UNIVERSAL CAPITAL GROWTH FUND
A mutual fund investing for capital appreciation
(LOGO)
UNIVERSAL
CAPITAL
GROWTH
FUND
Prospectus
January 28, 2000
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
Mutual Funds are:
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NOT FDIC INSURED May lose value No bank guarantee
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<PAGE>
CONTENTS
ABOUT THE FUND
Investment Objective.........................................................2
Main Investment Strategies...................................................2
Main Risks.................................................................2-3
Performance................................................................3-4
Expenses .................................................................4-5
Other Policies and Risks...................................................5-6
Management...................................................................6
ABOUT YOUR INVESTMENT
How Shares are Priced........................................................7
Net Asset Value....................................................7
Sales Charges....................................................7-8
12b-1 fees.......................................................8-9
How to Buy Shares............................................................9
Automatic Investment Plan.........................................10
Rights of Accumulation............................................10
Letter of Intent..................................................11
How to Sell Shares.......................................................11-12
Systematic Withdrawal Plan........................................12
Expedited Redemption..............................................12
Redemptions in Kind...............................................12
Other Purchase and Redemption Policies...................................12-13
Shareholder Services........................................................14
Dividends, Distributions and Taxes..........................................14
Financial Highlights........................................................15
FOR MORE INFORMATION................................................BACK COVER
<PAGE>
ABOUT THE FUND
INVESTMENT OBJECTIVE
The investment objective of the Universal Capital Growth Fund (the "Fund") is to
maximize long-term capital appreciation. The Fund's Trustees may not change the
investment objective without a shareholder vote.
MAIN INVESTMENT STRATEGIES
The Fund invests primarily in common stocks of companies that Graver, Bokhof,
Goodwin & Sullivan L.P. (the "Adviser") believes have the potential to increase
earnings and are under-valued or fairly-valued. Under normal market conditions,
the Fund will invest at least 75% of its total assets in such securities.
Although the Fund may invest in companies of any size, it generally invests in
larger, more established companies.
The Fund typically buys stocks of companies that are expected to show above
average growth characteristics. The Adviser selects stocks using a "bottom-up
approach" screening for revenue and earnings growth, profit margin ratios and
levels of return on equity. The Adviser also analyzes each company's financial
strength, management, stock price momentum and competitive position. In
evaluating the relative attractiveness of stocks the Adviser emphasizes the
selection of stocks with reasonable valuations, an investment style often
described as "growth at a reasonable price" or "GARP." This approach may lead to
the purchase of some stocks historically looked upon more for their value
characteristics but are deemed by the Adviser to have prospects for future
growth.
The Adviser also evaluates stocks using a "top-down approach" in which it
considers the economic outlook for various sectors and industries. The Adviser
assesses stock and industry portfolio weightings to maintain the desired degree
of diversification among the industries and companies represented.
The Fund normally will sell a stock when the Adviser believes its price
potential has been realized, when its fundamental qualities have
deteriorated, or when other investments offer better opportunities.
MAIN RISKS
The Fund's principal risks are associated with investing in the stock market,
equity investing and the Adviser's skill in managing the Fund.
COMMON STOCKS
There are market and investment risks with any security. The value of your Fund
shares will fluctuate over time, and you could lose money. The Fund is designed
for long-term investors who can accept these fluctuations and the risks of
investing in securities. Common stocks tend to be more volatile than other
investment choices. Large company stocks may be less risky than stocks of
smaller companies, but at times may not perform as well.
The value of the Fund's portfolio may decrease if the value of an individual
company in the portfolio decreases. The value of the Fund's portfolio could
also decrease if the stock market goes down. If the value of the Fund's
portfolio decreases, the Fund's net asset value will also decrease, which means
if you sell your shares, you would receive less money.
<PAGE>
GROWTH STOCKS
Because of their perceived growth potential, growth stocks are typically in
demand and tend to carry relatively high prices. Growth stocks generally
experience greater share price fluctuations as the market reacts to changing
perceptions of the underlying companies' growth potential and broader economic
activity. If the Fund's growth stocks do not produce the predicted earnings
growth, their share price may drop and the Fund's net asset value may decline.
VALUE STOCKS
The determination that a stock is undervalued is subjective. The market may not
agree and the stock's price may not rise to what the Adviser believes is its
full value. It may even decrease in value. Value stocks may also become
unpopular.
FUND MANAGEMENT
The Adviser could be wrong in their analysis of companies, sectors, economic
trends, the relative attractiveness of different size stocks or other matters.
SMALL COMPANIES
The Fund normally invests in large companies, but it may also invest in small
companies. Small, and often newer, companies present greater investment risk
than more established companies. They may have limited product lines, markets,
management personnel, research, and financial resources making them less
marketable and more volatile than the securities of larger companies or the
market in general.
PERFORMANCE
The chart and table below provide some indication of the risks of investing in
the Fund. The bar chart below shows how the Fund has performed from year to
year. The table compares the Fund's average annual returns for the periods
indicated to the S&P 500/R Stock Index ("S&P 500/R"), a broad-based market
index. The chart does not reflect sales charges, which reduce return.
Please note that past performance does not necessarily indicate how the Fund
will perform in the future.
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ANNUAL TOTAL RETURNS (%) AS OF 12/31 EACH YEAR
1992 -2.07%
1993 8.42%
1994 7.59%
1995 39.31%
1996 10.52%
1997 34.46%
1998 25.05%
1999 20.03%
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<PAGE>
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BEST QUARTER: Fourth quarter 1998 21.14%
WORST QUARTER: Third quarter 1998 -11.08%
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AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/99
1 year 5 year Since Inception<F1>
Universal Capital
Growth Fund<F2> 13.42% 24.05% 17.29%
S&P 500/R<F3> 21.04% 28.56% 20.93%
<F1> Inception date of the Fund was January 22, 1991.
<F2> This performance table reflects the payment of the 5.5% sales load on the
purchase of new shares.
<F3> The S&P 500/R is an unmanaged index generally representative of the U.S.
market for large-to mid-capitalized stocks.
EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund. Future expenses may be higher or lower than those shown.
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SHAREHOLDER FEES (fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price).........................................5.5%
Redemption fees.............................................................<F1>
ANNUAL FUND OPERATING EXPENSES (expenses deducted from Fund assets)
Management fees............................................................1.00%
Distribution (12b-1) fees<F2>..............................................0.25%
Other Expenses<F2><F3>.....................................................0.78%
Total Annual Fund Operating Expenses<F3>...................................2.03%
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<F1> A fee of $15.00 is charged for each redemption made by wire and for each
redemption from a retirement plan account.
<F2> Prior to January 28, 2000, the Fund paid a 12b-1 fee of 0.50%. The table
reflects the current lower fee of 0.25%. Effective January 28, 2000, the
Board of Trustees approved an administrative service agreement authorizing
the Fund to pay Dreher & Associates, Inc. ("Dreher") for certain expenses
incurred in connection with providing services to shareholders. The Fund
pays Dreher an annual fee under the agreement equal to 0.10%, accrued daily
and paid monthly and based on the Fund's average daily net assets. "Other
Expenses" have been restated to reflect the addition of this fee.
<F3> The Adviser has agreed to limit the Fund's annual ordinary operating
expenses to 2.00% of the Fund's average daily net assets through December
31, 2000. This waiver is voluntary and may be terminated at any time. For
the fiscal year ended September 30, 1999, the Adviser waived a portion of
its management fee, so the actual Management Fee the Fund incurred was
0.82% of average net assets, and total annual operating expenses were
2.00%.
<PAGE>
EXAMPLE
This Example is intended to help you compare the cost of investing in this Fund
with the cost of investing in other mutual funds. The Example assumes you
invest $10,000 for the periods shown, receive a 5% annual return, and redeem all
your shares at the end of each period. It also assumes Fund operating expenses
remain the same each year and that all dividends and distributions are
reinvested. Although your actual costs may be higher or lower, based on these
assumptions your cost would be:
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1 YEAR 3 YEARS 5 YEARS 10 YEARS
$745 $1,152 $1,583 $2,779
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OTHER POLICIES AND RISKS
OTHER INVESTMENTS
To a more limited extent, the Fund may utilize other investments and investment
techniques that may impact the Fund's performance. Under normal market
conditions, the Fund may invest up to 25% of its net assets in:
- short-term, interest-bearing securities
- U.S. government securities
- corporate debt securities
- preferred stocks
- commercial bank certificates of deposit
- repurchase agreements
Some of these investments may be medium or long-term investment-grade
obligations, rated by a nationally recognized agency in one of the four highest
categories. Securities in the fourth highest category are considered
speculative.
In addition, although the Fund is permitted to invest in foreign securities, it
generally invests substantially all of its assets in U.S. companies. Foreign
securities may be riskier than investments in U.S. companies because of factors
such as adverse political, diplomatic and economic developments, changes in
foreign currency exchange rates, taxes and less publicly available information.
FIXED INCOME SECURITIES
Any investment by the Fund in medium- or long-term, interest-bearing obligations
is subject to the risks of fixed income investing. A change in interest rates
may affect the value of these securities.
<PAGE>
For example, when interest rates rise, the value of these securities will
generally decline. In addition, the value of fixed income securities with
longer maturities are more sensitive to changes in interest rates than those
with shorter maturities. The issuer's ability to repay the obligation may also
affect the value of these securities. The Fund invests in fixed income
securities that are of investment grade, rated by a nationally recognized agency
in one of the four highest categories. Securities in the fourth highest
category are considered speculative.
RISK MANAGEMENT
The Fund seeks to manage risk by diversifying its holdings widely among market
sectors and companies. Also, the Fund may take a temporary defensive position,
investing up to 100% of its assets in short-term, interest-bearing securities.
In that case, investment income could be higher than if the Fund were invested
in common stocks and could make up a large portion of the Fund's return. Also,
the Fund probably would not benefit as much from market advances or suffer as
much from market declines as if it were fully invested in common stocks. If the
Fund takes a temporary defensive position, the Fund would not be pursuing, and
may not achieve, its objective.
MANAGEMENT
THE ADVISER
The Fund's investments are managed by Graver, Bokhof, Goodwin & Sullivan, L.P.,
100 South Wacker Drive, Suite 2100, Chicago, Illinois 60606-4005, a registered
investment adviser whose predecessor firm was founded in 1981. The firm is
owned by Optimum Investment Group Ltd., a holding company that also has
ownership interests in two other advisory firms with both institutional and
individual clients. Combined assets under management for the three affiliated
firms exceed $1.7 billion as of December 31, 1999.
The Fund is the only mutual fund which the firm advises. The Adviser has no
previous experience managing a mutual fund. All investment decisions for the
Fund are made by an investment committee, and no one person is primarily
responsible for making recommendations to that committee.
Subject to the overall authority of the Board of Trustees, the Adviser provides
the Fund with continuous investment management as well as office space,
equipment and management personnel. The Fund pays the Adviser a monthly fee at
an annual rate of 1.0% of the Fund's average daily net assets up to $250
million, and 0.75% of average daily net assets beyond that.
<PAGE>
ABOUT YOUR INVESTMENT
HOW SHARES ARE PRICED
The public offering price of Fund shares is based on the Fund's NET ASSET VALUE
per share plus a maximum SALES CHARGE of 5.5% of the offering price.
NET ASSET VALUE ("NAV")
Net asset value is the value of one share of the Fund, calculated by dividing
the value of the Fund's assets, less liabilities, by the number of shares
outstanding. Net asset value per share is determined as of the close of regular
trading on the New York Stock Exchange (the "Exchange"), normally 3:00 p.m.
Central Time, on each day the Exchange is open for trading.
The Fund values the securities it holds at market prices. If market prices are
unavailable for a security, the Fund uses fair value pricing, determined in good
faith by the Fund's Board of Trustees. For a more complete explanation, see the
Statement of Additional Information ("SAI").
If the Fund receives your purchase or redemption request in good order before
the close of trading, it is valued at that day's NAV (plus sales charge).
Otherwise it will be executed at the next business day's NAV (plus sales
charge). See "Other Purchase and Redemption Policies" on pages 12 and 13 for a
definition of "good order."
SALES CHARGES
This table shows the sales charges at various investment levels. See pages 10
and 11 for information on the Rights of Accumulation and Letter of Intent.
PAID BY THE INVESTOR
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% of Offering
As a % of As a % of Price Retained
Offering Net Amount by Selling
Investment Price Invested Dealer
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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
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<PAGE>
Various individuals and organizations who meet Fund requirements may buy shares
at NAV - that is, without the sales charge. Following is a list of those who
may qualify for such waivers, plus a description of the requirements:
- - employees and registered representatives of Dreher & Associates, Inc., the
Fund's Distributor ("Dreher" or the "Distributor") and its affiliates or
broker-dealers with selling group agreements with Dreher;
- - spouses and minor children of such persons;
- - trustees of the Fund;
- - investment advisory clients of the Adviser;
- - any trust, pension, profit sharing or other benefit plan account for the
benefit of any person listed above;
- - companies exchanging shares with the Fund pursuant to a merger, acquisition
or exchange offer; and
- - investment advisers or financial planners who place trades for their own
accounts or the accounts of their clients and who charge a fee for financial
planning, investment advisory, asset management or other services; and
clients of such investment advisers or financial planners who place trades
for their own accounts if the accounts are linked to the master account of
such investment adviser or financial planner on the books and records of the
broker or agent.
Shareholders of the Fund prior to August 15, 1997 are permitted to purchase
shares of the Fund in accordance with the following sales charge schedule:
PAID BY THE INVESTOR
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% of Offering
As a % of As a % of Price Retained
Offering Net Amount by Selling
Investment Price Invested Dealer
- --------------------------------------------------------------------------------
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
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An investor also may buy Fund shares at NAV by certifying (on a form available
from Dreher) that the amount invested represents the proceeds from selling,
within the last 60 days, shares of another mutual fund on which the investor
paid a sales commission.
Fund dividends and distributions are automatically reinvested in Fund shares at
NAV, unless you elect to receive them in cash. See "Dividends, Distributions
and Taxes" on page 14.
12B-1 FEES
The Fund's plan under Rule 12b-1 allows it to pay distribution and other related
fees for activities generally intended to result in sales of shares, such as
advertising, compensation for sales and marketing activities and materials.
<PAGE>
The Fund pays Dreher an annual fee under its Rule 12b-1 plan equal to 0.25%
accrued daily and paid monthly and based on the Fund's daily net assets.
Because these fees are paid out of the Fund's assets on an ongoing basis, the
distribution expenses you pay over time will increase the cost of your
investment and may total more than paying other types of sales charges.
HOW TO BUY SHARES
You can buy shares of the Fund by check or wire from Dreher or from broker-
dealers that have signed selling agreements with Dreher.
MINIMUM INVESTMENT. The Fund's minimum investment is generally $1,000.
Additional investments must be $50 or more except for reinvestment of dividends
and capital gain distributions. There is no minimum investment for Fund-
sponsored retirement plans. The Fund may change these minimums at any time.
PURCHASE APPLICATION. A purchase application in good order is required for each
new account. Please contact the Fund at 800-537-3446, Dreher or your authorized
investment dealer if you need a purchase application. The Fund will not redeem
shares until the money used to buy shares has been collected. If a certified
application is not on file, back-up withholding will be applied to any
redemption proceeds. See "Other Purchase and Redemption Policies" on pages 12
and 13 for a definition of "good order."
ACCEPTING ORDERS. The Fund reserves the right to reject any purchase order in
whole or in part, and to suspend sales in response to conditions in the
securities market or otherwise.
PAYMENTS. To purchase shares by wire, please call the Fund for instructions at
800-537-3446.
To purchase shares by check, make your check payable to "Universal Capital
Growth Fund" and mail the check with your purchase application to an authorized
investment dealer or directly to:
Universal Capital Growth Fund
P.O. Box 1591
Milwaukee, WI 53201-1591
All checks must be drawn on U.S. banks in U.S. dollars. A charge (currently
$20) may be imposed if your check does not clear, and you may be responsible for
any related loss the Fund incurs.
ADDITIONAL PURCHASES. To buy additional shares, make your purchase through your
authorized investment dealer or mail your order directly to the Fund at the
address above. Include your check, information identifying the account
registration, and your account number.
<PAGE>
CERTIFICATES. The Fund does not issue stock certificates. You will receive a
statement confirming your purchase.
AUTOMATIC INVESTMENT PLAN
You can buy shares automatically each month by having $50 or more electronically
transferred from your checking, bank money market, NOW or savings account and
invested in the Fund. Your account will be debited two business days before the
date you select for purchase.
To sign up for the Automatic Investment Plan (the "Plan"), new investors should
complete the Automatic Investment Plan section of the purchase application and
attach a voided check or deposit slip. If your account is already open, you can
sign up for the Plan by calling the Fund or an authorized broker-dealer for an
application.
Your bank account must be at a domestic financial institution that belongs to
the Automated Clearing House. If the electronic transfer does not clear, you
may be charged a fee (currently $20). Normal sales charges apply to your
purchase.
To change or terminate your participation in the Plan, you must notify in
writing the Fund's Distributor, Dreher & Associates, Inc., One Oakbrook Terrace,
Suite 708, Oakbrook Terrace, Illinois 60181-4793 or your authorized broker-
dealer. If you are a direct shareholder, you may send your notice directly to:
Universal Capital Growth Fund, P.O. Box 1591, Milwaukee, Wisconsin 53201-1591.
The change will take effect within five business days after the Fund receives
your notice from the Distributor or broker-dealer. A redemption of all funds
from your account will automatically discontinue the Plan.
The Fund may modify or terminate the Plan at any time or charge a service fee,
though no such fee is currently contemplated.
RIGHTS OF ACCUMULATION
Once you purchase Fund shares, you may qualify for a discount on the sales
charge. The rights of accumulation privilege lets you buy additional shares at
the public offering price plus the sales charge corresponding to the total of:
- - the dollar amount being purchased, plus;
- - the current maximum offering price of total Fund shares owned by you, your
spouse, your children or your spouse's children for whose investment you or your
spouse are custodian, an Individual Retirement Plan or other qualified plan of
you or your spouse, or any revocable trust of which the grantor and principal
beneficiary is you or your spouse.
At the time of your purchase, you must give Dreher the information necessary to
confirm your qualification for this privilege. See the purchase application for
details. Sales charges for previous purchases will not be refunded.
<PAGE>
LETTER OF INTENT
If you expect to buy additional Fund shares over a period of time (up to 13
months), you can get the same reduced sales charge as you would if you bought
all the shares at once. You can make this election through a "Letter of Intent"
on your purchase application. Fill in the dollar amount you intend to buy, and
the sales commission is based on the total amount. For further information, see
"Letter of Intent" in the SAI.
The Fund may terminate or modify any special purchase method or privilege,
including but not limited to the Automatic Investment Plan, Rights of
Accumulation, Letter of Intent, and Sales Commission Waiver, at any time without
notice.
HOW TO SELL SHARES
You can redeem your shares in the Fund anytime and receive your proceeds by
check, wire or electronic funds transfer. The price you receive will be the
next net asset value (NAV) calculated after your request is received in good
order. This price may be more or less than your original cost, and you may
realize a capital gain or loss for federal tax purposes. See "Other Purchase
and Redemption Policies" on pages 12 and 13 for a definition of "good order."
Requests received after the close of regular trading on the Exchange (normally 3
p.m. Central Time) will be processed the next business day. PLEASE CALL THE
FUND AT 800-537-3446 IF YOU HAVE ANY QUESTIONS ABOUT REDEMPTION REQUIREMENTS.
ONCE THE TRANSFER AGENT RECEIVES YOUR REQUEST IN GOOD ORDER, YOU CANNOT CANCEL
OR REVOKE THE REDEMPTION.
No fee is charged when you redeem your shares. However, you must pay the costs
of redemption proceeds sent by wire ($15) and redemptions from Fund-sponsored
retirement plans ($15). An authorized dealer may charge you for processing your
redemption request.
The Fund may temporarily suspend redemptions if the Exchange unexpectedly closes
or for other emergencies. See the SAI for details.
To redeem (sell) your shares the Fund must receive your written redemption
request which
- - specifies the number of shares or dollar amount to be redeemed,
- - is signed by all owners exactly as their names appear on the account, and
- - includes a signature guarantee for each signature on the request. You can get
a signature guarantee from Dreher; a securities firm that is a New York Stock
Exchange member; or an authorized bank, savings bank, credit union, savings and
loan association, or other entity. A NOTARY PUBLIC IS NOT AN ACCEPTABLE
SIGNATURE GUARANTOR.
<PAGE>
For 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. A corporate
resolution, dated within 60 days of request authorizing the officer to make the
request may be required.
For a trust or partnership, the signature must include the registered
shareholder's name and the title of the person signing on its behalf.
The Fund may request additional documents to verify the authority of the person
seeking to redeem.
SYSTEMATIC WITHDRAWAL PLAN
If your account balance is $25,000 or more ($10,000 for Individual Retirement
Accounts), you can have the Fund redeem shares monthly or quarterly in specified
dollar amounts of $100 or more. These payments may result in a gain or loss for
federal tax purposes. Note that withdrawal proceeds are likely to exceed any
dividends and distributions you receive, and may eventually exhaust your
account. 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.
To initiate the Systematic Withdrawal Plan, request a Systematic Withdrawal Plan
Application from the Fund, Dreher or from a broker-dealer that has a signed
selling agreement with Dreher.
EXPEDITED REDEMPTION
You may have redemption proceeds of $5,000 or more wired directly to a domestic
commercial bank account or brokerage account that you previously designated.
Such payments will normally be transmitted by the next business day following
receipt of your written request in good order. A service charge (currently $15)
for payment of proceeds by wire will be deducted from the proceeds. If this
charge changes, you will be notified 30 days in advance.
REDEMPTIONS IN KIND
The Fund reserves the right to redeem in kind. That is, give you marketable
securities rather than cash. The Fund may make a redemption in kind only if
your requests over a 90-day period total more than $250,000 or 1% of the Fund's
assets, whichever is less.
OTHER PURCHASE AND REDEMPTION POLICIES
PAYMENT. When you redeem shares, you will receive payment as follows:
- - Payments by check will be sent within seven days of receiving redemption
instructions in good order.
- - Payments by wire will usually be made on the next business day.
- - Electronic fund transfers will ordinarily arrive at your bank two to three
banking days after transmission.
<PAGE>
REDEMPTIONS SHORTLY AFTER PURCHASE. Payment for redemptions may be delayed until
your purchase check or electronic transfer has cleared, up to 15 days. To avoid
this delay, make your purchase by wire transfer or payment by a certified or
cashier's check.
SMALL ACCOUNTS. If your account is more than 12 months old and has a value of
less than $500, the Fund reserves the right to give you a 60-day notice to add
to your account or the Fund will close your account and send you the proceeds.
This does not apply to retirement accounts.
REINVESTING REDEMPTION PROCEEDS. You may redeem shares and later reinvest the
proceeds in the Fund without a sales charge within six months of the redemption.
This privilege is limited to two redemption-reinvestments per calendar year.
Accounts under common ownership or control are aggregated for purposes of this
limit. If you sell at a loss and reinvest within 91 days, the loss attributable
to any sales charge must be deferred for your tax purposes.
RETURNED CHECKS/INSUFFICIENT FUNDS. The Fund will charge a $20 service fee for
any check or electronic transfer returned unpaid. Your purchase will be
cancelled and you will be responsible for any resulting loss to the Fund.
GOOD ORDER. The Fund must receive your request to purchase or redeem (sell)
shares in good order. The request must include:
- - your account number;
- - the number or dollar amount of shares you want to purchase or redeem;
- - signatures of all owners, exactly as registered on the account;
- - signature guarantee(s), if required;
- - any documentation required for redemption by estates, trusts, corporations
and other organizations.
PURCHASES THROUGH THIRD PARTIES. If you buy shares from a broker-dealer,
financial institution or other provider, their policies and fees may differ from
those described here.
The Fund may accept requests to buy additional shares into a broker-dealer
street name account only from the broker-dealer.
The Fund may authorize service providers and their designees to accept purchase
orders on the Fund's behalf. The Fund considers such orders received when the
service provider accepts them, and prices them at the next net asset value
calculated after receipt by the service provider.
<PAGE>
The Fund has agreed to allow some service providers to enter purchase orders for
their customers by telephone with payment to follow. The Fund prices the
telephone orders at the next net asset value calculated after the service
provider receives them. The service provider is responsible for placing the
orders promptly and for ensuring the Fund receives payment within the agreed
upon period. Otherwise, the provider could be liable for resulting fees or
losses.
SHAREHOLDER SERVICES
STATEMENTS AND REPORTS
You will receive quarterly account statements showing transactions in shares of
the Fund and your total account balance. You will also receive confirmations of
purchase, redemption, dividend reinvestment and change of shareholder address.
RETIREMENT PLANS
Through its custodian, UMB Bank, n.a., the Fund offers qualified retirement
plans for individuals and employers, including IRAs and SEP IRAs. For a master
IRA plan and information on administration and fees, contact Dreher or an
authorized broker-dealer. The Fund's minimum investment and minimum account
value requirements do not apply to retirement accounts.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to pay any dividends of net investment income and capital gain
distributions at least annually. The Fund will reinvest these distributions
unless you request otherwise.
Whether you receive dividends and distributions in cash or as additional shares,
they are generally subject to federal income tax as ordinary income or capital
gains. If you redeem your shares, any gain on the transaction may be subject to
tax. Distributions may be taxable at different rates depending on the length of
time the Fund holds a security. Each year the Fund will give you an annual
statement describing the distributions you have received or reinvested.
If two consecutive dividend checks are returned as undeliverable, the dividends
will be reinvested in the Fund at the current net asset value and the account
will be designated as a dividend reinvestment account.
Consult your personal tax adviser about the potential tax consequences of an
investment in the Fund under all applicable tax laws.
<PAGE>
FINANCIAL HIGHLIGHTS
The table below is intended to help you understand the Fund's financial
performance for the last five fiscal years, each ended September 30. Certain
information reflects results for one Fund share. "Total return" is the rate your
investment would have earned (or lost), assuming you reinvested all dividends
and distributions. This information has been audited by Ernst & Young LLP; their
report and the Fund's financial statements are included in the annual report,
which is available on request.
YEAR ENDED SEPTEMBER 30,
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1999 1998 1997<F1> 1996 1995
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NET ASSET VALUE,
BEGINNING OF PERIOD $18.86 $18.09 $14.99 $16.28 $12.47
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INCOME FROM
INVESTMENT OPERATIONS:
Net investment loss (0.27) (0.21) (0.08) (0.10) (0.10)
- --------------------------------------------------------------------------------
Net realized and
unrealized gain
on investments 5.54 1.46 4.97 1.14 4.54
- --------------------------------------------------------------------------------
Total from
investment operations 5.27 1.25 4.89 1.04 4.44
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net realized gains (1.92) (0.48) (1.79) (2.33) (0.63)
- --------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $22.21 $18.86 $18.09 $14.99 $16.28
- --------------------------------------------------------------------------------
TOTAL RETURN<F2> 29.54% 7.12% 36.24% 7.40% 37.87%
- --------------------------------------------------------------------------------
SUPPLEMENTAL DATA
AND RATIOS:
Ratio of net expenses
to average net assets<F3> 2.00% 2.00% 2.00% 2.00% 2.00%
- --------------------------------------------------------------------------------
Ratio of net investment
loss to average net assets<F1> (1.26)% (1.03)% (0.48)% (0.67)% (0.77)%
- --------------------------------------------------------------------------------
Portfolio turnover rate 71.1% 58.1% 49.2% 262.1% 157.6%
- --------------------------------------------------------------------------------
Net assets, end of
period (in 000's) $17,675 $13,911 $12,994 $11,124 $8,149
- --------------------------------------------------------------------------------
<F1> On August 15, 1997, the adviser changed to Graver, Bokhof, Goodwin &
Sullivan from Integrated Financial Services, Inc.
<F2> The total return calculation does not reflect any sales load imposed on the
purchase of shares.
<F3> Figures shown reflect waiver of investment adviser fees and earnings
credits of the custodian of 0.18%, 0.37%, 0.50%, 0.35% and 0.66% of average
net assets for 1999, 1998, 1997, 1996 and 1995.
<PAGE>
FOR MORE INFORMATION
Here is how to obtain this and other information or to inquire about the Fund.
Additional information about the Fund may be found in the STATEMENT OF
ADDITIONAL INFORMATION and in SHAREHOLDER REPORTS. Shareholder inquiries may be
made by calling the toll-free telephone number listed below. The Statement of
Additional Information contains information on Fund investments and operations.
The semi-annual and annual shareholder reports describe Fund performance, list
portfolio holdings and discuss market conditions and investment strategies that
significantly affected the Fund's performance during the last fiscal year.
These and other Fund documents may be obtained without charge from the following
sources:
BY TELEPHONE
Call the Fund at 1-800-969-9676
BY MAIL
Write to: Universal Capital Growth Fund
100 South Wacker Drive, Suite 2100
Chicago, IL 60606-4005
Or
Public Reference Room
Securities and Exchange Commission
Washington, D.C. 20549-6009
(a duplication fee is charged)
IN PERSON
Public Reference Room
Securities and Exchange Commission
Washington, D.C. 20549-6009
(Call 1-202-942-8090 for more information)
BY E-MAIL
[email protected] (a duplication fee is charged)
ON THE INTERNET
http://www.sec.gov
THROUGH THE FUND'S DISTRIBUTOR
Dreher & Associates, Inc.
One Oakbrook Terrace, Suite 708
Oakbrook Terrace, IL 60181-4793
1-630-932-3000
The Statement of Additional Information is incorporated by reference into this
prospectus (is legally part of this prospectus).
SEC file number: 811-6212
Statement of Additional Information January 28, 2000
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 January 28, 2000 and any
supplements to the Prospectus, and the Fund's Annual Report for the year ended
September 30, 1999, 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 or you may obtain a copy of the Prospectus and other
related materials on the SEC's internet website (http://www.sec.gov).
The following financial statements are incorporated by reference to the Annual
Report, dated September 30, 1999 of Universal Capital Growth Fund (File No. 811-
6212) as filed with the Securities and Exchange Commission on November 24, 1999.
1. Schedule of Investments as of September 30, 1999
2. Statement of Assets and Liabilities as of September 30, 1999
3. Statement of Operations as of September 30, 1999
4. Statement of Changes in Net Assets as of for the Years Ended September
30, 1999 and 1998
5. Financial Highlights
Shareholders may obtain a copy of the Annual Report, without charge, by calling
1-800-537-3446.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
General Information and Fund History 3
Investment Objective 3
Investment Practices and Risks 3
Investment Restrictions 10
Management of the Fund 12
Control Persons and Principal Holders of Securities 14
Investment Advisory Services 14
Distributor 15
Distribution Plan 16
Administrative Services 17
Other Service Providers 18
Portfolio Transactions and Brokerage Allocation 20
Capital Stock 20
Purchasing, Redeeming and Pricing Shares 21
Taxation 23
Performance Information 25
Appendix A A-1
GENERAL INFORMATION AND FUND HISTORY
The Universal Capital Growth Fund was created as a Massachusetts business trust
on October 18, 1990. Universal Capital Growth Fund (the "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 long-term 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 AND RISKS
The Fund is a diversified, open-end, management investment company.
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 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.
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 their
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.
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 an investment in securities of U.S. 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.
INVESTMENT COMPANY SECURITIES
The Fund may acquire securities of other investment companies to the extent
consistent with its investment objective and subject to the limitations of the
1940 Act. The Fund will indirectly bear its proportionate share of any
management fees and other expenses paid by such other investment companies.
For example, the Fund may invest in a variety of investment companies which seek
to track the composition and performance of a specific index. These index-based
investments hold substantially all of their assets in securities representing
their specific index or a specific portion of an index in roughly the same
proportions as their weightings in that index. Accordingly, the main risk of
investing in index-based investments is the same as investing in a portfolio of
equity securities comprising the index. The market prices of index-based
investments will fluctuate in accordance with both the changes in the market
value of their underlying portfolio securities and due to supply and demand for
the instruments on the exchanges on which they are traded (which may result in
their trading at a discount or premium to their NAV). Index-based investments
may not replicate exactly the performance of their specified index because of
transaction costs and because of the temporary unavailability of certain
component securities of the Index.
Examples of the index-based investments include:
SPDRs/R: SPDRs, an acronym for "Standard & Poor's Depositary Receipts," are
based on the S&P 500 Composite Stock Price Index. They are issued by the SPDR
Trust a unit investment trust that holds shares of substantially all the
companies in the S&P 500 in substantially the same weighting and seeks to
closely track the price performance and dividend yield of the Index.
MidCap SPDRs/R: MidCap SPDRs are based on the S&P MidCap 400 Index. They are
issued by the MidCap SPDR Trust, a unit investment trust that holds a portfolio
of securities consisting of substantially all of the common stocks in the S&P
MidCap 400 Index in substantially the same weighting and seeks to closely track
the price performance and dividend yield of the Index.
Select Sector SPDRs/R: Select Sector SPDRs are based on a particular sector or
group of industries that are represented by a specific Select Sector Index
within the Standard & Poor's Composite Stock Price Index. They are issued by
The Select Sector SPDR Trust, an open-end management investment company with
nine portfolios that each seeks to closely track the price performance and
dividend yield of a particular Select Sector Index. Since Sector SPDRs
concentrate in securities from a particular sector, there is a risk that the
security's credit quality will decline because any factors affecting that
sector, such as economic or political, could affect a large portion of the
securities included in the Select Sector Index.
DIAMONDS/sm: DIAMONDS are based on the Dow Jones Industrial Average/sm. They
are issued by the DIAMONDS Trust, a unit investment trust that holds a portfolio
of all the component common stocks of the Dow Jones Industrial Average and seeks
to closely track the price performance and dividend yield of the Dow.
Nasdaq-100 Shares: Nasdaq-100 Shares are based on the Nasdaq 100 Index. They
are issued by the Nasdaq-100 Trust, a unit investment trust that holds a
portfolio consisting of substantially all of the securities, in substantially
the same weighting, as the component stocks of the Nasdaq-100 Index and seeks to
closely track the price performance and dividend yield of the Index.
WEBs/sm: WEBs, an acronym for "World Equity Benchmark Shares," are based on 17
country-specific Morgan Stanley Capital International Indexes. They are issued
by the WEBs Index Fund, Inc., an open-end management investment company that
seeks to generally correspond to the price and yield performance of a specific
Morgan Stanley Capital International Index. Foreign securities tend to be more
volatile than their U.S. counterparts, for reasons ranging from political and
economic uncertainties to a higher risk that essential information may be
incomplete or wrong. In addition, changing currency rates could add to the
Fund's investment losses or reduce its investment gains.
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 the
Adviser believes it is unable to do so.
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 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
correctly predict 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.<F1> 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.
<F1> "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.
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 in ability 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,"<F2> 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, 1999 was 71%. 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 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 "Other Policies and Risks"
and "Dividends, distributions and taxes" 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.
<F2> 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.
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.
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. 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. As defined in
the Investment Company Act of 1940, as amended (the "1940 Act"), this 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 at the meeting or by
proxy.
The Fund may not as a fundamental policy (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;
(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);<F3>
(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 money, 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 (a) through (l) may be changed by the board of trustees without
shareholder approval.
The Fund may not as a non-fundamental policy (except as indicated):
(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);
(c) invest in companies for the purpose of exercising control or management;
<F3> 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.
(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) in warrants, other than those acquired in units or attached to other
securities;
(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; 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).
MANAGEMENT OF THE FUND
The board of trustees of the Trust has overall responsibility for the conduct of
the affairs of the Fund. The trustees serve indefinite terms of unlimited
duration. 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 of
two-thirds of the Trust's outstanding shares.
Trustees and Officers
Set forth below is information about the trustees and officers of the Fund.
Name, Date of Birth Position(s) Principal Occupation(s)
and Business Address with Fund During Past Five Years
- --------------------- ----------- -----------------------
Andrew J. Goodwin, III,<F1> Trustee and Vice Chairman of Optimum
DOB 10/22/43 President Investment Group Ltd. Since
100 South Wacker Drive, 1999, Officer of GBGS since
Suite 2100 1990; Managing Director of
Chicago, IL 60606 Garzarelli Investment
Management, LLC from 1995
through 1999.
Keith F. Pinsoneault,<F1> Vice President, Managing Director of
DOB 10/25/47 Secretary and the Adviser since 1997; Chief
100 South Wacker Drive, Treasurer Operating Officer and
Suite 2100 of Capital Markets for Rodman
Chicago, IL 60606 & Renshaw from 1994 through
1996; Senior Portfolio Manager
for Harris, Bretall, Sullivan
& Smith from 1992 through
1994.
Robert A. Korajczyk,<F2> Trustee Professor of
DOB 7/26/54 Finance, Northwestern
Northwestern University University since 1983;
2001 Sheridan Road Principal, Chicago Partners
Evanston, IL 60208 since 1995.
Robert F. Seebeck, <F2> Trustee Retired; formerly,
DOB 5/19/26 Managing Director of Russell
523 Sheridan Road Reynolds Associates, Inc.,
Kenilworth, IL 60043 August, 1974 through December,
1996.
Alan L. Zable,<F2> Trustee Consultant since January 1,
DOB 10/28/36 1995; president and sole
270 Indiana Street shareholder of CAZCO, Inc.
(hair salon business); prior
thereto, Senior Vice President
and Treasurer, Midwest Stock
Exchange, Incorporated.
Elmhurst, Illinois 60126
<F1< Mr. Goodwin and Mr. Pinsoneault are "interested persons" of the Trust as
defined in the Investment Company Act of 1940, as amended (the "1940 Act").
<F2> 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 Trustees and officers who are "interested persons" designated above receive
no compensation from the Trust. The following table indicates the fees earned
during the fiscal year ended September 30, 1999 by the trustees who are
designated as "interested persons":
Name Total Compensation
- ---- From Trust
-------------------
Alan L. Zable $2,500.00
Robert A. Korajczyk $1,500.00
Robert F. Seebeck $2,500.00
For each meeting of the Board of Trustees attended, Messrs. Korajczyk, Seebeck
and Zable received a fee of $500.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
At December 31, 1999, the trustees and officers of the Trust owned beneficially
4,788 shares of the Fund, or 0.6% of the Fund's outstanding shares. As of
December 31, 1999, 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"), 100 South Wacker Drive, Suite
2100, Chicago, IL 60606-4005, pursuant to an Investment Advisory Agreement (the
"Agreement") dated August 15, 1997. 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, 2000, 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 anytime,
without penalty, by either the Trust or the 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; and (x)distribution
expenses pursuant to the Distribution Plan.
The Adviser has voluntarily undertaken to reimburse the Fund for any annual
operating expenses in excess of 2% of the Fund's average daily net assets
through December 31, 2000.
During the fiscal years ended September 30, 1999 and 1998, the Fund paid
advisory fees of $172,359 and $144,778 to the Adviser, respectively, but the
Adviser waived fees or reimbursed expenses of $31,486 and $53,845, respectively,
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.
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, 1999, 1998 and 1997, Dreher received
and retained commissions of $6,008, $3,835 and $4,215, respectively.
Under certain circumstances, Dreher may reallow up to the entire sales charge to
dealers. Dealers who receive 90% or more of the sales charge are considered
underwriters under the Securities Act of 1933, as amended. Dreher may from time
to time conduct promotional campaigns that offer incentives to dealers who meet
or exceed target sales of shares of the Fund. The cost of these promotional
campaigns, including any incentives offered, is paid entirely by Dreher and has
no effect on either the public offering price of Fund shares or the percentage
of the public offering price the selling dealer retains. The cost of the
promotional campaigns is not intended to be among the items that the Distributor
is compensated for under the Fund's Distribution Plan. At various times, Dreher
may also develop programs wherein Dreher will reallow, to all dealers or to
dealers that uniformly applied targets for sales of shares of the Fund, an
amount that does not exceed the total applicable sales charges on the sales
generated by the dealer at the public offering price during such programs.
As of October 31, 1999 the following brokers have signed selling agreements with
Dreher to sell the Fund: Accutrade, Inc., Advanced Clearing, Inc., American
Investment Services, Ameritrade, Inc., Amerivest, Inc., Cardinal Investments
Inc., Cardinal Investment Services, Chubb Securities Corp., Financial Network
Investment Corp., Fixed Income Securities, Lewco Securities Corp., Long Grove
Trading Co., Mesirow Capital, Inc., Mutual Service Corp., Oakbrook Securities
Corp., Terra Securities Corp., Titan Value Equity Group, Trade - PMR, Inc., Wall
Street Discount Corp.
Dreher also receives brokerage commissions for executing portfolio transactions
on behalf of the Fund. See "Portfolio Transactions and Brokerage Allocation."
DISTRIBUTION PLAN
The Trust has adopted a plan pursuant to rule 12b-1 under the 1940 Act (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 .25% of the Fund's average daily net assets. Prior to January
28, 2000, the Fund paid a 12b-1 fee to Dreher at an annual rate of 0.50%.
Such payments represent compensation regardless of expenses incurred by Dreher
(thus making the Plan a "compensation" plan) for the promotion and distribution
of the shares of the Fund, including, but not limited to the printing of
prospectuses and reports used for sales purposes, advertisements, expenses of
preparation and printing of sales literature and other expenses related to the
distribution of Fund shares, including compensation paid to securities dealers
and others who have executed selling group agreements with Dreher.
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, as amended.
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 agreement may be amended to increase
materially the amount spent for distribution 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 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 agreement and the amount 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, 1999, the Fund made payments to Dreher
pursuant to a Distribution Plan then in effect equal to 0.50% (0.25%
distribution and 0.25% service) accrued daily, paid monthly, and based on the
Fund's daily net assets, and Dreher paid expenses according to this Plan then in
effect in connection with the distribution of Fund shares as shown below:
Distribution fees paid by Fund to Dreher: $86,180
Distribution expenses incurred by Dreher:
Fees reallowed to brokers $68,106
Fees paid to dealer firms 4,026
Printing _ Quarterly Fact Sheet 595
Printing _ Prospectus 445
Printing _ Newsletter 419
Other marketing expenses 19
-------
Total expenses $73,610
ADMINISTRATIVE SERVICES
Effective January 28, 2000, administrative services are provided to the Fund
under an administrative services agreement ("administrative agreement") with
Dreher. Dreher bears all its expenses of providing services pursuant to the
administrative agreement between Dreher and the Fund, including the payment of
service fees. The Fund pays Dreher an administrative services fee, accrued
daily and payable monthly, at an annual rate of 0.10% of the Fund's average
daily net assets.
Dreher has entered into related arrangements with various broker-dealer firms
and other service or administrative firms ("firms"), that provide services and
facilities for their customers or clients who are investors of the Fund. The
firms provide such office space and equipment, telephone facilities and
personnel as is necessary or beneficial for providing information and services
to their clients. Such services and assistance may include, but are not limited
to, establishing and maintaining accounts and records, processing purchase and
redemption transactions, answering routine inquiries regarding the Fund,
assistance to clients in changing dividend and investment options, account
designations and addresses and such other administrative services as may be
agreed upon from time to time and permitted by applicable statute, rule or
regulation. Firms to which services fees may be paid include broker-dealers
affiliated with Dreher. Dreher may provide some of the above services and may
retain any portion of the fee under the administrative agreement not paid to
firms to compensate itself for administrative functions performed for the Fund.
OTHER SERVICE PROVIDERS
ADMINISTRATOR
The Adviser and Sunstone Financial Group, Inc. (the "Administrator"), 207 E.
Buffalo Street, Suite 400, Milwaukee, WI 53202, entered into an Administration
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 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 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 Fund (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 the
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 reach certain levels. The minimum annual
fee is $45,000 for the fiscal year ending September 30, 2000. For its services
provided during the Fund's fiscal year ended 1999, the Administrator received
compensation of $30,000.
Unless terminated sooner as provided therein, the Administration Agreement will
continue in effect until September 30, 2000. 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.
CUSTODIAN
UMB Bank, n.a., P.O. Box 419226, Kansas City, Missouri, 64141 is the custodian
for the Fund. 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 Fund. 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.
TRANSFER AGENT
Sunstone Financial Group, Inc. ("SFG"), 207 East Buffalo Street, Suite 400,
Milwaukee, Wisconsin, 53202 is currently the Fund's transfer agent and dividend
disbursing agent. SFG records all sales, transfers and redemptions of shares of
the Fund, disburses dividends of the Fund and performs other recordkeeping
functions. SFG 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 ACCOUNTANT
UMB 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 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, subject to a minimum fee of $20,000 per year. For the fiscal years
ended September 30, 1999, 1998 and 1997, fees paid by the Fund for financial and
accounting services totaled $13,740, $12,779 and $12,100, 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.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
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, as
amended and the rules thereunder. During the years ended September 30, 1999,
1998 and 1997, the Fund paid brokerage commissions on purchases and sales of
securities (not including the gross underwriting spread on securities purchased
in underwritten offerings) of $25,985, $20,938 and $11,132, respectively of
which $20,385, $20,938 and $10,412, respectively was paid to Dreher. Of the
brokerage commissions paid by the Fund for the year ended September 30, 1999,
78% 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.
CAPITAL STOCK
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 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 the 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 shareholder 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 aggregate, except when voting in 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 the trustees.
PURCHASING, REDEEMING AND PRICING SHARES
Purchases and redemptions are discussed in the Fund's prospectus under the
headings "How to buy shares" and "How to sell 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, Martin Luther
King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas. If one of these holidays falls on a Saturday
or Sunday, the Exchange will usually be closed on the preceding Friday or the
following Monday, respectively.
The following persons or entities may purchase shares of the Fund at net asset
value without payment of any sales commissions:
- - Employees and registered representatives of Dreher & Associates, Inc.
("Dreher"), the Fund's distributor, and its affiliates or broker-dealers with
selling group agreements with Dreher;
- - Spouses and minor children of such persons;
- - Trustees of the Fund;
- - Investment advisory clients of the Adviser;
- - Any trust, pension, profit sharing or other benefit plan account for the
benefit of any person listed above;
- - Companies exchanging shares with the Fund pursuant to a merger, acquisition or
exchange offer; and
- - Investment advisors or financial planners who place trades for their own
accounts or the accounts of their clients and who charge a fee for financial
planning, investment advisory, asset management services or other services;
and clients of such investment advisors or financial planners who place trades
for their own accounts if the accounts are linked to the master account of
such investment advisor or financial planner on the books and records of the
broker or agent.
LETTER OF INTENT
From your initial purchase (and subsequent purchases, if necessary), the Fund
will hold 5% of the dollar amount you specified in escrow in your account. Any
dividends or capital gains on these shares will be paid to you or credited to
your account. These shares will be released when you complete your total
purchase. If you do not buy all of the shares as indicated in the Letter of
Intent, the Fund may redeem as many escrowed shares as necessary to cover the
difference in the sales charge. Shares remaining after this redemption will be
credited to your account. You consent to the redemption of any or all escrowed
shares as described in this section.
If your total purchases plus your accumulation credit (see "Right of
Accumulation," above) exceed the Letter of Intent amount as well as an equal
amount that would qualify for a further discount, the Dreher or the broker-
dealer will retroactively adjust prices to reflect the discount for all
purchases you make under the Letter of Intent. The difference in the offering
price will be applied to purchases you make at the offering price that would
apply if you purchased all the shares at once. Your broker-dealer will return to
Dreher excess commission on shares purchased through the broker-dealer under the
Letter of Intent.
REDEMPTION IN KIND
The Fund has elected to be governed by Rule 18f-1 under the Investment Company
Act of 1940, as amended 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 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.
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, 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
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.
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 each
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, 1999 are shown below:
Total Return Total Return
Average Annual with without
Period Total Return Sales Charge Sales Charge
- ------ ------------ ------------ ------------
1 year 22.4% 22.4% 29.5%
5 years 21.5% 164.5% 179.9%
Life of fund 16.3% 271.1% 292.7%
(beginning January 22, 1991)
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 determined by Lipper, 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 (AllUrban), a
widely recognized measure of inflation. The performance of the Fund may also be
compared to the following indexes or averages:
Dow-Jones Industrial Average New York Stock Exchange Composite Index
Standard & Poor's 500/R Stock Index American Stock Exchange Composite Index
Standard & Poor's 400 Industrials Nasdaq Composite
Wilshire 5000
(These indexes are widely recognized Nasdaq Industrials
indicators of general U.S. stock (These indexes generally
market results.) reflect the performance of stocks traded
in the indicated markets.)
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 Large-Cap Growth Funds Average
Lipper Multi-Cap Growth Funds Average
Lipper Mid-Cap Growth Funds Average
Lipper Small-Cap Growth Funds Average
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 to all funds
tracked by Lipper or another independent service.
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
