<PAGE> 1
As filed with the Securities and Exchange Commission on November 30, 1998
Securities Act registration 33-37668
Investment Company Act file 811-6212
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
- --------------------------------------------------------------------------------
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 10 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 12 [X]
- --------------------------------------------------------------------------------
UNIVERSAL CAPITAL INVESTMENT TRUST
(Registrant)
100 South Wacker, Suite 2100
Chicago, Illinois 60606
Telephone number: 312-782-1515
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Andrew J. Goodwin, III David A. Sturms
Graver, Bokhof, Goodwin & Sullivan Vedder, Price, Kaufman & Kammholz
Suite 2100 222 North LaSalle Street, Suite 2600
100 South Wacker Drive Chicago, Illinois 60601-1003
Chicago, Illinois 60606
</TABLE>
(Agents for service)
It is proposed that this filing will become effective:
_X_ immediately upon filing pursuant to paragraph(b)
___ on (date) pursuant to rule paragraph(b)
___ 60 days after filing pursuant to rule paragraph(a)(1)
___ on January 28, 1997 pursuant to rule paragraph(a)(1)
___ 75 days after filing pursuant to paragraph (a)(2) on
___ (date) pursuant to paragraph (a)(2) of rule 485
<PAGE> 2
UNIVERSAL CAPITAL INVESTMENT TRUST
CROSS REFERENCE SHEET
(Pursuant to Rule 481 showing the location in the Prospectus of the
responses to the Items of Part A of Form N-1A).
<TABLE>
<CAPTION>
Item No. on Form N-1A Caption or Subheading in Prospectus
--------------------- -----------------------------------
<S> <C>
1. Cover Page Cover Page
2. Synopsis Expense Information; Highlights
3. Condensed Financial Information Financial Highlights; Performance
Information
4. General Description of Registrant The Trust and Its Shares; Investment
Objective and Policies
5. Management of the Fund Management of the Fund; Rear Cover;
Expense Information; Portfolio
Transactions
5A. Management's Discussion of Fund Performance Performance Information
6. Capital Stock and Other Securities The Trust and Its Shares; Shareholder
Services; Dividends and Distributions;
Taxes
7. Purchase of Securities Being Offered How to Purchase Shares; Management
of the Fund; Rear Cover
8. Redemption or Repurchase How to Redeem Shares
9. Legal Proceedings Not Applicable
</TABLE>
<PAGE> 3
PART B -
INFORMATION REQUIRED IN STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<S> <C>
10. Cover Page Cover Page
11. Table of Contents Cover Page
12. General Information and History General Information
13. Investment Objectives and Policies Investment Objective; Investment
Practices; Investment Restrictions
14. Management of the Fund Management
15. Control Persons and Principal Holders of Management
Securities
16. Investment Advisory and Other Services Investment Advisory Services; Fund
Accounting Services; Distribution Plan;
Custodian; Independent Auditors;
Transfer Agent
17. Brokerage Allocation and Other Policies Portfolio Transactions
18. Capital Stock and Other Securities Not Applicable
19. Purchase, Redemption and Pricing of Purchasing and Redeeming Shares;
Securities Being Offered Financial Statements
20. Tax Status Taxation
21. Underwriters Distributor
22. Calculation of Performance Data Performance Information
23. Financial Statements Financial Statements
</TABLE>
<PAGE> 4
INVESTMENT ADVISER
Graver, Bokhof, Goodwin & Sullivan, L.P.
100 South Wacker Drive, Suite 2100
Chicago, Illinois 60606-4005
(800) 969-9676
DISTRIBUTOR [LOGO]
Dreher & Associates, Inc. UNIVERSAL
One Oakbrook Terrace, Suite 708 CAPITAL
Oakbrook Terrace, Illinois 60181-4793 GROWTH
(630) 932-3000 FUND
CUSTODIAN
UMB Bank, n.a.
P.O. Box 419226
Kansas City, Missouri 64141
TRANSFER AGENT
Sunstone Investor Services, LLC
207 East Buffalo Street, Suite 315
Milwaukee, Wisconsin 53202
LEGAL COUNSEL
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street, Suite 2600
Chicago, Illinois 60801
INDEPENDENT AUDITORS
Ernst & Young LLP
233 South Wacker Drive
Chicago, Illinois 60606
NO DEALER, SALESMAN OR ANY OTHER PERSON
IS AUTHORIZED, IN CONNECTION WITH THE
OFFER CONTAINED IN THIS PROSPECTUS, TO PROSPECTUS
ACT AS AGENT FOR UNIVERSAL CAPITAL NOVEMBER 30, 1998
GROWTH FUND, NOR IS ANY PERSON
AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS NOT CONTAINED
IN THIS PROSPECTUS OR IN SUPPLEMENTARY
INFORMATION OR IN SUPPLEMENTAL SALES
MATERIAL AUTHORIZED BY UNIVERSAL CAPITAL
GROWTH FUND AND NO PERSON IS ENTITLED TO
RELY UPON ANY INFORMATION OR
REPRESENTATION NOT CONTAINED HEREIN OR
THEREIN.
<PAGE> 5
UNIVERSAL CAPITAL GROWTH FUND
Universal Capital Growth Fund (the "Fund"), a series of Universal Capital
Investment Trust (the "Trust"), is a fully-managed, diversified, open-end mutual
fund. The Fund's investment objective is to maximize capital appreciation
primarily through investment in common stocks of companies which the Fund's
investment adviser, Graver, Bokhof, Goodwin & Sullivan, L.P., believes have
potential to increase earnings and are either undervalued or fairly valued.
This Prospectus, which should be read and retained for future reference, sets
forth concisely the information an investor should consider before investing in
the Fund. A Statement of Additional Information containing further information
about the Fund has been filed with the Securities and Exchange Commission and
may be obtained without charge by calling or writing the Fund at the telephone
number or address listed below. The Statement of Additional Information bears
the same date as this Prospectus and (together with any supplements thereto) is
incorporated by reference into this Prospectus.
Universal Capital Growth Fund
100 South Wacker Drive, Suite 2100
Chicago, Illinois 60606-4005
(800) 969-9676
Table of Contents
Highlights 2
Expense Information 3
Financial Highlights 4
Investment Objective and Policies 5
Investment Risks 6
Investment Restrictions 7
How to Purchase Shares 7
How to Redeem Shares 10
Shareholder Services 12
Dividends and Distributions 13
Taxes 13
Management of the Fund 14
Performance Information 15
Portfolio Transactions 16
The Trust and Its Shares 16
Appendix - Letter of Intent 18
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL SECURITIES IN ANY STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH AN OFFER IN SUCH STATE.
The date of this Prospectus is November 30, 1998.
<PAGE> 6
HIGHLIGHTS
INVESTMENT OBJECTIVE
The investment objective of Universal Capital Growth Fund (the "Fund") is to
maximize capital appreciation primarily through investment in common stocks of
companies which the Fund's investment adviser, Graver, Bokhof, Goodwin &
Sullivan, L.P. (the "Adviser"), believes have potential to increase earnings and
are either undervalued or fairly valued. There can be no assurance that the Fund
will achieve its objective.
INVESTMENT RISKS
The Fund is designed for long-term investors who can accept the fluctuations in
portfolio value and other risks associated with seeking to maximize capital
appreciation through investment in securities. The Fund invests in both large
and small companies. Investments in small, and often newer companies involve
greater risk than is customarily associated with more established companies. See
"Investment Risks" and "Investment Objective and Policies" for a more complete
description of the risks of investing in the Fund.
DIVIDENDS AND CAPITAL GAINS
All dividends from net investment income and net realized capital gains, if any,
are paid to shareholders by the Fund at least annually. Distributions are
automatically reinvested in additional shares at net asset value (without a
sales charge) unless payment in cash has been requested. See "Dividends and
Distributions."
PURCHASING SHARES
Shares of the Fund are sold with a front-end sales charge of 5.5% of the
offering price, with reduced sales charges on larger investments. Shareholders
of the Fund prior to August 15, 1997 are permitted to purchase shares of the
Fund in accordance with the Fund's previous front-end sales commission schedule.
There is no sales charge on purchases of $500,000 or more or on reinvestment of
distributions. See "How to Purchase Shares."
MINIMUM INVESTMENTS
The Fund's minimum account size is generally $1,000. Each subsequent investment
must be $50 or more except for reinvestment of distributions. There is no
minimum account size for retirement plans.
See "How to Purchase Shares."
REDEMPTION PRICE
Shares are redeemed at current net asset value, without charge. See "How to
Redeem Shares."
EXPENSES OF THE FUND
The Fund pays a monthly advisory fee at the annual rate of 1% of the first $250
million of the Fund's average daily net assets. See "Management of the Fund -
The Adviser and Distributor." The Fund also pays the distributor monthly fees at
annual rates aggregating 0.50% of the Fund's average daily net assets for
shareholder servicing and for services in distributing Fund shares. See
"Management of the Fund - Distribution Plan."
INVESTMENT ADVISER
Graver, Bokhof, Goodwin & Sullivan, L.P.
100 South Wacker Drive, Suite 2100
Chicago, Illinois 60606-4005
(800) 969-9676
DISTRIBUTOR
Dreher & Associates, Inc.
One Oakbrook Terrace, Suite 708
Oakbrook Terrace, Illinois 60181-4793
(630) 932-3000
2
<PAGE> 7
EXPENSE INFORMATION
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price) 5.50%
Maximum Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees(a) None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Advisory and Management Fees 1.00%
12b-1 Fees(b) 0.50%
Other Expenses (after expense reimbursements)(c) 0.50%
-----
Total Fund Operating Expenses (after expense reimbursements)(c) 2.00%
=====
</TABLE>
(a) A fee of $15.00 may be applicable for each wire redemption.
(b) Includes a distribution fee of 0.25% and a service fee of 0.25%, all
or a portion of which may be paid to brokers for continuing services
to be provided to shareholders of the Fund. Long-term shareholders
may, as a result of the Fund's distribution plan, pay more than the
economic equivalent of the maximum front-end sales charge. See
"Management of the Fund - Distribution Plan."
(c) Takes into account the Adviser's voluntary undertaking to limit the
Fund's annual ordinary operating expenses to 2.00% of the
Fund's average daily net assets through December 31, 1999. "Other
Expenses" and "Total Fund Operating Expenses" for the year ended
September 30, 1998 would have been 0.87% and 2.37% respectively,
without such limitation. You must pay the cost (currently $15) for
payment of redemption proceeds by wire.
EXAMPLE: You would pay the following expenses on a $1,000 investment, assuming a
5% annual return and redemption at the end of each time period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<C> <C> <C> <C>
$74 $114 $157 $275
</TABLE>
The purpose of the foregoing table is to assist an investor in understanding the
various costs and expenses that an investor in the Fund may bear directly or
indirectly. The example assumes that the percentage amounts listed under Annual
Fund Operating Expenses remain the same through each of the periods, all income
dividends and capital gains distributions are reinvested in additional shares of
the Fund, and the Fund's net assets remain constant. The example is not a
representation of past or future expenses or investment performance. Reduced
sales charges apply to purchases of $50,000 or more. See "How to Purchase
Shares."
3
<PAGE> 8
FINANCIAL HIGHLIGHTS
The table below shows the results of the Fund's operations for a share
outstanding throughout each fiscal year ended September 30, and has been audited
by Ernst & Young LLP, the Fund's independent auditors. This table should be read
in conjunction with the Fund's annual report which may be obtained at no charge
by writing to the Fund.
<TABLE>
<CAPTION>
1998 1997(a) 1996 1995 1994 1993 1992 1991(b)
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 18.09 $ 14.99 $ 16.28 $12.47 $12.27 $11.38 $11.16 $10.00
Income from investment operations:
Net investment income (loss)(c) (0.21) (0.08) (0.10) (0.10) (0.13) (0.04) 0.11 0.07
Net realized and unrealized
gain on investments 1.46 4.97 1.14 4.54 0.96 1.39 0.37 1.09
--------- --------- -------- -------- -------- -------- ------- --------
Total from investment operations 1.25 4.89 1.04 4.44 0.83 1.35 0.48 1.16
Less distributions to shareholders from:
Net investment income - - - - - (0.11) (0.07) -
Net realized gains on investments (0.48) (1.79) (2.33) (0.63) (0.63) (0.35) (0.19) -
--------- --------- -------- -------- -------- -------- ------- --------
Total distributions to shareholders (0.48) (1.79) (2.33) (0.63) (0.63) (0.46) (0.26) -
Net asset value, end of year $ 18.86 $ 18.09 $ 14.99 $16.28 $12.47 $12.27 $11.38 $11.16
========= ========= ======== ======== ======== ======== ======= ========
Total return(d) 7.1% 36.2% 7.4% 37.9% 7.5% 12.2% 4.3% 11.6%
Net assets, end of year (in 000s) $13,911 $12,994 $11,124 $8,149 $4,969 $4,892 $4,715 $3,031
Ratio of net expenses to average
net assets(c) 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00%*
Ratio of net investment income (loss)
to average net assets(c) (1.00)% (0.50)% (0.70)% (0.80)% (1.10)% (0.40)% 1.20% 1.30%*
Portfolio turnover rate 58% 49% 262% 158% 189% 186% 111% 126%
</TABLE>
* Annualized
(a) On August 15, 1997, the Adviser changed to Graver, Bokhof, Goodwin &
Sullivan, L.P. from Integrated Financial Services, Inc.
(b) For the period January 22, 1991 (commencement of operations) through
September 30, 1991.
(c) After waiver of adviser fees and earnings credits of the custodian of
0.37%, 0.50%, 0.35%, 0.70%, 1.10%, 0.90%, 1.20% and 1.30% of average
net assets for 1998, 1997, 1996, 1995, 1994, 1993, 1992 and 1991,
respectively.
(d) Total return is not annualized for periods less than a full year and
does not reflect the effect of any sales charges.
Note: Per share data for 1998, 1997, 1996, 1995, 1994 and 1993 was determined
based on average shares outstanding.
4
<PAGE> 9
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The investment objective of the Fund is to maximize capital appreciation. The
realization of current income is not normally a consideration in the selection
of securities for investment and the Fund is not designed for investors seeking
income rather than capital appreciation. There can be no assurance that the Fund
will achieve its objective. The Fund's investment objective may not be changed
without shareholder approval.
TYPES OF SECURITIES
The Fund seeks capital appreciation primarily through investment in common
stocks which the Adviser believes have potential to increase earnings and are
either undervalued or fairly valued relative to earnings or potential earnings
growth.
The Fund ordinarily invests on a long-term basis. However, from time to time,
the Fund may invest on a short-term basis, or may sell within a few months
securities purchased on a long-term basis because of the possibility of rapid
security price fluctuations or a change in the circumstances of a particular
company or industry or general market or economic conditions.
The Fund may invest in companies of all size capitalizations.
Large-capitalization companies (with total stock market capitalizations of $1
billion or more) selected by the Adviser will typically have demonstrated
increasing sales and earnings and may have leadership positions in the markets
in which they compete. Small-capitalization companies may have recent favorable
trends in revenue and earnings growth due to a product or service that offers
the opportunity for substantial future growth in a specialized market. The
Adviser believes that while investment in smaller companies offers the potential
for substantial capital appreciation, there is greater risk and volatility
associated with the securities of small companies. The allocation of investments
between large- and small-capitalization companies may vary greatly from time to
time based on the Adviser's analysis of economic and market conditions.
The Fund expects that, under normal market conditions, at least 75% of the
Fund's assets will be invested in common stocks of companies with potential to
increase earnings. Subject to that limitation, the Fund may also invest in
securities that the Adviser believes offer an opportunity for capital
appreciation for reasons other than earnings growth.
The Fund also may invest in securities of unseasoned issuers, convertible
securities (such as convertible bonds and convertible preferred stocks),
warrants, options on securities, index options, financial futures contracts and
foreign securities and at times may lend its portfolio securities. The Fund
expects that no more than 5% of its net assets would be placed at risk in
connection with any one category of such investments. A more thorough
description of these investment practices and a discussion of their associated
risks are contained in the Statement of Additional Information.
The Fund may invest in short-term, interest-bearing securities, U.S. government
securities, corporate debt securities, preferred stocks, certificates of deposit
of commercial banks and repurchase agreements. Some of these investments may be
medium- or long-term investment grade obligations (rated in one of the four
highest categories by a nationally recognized rating agency) which, in the
judgment of the Adviser, have the greatest potential for a high current return
or capital appreciation. Securities rated in the fourth highest category are
considered to have speculative
5
<PAGE> 10
characteristics. Under normal market conditions, the Fund will limit its
investment in short-term, interest-bearing securities to 25% of its net assets.
When the Adviser believes that prevailing market conditions indicate that a
temporary defensive position is warranted, the Fund may invest 100% of its
assets in short-term, interest-bearing securities. While the Fund maintains a
temporary defensive position, investment income may be expected to be higher
than if the Fund were invested in common stocks and may constitute a large
portion of the return of the Fund. Moreover, during any such period, the Fund
probably will not participate in market advances or declines to the extent that
it would if it were fully invested in common stocks.
The Fund may sell short securities the Fund owns or has the right to acquire
without further consideration, a technique called selling short "against the
box." Short sales against the box may protect the Fund against the risk of
losses in the value of its portfolio securities because any subsequent
unrealized losses with respect to such securities should be wholly or partially
offset by a corresponding gain in the short position. However, any subsequent
gains in such securities should be wholly or partially offset by a corresponding
loss in the short position. Short sales against the box may be used to lock in a
gain on a security when, for tax reasons or otherwise, the Adviser does not want
to sell the security. The Fund currently does not expect that more than 40% of
the Fund's total assets would be subject to short sales against the box. For a
more complete explanation, please refer to the Statement of Additional
Information.
INVESTMENT RISKS
All investments, including those in mutual funds, have risks. No investment is
suitable for all investors. The Fund is designed for long-term investors who can
accept the fluctuations in portfolio value and other risks associated with
seeking to maximize capital appreciation through investment in securities. There
can be no guarantee that the Fund will achieve its objective.
The Fund diversifies its securities holdings to
reduce risk. Although risk cannot be eliminated, diversification reduces the
impact of any single investment. The Fund may invest in both large and small
companies. Investments in small, and often newer, companies involve greater risk
than is customarily associated with more established companies. Smaller and
newer companies often have limited product lines, markets, management personnel,
research and/or financial resources. The securities of small companies, which
may be thinly capitalized, may have more limited marketability and be subject to
more abrupt or erratic market movements than securities of larger companies or
the market averages in general.
Any investment by the Fund in medium- or long-term, interest-bearing obligations
has the risk of principal fluctuation due to changing interest rates and the
ability of the issuer to repay the obligation at maturity. Certain risk factors
are also associated with other investment practices of the Fund (none of which
are expected to involve more than 5% of the Fund's assets), including investing
in debt securities and securities of unseasoned issuers, engaging in futures and
options transactions, and investing in foreign securities. Risk factors specific
to those practices are explained more fully in the Statement of Additional
Information. Although the Fund does not purchase securities with a view to rapid
turnover, there are no limitations on the length of time portfolio securities
must be held. The Fund's portfolio turnover rate for the fiscal year ended
6
<PAGE> 11
September 30, 1998 was 58%. The Fund's annual portfolio turnover rate will vary
from year to year; a high rate of portfolio turnover (i.e., over 100%) results
in increased transaction expenses and the realization of capital gains and
losses. Please refer to the Statement of Additional Information for a more
complete explanation.
INVESTMENT RESTRICTIONS
In pursuing its investment objective, the Fund will not:
1. as to 75% of its assets, invest more than 5% of its total assets, taken at
market value at the time of a particular purchase, in the securities of any
one issuer, except that this restriction does not apply to securities issued
or guaranteed by the U.S. government or its agencies or instrumentalities;
2. acquire more than 10%, taken at the time of a particular purchase, of the
outstanding voting securities of any issuer;
3. invest in a security if more than 25% of its total assets (taken at market
value at the time of a particular purchase) would be invested in the
securities of issuers in any particular industry, except that this
restriction does not apply to securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities;
4. borrow, except that the Fund may borrow up to 5% of its total assets, taken
at market value at the time of such borrowing, as a temporary measure for
extraordinary purposes, but not to increase portfolio income (reverse
repurchase agreements shall be considered borrowings for purposes of this
restriction) nor enter into transactions in options; or,
5. purchase illiquid securities or securities of issuers (other than issuers of
Federal agency obligations) which, including their predecessors, have been
in operation for less than three years, if by reason of such purchase the
value of the Fund's aggregate investment in such securities would exceed 5%
of its total assets.
These are fundamental restrictions that cannot be changed without the approval
of a "majority of the outstanding" voting securities of the Fund,
as defined in the Investment Company Act of 1940 (the "1940 Act"). All of the
Fund's investment restrictions are described in the Statement of Additional
Information.
HOW TO PURCHASE SHARES
A Purchase Application is included with this Prospectus. A completed and signed
Purchase Application is required for each new account opened, regardless of the
method chosen for purchasing shares. Redemptions will not be permitted until a
completed Purchase Application is on file and funds used to purchase shares have
been collected.
The Fund's minimum investment is generally $1,000. Each subsequent investment
must be $50 or more, except for reinvestment of dividends and capital gains
distributions. There is no minimum investment for retirement plans. See
"Shareholder Services - Retirement Plans." These minimums may be changed at any
time. The Fund reserves the right to reject any order for the purchase of its
shares in whole or in part, and to suspend the sale of its shares to the public
in response to conditions in the securities markets or otherwise. The Fund will
not issue share certificates representing shares. Any special purchase method or
privilege, including
7
<PAGE> 12
but not limited to the Automatic Investment Plan, Sales Commission Waiver,
Rights of Accumulation or Letter of Intent, may be terminated or modified at any
time without notice to shareholders.
METHODS OF PURCHASE
Shares of the Fund may be purchased from Dreher & Associates, Inc. ("Dreher"),
the Fund's distributor, or from selected broker/dealers that have signed selling
agreements with Dreher. Investments in the Fund may be made either by check or
by wire. Please call the Fund at (800) 537-3446.
By Check: Checks should be made payable to "Universal Capital Growth Fund" and
mailed with the completed and signed Purchase Application to an authorized
investment dealer or directly to:
Universal Capital Growth Fund
P.O. Box 1591
Milwaukee, WI 53201-1591
All checks should be drawn on U.S. banks in U.S. dollars in order to avoid fees
and delays. A charge (currently $23) may be imposed if any check submitted for
investment does not clear. In addition, the investor may be responsible for any
related loss incurred by the Fund.
PURCHASES BY EXISTING SHAREHOLDERS
If a shareholder's account with the Fund is
already established and an investment dealer is recorded for such account,
subsequent orders for shares may be either mailed directly to Universal Capital
Growth Fund at the address shown above, or purchased through the shareholder's
own authorized investment dealer. A check made payable to "Universal Capital
Growth Fund" should be enclosed with information identifying the account
registration and account number. Automatic Investment Plan Shares may be
purchased by automatic monthly transfer of funds ($50 minimum per month) from a
shareholder's checking, bank money market, NOW account, or savings account by
electronic transfer through the Fund's Automatic Investment Plan.
Through the Automatic Investment Plan, the bank account designated by the
shareholder will be debited two business days prior to the date selected for the
purchase.
To sign up for the Plan, new investors in the Fund should complete the Automatic
Investment Plan section in the Fund's Purchase Application and attach a voided
check or deposit slip to the Application. Existing shareholders of the Fund may
sign up for the Plan by calling the Fund or an authorized broker/dealer for a
separate Automatic Investment Plan
Application.
Only an account at a domestic financial institution which is an Automated
Clearing House member may be used for the Automatic Investment Plan.
Participation in the Automatic Investment Plan may be changed or terminated only
upon written notice, which will be effective within five business days after
receipt of the notice by the Fund from the distributor or an authorized
broker/dealer. The Fund may modify or terminate the Automatic Investment Plan at
any time or charge a service fee, although no such fee currently is
contemplated. If for any reason an electronic transfer does not clear, a charge
(currently $23) may be imposed. Normal sales commissions apply to the purchase
of shares through the Automatic Investment Plan.
OFFERING PRICE
Except as otherwise described below under "Sales Commission Waiver," shares of
the Fund are offered
8
<PAGE> 13
at the public offering price, which is the net asset value per share next
determined after a properly completed order is received by the Fund, plus a
sales commission. Orders received after the close of regular session trading on
the New York Stock Exchange (ordinarily 3:00 p.m., Chicago time) will be
processed the next business day. The table below shows the sales commission at
various investment levels.
SALES COMMISSION TABLES
<TABLE>
<CAPTION>
Paid by the Investor % of
-------------------- Offering
As a % of Price
As a % of Net Retained by
Offering Amount Selling
Investment Price Invested Dealer
- ---------- -------- ---------- -----------
<S> <C> <C> <C>
Less than $50,000 5.50% 5.82% 4.75%
$50,000 but less
than $100,000 4.50% 4.71% 3.75%
$100,000 but less
than $200,000 3.50% 3.63% 2.75%
$200,000 but less
than $350,000 2.50% 2.56% 2.00%
$350,000 but less
than $500,000 1.50% 1.52% 1.00%
$500,000
and over NONE NONE NONE
</TABLE>
However, shareholders of the Fund prior to August 15, 1997 will be permitted to
purchase shares of the Fund in accordance with the Fund's previous front-end
sales commission schedule which follows:
<TABLE>
<CAPTION>
Paid by the Investor % of
-------------------- Offering
As a % of Price
As a % of Net Retained by
Offering Amount Selling
Investment Price Invested Dealer
- ---------- -------- ---------- -----------
<S> <C> <C> <C>
Less than
$100,000 1.50% 1.52% 1.50%
$100,000 but less
than $250,000 1.00% 1.01% 1.00%
$250,000
or more NONE NONE NONE
</TABLE>
Under certain circumstances, Dreher may reallow up to the entire sales
commission to dealers. Dealers who receive 90% or more of the sales commission
are deemed to be underwriters under the Securities Act of 1933. Dreher may from
time to time conduct promotional campaigns in which incentives would be offered
to dealers who meet or exceed stated target sales of shares of the Fund. The
cost of any such promotional campaign, including any incentives offered, would
be borne entirely by Dreher and would have no effect on either the public
offering price of Fund shares or the percentage of the public offering price
retained by the selling dealer. The cost of any such promotional campaign is not
intended to be among the items for which the distributor receives compensation
under the Fund's Distribution Plan. See "Management of the Fund - Distribution
Plan." At various times Dreher may also implement programs under which Dreher
will reallow, to all dealers or to dealers that meet uniformly applied targets
for sales of shares of the Fund, an amount not exceeding the total applicable
sales charges on the sales generated by the dealer at the public offering price
during such programs.
SALES COMMISSION WAIVER
The following persons or entities may purchase shares of the Fund at net asset
value without payment of any sales commission: (a) employees and registered
representatives of Dreher and its affiliates or broker/dealers with selling
group agreements with Dreher; (b) spouses and minor children of such persons;
(c) trustees of the Fund; (d) investment advisory clients of the Adviser; (e)
any trust, pension, profit sharing, or other benefit plan account for the
benefit of any person listed in (a), (b), (c) or (d) above; (f) companies
exchanging shares with the Fund pursuant to a merger, acquisition or exchange
offer; and (g) clients of registered investment advisers and certified financial
planners who in each case either pay
9
<PAGE> 14
a fee for financial planning, investment advisory or asset management services,
or receive such services in connection with the establishment of an investment
account for which a comprehensive "wrap fee" charge is imposed.
An investor may purchase shares of the Fund at net asset value, without a sales
commission, by certifying (on a form available from Dreher) that the amount
invested represents the proceeds of redemption, within the preceding 60 days, of
shares of another mutual fund as to which the investor paid a sales commission.
Dividends and distributions paid by the Fund are reinvested in shares of the
Fund at net asset value without the payment of any sales commission, or an
investor may elect to receive dividends and distributions in cash. See
"Dividends and Distributions."
RIGHTS OF ACCUMULATION
The reduced sales charges and offering prices set forth in the "Sales Commission
Table" may apply to subsequent purchases aggregated pursuant to a right of
accumulation privilege. With the right of accumulation privilege, investors are
permitted to purchase additional shares at the reduced sales charge and public
offering price applicable to the total of (a) the dollar amount then being
purchased, plus (b) an amount equal to the then current maximum offering price
of the aggregate holdings of shares of the Fund owned by the investor, the
investor's spouse, children of the investor or spouse for whom the investor or
spouse is custodian of such investment, Individual Retirement Account ("IRA") or
other qualified plan of the investor or the investor's spouse, or any revocable
trust of which the grantor and principal beneficiary is the investor or the
investor's spouse. Although no sales charge or a reduced sales charge may be
applicable to a subsequent purchase, no refund of a sales charge previously paid
will be made by reason of subsequent purchases. Shareholders desiring to receive
the benefit of such right must, at the time of each purchase, give Dreher
sufficient information to permit confirmation of qualification. See the Purchase
Application enclosed with this Prospectus for additional details.
LETTER OF INTENT
An investor intending to make additional investments in Fund shares may qualify
for reduced sales commissions by electing on the Purchase Application to
purchase pursuant to a Letter of Intent. The sales commission on each investment
then is computed at the rate that would apply to the intended aggregate
investment over a 13-month period. The provisions applicable to a Letter of
Intent are set out in an appendix to this Prospectus.
NET ASSET VALUE
The net asset value per share of the Fund is determined as of the close of
regular session trading on the New York Stock Exchange (ordinarily 3:00 p.m.,
Chicago time) each day that exchange is open for trading by dividing the value
of all securities and other assets of the Fund, less its liabilities, by the
number of shares of the Fund outstanding.
Securities held by the Fund are valued on the basis of market valuation.
Securities and other assets for which market values are not readily available
are valued at a fair value as determined in good faith by a method the board of
trustees believes represents a fair value. For a more complete explanation,
please refer to the Statement of Additional Information.
HOW TO REDEEM SHARES
Shares of the Fund will be redeemed at the net asset value next determined after
receipt of a redemption
10
<PAGE> 15
request in good form on any day the New York Stock Exchange is open for trading.
Requests received after the close of regular session trading on the New York
Stock Exchange for that day (ordinarily 3:00 p.m., Chicago time) will be
processed the next business day.
The redemption price per share may be more or less than the shareholder's cost,
depending upon the value of the Fund's investment securities at the time of
redemption. The Fund imposes no redemption fee, although a shareholder must pay
a charge for payment of redemption proceeds by wire. An authorized dealer may
charge a fee for processing a redemption request on behalf of a shareholder.
Redemption of Fund shares is a taxable transaction. PLEASE TELEPHONE THE FUND IF
YOU HAVE ANY QUESTIONS ABOUT REQUIREMENTS FOR A REDEMPTION BEFORE SUBMITTING A
REQUEST. You may not cancel or revoke your redemption request once your
instructions have been received in good form by the Transfer Agent. Any special
redemption method or privilege, including but not limited to the Systematic
Withdrawal Plan and Expedited Redemption, may be terminated or modified at any
time without notice to shareholders.
REDEMPTION BY MAIL
A written request for redemption (and a properly endorsed share certificate, if
issued) must be received by the Fund to constitute a valid redemption request.
The redemption request must:
1. specify the number of shares or dollar amount to be redeemed, if less than
all shares are to be redeemed;
2. be signed by all owners exactly as their names appear on the account; and
3. include a signature guarantee for each signature on the redemption request.
A signature guarantee may be obtained from Dreher & Associates, Inc., a
securities firm that is a member of the New York Stock Exchange, or a bank,
savings bank, credit union, savings and loan association or other entity
that is authorized by applicable state law to guarantee signatures. A NOTARY
PUBLIC IS NOT AN ACCEPTABLE SIGNATURE GUARANTOR.
In the case of shares held by a corporation, the redemption request must be
signed in the name of the corporation by an officer whose title must be stated,
and a certified bylaw provision or resolution of the board of directors
authorizing the officer to so act may be required. In the case of a trust or
partnership, the signature must include the name of the registered shareholder
and the title of the person signing on its behalf. Under certain circumstances,
before shares can be redeemed, additional documents may be required in order to
verify the authority of the person seeking to redeem.
SYSTEMATIC WITHDRAWAL PLAN
Shareholders may request that the Fund redeem shares monthly or quarterly in
specified dollar amounts. For example, a shareholder might request that enough
shares be redeemed to pay $200 per month.
Investors may initiate the Systematic Withdrawal Plan for a non-IRA account with
an initial investment of $25,000 or more, or at any time after the initial
investment if the value of the investor's account is $25,000 or more. An IRA
account must have a balance of at least $10,000 to begin a Systematic Withdrawal
Plan. The minimum periodic withdrawal amount is $100. Withdrawal proceeds are
likely to exceed dividends and distributions paid on
11
<PAGE> 16
shares in the account and therefore may deplete and eventually exhaust the
account. The periodic payments are proceeds of redemption and are taxable as
such. A shareholder normally should not purchase shares while participating in
the Systematic Withdrawal Plan if the additional investment would be subject to
a sales charge.
EXPEDITED REDEMPTION
A shareholder may have redemption proceeds of at least $5,000 wired directly to
a domestic commercial bank account or brokerage account that the share-holder
has previously designated. Normally, such payments will be transmitted no later
than the second business day following receipt of your written redemption
request (provided redemptions may be made under the general criteria set forth
below). A service charge (currently $15) for payment of redemption proceeds by
wire will be deducted from the proceeds. The service charge will not be changed
without 30-days prior written notice to shareholders.
GENERAL
When a redemption request is made shortly after a purchase, the Fund will
withhold payment until the check or electronic funds transfer has cleared, which
may take up to 15 days. A shareholder may avoid this delay by purchasing shares
in such a way that the Fund receives immediate payment for the purchase, such as
by wire transfer of funds or payment by a certified or cashier's check. The Fund
may suspend the right of redemption under certain extraordinary circumstances in
accordance with the rules of the Securities and Exchange Commission. Due to the
relatively high cost of handling small accounts, the Fund reserves the right,
upon 60-days' written notice, to redeem, at net asset value, the shares of any
shareholder (other than a retirement plan) whose account with the Fund which is
more than 12 months old has a value of less than $500, unless the reduction in
value to less than $500 was the result of market fluctuation. Retirement plan
accounts are not subject to this minimum account value requirement. See
"Shareholder Services - Retirement Plans."
Shareholders may redeem shares and later reinvest the proceeds into the Fund at
the then current net asset value (without payment of a new sales commission)
provided that the reinvestment is made within six months of the redemption. This
redemption-reinvestment privilege is limited to two reinvestments per person per
calendar year. This limit helps keep the Fund's asset base stable and reduces
administrative expenses. For purposes of the two reinvestment limit, accounts
under common ownership or control, including accounts with the same Taxpayer
Identification Number, will be aggregated. The Fund reserves the right to
terminate or modify this reinvestment privilege in the future. If you sell at a
loss and reinvest within 91 days, the loss attributable to any sales charge must
be deferred for the shareholder's tax purposes.
SHAREHOLDER SERVICES
Inquiries regarding the Fund should be addressed to Universal Capital Growth
Fund, P.O. Box 1591, Milwaukee, Wisconsin 53201-1591. Telephone inquiries may be
made at (800) 537-3446 or through your broker.
SHAREHOLDER ACCOUNTS
Each shareholder of the Fund receives quarterly account statements showing
transactions in shares of the Fund and the total account balance of Fund shares.
A confirmation will be sent to the shareholder upon purchase, redemption,
dividend reinvestment and change of shareholder address.
12
<PAGE> 17
RETIREMENT PLANS
Through its custodian, UMB Bank, n.a. (the "Custodian"), the Fund offers
qualified retirement plans for adoption by individuals and employers (including,
but not necessarily limited to IRAs and SEP IRAs). A master IRA plan and
information regarding plan administration, fees and other details are available
from Dreher and authorized broker/dealers. The Fund's minimum investment and
minimum account value requirements do not apply to retirement plan accounts.
DIVIDENDS AND DISTRIBUTIONS
Shareholders may receive two kinds of distributions from the Fund: dividends and
capital gains. All dividends and capital gains distributions are paid in the
form of additional shares credited to the shareholder's account at the net asset
value per share next computed after the dividend or distribution is payable to
shareholders (without a sales charge) unless the shareholder requested on the
Purchase Application or in writing that distributions be made in cash. All
dividends from net investment income and net realized short-term and long-term
capital gains, if any, are paid to shareholders by the Fund at least annually.
The Fund will not change the way in which shareholders may reinvest dividends
and distributions without giving shareholders at least 30-days' written notice.
If two consecutive dividend checks from the Fund are returned as undeliverable,
the undelivered dividends will be invested in additional shares of the Fund at
the current net asset value and the account will be designated as a dividend
reinvestment account.
TAXES
The Fund intends to continue to qualify as a "regulated investment company"
under Subchapter M of the Internal Revenue Code, and thus not be subject to
federal income taxes on amounts which it distributes to shareholders.
You may realize a capital gain or capital loss when you redeem (sell) shares.
The federal tax treatment may depend on how long you owned the shares and on
your individual tax position. You may be subject to state and local taxes on
your investment in the Fund, depending on the laws of your home state and
locality.
Dividends and distributions paid by the Fund are subject to taxation as of the
date of payment, except that distributions declared in October, November or
December to shareholders of record in one of those months will be treated as
received by shareholders on December 31 of the year they are declared, provided
they are paid prior to February 1 of the next year.
You will be advised annually as to the source of your distributions for tax
purposes. If you are not subject to income taxation, you will not be required to
pay tax on amounts distributed to you.
The Fund is currently required by law to withhold 31% of reportable payments
(which may include redemptions, capital gains distributions and other taxable
distributions, if any) paid to any non-exempt shareholder who has failed to
certify to the Fund that the Social Security or Taxpayer Identification Number
provided to the Fund is correct and that the shareholder is not subject to
backup withholding. Please refer to the Statement of Additional Information for
a more complete explanation.
13
<PAGE> 18
MANAGEMENT OF THE FUND
THE TRUSTEES
The board of trustees of Universal Capital Investment Trust has overall
responsibility for the conduct of the affairs of the Fund. The trustees serve
indefinite terms of unlimited duration. The trustees may appoint their own
successors, provided at least two-thirds of the trustees, after such
appointment, have been elected by the shareholders. A trustee may be removed
with or without cause upon the written declaration of a majority of the trustees
or by the declaration in writing or vote of two-thirds of the Trust's
outstanding shares.
(THE ADVISER, ADMINISTRATOR, DISTRIBUTOR AND TRANSFER AGENT)
The Fund's investments are managed by the Adviser, Graver, Bokhof, Goodwin &
Sullivan, L.P. The Adviser is a registered investment adviser whose predecessor
firm was founded in 1981. The firm is owned by its principals, who also have
ownership interests in three other advisory firms. The combined assets under
management for the affiliated firms exceed $1 billion, with investment
management provided to both institutional and individual clients. All investment
decisions for the Fund are made by an investment committee, and no person is
primarily responsible for making recommendations to that committee.
The Fund is the only mutual fund for which the Adviser acts as investment
adviser. The Adviser has no previous experience in managing a mutual fund.
Subject to the overall authority of the board of trustees, the Adviser furnishes
continuous investment supervision and management to the Fund under a management
agreement and also furnishes office space, equipment and management personnel.
For these services the Adviser receives from the Fund a fee accrued daily and
paid monthly at the annual rate of 1.0% of the first $250 million of the Fund's
average daily net assets and 0.75% of average daily net assets in excess of $250
million. These rates are higher than those paid by most other mutual funds.
The management agreement also provides that the total annual expenses of the
Fund, exclusive of taxes, interest, extraordinary litigation expenses and
brokers' commissions and other charges relating to the purchase and sale of
securities but including fees paid to the Adviser and fees paid pursuant to the
Distribution Plan, shall not exceed the limits, if any, prescribed by any state
regulatory authority, and the Adviser has agreed to reimburse the Fund for any
such expenses in excess of such limits. In addition, the Adviser has voluntarily
undertaken to limit the ordinary operating expenses of the Fund to 2.0% of the
Fund's average daily net assets through December 31, 1999. Subject to those
expense limitations, the Fund pays all of its operating expenses not
specifically assumed by the Adviser.
The Adviser has entered into an Administration Agreement with Sunstone Financial
Group, Inc. (the "Administrator"). The Administrator provides administrative
services which include clerical, compliance, regulatory and other services. For
these services, the Adviser, not the Fund, pays a fee to the Administrator based
upon the average daily net assets of the Fund. The fee is computed daily and
payable monthly at the annual rate beginning at 0.17% and decreasing as the
assets of the Fund reach certain levels. The minimum annual fee is $30,000 for
fiscal 1999 and $45,000 for fiscal 2000.
Dreher & Associates, Inc. ("Dreher"), serves as the Fund's Distributor. Dreher
was formed in 1980. Dreher receives compensation pursuant to the Fund's
Distribution Plan.
14
<PAGE> 19
Sunstone Investor Services, LLC ("SIS") serves as Transfer Agent to the Fund.
Effective January 1, 1999, Sunstone Financial Group, Inc., an affiliate of SIS,
will serve as Transfer Agent.
DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the 1940 Act whereby the Fund pays to Dreher an annual service fee of
0.25% and an annual sales compensation fee of 0.25%, both accrued daily and paid
monthly and based on the Fund's daily net assets. In return, Dreher bears all
expenses incurred in the distribution and promotion of the Fund's shares,
including the printing of prospectuses and reports used for sales purposes,
advertisements, expenses of preparation and printing of sales literature, and
other distribution related expenses, including service fees, at an annual rate
of up to 0.25% and distribution fees for ongoing services by the broker to the
shareholder of up to an additional 0.25% of average net assets, paid to
broker/dealers who have executed selling group agreements with Dreher. The
expenses incurred by Dreher may be more or less than the distribution fees paid
to Dreher by the Fund. Expenses incurred by Dreher in excess of distribution
fees paid to Dreher by the Fund are not carried forward to future fiscal years.
YEAR 2000
An issue has emerged in the investment company industry and for the economy
overall regarding how existing application software programs and operating
systems can accommodate the date value for the year 2000. Many existing
application software products in the marketplace were designed only to
accommodate a two digit date position which represents the year (e.g., '95 is
stored on the system and represents the year 1995). As a result, the year 1999
(i.e., '99) could be the maximum date value these systems will be able to
accurately process. The Fund is in the process of working with the Adviser and
other service providers to assure that the Fund is prepared for the year 2000.
The Fund has been notified by the Adviser and other service providers that they
believe that the Fund will be year 2000 compliant. Nevertheless, the inability
of the Adviser and other service providers to successfully address year 2000
issues could result in interruptions in the Fund's business and have a material
adverse effect on the Fund's operations.
PERFORMANCE INFORMATION
The Fund may from time to time include figures indicating the Fund's total
return or average annual total return in advertisements or reports to
stockholders or prospective investors. Average annual total return and total
return figures represent the increase (or decrease) in the value of an
investment in the Fund over a specified period. Both calculations assume that
all income dividends and capital gain distributions during the period are
reinvested at net asset value in additional Fund shares. Quotations of the
average annual total return may reflect the deduction of the maximum sales
charge and a proportional share of Fund expenses on an annual basis. The
results, which are annualized, represent an average annual compounded rate of
return on a hypothetical investment in the Fund over a period of 1, 5 and 10
years ending on the most recent calendar quarter (but not for a period greater
than the life of the Fund). Quotations of total return, which are not
annualized, represent historical earnings and asset value fluctuations. Total
return figures used in advertisements or sales literature will not usually
reflect the deduction of the maximum sales charges which, if deducted, would
reduce the Fund's total return. Total return is based on past performance and is
not a guarantee of future results.
15
<PAGE> 20
Performance information for the Fund may be compared in reports and promotional
literature to: (a) the S&P 500, the Russell 2000, the Value Line Index, the Dow
Jones Industrial Average, New York Stock Exchange Composite Index, the Nasdaq
Composite Index or other appropriate unmanaged indices of performance of various
types of investments, so that investors may compare the Fund's results with
those of indices widely regarded by investors as representative of the
securities markets in general; (b) other groups of mutual funds tracked by
Lipper Analytical Services, Inc., Morningstar, Inc., Value Line Publishing,
Inc., Micropal Data, Inc. or CDA Investment Technologies, Inc.; and (c) the
Consumer Price Index (measure of inflation) to assess the real rate of return
from an investment in the Fund. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs and expenses. Performance information for the Fund reflects
only the performance of a hypothetical investment in the Fund during the
particular time period on which the calculations are based. Performance
information should be considered in light of the Fund's investment objective and
policies, the types and quality of the Fund's portfolio investments, market
conditions during the particular time period and operating expenses. Such
information should not be considered as a representation of the Fund's future
performance. For a description of the methods used to determine the Fund's
average annual total return and total return, see "Performance Information" in
the Statement of Additional Information.
PORTFOLIO TRANSACTIONS
Consistent with the Fund's policy of obtaining the best combination of net price
and execution on portfolio transactions, the trustees have determined that
portfolio transactions for the Fund may be executed through Dreher if, in the
judgment of the Adviser, the use of Dreher is likely to result in a combination
of net price and execution at least as favorable to the Fund as that available
from other qualified brokers and if, in such transactions, Dreher charges the
Fund commission rates consistent with those charged by Dreher to comparable
unaffiliated customers in similar transactions.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to seeking the most favorable combination
of net price and execution available and such other policies as the trustees may
determine, the Adviser may consider sales of shares of the Fund as a factor in
the selection of broker/dealers to execute portfolio transactions for the Fund.
THE TRUST AND ITS SHARES
The Fund is a series of Universal Capital Investment Trust, a Massachusetts
business trust organized on October 18, 1990, and is an open-end, diversified
management investment company.
SHARES
Under the terms of the Declaration of Trust, the Trust may issue an unlimited
number of shares of beneficial interest without par value in one or more series
(funds). While only shares of a single series (the Fund) are presently being
offered, the Trustees may authorize the issuance of additional funds if deemed
desirable, each with its own investment objective, policies and restrictions.
All shares issued will be fully paid and non-assessable.
The Fund's shares are entitled to participate pro rata in any dividends and
other distributions declared by the Trust's board of trustees with respect to
shares of
16
<PAGE> 21
the Fund. All shares of the Fund have equal rights in the event of liquidation
of the Fund.
Under Massachusetts law, the shareholders of the Trust may, under certain
circumstances, be held personally liable for the Trust's obligations. However,
the Trust's Declaration of Trust disclaims liability of the shareholders,
trustees and officers of the Trust for acts or obligations of a fund, which are
binding only on the assets and property of the fund. The Declaration of Trust
requires that notice of such disclaimer be given in each agreement, obligation,
or contract entered into or executed by the Trust or the board of trustees. The
Declaration of Trust provides for indemnification out of the Fund's assets of
all losses and expenses of any Fund shareholder held personally liable for the
Fund's obligations. Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is remote, since it is limited to circumstances
in which the disclaimer is inoperative and the Fund itself is unable to meet its
obligations.
VOTING RIGHTS
Each share has one vote and fractional shares have fractional votes. As a
business trust, the Trust is not required to hold annual shareholder meetings.
However, special meetings may be called (including by the holders of at least
10% of the Fund's outstanding shares) for purposes such as electing or removing
trustees, changing fundamental policies or approving an investment advisory
agreement. On any matters submitted to a vote of shareholders, shares are voted
by individual series and not in the aggregate, except when voting in the
aggregate is required by the 1940 Act or other applicable law. Shares of the
Fund are not entitled to vote on any matter not affecting the Fund. All shares
of the Trust vote together in the election of trustees.
17
<PAGE> 22
APPENDIX - LETTER OF INTENT
By checking "Letter of Intent" on the Purchase Application and signing the
Purchase Application, a shareholder agrees to the following:
1. ESCROW PROVISIONS. Out of the shareholder's initial purchase (or subsequent
purchases if necessary) 5% of the specified dollar amount of the Letter will
be held in escrow in the shareholder's account. All dividends and capital
gains distributions on the escrowed shares will be paid directly to the
shareholder or credited to his account.
2. COMPLETION. When the shareholder's total purchases made at offering prices
pursuant to this Letter plus his Accumulation Credit equal the amount
specified on the face of this Letter, the escrowed shares will be released.
3. RETROACTIVE PRICE ADJUSTMENT. If the shareholder's total purchases through
the dealer pursuant to this Letter plus the shareholder's Accumulation
Credit exceed the specified amount of this Letter and an equal amount which
would qualify for a further quantity discount, a retroactive price
adjustment will be made as of the expiration date of this Letter by the
Distributor and the dealer for all purchases made pursuant to this Letter to
reflect such further quantity discount. The resulting difference in offering
price will be applied to the purchase of additional shares for the
shareholder's account at the offering price then applicable to a single
purchase of the dollar amount of his total purchases hereunder. As part of
such adjustment, the dealer shall return to the Distributor the excess of
commission previously allowed or paid to the dealer over that which would be
applicable to the actual amount of the shareholder's aggregate purchases.
Such adjustment does not apply to the sales charge applicable to the shares
valued in the shareholder's Accumulation Credit. If at the time of such
adjustment a broker/dealer other than the dealer is purchasing shares for
the shareholder's account, the adjustment will be made only with respect to
those shares purchased through such broker/dealer.
4. NON-COMPLETION. The shareholder makes no commitment to purchase additional
shares. However, if total purchases pursuant to this Letter plus the
Accumulation Credit are less than the specified amount of this Letter, an
appropriate number of the escrowed shares will be redeemed in order to
realize an amount equal to the difference in the dollar amount of sales
charges actually paid and the amount of sales charges that the shareholder
would have paid on those aggregate purchases if the total of such purchases
had been made at a single time. Any escrowed shares remaining after
redemption as provided in this paragraph, together with any excess cash
proceeds of the redeemed shares, will be credited to the shareholder's
account. The shareholder hereby consents to the redemption of any or all
escrowed shares as described in this paragraph.
18
<PAGE> 23
Statement of Additional Information November 30, 1998
UNIVERSAL CAPITAL GROWTH FUND
A series of Universal Capital Investment Trust
================================================================================
100 South Wacker Drive, Suite 2100
Chicago, Illinois 60606
(800) 969-9676
This Statement of Additional Information relates to Universal Capital Growth
Fund (the "Fund"), a series of Universal Capital Investment Trust (the "Trust").
It is not a prospectus, but provides information that should be read in
conjunction with the Fund's Prospectus dated November 30, 1998 and any
supplements to the Prospectus, and the Fund's Annual Report for the year ended
September 30, 1998, a copy of which accompanies this Statement of Additional
Information.
The Prospectus and additional copies of the Annual Report may be obtained
without charge by writing or telephoning the Fund at the address or telephone
number set forth above.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
General Information............................................................2
Investment Objective...........................................................2
Investment Practices...........................................................2
Investment Restrictions........................................................7
Management....................................................................10
Investment Advisory Services..................................................11
Distributor...................................................................13
Distribution Plan.............................................................14
Purchasing and Redeeming Shares...............................................15
Performance Information.......................................................16
Portfolio Transactions........................................................18
Taxation..................................................................... 19
Custodian.....................................................................20
Transfer Agent................................................................21
Fund Accounting Services......................................................21
Independent Auditors..........................................................21
Legal Counsel.................................................................21
Financial Statements..........................................................21
Appendix A...................................................................A-1
</TABLE>
B-1
<PAGE> 24
GENERAL INFORMATION
Universal Capital Growth Fund began operations on January 22, 1991. The Fund is
a series of Universal Capital Investment Trust.
INVESTMENT OBJECTIVE
The Fund's investment objective is to maximize capital appreciation. The
realization of current income is not normally a consideration in the selection
of securities for investment and the Fund is not designed for investors seeking
income rather than capital appreciation. There can be no assurance that the Fund
will achieve its objective. The Fund's objective may not be changed without
shareholder approval.
INVESTMENT PRACTICES
The following policies and limitations supplement those set forth in the
Prospectus. Whenever an investment policy or limitation states a maximum
percentage of the Fund's assets that may be invested in any security or other
asset or sets forth a policy regarding quality standards, such standard or
percentage limitation shall be determined immediately after and as a result of
the Fund's acquisition of such security or other asset. Accordingly, any later
increase or decrease resulting from a change in values, net assets or other
circumstances will not be considered when determining whether the investment
complies with the Fund's investment policies and limitations.
DEBT SECURITIES
As described in the Prospectus, the Fund may make substantial temporary
investments in fixed-income obligations provided they are of investment-grade
quality. For this purpose investment-grade obligations are considered to be
those which are rated Baa or higher by Moody's Investors Service, Inc. or BBB or
higher by Standard & Poor's Corporation. Securities rated in the lowest of the
investment grade categories are considered to have speculative characteristics.
It is currently anticipated that investments in debt securities will not exceed
5% of the Fund's total assets.
WARRANTS
The Fund may invest up to 5% of the value of its net assets at the time of
purchase in warrants (not including those acquired in units or attached to other
securities), including up to 2% of the value of its net assets in warrants not
listed on the New York or American stock exchanges. A warrant is a right to
purchase common stock at a specific price (usually at a premium above the market
value of the underlying common stock at time of issuance) during a specified
period of time. A warrant may have a life ranging from less than a year to
twenty years or longer, but a warrant becomes worthless unless it is exercised
or sold before expiration. In addition, if the market price of the common stock
does not exceed the warrant's exercise price during the life of the warrant, the
warrant will expire worthless. Warrants have no voting rights, pay no dividends
and have no rights with respect to the assets of the corporation issuing them.
The percentage increase or decrease in the value of a warrant may tend to be
greater than the percentage increase or decrease in the value of the underlying
common stock.
FOREIGN SECURITIES
The Fund may invest up to 5% of its net assets in foreign securities. For the
purpose of calculating the 5% limitation, foreign securities do not include
American Depository Receipts (ADRs) or securities guaranteed by a United States
person. ADRs are receipts typically issued by an American bank or trust company
evidencing ownership of the underlying securities. All foreign securities
acquired by the Fund will be listed on a stock exchange. It is currently
anticipated that investments in foreign securities will not exceed 5% of the
Fund's total assets.
B-2
<PAGE> 25
Investment in foreign securities may entail a greater degree of risk (including
risks relating to exchange rate fluctuations, tax provisions, or expropriation
of assets) than does investment in securities of domestic issuers. Investors
should understand and consider carefully the risks involved in foreign
investing. Investing in foreign securities, which are generally denominated in
foreign currencies, and utilization of forward foreign currency exchange
contracts involve certain considerations comprising both risks and opportunities
not typically associated with investing in U.S. securities. These considerations
include: fluctuations in exchange rates of foreign currencies; possible
imposition of exchange control regulation or currency restrictions that would
prevent cash from being brought back to the United States; less public
information with respect to issuers of securities; less governmental supervision
of stock exchanges, securities brokers, and issuers of securities; lack of
uniform accounting, auditing, and financial reporting standards; lack of uniform
settlement periods and trading practices; less liquidity and frequently greater
price volatility in foreign markets than in the United States; possible
imposition of foreign taxes; possible investment in securities of companies in
developing as well as developed countries; and sometimes less advantageous
legal, operational, and financial protections applicable to foreign
sub-custodial arrangements.
Although the Fund intends to invest in companies and governments of countries
having stable political environments, there is the possibility of expropriation
or confiscatory taxation, seizure or nationalization of foreign bank deposits or
other assets, establishment of exchange controls, the adoption of foreign
government restrictions, or other adverse political, social or diplomatic
developments that could affect investment in these nations.
To the extent positions in portfolio securities are denominated in foreign
currencies, the Fund's investment performance is affected by the strength or
weakness of the U.S. dollar against these currencies. For example, if the dollar
falls in value relative to the Japanese yen, the dollar value of a Japanese
stock held in the portfolio will rise even though the price of the stock remains
unchanged. Conversely, if the dollar rises in value relative to the yen, the
dollar value of the Japanese stock will fall.
OPTIONS AND FUTURES
In order to provide additional revenue, or to hedge against changes in security
prices or interest rates, the Fund may purchase and write (sell) both call
options and put options on securities and on indexes and may enter into interest
rate and index futures contracts and options on such futures contracts. It is
currently anticipated that investments in options and futures will not exceed 5%
of the Fund's total assets.
Options. An option on a security (or index) is a contract that gives the holder,
in return for a premium, the right to buy (call) from or sell (put) to the
option seller (writer) the security (or the cash value of the index) underlying
the option at a designated price during the term of the option (normally not
exceeding nine months). The Fund may write a call option only if the option is
"covered" by the Fund's holding a position, in the underlying security or
otherwise, which would allow immediate satisfaction of its obligation. Prior to
exercise or expiration, an option may be closed out by an offsetting purchase or
sale of an option of the same series.
The Fund may write puts only if they are "secured." A put is "secured" if the
Fund (i) maintains in a segregated account with the custodian cash or U.S.
Government securities or other appropriate high-grade debt obligations with a
value equal to the exercise price or (ii) holds a put on the same underlying
security at an equal or greater exercise price. When the Fund writes a put, it
receives a premium and gives the purchaser of the put the right to sell the
underlying security to the Fund at the exercise price at any time during the
option period. The Fund may purchase a put on the underlying security to effect
a "closing purchase transaction," except in those circumstances, which are
believed by the Adviser to be rare, when it is unable to do so.
B-3
<PAGE> 26
There are several risks associated with transactions in options on securities
and on indexes. For example, there are significant differences between the
securities and options markets that could result in an imperfect correlation
between these markets, causing a given transaction not to achieve its
objectives. A decision as to whether, when, and how to use options involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events.
There can be no assurance that a liquid market will exist when the Fund seeks to
close out an option position. If the Fund were unable to close out an option
that it had purchased on a security, it would have to exercise the option in
order to realize any profit or the option would expire and become worthless. If
the Fund were unable to close out a covered call option that it had written on a
security, it would not be able to sell the underlying security unless the option
expired without exercise. As the writer of a covered call option, the Fund
foregoes, during the option's life, the opportunity to profit from increases in
the market value of the security covering the call option above the sum of the
premium and the exercise price of the call.
If trading were suspended in an option purchased or written by the Fund, the
Fund would not be able to close out the option. If restrictions on exercise were
imposed, the Fund might be unable to exercise an option it had purchased. Except
to the extent that a call option on an index written by the Fund is covered by
an option on the same index purchased by the Fund, movements in the index may
result in a loss to the Fund; however, such losses may be mitigated by changes
in the value of the Fund's securities during the period the option was
outstanding.
The Fund will only enter into options that are standardized and traded on a U.S.
exchange or board of trade, or similar entity, or quoted on NASDAQ. When the
Fund writes an over-the-counter option, there is no assurance that the Fund will
be able to enter into a closing purchase transaction. It may not always be
possible for the Fund to negotiate a closing purchase transaction with the same
dealer for the same exercise price and expiration date as the option which the
Fund previously had written. Although the Fund may choose to purchase an option
from a different dealer, the Fund would also be subject to the additional credit
risk of such dealer. If the Fund as a writer of a covered call option is unable
to effect a closing purchase transaction, it will not be able to sell the
underlying security until the option expires or until it delivers the underlying
security upon exercise. It is the position of the staff of the Securities and
Exchange Commission that over-the-counter options are illiquid securities.
Futures. The Fund may also engage in futures transactions. An interest rate
futures contract provides for the future sale by one party and purchase by
another party of a specified quantity of a financial instrument (such as U.S.
Treasury bonds) at a specified price and time. A futures contract on a index is
an agreement pursuant to which the parties agree to take or make delivery of an
amount of cash equal to the difference between the value of the index at the
close of the last trading day of the contract and the price at which the futures
contract was originally written. A futures contract may be satisfied by delivery
or purchase, as the case may be, of the instrument or by payment of the change
in the cash value of the index. More commonly, a futures contract is closed out
prior to delivery by entering into an offsetting transaction in a matching
futures contract.
The Fund may also purchase and write call and put options on futures contracts
("futures options"). A futures option gives the holder the right, in return for
the premium paid, to assume a long position (call) or short position (put) in a
futures contract at a specified exercise price prior to the expiration of the
option. Upon exercise of a call option, the holder acquires a long position in
the futures contract and the writer is assigned the opposite short position. In
the case of a put option, the opposite is true. Prior to exercise or expiration,
a futures option may be closed out by an offsetting purchase or sale of a
futures option of the same series.
The Fund will limit its use of futures contracts and futures options to hedging
transactions to the extent required to do so by regulatory authorities. For
example, the Fund might use futures contracts to hedge
B-4
<PAGE> 27
against fluctuations in the general level of stock prices or anticipated changes
in interest rates that might adversely affect either the value of the Fund's
securities or the price of the securities that the Fund intends to purchase. The
Fund's hedging may include sales of futures contracts as an offset against the
effect of expected declines in stock prices or increases in interest rates and
purchases of futures contracts as an offset against the effect of expected
increases in stock prices or declines in interest rates.
There are several risks associated with the use of futures contracts and futures
options for hedging purposes. There can be no guarantee that there will be a
correlation between price movements in the hedging vehicle and the portfolio
securities being hedged. Successful hedging depends on the Adviser's ability to
predict correctly changes in the level and the direction of stock prices,
interest rates, and other market factors. An incorrect prediction could result
in a loss on both the hedged securities in the Fund's portfolio and the hedging
vehicle so that the Fund's return might have been better had hedging not been
attempted. In addition, because of the low margin deposits required, futures
trading involves a high degree of leverage.(1) As a result, a relatively small
price movement in a futures contract may result in immediate and substantial
loss, or gain, to the investor. A purchase or sale of a futures contract may
result in losses in excess of the amount of the margin deposit. However, in the
absence of the ability to hedge, the Fund might have taken portfolio actions in
anticipation of the same events with similar investment results but, presumably,
at greater transaction costs.
There can be no assurance that a liquid market will exist at a time when the
Fund seeks to close out a futures contract or a futures option position. This
may prevent the Fund from liquidating an unfavorable position and the Fund would
be exposed to possible loss on the position during the interval of inability to
close and would continue to be required to meet margin requirements until the
position is closed. In addition, certain of these instruments are relatively new
and without a significant trading history. As a result, there is no assurance
that an active secondary market will develop or continue to exist.
The Fund will only enter into futures contracts or futures options that are
standardized and traded on a U.S. exchange or board of trade, or similar entity,
or quoted on an automated quotation system. The Fund will not enter into a
futures contract or purchase a futures option if immediately thereafter the
initial margin deposits for futures contracts held by the Fund plus premiums
paid by it for open futures option positions, less the amount by which any such
positions are "in-the-money," (2) would exceed 5% of the Fund's net assets.
PORTFOLIO TURNOVER
Although the Fund does not purchase securities with a view to rapid turnover,
there are no limitations on the length of time that portfolio securities must be
held. Portfolio turnover can occur for a number of reasons, including general
conditions in the securities markets, more favorable investment opportunities in
other securities, or other factors relating to the desirability of holding or
changing a portfolio investment. The Fund's portfolio turnover rate for the
fiscal year ended September 30, 1998 was 58% The Fund's annual portfolio
turnover rate will vary from year to year; a high rate of portfolio turnover
- --------
(1) "Margin" is the fraction of the value of the contract that the Fund must
actually deposit in order to invest in a futures contract. The use of margin
creates "leverage," which provides an opportunity for greater total return
but correspondingly increases the risk of loss. The margin deposit
requirement applicable to futures contracts is generally only 10% or less of
the value of the contract. For comparison, the margin deposit requirement
applicable to securities is generally 50%. The Fund does not purchase
securities on margin.
(2) A call option is "in-the-money" if it can be exercised at a price less than
the current trading price of the underlying security. A put option is
"in-the-money" if it can be exercised at a price greater than the current
trading price of the underlying security.
B-5
<PAGE> 28
(i.e. over 100%) results in increased transaction expense, which must be borne
by the Fund. High portfolio turnover may also result in the realization of
capital gains or losses and, to the extent net short-term capital gains are
realized, any distributions resulting from such gains will be considered
ordinary income for Federal income tax purposes. See "Investment Risks" and
"Dividends and Distributions" in the Prospectus.
SHORT SALES
The Fund may sell securities short "against the box," that is: (1) enter into
short sales of securities that it currently owns or has the right to acquire
through the conversion or exchange of other securities that it owns; and (2)
enter into arrangements with the broker-dealers through which such securities
are sold short to receive income with respect to the proceeds of short sales
during the period the Fund's short positions remain open. The Fund may make
short sales of securities only if at all times when a short position is open the
Fund owns an equal amount of such securities or securities convertible into or
exchangeable for, without payment of any further consideration, securities of
the same issue as, and equal in amount to, the securities sold short.
In a short sale against the box, the Fund does not deliver from its portfolio
the securities sold and does not receive immediately the proceeds from the short
sale. Instead, the Fund borrows the securities sold short from a broker-dealer
through which the short sale is executed, and the broker-dealer delivers such
securities, on behalf of the Fund, to the purchaser of such securities. Such
broker-dealer is entitled to retain the proceeds from the short sale until the
Fund delivers to such broker-dealer the securities sold short. In addition, the
Fund is required to pay to the broker-dealer the amount of any dividends paid on
shares sold short. Finally, to secure its obligation to deliver to such
broker-dealer the securities sold short, the Fund must deposit and continuously
maintain in a separate account with the Fund's custodian an equivalent amount of
the securities sold short or securities convertible into or exchangeable for
such securities without the payment of additional consideration. The Fund is
said to have a short position in the securities sold until it delivers to the
broker-dealer the securities sold, at which time the Fund receives the proceeds
of the sale. The Fund may close out a short position by purchasing on the open
market and delivering to the broker-dealer an equal amount of the securities
sold short, rather than by delivering portfolio securities.
Short sales may protect the Fund against the risk of losses in the value of its
portfolio securities because any unrealized losses with respect to such
portfolio securities should be wholly or partially offset by a corresponding
gain in the short position. However, any potential gains in such portfolio
securities should be wholly or partially offset by a corresponding loss in the
short position. The extent to which such gains or losses are offset will depend
upon the amount of securities sold short relative to the amount the Fund owns,
either directly or indirectly, and, in the case where the Fund owns convertible
securities, changes in the conversion premium.
Short sale transactions of the Fund involve certain risks. If the price of the
security sold short increases between the time of the short sale and the time
the Fund replaces the borrowed security, the Fund will incur a loss and if the
price declines during this period, the Fund will realize a short-term capital
gain. Any realized short-term capital gain will be decreased, and any incurred
loss increased, by the amount of transaction costs and any premium, dividend or
interest which the Fund may have to pay in connection with such short sale. In
determining the number of shares to be sold short against the Fund's position in
the convertible securities, the anticipated fluctuation in the conversion
premiums is considered. The Fund will also incur transaction costs in connection
with short sales. Certain provisions of the Internal Revenue Code may limit the
degree to which the Fund is able to enter into short sales. See "Taxation." The
Fund does not currently expect that more than 40% of the Fund's total assets
would be involved in short sales against the box.
B-6
<PAGE> 29
REPURCHASE AGREEMENTS
As part of its strategy for the temporary investment of cash, the Fund may enter
into "repurchase agreements" or "reverse repurchase agreements" pertaining to
U.S. Government securities with member banks of the Federal Reserve System or
primary dealers (as designated by the Federal Reserve Bank of New York) in such
securities. A repurchase agreement arises when the Fund purchases a security and
simultaneously agrees to resell it to the vendor at an agreed upon future date.
The resale price is greater than the purchase price, reflecting an agreed upon
market rate of return that is effective for the period of time the Fund holds
the security and that is not related to the coupon rate on the purchased
security. Such agreements generally have maturities of no more than seven days
and could be used to permit the Fund to earn interest on assets awaiting
long-term investment. The Fund requires continuous maintenance by the custodian
for the Fund's account in the Federal Reserve/Treasury Book Entry System of
collateral in an amount equal to, or in excess of, the market value of the
securities that are the subject of a repurchase agreement. The Fund does not
intend to invest in repurchase agreements maturing in more than seven days,
which are considered illiquid securities.
REVERSE REPURCHASE AGREEMENTS
In a reverse repurchase agreement, the Fund temporarily transfers possession of
an instrument to another party, such as a bank or broker-dealer, in return for
cash. At the same time, the Fund agrees to repurchase the instrument at an
agreed upon time (normally within seven days) and price, including interest
payment. At all times that a reverse repurchase agreement is outstanding, the
Fund will maintain cash and liquid securities in a segregated account at its
custodian bank with a value at least equal to its obligation under the
agreement. Securities and other assets held in the segregated account may not be
sold while the reverse repurchase agreement is outstanding, unless other
suitable assets are substituted. Reverse repurchase agreements are included in
the Fund's fundamental limitations regarding borrowings, and may only be entered
into for temporary or emergency purposes.
LENDING PORTFOLIO SECURITIES
In order to generate additional income, the Fund may from time to time lend
securities from its portfolio with a value not exceeding 5% of its net assets,
to brokers, dealers and financial institutions such as banks and trust companies
for which it will receive collateral in cash, U.S. Government securities or
irrevocable letters of credit that will be maintained in an amount equal to at
least 100% of the current market value of the loaned securities. Cash collateral
will be invested in short term securities, which will increase the current
income of the Fund. Such loans will be terminable at any time. The Fund will
have the right to regain record ownership of loaned securities to exercise
beneficial rights such as voting rights and rights to interest or other
distributions. The Fund may pay reasonable fees to persons unaffiliated with the
Fund for services in arranging such loans. The lending of portfolio securities
exposes the Fund to the risk of failure by the borrower to return the securities
involved in such transactions, in which event the Fund may incur a loss. In an
effort to reduce that risk, the Adviser will monitor the creditworthiness of the
firms to which the Fund lends portfolio securities.
INVESTMENT RESTRICTIONS
The Fund operates under the following investment restrictions. The Fund may not
(except as indicated):
(i) as to 75% of its assets, invest more than 5% of its total assets, taken at
market value at the time of a particular purchase, in the securities of any one
issuer, except that this restriction does not apply to securities issued or
guaranteed by the U. S. Government or its agencies or instrumentalities;
(ii) acquire more than 10%, taken at the time of a particular purchase, of the
outstanding voting securities of any one issuer;
B-7
<PAGE> 30
(iii) act as an underwriter of securities, except insofar as it may be deemed an
underwriter for purposes of the Securities Act of 1933 on disposition of
securities acquired subject to legal or contractual restrictions on resale;
(iv) purchase or sell real estate (although it may purchase securities secured
by real estate or interests therein, or securities issued by companies which
invest in real estate or interests therein), commodities or commodity contracts
(except that it may enter into futures and options on futures);(3)
(v) make loans, but this restriction shall not prevent the Fund from (a)
investing in debt obligations, (b) investing in repurchase agreements or (c)
lending portfolio securities;
(vi) borrow, except that the Fund may (a) borrow up to 5% of its total assets,
taken at market value at the time of such borrowing, as a temporary measure for
extraordinary purposes, but not to increase portfolio income (reverse repurchase
agreements shall be considered borrowings for purposes of this restriction) and
(b) enter into transactions in options;
(vii) invest in a security if more than 25% of its total assets (taken at market
value at the time of a particular purchase) would be invested in the securities
of issuers in any particular industry, except that this restriction does not
apply to securities issued or guaranteed by the U.S. Government or its agencies
or instrumentalities;
(viii) issue any senior security; or
(ix) purchase illiquid securities or securities of issuers (other than issuers
of Federal agency obligations) which, including their predecessors, have been in
operation for less than three years, if by reason of such purchase the value of
the Fund's aggregate investment in such securities would exceed 5% of its total
assets.
Restrictions (i) through (ix) are fundamental policies and may not be changed
without the approval of a "majority" of the outstanding shares of the Fund,
which for this purpose means the approval of the lesser of (a) more than 50% of
the outstanding voting securities of the Fund or (b) 67% or more of the
outstanding shares if the holders of more than 50% of the outstanding shares of
the Fund are present or represented at the meeting by proxy.
In addition to the fundamental restrictions listed above, the Fund may not:
(a) invest in interests in oil, gas, or other mineral exploration or development
programs or puts, calls, straddles, spreads, or any combination thereof (except
that the Fund may enter into transactions in options, futures and options on
futures);
(b) invest in shares of other investment companies except in connection with a
merger, consolidation or acquisition of assets, or in the open market involving
no commission or profit to a sponsor or dealer (other than the usual and
customary broker's commission);(4)
(c) invest in companies for the purpose of exercising control or management;
- --------------------
(3) In addition, as long as Fund shares are qualified for sale in Texas, the
Fund will not invest in interests in real estate limited partnerships.
(4) The Fund does not currently intend to invest in the shares of other
investment companies.
B-8
<PAGE> 31
(d) purchase securities on margin (except for use of such short-term credits as
are necessary for the clearance of transactions, including transactions in
options, futures and options on futures), or participate on a joint or a joint
and several basis in any trading account in securities, except in connection
with transactions in options, futures and options on futures;
(e) make short sales of securities unless the Fund owns an equal amount of such
securities, or owns securities that are convertible or exchangeable, without
payment of further consideration, into an equal amount of such securities;
(f) purchase or hold securities of an issuer if 5% of the securities of such
issuer are owned by those officers, directors, or trustees of the Trust or of
its investment adviser who each own beneficially more than 1/2 of 1% of the
securities of that issuer;
(g) mortgage, pledge, or hypothecate in excess of 5% of the Fund's total assets
(taken at cost), except as may be necessary in connection with options, futures,
and options on futures;
(h) invest more than 5% of the Fund's net assets (valued at time of purchase) in
warrants, other than those acquired in units or attached to other securities;(5)
(i) write an option on a security unless the option is issued by the Options
Clearing Corporation, an exchange or similar entity; or buy or sell an option on
a security unless the option is offered through the facilities of a recognized
securities association or listed on a recognized exchange or similar entity;
(j) buy or sell a futures contract, or an option on a futures contract, unless
the futures contract or the option on the futures contract is offered through
the facilities of a recognized securities association or listed on a recognized
exchange or similar entity;
(k) invest more than 5% of its total assets in securities of issuers which the
Fund is restricted from selling to the public without registration under the
Securities Act of 1933;(6) or
(l) invest more than 5% of its net assets (valued at time of purchase) in
securities of foreign issuers (other than securities represented by American
Depository Receipts (ADRs) and securities guaranteed by a U.S. person).
Restrictions (a) through (l) may be changed by the board of trustees without
shareholder approval.
- -------------------------
(5) In addition, as long as Fund shares are qualified for sale in Texas, the
Fund will not invest more than 2% of its net assets in warrants not listed
on the New York or American stock exchanges.
(6) The Fund does not currently intend to invest in restricted securities.
B-9
<PAGE> 32
MANAGEMENT
TRUSTEES AND OFFICERS
Set forth below is information about the trustees and officers of the Trust.
<TABLE>
<CAPTION>
Name, Date of Birth Position(s) Principal Occupation(s)
and Business Address with Trust During Past Five Years
- -------------------- ---------- ----------------------
<S> <C> <C>
Andrew J. Goodwin, III (1), DOB 10/22/43 Trustee and President General Partner of GBGS since
100 South Wacker Drive, Suite 2100 1991; Managing Director of
Chicago, IL 60606 Garzarelli Investment
Management, LLC since 1995;
Treasurer and Secretary of The
Garzarelli Funds since 1997.
Keith Pinsoneault, DOB 10/25/47 Vice President, Secretary Managing Director of the Adviser
100 South Wacker Drive, Suite 2100 and Treasurer since 1997; Chief Operating Officer
Chicago, IL 60606 and Director of Capital Markets for
Rodman & Renshaw from 1994 through
1996; Senior Portfolio Manager for
Harris, Bretall, Sullivan & Smith
from 1992 through 1994.
Robert A. Korajczyk (2), DOB 7/26/54 Trustee Professor of Finance, Northwestern
Northwestern University University since 1983; Principal,
2001 Sheridan Road Chicago Partners since 1995.
Evanston, IL 60208
Robert F. Seebeck (2), DOB 5/19/26 Trustee Retired; formerly, Managing
523 Sheridan Road Director of Russell Reynolds
Kenilworth, IL 60043 Associates, Inc., August, 1974
through December, 1996.
Alan L. Zable (2), DOB 10/28/36 Trustee Consultant since January 1, 1995;
270 Indiana Street president and sole shareholder of
Elmhurst, Illinois 60126 CAZCO, Inc. (hair salon business);
prior thereto, Senior Vice
President and Treasurer, Midwest
Stock Exchange, Incorporated.
</TABLE>
(1)Mr. Goodwin is an "interested person" of the Trust as defined in the
Investment Company Act of 1940 (the "1940 Act") and is a member of the
executive committee of the board of trustees which has authority during
intervals between meetings of the board of trustees to exercise the powers of
the board.
B-10
<PAGE> 33
(2)Messrs. Korajczyk, Seebeck and Zable are members of the audit and nominating
committee of the board of trustees, which makes recommendations regarding the
selection of the Trust's independent auditors and meets with representatives
of the independent auditors to determine the scope and review the results of
each audit.
The following table indicates the fees earned during the fiscal year ended
September 30, 1998 by the trustees and officers of the Trust:
<TABLE>
<CAPTION>
Name Aggregate Compensation Total Compensation
and Position to be Paid by Company From Company
------------ --------------------- ------------
<S> <C> <C>
Alan L. Zable $1,250.00 $1,250.00
Trustee
Robert A. Korajczyk* $750.00 $750.00
Trustee
Robert F. Seebeck $1,250.00 $1,250.00
Trustee
Andrew J. Goodwin - -
President, Trustee
Keith Pinsoneault - -
Vice President, Secretary, and Treasurer
*Mr. Korajczyk was appointed to the Board of Trustees on May 14, 1998.
</TABLE>
For each meeting of the Board of Trustees attended, Messrs. Korajczyk, Seebeck
and Zable received a fee of $500.
At September 30, 1998, the trustees and officers of the Trust owned beneficially
4,076 shares of the Fund, or 0.6% of the Fund's outstanding shares. As of
September 30, 1998, no person was known by the Fund to own beneficially 5% or
more of the outstanding shares of the Fund.
INVESTMENT ADVISORY SERVICES
Management and investment advisory services are provided to the Fund by Graver,
Bokhof, Goodwin & Sullivan, LP (the "Adviser") pursuant to an Investment
Advisory Agreement (the "Agreement") dated August 15, 1997. See the prospectus -
"Management of the Fund--The Adviser and Distributor." The Fund pays the Adviser
a fee accrued daily and paid monthly at the annual rate of 1.00% of the first
$250 million of the Fund's average daily net assets and .75% of the Fund's
average daily net assets in excess of $250 million. Prior to August 15, 1997,
the Fund paid the former investment adviser, Integrated Financial Services,
Inc., an advisory fee at the same rate it pays to the Adviser.
The Agreement will remain in effect until March 31, 1999, and from year to year
thereafter so long as such continuation is approved at least annually by (1) the
board of trustees or the vote of a majority of the outstanding voting securities
of the Fund, and (2) a majority of the trustees who are not interested persons
of any party to the Agreement, cast in person at a meeting called for the
purpose of voting on such approval. The Agreement may be terminated at any time,
without penalty, by either the Trust or the
B-11
<PAGE> 34
Adviser upon sixty days' written notice, and is automatically terminated in the
event of its assignment as defined in the 1940 Act.
EXPENSES
Subject to the expense limitations described below, the Fund pays all its own
operating expenses that are not specifically assumed by the Adviser, including
(i) fees of the investment adviser; (ii) interest, taxes and any governmental
filing fees; (iii) compensation and expenses of the trustees, other than those
who are interested persons of the Trust, the investment adviser or the
distributor; (iv) legal, audit, custodial, fund accounting and transfer agency
fees and expenses; (v) fees and expenses related to the organization of the Fund
and registration and qualification of the Fund and its shares under federal and
state securities laws; (vi) expenses of printing and mailing reports, notices
and proxy material to shareholders, and expenses incidental to meetings of
shareholders; (vii) expenses of preparing prospectuses and of printing and
distributing them to existing shareholders; (viii) insurance premiums; (ix)
litigation and indemnification expenses and other extraordinary expenses not
incurred in the normal course of the business of the Trust; (x) distribution
expenses pursuant to the Distribution Plan; and (xi) brokerage commissions and
other transaction-related costs.
The Adviser has agreed to reimburse the Fund to the extent that the total annual
expenses of the Fund, exclusive of taxes, interest, brokers' commissions and
other charges related to the purchase and sale of securities and extraordinary
litigation expenses, exceed the limits, if any, prescribed by any state
regulatory authority. In addition, the Adviser has voluntarily undertaken to
reimburse the Fund for any annual operating expenses in excess of 2% of the
Fund's average net assets through December 31, 1999.
During the fiscal year ended September 30, 1998, the Fund paid advisory fees of
$144,778 to the Adviser, but the Adviser waived fees or reimbursed expenses of
$53,845 pursuant to the expense limitation undertaking.
During the period from August 15, 1997 to September 30, 1997, the Fund paid
advisory fees of $16,427 to the Adviser, but the Adviser waived fees or
reimbursed expenses of $11,870 pursuant to the expense limitation undertaking.
During the period from October 1, 1996 to August 14, 1997, the Fund paid
advisory fees of $96,460 to Integrated Financial Services, Inc. ("IFS"), the
previous investment adviser. During the period from October 1, 1996 to August
14, 1997, IFS waived fees or reimbursed expenses of $39,469 pursuant to the
expense limitation undertaking. During the fiscal year ended September 30, 1996,
the Fund paid IFS advisory fees of $102,176, but IFS waived fees or reimbursed
expenses aggregating $35,431 pursuant to the expense limitation undertaking.
Pursuant to the Agreement, the Adviser serves as the manager and investment
adviser for the Fund. The Adviser and Sunstone Financial Group, Inc. (the
"Administrator") entered into an agreement pursuant to which the Administrator
shall provide on behalf of the Adviser certain administration services for the
Fund. The Administrator and its affiliates provide administration, transfer
agency, distribution and fund accounting services to other investment companies.
Under the Administration Agreement dated October 1, 1997 (the "Administration
Agreement"), the Administrator has agreed to provide office space, facilities,
equipment and personnel, compile data for and prepare with respect to the Fund
timely Notices to the Commission required pursuant to Rule 24f-2 under the Act
and semi-annual reports on Form N-SAR; prepare and file all federal income and
excise tax returns and state income tax returns (and such other required tax
filings as may be agreed to by the parties) other than those required to be made
by the Fund's custodian or transfer agent subject to review and approval of the
Trust and the Trustee's independent accountants; prepare compliance filings
relating to the registration of the securities of the Fund pursuant to state
securities laws with the advice of Fund's counsel; determine
B-12
<PAGE> 35
the expense accruals of the Fund; prepare financial statements for the Annual
and Semi-Annual Reports required pursuant to Section 30(d) under the Act; review
the Registration Statement for the Funds (on Form N-1A or any replacement
therefor) and any amendments thereto, and proxy materials; prepare, monitor and
cause all appropriate expenses to be paid from Fund assets on proper
authorization from the Fund; assist in the acquisition of the Fund's fidelity
bond required by the Act, monitor the amount of the bond and make the necessary
Commission filings related thereto; check the Fund's compliance with the
policies and limitations relating to portfolio investments as set forth in the
Prospectus, Statement of Additional Information and monitor each Fund's status
as a regulated investment company under Subchapter M of the Internal Revenue
Code, as amended; maintain, and/or coordinate with the other service providers
the maintenance of, the accounts, books and other documents required pursuant to
Rule 31a-1(a) and (b) under the Act; and generally assist in each Fund's
administrative operations.
The Administrator receives a fee from the Adviser for its services as
administrator and expenses assumed pursuant to the Administration Agreement,
equal to the lesser of a fee calculated daily and paid periodically, beginning
at the annual rate of seventeen one-hundredths of one percent (.17%) and
decreasing as the assets of the Fund reaches certain levels. The minimum annual
fee is $30,000 and $45,000 for the fiscal years ending September 30, 1999 and
2000, respectively.
Unless sooner terminated as provided therein, the Administration Agreement will
continue in effect until September 30, 1999. The Administration Agreement
thereafter shall be renewed automatically for successive one-year terms, unless
earlier terminated. The Administration Agreement is terminable after the initial
term, on not less than 60 days' notice by the Adviser or by the Administrator.
The Administration Agreement provides that the Administrator shall not be liable
for any error of judgment or mistake of law or any loss suffered by the Fund in
connection with the matters to which the Administration Agreement relates,
except a loss resulting from willful misfeasance, bad faith, or gross negligence
in the performance of its duties, or from the reckless disregard by the
Administrator of its obligations and duties thereunder.
DISTRIBUTOR
Dreher & Associates, Inc. ("Dreher"), a broker-dealer owned by Mr. James Dreher
and Mr. Richard Burgess, serves as distributor for the Fund, subject to change
by a majority of the "non-interested" trustees at any time. Dreher is located at
One Oakbrook Terrace, Suite 708, Oakbrook Terrace, Illinois 60181. Dreher is
responsible for all purchases, sales, redemptions and other transfers of shares
of the Fund without any charge to the Fund except the fees paid to Dreher under
the Distribution Plan. Dreher is also responsible for all expenses incurred in
connection with its performance of services for the Fund, including, but not
limited to, personnel, office space and equipment, telephone, postage and
stationery expenses. Dreher receives commissions from sales of shares of the
Fund which amounts are not expenses of the Fund but represent sales commissions
added to the net asset value of shares purchased from the Fund.
Dreher has the exclusive right to distribute shares of the Fund in a continuous
offering through affiliated and unaffiliated dealers. The obligation of Dreher
is an agency or "best efforts" arrangement, which does not obligate Dreher to
sell any stated number of shares.
During the fiscal years ended September 30, 1998, 1997 and 1996, Dreher received
and retained commissions of $3,835, $4,215 and $33,145, respectively.
Dreher also receives brokerage commissions for executing portfolio transactions
on behalf of the Fund. See "Portfolio Transactions."
B-13
<PAGE> 36
DISTRIBUTION PLAN
The Trust has adopted a plan pursuant to rule 12b-1 under the Investment Company
Act of 1940 (the "Plan"), whereby the Fund pays to Dreher & Associates, Inc.,
the Fund's distributor ("Dreher"), fees accrued daily and paid monthly at the
aggregate annual rate of .50% of the Fund's average daily net assets, consisting
of a service fee of .25% of average daily net assets and additional sales
compensation of .25% of average daily net assets.
From the payments made by the Fund to Dreher, Dreher pays service fees and
additional sales compensation to brokers that have signed selling group
agreements with Dreher and thereby participate in the distribution of Fund
shares and provide services to Fund shareholders. Payments to selling group
members are made at the same rates as the payments from the Fund to Dreher - a
service fee of .25% of the average daily net assets of the accounts for which
the selling group member performs shareholder servicing and .25% of the average
daily net asset value of those accounts as additional sales compensation.
The board of trustees of the Trust has determined that a continuous cash flow
resulting from the sale of new shares is necessary and appropriate to meet
redemptions and to take advantage of buying opportunities without having to make
unwarranted liquidations of portfolio securities. The board also considered that
continuing growth in the size of the Fund would be in the best interests of
shareholders because increased size would allow the Fund to realize certain
economies of scale in its operations and would likely reduce the proportionate
share of expenses borne by each shareholder. The board of trustees therefore
determined that it would benefit the Fund to have monies available for the
direct distribution and service activities of Dreher, as the Fund's distributor,
in promoting the continuous sale of the Fund's shares. The trustees, including
the non-interested trustees, concluded, in the exercise of their reasonable
business judgment and in light of their fiduciary duties, that there is a
reasonable likelihood that the Plan will benefit the Fund and its shareholders.
The Plan has been approved by the board of trustees, including all of the
trustees who are not interested persons as defined in the 1940 Act. The Plan
must be approved annually by the board of trustees, including a majority of the
trustees who are non-interested persons of the Fund and who have no direct or
indirect financial interest in the operation of the Plan ("non-interested
trustees"), by a vote cast in person at a meeting called for that purpose. So
long as the Plan is in effect, it is required that the selection and nomination
of non-interested trustees be done by non-interested trustees. The Plan may be
terminated at any time, without penalty, by either a majority vote of such
trustees or by vote of a majority of the Fund's outstanding shares, and shall
terminate automatically in the event of any act that terminates the distribution
agreement with Dreher. Any agreement related to the Plan, including any
distribution or service agreement, may be terminated in the same manner, except
that such termination must be on not more than sixty days' written notice to any
other party to such agreement. Any such related agreement shall terminate
automatically in the event of any act that terminates the Plan or the
distribution agreement with Dreher, or in the event of any act that constitutes
the assignment of any such related agreement. Any distributor, dealer or
institution may also terminate its distribution or service agreement at any time
upon written notice.
Neither the Plan nor any distribution or service agreement may be amended to
increase materially the amount spent for distribution or service expenses or in
any other material way without approval by a majority of the outstanding shares
of the Fund, and all such material amendments to the Plan or any distribution or
service agreement must also be approved by a majority of the trustees of the
Trust, including a majority of the non-interested trustees, by a vote cast in
person at a meeting called for the purpose of voting on any such amendment.
Dreher is required to report in writing to the board of trustees at least
quarterly on the amounts and purpose of any payments made under the Plan and any
distribution or service agreement and the amount
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<PAGE> 37
of expenses incurred by Dreher under the Plan, and, to furnish the board with
such other information as may reasonably be requested in order to enable the
board to make an informed determination of whether the Plan should be continued.
During the year ended September 30, 1998, the Fund made payments to Dreher
pursuant to the Plan, and Dreher paid expenses in connection with the
distribution of Fund shares as shown below:
<TABLE>
<S> <C>
Distribution fees paid by Fund to Dreher: $72,389
Distribution expenses incurred by Dreher:
Fees reallowed to brokers $61,778
Printing - Prospectus 5,059
Printing - Semiannual 513
Other marketing expenses 430
-------
Total Expenses $67,780
=======
</TABLE>
PURCHASING AND REDEEMING SHARES
Purchases and redemptions are discussed in the Fund's prospectus under the
headings "How to Purchase Shares" and "How to Redeem Shares." All of that
information is incorporated herein by reference.
Net Asset Value. For purposes of this computation, portfolio securities,
including options, that are traded on a national securities exchange or in the
over-the-counter market are valued at the last current reported sales price, or
lacking any current reported sale on that day, at the mean of the most recently
quoted bid and asked prices. Each outstanding futures contract is valued at the
official settlement price for the contract on the exchange on which the contract
is traded, except that if the market price of the contract has increased or
decreased by the maximum amount permitted on the valuation date ("up or down the
limit"), the contract is valued at a fair value as described below. Short-term
obligations with maturities of 60 days or less are valued at amortized cost.
When market quotations are not readily available for the Fund's securities, such
securities are valued at a fair value following procedures approved by the board
of trustees. These procedures include determining fair value on the basis of
valuations furnished by pricing services approved by the board of trustees,
which include market transactions for comparable securities and various
relationships between securities which are generally recognized by institutional
traders, as well as on the basis of appraisals received from a pricing service
using a computerized matrix system, or appraisals derived from information
concerning the securities or similar securities received from recognized dealers
in those securities.
The Fund's net asset value is determined only on days on which the New York
Stock Exchange is open for trading. That Exchange is regularly closed on
Saturdays and Sundays and on New Year's Day, the third Monday in February, Good
Friday, the last Monday in May, Independence Day, Labor Day, Thanksgiving and
Christmas. If one of these holidays falls on a Saturday or Sunday, the Exchange
will be closed on the preceding Friday or the following Monday, respectively.
Redemption in Kind. The Fund has elected to be governed by Rule 18f-1 under the
Investment Company Act of 1940 pursuant to which it is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net asset value
of the Fund during any 90-day period for any one shareholder. Redemptions
B-15
<PAGE> 38
in excess of these amounts will normally be paid in cash, but may be paid wholly
or partly by a distribution in kind of securities.
PERFORMANCE INFORMATION
From time to time the Fund may quote total return figures. "Total Return" for a
period is the percentage change in value during a period of an investment in
Fund shares, including the value of shares acquired through reinvestment of all
dividends and capital gains distributions. Total Return may also be described as
the cumulative percentage change in value, assuming reinvestment of all
dividends and distributions. "Average Annual Total Return" is the average annual
compounded rate of change in value represented by the Total Return for the
period.
Average Annual Total Return will be computed as follows:
ERV = P(1+T)n
Where: P = a hypothetical initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 investment made at the beginning of
the period, at the end of the period (or
fractional portion thereof)
The figures quoted will assume reinvestment of all dividends and distributions.
Quotations of Average Annual Total Return will take into account the effect of
any sales charge on the amount available for investment or redemption, at the
maximum rate in effect on the date of the quotation; quotations of Total Return
will indicate whether or not the effect of the sales charge is included. Income
taxes payable by shareholders will not be taken into account. For example,
Average Annual Total Return and Total Return for the Fund for various periods
ended September 30, 1998 are shown below:
<TABLE>
<CAPTION>
Total Return Total Return
Average Annual with without
Period Total Return Sales Charge Sales Charge
------ ------------ ------------ ------------
<S> <C> <C> <C>
1 year.............................. 1.2% 1.2% 7.1%
5 years............................. 17.0% 119.5% 138.1%
Life of fund........................ 14.7% 186.5% 203.1%
(beginning January 22, 1991)
</TABLE>
The performance of the Fund is a result of conditions in the securities markets,
portfolio management, and operating expenses. Although information such as yield
and total return is useful in reviewing the Fund's performance and in providing
some basis for comparison with other investment alternatives, it should not be
used for comparison with other investments using different reinvestment
assumptions or time periods.
In advertising and sales literature, the Fund's performance may be compared with
that of market indices and other mutual funds. The Fund might also use
comparative performance as computed in a ranking
B-16
<PAGE> 39
determined by Lipper Analytical Services, Inc. ("Lipper"), an independent
service that monitors the performance of over 2,000 mutual funds, or that of
another service.
In advertising and sales literature, the performance of the Fund may be compared
with that of other mutual funds, indexes or averages of other mutual funds,
indexes of related financial assets or data, and other competing investment and
deposit products available from or through other financial institutions. The
composition of these indexes or averages differs from that of the Fund.
Comparison of the Fund to an alternative investment should consider differences
in features and expected performance.
All of the indexes and averages noted below will be obtained from the indicated
sources or reporting services, which the Fund generally believes to be accurate.
The Fund may also note its mention in newspapers, magazines, or other media from
time to time. However, the Fund assumes no responsibility for the accuracy of
such data.
The Fund may compare its performance to the Consumer Price Index (All Urban), a
widely recognized measure of inflation. The performance of the Fund may also be
compared to the following indexes or averages:
<TABLE>
<S> <C>
Dow-Jones Industrial Average New York Stock Exchange Composite Index
Standard & Poor's 500 Stock Index American Stock Exchange Composite Index
Standard & Poor's 400 Industrials NASDAQ Composite
Wilshire 5000 NASDAQ Industrials
(These indexes are widely recognized (These indexes generally reflect the
indicators of general U.S. stock market performance of stocks traded in the
results.) indicated markets.)
</TABLE>
In addition, the Fund may compare its performance to:
Value Line Index
(Widely recognized indicator of the
performance of small- and medium-
sized company stocks.)
Lipper Capital Appreciation Fund Average
Lipper Growth Funds Average
Lipper Small Company Growth Funds Average
Lipper General Equity Funds Average
Lipper Equity Funds Average
Lipper Small Company Growth Fund Index
Lipper Small Company Growth Fund Index reflects the net asset value weighted
total return of the largest thirty growth funds as calculated and published by
Lipper.
The Lipper averages are unweighted averages of total return performance of
mutual funds as classified, calculated and published by Lipper. The Fund may
also use comparative performance as computed in a ranking by Lipper or category
averages and rankings provided by another independent service. Should Lipper or
another service reclassify the Fund to a different category or develop (and
place the Fund into) a new category, the Fund may compare its performance or
ranking against other funds in the newly assigned category, as published by the
service. Moreover, the Fund may compare its performance or ranking against all
funds tracked by Lipper or another independent service.
B-17
<PAGE> 40
To illustrate the historical returns on various types of financial assets, the
Fund may use historical data provided by Ibbotson Associates, Inc. ("Ibbotson"),
a Chicago-based investment firm. Ibbotson constructs (or obtains) very long-term
(since 1926) total return data (including, for example, total return indexes,
total return percentages, average annual total returns and standard deviations
of such returns) for the following asset types:
Common stocks
Small company stocks
Long-term corporate bonds
Long-term government bonds
Intermediate-term government bonds
U.S. Treasury bills
Consumer Price Index
PORTFOLIO TRANSACTIONS
See "Management of the Fund - The Adviser and Distributors" and "Portfolio
Transactions" in the Prospectus.
Portfolio transactions on behalf of the Fund effected on stock exchanges involve
the payment of negotiated brokerage commissions. There is generally no stated
commission in the case of securities traded in the over-the-counter markets, but
the price paid by the Fund usually includes an undisclosed dealer commission or
mark-up. In underwritten offerings, the price paid by the Fund includes a
disclosed, fixed commission or discount retained by the underwriter or dealer.
In executing portfolio transactions, the Adviser uses its best efforts to obtain
for the Fund the most favorable price and execution available. In seeking the
most favorable price and execution, the Adviser considers all factors it deems
relevant, including price, the size of the transaction, the nature of the market
for the security, the amount of commission, the timing of the transaction taking
into account market prices and trends, the execution capability of the
broker-dealer and the quality of service rendered by the broker-dealer in other
transactions.
The trustees have determined that portfolio transactions for the Fund may be
executed through Dreher if, in the judgment of the Adviser, the use of Dreher is
likely to result in prices and execution at least as favorable to the Fund as
those available from other qualified brokers and if, in such transactions,
Dreher charges the Fund commission rates consistent with those charged by Dreher
to comparable unaffiliated customers in similar transactions. The board of
trustees, including a majority of the trustees who are not "interested"
trustees, has adopted procedures that are reasonably designed to provide that
any commissions, fees or other remuneration paid to Dreher are consistent with
the foregoing standard. The Fund will not effect principal transactions with
Dreher. It is expected that all or a significant portion of the Fund's portfolio
transactions will be executed through Dreher. In executing portfolio
transactions through Dreher, the Fund will be subject to, and intends fully to
comply with, section 17(e) of the Investment Company Act of 1940 and the rules
thereunder.
During the years ended September 30, 1998, 1997 and 1996, the Fund paid
brokerage commissions on purchases and sales of securities (not including the
gross underwriting spread on securities purchased in underwritten offerings) of
$20,938, $11,132 and $31,168, respectively of which $20,938, $10,412 and
$31,168, respectively was paid to Dreher. Of the brokerage commissions paid by
the Fund for the year ended September 30, 1998, 100% were paid to Dreher in
connection with transactions involving securities having a market value of 100%
of the total market value of securities on which the Fund paid commissions. For
a discussion of the factors related to the decrease in the total amount of
commissions paid, see "INVESTMENT PRACTICES-Portfolio Turnover" in this
Statement of Additional Information.
B-18
<PAGE> 41
TAXATION
The following is only a summary of certain tax considerations affecting the Fund
and its shareholders. No attempt is made to present a detailed explanation of
the tax treatment of the Fund or its shareholders, and the discussion here is
not intended as a substitute for careful tax planning. Investors are urged to
consult their tax advisers with specific reference to their own tax situations.
Qualification as a Regulated Investment Company. The Fund intends to continue to
qualify, as it did in its last fiscal year, as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). As a regulated investment company, the Fund will be exempt from Federal
income tax on its net investment income and capital gains that it distributes to
shareholders, provided that it distributes at least 90% of its investment
company taxable income (net investment income and the excess of net short-term
capital gain over net long-term capital loss) for the year (the "Distribution
Requirement") and satisfies certain other requirements of the Code described
below. Distributions of investment company taxable income made during the
taxable year or, under certain specified circumstances, after the close of the
taxable year will satisfy the Distribution Requirement.
In addition to satisfaction of the Distribution Requirement, the Fund must
derive at least 90% of its gross income from dividends, interest, certain
payments with respect to securities loans, gains from the sale or other
disposition of stock or securities and other income derived with respect to its
business of investing in such stock or securities (the "Income Requirement).
In addition, the Fund must diversify its holdings so that, at the close of each
quarter of its taxable year, at least 50% of the value of its assets consists of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of its total assets in securities of such
issuer and as to which the Fund does not hold more than 10% of the outstanding
voting securities of such issuer), and no more than 25% of the value of its
total assets may be invested in the securities of any one issuer (other than
U.S. Government securities and securities of other regulated investment
companies), or of two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses (the "Diversification
Requirement"). This Diversification Requirement is in addition to the
diversification standard the Fund must meet under fundamental investment
restriction (i). See "Investment Restrictions."
The Fund's option and hedging activities are subject to special provisions of
the Code that may, among other things, limit the use of losses of the Fund and
affect the holding period of the securities held by the Fund and the nature of
the income realized by the Fund. These provisions may also require the Fund to
mark-to-market some of the positions in its portfolio (i.e., treat them as if
they were closed out), which may cause the Fund to recognize income without the
cash to distribute such income. The Fund and its shareholders may recognize
taxable income as a result of the Fund's hedging activities, a portion of which
may be treated as long-term capital gains. The Fund will monitor its
transactions and may make certain tax elections in order to mitigate the effect
of these rules and prevent disqualification of the Fund as a regulated
investment company.
Taxation of Distributions. The Fund distributes substantially all of its net
investment income and net short-term capital gains for any taxable (i.e.,
fiscal) year. Distributions will be taxable to shareholders as described below,
regardless of whether such distributions are paid in cash or are reinvested in
shares. Shareholders receiving a distribution from the Fund in the form of
additional shares will generally be treated as receiving a taxable distribution
in an amount equal to the fair market value of the shares received on the
distribution date and will take a tax basis for such shares equivalent to the
amount deemed to have been distributed to them. The Fund intends to distribute
to shareholders its excess of net long-term capital gain over net short-term
capital loss ("net capital gain") for each taxable year as a capital gain
dividend. A capital gain dividend will be taxable to shareholders as long-term
capital gain,
B-19
<PAGE> 42
regardless of the length of time the shareholder has held his shares, whether
the net capital gain distributed by the Fund was recognized prior to the date on
which a shareholder acquired shares and whether the distribution was paid in
cash or reinvested in shares. The aggregate amount of distributions designated
by the Fund as capital gain dividends may not exceed the net capital gain of the
Fund for any taxable year, determined by excluding any net capital loss or net
long-term capital loss attributable to transactions occurring after October 31
of such year and by treating any such loss as if it arose on the first day of
the following taxable year.
Dividends (whether received in cash or reinvested in shares) will generally be
subject to taxation when received. Dividends declared in October, November or
December of any year accruing to shareholders of record on a specified date in
such a month, however, will be deemed to have been received by the shareholders
and paid by the Fund on December 31 of such year, if such dividends are paid
during January of the following year.
The Fund is required in certain cases to withhold and remit to the United States
Treasury 31% of dividends paid to any shareholder (1) who has provided either an
incorrect tax identification number or no number at all, (2) who is subject to
backup withholding by the Internal Revenue Service for failure to report the
receipt of interest or dividend income properly, or (3) who has failed to
certify to the Fund that such shareholder is not subject to backup withholding
or that such shareholder is an "exempt recipient."
Shareholders will be advised annually as to the U.S. Federal income tax
consequences of distributions made during the year.
Corporate Investors. In the case of corporate shareholders, a portion of Fund
distributions (other than capital gain dividends) for any taxable year generally
is expected to qualify for the 70% dividends received deduction for regular
Federal income tax purposes to the extent of the gross amount of eligible
dividends received by the Fund for the year with respect to stock, unless such
stock is held for 45 days or less during the 90-day period that begins 45 days
before the stock becomes ex-dividend with respect to the dividend (or 90 days or
less during the 180-day period that begins 90 days before the stock becomes
ex-dividend with respect to the dividend in the case of certain preferred
stock). Legislation has been introduced from time to time to reduce the
percentage of dividends entitled to the dividends received deduction; however,
it is not known whether Congress will consider any such legislation in the near
future. The Fund's investment policies may affect the availability of the
dividends received deduction with respect to dividends paid on certain stocks in
the Fund's portfolio. For example, the holding period of any dividend paying
stock will not be deemed to include period in which the Fund holds a put option
on, has contracted to sell, or has made but not closed a short sale of,
"substantially identical" stock or securities. Convertible bonds or convertible
preferred stock may be deemed "substantially identical" to common stock for
purposes of this rule. The Fund will provide a statement annually to
shareholders of the amount of dividends eligible for the dividends received
deduction.
Corporate investors should also note that although the dividends received
deduction is available to reduce regular corporate Federal income tax liability,
any amount so deducted may increase the tax base upon which the corporate
alternative minimum tax and environmental tax is imposed.
CUSTODIAN
United Missouri Bank, N.A. is the custodian for the Trust. It is responsible for
holding all cash and securities of the Fund, directly or through a book entry
system, delivering and receiving payment for securities sold by the Fund,
receiving and paying for securities purchased by the Fund, collecting income
from investments of the Fund and performing other duties, all as directed by
authorized persons of the Trust. The custodian does not exercise any supervisory
functions in such matters as the purchase and sale of securities by the Fund,
payment of dividends or payment of expenses of the Fund.
B-20
<PAGE> 43
TRANSFER AGENT
Sunstone Investor Services, LLC ("SIS") is currently the Fund's transfer agent
and dividend disbursing agent. Effective January 1, 1999, Sunstone Financial
Group, Inc., and affiliate of SIS, will replace SIS as transfer agent to the
Fund. SIS records all sales, transfers and redemptions of shares of the Fund,
disburses dividends of the Fund and performs other recordkeeping functions. SIS
is responsible for all personnel, office space and equipment expenses related to
the performance of these services for the Fund. The Fund pays all other
out-of-pocket expenses, including postage, mailing and stationery expenses.
FUND ACCOUNTING SERVICES
United Missouri Bank, N.A. ("UMB"), the Fund's custodian, provides financial and
accounting services, including portfolio accounting and calculation of the
Fund's net asset value per share, preparation of financial statements and
creation and maintenance of the related books and records. UMB furnishes, at its
own expense, the personnel and facilities necessary to perform its duties. UMB
receives from the Fund (a) a base fee of $600 per month and (b) a fee accrued
daily and paid monthly at the annual rate of .03% of the Fund's average daily
net assets up to and including $100 million, .02% of average daily net assets in
excess of $100 million, but not more than $350 million, .01% of average daily
net assets in excess of $350 million, but not more than $1 billion, and .005% of
average daily net assets in excess of $1 billion. For the fiscal years ended
September 30, 1998, 1997 and 1996, fees paid by the Fund for financial and
accounting services totaled $12,779, $12,100, and $14,043, respectively.
INDEPENDENT AUDITORS
Ernst & Young LLP, Sears Tower, 233 South Wacker Drive, Chicago, Illinois 60606,
audits and reports on the Fund's annual financial statements, reviews certain
regulatory reports and the Fund's Federal income tax returns, and performs other
professional accounting, tax and advisory services when engaged to do so by the
Fund.
LEGAL COUNSEL
Vedder, Price, Kaufman & Kammholz, 222 North LaSalle Street, Suite 2600,
Chicago, Illinois 60601, provides legal services to the Fund, including
assisting in regulatory and general corporate issues of the Fund.
FINANCIAL STATEMENTS
The Fund's annual report to shareholders for the year ended September 30, 1998,
a copy of which accompanies this statement of additional information, contains
financial statements, notes thereto, supplementary information entitled
"Financial Highlights" and a report of independent auditors, all of which (but
no other part of the annual report) is incorporated herein by reference.
B-21
<PAGE> 44
APPENDIX A
Commercial Paper Ratings
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt having an original maturity of no more
than 365 days. The following summarizes the rating categories used by Standard &
Poor's for commercial paper in which the Fund may invest:
"A-1" - Issue's degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted "A-1+."
"A-2" - Issue's capacity for timely payment is satisfactory. However, the
relative degree of safety is not as high as for issues designated "A-1."
Moody's commercial paper ratings are opinions of the ability of issuers
to repay punctually promissory obligations not having an original maturity in
excess of 9 months. The following summarizes the rating categories used by
Moody's for commercial paper in which the Funds may invest:
"Prime-1" - Issuer or related supporting institutions are considered to
have a superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
capacities: leading market positions in well-established industries; high rates
of return on funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protection; broad margins in earning
coverage of fixed financial charges and high internal cash generation; and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
"Prime-2" - Issuer or related supporting institutions are considered to
have a strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternative liquidity is
maintained.
The three rating categories of Duff & Phelps for investment grade
commercial paper are "Duff 1," "Duff 2" and "Duff 3." Duff & Phelps employs
three designations, "Duff 1+," "Duff 1" and "Duff 1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper in which the Fund may invest:
"Duff 1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"Duff 1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
A-1
<PAGE> 45
"Duff 1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"Duff 2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding need may
enlarge total financing requirements, access to capital markets is good.
Fitch short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years. The highest rating
category of Fitch for short-term obligations is "F-1." Fitch employs two
designations, "F-1+" and "F-1," within the highest category. The following
summarizes the rating categories used by Fitch for short-term obligations in
which the Funds may invest:
"F-1+" - Securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of assurance
for timely payment.
"F-1" - Securities possess very strong credit quality. Issues assigned
this rating reflect an assurance of timely payment only slightly less in degree
than issues rated "F-1+."
Fitch may also use the symbol "LOC" with its short-term ratings to indicate that
the rating is based upon a letter of credit issued by a commercial bank.
Thomson BankWatch short-term ratings assess the likelihood of an untimely
or incomplete payment of principal or interest of unsubordinated instruments
having a maturity of one year or less which are issued by a bank holding company
or an entity within the holding company structure. The following summarizes the
ratings used by Thomson BankWatch in which the Fund may invest:
"TBW-1" - This designation represents Thomson BankWatch's highest rating
category and indicates a very high degree of likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - this designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."
A-2
<PAGE> 46
IBCA assesses the investment quality of unsecured debt with an original
maturity of less than one year which is issued by bank holding companies and
their principal bank subsidiaries. The following summarizes the rating
categories used by IBCA for short-term debt ratings in which the Fund may
invest:
"A1" - Obligations are supported by the highest capacity for timely
repayment. Where issues possess a particularly strong credit feature, a rating
of A1+ is assigned.
"A2" - Obligations are supported by a good capacity for timely repayment.
Corporate Long-Term Investment Grade Debt Ratings
STANDARD & POOR'S INVESTMENT GRADE DEBT RATINGS
A Standard & Poor's corporate or municipal debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. This assessment may take into consideration obligors such as
guarantors, insurers, or lessees. The debt rating is not a recommendation to
purchase, sell, or hold a security, inasmuch as it does not comment as to market
price or suitability for a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not perform
an audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information, or for other
circumstances.
The ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of default - capacity and willingness of the obligor
as to the timely payment of interest and repayment of principal
in accordance with the terms of the obligation.
2. Nature of and provisions of the obligation.
3. Protection afforded by, and relative position of, the obligation
in the event of bankruptcy, reorganization, or other arrangement
under the laws of bankruptcy and other laws affecting creditors'
rights.
A-3
<PAGE> 47
AAA - Debt rated `AAA' has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA - Debt rated `AA' has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A - Debt rated `A' has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB - Debt rated `BBB' is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
MOODY'S LONG-TERM INVESTMENT GRADE DEBT RATINGS
Aaa - Bonds which are 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 which are 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 as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment some time in the future.
Baa - Bonds which are rated Baa are considered as medium-grade
obligations (i.e., they are neither highly protected nor poorly secured).
Interest 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.
A-4
<PAGE> 48
FITCH INVESTORS SERVICE, INC. INVESTMENT GRADE BOND RATINGS
Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
represent Fitch's assessment of the issuer's ability to meet the obligations of
a specific debt issue or class of debt in a timely manner.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength and credit quality.
Fitch ratings do not reflect any credit enhancement that may be provided
by insurance policies or financial guaranties unless otherwise indicated.
Bonds that have the same rating are of similar but not necessarily
identical credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.
Fitch ratings are not recommendations to buy, sell, or hold any security.
Ratings do not comment on the adequacy of market price, the suitability of any
security for a particular investor, or the tax-exempt nature of taxability of
payments made in respect of any security.
Fitch ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.
AAA Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong
ability to pay interest and repay principal, which is unlikely
to be affected by reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and
repay principal is very strong, although not quite as strong
as bonds rated `AAA.' Because bonds rated in the `AAA' and
`AA' categories are not significantly vulnerable to
foreseeable future developments, short-term debt of the
issuers is generally rated `F-1+.'
A Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes
in economic conditions and circumstances, however, are more
likely to have adverse impact on these bonds, and therefore
impair timely
A-5
<PAGE> 49
payment. The likelihood that the ratings of these bonds will
fall below investment grade is higher than for bonds with
higher ratings.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength.
Bonds that have the same rating are of similar but not necessarily
identical credit quality since the rating categories cannot fully reflect the
differences in the degrees of credit risk. Moreover, the character of the risk
factor varies from industry to industry and between corporate, health care and
municipal obligations.
DUFF & PHELPS, INC. LONG-TERM INVESTMENT GRADE DEBT RATINGS
These ratings represent a summary opinion of the issuer's long-term
fundamental quality. Rating determination is based on qualitative and
quantitative factors which may vary according to the basic economic and
financial characteristics of each industry and each issuer. Important
considerations are vulnerability to economic cycles as well as risks related to
such factors as competition, government action, regulation, technological
obsolescence, demand shifts, cost structure, and management depth and expertise.
The projected viability of the obligor at the trough of the cycle is a critical
determination.
Each rating also takes into account the legal form of the security (e.g.,
first mortgage bonds, subordinated debt, preferred stock, etc.). The extent of
rating dispersion among the various classes of securities is determined by
several factors including relative weightings of the different security classes
in the capital structure, the overall credit strength of the issuer, and the
nature of covenant protection. Review of indenture restrictions is important to
the analysis of a company's operating and financial constraints.
A-6
<PAGE> 50
The Credit Rating Committee formally reviews all ratings once per quarter
(more frequently, if necessary). Ratings of `BBB-' and higher fall within the
definition of investment grade securities, as defined by bank and insurance
supervisory authorities.
<TABLE>
<CAPTION>
RATING SCALE DEFINITION
- --------------------------------------------------------------------------------
<S> <C>
AAA Highest credit quality. The risk factors are
negligible, being only slightly more than for
risk-free U.S. Treasury debt.
- --------------------------------------------------------------------------------
AA+ High credit quality. Protection factors are
AA strong. Risk is modest, but may vary slightly
AA- from time to time because of economic
conditions.
- --------------------------------------------------------------------------------
A+ Protection factors are average but adequate.
A However, risk factors are more variable and
A- greater in periods of economic areas.
- --------------------------------------------------------------------------------
BBB+ Below average protection factors, but still
BBB considered sufficient for prudent investment.
BBB- Considerable volatility in risk during economic
cycles.
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 51
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders
Universal Capital Growth Fund
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Universal Capital Growth Fund as of September
30, 1998, the related statement of operations for the year then ended and
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the fiscal years since 1994. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements 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 investments owned as of
September 30, 1998, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Universal Capital Growth Fund at September 30, 1998, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the fiscal years since 1994, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Chicago, Illinois
November 2, 1998
<PAGE> 52
UNIVERSAL CAPITAL GROWTH FUND
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C> <C>
COMMON STOCKS 90.15%
- -------------------------------------------------------------
BANKS 4.05%
Net.b@nk, Inc.* 11,000 $ 209,000
Wells Fargo & Company 1,000 355,000
-------
564,000
COMPUTERS 3.68%
International Business Machines Corporation 4,000 512,000
COMPUTER NETWORKS 2.66%
Cisco Systems, Inc.* 6,000 370,875
COMPUTER SOFTWARE 4.75%
Microsoft Corporation* 6,000 660,375
CONSUMER STAPLES 3.88%
Home Products International, Inc.* 15,000 127,500
PepsiCo, Inc. 14,000 412,125
-------
539,625
ELECTRICAL EQUIPMENT 6.37%
General Electric Company 4,000 318,250
Kuhlman Corporation 17,500 567,656
-------
885,906
ELECTRONIC PRODUCTS & COMPONENTS 8.90%
American Power Conversion Corporation* 10,000 376,875
Intel Corporation 6,000 514,500
Lexmark International Group, Inc.* 5,000 346,563
-------
1,237,938
FINANCE & FINANCIAL SERVICES 8.63%
American Express Company 6,000 465,750
Household International Corporation 12,000 450,000
Merrill Lynch & Company, Inc. 6,000 284,250
-------
1,200,000
HEALTHCARE 10.55%
Amgen, Inc.* 4,500 340,031
Health Management Associates, Inc.* 15,000 273,750
Johnson & Johnson 5,000 391,250
Medtronic, Inc. 8,000 463,000
-------
1,468,031
</TABLE>
*Non-income producing
See notes to the financial statements
<PAGE> 53
UNIVERSAL CAPITAL GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED) 90.15%
- -------------------------------------------------------------
INSURANCE 1.93%
MBIA Inc. 5,000 $268,437
PHARMACEUTICALS 13.71%
Abbott Laboratories 9,000 390,937
Eli Lilly & Company 6,000 469,875
Merck & Co., Inc. 3,600 466,425
Schering-Plough Corporation 5,600 579,950
-------
1,907,187
RETAIL 8.30%
Costco Companies, Inc.* 7,000 331,625
Staples, Inc.* 13,000 381,875
Walgreen Co. 10,000 440,625
-------
1,154,125
SERVICES 6.95%
Complete Business Solutions, Inc.* 18,000 517,500
Sterling Commerce, Inc.* 13,000 450,125
-------
967,625
TELECOMMUNICATIONS 5.79%
MCI WorldCom, Inc.* 9,951 486,355
Tellabs, Inc.* 8,000 318,500
-------
804,855
-------
TOTAL COMMON STOCKS (COST $8,903,730) 12,540,979
----------
RIGHTS 0.00%
- -------------------------------------------------------------
U.S. Surgical, 9/23/00 7 292
---
TOTAL RIGHTS (COST $0) 292
---
</TABLE>
*Non-income producing
See notes to the financial statements
<PAGE> 54
UNIVERSAL CAPITAL GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------ -----
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS 10.05%
- ----------------------------------------------------------------
MONEY MARKET 2.86%
UMB Bank, n.a. Money Market Fiduciary, 3.99% $397,222 $397,222
-------
TOTAL MONEY MARKET 397,222
-------
REPURCHASE AGREEMENTS 7.19%
UMB Bank, n.a., 4.85%, dated 9/23/98, repurchase
price $500,532, maturing 10/01/98, collateralized
by U.S. Treasury Notes, 7.00%, maturing 4/15/99 500,000 500,000
UMB Bank, n.a., 4.85%, dated 9/23/98, repurchase
price $500,930, maturing 10/07/98, collateralized
by U.S. Treasury Notes, 7.00%, maturing 4/15/99 500,000 500,000
-------
TOTAL REPURCHASE AGREEMENTS 1,000,000
---------
TOTAL SHORT-TERM INVESTMENTS 1,397,222
---------
(Cost $1,397,222)
TOTAL INVESTMENTS 100.20%
(COST $10,300,952) 13,938,493
LIABILITIES LESS CASH AND OTHER ASSETS (0.20)% (27,514)
---------
NET ASSETS 100.00% $13,910,979
==========
</TABLE>
See notes to the financial statements
<PAGE> 55
UNIVERSAL CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES STATEMENT OF OPERATIONS
SEPTEMBER 30, 1998 FOR THE YEAR ENDED SEPTEMBER 30, 1998
<S> <C> <C> <C>
ASSETS: INVESTMENT INCOME:
Investments at value (cost $10,300,952) $13,938,493 Dividend income $100,444
Dividends and interest receivable 13,799 Interest income 40,644
------
Prepaid expenses and other assets 4,599 141,088
----- -------
Total Assets 13,956,891 EXPENSES:
----------
Investment advisory fees 144,778
LIABILITIES: Distribution fees 72,389
Payable to Adviser 2,691 Reports to shareholders 26,307
Accrued distribution fees 18,974 Transfer agent fees and expenses 25,299
Accrued audit fees 13,798 Audit fees 21,503
Other accrued expenses 10,449 Legal fees 19,001
------ Fund accounting fees 12,779
Federal and state registration fees 6,602
Total Liabilities 45,912 Trustees' fees 5,753
------
Custody fees 5,237
NET ASSETS $13,910,979 Other 3,754
=========== -----
NET ASSETS CONSIST OF:
Paid-in-capital $8,873,499 Total expenses before waiver 343,402
Accumulated net realized gain Waiver of fees (53,845)
on investments 1,399,939 -------
Net unrealized appreciation Net expenses 289,557
on investments 3,637,541 -------
---------
Net investment loss (148,469)
TOTAL NET ASSETS $13,910,979 --------
===========
REALIZED AND UNREALIZED GAINS:
NET ASSET VALUE PER SHARE Net realized gain on investments 1,402,832
($13,910,979 DIVIDED BY Change in net unrealized appreciation
737,787 SHARES OUTSTANDING) $18.86 on investments (332,626)
===== --------
MAXIMUM OFFERING PRICE Net gain on investments 1,070,206
PER SHARE ---------
(NET ASSET VALUE, PLUS 5.82% OF NET NET INCREASE IN NET ASSETS
ASSET VALUE OR 5.50% OF OFFERING PRICE) $19.96 RESULTING FROM OPERATIONS $921,737
===== ========
See notes to the financial statements See notes to the financial statements
</TABLE>
<PAGE> 56
UNIVERSAL CAPITAL GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
<S> <C> <C>
OPERATIONS:
Net investment loss $ (148,469) $ (54,361)
Net realized gain on investments 1,402,832 405,187
Change in net unrealized appreciation on investments (332,626) 3,159,044
-------- ---------
Net increase in net assets resulting from operations 921,737 3,509,870
-------- ---------
DISTRIBUTIONS:
Net realized gains (355,252) (1,185,143)
-------- -----------
CAPITAL SHARE TRANSACTIONS :
Proceeds from 58,241 and 54,442 shares issued, respectively 1,125,668 888,007
Net asset value of 19,566 and 82,871 shares issued to
holders in reinvestment of dividends, respectively 345,153 1,150,243
Cost of 58,235 and 161,216 shares redeemed, respectively (1,120,802) (2,492,100)
---------- -----------
Net increase (decrease) from capital transactions 350,019 (453,850)
-------- --------
TOTAL INCREASE IN NET ASSETS 916,504 1,870,877
NET ASSETS:
Beginning of year 12,994,475 11,123,598
----------- ----------
End of year $13,910,979 $12,994,475
============ ===========
</TABLE>
See notes to financial statements.
<PAGE> 57
UNIVERSAL CAPITAL GROWTH FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1998 1997(A) 1996 1995 1994
----- -------- ----- ----- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $18.09 $14.99 $16.28 $12.47 $12.27
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss (0.21) (0.08) (0.10) (0.10) (0.13)
Net realized and unrealized gain
on investments 1.46 4.97 1.14 4.54 0.96
----- ----- ----- ----- ----
TOTAL FROM INVESTMENT OPERATIONS 1.25 4.89 1.04 4.44 0.83
----- ----- ----- ----- ----
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gains (0.48) (1.79) (2.33) (0.63) (0.63)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR $18.86 $18.09 $14.99 $16.28 $12.47
====== ======= ======= ======= ======
TOTAL RETURN (B) 7.12% 36.24% 7.40% 37.87% 7.46%
SUPPLEMENTAL DATA AND RATIOS:
Ratio of net expenses
to average net assets (c) 2.00% 2.00% 2.00% 2.00% 2.00%
Ratio of net investment loss
to average net assets (c) (1.0)% (0.5)% (0.7)% (0.8)% (1.1)%
Portfolio turnover rate 58.1% 49.2% 262.1% 157.6% 188.7%
Net assets, end of year (in 000's) $13,911 $12,994 $11,124 $8,149 $4,969
</TABLE>
(a)On August 15, 1997, the adviser changed to Graver, Bokhof, Goodwin &
Sullivan from Integrated Financial Services, Inc.
(b)The total return calculation does not reflect any sales load imposed on the
purchase of shares.
(c)After waiver of adviser fees and earnings credits of the custodian of 0.37%,
0.50%, 0.35%, 0.70% and 1.10% of average net assets for 1998, 1997, 1996,
1995 and 1994.
See notes to financial statements.
<PAGE> 58
UNIVERSAL CAPITAL GROWTH FUND
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION. Universal Capital Investment Trust (the "Trust") is a
Massachusetts business trust organized on October 18, 1990. The Trust is
registered under the Investment Company Act of 1940 (the "1940 Act") as a
diversified, open-end investment company. Universal Capital Growth Fund (the
"Fund"), the only series of the Trust currently offered, commenced selling
shares to the public on January 22, 1991 (commencement of operations).
INVESTMENT VALUATION. Investments are stated at value. Investments traded on a
securities exchange or in the over-the-counter market are valued at the last
current sale price as of the time of valuation or, lacking any current reported
sale on that day, at the mean between the most recent bid and asked quotations.
Investments for which quotations are not readily available and securities for
which the valuation methods described above do not produce a value reflective of
the fair value of the securities are valued at a fair value as determined in
good faith by the board of trustees or a committee thereof.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME. Investment transactions are
recorded on the trade date (the day the order to buy or sell is executed).
Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis. Realized gains and losses from investment
transactions are reported on an identified cost basis.
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.
FEDERAL INCOME TAXES AND DIVIDENDS TO SHAREHOLDERS. It is the Fund's policy to
comply with the special provisions of the Internal Revenue Code available to
regulated investment companies and, in the manner provided therein, to
distribute all of its taxable income, as well as any net realized gain on sales
of investments. Such provisions were complied with and therefore no provision
for federal income taxes is required.
The character of distributions made during the year from net investment income
or net realized gains may differ from the characterization for federal income
tax purposes due to differences in the recognition of income, expense or gain
items for financial statement and tax purposes. Where appropriate,
reclassifications between net asset accounts are made for such differences that
are permanent in nature. Accordingly, at September 30, 1998, the Fund reduced
paid in capital by $148,469 for the current year's net investment loss.
REPURCHASE AGREEMENTS. The Fund may invest in repurchase agreements. All
repurchase agreements are fully collateralized by U.S. Treasury securities. All
collateral is held through the Fund's custodian bank and is monitored daily by
the Fund to ensure that its market value exceeds the carrying value of the
repurchase agreements.
2. TRANSACTIONS WITH AFFILIATES
Pursuant to an investment advisory agreement with Graver, Bokhof, Goodwin &
Sullivan (the "Adviser"), the Fund pays an investment advisory fee at the annual
rate of 1.0% of the first $250 million of the Fund's average daily net assets
and .75% of the Fund's average daily net assets in excess of $250 million.
During the year ended September 30, 1998, the Fund incurred investment advisory
fees of $144,778 under this agreement.
The agreement provides for the waiver of expenses from the Adviser through
December 31, 1999 should the Fund's normal operating expenses exceed 2.00% of
average daily net. During the year ended September 30, 1998, the Adviser waived
$53,845 of its investment advisory fee.
While serving as distributor, Dreher & Associates, Inc. (the "Distributor")
assumed all expenses of personnel, office space, office facilities and equipment
incidental to such service. The Trust has adopted a Distribution Plan pursuant
to Rule 12b-1 under the 1940 Act whereby the Fund pays the Distributor a monthly
service fee of .25% and a monthly sales compensation fee of .25%, based on the
Fund's average daily net assets. In return, the Distributor bears all expenses
incurred in the distribution and promotion of the Fund's shares. During the year
ended September 30, 1998, the Fund incurred distribution fees of $72,389. The
Distributor received commissions of $3,835 from sale of the Fund's shares during
the year ended September 30, 1998, all of which was paid to brokers affiliated
with the Fund.
Portfolio transactions for the Fund have been executed through the Distributor,
consistent with the Fund's policy of obtaining best price and execution. During
the year ended September 30, 1998, the Fund paid brokerage commissions to the
Distributor on purchases and sales of securities in the amount of $20,938. It is
the Adviser's opinion that commission rates charged to the Fund by the
Distributor are consistent with those charged to comparable unaffiliated
customers in similar transactions.
3. INVESTMENTS
Purchases and sales of investments, other than short-term obligations, were
$7,792,996 and $8,789,353 respectively, for the year ended September 30, 1998.
<PAGE> 59
UNIVERSAL CAPITAL GROWTH FUND
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
The cost basis of investments for federal income tax purposes at September 30,
1998 was $10,300,952. At September 30, 1998, on a tax basis, gross unrealized
appreciation was $4,143,889, gross unrealized depreciation was $506,348 and net
unrealized appreciation was $3,637,541.
================================================================================
FEDERAL TAX STATUS
OF 1998 DIVIDENDS
INCOME AND CAPITAL GAIN DIVIDENDS PAID TO YOU, WHETHER RECEIVED IN CASH OR
REINVESTED IN SHARES, MUST BE INCLUDED IN YOUR FEDERAL INCOME TAX RETURN AND
MUST BE REPORTED BY THE FUND TO THE INTERNAL REVENUE SERVICE IN ACCORDANCE WITH
U.S. TREASURY DEPARTMENT REGULATIONS.
NONE OF THE DIVIDENDS PAID BY THE FUND QUALIFY FOR THE 70% DIVIDENDS RECEIVED
DEDUCTION AVAILABLE TO CERTAIN CORPORATE SHAREHOLDERS.
================================================================================
INVESTMENT ADVISER
Graver, Bokhof, Goodwin & Sullivan
100 South Wacker Drive, Suite 2100
Chicago, Illinois 60606
DISTRIBUTOR
Dreher & Associates, Inc.
One Oakbrook Terrace, Suite 708
Chicago, Illinois 60181
CUSTODIAN
UMB Bank, n.a.
P.O. Box 419226
Kansas City, Missouri 64141
TRANSFER AGENT
Sunstone Investor Services, LLC
207 East Buffalo Street, Suite 315
Milwaukee, WI 53202
COUNSEL
Vedder, Price, Kaufman & Kammholz
Chicago, Illinois
INDEPENDENT AUDITORS
Ernst & Young LLP
Chicago, Illinois
<PAGE> 60
PART C OTHER INFORMATION
<TABLE>
<S> <C>
Item 24. Financial Statements and Exhibits
(a) Financial statements:
(i) Financial statements included in Part A of
this registration statement: Financial Highlights.
(ii) Financial statements included in Part B of this
registration statement:
Universal Capital Growth Fund (Incorporated by
reference from registrant's annual report to
shareholders for the year ended September 30,
1998; a copy of that report is attached hereto
but, except for those portions incorporated by
reference, is furnished for the information of
the Commission and is not deemed to be filed as
part of this registration statement):
Report of independent auditors
Portfolio of investments - September 30, 1998
Statement of assets and liabilities - September 30, 1998
Statement of operations for the year
ended
September 30, 1998
Statement of Changes in Net Assets for the years ended
September 30, 1998 and 1997
Financial Highlights
Notes to financial statements
Schedules II, III, IV and V are omitted as the
required information is not present.
Schedule I has been omitted as the required
information is presented in the Portfolio of
Investments at September 30, 1998.
(b) Exhibits:
1.1 Agreement and Declaration of Trust(1)
1.2 Amendment no. 1 to Agreement and Declaration of Trust(1)
2 Bylaws, as amended(1)
3 None
4 Form of share certificate for series designated Universal Capital Growth Fund(1)
5 Investment Advisory Agreement with Graver, Bokhof, Goodwin & Sullivan(2)
6.1 Distribution Agreement with Dreher & Associates, Inc.(1)
6.2 Form of Selling Group Agreement(1)
</TABLE>
C-1
<PAGE> 61
<TABLE>
<S> <C>
7 None
8 Custody Agreement with UMB Bank, n.a.(1)
9.1 Transfer Agency Agreement with Jones & Babson, Inc.(1)
9.2 Fund Accounting Agreement with UMB Bank, n.a.(1)
9.3 Administration Agreement with Sunstone Financial Group, Inc.(2)
9.4 Transfer Agency Agreement with Sunstone Investor Services, LLC(3)
10 Opinion of Goodwin, Procter & Hoar dated January 16, 1991(1)
11 (EX-99.B11) Consent of Independent Auditors
12 None
13.1 Subscription Agreement(1)
13.2 Organizational Expense Agreement(1)
14 Universal Capital Investment Trust Individual Retirement
Account Prototype Plan, disclosure statement, and application,
as amended and restated April 19, 1994(1)
15 Distribution (12b-1) Plan(1)
16 Schedule for Computation of Performance Quotations(1)
17 (EX-27.1) Financial Data Schedule
18 None
19 Account application(1)
(EX-485.b) 485(b) letter
</TABLE>
(1)Previously filed. Incorporated by reference to the exhibit of the
same number filed with Post-Effective Amendment No. 6, Registration No.
33-37668, effective January 31, 1996.
(2)Previously filed. Incorporated by reference to the exhibit of the
same number filed with Post-Effective Amendment No. 8, Registration No.
33-37668, effective January 28, 1998.
(3)Previously filed. Incorporated by reference to the exhibit of the
same number filed with Post-Effective Amendment No. 9, Registration No.
33-37668, effective April 28, 1998.
Item 25. Persons Controlled By or Under Common Control with Registrant
The registrant does not consider that there are any persons
directly or indirectly controlling, controlled by, or under common control with,
the registrant within the meaning of this item. The information in the
prospectus under the captions "Management of the Fund - The Adviser and
Distributor" and in the Statement of Additional Information under the caption
"Management" is incorporated by reference.
C-2
<PAGE> 62
Item 26. Number of Holders of Securities
As of September 30, 1998, there were 668 record holders of the
series of registrant's shares designated Universal Capital Growth Fund.
Item 27. Indemnification
Article VI of the agreement and declaration of trust of
registrant (exhibit 1 to the registrant's registration statement on form N-1A,
no. 33-37668, which is incorporated herein by reference) provides that the Trust
shall indemnify (from the assets of the Sub-Trust or Sub-Trusts in question)
each of its Trustees and officers (including persons who serve at the Trust's
request as directors, officers or trustees of another organization in which the
Trust has any interest as a shareholder, creditor or otherwise [hereinafter
referred to as a "Covered Person"]) against all liabilities, including but not
limited to amounts paid in satisfaction of judgments, in compromise or as fines
and penalties, and expenses, including reasonable accountants' and counsel fees,
incurred by any Covered Person in connection with the defense or disposition of
any action, suit or other proceeding, whether civil or criminal, before any
court or administrative or legislative body, in which such Covered Person may be
or may have been involved as a party or otherwise or with which such person may
be or may have been threatened, while in office or thereafter, by reason of
being or having been such a Trustee or officer, director or trustee, except with
respect to any matter as to which it has been determined in one of the manners
described below, that such covered Person (i) did not act in good faith in the
reasonable belief that such Covered Person's action was in or not opposed to the
best interests of the Trust or (ii) had acted with willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office (either and both of the conduct
described in (i) and (ii) being referred to hereafter as "Disabling Conduct").
A determination that the Covered Person is not entitled to
indemnification due to Disabling Conduct may be made by (i) a final decision on
the merits by a court or other body before whom the proceeding was brought that
the person to be indemnified was not liable by reason of Disabling Conduct, (ii)
dismissal of a court action or an administrative proceeding against a Covered
Person for insufficiency of evidence of Disabling Conduct, or (iii) a reasonable
determination, based upon a review of the facts, that the indemnitee was not
liable by reason of Disabling Conduct by (a) a vote of a majority of a quorum of
Trustees who are neither "interested persons" of the Trust as defined in section
2(a)(19) of the Investment Company Act of 1940 nor parties to the proceeding, or
(b) an independent legal counsel in a written opinion. Expenses, including
accountants' and counsel fees so incurred by any such Covered Person (but
excluding amounts paid in satisfaction of judgments, in compromise or as fines
or penalties), may be paid from time to time in advance of the final disposition
of any such action, suit or proceeding, provided that the Covered Person shall
have undertaken to repay the amounts so paid to the Sub-Trust in question if it
is ultimately determined that indemnification of such expenses is not authorized
under this Article VI and (i) the Covered Person shall have provided security
for such undertaking, (ii) the Trust shall be insured against losses arising by
reason of any lawful advances, or (iii) a majority of a quorum of the
disinterested Trustees who are not a party to the proceeding, or an independent
legal counsel in a written opinion, shall have determined, based on a review of
readily available facts (as opposed to a full trial-type inquiry), that there is
reason to believe that the Covered Party ultimately will be found entitled to
indemnification.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a trustee, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by
C-3
<PAGE> 63
such trustee, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
The information in the prospectus in the first two paragraphs
under the caption "Management of the Fund -- The Adviser and Distributor" is
incorporated by reference. Neither the Adviser nor any of its directors or
officers has been engaged for its or his own account in any other business,
profession, vocation or employment of a substantial nature in the past two
fiscal years.
Item 29. Principal Underwriters
(a) None.
<TABLE>
<CAPTION>
(b) Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
------------------- --------------------- ---------------------
<S> <C> <C>
James A. Dreher President N/A
One Oakbrook Terrace
Suite 708
Oakbrook Terrace, Illinois
60181
Patricia M. Ellington Vice President/ N/A
One Oakbrook Terrace Operations
Suite 708
Oakbrook Terrace, Illinois
60181
Linda M. Kozak Secretary/Treasurer N/A
One Oakbrook Terrace
Suite 708
Oakbrook Terrace, Illinois
60181
</TABLE>
(c) Not applicable
Item 30. Location of Accounts and Records
As to records of the Distributor:
Linda M. Kozak
Integrated Financial Services, Inc.
One Oakbrook Terrace, Suite 708
Oakbrook Terrace, Illinois 60181
As to records of the Custodian and Fund Accountant:
UMB Bank, n.a.
P.O. Box 419226
Kansas City, Missouri 64141
Attn: Lori Judd
C-4
<PAGE> 64
As to records of the Administrator:
Sunstone Financial Group, Inc.
207 East Buffalo Street, Suite 400
Milwaukee, Wisconsin 53202
As to the record of the Transfer Agent:
Sunstone Investor Services, LLC
207 East Buffalo Street, Suite 315
Milwaukee, WI 53202
Item 31. Management Services
None
Item 32. Undertakings
(a) Not applicable
(b) Not applicable
(c) The Registrant undertakes to furnish to each person to
whom a Prospectus is delivered, a copy of its latest
Annual Report to Shareholders, upon request and without
charge.
<PAGE> 65
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the registrant certifies that it meets all
of the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this amendment
to its registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in Chicago, Illinois on November __, 1998.
UNIVERSAL CAPITAL INVESTMENT TRUST
By: /s/ Andrew J. Goodwin, III
---------------------------------
Andrew J. Goodwin, III, President
Pursuant to the requirements of the Securities Act of 1933,
this amendment to the registration statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
- ---- ----- ----
<S> <C> <C>
/s/ Andrew J. Goodwin, III President and Trustee (principal executive
- ------------------------------ officer) ----------------
Andrew J. Goodwin, III
/s/ Keith Pinsoneault Vice President, Secretary, & Treasurer
- ------------------------------ ----------------
Keith Pinsoneault
/s/ Robert A. Korajczyk Trustee
- ------------------------------ ----------------
Robert A. Korajczyk
/s/ Robert F. Seebeck Trustee
- ------------------------------ ----------------
Robert F. Seebeck
/s/ Alan L. Zable Trustee
- ------------------------------ ----------------
Alan L. Zable
</TABLE>
<PAGE> 66
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
- --------
<S> <C>
1.1 Agreement and Declaration of Trust(1)
1.2 Amendment no. 1 to Agreement and Declaration of Trust(1)
2 Bylaws, as amended(1)
3 None
4 Form of share certificate for series designated Universal Capital
Growth(1)
5 Investment Advisory Agreement with Graver, Bokhof, Goodwin &
Sullivan(2)
6.1 Distribution Agreement with Dreher & Associates, Inc.(1)
6.2 Form of Selling Group Agreement(1)
7 None
8 Custody Agreement with UMB Bank n.a.(1)
9.1 Transfer Agency Agreement with Jones & Babson, Inc(1)
9.2 Fund Accounting Agreement with UMB Bank, n.a.(1)
9.3 Administration Agreement with Sunstone Financial Group, Inc.(2)
9.4 Transfer Agency Agreement with Sunstone Investor Services, LLC(3)
10 Opinion of Goodwin, Proctor & Hoar dated January 16, 1991(1)
11 (EX-99.B11) Consent of Independent Auditors
12 None
13.1 Subscription Agreement(1)
13.2 Organizational Expense Agreement(1)
14 Universal Capital Investment Trust Individual Retirement
Account Prototype Plan, Disclosure Statement, and Application,
as amended and restated April 19, 1994(1)
</TABLE>
<PAGE> 67
<TABLE>
<S> <C>
15 Distribution (12-b1) Plan(1)
16 Schedule for Computation of Performance Quotations(1)
17 (EX-27.1) Financial Data Schedule
18 None
19 Account Application(1)
(EX-485.b) 485(b) letter
</TABLE>
(1)Previously filed. Incorporated by reference to the exhibit of the same number
filed with Post-Effective Amendment No. 6 Registration No. 33-37668, effective
January 31 1996.
(2)Previously filed. Incorporated by reference to the exhibit of the same number
filed with Post-Effective Amendment No. 8, Registration No. 33-37668, effective
January 28, 1998.
(3)Previously filed. Incorporated by reference to the exhibit of the same number
filed with Post-Effective Amendment No. 9, Registration No. 33-37668, effective
April 28, 1998.
<PAGE> 1
EXHIBIT 99.B11
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights", "Financial Statements", and "Independent Auditors" and to the use
of our report dated November 2, 1998 in the Registration Statement (Form N-1A)
of Universal Capital Investment Trust Fund and its incorporation by reference
in the related Prospectus of Universal Capital Growth Fund, filed with the
Securities and Exchange Commission in the Post-Effective Amendment No. 10 to
the Registration Statement under the Securities Act of 1933 (File No.
33-37668) and in this Amendment No. 12 to the Registration Statement under the
Investment Company Act of 1940 (File No. 811-6212).
/s/ Ernst & Young LLP
Chicago, Illinois
November 25, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000869598
<NAME> UNIVERSAL CAPITAL INVESTMENT TRUST
<SERIES>
<NUMBER> 1
<NAME> UNIVERSAL CAPITAL GROWTH FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 10,300,952
<INVESTMENTS-AT-VALUE> 13,938,493
<RECEIVABLES> 13,799
<ASSETS-OTHER> 4,599
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 13,956,891
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 45,912
<TOTAL-LIABILITIES> 45,912
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8,873,499
<SHARES-COMMON-STOCK> 737,787
<SHARES-COMMON-PRIOR> 718,215
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,399,939
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,637,541
<NET-ASSETS> 13,910,979
<DIVIDEND-INCOME> 100,444
<INTEREST-INCOME> 40,644
<OTHER-INCOME> 0
<EXPENSES-NET> (289,557)
<NET-INVESTMENT-INCOME> (148,469)
<REALIZED-GAINS-CURRENT> 1,402,832
<APPREC-INCREASE-CURRENT> (332,626)
<NET-CHANGE-FROM-OPS> 921,737
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (355,252)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 58,241
<NUMBER-OF-SHARES-REDEEMED> 58,235
<SHARES-REINVESTED> 19,566
<NET-CHANGE-IN-ASSETS> 916,504
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 352,359
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 144,778
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 343,402
<AVERAGE-NET-ASSETS> 14,477,147
<PER-SHARE-NAV-BEGIN> 18.09
<PER-SHARE-NII> (0.21)
<PER-SHARE-GAIN-APPREC> 1.46
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.48)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.86
<EXPENSE-RATIO> 2.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
