, employees or agents (including
independent public accountants) of the Fund during normal business hours of the
Custodian.
The Custodian shall provide accountings relating to its activities
under this Agreement as shall be agreed upon by the Fund and the Custodian.
(w) Opinion of Fund's Independent Certified Public
Accountants.
The Custodian shall take all reasonable action as the Fund may request
to obtain from year to year favorable opinions from the Fund's independent
certified public accountants with respect to the Custodian's activities
hereunder and in connection with the preparation of the Fund's periodic reports
to the SEC and with respect to any other requirements of the SEC.
(x) Reports by Independent Certified Public
Accountants.
At the request of the Fund, the Custodian shall deliver to the Fund a
written report prepared by the Custodian's independent certified public
accountants with respect to the services provided by the Custodian under this
Agreement, including, without limitation, the Custodian's accounting system,
internal accounting control and procedures for safeguarding cash, Securities and
other Assets, including cash, Securities and other Assets deposited and/or
maintained in a -Securities System or with a Subcustodian. Such report shall be
of sufficient scope and in sufficient detail as may reasonably be required by
the Fund and as may reasonably be obtained by the Custodian.
(y) Bills and Other Disbursements.
Upon receipt of Instructions, the Custodian shall pay, or cause to be
paid, all bills; statements, or other obligations of the Fund.
5. SUBCUSTODIANS.
(57)
<PAGE>
From time to time, in accordance with the relevant provisions of this
Agreement, the Custodian may appoint one or more Domestic Subcustodians, Foreign
Subcustodians, Special Subcustodians, or Interim Subcustodians (as each are
hereinafter defined) to act on behalf of the Fund. A.Domestic. Subcustodian, in
accordance with the provisions of this Agreement, may also appoint a Foreign
Subcustodian, Special Subcustodian, or Interim Subcustodian to act on behalf of
the Fund. For purposes of this Agreement, all Domestic Subcustodians, Foreign
Subcustodians, Special Subcustodians and Interim Subcustodians shall be referred
to collectively as "Subcustodians".
(a) Domestic Subcustodians.
The Custodian may, at any time and from time to time,
appoint any bank as defined in Section 2(a)(5) of the 1940 Act or
any trust company or other entity, any of which meet the
requirements of a custodian under Section 17(f) of the 1940 Act and
the rules and regulations thereunder, to act for the Custodian on
behalf of the Fund as a subcustodian for purposes of holding Assets
of the Fund and performing other functions of the Custodian within
the United States (a "Domestic Subcustodian"). The Fund shall
approve in writing the appointment of the proposed Domestic
Subcustodian; and the Custodian's appointment of any such Domestic
Subcustodian shall not be effective without such prior written
approval of the Fund. Each such duly approved Domestic Subrustodian
shall be listed on Appendix A attached hereto. as it may be amended,
from time to time.
(b) Foreign Subcustodians.
The Custodian may at any time appoint, or cause a Domestic
Subcustodian to appoint, any bank, trust company or other entity
meeting the requirements of an "eligible foreign custodian" under
Section 17(f) of the 1940 Act and the rules and regulations thereunder
to act for the Custodian on behalf of the Fund as a subcustodian or
sub-subcustodian (if appointed by a Domestic Subcustodian) for purposes
of holding Assets of the Fund and performing other functions of the
Custodian in countries other than the United States of America
(hereinafter referred to as a "Foreign Subcustodian" in the context of
either a subcustodian or a sub-subcustodian); provided that the
Custodian shall have obtained written confirmation from the Fund of the
approval of the Board of Directors or other governing body of the Fund
(which approval may be withheld in the sole discretion of such Board of
Directors or other governing body or entity) with respect to (i) the
identity of any proposed Foreign Subcustodian (including branch
designation), (ii) the country or countries in which, and the
securities depositories or clearing agencies (hereinafter "Securities
Depositories and Clearing Agencies"), if any, through which, the
Custodian or any proposed Foreign Subcustodian is authorized to hold
Securities and other Assets of the Fund, and (iii) the form and terms
of the subcustodian agreement to be entered into with such proposed
Foreign Subcustodian. Each such duly approved Foreign Subcustodian and
the countries where and the Securities Depositories and Clearing
Agencies through which they may hold Securities and other Assets of the
Fund shall be listed on Appendix A attached hereto, as it may be
amended, from time to time. The Fund shall be responsible for informing
the Custodian sufficiently in advance of a proposed investment which is
to be held in a country in which no Foreign Subcustodian is authorized
to act, in order that there shall be sufficient time for the Custodian,
or any Domestic Subcustodian, to effect the appropriate arrangements
with a proposed Foreign Subcustodian, including obtaining approval as
provided in this Section 5(b). In connection with the appointment of
any Foreign Subcustodian, the Custodian shall, or shall cause the
Domestic Subcustodian to, enter into a subcustodian agreement with the
Foreign Subcustodian in form and substance approved by the Fund. The
Custodian shall not consent to the amendment of, and shall cause any
Domestic Subcustodian not to consent to the amendment of, any agreement
entered into with a Foreign Subcustodian, which materially affects the
Fund's rights under such agreement, except upon prior written approval
of the Fund pursuant to Special Instructions.
(c) Interim Subcustodians.
(58)
<PAGE>
Notwithstanding the foregoing, in the event that the Fund shall invest
in an Asset to be held in a country in which no Foreign Subcustodian is
authorized to act, the Custodian shall notify the Fund in writing by facsimile
transmission or in such other manner as the Fund and Custodian shall agree in
writing of the unavailability of an approved Foreign Subcustodian in such
country; and upon the receipt of Special Instructions from the Fund, the
Custodian shall, or shall cause its Domestic Subcustodian to, appoint or approve
an entity (referred to herein as an "Interim Subcustodian") designated in such
Special Instructions to hold such Security or other Asset.
(d) Special Subcustodians.
Upon receipt of Special Instructions, the Custodian shall, on behalf of
the Fund, appoint one or more banks, trust companies or other entities
designated in such Special Instructions to act for the Custodian on behalf of
the Fund as a subcustodian for purposes of: (i) effecting third-party repurchase
transactions with banks, brokers, dealers or other entities through the use of a
common custodian or subcustodian; (ii) providing depository and clearing agency
services with respect to certain variable rate demand note Securities, (iii)
providing depository and clearing agency services with respect to dollar
denominated Securities, and (iv) effecting any other transactions designated by
the Fund in such Special Instructions. Each such designated subcustodian
(hereinafter referred to as a "Special Subcustodian") shall be listed on
Appendix A attached hereto, as it may be amended from time to time. In
connection with the appointment of any Special Subcustodian, the Custodian shall
enter into a subcustodian agreement with the Special Subcustodian in form and
substance approved by the Fund in Special Instructions. The Custodian shall not
amend any subcustodian agreement entered into with a Special Subcustodian, or
waive any rights under such agreement, except upon prior approval pursuant to
Special Instructions.
e) Termination of a Subcustodian.
The Custodian may, at any time in its discretion upon notification to
Fund, terminate any Subcustodian of the Fund in accordance with the termination
provisions under the applicable subcustodian agreement, and upon the receipt of
Special Instructions, the Custodian will terminate any Subcustodian in
accordance with the termination provisions under the applicable subcustodian
agreement.
(f) Certification Regarding Foreign Subcustodians.
Upon the request of the Fund, the Custodian shall deliver to the Fund a
certificate stating: (i) the identity of each Foreign Subcustodian then acting
on behalf of the Custodian; (ii) the countries in which and the Securities
Depositories and Clearing Agencies through which each such Foreign Subcustodian
is then holding cash, Securities and other Assets of the Fund; and (iii) such
other information as may be requested by the Fund, and as the Custodian shall be
reasonably able to obtain, to evidence compliance with rules and regulations
under the 1940 Act.
6. STANDARD OF CARE.
(59)
<PAGE>
(a) General Standard of Care.
The Custodian shall be liable to the Fund for all losses, damages and
reasonable costs and expenses suffered or incurred by the Fund resulting from
the gross negligence or willful misfeasance of the Custodian; provided, however,
in no event shall the Custodian be liable for special, indirect or consequential
damages arising under or in connection with this Agreement.
(b) Actions Prohibited by Applicable Law, Events
Beyond Custodian's Control, Sovereign Risk, Etc.
In no event shall the Custodian or any Domestic Subcustodian incur
liability hereunder if the Custodian or any Subcustodian or Securities System,
or any subcustodian, Securities System, Securities Depository or Clearing Agency
utilized by the Custodian or any such Subcustodian, or any nominee of the
Custodian or any Subcustodian (individually, a "Person") is prevented, forbidden
or delayed from performing, or omits to perform, any act or thing which this
Agreement provides shall be performed or omitted to be performed, by reason of:
(i) any provision of any present or future law or regulation or order of the
United States of America, or any state thereof, or of any foreign country, or
political subdivision thereof or of any court of competent jurisdiction (and
neither the Custodian nor any other Person shall be obligated to take any action
contrary thereto); or (ii) any event beyond the control of the Custodian or
other Person such as armed conflict, riots, strikes, lockouts, labor disputes,
equipment or transmission failures, natural disasters, or failure of the mails,
transportation, communications or power supply; or (iii) any "Sovereign Risk." A
"Sovereign Risk" shall mean nationalization, expropriation, devaluation,
revaluation, confiscation, seizure, cancellation, destruction or similar action
by any governmental authority, de facto or de jure; or enactment, promulgation,
imposition or enforcement by any such governmental authority of currency
restrictions, exchange controls, taxes, levies or other charges affecting the
Fund's Assets; or acts of armed conflict, terrorism, insurrection or revolution;
or any other act or event beyond the Custodian's or such other Person's control.
(c) Liability for Past Records.
Neither the Custodian nor any Domestic Subcustodian shall have any
liability in respect of any loss, damage or expense suffered by the Fund,
insofar as such loss, damage or expense arises from the performance of the
Custodian or any Domestic Subcustodian in reliance upon records that were
maintained for the Fund by entities other than the Custodian or any Domestic
Subcustodian prior to the Custodian's employment hereunder.
(d) Advice of Counsel.
The Custodian and all Domestic Subcustodians shall be entitled to
receive and act upon advice of counsel of its own choosing on all matters. The
Custodian and all Domestic Subcustodians shall be without liability for any
actions taken or omitted in good faith pursuant to the advice of counsel.
(e) Advice of the Fund and Others.
The Custodian and any Domestic Subcustodian may rely upon the advice of
the Fund and upon statements of the Fund's accountants and other persons
believed by it in good faith to be expert in matters upon which they are
consulted, and neither the Custodian nor any Domestic Subcustodian shall be
liable for any actions taken or omitted, in good faith, pursuant to such advice
or statements.
(f) Instructions Appearing to be Genuine.
The Custodian and all Domestic Subcustodians shall be fully
protected and indemnified in acting as a custodian hereunder upon any
Resolutions of the Board of Directors or Trustees, Instructions, Special
Instructions, advice, notice, request, consent, certificate, instrument or paper
appearing to it to be genuine and to have been properly executed and shall,
unless otherwise specifically provided herein, be entitled to receive as
conclusive proof of any fact or matter required to be ascertained from the Fund
hereunder a certificate signed by any officer of the Fund authorized to
countersign or confirm Special Instructions.
(g) Exceptions from Liability.
Without limiting the generality of any other provisions hereof, neither
the Custodian nor any Domestic Subcustodian shall be under any duty or
obligation to inquire into, nor be liable for:
(i) the validity of the issue of any Securities purchased by or for the
Fund, the legality of the purchase thereof or evidence of ownership
required to be received by the Fund, or the propriety of the decision
to purchase or amount paid therefor;
(ii) the legality
of the sale of any Securities by or for the Fund, or the
propriety of the amount for which the same were sold; or
(iii) any other
expenditures, encumbrances of Securities, borrowingsor
similar actions with respect to the Fund's Assets;
and may, until notified to the contrary, presume that all Instructions
or Special Instructions received by it are not in conflict with or in any way
contrary to any provisions of the Fund's Declaration of Trust, Partnership
Agreement, Articles of Incorporation or By-Laws or votes or proceedings of the
shareholders, trustees, partners or directors of the Fund, or the Fund's
currently effective Registration Statement on file with the SEC.
7. LIABILITY OF THE CUSTODIAN FOR ACTIONS OF OTHERS.
(60)
<PAGE>
(a) Domestic Subcustodians
The Custodian shall be liable for the acts or omissions of any Domestic
Subcustodian to the same extent as if such actions or omissions were performed
by the Custodian itself.
(b) Liability for Acts and Omissions of Foreign
Subcustodians.
The Custodian shall be liable to the Fund for any loss or damage to the
Fund caused by or resulting from the acts or omissions of any Foreign
Subcustodian to the extent that, under the terms set forth in the subcustodian
agreement between the Custodian or a Domestic Subcustodian and such Foreign
Subcustodian, the Foreign Subcustodian has failed to perform in accordance with
the standard of conduct imposed under such subcustodian agreement and the
Custodian or Domestic Subcustodian recovers from the Foreign Subcustodian under
the applicable subcustodian agreement.
(c) Securities Systems, Interim Subcustodians,
Special Subcustodians, Securities Depositories and Clearing
Agencies.
The Custodian shall not be liable to the Fund for any loss, damage
or expense suffered or incurred by the Fund resulting from or occasioned by the
actions or omissions of a Securities System, Interim Subcustodian, Special
Subcustodian, or Securities Depository and Clearing Agency unless such loss,
damage or expense is caused by, or results from, the gross negligence or willful
misfeasance of the Custodian.
(d) Defaults or Insolvencies of Brokers, Banks, Etc.
The Custodian shall not be liable for any loss, damage or expense suffered or
incurred by the Fund resulting from or occasioned by the actions, omissions,
neglects, defaults or insolvency of any broker, bank, trust company or any other
person with whom the Custodian may deal (other than any of such entities acting
as a Subcustodian, Securities System or Securities Depository and Clearing
Agency, for whose actions the liability of the Custodian is set out elsewhere in
this Agreement) unless such loss, damage or expense is caused by, or results
from, the gross negligence or willful misfeasance of the Custodian.
(e) Reimbursement of Expenses.
The Fund agrees to reimburse the Custodian for all out-of-pocket
expenses incurred by the Custodian in connection with this Agreement, but
excluding salaries and usual overhead expenses.
8. INDEMNIFICATION.
(a) Indemnification by Fund.
(61)
<PAGE>
Subject to the limitations set forth in this Agreement, the Fund agrees
to indemnify and hold harmless the Custodian and its nominees from all losses,
damages and expenses (including attorneys' fees) suffered or incurred by the
Custodian or its nominee caused by or arising from actions taken by the
Custodian, its employees or agents in the performance of its duties and
obligations under this Agreement, including, but not limited to, any
indemnification obligations undertaken by the Custodian under any relevant
subcustodian agreement; provided, however, that such indemnity shall not apply
to the extent the Custodian is liable under Sections 6 or 7 hereof.
If the Fund requires the Custodian to take any action with respect to
Securities, which action involves the payment of money or which may, in the
opinion of the Custodian, result in the Custodian or its nominee assigned to the
Fund being liable for the payment of money or incurring liability of some other
form, the Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
(b) Indemnification by Custodian.
Subject to the limitations set forth in this Agreement and in addition
to the obligations provided in Sections 6 and 7, the Custodian agrees to
indemnify and hold harmless the Fund from all losses, damages and expenses
suffered or incurred by the Fund caused by the gross negligence or willful
misfeasance of the Custodian.
9. ADVANCES.
In the event that, pursuant to Instructions, the Custodian or any
Subcustodian, Securities System, or Securities Depository or Clearing Agency
acting either directly or indirectly under agreement with the Custodian (each of
which for purposes of this Section 9 shall be referred to as "Custodian"), makes
any payment or transfer of funds on behalf of the Fund as to which there would
be, at the close of business on the date of such payment or transfer,
insufficient funds held by the Custodian on behalf of the Fund, the Custodian
may, in its discretion without further Instructions, provide an advance
("Advance") to the Fund in an amount sufficient to allow the completion of the
transaction by reason of which such payment or transfer of funds is to be made.
In addition, in the event the Custodian is directed by Instructions to make any
payment or transfer of funds on behalf of the Fund as to which it is
subsequently determined that the Fund has overdrawn its cash account with the
Custodian as of the close of business on the date of such payment or transfer,
said overdraft shall constitute an Advance. Any Advance shall be payable by the
Fund on demand by Custodian, unless otherwise agreed by the Fund and the
Custodian, and shall accrue interest from the date of the Advance to the date of
payment by the Fund to the Custodian at a rate agreed upon in writing from time
to time by the Custodian and the Fund. It is understood that any transaction in
respect of which the Custodian shall have made an Advance, including but not
limited to a foreign exchange contract or transaction in respect of which the
Custodian is not acting as a principal, is for the account of and at the risk of
the Fund, and not, by reason of such Advance, deemed to be a transaction
undertaken by tbe Custodian for its own account and risk. The Custodian and the
Fund acknowledge that the purpose of Advances is to finance temporarily the
purchase or sale of Securities for prompt delivery in accordance with the
settlement terms of such transactions or to meet emergency expenses not
reasonably foreseeable by the Fund. The Custodian shall promptly notify the Fund
of any Advance. Such notification shall be sent by facsimile transmission or in
such other manner as the Fund and the Custodian may agree.
10. LIENS.
The Bank shall have a lien on the Property in the Custody Account to
secure payment of fees and expenses for the services rendered under this
Agreement. If the Bank advances cash or securities to the Fund for any purpose
or in the event that the Bank or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of its duties hereunder, except such as may arise from its or
its nominee's negligent action, negligent failure to act or willful misconduct,
any Property at any time held for the Custody Account shall be security therefor
and the Fund hereby grants a security interest therein to the Bank. The Fund
shall promptly reimburse the Bank for any such advance of cash or securities or
any such taxes, charges, expenses, assessments, claims or liabilities upon
request for payment, but should the Fund fail to so reimburse the Bank, the Bank
shall be entitled to dispose of such Property to the extent necessary to obtain
reimbursement. The Bank shall be entitled to debit any account of the Fund with
the Bank including, without limitation, the Custody Account, in connection with
any such advance and any interest on such advance as the Bank deems reasonable.
11. COMPENSATION.
Payment for the Bank's compensation for services rendered hereunder shall be the
responsibility of the Fund The Fund represents that by separate agreement it has
appointed Fund/Plan as its agent, and that Fund/Plan, as agent for the Fund, has
agreed to pay the compensation payable in respect of such services promptly upon
receipt of statements therefore. The Fund shall pay to Fund/Plan fees for
services (including the Bank's custodian services) in accordance with the terms
of an agreement between Fund/Plan and the Fund. The Fund hereby directs the Bank
to (i) send all statements for compensation to its attention care of Fund/Plan
at the following address: Fund/Plan Services, Inc., 2 W. Elm Street,
Conshohocken, PA 19428, Attention: Mr. Elmer Gardner, Senior Vice President, and
(ii) accept all payments made by Fund/Plan in the Fund's name as if such
payments were made directly by the Fund. The Custodian's compensation for
services rendered hereunder is set forth in an agreement between the Bank and
Fund/Plan. Should Fund/Plan fail to pay or remit such compensation to the Bank,
the Bank will be entitled to debit the Custody Account directly for such
compensation. In the absence of sufficient cash in the Custody Account to cover
compensation, the Fund shall promptly pay the bank for the unpaid compensation
due hereunder. In the absence of prompt payments for the Fund of the unpaid
compensation, the Bank shall be entitled to exercise, in addition to all other
rights existing in law or equity, the rights set forth in Section 10 hereof.
(62)
<PAGE>
12. POWERS OF ATTOENEY.
Upon request, the Fund shall deliver to the Custodian such proxies,
powers of attorney or other instruments as may be reasonable and necessary or
desirable in connection with the performance by the Custodian or any
Subcustodian of their respective obligations under this Agreement or any
applicable subcustodian agreement.
13. TERMINATION AND ASSIGNMENT
The Fund or the Custodian may terminate this Agreement by notice in
writing, delivered or mailed, postage prepaid (certified mail, return receipt
requested) to the other not less than 90 days prior to the date upon which such
termination shall take effect. Upon termination of this Agreement, the Fund
shall pay to the Custodian such fees as may be due the Custodian hereunder as
well as its reimbursable disbursements, costs and expenses paid or incurred.
Upon termination of this Agreement, the Custodian shall deliver, at the
terminating party's expense, all Assets held by it hereunder to the Fund or as
otherwise designated by the Fund by Special Instructions. Upon such delivery,
the Custodian shall have no further obligations or liabilities under this
Agreement except as to the final resolution of matters relating to activity
occurring prior to the effective date of termination.
This Agreement may not be assigned by the Custodian or the Fund without
the respective consent of the other, duly authorized by a resolution by its
Board of Directors or Trustees.
14. NOTICES.
Notices, requests, instructions and other writings delivered to the
Fund at 1325 - Fourth Avenue, #2144, Seattle, Washington 98101, postage prepaid,
or such other address as the Fund may have designated to the Custodian in
writing, shall be deemed to have been properly delivered or given to the Fund.
The Fund shall give prior notice to the Bank of any change in its place
of incorporation or organization, mailing address, or sponsors, any significant
change in management, investment objectives, fees or redemption rights and any
change to the appointment of Fund/Plan as its agent.
Notices, requests, instructions and other writings delivered to the
Securities Administration Department of the Custodian at its office at 928 Grand
Avenue, Kansas City, Missouri, or mailed postage prepaid, to the Custodian's
Securities Administration Department, Post Office Box 226, Kansas City,
Missouri64141, or to such other addresses as the Custodian may have designated
to the Fund in writing, shall be deemed to have been properly delivered or given
to the Custodian hereunder; provided, however, that procedures for the delivery
of Instructions and Special Instructions shall be governed by Section 2(c)
hereof.
15. MISCELLANEOUS.
(a) This Agreement is executed and delivered in the State of Missouri
and shall be governed by the laws of such state.
(b) All of the terms and provisions of this Agreement shall be binding
upon, and inure to the benefit of, and be enforceable by the respective
successors and assigns of the parties hereto.
(c) No provisions of this Agreement may be amended, modified or waived,
in any manner except in writing, properly executed by both parties hereto;
provided, however, Appendix A may be amended from time to time as Domestic
Subcustodians, Foreign Subcustodians, Special Subcustodians, and Securities
Depositories and Clearing Agencies are approved or terminated according to the
terms of this Agreement.
(d) The captions in this Agreement are included for convenience of
reference only, and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
(63)
<PAGE>
(e) This Agreement shall be effective as of the
date of execution hereof.
(f) This Agreement may be executed simultaneously in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
(g) The following terms are defined terms within the meaning of this
Agreement and the definitions thereof are found in the following sections of the
Agreement.
Term Section
Account
4(b)(3)(ii)
ADR' S 4(j)
Advance 9
Assets 2
Authorized Person 3
( Banking Institution 4(1)
Domestic Subcustodian 5(a)
Foreign Subcustodian 5(b)
Instruction 2
Interim Subcustodian 5(c)
Interest Bearing Deposit 4(1)
Liability 10
OCC 4(g)(2)
Person 6(b)
Procedural Agreement 4(h)
SEC 4(b) (3)
Securities 2
Securities Depositories and 5(b)
Clearing Agencies
Securities System 4(b) (3)
Shares 4(s)
Sovereign Risk 6(b)
Special Instruction 2
Special Subcustodian 5(c)
Subcustodian 5
1940 Act 4(v)
(h) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid by any court of competent
jurisdiction, the remaining portion or portions shall be considered severable
and shall not be affected, and the rights and obligations of the parties shall
be construed and enforced as if this Agreement did not contain the particular
part, term or provision held to be illegal or invalid.
(i) This Agreement constitutes the entire understanding and agreement
of the parties hereto with respect to the subject matter hereof, and accordingly
supersedes, as of the effective date of this Agreement, any custodian agreement
heretofore in effect between the Fund and the Custodian.
(64)
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Custody Agreement to be
executed by their duly respective authorized officers.
THE ELITE GROUP UMB BANK, N.A.
By: _________Richard S. McCormick______________ By:
- --------------------------------------------
Title: ___________President ____________________
Title: __________________________________________
[FUND]
By: /s/ Richard S. McCormick_____________
Title: ____________President _________________
(65)
<PAGE>
APPENDIX A
DOMESTIC SUBCUSTODIANS:
United Missouri Trust Company of New York
Brown Brothers Harriman & Company (Foreign
Securities Only)
SECURITIES SYSTEMS:
Federal Book Entry
Depository Trust Company
Participant's Trust Company
SPECIAL SUBCUSTODIANS:
SECURITIES DEPOSITORIES
COUNTRIES FOREIGN SUBCUSTODIANS AND
CLEARING AGENCIES
Euroclear
(66)
<PAGE>
APPENDIX B
CUSTODY AGREEMENT
The following open-end management investment companies ("Funds") are hereby made
parties to the Custody Agreement dated November 2, 1994, with UMB Bank, n.a.
("Custodian") and The Elite Group, and agree to be bound by all the terms and
conditions contained in said Agreement:
LIST THE FUNDS
Elite Growth and Income Fund
Elite Income Fund
ATTEST:
_____/s/___________________________ THE ELITE GROUP
By: /s/
Richard S. McCormick
Name: Richard S.
McCormick
Title: President
Date: 4-19-96
ATTEST:
/S/ Sandy Wesbach UMB BANK,
N.A.
By: /s/ Ralph R.
Santoro
Name: Ralph R. Santoro
Title: Vice
President
Date: April 12, 1996
(67)
<PAGE>
EXHIBIT (h)
Administration Agreement
Accounting Services Agreement
Powers of Attorney
(68)
<PAGE>
ADMINISTRATION AGREEMENT
This Agreement, dated as of the 7th day of
September , 1986, made by and between The Elite
Group (The "Trust"), a business trust operating as an open-end investment
company duly organized and existing under the laws of the state of
Massachusetts, and Fund/Plan Services, Inc. ("company"), duly organized and
existing under the laws of the Commonwealth of Pennsylvania.
WITNESSETH THAT:
WHEREAS, the Trust consists of two Funds, namely the Income Fund
and the Appreciation Fund; and
WHEREAS, Company has agreed to act as Transfer Agent of the Trust, as its
Dividend Disbursing Agent, and as Administrator of the Plans of the Trust, and
Company also has agreed to act for the Trust in other respects as hereinafter
stated; and
NOW, THEREFORE, in consideration of the premises and mutual covenants contained
herein, the parties hereto, intending to be legally bound, do hereby agree as
follows:
Section 1. The terms as defined in this Section wherever used in this
Agreement, or in any amendment or supplement hereto, shall have the meanings
herein specified unless the context otherwise requires.
Company: The term Company shall mean Fund/Plan
Services, Inc.
Trust: The term Trust shall mean The Elite Group.
Share Certificates: The term Share Certificates shall
mean the share certificates for the Shares of the Trust.
Shareholders: The term Shareholders shall mean the registered
owners from time to time of the Shares of the Trust in accordance
with the share registry records of the Trust.
Shares: The term Shares shall mean the issued and
outstanding shares of the Trust.
Oral Instruction: The term Oral Instruction shall mean an
authorization, instruction, approval1 item or set of data, or information of any
kind transmitted to the Company in person or by telephone, telegram, telecopy or
other mechanical or documentary means lacking original signature, by a person or
persons believed in good faith by the Company to be a person or persons
authorized by a resolution of the Board of Trustees of the Trust, to give Oral
Instructions on behalf of the Trust.
(69)
<PAGE>
Written Instruction: The term Written Instruction shall mean an
authorization, instruction, approval, item or set of data or information of any
kind transmitted to the Company in original writing containing original
signatures or a copy of such document transmitted by telecopy including
transmission of such signature believed in good faith by the Company to be the
signature of a person authorized by a resolution of the Board of Trustees of the
Trust to give Written Instructions on behalf of the Trust.
Section 2. The Trust hereby appoints Company as its Transfer, Redemption
and Dividend Disbursing Agent and as Administrator of its Plans, and Company
accepts such appointments and agrees to act in such capacities upon the terms
set forth in this agreement.
TRANSFER AGENCY
Section 3. The Trust shall furnish to Company as Transfer Agent a
sufficient supply of blank Share Certificates and from time to time will renew
such supply upon the request of Company. Such blank Share Certificates shall be
signed manually or by facsimile signatures of officers of the Trust authorized
by law or the by-laws of the Trust to sign Share Certificates and, if required,
shall bear the Trust seal or a facsimile thereof.
Section 4. Company as Transfer Agent, shall make original issues of Shares
in accordance with Sections 14 and 15 below and with the Trust's Prospectus upon
the written request of the Trust and upon being furnished with a certified copy
of a resolution or resolutions of the Board of Trustees of Trust authorizing
such issue; (ii) an opinion of counsel as to the validity of such additional
Shares; and (iii) necessary funds for the payment of any original issue tax
applicable to such additional Shares.
Section 5. Transfers of Shares shall be registered and new Share
Certificates issued by Company upon surrender of outstanding Share Certificates
(i) in form deemed by Company to be properly endorsed for transfer, (ii) with
all necessary endorsers' signatures guaranteed by a member firm of a national
securities exchange or a commercial Bank, accompanied by (iii) such assurances
as Company shall deem necessary or appropriate to evidence the genuineness and
effectiveness of each necessary endorsement, and (iv) satisfactory evidence of
compliance with all applicable laws relating to the payment or collection of
taxes.
(70)
<PAGE>
Section 6. When mail is used for delivery of Share Certificates
Company shall forward Share Certificates in "non-negotiable" form by first-class
mail, and Share Certificates in "negotiable" form by registered mail, all mail
deliveries to be covered while in transit to the addressee by insurance
arranged for by Company.
Section 7. In registering transfers Company as Transfer Agent may
rely upon the Uniform Commercial Code or any other statutes which in the opinion
of counsel protect Company and the Trust in not requiring complete
documentation, in registering transfer without inquiry into adverse claims, in
delaying registration for purposes of such inquiry, or in refusing registration
where in its judgment an adverse claim requires such refusal.
Section 8. Company as Transfer Agent may issue new Share Certificates
in place of Share Certificates represented to have been lost, destroyed or
stolen, upon receiving indemnity satisfactory to Company and may issue new Share
Certificates in exchange for and upon surrender of mutilated Share Certificates.
Section 9. In case any officer of the Trust who shall have signed manually
or whose facsimile signature shall have been affixed to blank Share Certificates
shall die, resign or be removed prior to the issuance of such Share
Certificates, Company as Transfer Agent may issue or register such Share
Certificates as the Share Certificates of the Trust notwithstanding such death,
resignation or removal; and the Trust shall file promptly with Company such
approval, adoption or ratification as may be required by law.
Section 10. Company will maintain stock registry records in the usual form
in which it will note the issuance, transfer and redemption of Shares and the
issuance and transfer of Share Certificates, and is also authorized to maintain
an account entitled Unissued Certificate Account in which it will record the
Shares and fractions issued and outstanding from time to time for which issuance
of Share Certificates is deferred. The Trust or its authorized agent is
responsible to provide Company reports of Trust Share purchases, redemptions and
total Shares outstanding on the next business day after each net asset
valuation. Company is authorized to keep records, which will be part of the
stock transfer records, as well as its records of the Plans, in which it will
note the names and registered addresses of Shareholders and Planholders, and the
number of Shares and fractions from time to time owned by them for which no
Share Certificates are outstanding. Each Shareholder or Planholder will be
assigned a single account number even though Shares held under each Plan and
Shares for which Certificates have been issued will be accounted for separately.
Whenever a Shareholder deposits Shares represented by Share Certificates in a
Plan permitting the deposit of Shares thereunder, Company, as transfer agent,
upon receipt of the Share Certificates registered in the name of the Shareholder
(or if not so registered, in proper form for transfer); shall cancel such Share
Certificates, debit the Shareholder's individual stock account and credit the
Shares to the Unissued Share Certificate Account. Company, as Plan
Administrator, shall credit the Shares so deposited to the proper Plan account.
(71)
<PAGE>
Section 11. Company will issue Share Certificates for Shares of the Trust,
only upon receipt of a written request from a Shareholder. In all other cases,
the Trust authorizes company to dispense with the issuance and counter-signature
of Share Certificates whenever Shares are purchased. In such case company as
Transfer Agent, shall merely note on its stock registry records the issuance of
the Shares and fractions (if any), shall credit the Unissued Certificate Account
with the Shares and fractions issued and shall credit the proper number of
Shares and fractions to the respective Shareholders. Likewise, whenever company
has occasion to surrender for redemption Shares and fractions owned by
Shareholders, it shall be unnecessary to issue Share Certificates for redemption
purposes. The Trust authorizes Company in such cases to process the transactions
by appropriate entries in its share transfer records, and debiting of the
Unissued Certificate Account and the record of issued Shares outstanding.
Section 12. Company in its capacity as Transfer Agent will, in addition to
the duties and functions above-mentioned, perform the usual duties and functions
of a Stock Transfer Agent for a corporation. It will countersign for issuance or
reissuance Share Certificates representing original issue or reissued treasury
Shares as directed by the Written Instructions of the Trust and will transfer
Share Certificates registered in the name of Shareholders from one Shareholder
to another in the usual manner. Company may rely conclusively and act without
further investigation upon any list, instruction, certification, authorization,
Share Certificate or other instrument or paper believed by it in good faith to
be genuine and unaltered, and to have been signed, countersigned, or executed by
duly authorized person or persons, or upon the instructions of any officer of
the Trust, or upon the advice of counsel for the Trust or for Company. Company
may record any transfer of Share Certificates which is believed by it in good
faith to have been duly authorized or may refuse to record any transfer of Share
Certificates if in good faith Company in its capacity as Transfer Agent deems
such refusal necessary in order to avoid any liability either to the Trust or to
Company. The Trust agrees to indemnify and hold harmless Company from and
against any and all losses, costs, claims, and liability which it may suffer or
incur by reason of so relying or acting or refusing to act.
Section 13. In case of any request or demand for the inspection of the
share records of the Trust, Company as Transfer Agent, shall endeavor to notify
the Trust and to secure instructions as to permitting or refusing such
inspection. However, Company may exhibit such records to any person in any case
where it is advised by its counsel that it may be held liable for failure so to
do.
(72)
<PAGE>
ISSUANCE OF SHARES
Section 14. Prior to the daily determination of net asset value in accordance
with the Trust's Prospectus, Company shall process all purchase orders received
since the last determination of the Trust's net asset value. Company shall
calculate daily the amount available for investment in Shares at the net asset
value determined by the Trust as of the close of trading on the New York Stock
Exchange, the number of Shares and fractional Shares to be purchased and the net
asset value to be deposited with the Custodian. Company as agent for the
Shareholders and Planholders, shall place a purchase order daily with the Trust
for the proper number of Shares and fractional Shares to be purchased and
confirm such number to the Trust in writing.
Section 15. Company having made the calculations provided for in Section
14, shall thereupon pay over the net asset value of shares purchased to the
Custodian. The proper number of Shares and fractional Shares shall then be
issued daily and credited by Company to the Unissued Certificate Account. The
Shares and fractional Shares purchased for each Shareholder and Planholder will
be credited by Company to his separate Account. Company shall mail to each
Shareholder and Planholder a confirmation of each purchase, with copies to the
Trust if requested. Such confirmations will show the prior Share Balance, the
new Share balance, the Shares held under a Plan (if any), the Shares for which
Stock Certificates are outstanding (if any), the amount invested and the price
paid for the newly purchased Shares.
REDEMPTIONS
Section 16. Company shall, prior to the daily determination of net asset
value in accordance with the Trust's Prospectus, process all requests from
Shareholders to redeem Shares and determine the number of Shares required to be
redeemed to make monthly payments, automatic payments or the like. Thereupon,
Company shall advise the Trust of the total number of shares available for
redemption and the number of Shares and fractional Shares requested to be
redeemed. The Trust or its authorized agent shall then quote to Company the
applicable net asset value, whereupon Company shall furnish the Trust with an
appropriate confirmation of the redemption and process the redemption by filing
with the Custodian an appropriate statement and making the proper distribution
and application of the redemption proceeds in accordance with the Trust's
Prospectus. The share registry books recording outstanding Shares, the Unissued
Certificate Account and the individual account of the Shareholder or Planholder
shall be properly debited.
(73)
<PAGE>
Section 17. The proceeds of redemption shall be remitted by Company in
accordance with the Trust's Prospectus by check mailed to the Shareholder or
Planholder at his registered address. If Share Certificates have been issued for
Shares being redeemed, then such Share Certificates and a stock power with a
signature guarantee of a commercial bank, trust company, or a member firm of a
national securities exchange shall accompany the redemption request. If Share
Certificates have not been issued to the redeeming Shareholder, the signature of
the Shareholder on the redemption request must be similarly guaranteed. The
Trust may authorize Company to waive the signature guarantee in certain cases by
Written Instructions.
For the purposes of redemption of Shares which have been purchased within 15
days of a redemption request, the Trust shall provide Company, from time to
time, with Written Instructions concerning the time within which such requests
may be honored.
DIVIDENDS
Section 18. Upon the declaration of each dividend and each capital gains
distribution by the Board of Trustees of the Trust, the Trust shall notify
Company of the date of such declaration, the amount payable per share, the
record date for determining the Shareholders entitled to payment, the payment
and the reinvestment date price.
Section 19. On or before each payment date the Trust will transfer, or
cause the Custodian to transfer, to Company in its capacity as Dividend
Disbursing Agent, the total amount of the dividend or distribution currently
payable. Company will, on the designated payment date, automatically reinvest
all dividends in additional shares except in cases where Shareholders have
elected to receive Shares in cash, in which case Company will mail distribution
checks to the Shareholders for the proper amounts payable to them.
GENERAL PROVISIONS
Section 20. Company shall maintain records (which may be part of the stock
transfer records) in connection with the issuance and redemption of Shares, the
disbursement of dividends and the administration of the Plans and dividend
reinvestments, in which will be noted the transactions effected for each
Shareholder and Planholder and the number of Shares and fractional Shares owned
by each for which no Share Certificates are outstanding. Company agrees to make
available upon request and to preserve for the periods prescribed in Rule 31a-2
any records relating to services provided under this Agreement which are
required to be maintained by Rule 31a-1.
(74)
<PAGE>
Section 21. In addition to the services as Transfer Agent, Dividend
Disbursing Agent and Administrator as above set forth, Company will perform
other services for the Trust as agreed from time to time, including but not
limited to, preparation of and mailing Federal Tax Information Forms, mailing
semi-annual reports of the Trust, preparation of one annual list of
Shareholders, and mailing notices of Shareholders' meetings, proxies and proxy
statements.
Section 22. Nothing contained in this Agreement is intended to or shall
require Company in any capacity hereunder, to perform any functions or duties on
any holiday, day of special observance or any other day on which Company or the
New York Stock Exchange are closed. Functions or duties normally scheduled to be
performed on such days shall be performed on, and as of, the next business day
on which both the New York Stock Exchange and the Company are open.
Section 23. The Trust agrees to pay Company compensation for its services
and to reimburse it for expenses, as set forth in Schedule A attached hereto, or
as shall be set forth in amendments to such Schedule. The Fund authorizes the
Company to debit the Fund's custody account for invoices which are rendered for
the services performed for the transfer agent function. The invoices for the
service will be sent to the Fund after the debiting with the indication that
payment has been made.
.
Section 24. Company in acting for Planholders, or in any other capacity
set forth in this Agreement, shall not be personally liable for any taxes,
assessments, or governmental charges which may be levied or assessed on any
basis whatsoever in connection with the administration of the Plans, excepting
only for taxes assessed against it in its corporate capacity arising out of its
compensation hereunder.
Section 25. The Trust shall indemnify Company and save it harmless from
any and against any and all actions, suits and claims, whether groundless or
otherwise, arising directly or indirectly out of or in connection with its
performance under this Agreement as Transfer Agent, Dividend Disbursing Agent
and Administrator of Plans and from and against any and all losses, damages,
costs, charges, counsel fees, payments, expenses and liabilities incurred by
Company in connection with any such action, suit, or claim except such as shall
arise due to the negligence or willful misconduct of the Company. Company shall
not be under any obligation to prosecute or to defend any action, suit or claim
arising out of or in connection with its performance under this agreement as
Transfer Agent Dividend Disbursing Agent and Administrator of Plans, which, in
the opinion of its counsel, may involve it in expense or liability, except as
shall arise due to the negligence or willful misconduct of the Company, and the
Trust shall, so often as reasonably requested, furnish Company with satisfactory
indemnity against such expense or liability, and upon request of Company the
Trust shall assume the entire defense of any action, suit, or claim subject to
the foregoing indemnity. Provided, however, that Company shall give the Trust
notice, and reasonable opportunity to defend, any such action, suit, or claim,
in the name of the Trust or Company or both.
(75)
<PAGE>
Without limitation of the foregoing:
(a) Company may rely upon the advice of the Trust, or of counsel, may be
counsel for the Trust or counsel for Company and upon statements of accountants,
brokers and other persons believed by it in good faith to be expert in the
matters upon which they are consulted and for any actions taken in good faith
upon such statements, Company shall not be liable to anyone.
(b) Company shall not be liable for any action taken in good faith
reliance upon any Written Instruction or certified copy of any resolution of the
Board of Trustees of the Trust and Company may rely upon the genuineness of any
such document or copy thereof believed in good faith by the Company to have been
validly executed.
(c) Company may rely and shall be protected in acting upon any signature,
instruction, request, letter of transmittal, certificate, opinion of counsel,
statement, instrument, report, notice, consent, order, or other paper or
document believed by it to be genuine and to have been signed or presented by
the purchaser, Trust or other proper party or parties.
Section 26. Company is authorized, upon receipt of Written Instructions
from the Trust, to make payment upon redemption of Shares authorized by Written
Instruction of the Trust without a signature guarantee. The Trust hereby agrees
to indemnify and hold Company its successors and assigns, harmless of and from
any and all expenses, damages, claims, suits, liabilities, actions, demands,
losses whatsoever arising out of or in connection with a payment by Company upon
redemption of Shares authorized by Written Instruction of the Trust without a
signature guarantee and upon the request of Company the Trust shall assume the
entire defense of any action, suit or claim subject to the foregoing indemnity.
Company shall notify the Trust of any such action, suit or claim within 30 days
after receipt by Company of notice thereof.
Section 27. The Trust shall promptly cause to be turned over to Company
(i) an accurate list of Shareholders of the Trust showing the proper registered
address and number of Shares owned and whether such shares are represented by
outstanding Share Certificates or by non-certificated share accounts, (ii) all
records relating to Plans, including original applications signed by the
Planholders and original plan accounts recording payments, deductions,
reinvestments, withdrawals and liquidations, and (iii) all shareholder records,
files, and other materials necessary or appropriate for proper performance of
the functions assumed by the Company under this Agreement (hereinafter called
"Materials") and hereby agrees to indemnify and hold the Company, its successors
and assigns, harmless of and from any and all expenses, damages, claims, suits,
liabilities, actions, demands and losses whatsoever arising out of or in
connection with any error, omission, inaccuracy or other deficiency of such
Materials, or out of the failure of the trust to provide any portion of such or
to provide any information needed by the Company to knowledgeably perform its
functions.
(76)
<PAGE>
Section 28. The Trust shall file with Company a certified copy of each
resolution of its Board of Trustees authorizing the execution of Written
Instructions or the transmittal of Oral Instructions, as defined in Section 1 of
this Agreement. The following additional terms, for purposes of this Agreement
or any amendment of supplement thereto, shall have the meanings herein specified
unless the context otherwise requires:
Plan: The term Plan shall include such investment plan, dividends or
capital gains reinvestment plans, systematic withdrawal plans or other types of
plans set forth in the prospectus of the Trust, in form acceptable to Company,
which the Trust may from time to time adopt and make available to its
Shareholders, including plans or accounts by self-employed individuals or
partnerships.
Planholder: The term Planholder shall mean a
Shareholder, who, at the time of reference, is participating in a
Plan, and shall include any underwriter, representative or
broker-dealer.
Section 29. This Agreement may be amended from time to time by a
supplemental agreement executed by the Trust and the Company.
Section 30. Either the Trust or Company may give 60 days' written notice
to the other of the termination of this Agreement, such termination to take
effect at the time specified in the notice.
Section 31. Any notice or other communication required by or permitted to
be given in connection with this Agreement shall be in writing, and shall be
delivered in person or sent by first class mail, postage prepaid, to the
respective parties as follows:
(77)
<PAGE>
If to the Trust:
The Elite Group
914 18th Avenue East
Seattle, WA 98112
Attention: Richard S. McCormick Chairman
and President
If to the Company
Fund/Plan Services, Inc.
P.O. Box 874
Conshohocken, PA 19428
Attention: E. F. Heffernan, Jr.
Section 32. The Trust represents and warrants to Company that the
execution and delivery of this Administration Agreement by the undersigned
officers of the Trust has been duly and validly authorized by resolution of the
Board of Trustees of the Trust.
Section 33. This Agreement may be executed in two or more counterparts,
each of which when so executed shall be deemed to be an original, but such
counterparts shall together constitute but one and the same instrument.
Section 34. This Agreement shall extend to and shall be binding upon the
parties hereto and their respective successors and assigns; provided, however,
that this Agreement shall not be assignable by the Trust without the written
consent of Company or by Company without the written consent of the Trust,
authorized or approved by a resolution of its Board of Trustees.
Section 35. This Agreement shall be governed by the laws of the
Common-wealth of Pennsylvania.
(78)
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their duly authorized officers and their corporate seals hereunto duly
affixed and attested, as of the day and year first above written.
The Elite
Group
By s/s Richard
McCormick
(SEAL)
Attest s/s Barbara A. Hoff
Fund/Plan
Services, Inc.
By s/s E.
S. Heffernorfer
(SEAL) Attest s/s
J. Kantor
(79)
<PAGE>
Fund/Plan Services Inc.
A FinDaTex, Inc. company P.O. Box 8070
Philadelphia Pennsylvania 19101(215) 786-6500
August 13, 1986
THE ELITE FUND
MUTUAL FUND FEE SCHEDULE
SEMI-ANNUAL DIVIDEND INCLUDING ONE CAPITAL GAIN DISTRIBUTION *
Transfer Agent, Dividend Disbursing Agent and Shareholder
Accounting Agent
$7.20 Per Shareholder Account (1/12 payable monthly); Minimum
monthly fee of $720.00
Services:
o Opening new accounts
o Processing all payments
o Issuing and cancelling certificates
o Processing partial and complete redemptions
Regular and legal transfers of accounts
o Mailing up to four reports annually
o Processing 2 dividends and 1 capital gain distribution
annually, if any. This includes
mailing of cash dividends and/or preparing statements to
shareholders for
reinvested distributions.
o Blue Sky Reports. This indicates shares sold to investors in various
States. There is also a "warning system" that informs the Fund when they
are within a certain percentage of the shares registered in the State, or
within a certain time period when the registration statement is up for
renewal.
Account Maintenance:
1. Maintaining shareholder records of certificate and whole and fractional
unissued ("Book") shares 2. Changing shareholders' addresses 3. Daily or
periodic reports on numbers of shares, accounts etc. 4. Supplying an annual
stockholder list 5. Preparation of Federal Tax Information Forms and 1042S
preparation 6. Replying to shareholder correspondence other than that for Fund
performance or Fund-related inquiries
Optional Services:
There are also optional services available. Fees and descriptions for any of
these services will be provided upon request.
In addition, all out-of-pocket expenses shall be separately charged, expenses
such as: postage, stationery, retention of records, mailing, insurance,
conversion, etc. and expenses in the development of Agreements between the
Client and Fund/Plan Services, Inc.
*This schedule also applies to Annual Dividend Payers and will be assessed to
each Portfolio.
(80)
<PAGE>
Fund/Plan Services, Inc.
a FinDaTex, Inc. company P.O. Box 874 Conshohocken
Pennsylvania 19428 (215) 834-3500
October 31, 1990
Mr. Richard McCormick, President
The Elite Group
1206 IBM Building
Seattle, WA 98101
Dear Dick:
This letter is to confirm our discussion of October 30, 1990, in which we
discussed new fees for our Custody and Transfer Agent services. As you know, we
have worked with you to maintain low fees for your Funds and last visited this
process in April of 1989, wherein we reduced the Transfer Agent minimum from
$800 to $600 with a review to occur in October, 1989. We did not increase the
fees at that time.
The new schedule effective January 1, 1991 for both Funds is as follows:
Transfer Agency
$ 9.60/Account/Year (unchanged)
Minimum Monthly Fee of $1,000.
Custody
.00065 On the First $10 Million of Average Net Assets .00035 On the Next $
20 Mill ion of Average Net Assets .00025 On the Next $ 20 Million of
Average Net Assets .000175 On the Next $ 50 Million of Average Net Assets
.00015 On the Next $150 Million of Average Net Assets .000125 Over $250
Million of Average Net Assets
Minimum Annual Fee of $3,000 Per Portfolio
Security Transactions:
Book Entry Trades - $14.00
Physical Trades - $24.50
NOW Account Transactions- $ 8.00 (reduced from
$12)
We value your business and I trust that you can appreciate our commitment to
excellent quality service.
Very truly yours,
/s/ Richard D. May
Richard D. May,
Senior Vice President
RDM: 10/38
(81)
<PAGE>
ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT, dated as of the 12 day of July, 1993 made by and between The
Elite Group (the "Trust") a business trust operating as an open-end management
investment company, duly organized and existing under the laws of the
Commonwealth of Massachusetts, and Fund/Plan Services, Inc. (the "Company") a
corporation duly organized and existing under the laws of the State of Delaware.
WITNESSETH THAT:
WHEREAS, the Trust consists of two series of
portfolios, at present namely: The Elite Income Fund and The
Elite Growth & Income Fund (the "Funds").
WHEREAS, the Trust desires to appoint the Company as its Accounting
Services Agent to maintain and keep current the books, accounts, records,
journals or other records of original entry relating to the business of the
Funds as set forth in Section 3 of this Agreement (the "Accounts and Records")
and to perform certain other functions in connection with such accounts and
records; and
WHEREAS, the Company is willing to perform such
functions upon the terms and conditions set forth below; and
WHEREAS, the Trust will cause to be provided certain
information to the Company as set forth below; and
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto, intending to be legally bound, do hereby
agree as follows:
Section 1. The Trust shall promptly turn over to the Company such of
the Accounts and Records previously maintained by or for it as are necessary for
the Company to perform its functions under this Agreement. The Trust authorizes
the Company to rely on such Accounts and Records turned over to it and hereby
indemnifies and holds the Company, its successors and assigns, harmless of and
from any and all expenses, damages, claims, suits, liabilities, actions, demands
and losses whatsoever arising out of or in connection with any error, omission,
inaccuracy or other deficiency of such Accounts and Records or in the failure of
the Trust to provide any portion of such or to provide any information needed by
the Company to knowledgeably perform its functions.
(82)
<PAGE>
The Company shall make reasonable efforts to isolate and correct any
inaccuracies, omissions, discrepancies, or other deficiencies in the Accounts
and Records delivered to the Company, to the extent such matters are disclosed
to the Company or are discovered by it and are relevant to its performance of
its functions under this Agreement, however, the Company expressly makes no
warranty or representation that any error, omission or deficiency can be
satisfactorily corrected. The Trust shall provide the Company with such
assistance as it may reasonably request in connection with its efforts to
correct such matters. The Trust agrees to pay the Company on a current and
ongoing basis for its reasonable time and costs expended on the correction of
such matters, said payment to be in addition to the fees and charges agreed to
for the normal services rendered under this Agreement.
Section 2. For purposes of this Agreement, the terms Oral Instructions
and Written Instructions shall mean:
Oral Instructions: The term Oral Instruction shall mean an
authorization, instruction, approval, item or set of data, or information of any
kind transmitted to the Company in person or by telephone, telegram, telecopy,
or other mechanical or documentary means lacking a signature, by a person or
persons believed in good faith by the Company to be a person or persons
authorized by a resolution of the Board of Trustees of the Trust, to give Oral
Instructions on behalf of the Funds.
Written Instructions: The term Written Instruction shall mean an
authorization, instruction, approval, item or set of data or information of any
kind transmitted to the Company in original writing containing original
signatures or a copy of such document transmitted by telecopy including
transmission of such signature believed in good faith by the Company to be the
signature of a person authorized by a resolution of the Board of Trustees of the
Trust to give Written Instructions on behalf of the Funds.
The Trust shall file with the Company a certified copy of each resolution
of its Board of Trustees authorizing execution of Written Instructions or the
transmittal of Oral Instructions as provided above.
Section 3. To the extent it receives the necessary information from the Fund or
its agents by Written or Oral Instructions, the Company shall maintain and keep
current the following Accounts and Records relating to the business of the
Funds, in such form as may be mutually agreed to between the Trust and the
Company:
(83)
<PAGE>
(a) Cash Receipts Journal
(b) Cash Disbursements Journal
(c) Dividends Paid and Payable Schedule
(d) Purchase and Sales Journals -
Portfolio Securities
(e) Subscription and Redemption Journals
(f) Security Ledgers - Transaction
Report and Tax Lot Holdings Report
(g) Broker Ledger - Commission Report
(h) Daily Expense Accruals
(i) Daily Interest Accruals
()) Daily Trial Balance
(k) Portfolio Interest Receivable and
Income Journal
(1) Portfolio Dividend Receivable and
Income Register
(m) Listing of Portfolio Holdings -
showing cost, market value and
percentage of portfolio comprised
of each security.
The necessary information to perform the above functions and the calculation of
the Funds' net asset values as provided below, is to be furnished by Written or
Oral Instructions to the Company daily (in accordance with the time frame
identified in Section 8) prior to the close of trading on the New York Stock
Exchange.
Section 4. The Company shall perform the ministerial calculations necessary to
calculate the Funds' net asset values daily, in accordance with the Trust's
current Prospectus and utilizing the information described in this Section.
Portfolio items for which market quotations are available by the Company's use
of an automated financial information service ("Service") shall be based on the
closing prices of such Service except where the Trust has given or caused to be
given specific Written or Oral Instructions to Utilize a different value. All of
the portfolio securities shall be given such values as the Trust provides by
Written or Oral Instructions including all restricted securities and other
securities requiring valuation not readily ascertainable solely by such Service.
The Company shall have no responsibility or liability for the accuracy of prices
quoted by such Service; for the accuracy of the information supplied by the
Trust; or for any loss, liability, damage, or cost arising out of any inaccuracy
of such data. The Company shall have no responsibility or duty to include
information or valuations to be provided by the Trust in any computation unless
and until it is timely supplied to the Company in usable form.
(84)
<PAGE>
Section 5. For all purposes under this Agreement, the Company is authorized to
act upon receipt of the first of any Written or Oral Instruction it receives
from the Trust or its agents on behalf of the Funds. In cases where the first
instruction is an Oral Instruction that is not in the form of a document or
written record, a confirmatory Written Instruction or Oral Instruction in the
form of a document or written record shall be delivered, and in cases where the
Company receives an Instruction, whether Written or Oral, to enter a portfolio
transaction on the records, the Trust shall cause the broker/dealer to send a
written confirmation to the Company. The Company shall be entitled to rely on
the first Instruction received, and for any act or omission undertaken in
compliance therewith shall be free of liability and fully indemnified and held
harmless by the Trust, provided however, that in the event a Written or Oral
Instruction received by the Company is countermanded by a timely later Written
or Oral Instruction received by the Company prior to acting upon such
countermanded Instruction, the Company shall act upon such later Written or Oral
Instruction. The sole obligation of the Company with respect to any follow-up or
confirmatory Written Instruction, Oral Instruction in documentary or written
form, or broker/dealer written confirmation shall be to make reasonable efforts
to detect any such discrepancy between the original Instruction and such
confirmation and to report such discrepancy to the Trust. The Trust shall be
responsible, at the Trust's expense, for taking any action, including any
reprocessing, necessary to correct any discrepancy or error, and to the extent
such action requires the Company to act the Trust shall give the Company
specific Written Instruction as to the action required.
Section 6. The Trust shall cause the Funds' Custodian to forward to the Company
a daily statement of cash and portfolio transactions and, at the end of each
month, the Trust shall cause the Funds' Custodian to forward to the Company a
monthly statement of portfolio transactions, which will be reconciled with the
Company's Accounts and Records maintained for the Funds. The Company will report
any discrepancies to the Custodian, and report any unreconciled items to the
Trust.
Section 7. The Company shall promptly supply daily and periodic reports of the
Funds as requested by the Trust and agreed upon by the Company.
Section 8. The Trust shall provide and shall require each of its agents
(including without limitation its Transfer Agent and its Custodian) to provide
the Company as of the close of each business day, or on such other schedule as
the Trust determines is necessary, with Written or Oral Instructions (to be
delivered to the Company by 11:00 AM Eastern Time the next following business
day) containing all data and information necessary for the Company to maintain
the Funds' Accounts and Records and the Company may conclusively assume that the
information it receives by Written or Oral Instructions is complete and
accurate. The Trust is responsible to provide or cause to be provided to the
Company reports of share purchases, redemptions, and total shares outstanding on
the next business day after each net asset valuation.
(85)
<PAGE>
Section 9. The Accounts and Records, in the agreed upon format, maintained by
the Company shall be the property of the Trust, and shall be made available to
the Trust promptly upon request and shall be maintained for the periods
prescribed in Rule 31a-2 under the Investment Company Act of 1940, as amended.
The Company shall assist the Trust's independent auditors, or upon approval of
the Trust, or upon demand, any regulatory body, in any requested review of the
Funds' Accounts and Records but shall be reimbursed for all expenses and
employee time invested in any such review of the Funds' Accounts and Records
outside of routine and normal periodic review and audits. Upon receipt from the
Trust of the necessary information, the Company shall supply the necessary data
for the Trust or accountant's completion of any necessary tax returns,
questionnaires, periodic reports to Shareholders and such other reports and
information requests as the Trust and the Company shall agree upon from time to
time.
Section 10. In case of any request or demand for the inspection of the Share
records of the Funds, Company, as Accounting Services Agent, shall endeavor to
notify the Trust and to secure instructions as to permitting or refusing such
inspection. However, Company may exhibit such records to any person in any case
where it is advised by its counsel that it may be held liable for failure to do
so.
Section 11. The Company and the Trust may from time to time adopt such
procedures as they agree upon in writing, and the Company may conclusively
assume that any procedure approved by the Trust or directed by the Trust, does
not conflict with or violate any requirements of its Prospectus, Declaration of
Trust, By-Laws, or any rule or regulation of any regulatory body or governmental
agency. The Trust shall be responsible for notifying the Company of any changes
in regulations or rules which might necessitate changes in the Company's
procedures, and for working out with the Company such changes.
Section 12. (a) The Company, its directors, officers, employees, shareholders,
and agents shall not be liable for any error of judgment or mistake of law or
for any loss suffered by the Trust in connection with the performance of this
Agreement, except losses resulting from willful misfeasance, bad faith or gross
negligence on the part of the Company in the performance of its obligations and
duties under this Agreement.
(b) Any person, even though also a director, officer, employee,
shareholder or agent of the Company, who may be or become an officer, trustee,
employee or agent of the Trust, shall be deemed, when rendering services to the
Trust or acting on any business of the Trust (other than services or business in
connection with the Company's duties hereunder), to be rendering such services
to or acting solely for the Trust and not as a director, officer, employee,
shareholder or agent of, or one under the control or direction of the Company
even though paid by it.
(86)
<PAGE>
(c) Notwithstanding any other provision of this Agreement, the
Trust shall indemnify and hold harmless the Company, its directors, officers,
employees, shareholders and agents from and against any and all claims, demands,
expenses and liabilities (whether with or without basis in fact or law) of any
and every nature which the Company may sustain or incur or which may be asserted
against the Company by any person by reason of, or as a result of: (i) any
action taken or omitted to be taken by the Company in good faith hereunder; (ii)
in reliance upon any certificate, instrument, order or stock certificate or
other document reasonably believed by it to be genuine and to be signed,
countersigned or executed by any duly authorized person, upon the Oral
Instructions or Written Instructions of an authorized person of the Trust or
upon the opinion of legal counsel for the Trust or its own counsel; or (iii) any
action taken or omitted to be taken by the Company in connection with its
appointment in good faith in reliance upon any law, act, regulation or
interpretation of the same even though the same may thereafter have been
altered, changed, amended, or repealed. However, indemnification under this
subparagraph shall not apply to actions or omissions of the Company or its
directors, officers, employees, shareholders, or agents in cases of its or their
own negligence, willful misconduct, bad faith, or reckless disregard of its or
their own duties hereunder.
(d) The Company shall give written notice to the Trust within
ten (10) business days of receipt by the Company of a written assertion or claim
of any threatened or pending legal proceeding which may be subject to this
indemnification. However, the failure to notify the Trust of such written
assertion or claim shall not operate in any manner whatsoever to relieve the
Trust of any liability arising from this Section or otherwise, except to the
extent failure to give notice prejudices the Trust.
(e) For any legal proceeding giving rise to this
indemnification, the Trust shall be entitled to defend or prosecute any claim in
the name of the Company at its own expense and through counsel of its own
choosing if it gives written notice to the Company within ten (10) business days
of receiving notice of such claim. Notwithstanding the foregoing, the Company
may participate in the litigation at its own expense through counsel of its own
choosing. If the Trust does choose to defend or prosecute such claim, then the
parties shall cooperate in the defense or prosecution thereof and shall furnish
such records and other information as are reasonably necessary.
(f) The Trust shall not settle any claim without the Company's
express written consent which shall not be unreasonably withheld. The Company
shall not settle any claim without the Trust's express written consent which
shall not be unreasonably withheld.
(87)
<PAGE>
Section 13. All financial data provided to, processed by, and reported
by the Company under this Agreement shall be stated in United States dollars.
The Company shall have no obligation to convert to, equate, or deal in foreign
currencies or values, and expressly assumes no liability for any currency
conversion or equation computations relating to the affairs of the Trust.
Section 14. The Trust agrees to pay Company compensation for its
services and to reimburse it for expenses, as set forth in Schedule B attached
hereto, or as shall be set forth in amendments to such Schedule approved by the
Trust and the Company. The Trust authorizes the Company to debit the Funds'
Custody accounts for invoices which are rendered for the services performed for
the accounting agent function. The invoices for the service will be sent to the
Trust after the debiting with the indication that payment has been made.
Section 15. Nothing contained in this Agreement is intended to or
shall require the Company, in any capacity hereunder, to perform any functions
or duties on any holiday, day of special observance or any other day on which
the New York Stock Exchange is closed. Functions or duties normally scheduled to
be performed on such days shall be performed on, and as of, the next succeeding
business day on which the New York Stock Exchange is open. Not withstanding the
foregoing, the Company shall compute the net asset value of each Fund on each
day required pursuant to Rule 22c-1 promulgated under the Investment Company Act
of 1940, as amended.
Section 16. (a) The term of this Agreement shall be for a period of
three (3) years, commencing on the date hereof and shall continue in force from
year to year thereafter, but only so long as such continuance is approved, (1)
by the Company, (2) by vote, cast in person at a meeting called for the purpose,
of a majority of the Trust's Trustees who are not parties to this Agreement or
interested persons (as defined in the Act) of any such party, and (3) by vote of
a majority of the Trust's Board of Trustees or a majority of the Trust's
outstanding voting securities.
(b) The fee schedule will be fixed for a two (2) year period
from the date of the Agreement. After the two (2) year period, the fee will be
subject to annual review.
(c) The Trust or the Company may give written notice to the
other of the termination of this Agreement, such termination to take effect at
the time specified in the notice, not less than one hundred twenty (120) days
after the giving of the notice. Upon the effective termination date, the Trust
shall pay to the Company such compensation as may be due as of the date of
termination and shall likewise reimburse the Company for any out-of-pocket
expenses and disbursements reasonably incurred by the Company to such date.
(88)
<PAGE>
(d) In the event that in connection with termination of this
Agreement a successor to any of the Company's duties or responsibilities under
this Agreement is designated by the Trust by written notice to the Company, the
Company shall, promptly upon such termination and at the expense of the Trust,
transfer all Required Records and shall cooperate in the transfer of such duties
and responsibilities.
(e) The Trust acknowledges that in order for the Company to
perform the services contemplated hereunder, Company has made and will make
significant investments of time and money. If this Agreement is terminated for
reasons other than a material breach by the Company prior to the expiration of
the initial term of this Agreement, the Trust will pay the Company ten percent
(10%) of the minimum fees remaining for the unexpired term of the Agreement.
Section 17. Except as otherwise provided in this Agreement, any notice or other
communication required by or permitted to be given in connection with this
Agreement shall be in writing, and shall be delivered in person or sent by first
class mail, postage prepaid to the respective parties as follows:
If to the Trust:
The Elite Group
1206 IBM Building
Seattle, WA 98101
Attention: Richard S. McCormick,
President
If to the Company:
Fund/Plan Services, Inc.
2 West Elm Street
Conshohocken, PA 19428
Attention: James W. Stratton,
President
Section 18. This Agreement may be amended from time to time by
supplemental agreement executed by the Trust and the Company and the
compensation stated in Schedule B attached hereto may be adjusted accordingly as
mutually agreed upon.
Section 19. This Agreement shall be governed by the laws of the
Commonwealth of Pennsylvania.
Section 20. This Agreement sets forth the entire understanding of the
parties with respect to the provisions contemplated hereby, and supersedes any
and all prior agreements, arrangements and understandings relating to such
services.
(89)
<PAGE>
Section 21. This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original agreement but such counterparts
shall together constitute but one and the same instrument.
Section 22. No provision of this Agreement may be amended or modified, in
any manner nor will any such modification be binding except by a written
agreement properly authorized and executed by both Fund/Plan and New
Alternatives
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their duly authorized officers and their corporate seals hereunto duly affixed
and attested, as of the day and year first above written:
ATTEST THE ELITE GROUP
___/s/________________________________ By: /s/
Richard McCormick
Name: Richard
McCormick
Title: President
ATTEST FUND/PLAN SERVICES,INC.
/s/ Janet N. Davis
By: /s/ James W.
Stratton
James W.
Stratton
Title: President
(90)
<PAGE>
SCHEDULE A
ACCOUNTING SERVICES UNIT
BASIC ASSUMPTIONS FOR THE ELITE GROUP
The Elite Income Fund
The Elite Growth & Income Fund
The Fund/Plan Accounting Services Unit (ASU) is pleased to offer The Elite
Group ("Elite") (the "Fund") the comprehensive level of service necessary for
proper portfolio accounting and valuation.
The Accounting Fees as proposed, are based on certain assumptions made
upon review of the Fund's November 19, 1991 Prospectus and Statement of
Additional Information, September 30, 1992 Annual Report, as well as trade
volumes and account information of October and November, 1992 as well as
discussions with and information received from Richard McCormick. To the extent
these assumptions and requirements should change, fee revisions may be
necessary.
Basic Assumptions
1) The Fund's Administrator will complete all necessary prospectus and
compliance reports (Sub-Chapter "M"), as well as monitoring of the various
limitations and restrictions.
2) The Fund's security trading activity will remain comparable to the statistics
identified by Richard McCormick, i.e., which approximate October and November
1992 volumes for each Fund.
3) The number of securities and portfolio asset composition in each Fund will
remain comparable to that identified by the 11/30/92 portfolio investments.
4) Each Fund has a tax year-end which coincides with its fiscal year-end. No
additional accounting requirements are necessary to identify or maintain
book-tax differences.
To the extent tax accounting for certain securities differs from the book
accounting, it will be done by the Fund's Administrator or the Fund's
Independent Accountant. We would recommend book/tax differences be
minimized.
5) The Fund would foresee no difficulty in using Fund/Plan's standard current
pricing agents for domestic equity, bond and ADR securities. We currently
use Quotron Systems, Inc. for domestic equities and listed ADR's, and
Muller Data Corporation for bonds.
It is assumed that the Accounting Unit will work closely with Elite to
ensure the accuracy of the Funds' NAV, and to obtain the most satisfactory
pricing sources and specific methodologies prior to the actual conversion
date.
(91)
<PAGE>
6) To the extent the Fund requires dally security prices
(limited in number) from specific brokers for domestic
securities, these manual prices will be obtained by the
Fund's Investment Advisors (or brokers) and faxed to ASU by
approximately 4:00 PM Eastern time for inclusion in the NAV
calculations. Elite will supply ASU with the appropriate
pricing contacts for these manual quotes.
Based on our current clients' experience, we believe the Fund's Investment
Advisor will have better success in obtaining accurate and timely broker
quotes on a more consistent basis than Fund/Plan Services.
7) To the extent the Fund should ever purchase/hold open-end registered
investment companies (RIC's), procedural discussions should take place
between ASU and Fund management clarifying the appropriate pricing and
dividend rate sources. Depending on the methodologies selected by the
Fund, additional fees may apply.
8) ASU will supply dally Portfolio Valuation Reports (via fax) to the Fund's
Investment Advisor or manager identifying current security positions,
original/amortized cost, security market values and changes in unrealized
appreciation/depreciation.
It will be the responsibility of the Fund's Investment Advisor to review
these reports and to promptly notify ASU of any possible problems, trade
discrepancies, incorrect security prices, or corporate action/capital
change information discrepancies that could result in a misstated Fund
NAV.
9) The Fund does not expect to invest in Futures or Foreign
(non-US dollar denominated) Securities. To the extent these
investment strategies should change, additional fees will
apply after the appropriate procedural discussions have
taken place between ASU and Fund management. (Advance
notice is requested should the Fund commence trading in
these investments.)
10) It is assumed for all debt issues that the Advisor will
supply the Accounting Unit with critical income information
such as accrual methods, interest payment frequency
details, coupon payment dates, floating rate reset dates,
and complete security descriptions with issue types and
cusip numbers. If applicable, for proper income accrual
accounting, ASU will look to the Fund's Advisor to supply
PSA and related cash flow models for the
mortgage/asset-backed securities and lO/PO positions held
in the Fund.
(92)
<PAGE>
11) It is assumed that the custodian will provide the
Accounting Unit with daily custodian statements reflecting
all prior day cash activity on behalf of each portfolio by
8:30 AM Eastern time. Complete and clear descriptions of
any postings, inclusive of cusip numbers, interest/dividend
payment dates, capital stock details, expense
authorizations, beginning/ending balances, etc. will be
provided by the custodian's reports or system.
12) It is assumed that the custodian will handle and report on
all settlement problems, failed trades and resolve
unsettled dividends/interest/paydowns and capital changes.
Additionally, the custodian will process all applicable
capital change paperwork based upon advice from Elite. ASU
will supply segregated Trial Balance reporting and
supplemental reports to assist in this process.
13) With respect to Mortgage/Asset-Backed securities such as
GNMA's, FHLMC's, FNMA's, CMO's, ARM's, etc., the Custodian
(or a client supplied source) will provide ASU with current
principal repayment factors on a timely basis in accordance
with the appropriate securities' schedule. Income accrual
adjustments (to the extent necessary) based upon initial
estimates will be completed by ASU when actual
principal/income payments are collected by the Custodian.
14) To the extent applicable, Accounting will maintain US dollar denominated
qualified covered call options and index options reporting on the daily
Trial Balance and value the respective options and underlying positions
daily. To the extent tax classifications are required, they will be done
by the Fund's Administrator or Independent Accountant.
15) To the extent the Fund should establish a Line of Credit in
segregated accounts with the custodian for temporary
administrative purposes, and/or leveraging/hedging the
portfolio, the investment advisor will complete the
appropriate paperwork/monitoring for segregation of assets
and adequacy of collateral. Accounting will reflect
appropriate Trial Balance account entries and interest
expense accrual charges on the daily Trial Balance
adjusting as necessary at month-end.
16) The Fund does not currently expect to participate in Security Lending,
Leveraging, Precious Metals, or Short Sales within their portfolio
securities. To the extent they do so in the future, additional fees will
apply.
17) Fund management will supply ASU with portfolio specific expense accrual
procedures and monitor the expense accrual balances for adequacy based on
outstanding liabilities monthly. The Fund's Administrator will promptly
communicate to the Accounting Unit any adjustments needed.
(93)
<PAGE>
18) Specific deadlines and complete Fund supplied information will be
identified for all security trades in order to minimize any settlement
problems, NAV miscalculations or income accrual adjustments.
Trade Authorization Forms, with the appropriate officer's signature,
should be faxed to the ASU on all security trades placed by the Fund no
later than settlement date by 11:30 AM Eastern time for money market
issues (It is assumed trade date equals settlement date for money market
issues.), and by 11:30 AM Eastern time on trade date plus one for
non-money market securities. Receipt of trade information within these
identified deadlines may be via telex, fax, or on-line system access.
Money market trades can be communicated directly to the Custody
Administrator by the investment advisor. The Custody Administrator will
then supply ASU with the trade details in accordance with the above stated
deadlines.
CUSIP numbers and/or ticker symbols for all US dollar denominated trades
will be supplied by the Investment Advisor via the Trade Authorization. If
appropriate, Accounting will supply the investment advisor with
recommended trade ticket documents to minimize receipt of incomplete
information. We would find it difficult to be responsible for NAV changes
that resulted from incomplete information about a trade.
19) To the extent Elite utilizes Purchases In-Kind as a method
for shareholder subscriptions, ASU will provide Elite with
recommended procedures to properly handle and process
security in-kinds. Should Elite prefer procedures other
than those provided by Fund/Plan Services, additional fees
may apply. (Discussions must take place in advance between
Fund/Plan Services and Elite to clarify the appropriate
In-Kind operational procedures to be followed.)
20) As described on the Fee Schedule, ASU will perform the SEC Yield on a
monthly basis for the Elite Income Fund only. It is assumed that the
Fund's Investment Advisor or Administrator will complete the applicable
performance, and rate of return calculations as required by the SEC for
the Fund.
21) With respect to amortization and accretion requirements for the debt
issues in the Fund, the ASU Investment Accounting System (IAS) offers a
very comprehensive and fully automated level of support. We are capable of
reflecting market discounts and acquisition premiums either utilizing the
straight-line or yield-to- maturity (scientific) method.
(94)
<PAGE>
It is extremely important that the Fund's requirements and proper
amortization procedures be clarified prior to conversion. ASU, Fund
management, and the Fund's independent accountant should review
pre-conversion system reports to ensure that IAS calculated amortization
amounts are in agreement with any schedules prepared by the auditors for
all appropriately held debt issues as of the date last calculated.
It is assumed that the Fund will not hold any issues with Original Issue
Discounts (OID). It is our position that OID is a tax requirement and, as
such, not necessarily reflected on the books of the Fund. ASU's current
clients have not required any OID support. To the extent the Fund should,
in the future, own securities with OID, it is expected that the Fund's
auditors will complete the necessary OID adjustments for financial
statements and/or tax reporting.
22) The Fund is not currently expected to issue separate classes of shares. To
the extent they do so, additional fees will be negotiated.
(95)
<PAGE>
SCHEDULE A
ACCOUNTING SERVICES UNIT
ACCOUNTING & PORTFOLIO VALUATION SERVICES FOR
THE ELITE GROUP
The Elite Income Fund
The Elite Growth & Income Fund
Daily Accounting Services
1) Calculate Net Asset Value Per Share:
o Update the daily market value of securities held by
the Fund using Fund/Plan
Services' standard agent for pricing domestic equity
and bond securities. The
standard equity pricing service is Quotron Systems,
Inc. and Muller Data
Corporation is used for bond prices.
o If necessary, enter manual prices supplied by client
and/or broker.
o Prepare NAV proof sheet. Review components of change
in NAV for
reasonableness.
o Review variance reporting on-line and in hard copy
for price changes in
individual securities using variance levels
established by client. Verify US dollar
security prices exceeding variance levels by
notifying client and pricing sources
of noted variances.
o Review for ex-dividend items indicated by pricing
sources; trace to general ledger
for agreement.
o Communicate required pricing information (NAV) to
Elite, Transfer Agent and,
electronically, to NASDAQ.
2) Determine and Report Cash Availability to Fund by 9:30 AM
Eastern Time:
o Receive daily cash and transaction statements from
the Custodian by 8:30 AM
Eastern time.
o Receive daily shareholder activity reports from the
Fund's Transfer Agent by
8:30 AM Eastern time.
o Fax hard copy Cash Availability calculations with all details to client.
o Supply client with 5-day cash projection report.
o Prepare and complete daily bank cash reconciliations
including documentation of
any reconciling items and notify the custodian/Elite.
3)Reconcile and Record All Daily Expense Accruals:
o Accrue expenses based on client supplied budget
either as percentage of Fund's net assets or specific
dollar amounts.
o If applicable, monitor expense limitations
established by Elite.
o If applicable, accrue daily amortization of
organizational expense.
o If applicable, complete daily accrual of l2~)l
expenses.
(96)
<PAGE>
4) Verify and Record All Daily Income Accruals for Debt Issues:
Review and verify all system generated Interest and Amortization
reports. Establish unique security codes for bond issues to
permit segregated Trial Balance income reporting.
5) Monitor Domestic Securities Held for Cash Dividends.
corporate actions and capital
changes such as splits, mergers, spinoffs, etc. and
process appropriately.
o Monitor electronically received information from
Muller Data Corporation for all domestic securities.
o Review current daily security trades for dividend
activity.
o Interface with Custodian to monitor timely
collection and postings of corporate
actions and dividends.
6) Enter All Security Trades on Investment Accounting System
(IAS) based on written
instructions from Elite or custodian.
o Review system verification of trade and interest
calculations.
o Verify settlement through the Custodian statements.
o Maintain security ledger transaction reporting.
o Maintain tax lot holdings.
o Determine realized gains or losses on security
trades.
o Provide complete broker commission reporting.
7) Enter All Fund Share Transactions on lAS:
o Process activity identified on the Transfer Agent
reports.
o Verify settlement through the Custodian statements.
o Reconcile to the Fund/Plan Services' Transfer Agent
report balances.
8) Prepare and Reconcile/Prove Accuracy of the Daily Trial
Balance (listing all asset,
liability, equity, income and expense accounts)
o Post manual entries to the general ledger.
o Post custodian bank activity.
o Post shareholder and security transactions.
o Post and verify system generated activity, i.e.,
income and expense accruals.
o Prepare general ledger net cash proof used in NAV
calculation.
9) Review and Reconcile With Custodian Statements:
o Verify all posted interest, dividends, expenses, and shareholder and
security payments/receipts, etc. (Discrepancies will be reported to
and resolved by the Custodian.)
o Post all cash settlement activity to the Trial
Balance.
o Reconcile to ending cash balance accounts.
o Clear IAS subsidiary reports with settled amounts.
o Track status of past due items and failed trades
handled by the Custodian.
10) Submission of Daily Accounting Reports to Elite:
(Additional reports readily available.)
o Trial Balance
o Portfolio Valuation (listing inclusive of holdings, costs, market
values, unrealized appreciation/depreciation and percentage of
portfolio comprised of each security).
o NAV Calculation Report
o Cash Availability
o 5-Day Cash Projection Report
Monthly Accounting Services
(97)
<PAGE>
1) Full Financial Statement Preparation (automated Statements of Assets and
Liabilities, of Operations and of Changes in Net Assets) and submission to
client by 10th business day.
2) Submission of Monthly Automated IAS Reports to Fund:
o Security Purchase/Sales Journal
o Interest and Maturity Report
o Brokers Ledger (Commission Report)
o Security Ledger Transaction Report with Realized
Gains/Losses
o Security Ledger Tax Lot Holdings Report
o Additional reports available upon request.
3) Reconcile Accounting Asset Listing to Custodian Asset
Listing
Report any security balance discrepancies to the
custodian/Elite.
4) Provide Monthly Analysis and Reconciliation of
Additional Trial Balance Accounts,
such as:
o Security cost and realized gains/losses
o Interest/dividend receivable and income
o Payable/receivable for securities purchased and sold
o Payable/receivable for fund shares; issued and
redeemed
o Expense payments and accruals analysis
5) If Appropriate. Prepare and Submit to Elite:
o SEC yield reporting (non-money market funds with
domestic and ADR securities
only).
o Income by state reporting
o Standard Industry Code Valuation Report
o Alternative Minimum Tax Income segregation schedule
Annual (and Semi-Annual) Accounting Services
1) Assist and supply auditors with schedules supporting securities and
shareholder transactions, income and expense accruals, etc. during the
year in accordance with standard audit assistance requirements.
2) Provide NSAR Repovtn2 (Accountin~ Ouestions): If applicable, answer the
following items: 2, 12B, 20, 21, 22, 23, 28, 30A, 31, 32, 35, 36, 37, 43,
53, 55, 62, 63, 64B, 71, 72, 73, 74, 75, 76
(98)
<PAGE>
SCHEDULE B
FEE SCHEDULE FOR
THE ELITE GROUP OF FUNDS
(All fees are quoted for a period of 90 days and will be for a
term of two (2)
years from date of conversion.)
FUND ACCOUNTING AND PORTFOLIO VALUATION FEES:
(US Dollar Denominated Securities Only)
I.A. Elite Growth & Income Fund
Annual Fee Schedule Per Portfolio: (1/12th payable
monthly)
$36,000 Minimum to $ 20 Million of Average
Net Assets
.0004 On Next $ 40 Million of Average Net
Assets
.0003 On Next $ 50 Million of Average Net
Assets
.0001 Over $110 Million of Average Net
Assets
B. Elite Income Fund
Annual Fee Schedule Per Portfolio: (1/12th
payable monthly)
$12,000 Minimum to $ 20
Million of Average Net Assets
.0004 On Next $ 40 Million of Average Net
Assets
.0003 On Next $ 50 Million of Average Net
Assets
.0001 Over $110 Million of Average Net
Assets
This schedule is based on the assumption that Fund/Plan Services, Inc. will
provide Fund Accounting to the two portfolios described above. If the status of
either of these portfolios changes, it will be necessary to revise the fee
schedule.
It is assumed that the Fund's Administrator will complete all necessary
Sub-Chapter "M" compliance reports, as well as monitoring of the various
Prospectus limitations and restrictions.
II. Pricing Service Quotation Fee: (Based on individual Cusip
or security identification numbers.)
A) Muller Data Corporation * (if applicable)
* Based on current vendor costs, subject to change.
GNMA Quotes $ .25 per Quote
per Bond
Government/Corporate Short &
Long Term Quotes $ .50 per Quote
per Bond
Tax-Exempt Short & Long Term Quotes$ .55 per Quote
per Bond
Tax-Exempt Variable Rate Change
Information $ .55 per Rate
Change per Issue
Minimum Weekly File Transmission is Assumed
July 9, 1993 Page #1 Fund/Plan Services, Inc.
(99)
<PAGE>
Fee Schedule - Page #2
The Elite Group of Funds
There will be no charge for the domestic dividend and capital change
information transmitted daily to Fund/Plan Services from Muller Data
Corporation.
B) Quotron Systems, Inc.
There will be no charge for the domestic security prices supplied by
Quotron Systems, Inc.
III. SEC Yield
Calculation:
(There will be no charge for monthly SEC Yield Calculation for
the Elite Income Fund.)
Provide up to 12 reports per year for the Elite Income Fund to
reflect the yield calculations for non-money market funds required by the
SEC. (US dollar denominated securities only).
OUT-OF-POCKET EXPENSES
The Funds will reimburse Fund/Plan Services monthly for all out-of-pocket
expenses, including telephone, postage, telecommunications, special reports,
record retention, unusual expenses incurred while establishing viable agreements
between the Funds and Fund/Plan Services, etc. The cost of copying and sending
materials to auditors for off-site audits will be an additional expense.
ADDITIONAL SERVICES
To the extent the Funds commence using investment techniques such as Security
Lending, Short Sales, Futures, Leveraging, Precious Metals and/or foreign
trading, additional fees will apply.
Activities of a non-recurring nature such as fund consolidations, mergers, or
reorganizations will be subject to negotiation. To the extent the Funds should
decide to issue multiple/separate classes of shares, additional fees will apply.
Any enhanced services or reports will be quoted upon request.
July 9, 1993 Page #2 Fund/Plan Services, Inc.
(100)
<PAGE>
POWERS OF ATTORNEY
(101)
<PAGE>
THE ELITE GROUP
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned officer
and/or trustee of the Elite Group hereby appoints Richard S. McCormick his
true and lawful attorney to execute in his name, place and stead and on his
behalf a registration statement on Form N-lA for the registration, pursuant
to the Securities Act of 1933 and the Investment Company Act of 1940, of
said Trust's shares of beneficial interest, and any and all amendments to
said Registration Statement (including post-effective amendments) , and all
instruments necessary or incidental in connection therewith and to file the
same with the U.S. Securities and Exchange Commission. Said attorney shall
have full power and authority to do and perform in the name and on behalf
of the undersigned every act whatsoever requisite or desirable to be done
in the premises, as fully and to all intents arid purposes as the
undersigned might or could do, the undersigned hereby ratifying arid
approving all such acts of such attorney.
IN WITNESS WHEREOF, the undersigned has
executed this instrument this
30 day of October 1992.
/s/ Orla Bather
/s/ John Meisenbach
Witness
Signature
John
Meisenbach
Name
(102)
<PAGE>
TIlE ELITE GROUP
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned officer
and/or trustee of the Elite Group hereby appoints Richard S. McCormick his
true and lawful attorney to execute in his name, place and stead and on his
behalf a registration statement on Form N-lA for the registration, pursuant
to the Securities Act of 1933 and the Investment Company Act of 1940, of
said Trust's shares of beneficial interest, and any and all amendments to
said Registration Statement (including post-effective amendments) , and all
instruments necessary or incidental in connection therewith and to file the
same with the U.S. Securities and Exchange Commission. Said attorney shall
have full power and authority to do and perform in the name and on behalf
of the undersigned every act whatsoever requisite or desirable to be done
in the premises, as fully and to all intents arid purposes as the
undersigned might or could do, the undersigned hereby ratifying arid
approving all such acts of such attorney.
IN WITNESS WHEREOF, the undersigned has
executed this instrument this
18 day of September 1990.
/s/ John M.Parker /s/
Morgan J. O'Brien Witness
Signature
Morgan J.
O'Brien
Name
(103)
<PAGE>
TIlE ELITE GROUP
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned officer
and/or trustee of the Elite Group hereby appoints Richard S. McCormick his
true and lawful attorney to execute in his name, place and stead and on his
behalf a registration statement on Form N-lA for the registration, pursuant
to the Securities Act of 1933 and the Investment Company Act of 1940, of
said Trust's shares of beneficial interest, and any and all amendments to
said Registration Statement (including post-effective amendments) , and all
instruments necessary or incidental in connection therewith and to file the
same with the U.S. Securities and Exchange Commission. Said attorney shall
have full power and authority to do and perform in the name and on behalf
of the undersigned every act whatsoever requisite or desirable to be done
in the premises, as fully and to all intents arid purposes as the
undersigned might or could do, the undersigned hereby ratifying arid
approving all such acts of such attorney.
IN WITNESS WHEREOF, the undersigned has
executed this instrument this
18 day of September 1990.
/s/ Jack R. Policar /s/ John M.
Parker
Witness Signature
John
M Parker
Name
(104)
<PAGE>
TIlE ELITE GROUP
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned officer
and/or trustee of the Elite Group hereby appoints Richard S. McCormick his
true and lawful attorney to execute in his name, place and stead and on his
behalf a registration statement on Form N-lA for the registration, pursuant
to the Securities Act of 1933 and the Investment Company Act of 1940, of
said Trust's shares of beneficial interest, and any and all amendments to
said Registration Statement (including post-effective amendments) , and all
instruments necessary or incidental in connection therewith and to file the
same with the U.S. Securities and Exchange Commission. Said attorney shall
have full power and authority to do and perform in the name and on behalf
of the undersigned every act whatsoever requisite or desirable to be done
in the premises, as fully and to all intents arid purposes as the
undersigned might or could do, the undersigned hereby ratifying arid
approving all such acts of such attorney.
IN WITNESS WHEREOF, the undersigned has
executed this instrument this
18 day of September 1990.
/s/ John M. Parker /s/
Jack R. Policar
Witness
Signature
Jack R.
Policar
Name
(105)
<PAGE>
EXHIBIT (i)
Opinion and Consent of Counsel
Consent of Counsel, January 11, 1999
(106)
<PAGE>
SULLIVAN & WORCESTER
ONE POST OFFICE SQUARE
BOSTON, MASSACHUSETTS 02109
(617) 338-28OO
TELECOPIER NO. 617-338-2880
October 21, 1986
The Elite Group
914 18th Avenue, East
Seattle, WA 98114
Gentlemen:
This opinion is being delivered to you in connection with your Registration
Statement on Form N-lA under the Securities Act of 1933, as amended, under which
you have registered an indefinite number of shares (the "Shares") of beneficial
interest, no par value per share, pursuant to Rule 24f-2 under the Investment
Company Act of 1940, as amended.
We have made such inquiry of your officers and trustees and have examined such
documents, records and certificates and other documents and such questions of
law as we have deemed necessary for the purposes of this opinion.
In rendering this opinion, we have relied, with your approval, as to all
questions of fact material to this opinion, upon certain certificates of public
officials and of your officers and have assumed, with your approval, that the
signatures on all documents examined by us are genuine, which facts we have not
independently verified.
Based upon and subject to the foregoing, we are of the opinion that, when issued
for valid consideration, the Shares will be legally and validly issued, fully
paid and nonassessable.
We hereby consent to your filing this opinion as an exhibit to the Registration
Statement. In giving such consent, we do no-thereby admit that we come within
the category of persons whose consent is required under Section 7 of the
Securities Act of 1922, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
SULLIVAN & WORCESTER
(107)
<PAGE>
SULLIVAN & WORCESTER LLP
ONE POST OFFICE SQUARE
BOSTON, MASSACHUSETTS 02109
(617) 338-2800
FAX 617-338-2880
January
11, 1999
The Elite Group
914 18th Avenue East
Seattle, WA 98114
Ladies and Gentlemen:
We hereby consent to your filing our opinion to you dated October
21, 1986, as an exhibit to your Registration Statement on Form N-1A under
the Securities Act of 1933, as amended.
Very truly
yours,
/s/ Sullivan
& Worcester LLP
Sullivan &
Worcester LLP
WLHD:blc
(108)
<PAGE>
EXHIBIT (j)
Consent of Auditors
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the references to our firm in Post-Effective Amendment No. 11
to the Registration Statement on Form N-1A of The Elite Group and to the use of
our report dated October 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
(109)
<PAGE>
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>
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.
