CAPITOL SQUARE FUNDS, 497, 1996-10-03

CAPITOL SQUARE FUNDS
497, 1996-10-03

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CAPITOL SQUARE

FUNDS

Prospectus
October, 1, 1996

"A view from Broad and High"

Dillon Capital Management
Investment Counsel

PROSPECTUS
October 1, 1996
<PAGE>

CAPITOL SQUARE FUNDS

Capitol Square
21 East State Street, Suite 1410

Columbus, Ohio 43215

==============================================================================

Capitol Square Funds currently offers three separate series of shares to
investors: the Capitol Square Large Cap Fund, the Capitol Square Small Cap
Fund and the Capitol Square Bond Fund (individually a "Fund" and collectively
the "Funds").

The Capitol Square Large Cap Fund seeks long-term capital appreciation through
investment in common stocks of companies whose market value is greater than
one billion dollars. Dividend and interest income is only an incidental
consideration to the Fund's investment objective.

The Capitol Square Small Cap Fund seeks long-term capital appreciation through
investment in common stocks of companies whose market value is less than one
billion dollars. Dividend and interest income is only an incidental
consideration to the Fund's investment objective.

The Capitol Square Bond Fund seeks both income and capital appreciation
through investment in fixed income securities. Under normal market conditions,
at least 65% of its total assets will be invested in U.S. Government
obligations and other debt securities rated BBB or higher by Standard and
Poor's Ratings Group or Baa by Moody's Investors Service, Inc., or the
equivalent.

Dillon Capital Management (the "Adviser"), Capitol Square, 21 East State
Street, Suite 1410, Columbus, Ohio 43215, manages the Funds' investments.
Dillon Capital Management is an independent investment counsel firm advising
individual, institutional and corporate clients.

The Adviser has retained Midwest Group Financial Services, Inc. (the
"Sub-Adviser"), 312 Walnut Street, Cincinnati, Ohio 45202, to manage the
investments of the Capitol Square Bond Fund.

This Prospectus sets forth concisely the information about the Funds that you
should know before investing. Please retain this Prospectus for future
reference. A Statement of Additional Information dated October 1, 1996 has
been filed with the Securities and Exchange Commission and is hereby
incorporated by reference in its entirety. A copy of the Statement of
Additional Information can be obtained at no charge by calling one of the
numbers listed below.

- ------------------------------------------------------------------------------
For Information or Assistance in Opening An Account, Please Call:
Nationwide (Toll-Free)............................................888-254-6870
Cincinnati........................................................513-629-2283

- ------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

- ------------------------------------------------------------------------------

<PAGE>

CAPITOL SQUARE FUNDS

==============================================================================

BOARD OF TRUSTEES
Roderick H. Dillon, Jr.
T. Calloway Robertson, III
Archie M. Griffin
Susan J. Insley
Jonathan L. York

INVESTMENT ADVISER
DILLON CAPITAL MANAGEMENT
Capitol Square
21 East State Street, Suite 1410
Columbus, Ohio 43215

SUB-ADVISER
MIDWEST GROUP FINANCIAL SERVICES, INC.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094

CUSTODIAN
STAR BANK, N.A.
425 Walnut Street
Cincinnati, Ohio 45202

TRANSFER AGENT
MGF SERVICE CORP.
P.O. Box 5354
Cincinnati, Ohio 45201-5354

SHAREHOLDER SERVICE
Nationwide: (Toll-Free) 888-254-6870
Cincinnati: 513-629-2283

RATE LINE
Nationwide: (Toll-Free) 800-852-4052

TABLE OF CONTENTS
==============================================================================
Expense Information........................................................3
Investment Objectives, Investment Policies and Risk Considerations.........4
How to Purchase Shares....................................................11
Shareholder Services......................................................12
How to Redeem Shares......................................................13
Exchange Privilege........................................................14
Dividends and Distributions...............................................15
Taxes.....................................................................16
Operation of the Funds....................................................16
Calculation of Share Price................................................18
Performance Information...................................................19

No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, in connection
with the offering contained in this Prospectus, and if given or made, such
information or representations must not be relied upon as being authorized by
the Trust. This Prospectus does not constitute an offer by the Trust to sell
shares in any State to any person to whom it is unlawful for the Trust to make
such offer in such State.
<PAGE>
EXPENSE INFORMATION
==============================================================================
Shareholder Transaction Expenses
Sales Load Imposed on Purchases.................................. None
Sales Load Imposed on Reinvested Dividends....................... None
Exchange Fee..................................................... None
Other Redemption Fees............................................ None *

* A wire transfer fee is charged by the Funds' Custodian in the case of
redemptions made by wire. Such fee is subject to change and is currently $9.
See "How to Redeem Shares."

ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
LARGE SMALL
CAP CAP BOND
FUND FUND FUND
<S> <C> <C> <C>
Management Fees After Waivers................................ 1.45% (A) 1.70% (A) .95% (A)
12b-1 Fees................................................... None None None
Other Expenses............................................... .05% .05% .05%
---------- ---------- ---------
Total Fund Operating Expenses After Waivers.................. 1.50% (B) 1.75% (B) 1.00% (B)
========== ========== =========
<FN>
(A)The Adviser is contractually required to reduce its management fee in an
amount equal to the fees and expenses of the non-interested Trustees. See
"Operation of the Funds." Absent waivers, management fees would be 1.50%,
1.75% and 1.00% for the Large Cap Fund, the Small Cap Fund and the Bond
Fund, respectively.

(B)Absent waivers of management fees, total fund operating expenses would be
1.55%, 1.80% and 1.05% for the Large Cap Fund, the Small Cap Fund and the
Bond Fund, respectively.
</FN>
</TABLE>
The purpose of these tables is to assist the investor in understanding the
various costs and expenses that an investor in the Funds will bear directly or
indirectly. The percentages expressing annual fund operating expenses are
based on estimated amounts for the current fiscal year. THE EXAMPLE BELOW
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

EXAMPLE

You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each time period:

LARGE SMALL
CAP CAP BOND
FUND FUND FUND
1 Year $ 15 $ 18 $ 10
3 Years 47 55 32
<PAGE>
INVESTMENT OBJECTIVES, INVESTMENT POLICIES AND RISK CONSIDERATIONS
==============================================================================
Capitol Square Funds (the "Trust") is an Ohio business trust comprised of
three Funds, each with its own portfolio and investment objective. None of the
Funds is intended to be a complete investment program, and there is no
assurance that the investment objective of any Fund can be achieved. Each
Fund's investment objective may be changed by the Board of Trustees without
shareholder approval, but only after notification has been given to
shareholders and after this Prospectus has been revised accordingly. If there
is a change in a Fund's investment objective, shareholders should consider
whether such Fund remains an appropriate investment in light of their then
current financial position and needs. Unless otherwise indicated, all
investment practices and limitations of the Funds are nonfundamental policies
which may be changed by the Board of Trustees without shareholder approval.

CAPITOL SQUARE LARGE CAP FUND
The Capitol Square Large Cap Fund seeks long-term capital appreciation through
investment in common stocks of companies whose market capitalization is
greater than $1 billion. Dividend and interest income is only an incidental
consideration to the Fund's investment objective.

In selecting securities for the Fund, the Adviser utilizes a two-step security
selection process to find values regardless of overall market conditions. The
process begins with fundamental research. The objective is to find companies
with solid growth prospects based on company specific strategies or industry
factors. Prospective companies' corporate and financial histories are
thoroughly examined and management philosophies, missions and forecasts are
scrutinized. Once a company is deemed to be attractive by this rigorous
process, the Adviser applies a proprietary valuation model as a tool for stock
selection. Once a stock is selected, the Adviser continues to monitor the
company's strategies, financial performance and competitive environment.

Investments in common stocks are subject to inherent market risks and
fluctuations in value due to earnings, economic conditions and other factors
beyond the control of the Adviser. As a result, the return and net asset value
of the Fund will fluctuate.

The Fund expects to invest primarily in securities currently paying dividends
although it may buy securities that are not paying dividends but offer
prospects for growth of capital. The Fund will invest primarily in common
stocks of companies whose market capitalizations are greater than $1 billion.
Under normal market conditions at least 65% of the Fund's total assets will be
invested in such securities. The Fund, however, may invest a portion of its
assets in common stocks of companies whose market capitalizations are less
than $1 billion. Although the Fund invests primarily in common stocks, the
Fund may also invest in securities convertible into common stock (such as
convertible bonds, convertible preferred stocks and warrants) and
non-convertible preferred stocks and bonds. The Fund may invest in preferred
stocks and bonds which are rated at the time of purchase in the four highest
grades assigned by Moody's Investors Service, Inc. (Aaa, Aa, A or Baa) or
Standard & Poor's Ratings Group (AAA, AA, A or BBB) or unrated securities
determined by the Adviser to be of comparable quality. Preferred stocks and
bonds rated Baa or BBB have speculative characteristics and changes in
economic conditions or other circumstances are more likely to lead to a
weakened capacity to pay principal and interest or to pay the preferred stock
obligations than is the case with higher grade securities. Subsequent to its
purchase by the Fund, a security's rating may be reduced below Baa or BBB and
the Adviser will sell such security, subject to market conditions and the
Adviser's assessment of the most opportune time for sale.
<PAGE>
The Fund will invest primarily in the securities of domestic companies,
although it may invest in foreign companies through the purchase of sponsored
American Depository Receipts (certificates of ownership issued by an American
bank or trust company as a convenience to investors in lieu of the underlying
shares which it holds in custody) or other securities of foreign issuers that
are publicly traded in the United States. When selecting foreign investments,
the Adviser will seek to invest in securities that have investment
characteristics and qualities comparable to the kinds of domestic securities
in which the Fund invests. Investment in securities of foreign issuers
involves somewhat different investment risks from those affecting securities
of domestic issuers. In addition to credit and market risks, investments in
foreign securities involve sovereign risk, which includes local political and
economic developments, potential nationalization, withholding taxes on
dividend or interest payments and currency blockage. Foreign companies may
have less public or less reliable information available about them and may be
subject to less governmental regulation than U.S. companies. Securities of
foreign companies may be less liquid or more volatile than securities of U.S.
companies.

When the Adviser believes substantial price risks exist for common stocks
because of uncertainties in the investment outlook or when in the judgment of
the Adviser it is otherwise warranted in selling to manage the Fund's
portfolio, the Fund may temporarily hold, for defensive purposes, all or a
portion of its assets in short-term obligations such as bank debt instruments
(certificates of deposit, bankers' acceptances and time deposits), commercial
paper, U.S. Government obligations having a maturity of less than one year,
shares of money market investment companies or repurchase agreements.

CAPITOL SQUARE SMALL CAP FUND

The Capitol Square Small Cap Fund seeks long-term capital appreciation through
investment in common stocks of companies whose market capitalizations are less
than $1 billion. Dividend and interest income is only an incidental
consideration to the Fund's investment objective.

Although the Fund invests primarily in common stocks, the Fund may also invest
in securities convertible into common stock (such as convertible bonds,
convertible preferred stocks and warrants) and non-convertible preferred
stocks and bonds. The Fund may invest in preferred stocks and bonds which are
rated at the time of purchase in the four highest grades assigned by Moody's
Investors Service, Inc. (Aaa, Aa, A or Baa) or Standard & Poor's Ratings Group
(AAA, AA, A or BBB) or unrated securities determined by the Adviser to be of
comparable quality. Preferred stocks and bonds rated Baa or BBB have
speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to pay principal
and interest or to pay the preferred stock obligations than is the case with
higher grade securities. Subsequent to its purchase by the Fund, a security's
rating may be reduced below Baa or BBB and the Adviser will sell such
security, subject to market conditions and the Adviser's assessment of the
most opportune time for sale.

The Fund will invest primarily in the securities of domestic companies,
although it may invest in foreign companies through the purchase of sponsored
American Depository Receipts (certificates of ownership issued by an American
bank or trust company as a convenience to investors in lieu of the underlying
shares which it holds in custody) or other securities of foreign issuers that
are publicly traded in the United States. When selecting foreign investments,
the Adviser will seek to invest in securities that have investment
characteristics and qualities comparable to the kinds of domestic securities
in which the Fund invests. Investment in securities of foreign issuers
involves somewhat different investment risks from those affecting securities
of domestic issuers. In addition to credit and market risks, investments in
foreign securities involve sovereign risk, which includes local political and
economic developments, potential nationalization, withholding taxes on
dividend or interest payments and currency blockage. Foreign companies may
have less public or less reliable information available about them and may be
subject to less governmental regulation than U.S. companies. Securities of
foreign companies may be less liquid or more volatile than securities of U.S.
companies.

When the Adviser believes substantial price risks exist common stocks because
of uncertainties in the investment outlook or when in the judgment of the
Adviser it is otherwise warranted in selling to manage the Fund's portfolio,
the Fund may temporarily hold, for defensive purposes, all or a portion of its
assets in short-term obligations such as bank debt instruments (certificates
of deposit, bankers' acceptances and time deposits), commercial paper, U.S.
Government obligations having a maturity of less than one year, shares of
money market investment companies or repurchase agreements.
<PAGE>
CAPITOL SQUARE BOND FUND

The Capitol Square Bond Fund seeks both income and capital appreciation
through investment in fixed income securities. Under normal market conditions,
at least 65% of its total assets will be invested in investment grade "bonds",
which the Fund defines as U.S. Government obligations or other debt securities
rated BBB or higher by Standard and Poor's Ratings Group ("S&P") or Baa by
Moody's Investors Service, Inc. (Moody's"), or unrated debt securities
determined by the Adviser to be of comparable quality.

The Fund pursues its objective by investing primarily in U.S. Government
obligations, corporate fixed-income securities, bank debt instruments,
mortgage-backed and asset-backed securities, U.S. dollar-denominated
fixed-income securities issued by foreign issuers, foreign branches of U.S.
banks and U.S. branches of foreign banks, and money market instruments. In
addition, the Fund may purchase securities on a when-issued basis.

The Fund may invest in lower-rated debt securities (commonly called "junk
bonds"), i.e. securities rated below Baa by Moody's or below BBB by S&P, or
the equivalent. Such securities will have speculative characteristics
including the possibility of default or bankruptcy of the issuers of such
securities, market price volatility based upon interest rate sensitivity,
questionable creditworthiness and relative liquidity of the secondary trading
market. Because lower-rated debt securities have been found to be more
sensitive to adverse economic changes or individual corporate developments and
less sensitive to interest rate changes than higher-rated investments, an
economic downturn could disrupt the market for such securities and adversely
affect the value of outstanding bonds and the ability of issuers to repay
principal and interest. In addition, in a declining interest rate market,
issuers of lower-rated securities may exercise redemption or call provisions,
which may force the Fund, to the extent it owns such securities, to replace
those securities with lower yielding securities. This could result in a
decreased return for investors. The Fund does not currently intend to invest
more than 5% of its net assets in lower-rated debt securities.

Investments in debt securities are subject to inherent market risks and
fluctuations in value due to changes in earnings, economic conditions, quality
ratings and other factors beyond the control of the Adviser. Debt securities
are subject to price fluctuations based upon changes in the level of interest
rates, which will generally result in all those securities changing in price
in the same way, i.e., all those securities experiencing appreciation when
interest rates decline and depreciation when interest rates rise. As a result,
the return and net asset value of the Fund will fluctuate.

There is no limit on the maturity of the securities in which the Fund may
invest. Securities with longer maturities generally offer both higher yields
and greater exposure to market fluctuation from changes in interest rates.
Consequently, to the extent the Fund is significantly invested in securities
with longer maturities, investors in the Fund should be aware that there is a
possibility of greater fluctuation in the Fund's net asset value.

For defensive purposes, the Fund may temporarily hold all or a portion of its
assets in money market instruments. The money market instruments which the
Fund may own from time to time include U.S. Government obligations having a
maturity of less than one year, shares of money market investment companies,
commercial paper, repurchase agreements, bank debt instruments (certificates
of deposit, time deposits and bankers' acceptances) and other short-term
instruments issued by domestic branches of U.S. financial institutions that
are insured by the Federal Deposit Insurance Corporation and have assets
exceeding $10 billion. The Fund will not invest more than 10% of its total
assets in shares of money market investment companies. Investments by the Fund
in shares of money market investment companies may result in duplication of
advisory, administrative and distribution fees.
<PAGE>
U.S. GOVERNMENT OBLIGATIONS. The Fund may invest in U.S. Government
obligations, which include securities which are issued or guaranteed by the
United States Treasury, by various agencies of the United States Government,
and by various instrumentalities which have been established or sponsored by
the United States Government. U.S. Treasury obligations are backed by the
"full faith and credit" of the United States Government. U.S. Treasury
obligations include Treasury bills, Treasury notes and Treasury bonds.
Agencies and instrumentalities established by the United States Government
include the Federal Home Loan Banks, the Federal Land Bank, the Government
National Mortgage Association, the Federal National Mortgage Association, the
Federal Home Loan Mortgage Corporation, the Student Loan Marketing
Association, the Small Business Administration, the Bank for Cooperatives, the
Federal Intermediate Credit Bank, the Federal Financing Bank, the Federal Farm
Credit Banks, the Federal Agricultural Mortgage Corporation, the Resolution
Funding Corporation, the Financing Corporation of America and the Tennessee
Valley Authority. Some of these securities are supported by the full faith and
credit of the United States Government while others are supported only by the
credit of the agency or instrumentality, which may include the right of the
issuer to borrow from the United States Treasury.

MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The Fund may invest in
mortgage-backed securities, which are mortgage loans made by banks, savings
and loan institutions, and other lenders which are assembled into pools. Often
these securities are issued and guaranteed by an agency or instrumentality of
the United States Government, though not necessarily backed by the full faith
and credit of the United States Government, or are collateralized by U.S.
Government obligations. The Fund invests in mortgage-backed securities
representing undivided ownership interests in pools of mortgage loans,
including Government National Mortgage Association (GNMA), Federal National
Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC)
Certificates and so-called "CMOs" -- i.e., collateralized mortgage obligations
which are issued by non-governmental entities.

The rate of return on mortgage-backed securities such as GNMA, FNMA and FHLMC
Certificates and CMOs may be affected by early prepayment of principal on the
underlying loans. Prepayment rates vary widely and may be affected by changes
in market interest rates. It is not possible to accurately predict the average
life of a particular pool. Reinvestment of principal may occur at higher or
lower rates than the original yield. Therefore, the actual maturity and
realized yield on mortgage-backed securities will vary based upon the
prepayment experience of the underlying pool of mortgages.

Asset-backed securities may include such securities as Certificates for
Automobile Receivables and Credit Card Receivable Securities. Certificates for
Automobile Receivables represent undivided fractional interests in a pool of
motor vehicle retail installment sales contracts. Underlying sales contracts
are subject to prepayment, which may reduce the overall return to certificate
holders. Certificate holders may also experience delays in payment or losses
if the full amounts due on underlying sales contracts are not realized because
of unanticipated costs of enforcing the contracts or because of depreciation,
damage or loss of the vehicles securing the contracts, or other factors.
Credit Card Receivable Securities are backed by receivables from revolving
credit card agreements. An acceleration in cardholders' payment rates may
adversely affect the overall return to holders of such certificates. Unlike
most other asset-backed securities, Credit Card Receivable Securities are
unsecured obligations of the credit cardholders. The Fund may also invest in
other asset-backed securities that may be developed in the future, provided
that this Prospectus is revised before the Fund does so. The Fund will not
invest more than 15% of its net assets in asset-backed securities for which
there is no established market and other illiquid securities.
<PAGE>
Mortgage-backed securities, when they are issued, have stated maturities of up
to forty years, depending on the length of the mortgages underlying the
securities. In practice, unscheduled or early payments of principal on the
underlying mortgages may make the securities' effective maturity shorter than
this. A security based on a pool of forty-year mortgages may have an average
life of as short as two years. The average life of asset-backed securities may
also be substantially less than the stated maturity of the contracts or
receivables underlying such securities. It is common industry practice to
estimate the average life of mortgage-backed and asset-backed securities based
on assumptions regarding prepayments.

BANK DEBT INSTRUMENTS. The Fund may invest in certificates of deposit, time
deposits and bankers' acceptances issued by commercial banks. Certificates of
deposit are receipts from a bank for funds deposited for a specified period of
time at a specified rate of return. Bankers' acceptances are time drafts drawn
on commercial banks by borrowers, usually in connection with international
commercial transactions. Time deposits are generally similar to certificates
of deposit, but are uncertificated. The Fund will not invest more than 15% of
its net assets in time deposits maturing in greater than seven days and other
illiquid securities.

The Fund will not invest in any security issued by a commercial bank unless
(i) the bank has total assets of at least $1 billion, or the equivalent in
other currencies, or, in the case of domestic banks which do not have total
assets of at least $1 billion, the aggregate investment made in any one such
bank is limited to $100,000 and the principal amount of such investment is
insured in full by the Federal Deposit Insurance Corporation, (ii) in the case
of U.S. banks, it is a member of the Federal Deposit Insurance Corporation,
and (iii) in the case of foreign banks, the security is, in the opinion of the
Sub-Adviser, of an investment quality comparable with other debt securities
which may be purchased by the Fund. These limitations do not prohibit
investments in securities issued by foreign branches of U.S. banks, provided
such U.S. banks meet the foregoing requirements.

FOREIGN SECURITIES. The Fund may invest in U.S. dollar-denominated
fixed-income securities issued by foreign issuers, foreign branches of U.S.
banks and U.S. branches of foreign banks. Investment in securities of foreign
issuers and in foreign branches of domestic banks involves somewhat different
investment risks from those affecting securities of domestic issuers. In
addition to credit and market risks, investments in foreign securities involve
sovereign risk, which includes local political and economic developments,
potential nationalization, withholding taxes on dividend or interest payments
and currency blockage. Foreign companies may have less public or less reliable
information available about them and may be subject to less governmental
regulation than U.S. companies. Securities of foreign companies may be less
liquid or more volatile than securities of U.S. companies. The Fund will not
invest more than 15% of its net assets in foreign securities which, in the
opinion of the Sub-Adviser, are not readily marketable and other illiquid
securities.

WHEN-ISSUED SECURITIES. The Fund may purchase securities on a when-issued
basis. Delivery of and payment for these securities may occur a month or more
after the date of the purchase commitment. The securities are subject to
market fluctuations during this period and no interest accrues to the Fund
until settlement. The Fund maintains with the Custodian a segregated account
of cash, U.S. Government obligations or other liquid high-grade debt
obligations in an amount at least equal to these commitments.
<PAGE>
INVESTMENT TECHNIQUES AND RISK CONSIDERATIONS APPLICABLE TO ALL FUNDS

The Funds may also engage in the following investment techniques, each of
which may involve certain risks:

REPURCHASE AGREEMENTS. Repurchase agreements are transactions by which a Fund
purchases a security and simultaneously commits to resell that security to the
seller at an agreed upon time and price, thereby determining the yield during
the term of the agreement. In the event of a bankruptcy or other default of
the seller of a repurchase agreement, a Fund could experience both delays in
liquidating the underlying security and losses. To minimize these
possibilities, the Funds intend to enter into repurchase agreements only with
their Custodian, banks having assets in excess of $10 billion and the largest
and, in the Adviser or Sub-Adviser's judgment, most creditworthy primary U.S.
Government securities dealers. The Funds will enter into repurchase agreements
which are collateralized by U.S. Government obligations or other liquid
high-grade debt obligations. Collateral for repurchase agreements is held in
safekeeping in the customer-only account of the Funds' Custodian at the
Federal Reserve Bank. At the time a Fund enters into a repurchase agreement,
the value of the collateral, including accrued interest, will equal or exceed
the value of the repurchase agreement and, in the case of a repurchase
agreement exceeding one day, the seller agrees to maintain sufficient
collateral so that the value of the underlying collateral, including accrued
interest, will at all times equal or exceed the value of the repurchase
agreement. A Fund will not enter into a repurchase agreement not terminable
within seven days if, as a result thereof, more than 15% of the value of the
net assets of the Fund would be invested in such securities and other illiquid
securities.

LENDING PORTFOLIO SECURITIES. Each Fund may, from time to time, lend
securities on a short-term basis (i.e., for up to seven days) to banks,
brokers and dealers and receive as collateral cash, U.S. Government
obligations or irrevocable bank letters of credit (or any combination
thereof), which collateral will be required to be maintained at all times in
an amount equal to at least 100% of the current value of the loaned securities
plus accrued interest. Although each of the Funds does have the ability to
make loans of all of its portfolio securities, it is the present intention of
the Trust, which may be changed without shareholder approval, that such loans
will not be made with respect to a Fund if as a result the aggregate of all
outstanding loans exceeds one-third of the value of the Fund's total assets.
Securities lending will afford a Fund the opportunity to earn additional
income because the Fund will continue to be entitled to the interest payable
on the loaned securities and also will either receive as income all or a
portion of the interest on the investment of any cash loan collateral or, in
the case of collateral other than cash, a fee negotiated with the borrower.
Such loans will be terminable at any time. Loans of securities involve risks
of delay in receiving additional collateral or in recovering the securities
lent or even loss of rights in the collateral in the event of the insolvency
of the borrower of the securities. A Fund will have the right to regain record
ownership of loaned securities in order to exercise beneficial rights. A Fund
may pay reasonable fees in connection with arranging such loans.

BORROWING AND PLEDGING. Each Fund may borrow money from banks (provided there
is 300% asset coverage) or from banks or other persons for temporary purposes
(in an amount not exceeding 5% of a Fund's total assets). Each Fund will not
make any borrowing which would cause its outstanding borrowings to exceed
one-third of its total assets. Each Fund may pledge assets in connection with
borrowings but will not pledge more than one-third of its total assets.
Borrowing magnifies the potential for gain or loss on the portfolio securities
of the Funds and, therefore, if employed, increases the possibility of
fluctuation in a Fund's net asset value. This is the speculative factor known
as leverage. A Fund's policies on borrowing and pledging are fundamental
policies which may not be changed without the affirmative vote of a majority
of its outstanding shares. It is each Fund's present intention, which may be
changed by the Board of Trustees without shareholder approval, to borrow only
for emergency or extraordinary purposes and not for leverage.
<PAGE>
PORTFOLIO TURNOVER. The Funds do not intend to use short-term trading as a
primary means of achieving their investment objectives. However, each Fund's
rate of portfolio turnover will depend upon market and other conditions, and
it will not be a limiting factor when portfolio changes are deemed necessary
or appropriate by the Adviser or Sub-Adviser. Although the annual portfolio
turnover rate of each of the Funds cannot be accurately predicted, it is not
expected to exceed 100% with respect to any of the Funds, but may be either
higher or lower. A 100% turnover rate would occur, for example, if all the
securities of a Fund were replaced once in a one-year period. High turnover
involves correspondingly greater commission expenses and transaction costs and
increases the possibility that a Fund would not qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code. A Fund
will not qualify as a regulated investment company if it derives 30% or more
of its gross income from gains (without offset for losses) from the sale or
other disposition of securities held for less than three months. High turnover
may result in a Fund recognizing greater amounts of income and capital gains,
which would increase the amount of income and capital gains which the Fund
must distribute to shareholders in order to maintain its status as a regulated
investment company and to avoid the imposition of federal income or excise
taxes (see "Taxes").

HOW TO PURCHASE SHARES
==============================================================================
Your initial investment in a Fund ordinarily must be at least $10,000 ($2,000
for tax-deferred retirement plans). A Fund may, in the Adviser's or
Sub-Adviser's sole discretion, accept certain accounts with less than the
stated minimum initial investment. Shares of each of the Funds are sold on a
continuous basis at the net asset value next determined after receipt of a
purchase order by the Trust. Purchase orders received by dealers prior to 4:00
p.m., Eastern time, on any business day and transmitted to the Trust's
transfer agent, MGF Service Corp., by 5:00 p.m., Eastern time, that day are
confirmed at the net asset value determined as of the close of the regular
session of trading on the New York Stock Exchange on that day. It is the
responsibility of dealers to transmit properly completed orders so that they
will be received by MGF Service Corp. by 5:00 p.m., Eastern time. Dealers may
charge a fee for effecting purchase orders. Direct purchase orders received by
MGF Service Corp. by 4:00 p.m., Eastern time, are confirmed at that day's net
asset value. Direct investments received by MGF Service Corp. after 4:00 p.m.,
Eastern time, and orders received from dealers after 5:00 p.m., Eastern time,
are confirmed at the net asset value next determined on the following business
day.

You may open an account and make an initial investment in a Fund by sending a
check and a completed account application form to MGF Service Corp., P.O. Box
5354, Cincinnati, Ohio 45201-5354. Checks should be made payable to the
"Capitol Square Large Cap Fund", the "Capitol Square Small Cap Fund" or the
"Capitol Square Bond Fund," whichever is applicable. An account application is
included in this Prospectus.
<PAGE>
The Trust mails you confirmations of all purchases or redemptions of Fund
shares. Certificates representing shares are not issued. The Trust reserves
the right to limit the amount of investments and to refuse to sell to any
person.

Investors should be aware that the Funds' account application contains
provisions in favor of the Trust, MGF Service Corp. and certain of their
affiliates, excluding such entities from certain liabilities (including, among
others, losses resulting from unauthorized shareholder transactions) relating
to the various services (for example, telephone redemptions and exchanges)
made available to investors.

Should an order to purchase shares be canceled because your check does not
clear, you will be responsible for any resulting losses or fees incurred by
the Trust or MGF Service Corp. in the transaction.

You may also purchase shares of the Funds by wire. Please telephone MGF
Service Corp. (Nationwide call toll-free 888-254-6870; in Cincinnati call
629-2283) for instructions. You should be prepared to give the name in which
the account is to be established, the address, telephone number and taxpayer
identification number for the account, and the name of the bank which will
wire the money.

Your investment will be made at the net asset value next determined after your
wire is received together with the account information indicated above. If the
Trust does not receive timely and complete account information, there may be a
delay in the investment of your money and any accrual of dividends. To make
your initial wire purchase, you are required to mail a completed account
application to MGF Service Corp. Your bank may impose a charge for sending
your wire. There is presently no fee for receipt of wired funds, but MGF
Service Corp. reserves the right to charge shareholders for this service upon
thirty days' prior notice to shareholders.

You may purchase and add shares to your account by mail or by bank wire.
Checks should be sent to MGF Service Corp., P.O. Box 5354, Cincinnati, Ohio
45201-5354. Checks should be made payable to the applicable Fund. Bank wires
should be sent as outlined above. You may also make additional investments at
the Trust's offices at Capitol Square, 21 East State Street, Suite 1410,
Columbus, Ohio 43215. Each additional purchase request must contain the name
of your account and your account number to permit proper crediting to your
account. While there is no minimum amount required for subsequent investments,
the Trust reserves the right to impose such requirement.

SHAREHOLDER SERVICES
==============================================================================
Contact MGF Service Corp. (Nationwide call toll-free 888-254-6870; in
Cincinnati call 629-2283) for additional information about the shareholder
services described below.

AUTOMATIC WITHDRAWAL PLAN

You may elect to receive, or may designate another person to receive, monthly
or quarterly payments in a specified amount of not less than $100 each. There
is no charge for this service. Such withdrawals should not reduce the account
below $10,000, or $2,000 in the case of tax-deferred retirement plans.
<PAGE>
TAX-DEFERRED RETIREMENT PLANS

Shares of the Funds are available for purchase in connection with the
following tax-deferred retirement plans:

-- Keogh Plans for self-employed individuals

-- Individual retirement account (IRA) plans for individuals and
their non-employed spouses

-- Qualified pension and profit-sharing plans for employees,
including those profit-sharing plans with a 401(k) provision

-- 403(b)(7) custodial accounts for employees of public school
systems, hospitals, colleges and other non-profit organizations
meeting certain requirements of the Internal Revenue Code

DIRECT DEPOSIT PLANS

Shares of the Funds may be purchased through direct deposit plans offered by
certain employers and government agencies. These plans enable a shareholder to
have all or a portion of his or her payroll or social security checks
transferred automatically to purchase shares of the Funds.

AUTOMATIC INVESTMENT PLAN

You may make automatic monthly investments in a Fund or Funds from your bank,
savings and loan or other depository institution account. The minimum initial
and subsequent investments must be $100 under the plan. MGF Service Corp. pays
the costs associated with these transfers, but reserves the right, upon thirty
days' written notice, to make reasonable charges for this service. Your
depository institution may impose its own charge for debiting your account
which would reduce your return from an investment in the Funds.

HOW TO REDEEM SHARES
==============================================================================
You may redeem shares of a Fund on each day that the Trust is open for
business. You will receive the net asset value per share next determined after
receipt by MGF Service Corp. of your redemption request in the form described
below. Payment is normally made within three business days after tender in
such form, provided that payment in redemption of shares purchased by check
will be effected only after the check has been collected, which may take up to
fifteen days from the purchase date. To eliminate this delay, you may purchase
shares of the Funds by certified check or wire.

BY MAIL. You may redeem any number of shares from your account by sending a
written request to MGF Service Corp. The request must state the number of
shares or the dollar amount to be redeemed and your account number. The
request must be signed exactly as your name appears on the Trust's account
records. If the shares to be redeemed have a value of $25,000 or more, your
signature must be guaranteed by any eligible guarantor institution, including
banks, brokers and dealers, municipal securities brokers and dealers,
government securities brokers and dealers, credit unions, national securities
exchanges, registered securities associations, clearing agencies and savings
associations. Proceeds of redemptions requested by mail are normally mailed
within three business days following receipt of instructions in proper form.
<PAGE>
THROUGH BROKER-DEALERS. You may also redeem shares by placing a wire
redemption request through a securities broker or dealer. Unaffiliated
broker-dealers may impose a fee on the shareholder for this service. You will
receive the net asset value per share next determined after receipt by the
Trust or its agent of your wire redemption request. It is the responsibility
of broker-dealers to promptly transmit wire redemption orders.

ADDITIONAL REDEMPTION INFORMATION. If your instructions request a redemption
by wire, you will be charged a $9 processing fee by the Funds' Custodian. The
Trust reserves the right, upon thirty days' written notice, to change the
processing fee. All charges will be deducted from your account by redemption
of shares in your account. Your bank or brokerage firm may also impose a
charge for processing the wire. In the event that wire transfer of funds is
impossible or impractical, the redemption proceeds will be sent by mail to the
designated account.

Redemption requests may direct that the proceeds be deposited directly in your
account with a commercial bank or other depository institution via an
Automated Clearing House (ACH) transaction. There is currently no charge for
ACH transactions. Contact MGF Service Corp. for more information about ACH
transactions.

At the discretion of the Trust or MGF Service Corp., corporate investors and
other associations may be required to furnish an appropriate certification
authorizing redemptions to ensure proper authorization. The Trust reserves the
right to require you to close your account if at any time the value of your
shares is less than $10,000 (based on actual amounts invested, unaffected by
market fluctuations), or $2,000 in the case of tax-deferred retirement plans,
or such other minimum amount as the Trust may determine from time to time.
After notification to you of the Trust's intention to close your account, you
will be given sixty days to increase the value of your account to the minimum
amount.

The Trust reserves the right to suspend the right of redemption or to postpone
the date of payment for more than three business days under unusual
circumstances as determined by the Securities and Exchange Commission.

EXCHANGE PRIVILEGE
==============================================================================
Shares of the Funds may be exchanged for each other at net asset value. Shares
of the Funds may also be exchanged for the following money market funds:

Short Term Government Income Fund (a series of Midwest Trust) -- invests
in short-term U.S. Government obligations backed by the "full faith and
credit" of the United States and seeks high current income consistent
with protection of capital.

Tax-Free Money Fund (a series of Midwest Group Tax Free Trust) -- invests
in high quality, short-term municipal obligations and seeks the highest
level of interest income that is exempt from federal income tax,
consistent with protection of capital.

Ohio Tax-Free Money Fund (a series of Midwest Group Tax Free Trust) --
invests in high quality, short-term Ohio municipal obligations and seeks
the highest level of current income that is exempt from federal income
tax and Ohio personal income tax, consistent with liquidity and stability
of principal.
<PAGE>
Shares of the Short Term Government Income Fund, the Tax-Free Money Fund and
the Ohio Tax-Free Money Fund acquired via exchange may be reexchanged for
shares of the Funds at net asset value.

You may request an exchange by sending a written request to MGF Service Corp.
The request must be signed exactly as your name appears on the Trust's account
records. Exchanges may also be requested by telephone. If you are unable to
execute your transaction by telephone (for example during times of unusual
market activity) consider requesting your exchange by mail or by visiting the
Trust's offices at Capitol Square, 21 East State Street, Suite 1410, Columbus,
Ohio 43215. An exchange will be effected at the next determined net asset
value after receipt of a request by MGF Service Corp.

The telephone exchange privilege is automatically available to all
shareholders. Neither the Trust, MGF Service Corp., nor their respective
affiliates will be liable for complying with telephone instructions they
reasonably believe to be genuine or for any loss, damage, cost or expense in
acting on such telephone instructions. The affected shareholders will bear the
risk of any such loss. The Trust or MGF Service Corp., or both, will employ
reasonable procedures to determine that telephone instructions are genuine. If
the Trust and/or MGF Service Corp. do not employ such procedures, they may be
liable for losses due to unauthorized or fraudulent instructions. These
procedures may include, among others, requiring forms of personal
identification prior to acting upon telephone instructions, providing written
confirmation of the transactions and/or tape recording telephone instructions.

Exchanges may only be made for shares of funds then offered for sale in your
state of residence and are subject to the applicable minimum initial
investment requirements. The exchange privilege may be modified or terminated
by the Board of Trustees upon 60 days' prior notice to shareholders. An
exchange results in a sale of fund shares, which may cause you to recognize a
capital gain or loss. Before making an exchange for shares of the Short Term
Government Income Fund, the Tax-Free Money Fund or the Ohio Tax-Free Money
Fund, contact MGF Service Corp. to obtain a current prospectus and more
information about exchanges among the funds.

DIVIDENDS AND DISTRIBUTIONS
==============================================================================
The Large Cap Fund and the Small Cap Fund each expects to distribute
substantially all of its net investment income, if any, on an annual basis.
All of the net investment income of the Bond Fund is declared as a dividend to
shareholders of record on each business day of the Trust and paid monthly.

Each Fund expects to distribute any net realized long-term capital gains at
least once each year. Management will determine the timing and frequency of
the distributions of any net realized short-term capital gains.

Distributions are paid according to one of the following options:

Share Option -- income distributions and capital gains distributions
reinvested in additional shares.

Income Option -- income distributions and short-term
capital gains distributions paid in cash;
long-term capital gains distributions
reinvested in additional shares.

Cash Option -- income distributions and capital gains distributions
paid in cash.
<PAGE>
You should indicate your choice of option on your application. If no option is
specified on your application, distributions will automatically be reinvested
in additional shares. All distributions will be based on the net asset value
in effect on the payable date.

If you select the Income Option or the Cash Option and the U.S. Postal Service
cannot deliver your checks or if your checks remain uncashed for six months,
your dividends may be reinvested in your account at the then-current net asset
value and your account will be converted to the Share Option.

TAXES
==============================================================================
Each Fund intends to qualify for the special tax treatment afforded a
"regulated investment company" under Subchapter M of the Internal Revenue Code
so that it does not pay federal taxes on income and capital gains distributed
to shareholders. Each Fund intends to distribute substantially all of its net
investment income and any realized capital gains to its shareholders.
Distributions from net investment income as well as from net realized
short-term capital gains, if any, are taxable to investors as ordinary income.
Dividends distributed by the Large Cap Fund and the Small Cap Fund from net
investment income may be eligible, in whole or in part, for the dividends
received deduction available to corporations. Since the investment income of
the Bond Fund is derived from interest rather than dividends, no portion of
such distributions is eligible for the dividends received deduction available
to corporations. Distributions of net realized long-term capital gains are
taxable as long-term capital gains regardless of how long you have held your
Fund shares. Redemptions of shares of the Funds are taxable events on which a
shareholder may realize a gain or loss.

The Funds will mail to each of their shareholders a statement indicating the
amount and federal income tax status of all distributions made during the
year. In addition to federal taxes, shareholders of the Funds may be subject
to state and local taxes on distributions. Shareholders should consult their
tax advisors about the tax effect of distributions and withdrawals from the
Funds and the use of the Automatic Withdrawal Plan and the Exchange Privilege.
The tax consequences described in this section apply whether distributions are
taken in cash or reinvested in additional shares.

OPERATION OF THE FUNDS
==============================================================================
The Funds are diversified series of Capitol Square Funds, an open-end
management investment company organized as an Ohio business trust on July 2,
1996. The Board of Trustees supervises the business activities of the Trust.
Like other mutual funds, various organizations are retained to perform
specialized services for the Funds.

The Trust retains Dillon Capital Management, Capitol Square, 21 East State
Street, Suite 1410, Columbus, Ohio 43215 (the "Adviser"), to manage the Funds'
investments. The Adviser is an independent investment counsel firm advising
individual, institutional and corporate clients. The Adviser is controlled by
DiCap, Inc., its General Partner. Roderick H. Dillon, Jr. is the controlling
shareholder of DiCap, Inc. and the President of the Adviser. He is the person
primarily responsible for overseeing the management of the Large Cap and Small
Cap Fund's portfolios. The Adviser has not previously provided investment
advisory services to a registered investment company. Mr. Dillon, however, has
previously served as a portfolio manager to a registered investment company
while employed both with Loomis, Sayles and Company and Parker, Dillon,
Carlson and Johnson.
<PAGE>
The Large Cap Fund pays the Adviser a fee equal to the annual rate of 1.50% of
the average value of its daily net assets up to $50 million; 1.35% of such
assets from $50 million to $100 million; and 1.20% of such assets in excess of
$100 million. The Small Cap Fund pays the Adviser a fee equal to the annual
rate of 1.75% of the average value of its daily net assets up to $50 million;
1.60% of such assets from $50 million to $100 million; and 1.45% of such
assets in excess of $100 million. The Bond Fund pays the Adviser a fee equal
to the annual rate of 1.00% of the average value of its daily net assets up to
$50 million; .90% of such assets from $50 million to $100 million; and .80% of
such assets in excess of $100 million. Unlike most mutual funds, the advisory
fee paid by each Fund includes transfer agency, pricing, custodial, auditing
and legal services, and general administrative and other operating expenses of
the Fund except brokerage commissions, taxes, interest, fees and expenses of
non-interested Trustees and extraordinary expenses.

As of the date of this Prospectus, the Roderick H. Dillon, Jr. Foundation is
the sole shareholder of each Fund.

Midwest Group Financial Services, Inc., 312 Walnut Street, Cincinnati, Ohio
45202 (the "Sub-Adviser"), has been retained by the Adviser to manage the Bond
Fund's investments. The Sub-Adviser was organized in 1974 and is a subsidiary
of Leshner Financial, Inc., of which Robert H. Leshner is the controlling
shareholder. The Adviser (not the Fund) pays the Sub-Adviser a monthly fee at
the rate of 12 1/2% of the "net management fees" the Adviser receives for its
services to the Bond Fund. For purposes of calculating this fee, "net
management fees" are defined as the advisory fees paid to the Adviser less the
Adviser's operating costs, which include audit fees, legal fees, custody fees,
trustee fees and expenses, insurance costs, state registration filing fees,
SEC filing fees and expenses, pricing fees, costs of reports to shareholders,
transfer agent out-of-pocket expenses, fund accounting licensing fees, and any
other direct costs incurred by the Adviser in the operation and administration
of the Trust. John J. Goetz, the Chief Investment Officer of the Sub-Adviser,
is primarily responsible for managing the Bond Fund's portfolio. Mr. Goetz has
been employed by the Sub-Adviser since 1981.

The Adviser has retained MGF Service Corp., P.O. Box 5354, Cincinnati, Ohio,
to provide administrative services and accounting and pricing services to the
Fund and to serve as its transfer agent and dividend paying agent. MGF Service
Corp. is a subsidiary of Leshner Financial, Inc., of which Robert H. Leshner
is the controlling shareholder. The Adviser (not the Fund) pays MGF Service
Corp. a monthly fee at the rate of 50% of the "net management fees" (as
defined above) the Adviser receives for its services with respect to the Large
Cap Fund and the Small Cap Fund, and 37 1/2% of the "net management fees" it
receives for its services with respect to the Bond Fund.

Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to its objective of seeking best
execution of portfolio transactions, the Adviser or, where applicable,
Sub-Adviser, may give consideration to sales of shares of the Funds as a
factor in the selection of brokers and dealers to execute portfolio
transactions of the Funds. Subject to the requirements of the Investment
Company Act of 1940 and procedures adopted by the Board of Trustees, the Funds
may execute portfolio transactions through any broker or dealer and pay
brokerage commissions to a broker (i) which is an affiliated person of the
Trust, or (ii) which is an affiliated person of such person, or (iii) an
affiliated person of which is an affiliated person of the Trust, the Adviser
or Sub-Adviser.
<PAGE>
Shares of each Fund have equal voting rights and liquidation rights, and are
voted in the aggregate and not by Fund except in matters where a separate vote
is required by the Investment Company Act of 1940 or when the matter affects
only the interests of a particular Fund. When matters are submitted to
shareholders for a vote, each shareholder is entitled to one vote for each
full share owned and fractional votes for fractional shares owned. The Trust
does not normally hold annual meetings of shareholders. The Trustees shall
promptly call and give notice of a meeting of shareholders for the purpose of
voting upon removal of any Trustee when requested to do so in writing by
shareholders holding 10% or more of the Trust's outstanding shares. The Trust
will comply with the provisions of Section 16(c) of the Investment Company Act
of 1940 in order to facilitate communications among shareholders.

CALCULATION OF SHARE PRICE
==============================================================================
On each day that the Trust is open for business, the share price (net asset
value) of the shares of each Fund is determined as of the close of the regular
session of trading on the New York Stock Exchange, currently 4:00 p.m.,
Eastern time. The Trust is open for business on each day the New York Stock
Exchange is open for business and on any other day when there is sufficient
trading in a Fund's investments that its net asset value might be materially
affected. The net asset value per share of each of the Funds is calculated by
dividing the sum of the value of the securities held by the Fund plus cash or
other assets minus all liabilities (including estimated accrued expenses) by
the total number of shares outstanding of the Fund, rounded to the nearest
cent.

U.S. Government obligations are valued at their most recent bid prices as
obtained from one or more of the major market makers for such securities.
Other portfolio securities are valued as follows: (i) securities which are
traded on stock exchanges or are quoted by NASDAQ are valued at the last
reported sale price as of the close of the regular session of trading on the
New York Stock Exchange on the day the securities are being valued, or, if not
traded on a particular day, at the closing bid price, (ii) securities traded
in the over-the-counter market, and which are not quoted by NASDAQ, are valued
at the last sale price (or, if the last sale price is not readily available,
at the last bid price as quoted by brokers that make markets in the
securities) as of the close of the regular session of trading on the New York
Stock Exchange on the day the securities are being valued, (iii) securities
which are traded both in the over-the-counter market and on a stock exchange
are valued according to the broadest and most representative market, and (iv)
securities (and other assets) for which market quotations are not readily
available are valued at their fair value as determined in good faith in
accordance with consistently applied procedures established by and under the
general supervision of the Board of Trustees. The net asset value per share of
each Fund will fluctuate with the value of the securities it holds.
<PAGE>
PERFORMANCE INFORMATION
==============================================================================
From time to time, each Fund may advertise its "average annual total return."
Each Fund may also advertise "yield." Both yield and average annual total
return figures are based on historical earnings and are not intended to
indicate future performance.

The "average annual total return" of a Fund refers to the average annual
compounded rates of return over the most recent 1, 5 and 10 year periods or,
where the Fund has not been in operation for such period, over the life of the
Fund (which periods will be stated in the advertisement) that would equate an
initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment. The calculation of "average annual total
return" assumes the reinvestment of all dividends and distributions. A Fund
may also advertise total return (a "nonstandardized quotation") which is
calculated differently from "average annual total return." A nonstandardized
quotation of total return may be a cumulative return which measures the
percentage change in the value of an account between the beginning and end of
a period, assuming no activity in the account other than reinvestment of
dividends and capital gains distributions. A nonstandardized quotation of
total return may also indicate average annual compounded rates of return over
periods other than those specified for "average annual total return." A
nonstandardized quotation of total return will always be accompanied by a
Fund's "average annual total return" as described above.

The "yield" of a Fund is computed by dividing the net investment income per
share earned during a thirty-day (or one month) period stated in the
advertisement by the net asset value per share on the last day of the period
(using the average number of shares entitled to receive dividends). The yield
formula assumes that net investment income is earned and reinvested at a
constant rate and annualized at the end of a six-month period.

From time to time the Funds may advertise their performance rankings as
published by recognized independent mutual fund statistical services such as
Lipper Analytical Services, Inc.("Lipper"), or by publications of general
interest such as Forbes, Money, The Wall Street Journal, Business Week,
Barron's, Fortune or Morningstar Mutual Fund Values. The Funds may also
compare their performance to that of other selected mutual funds, averages of
the other mutual funds within their categories as determined by Lipper, or
recognized indicators such as the Dow Jones Industrial Average, the Standard &
Poor's 500 Stock Index and the Russell 2000 Index. In connection with a
ranking, the Funds may provide additional information, such as the particular
category of funds to which the ranking relates, the number of funds in the
category, the criteria upon which the ranking is based, and the effect of fee
waivers and/or expense reimbursements, if any. The Funds may also present
their performance and other investment characteristics, such as volatility or
a temporary defensive posture, in light of the Adviser's view of current or
past market conditions or historical trends.
<PAGE>
CAPITOL SQUARE FUNDS
ACCOUNT APPLICATION

Please mail account application to: (check appropriate Fund)
MGF Service Corp.
P.O. Box 5354
Cincinnati, Ohio 45201-5354

o CAPITOL SQUARE LARGE CAP FUND $_____________________
o CAPITOL SQUARE SMALL CAP FUND $_____________________
o CAPITOL SQUARE BOND FUND $_____________________

TOTAL $_____________________

ACCOUNT NO. ___________________________
(For Fund Use Only)

FOR BROKER/DEALER USE ONLY
Firm Name:____________________________________________
Home Office Address: ______________________________________________________
Branch Address: ______________________________________________________
Rep Name & No.: ______________________________________________________
Rep Signature: ______________________________________________________

o Check or draft enclosed payable to the Fund(s) designated above.

o Bank Wire From: __________________________________________________________

o Exchange From: __________________________________________________________
(Fund Name) (Fund Account Number)

ACCOUNT NAME S.S. #/TAX I.D.#

- ------------------------------------------------------ ---------------------
Name of Individual, Corporation, (In case of custodial
Organization, or Minor, etc. account please list
minor's S.S.#)
_______________________________________________________ Citizenship: o U.S.
Name of Joint Tenant, Partner, Custodian o Other
________

ADDRESS PHONE

- ------------------------------------------------------ ( )---------------
Street or P.O. Box Business Phone

- ------------------------------------------------------ ( )---------------
City State Zip Home Phone

Check Appropriate Box: o Individual o Joint Tenant (Right of survivorship
presumed)
o Partnership o Corporation o Trust o Custodial o Non-Profit o Other

Occupation and Employer Name/Address__________________________________________

Are you an associated person of an NASD member? o Yes o No

TAXPAYER IDENTIFICATION NUMBER -- Under penalties of perjury I certify that
the Taxpayer Identification Number listed above is my correct number. Check
box if appropriate:

o I am exempt from backup withholding under the provisions of section
3406(a)(1)(c) of the Internal Revenue Code; or I am not subject to backup
withholding because I have not been notified that I am subject to backup
withholding as a result of a failure to report all interest or dividends; or
the Internal Revenue Service has notified me that I am no longer subject to
backup withholding.

o I certify under penalties of perjury that a Taxpayer Identification Number
has not been issued to me and I have mailed or delivered an application to
receive a Taxpayer Identification Number to the Internal Revenue Service
Center or Social Security Administration Office. I understand that if I do
not provide a Taxpayer Identification Number within 60 days that 31% of all
reportable payments will be withheld until I provide a number.

DISTRIBUTIONS (If no election is checked the SHARE OPTION will be assigned.)
o Share Option -- Income distributions and capital gains distributions
automatically reinvested in additional shares.

o Income Option -- Income distributions and short term capital
gains distributions paid in cash, long term capital gains
distributions reinvested in additional shares.

o Cash Option -- Income distributions and capital gains distributions paid
in cash.

SIGNATURES
By signature below each investor certifies that he has received a copy of the
Funds' current Prospectus, that he is of legal age, and that he has full
authority and legal capacity for himself or the organization named below, to
make this investment and to use the options selected above. The investor
appoints MGF Service Corp. as his agent to enter orders for shares whether by
direct purchase or exchange, to receive dividends and distributions for
automatic reinvestment in additional shares of the Funds for credit to the
investor's account and to surrender for redemption shares held in the
investor's account for payment of service charges incurred by the investor.
The investor further agrees that MGF Service Corp. can cease to act as such
agent upon ten days' notice in writing to the investor at the address
contained in this Application. The investor hereby ratifies any instructions
given pursuant to this Application and for himself and his successors and
assigns does hereby release Capitol Square Funds, Dillon Capital Management,
Midwest Group Financial Services, Inc., MGF Service Corp., and their
respective officers, employees, agents and affiliates from any and all
liability in the performance of the acts instructed herein. The Internal
Revenue Service does not require your consent to any provision of this
document other than the certifications required to avoid backup withholding.

- -------------------------------------- --------------------------------------
Signature of Individual Owner, Signature of Joint Owner, if Any
Corporate Officer, Trustee, etc.

- -------------------------------------- --------------------------------------
Title of Corporate Officer, Trustee, Date
etc.

NOTE: CORPORATIONS, TRUSTS AND OTHER ORGANIZATIONS MUST COMPLETE THE
RESOLUTION FORM ON THE REVERSE SIDE.
UNLESS OTHERWISE SPECIFIED, EACH JOINT OWNER SHALL HAVE FULL
AUTHORITY TO ACT ON BEHALF OF THE ACCOUNT.
<PAGE>
AUTOMATIC INVESTMENT PLAN (COMPLETE FOR INVESTMENTS INTO THE FUND(S))
The Automatic Investment Plan is available for all established accounts of
Capital Square Funds. There is no charge for this service, and it offers the
convenience of automatic investing on a regular basis. The minimum investment
is $100.00 per month. For an account that is opened by using this Plan, the
minimum initial and subsequent investments must be $100.00. Though a
continuous program of 12 monthly investments is recommended, the Plan may be
discontinued by the shareholder at any time.

Please invest $ _________________per ABA Routing Number____________________
month in (Check applicable Fund)
o Capitol Square Large Cap Fund FI Account Number ____________________
o Capitol Square Small Cap Fund
o Capitol Square Bond Fund o Checking Account o Savings Account

- -----------------------------------
Name of Financial Institution (FI) Please make my automatic investment on:
o the last business day of each month
- ----------------------------------- o the 15th day of each month
City State o both the 15th and last business day

X__________________________________ X______________________________________
(Signature of Depositor EXACTLY (Signature of Joint Tenant - if any)
as it appears on FI Records)

(Joint Signatures are required when bank account is in joint names.
Please sign exactly as signature appears on your FI's records.)

PLEASE ATTACH A VOIDED CHECK FOR THE AUTOMATIC INVESTMENT PLAN.

INDEMNIFICATION TO DEPOSITOR'S BANK
In consideration of your participation in a plan which MGF Service Corp.
("MGF") has put into effect, by which amounts, determined by your depositor,
payable to the applicable Fund designated above, for purchase of shares of
said Fund, are collected by MGF, MGF hereby agrees:
MGF will indemnify and hold you harmless from any liability to any person
or persons whatsoever arising out of the payment by you of any amount drawn by
the Funds to their own order on the account of your depositor or from any
liability to any person whatsoever arising out of the dishonor by you whether
with or without cause or intentionally or inadvertently, of any such checks.
MGF will defend, at its own cost and expense, any action which might be
brought against you by any person or persons whatsoever because of your
actions taken pursuant to the foregoing request or in any manner arising by
reason of your participation in this arrangement. MGF will refund to you any
amount erroneously paid by you to the Funds on any such check if the claim for
the amount of such erroneous payment is made by you within six (6) months from
the date of such erroneous payment; your participation in this arrangement and
that of the Funds may be terminated by thirty (30) days written notice from
either party to the other.

AUTOMATIC WITHDRAWAL PLAN (COMPLETE FOR WITHDRAWALS FROM THE FUND(S))
This is an authorization for you to withdraw $_________ from my mutual fund
account beginning the last business day of the month of______________________.

Please indicate which Fund:
o Capitol Square Large Cap Fund
o Capitol Square Small Cap Fund
o Capitol Square Bond Fund

Please Indicate Withdrawal Schedule (Check One):
o MONTHLY -- Withdrawals will be made on the last business day of each month.
o QUARTERLY -- Withdrawals will be made on or about 3/31, 6/30, 9/30 and
12/31.
o ANNUALLY -- Please make withdrawals on the last business day of the
month of: ____________________ .

Please Select Payment Method (Check One):
o EXCHANGE: Please exchange the withdrawal proceeds into another account
number: ____ ____ -- ____ ____ ____ ____ ____ ____ -- ____
o CHECK: Please mail a check for my withdrawal proceeds to the mailing address
on this account.
o ACH TRANSFER: Please send my withdrawal proceeds via ACH transfer to my
bank checking or savings account as indicated below. I understand that the
transfer will be completed in two to three ___________ business days and that
there is no charge.
o BANK WIRE: Please send my withdrawal proceeds via bank wire, to the account
indicated below. I understand that the wire will be completed in one business
day and that there is a $9.00 fee.

PLEASE ATTACH A VOIDED -------------------------------------------
CHECK FOR ACH OR BANK WIRE Bank Name Bank Address

-------------------------------------------
Bank ABA# Account # Account Name

o SEND TO SPECIAL PAYEE (OTHER THAN APPLICANT): Please mail a check for my
withdrawal proceeds to the mailing address below:

Name of payee_________________________________________________________________

Please send to:_______________________________________________________________
Street address City State Zip

RESOLUTIONS
(This Section to be completed by Corporations, Trusts, and Other Organizations)
RESOLVED: That this corporation or organization become a shareholder of
Capitol Square Funds (the Trust) and that

- ------------------------------------------------------------------------------
is (are) hereby authorized to complete and execute the Application on behalf
of the corporation or organization and to take any action for it as may be
necessary or appropriate with respect to its shareholder account with the
Trust, and it is FURTHER RESOLVED: That any one of the above noted officers is
authorized to sign any documents necessary or appropriate to appoint MGF
Service Corp. as redemption agent of the corporation or organization for
shares of the applicable series of the Trust, to establish or acknowledge
terms and conditions governing the redemption of said shares and to otherwise
implement the privileges elected on the Application.

CERTIFICATE

I hereby certify that the foregoing resolutions are in conformity with the
Charter and Bylaws or other empowering documents of the

- ------------------------------------------------------------------------------
(Name of Organization)

incorporated or formed under the laws of______________________________________
(State)

and were adopted at a meeting of the Board of Directors or Trustees of the
organization or corporation duly called and held on________________ at which
a quorum was present and acting throughout, and that the same are now
in full force and effect.
I further certify that the following is (are) duly elected officer(s) of the
corporation or organization, authorized to act in accordance with the
foregoing resolutions.

NAME TITLE

- -------------------------------------- --------------------------------------

Witness my hand and seal of the corporation or organization this___________day
of______________, 19_______

- -------------------------------------- --------------------------------------
*Secretary-Clerk Other Authorized Officer (if required)

*If the Secretary or other recording officer is authorized to act by the above
resolutions, this certificate must also be signed by another officer.
<PAGE>
CAPITOL SQUARE FUNDS

STATEMENT OF ADDITIONAL INFORMATION

October 1, 1996

Capitol Square Large Cap Fund
Capitol Square Small Cap Fund

Capitol Square Bond Fund

This Statement of Additional Information is not a prospectus. It
should be read in conjunction with the Prospectus of the Capitol Square Funds
dated October 1, 1996. A copy of the Funds' Prospectus can be obtained by
writing Capitol Square Funds at Capitol Square, 21 East State Street, Suite
1410, Columbus, Ohio 43215, or by calling nationwide toll-free 888-254-6870.

sai.csq
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION

Capitol Square Funds
Capitol Square
21 East State Street, Suite 1410
Columbus, Ohio 43215

TABLE OF CONTENTS PAGE

THE TRUST. . . . . . . . . . . . . . . . . . . . . . . . . . 3

DEFINITIONS, POLICIES AND RISK CONSIDERATIONS. . . . . . . . 3

QUALITY RATINGS OF CORPORATE BONDS AND PREFERRED STOCKS. . . 12

INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . 16

TRUSTEES AND OFFICERS. . . . . . . . . . . . . . . . . . . . 19

THE INVESTMENT ADVISER . . . . . . . . . . . . . . . . . . . 21

THE SUB-ADVISER. . . . . . . . . . . . . . . . . . . . . . . 22

SECURITIES TRANSACTIONS. . . . . . . . . . . . . . . . . . . 23

PORTFOLIO TURNOVER . . . . . . . . . . . . . . . . . . . . . 25

CALCULATION OF SHARE PRICE . . . . . . . . . . . . . . . . . 25

TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

REDEMPTION IN KIND . . . . . . . . . . . . . . . . . . . . . 27

HISTORICAL PERFORMANCE INFORMATION . . . . . . . . . . . . . 27

CUSTODIAN. . . . . . . . . . . . . . . . . . . . . . . . . . 29

AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . 29

MGF SERVICE CORP . . . . . . . . . . . . . . . . . . . . . . 30

STATEMENTS OF ASSETS AND LIABILITIES . . . . . . . . . . . . 30

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<PAGE>

THE TRUST

Capitol Square Funds (the "Trust") was organized as an Ohio business
trust on July 2, 1996. Prior to September 6, 1996 the name of the Trust was
Capitol Square Investment Trust. The Trust currently offers three series of
shares to investors: the Capitol Square Large Cap Fund, the Capitol Square
Small Cap Fund and the Capitol Square Bond Fund (referred to individually as a
"Fund" and collectively as the "Funds"). Each Fund has its own investment
objective and policies.

Each share of a Fund represents an equal proportionate interest in
the assets and liabilities belonging to that Fund with each other share of
that Fund and is entitled to such dividends and distributions out of the
income belonging to the Fund as are declared by the Trustees. The shares do
not have cumulative voting rights or any preemptive or conversion rights, and
the Trustees have the authority from time to time to divide or combine the
shares of any Fund into a greater or lesser number of shares of that Fund so
long as the proportionate beneficial interest in the assets belonging to that
Fund and the rights of shares of any other Fund are in no way affected. In
case of any liquidation of a Fund, the holders of shares of the Fund being
liquidated will be entitled to receive as a class a distribution out of the
assets, net of the liabilities, belonging to that Fund. No shareholder is
liable to further calls or to assessment by the Trust without his express
consent.

DEFINITIONS, POLICIES AND RISK CONSIDERATIONS

A more detailed discussion of some of the terms used and investment
policies described in the Prospectus (see "Investment Objectives, Investment
Policies and Risk Considerations") appears below:

MAJORITY. As used in the Prospectus and this Statement of Additional
Information, the term "majority" of the outstanding shares of the Trust (or of
any of the Funds) means the lesser of (1) 67% or more of the outstanding
shares of the Trust (or the applicable Fund) present at a meeting, if the
holders of more than 50% of the outstanding shares of the Trust (or the
applicable Fund) are present or represented at such meeting or (2) more than
50% of the outstanding shares of the Trust (or the applicable Fund).

COMMERCIAL PAPER. Commercial paper consists of short-term (usually
from one to two hundred seventy days) unsecured promissory notes issued by
corporations in order to finance their current operations. Each Fund will only
invest in commercial paper rated in one of the three highest categories by
either

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<PAGE>

Moody's Investors Service, Inc. (Prime-1, Prime-2 or Prime-3) or Standard &
Poor's Ratings Group (A-1, A-2 or A-3), or which, in the opinion of the
Adviser, is of equivalent investment quality. Certain notes may have floating
or variable rates. Variable and floating rate notes with a demand notice
period exceeding seven days will be subject to each Fund's restriction on
illiquid investments (see "Investment Limitations") unless, in the judgment of
the Adviser, such note is liquid.

The rating of Prime-1 is the highest commercial paper rating assigned
by Moody's Investors Service, Inc. ("Moody's). Among the factors considered by
Moody's in assigning ratings are the following: valuation of the management of
the issuer; economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas;
evaluation of the issuer's products in relation to competition and customer
acceptance; liquidity; amount and quality of long-term debt; trend of earnings
over a period of 10 years; financial strength of the parent company and the
relationships which exist with the issuer; and, recognition by the management
of obligations which may be present or may arise as a result of public
interest questions and preparations to meet such obligations. These factors
are all considered in determining whether the commercial paper is rated
Prime-1, Prime- 2 or Prime-3. Commercial paper rated A-1 (highest quality) by
Standard & Poor's Ratings Group has the following characteristics: liquidity
ratios are adequate to meet cash requirements; long-term senior debt is rated
"A" or better, although in some cases "BBB" credits may be allowed; the issuer
has access to at least two additional channels of borrowing; basic earnings
and cash flow have an upward trend with allowance made for unusual
circumstances; typically, the issuer's industry is well established and the
issuer has a strong position within the industry; and, the reliability and
quality of management are unquestioned. The relative strength or weakness of
the above factors determines whether the issuer's commercial paper is rated
A-1, A-2, or A-3.

BANK DEBT INSTRUMENTS. Bank debt instruments in which the Funds may
invest consist of certificates of deposit, bankers' acceptances and time
deposits issued by national banks and state banks, trust companies and mutual
savings banks, or banks or institutions the accounts of which are insured by
the Federal Deposit Insurance Corporation or the Federal Savings and Loan
Insurance Corporation. Certificates of deposit are negotiable certificates
evidencing the indebtedness of a commercial bank to repay funds deposited with
it for a definite period of time (usually from fourteen days to one year) at a
stated or variable interest rate. Bankers' acceptances are credit instruments
evidencing the obligation of a bank to pay a draft which has been

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<PAGE>

drawn on it by a customer, which instruments reflect the obligation both of
the bank and of the drawer to pay the face amount of the instrument upon
maturity. Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Each
Fund will not invest in time deposits maturing in more than seven days if, as
a result thereof, more than 15% of the value of its net assets would be
invested in such securities and other illiquid securities.

MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The average life of
mortgage-backed securities varies with the maturities of the underlying
mortgage instruments (generally up to 30 years) and with the extent of
prepayments of the mortgages themselves. Any such prepayments are passed
through to the certificate holder, reducing the stream of future payments.
Prepayments tend to rise in periods of falling interest rates, decreasing the
average life of the certificate and generating cash which must be invested in
a lower interest rate environment. This could limit the appreciation potential
of the certificates when compared to similar debt obligations which may not be
paid down at will. The coupon rates of mortgage-backed securities are lower
than the interest rate on the underlying mortgages by the amount of fees paid
to the issuing agencies, usually approximately 1/2 of 1%. When prevailing
interest rates increase, the value of the mortgage-backed securities may
decrease, as do other non-redeemable debt securities. However, when interest
rates decline, the value of mortgage-backed securities may not rise on a
comparable basis with other non-redeemable debt securities.

Mortgage-backed securities include certificates issued by the Federal
National Mortgage Association, the Federal Home Loan Mortgage Corporation and
the Government National Mortgage Association. The Federal National Mortgage
Association ("FNMA") is a government sponsored corporation owned entirely by
private stockholders. The guarantee of payments under these instruments is
that of FNMA only. They are not backed by the full faith and credit of the
U.S. Treasury but the U.S. Treasury may extend credit to FNMA through
discretionary purchases of its securities. The average life of the mortgages
backing newly issued FNMA Certificates is approximately 10 years. The Federal
Home Loan Mortgage Corporation ("FHLMC") is a corporate instrumentality of the
U.S. Government whose stock is owned by the Federal Home Loan Banks.
Certificates issued by FHLMC represent interests in mortgages from its
portfolio. FHLMC guarantees payments under its certificates but this guarantee
is not backed by the full faith and credit of the United States and FHLMC does
not have authority to borrow from the U.S. Treasury. The average life of the
mortgages backing newly issued FHLMC Certificates is approximately 10 years.
The Government National Mortgage

- 5 -

<PAGE>

Association ("GNMA") Certificates represent pools of mortgages insured by the
Federal Housing Administration or the Farmers Home Administration or
guaranteed by the Veterans Administration. The guarantee of payments under
GNMA Certificates is backed by the full faith and credit of the United States.
The average life of the mortgages backing newly issued GNMA Certificates is
approximately 12 years.

The Bond Fund may also purchase mortgage-backed securities issued by
financial institutions, mortgage banks, and securities broker-dealers (or
affiliates of such institutions established to issue these securities) in the
form of collateralized mortgage obligations ("CMOs"). CMOs are obligations
fully collateralized directly or indirectly by a pool of mortgages on which
payments of principal and interest are passed through to the holders of the
CMOs, although not necessarily on a pro rata basis, on the same schedule as
they are received. The most common structure of a CMO contains four classes of
securities; the first three pay interest at their stated rates beginning with
the issue date, the final one is typically an accrual class (or Z bond). The
cash flows from the underlying mortgage collateral are applied first to pay
interest and then to retire securities. The classes of securities are retired
sequentially. All principal payments are directed first to the
shortest-maturity class (or A bonds). When those securities are completely
retired, all principal payments are then directed to the
next-shortest-maturity security (or B bond). This process continues until all
of the classes have been paid off. Because the cash flow is distributed
sequentially instead of pro rata as with pass-through securities, the cash
flows and average lives of CMOs are more predictable, and there is a period of
time during which the investors in the longer- maturity classes receive no
principal paydowns.

Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage banks, and other secondary market issuers also
create pass-through pools of conventional residential mortgage loans. In
addition, such issuers may be the originators and/or servicers of the
underlying mortgage loans as well as the guarantors of the mortgage-backed
securities. Pools created by non-governmental issuers generally offer a higher
rate of interest than government and government-related pools because of the
absence of direct or indirect government or agency guarantees. Timely payment
of interest and principal of these pools may be supported by various forms of
insurance or guarantees, including individual loan, title, pool and hazard
insurance, and letters of credit. The insurance and guarantees are issued by
governmental entities, private insurers, and the mortgage poolers. Such
insurance, guarantees, and the creditworthiness of the issuers thereof will be
considered in determining whether a mortgage-backed security meets the Bond
Fund's investment quality standards. There can be no assurance

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<PAGE>

that the private insurers or guarantors can meet their obligations under the
insurance policies or guarantee arrangements. The Fund may buy mortgage-backed
securities without insurance or guarantees, if the Adviser determines that the
securities meet the Fund's quality standards. The Fund will not purchase
mortgage-backed securities or any other assets which, in the opinion of the
Adviser, are illiquid if, as a result, more than 15% of the value of the
Fund's net assets will be illiquid. The Adviser will, consistent with the
Fund's investment objective, policies, and quality standards, consider making
investments in new types of mortgage-backed securities as such securities are
developed and offered to investors.

The Bond Fund may also purchase other asset-backed securities
(unrelated to mortgage loans) such as Certificates for Automobile
ReceivablesSM ("CARS"SM) and Credit Card Receivable Securities. CARS represent
undivided fractional interests in a trust whose assets consist of a pool of
motor vehicle retail installment sales contracts and security interests in the
vehicles securing the contracts. Payments of principal and interest on CARS
are "passed-through" monthly to certificate holders, and are guaranteed up to
certain amounts by a letter of credit issued by a financial institutional
unaffiliated with the trustee or originator of the trust. Underlying sales
contracts are subject to prepayment, which may reduce the overall return to
certificate holders. Certificate holders may also experience delays in payment
or losses on CARS if the full amounts due on underlying sales contracts are
not realized by the trust because of unanticipated legal or administrative
costs of enforcing the contracts, or because of depreciation, damage, or loss
of the vehicles securing the contracts, or other factors. Credit Card
Receivable Securities are backed by receivables from revolving credit card
agreements. Credit balances on revolving credit card agreements ("Accounts")
are generally paid down more rapidly than are automobile contracts. Most of
the Credit Card Receivable Securities issued publicly to date have been
pass-through certificates. In order to lengthen the maturity of Credit Card
Receivable Securities, most such securities provide for a fixed period during
which only interest payments on the underlying Accounts are passed through to
the security holder and principal payments received on such Accounts are used
to fund the transfer to the pool of assets supporting the securities of
additional credit card charges made on an Account. The initial fixed period
usually may be shortened upon the occurrence of specified events which signal
a potential deterioration in the quality of the assets backing the security,
such as the imposition of a cap on interest rates. The ability of the issuer
to extend the life of an issue of Credit Card Receivable Securities thus
depends upon the continued generation of additional principal amounts in the
underlying Accounts and the non-occurrence of specified events. The Internal
Revenue Code of 1986, which phased out the deduction

- 7 -

<PAGE>

for consumer interest, as well as competitive and general economic factors,
could adversely affect the rate at which new receivables are created in an
Account and conveyed to an issuer, shortening the expected weighted average
life of the related security, and reducing its yield. An acceleration in
cardholders' payment rates or any other event which shortens the period during
which additional credit card charges on an Account may be transferred to the
pool of assets supporting the related security could have a similar effect on
the weighted average life and yield. Credit card holders are entitled to the
protection of state and federal consumer credit laws, many of which give such
holder the right to set off certain amounts against balances owed on the
credit card, thereby reducing amounts paid on Accounts. In addition, unlike
most other asset-backed securities, Accounts are unsecured obligations of the
cardholder.

WHEN-ISSUED SECURITIES AND SECURITIES PURCHASED ON A TO-BE- ANNOUNCED
BASIS. The Bond Fund may purchase debt obligations on a "when-issued" or
"to-be-announced" basis. The Fund will only make commitments to purchase
securities on a when-issued or to- be-announced ("TBA") basis with the
intention of actually acquiring the securities. In addition, the Fund may
purchase securities on a when-issued or TBA basis only if delivery and payment
for the securities takes place within 120 days after the date of the
transaction. In connection with these investments, the Fund will direct the
Custodian to place cash, U.S. Government obligations or other liquid
high-grade debt obligations in a segregated account in an amount sufficient to
make payment for the securities to be purchased. When a segregated account is
maintained because the Fund purchases securities on a when-issued or TBA
basis, the assets deposited in the segregated account will be valued daily at
market for the purpose of determining the adequacy of the securities in the
account. If the market value of such securities declines, additional cash or
securities will be placed in the account on a daily basis so that the market
value of the account will equal the amount of the Fund's commitments to
purchase securities on a when-issued or TBA basis. To the extent funds are in
a segregated account, they will not be available for new investment or to meet
redemptions. Securities purchased on a when-issued or TBA basis and the
securities held in the Fund's portfolio are subject to changes in market value
based upon changes in the level of interest rates (which will generally result
in all of those securities changing in value in the same way, I.E., all those
securities experiencing appreciation when interest rates decline and
depreciation when interest rates rise). Therefore, if in order to achieve
higher returns, the Fund remains substantially fully invested at the same time
that it has purchased securities on a when-issued or TBA basis, there will be
a possibility that the market value of the Fund's assets will experience
greater fluctuation. The purchase of securities on a when-issued or TBA basis
may involve a risk of loss if the broker-dealer selling the securities fails
to deliver after the value of the securities has risen.

- 8 -

<PAGE>

When the time comes for the Fund to make payment for securities
purchased on a when-issued or TBA basis, the Fund will do so by using then
available cash flow, by sale of the securities held in the segregated account,
by sale of other securities or, although it would not normally expect to do
so, by directing the sale of the securities purchased on a when-issued or TBA
basis themselves (which may have a market value greater or less than the
Fund's payment obligation). Although the Fund will only make commitments to
purchase securities on a when-issued or TBA basis with the intention of
actually acquiring the securities, the Fund may sell these securities before
the settlement date if it is deemed advisable by the Adviser as a matter of
investment strategy.

Although the securities subject to a repurchase agreement might bear
maturities exceeding one year, settlement for the repurchase would never be
more than one year after the Fund's acquisition of the securities and normally
would be within a shorter period of time. The resale price will be in excess
of the purchase price, reflecting an agreed upon market rate effective for the
period of time the Fund's money will be invested in the securities, and will
not be related to the coupon rate of the purchased security. At the time a
Fund enters into a repurchase agreement, the value of the underlying security,
including accrued interest, will equal or exceed the value of the repurchase
agreement, and, in the case of a repurchase agreement exceeding one day, the
seller will agree that the value of the underlying security, including accrued
interest, will at all times equal or exceed the value of the repurchase
agreement. The collateral securing the seller's obligation must be of a credit
quality at least equal to a Fund's investment criteria for portfolio
securities and will be held by the Custodian or in the Federal Reserve Book
Entry System.

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<PAGE>

For purposes of the Investment Company Act of 1940, a repurchase
agreement is deemed to be a loan from a Fund to the seller subject to the
repurchase agreement and is therefore subject to that Fund's investment
restriction applicable to loans. It is not clear whether a court would
consider the securities purchased by a Fund subject to a repurchase agreement
as being owned by that Fund or as being collateral for a loan by the Fund to
the seller. In the event of the commencement of bankruptcy or insolvency
proceedings with respect to the seller of the securities before repurchase of
the security under a repurchase agreement, a Fund may encounter delay and
incur costs before being able to sell the security. Delays may involve loss of
interest or decline in price of the security. If a court characterized the
transaction as a loan and a Fund has not perfected a security interest in the
security, that Fund may be required to return the security to the seller's
estate and be treated as an unsecured creditor of the seller. As an unsecured
creditor, a Fund would be at the risk of losing some or all of the principal
and income involved in the transaction. As with any unsecured debt obligation
purchased for a Fund, the Adviser seeks to minimize the risk of loss through
repurchase agreements by analyzing the creditworthiness of the obligor, in
this case, the seller. Apart from the risk of bankruptcy or insolvency
proceedings, there is also the risk that the seller may fail to repurchase the
security, in which case a Fund may incur a loss if the proceeds to that Fund
of the sale of the security to a third party are less than the repurchase
price. However, if the market value of the securities subject to the
repurchase agreement becomes less than the repurchase price (including
interest), the Fund involved will direct the seller of the security to deliver
additional securities so that the market value of all securities subject to
the repurchase agreement will equal or exceed the repurchase price. It is
possible that a Fund will be unsuccessful in seeking to enforce the seller's
contractual obligation to deliver additional securities.

LOANS OF PORTFOLIO SECURITIES. Each Fund may lend its portfolio
securities subject to the restrictions stated in its Prospectus. Under
applicable regulatory requirements (which are subject to change), the loan
collateral must, on each business day, at least equal the value of the loaned
securities. To be acceptable as collateral, letters of credit must obligate a
bank to pay amounts demanded by a Fund if the demand meets the terms of the
letter. Such terms and the issuing bank must be satisfactory to the Fund. The
Funds receive amounts equal to the dividends or interest on loaned securities
and also receive one or more of (a) negotiated loan fees, (b) interest on
securities used as collateral, or (c) interest on short-term debt securities
purchased with such collateral; either type of interest may be shared with the
borrower. The Funds may also pay fees to placing brokers as well as custodian
and administrative fees in connection with loans. Fees may only be paid to a
placing broker provided that the Trustees determine that the fee paid to the

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<PAGE>

placing broker is reasonable and based solely upon services rendered, that the
Trustees separately consider the propriety of any fee shared by the placing
broker with the borrower, and that the fees are not used to compensate the
Adviser or any affiliated person of the Trust or an affiliated person of the
Adviser or other affiliated person. The terms of the Funds' loans must meet
applicable tests under the Internal Revenue Code and permit the Funds to
reacquire loaned securities on five days' notice or in time to vote on any
important matter.

FOREIGN SECURITIES. Subject to each Fund's investment policies and
quality and maturity standards, the Funds may invest in the securities
(payable in U.S. dollars) of foreign issuers. Because the Funds may invest in
foreign securities, investment in the Funds involves risks that are different
in some respects from an investment in a fund which invests only in securities
of U.S. domestic issuers. Foreign investments may be affected favorably or
unfavorably by changes in currency rates and exchange control regulations.
There may be less publicly available information about a foreign company than
about a U.S. company and foreign companies may not be subject to accounting,
auditing and financial reporting standards and requirements comparable to
those applicable to U.S. companies. There may be less governmental supervision
of securities markets, brokers and issuers of securities. Securities of some
foreign companies are less liquid or more volatile than securities of U.S.
companies and foreign brokerage commissions and custodian fees are generally
higher than in the United States. Settlement practices may include delays and
may differ from those customary in United States markets. Investments in
foreign securities may also be subject to other risks different from those
affecting U.S. investments, including local political or economic
developments, expropriation or nationalization of assets, restrictions on
foreign investment and repatriation of capital, imposition of withholding
taxes on dividend or interest payments, currency blockage (which would prevent
cash from being brought back to the United States), and difficulty in
enforcing legal rights outside the United States.

WARRANTS AND RIGHTS. Warrants are options to purchase equity
securities at a specified price and are valid for a specific time period.
Rights are similar to warrants, but normally have a short duration and are
distributed by the issuer to its shareholders. The Large Cap Fund and the
Small Cap Fund may purchase warrants and rights, provided that the Fund does
not invest more than 5% of its net assets at the time of purchase in warrants
and rights other than those that have been acquired in units or attached to
other securities. Of such 5%, no more than 2% of each Fund's assets at the
time of purchase may be invested in warrants which are not listed on either
the New York Stock Exchange or the American Stock Exchange.

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<PAGE>

QUALITY RATINGS OF CORPORATE BONDS AND PREFERRED STOCKS

The ratings of Moody's Investors Service, Inc. and Standard
& Poor's Ratings Group for corporate bonds in which the Funds may
invest are as follows:

MOODY'S INVESTORS SERVICE, INC.

Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.

Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.

A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.

Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.

Ba - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.

B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.

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<PAGE>

Caa - Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.

Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.

C - Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.

STANDARD & POOR'S RATINGS GROUP

AAA - Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.

AA - Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in small degree.

A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than bonds in higher rated
categories.

BBB - Bonds rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than for bonds in higher rated
categories.

BB, B, CCC and CC - Bonds rated BB, B, CCC and CC are regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.

C - The rating C is reserved for income bonds on which no interest is
being paid.

D - Debt rated D are default, and payment of interest and/or
repayment of principal is in arrears.

The ratings of Moody's Investors Service, Inc. and Standard &
Poor's Ratings Group for preferred stocks in which the Funds may invest are
as follows:

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<PAGE>

MOODY'S INVESTORS SERVICE, INC.

aaa - An issue which is rated aaa is considered to be a top- quality
preferred stock. This rating indicates good asset protection and the least
risk of dividend impairment within the universe of preferred stocks.

aa - An issue which is rated aa is considered a high-grade preferred
stock. This rating indicates that there is reasonable assurance that earnings
and asset protection will remain relatively well maintained in the foreseeable
future.

a - An issue which is rated a is considered to be an upper- medium
grade preferred stock. While risks are judged to be somewhat greater than in
the "aaa" and "aa" classifications, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.

baa - An issue which is rated baa is considered to be medium grade,
neither highly protected nor poorly secured. Earnings and asset protection
appear adequate at present but may be questionable over any great length of
time.

ba - An issue which is rated ba is considered to have speculative
elements and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse
periods. Uncertainty of position characterizes preferred stocks in this class.

b - An issue which is rated b generally lacks the characteristics of
a desirable investment. Assurance of dividend payments and maintenance of
other terms of the issue over any long period of time may be small.

caa - An issue which is rated caa is likely to be in arrears on
dividend payments. This rating designation does not purport to indicate the
future status of payments.

STANDARD & POOR'S RATINGS GROUP

AAA - This is the highest rating that may be assigned by Standard &
Poor's to a preferred stock issue and indicates an extremely strong capacity
to pay the preferred stock obligations.

AA - A preferred stock issue rated AA also qualifies as a
high-quality fixed income security. The capacity to pay preferred stock
obligations is very strong, although not as overwhelming as for issues rated
AAA.

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<PAGE>

A - An issue rated A is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more susceptible to the
diverse effects of changes in circumstances and economic conditions.

BBB - An issue rated BBB is regarded as backed by an adequate
capacity to pay the preferred stock obligations. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make payments
for a preferred stock in this category than for issues in the A category.

BB, B and CCC - Preferred stock rated BB, B, and CCC are regarded, on
balance, as predominately speculative with respect to the issuer's capacity to
pay preferred stock obligations. BB indicates the lowest degree of speculation
and CCC the highest degree of speculation. While such issues will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.

CC - The rating CC is reserved for a preferred stock issue in arrears
on dividends or sinking fund payments but that is currently paying.

C - A preferred stock rated C is a non-paying issue.

D - A preferred stock rated D is a non-paying issue with the issuer
in default on debt instruments.

RISK FACTORS OF LOWER-RATED SECURITIES

Lower-rated debt securities (commonly called "junk bonds") may be
subject to certain risk factors to which other securities are not subject to
the same degree. An economic downturn tends to disrupt the market for
lower-rated bonds and adversely affect their values. Such an economic downturn
may be expected to result in increased price volatility of lower-rated bonds
and of the value of a Fund's shares, and an increase in issuers' defaults on
such bonds.

Also, many issuers of lower-rated bonds are substantially leveraged,
which may impair their ability to meet their obligations. In some cases, the
securities in which a Fund invests are subordinated to the prior payment of
senior indebtedness, thus potentially limiting such Fund's ability to recover
full principal or to receive payments when senior securities are in default.

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<PAGE>

The credit rating of a security does not necessarily address its
market value risk. Also, ratings may, from time to time, be changed to reflect
developments in the issuer's financial condition. Lower-rated securities held
by a Fund have speculative characteristics which are apt to increase in number
and significance with each lower rating category.

When the secondary market for lower-rated bonds becomes increasingly
illiquid, or in the absence of readily available market quotations for
lower-rated bonds, the relative lack of reliable, objective data makes the
responsibility of the Trustees to value such securities more difficult, and
judgment plays a greater role in the valuation of portfolio securities. Also,
increased illiquidity of the market for lower-rated bonds may affect a Fund's
ability to dispose of portfolio securities at a desirable price.

In addition, if a Fund experiences unexpected net redemptions, it
could be forced to sell all or a portion of its lower-rated bonds without
regard to their investment merits, thereby decreasing the asset base upon
which such Fund's expenses can be spread and possibly reducing such Fund's
rate of return. Also, prices of lower-rated bonds have been found to be less
sensitive to interest rate changes and more sensitive to adverse economic
changes and individual corporate developments than more highly rated
investments. Certain laws or regulations may have a material effect on a
Fund's investments in lower-rated bonds.

INVESTMENT LIMITATIONS

The Trust has adopted certain fundamental investment limitations
designed to reduce the risk of an investment in the Funds. These limitations
may not be changed with respect to any Fund without the affirmative vote of a
majority of the outstanding shares of that Fund.

The limitations applicable to each Fund are:

1. BORROWING MONEY. The Fund will not borrow money, except (a) from a
bank, provided that immediately after such borrowing there is asset coverage
of 300% for all borrowings of the Fund; or (b) from a bank or other persons
for temporary purposes only, provided that, when made, such temporary
borrowings are in an amount not exceeding 5% of the Fund's total assets.

2. PLEDGING. The Fund will not mortgage, pledge, hypothecate or in
any manner transfer, as security for indebtedness, any security owned or held
by the Fund except as may be necessary in connection with borrowings
described in

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<PAGE>

limitation (1) above. The Fund will not mortgage, pledge or hypothecate more
than one-third of its assets in connection with borrowings. Deposit of payment
by the Fund of initial or maintenance margin in connection with futures
contracts and related options is not considered a pledge or hypothecation of
assets.

3. MARGIN PURCHASES. The Fund will not purchase any securities on
"margin" (except such short-term credits as are necessary for the clearance
of transactions). The deposit of funds in connection with transactions in
options, futures contracts, and options on such contracts will not be
considered a purchase on "margin."

4. SHORT SALES. The Fund will not make short sales of securities,
or maintain a short position, other than short sales "against the box,"

5. COMMODITIES; PUT OR CALL OPTIONS. The Fund will not purchase or
sell commodities or commodity contracts including futures, or purchase or
write put or call options, except that the Fund may purchase or sell financial
futures contracts and related options.

6. UNDERWRITING. The Fund will not act as underwriter of securities
issued by other persons. This limitation is not applicable to the extent
that, in connection with the disposition of portfolio securities, a Fund may
be deemed an underwriter under certain federal securities laws.

7. REAL ESTATE. The Fund will not purchase, hold or deal in real
estate or real estate mortgage loans, including real estate limited
partnership interests, except that the Fund may purchase (a) securities of
companies (other than limited partnerships) which deal in real estate or (b)
securities which are secured by interests in real estate or by interests in
mortgage loans including securities secured by mortgage-backed securities.

8. LOANS. The Fund will not make loans to other persons, except (a)
by loaning portfolio securities, or (b) by engaging in repurchase agreements.
For purposes of this limitation, the term "loans" shall not include the
purchase of bonds, debentures, commercial paper or corporate notes, and
similar marketable evidences of indebtedness.

9. INDUSTRY CONCENTRATION. The Fund will not invest more than 25%
of its total assets in any particular industry.

10. SENIOR SECURITIES. The Fund will not issue or sell any senior
security as defined by the Investment Company Act of 1940 except in so far as
any borrowing that the Fund may engage in may be deemed to be an issuance of
a senior security.

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<PAGE>

The Trust does not intend to pledge, mortgage or hypothecate the
assets of any Fund. The Trust does not intend to make short sales of
securities "against the box" as described in investment limitation 4. The
statements of intention in this paragraph reflect nonfundamental policies
which may be changed by the Board of Trustees without shareholder approval.

Other current investment policies of each Fund, which are not
fundamental and which may be changed by action of the Board of Trustees
without shareholder approval, are as follows:

1. ILLIQUID INVESTMENTS. The Fund will not purchase securities for
which no readily available market exists or engage in a repurchase agreement
maturing in more than seven days if, as a result thereof, more than 15% of the
value of the net assets of the Fund would be invested in such securities.

2. INVESTING FOR CONTROL. The Fund will not invest in companies for
the purpose of exercising control or management.

3. OTHER INVESTMENT COMPANIES. The Fund will not invest more than 10%
of its total assets in securities of other investment companies. The Fund will
not invest more than 5% of its total assets in the securities of any single
investment company. The Fund will not hold more than 3% of the outstanding
voting stock of any single investment company.

4. SECURITIES OWNED BY AFFILIATES. The Fund will not purchase or
retain the securities of any issuers if those officers and Trustees of the
Trust or officers, directors, or principals of its Adviser, owning
individually more than one-half of 1% of the securities of such issuer, own in
the aggregate more than 5% of the securities of such issuer.

5. MINERAL LEASES. The Fund will not purchase oil, gas or other
mineral leases, rights or royalty contracts.

6. VOTING SECURITIES OF ANY ISSUER. The Fund will not purchase more
than 10% of the outstanding voting securities of any one issuer.

With respect to the percentages adopted by the Trust as maximum
limitations on a Fund's investment policies and restrictions, an excess above
the fixed percentage (except for the percentage limitations relative to the
borrowing of money and the holding of illiquid securities) will not be a
violation of the policy or restriction unless the excess results immediately
and directly from the acquisition of any security or the action taken.

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<PAGE>

TRUSTEES AND OFFICERS

The following is a list of the Trustees and executive officers of the
Trust. Each Trustee who is an "interested person" of the Trust, as defined by
the Investment Company Act of 1940, is indicated by an asterisk.

NAME AGE POSITION HELD
- ---- --- -------------
*Roderick H. Dillon, Jr. 39 President/Trustee
*T. Calloway Robertson, III 38 Trustee
+Susan J. Insley 50 Trustee
+Jonathan L. York 46 Trustee
+Archie M. Griffin 42 Trustee
Robert G. Dorsey 39 Vice President
Mark J. Seger 34 Treasurer
Tina D. Hosking 28 Secretary
John F. Splain 40 Assistant Secretary

* Messrs. Dillon and Robertson, as officers of Dillon Capital
Management, the Trust's investment adviser, are "interested persons"
of the Trust within the meaning of Section 2(a)(19) of the Investment
Company Act of 1940.

+ Member of Audit Committee.

Each non-interested Trustee will receive an annual retainer of $1,000
and a $1,000 fee for each Board meeting attended and will be reimbursed for
travel and other expenses incurred in the performance of their duties.

The principal occupations of the remaining Trustees and executive
officers of the Trust during the past five years are set forth below:

RODERICK H. DILLON, JR., 21 East State Street, Suite 1410,
Columbus, Ohio, is President of DiCap, Inc., the General Partner
of Dillon Capital Management. He previously was Vice President
of Loomis, Sayles & Company, Inc. (a registered investment
adviser).

T. CALLOWAY ROBERTSON, III, 21 East State Street, Suite
1410, Columbus, Ohio, is Vice President of DiCap, Inc. He
previously was a self-employed consultant and Vice President of
Berwick Steel Company, a subsidiary of Nissho Iwai Corp. (a steel
processing company).

ARCHIE M. GRIFFIN, 410 Woody Hayes Drive, Columbus, Ohio, is
Associate Director of Athletics at The Ohio State University and
a director of Motorists Mutual Insurance (an insurance company).

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<PAGE>

SUSAN J. INSLEY, 14 East Gay Street, Columbus, Ohio, is
Executive Vice President and a Principal of Cochran Public
Relations (a public relations firm), a director of Grede
Foundries, Inc. (an iron & steel casting manufacturer) and a
partner of ARISCO, general partnership (an oil and gas and real
estate investment firm). She previously was Senior Vice
President of Honda of America Mfg., Inc. (a motor vehicle
manufacturer).

JONATHAN L. YORK, 515 N. Park Street, Columbus, Ohio, is
Managing Director of Advanced Interactive Strategies and a
Principal of Resource Marketing (a marketing firm). He formerly
was President and Chief Executive Officer of the Greater Columbus
Chamber of Commerce (a business association).

ROBERT G. DORSEY, 312 Walnut Street, Cincinnati, Ohio, is
President and Treasurer of MGF Service Corp. (a registered
transfer agent) and Treasurer of Midwest Group Financial
Services, Inc. (a registered broker-dealer and investment
adviser) and Leshner Financial, Inc. (a financial services
company and parent of MGF Service Corp. and Midwest Group
Financial Services, Inc.). He is also Vice President of
Brundage, Story and Rose Investment Trust, Leeb Personal
FinanceTM Investment Trust, PRAGMA Investment Trust, Markman
MultiFund Trust and Maplewood Investment Trust and Assistant Vice
President of Fremont Mutual Funds, Inc., Schwartz Investment
Trust, The Tuscarora Investment Trust and Williamsburg Investment
Trust (all of which are registered investment companies).

MARK J. SEGER, C.P.A., 312 Walnut Street, Cincinnati, Ohio, is Vice
President of Leshner Financial, Inc. and MGF Service Corp. He is also
Treasurer of Midwest Trust, Midwest Group Tax Free Trust, Midwest Strategic
Trust, Brundage, Story and Rose Investment Trust, Leeb Personal FinanceTM
Investment Trust, Markman MultiFund Trust, PRAGMA Investment Trust,
Williamsburg Investment Trust and Maplewood Investment Trust, Assistant
Treasurer of Schwartz Investment Trust and The Tuscarora Investment Trust and
Assistant Secretary of Fremont Mutual Funds, Inc.

TINA D. HOSKING, 312 Walnut Street, Cincinnati, Ohio, is
Counsel of MGF Service Corp. She is also Assistant Secretary of
PRAGMA Investment Trust.

JOHN F. SPLAIN, 312 Walnut Street, Cincinnati, Ohio, is
Secretary and General Counsel of MGF Service Corp., Midwest Group
Financial Services, Inc. and Leshner Financial, Inc. He is also
Secretary of Midwest Trust, Midwest Group Tax Free Trust, Midwest
Strategic Trust, Brundage, Story and Rose Investment Trust, Leeb
Personal FinanceTM Investment Trust, Markman MultiFund Trust, The

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<PAGE>

Tuscarora Investment Trust, Williamsburg Investment Trust, PRAGMA Investment
Trust and Maplewood Investment Trust and Assistant Secretary of Schwartz
Investment Trust and Fremont Mutual Funds, Inc. (all of which are registered
investment companies).

THE INVESTMENT ADVISER

Dillon Capital Management (the "Adviser") is the Trust's investment
manager. Messrs. Dillon and Robertson, as officers of the Adviser's General
Partner, may directly or indirectly receive benefits from the advisory fees
paid to the Adviser. Under the terms of the advisory agreements between the
Trust and the Adviser, the Adviser manages the Funds' investments. The Large
Cap Fund pays the Adviser a fee equal to the annual rate of 1.50% of the
average value of its daily net assets up to $50 million; 1.35% of such assets
from $50 million to $100 million; and 1.20% of such assets in excess of $100
million. The Small Cap Fund pays the Adviser a fee equal to the annual rate of
1.75% of the average value of its daily net assets up to $50 million; 1.60% of
such assets from $50 million to $100 million; and 1.45% of such assets in
excess of $100 million. The Bond Fund pays the Adviser a fee equal to the
annual rate of 1.00% of the average value of its daily net assets up to $50
million; .90% of such assets from $50 million to $100 million; and .80% of
such assets in excess of $100 million. Unlike most mutual funds, the advisory
fee paid by each Fund includes transfer agency, pricing, custodial, auditing
and legal services, and general administrative and other operating expenses of
the Fund except brokerage commissions, taxes, interest, fees and expenses of
non-interested Trustees and extraordinary expenses. The Adviser is
contractually required to reduce its management fee in an amount equal to each
Fund's allocable portion of the fees and expenses of the non-interested
Trustees.

The Adviser pays, out of the investment advisory fees it receives
from the Funds, all the expenses of the Funds except brokerage commissions,
taxes, interest, fees and expenses of the non-interested Trustees of the Trust
and extraordinary expenses. The Trust may have an obligation to indemnify the
Trust's officers and Trustees with respect to litigation to which the Trust
may be a party, except in instances of willful misfeasance, bad faith, gross
negligence or reckless disregard by such officers and Trustees in the
performance of their duties.

By their terms, each Fund's investment advisory agreement will remain
in force until August 27, 1998 and from year to year thereafter, subject to
annual approval by (a) the Board of Trustees or (b) a vote of the majority of
the applicable Fund's outstanding voting securities; provided that in either
event continuance is also approved by a majority of the Trustees who

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are not interested persons of the Trust, by a vote cast in person at a meeting
called for the purpose of voting on such approval. The Trust's investment
advisory agreements may be terminated at any time, on sixty days' written
notice, without the payment of any penalty, by the Board of Trustees, by a
vote of the majority of the applicable Fund's outstanding voting securities,
or by the Adviser. The investment advisory agreements automatically terminates
in the event of their assignment, as defined by the Investment Company Act of
1940 and the rules thereunder.

The Adviser will reimburse the Funds to the extent that the expenses
of a Fund for any fiscal year exceed the applicable expense limitations
imposed by state securities administrators, as such limitations may be lowered
or raised from time to time. The most restrictive limitation is presently 2.5%
of the first $30 million of average daily net assets, 2% of the next $70
million of average daily net assets and 1.5% of average daily net assets in
excess of $100 million. If any such reimbursement is required, the payment of
the advisory fee at the end of any month will be reduced or postponed or, if
necessary, a refund will be made to the Funds at the end of such month.
Certain expenses such as brokerage commissions, if any, taxes, interest,
extraordinary items and other expenses subject to approval of state securities
administrators are excluded from such limitations. If the expenses of a Fund
approach the applicable limitation in any state, the Trust will consider the
various actions that are available to it, including suspension of sales to
residents of that state.

The name "Capitol Square" is a property right of the Adviser. The
Adviser may use the name "Capitol Square" in other connections and for other
purposes, including in the name of other investment companies. The Trust has
agreed to discontinue any use of the name "Capitol Square" if the Adviser
ceases to be employed as the Trust's investment adviser.

THE SUB-ADVISER

Midwest Group Financial Services, Inc. (the "Sub-Adviser"), has been
retained by the Adviser, pursuant to a Sub-Advisory Agreement, to manage the
Bond Fund's investments. The Adviser (not the Fund) pays the Sub-Adviser a
monthly fee at the rate of 12 1/2% of the "net management fees" it receives
for its services to the Bond Fund. For purposes of calculating this fee, "net
management fees" are defined as the advisory fees paid to the Adviser less the
Adviser's operating costs, including audit fees, legal fees, custody fees,
trustee fees and expenses, insurance costs, state registration filing fees,
SEC filing fees and expenses, pricing fees, costs of reports to shareholders,
transfer agent out-of-pocket expenses, fund accounting licensing fees, and any
other direct costs incurred by the Adviser in the operation and administration
of the Trust.

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<PAGE>

By its terms, the Trust's Sub-Advisory Agreement will remain in force
until August 27, 1998 and from year to year thereafter, subject to annual
approval by (a) the Board of Trustees or (b) a vote of the majority of the
Bond Fund's outstanding voting securities; provided that in either event
continuance is also approved by a majority of the Trustees who are not
interested persons of the Trust, by a vote cast in person at a meeting called
for the purpose of voting on such approval. The Trust's Sub-Advisory Agreement
may be terminated at any time, on sixty days' written notice, without the
payment of any penalty, by the Board of Trustees, by a vote of the majority of
the Bond Fund's outstanding voting securities, or by the Adviser or
Sub-Adviser. The Sub-Advisory Agreement automatically terminates in the event
of its assignment, as defined by the Investment Company Act of 1940 and the
rules thereunder.

SECURITIES TRANSACTIONS

Decisions to buy and sell securities for the Funds and the placing of
the Funds' securities transactions and negotiation of commission rates where
applicable are made by the Adviser (with respect to the Large Cap Fund and the
Small Cap Fund) and the Sub-Adviser (with respect to the Bond Fund) and are
subject to review by the Board of Trustees of the Trust. In the purchase and
sale of portfolio securities, the Adviser and the Sub-Adviser seek best
execution for the Funds, taking into account such factors as price (including
the applicable brokerage commission or dealer spread), the execution
capability, financial responsibility and responsiveness of the broker or
dealer and the brokerage and research services provided by the broker or
dealer. The Adviser and the Sub-Adviser generally seek favorable prices and
commission rates that are reasonable in relation to the benefits received.

Generally, the Funds attempt to deal directly with the dealers who
make a market in the securities involved unless better prices and execution
are available elsewhere. Such dealers usually act as principals for their own
account. On occasion, portfolio securities for the Funds may be purchased
directly from the issuer. Because the portfolio securities of the Bond Fund
are generally traded on a net basis and transactions in such securities do not
normally involve brokerage commissions, the cost of portfolio securities
transactions of the Fund will consist primarily of dealer or underwriter
spreads.

The Adviser and the Sub-Adviser are specifically authorized to select
brokers who also provide brokerage and research services to the Fund(s) and/or
other accounts over which the Adviser and/or Sub-Adviser exercise investment
discretion and to pay such brokers a commission in excess of the commission
another

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<PAGE>

broker would charge if the Adviser or Sub-Adviser determines in good faith
that the commission is reasonable in relation to the value of the brokerage
and research services provided. The determination may be viewed in terms of a
particular transaction or the Adviser or Sub-Adviser's overall
responsibilities with respect to the Funds and to accounts over which it
exercises investment discretion.

Research services include securities and economic analyses, reports
on issuers' financial conditions and future business prospects, newsletters
and opinions relating to interest trends, general advice on the relative
merits of possible investment securities for the Funds and statistical
services and information with respect to the availability of securities or
purchasers or sellers of securities. Although this information is useful to
the Funds and the Adviser and/or Sub-Adviser, it is not possible to place a
dollar value on it. Research services furnished by brokers through whom the
Funds effect securities transactions may be used by the Adviser and/or
Sub-Adviser in servicing all of their accounts and not all such services may
be used by the Adviser and/or Sub-Adviser in connection with the Funds.

The Adviser and the Sub-Adviser may aggregate purchase and sale
orders for the Fund(s) and its other clients if it believes such aggregation
is consistent with its duty to seek best execution for the Fund(s) and their
other clients. The Adviser will not favor any advisory account over any other
account, and each account that participates in an aggregated order will
participate at the average share price for all transactions of the Adviser or
Sub-Adviser in that security on a given business day, with all transaction
costs shared on a pro rata basis.

The Adviser may compensate dealers based on sales of shares of the
Funds to clients of the dealer or based on the average balance of all accounts
in the Funds for which the dealer is designated as the party responsible for
the account.

CODE OF ETHICS. The Trust, the Adviser and the Sub-Adviser have each adopted a
Code of Ethics under Rule 17j-1 of the Investment Company Act of 1940. The
Code significantly restricts the personal investing activities of all
employees of the Adviser and Sub-Adviser and, as described below, imposes
additional, more onerous, restrictions on investment personnel of the Adviser
and Sub-Adviser. The Code requires that all employees of both the Adviser and
Sub-Adviser preclear any personal securities (with limited exceptions, such as
U.S. Government obligations). The preclearance requirement and associated
procedures are designed to identify any substantive prohibition or limitation
applicable to the proposed investment. In addition, no employee may purchase
or sell any security which, at that time, is being

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<PAGE>

purchased or sold (as the case may be), or to the knowledge of the employee is
being considered for purchase or sale, by any of the Funds. The substantive
restrictions applicable to investment personnel of the Adviser and the
Sub-Adviser include a ban on acquiring any securities in an initial public
offering. Furthermore, the Code provides for trading "blackout periods" which
prohibit trading by investment personnel of the Adviser and the Sub-Adviser
within periods of trading by the Funds in the same (or equivalent) security.

PORTFOLIO TURNOVER

A Fund's portfolio turnover rate is calculated by dividing the lesser
of purchases or sales of portfolio securities for the fiscal year by the
monthly average of the value of the portfolio securities owned by the Fund
during the fiscal year. High portfolio turnover involves correspondingly
greater brokerage commissions and other transaction costs, which will be borne
directly by the Funds. The Adviser anticipates that the portfolio turnover
rate for each Fund normally will not exceed 100%. A 100% turnover rate would
occur if all of a Fund's portfolio securities were replaced once within a one
year period.

Generally, each Fund intends to invest for long-term purposes.
However, the rate of portfolio turnover will depend upon market and other
conditions, and it will not be a limiting factor when the Adviser or the
Sub-Adviser believes that portfolio changes are appropriate.

CALCULATION OF SHARE PRICE

The share price (net asset value) of the shares of each Fund is
determined as of the close of the regular session of trading on the New York
Stock Exchange (currently 4:00 p.m., Eastern time) on each day the Trust is
open for business. The Trust is open for business on every day except
Saturdays, Sundays and the following holidays: New Year's Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas. The Trust may also be open for business on other days in which
there is sufficient trading in a Fund's portfolio securities that its net
asset value might be materially affected. For a description of the methods
used to determine the share price, see "Calculation of Share Price" in the
Prospectus.

TAXES

The Prospectus describes generally the tax treatment of distributions
by the Funds. This section of the Statement of Additional Information includes
additional information concerning federal taxes.

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<PAGE>

Each Fund intends to qualify annually for the special tax treatment
afforded a "regulated investment company" under Subchapter M of the Internal
Revenue Code so that it does not pay federal taxes on income and capital gains
distributed to shareholders. To so qualify a Fund must, among other things,
(i) derive at least 90% of its gross income in each taxable year from
dividends, interest, payments with respect to securities loans, gains from the
sale or other disposition of stock, securities or foreign currency, or certain
other income (including but not limited to gains from options, futures and
forward contracts) derived with respect to its business of investing in stock,
securities or currencies; (ii) derive less than 30% of its gross income in
each taxable year from the sale or other disposition of the following assets
held for less than three months: (a) stock or securities, (b) options, futures
or forward contracts not directly related to its principal business of
investing in stock or securities; and (iii) diversify its holdings so that at
the end of each quarter of its taxable year the following two conditions are
met: (a) at least 50% of the value of the Fund's total assets is represented
by cash, U.S. Government securities, securities of other regulated investment
companies and other securities (for this purpose such other securities will
qualify only if the Fund's investment is limited in respect to any issuer to
an amount not greater than 5% of the Fund's assets and 10% of the outstanding
voting securities of such issuer) and (b) not more than 25% of the value of
the Fund's assets is invested in securities of any one issuer (other than U.S.
Government securities or securities of other regulated investment companies).

A Fund's net realized capital gains from securities transactions will
be distributed only after reducing such gains by the amount of any available
capital loss carryforwards. Capital losses may be carried forward to offset
any capital gains for eight years, after which any undeducted capital loss
remaining is lost as a deduction.

A federal excise tax at the rate of 4% will be imposed on the excess,
if any, of a Fund's "required distribution" over actual distributions in any
calendar year. Generally, the "required distribution" is 98% of a Fund's
ordinary income for the calendar year plus 98% of its net capital gains
recognized during the one year period ending on October 31 of the calendar
year plus undistributed amounts from prior years. The Funds intend to make
distributions sufficient to avoid imposition of the excise tax.

The Trust is required to withhold and remit to the U.S. Treasury a
portion (31%) of dividend income on any account unless the shareholder
provides a taxpayer identification number and certifies that such number is
correct and that the shareholder is not subject to backup withholding or
demonstrates an exemption from withholding.

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<PAGE>

REDEMPTION IN KIND

Under unusual circumstances, when the Board of Trustees deems it in
the best interests of a Fund's shareholders, the Fund may make payment for
shares repurchased or redeemed in whole or in part in securities of the Fund
taken at current value. If any such redemption in kind is to be made, each
Fund intends to make an election pursuant to Rule 18f-1 under the Investment
Company Act of 1940. This election will require the Funds to redeem shares
solely in cash up to the lesser of $250,000 or 1% of the net asset value of
each Fund during any 90 day period for any one shareholder. Should payment be
made in securities, the redeeming shareholder will generally incur brokerage
costs in converting such securities to cash. Portfolio securities which are
issued in an in-kind redemption will be readily marketable.

HISTORICAL PERFORMANCE INFORMATION

From time to time, each Fund may advertise average annual total
return. Average annual total return quotations will be computed by finding the
average annual compounded rates of return over 1, 5 and 10 year periods that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:

P (1 + T)n = ERV

Where:

P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 and 10 year
periods at the end of the 1, 5 or 10 year periods (or
fractional portion thereof)

The calculation of average annual total return assumes the
reinvestment of all dividends and distributions. If a Fund has been in
existence less than one, five or ten years, the time period since the date of
the initial public offering of shares will be substituted for the periods
stated. Each Fund may also advertise total return (a "nonstandardized
quotation") which is calculated differently from average annual total return.
A nonstandardized quotation of total return may be a cumulative return which
measures the percentage change in the value of an account between the
beginning and end of a period, assuming no activity in the account other than
reinvestment of dividends and capital gains distributions. A nonstandardized
quotation may also indicate average annual compounded rates of return over
periods other than those specified for average annual total return. A
nonstandardized quotation of total return will always be accompanied by a
Fund's average annual total return as described above.

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<PAGE>

From time to time, each of the Funds may also advertise its yield. A
yield quotation is based on a 30-day (or one month) period and is computed by
dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period, according to
the following formula:

Yield = 2[(a-b/cd + 1)6 - 1]

Where:

a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of the period

Solely for the purpose of computing yield, dividend income is recognized by
accruing 1/360 of the stated dividend rate of the security each day that a
Fund owns the security. Generally, interest earned (for the purpose of "a"
above) on debt obligations is computed by reference to the yield to maturity
of each obligation held based on the market value of the obligation (including
actual accrued interest) at the close of business on the last business day
prior to the start of the 30-day (or one month) period for which yield is
being calculated, or, with respect to obligations purchased during the month,
the purchase price (plus actual accrued interest). With respect to the
treatment of discount and premium on mortgage or other receivables-backed
obligations which are expected to be subject to monthly paydowns of principal
and interest, gain or loss attributable to actual monthly paydowns is
accounted for as an increase or decrease to interest income during the period
and discount or premium on the remaining security is not amortized.

To help investors better evaluate how an investment in a Fund might
satisfy their investment objective, advertisements regarding each Fund may
discuss various measures of Fund performance, including current performance
ratings and/or rankings appearing in financial magazines, newspapers and
publications which track mutual fund performance. Advertisements may also
compare performance (using the calculation methods set forth in the
Prospectus) to performance as reported by other investments, indices and
averages. When advertising current ratings or rankings, the Funds may use the
following publications or indices to discuss or compare Fund performance:

Lipper Mutual Fund Performance Analysis and Lipper Fixed
Income Fund Performance Analysis measure total return and average
current yield for the mutual fund industry and rank individual
mutual fund performance over specified time periods assuming
reinvestment of all distributions, exclusive of sales loads. In

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<PAGE>

addition, the Funds may use comparative performance information of relevant
indices, including the S&P 500 Index, the Dow Jones Industrial Average and the
Russell 2000 Index. The S&P 500 Index is an unmanaged index of 500 stocks, the
purpose of which is to portray the pattern of common stock price movement. The
Dow Jones Industrial Average is a measurement of general market price movement
for 30 widely held stocks listed on the New York Stock Exchange. The Russell
2000 Index is an unmanaged index comprised of the 2,000 smallest U.S.
domiciled publicly-traded common stocks in the Russell 3000 Index (an
unmanaged index of the 3,000 largest U.S. domiciled publicly-traded common
stocks by market capitalization).

In assessing such comparisons of performance an investor should keep
in mind that the composition of the investments in the reported indices and
averages is not identical to the Fund's portfolio, that the averages are
generally unmanaged and that the items included in the calculations of such
averages may not be identical to the formula used by the Fund to calculate its
performance. In addition, there can be no assurance that the Fund will
continue this performance as compared to such other averages.

CUSTODIAN

Star Bank, N.A., 425 Walnut Street, Cincinnati, Ohio, has been
retained to act as Custodian for the Funds' investments. Star Bank, N.A. acts
as each Fund's depository, safekeeps its portfolio securities, collects all
income and other payments with respect thereto, disburses funds as instructed
and maintains records in connection with its duties.

AUDITORS

KPMG Peat Marwick LLP, 2 Nationwide Plaza, Suite 1600, Columbus, Ohio
has been selected as independent public accountants for the Trust for the
fiscal year ending September 30, 1997. KPMG Peat Marwick LLP performs an
annual audit of the Trust's financial statements and advises the Funds as to
certain accounting matters.

MGF SERVICE CORP.

The Trust's transfer agent, MGF Service Corp. ("MGF"), 312 Walnut
Street, Cincinnati, Ohio, maintains the records of each shareholder's account,
processes purchases and redemptions of the Funds' shares and acts as dividend
and distribution disbursing agent. MGF also provides administrative services
to the Fund, calculates daily net asset value per share and maintains such
books and records as are necessary to enable MGF to perform its duties. For
the performance of these services, the Adviser (not the Fund) pays MGF a
monthly fee at the rate of 50% of the "net management fees" it receives for
its services with respect to the

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<PAGE>

Large Cap Fund and the Small Cap Fund, and 37 1/2% of the "net management
fees" it receives for its services with respect to the Bond Fund. For purposes
of calculating this fee, "net management fees" are defined as the Advisory
fees paid to the Adviser less the Adviser's operating costs, including audit
fees, legal fees, custody fees, trustee fees and expenses, insurance costs,
state registration filing fees, SEC filing fees and expenses, pricing fees,
costs of reports to shareholders, transfer agent out-of-pocket expenses, fund
accounting licensing fees, and any other direct costs incurred by the Adviser
in the operation and administration of the Trust.

STATEMENTS OF ASSETS AND LIABILITIES

The Funds' Statements of Assets and Liabilities as of August 23,
1996, which have been audited by KPMG Peat Marwick LLP, are attached to this
Statement of Additional Information.

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<PAGE>

CAPITOL SQUARE FUNDS

STATEMENTS OF ASSETS AND LIABILITIES

AS OF

AUGUST 23, 1996

TOGETHER WITH

AUDITORS' REPORT

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<PAGE>

KPMG Peat Marwick LLP
1600 PNC Center
201 East Fifth Street
Cincinnati, Ohio 45202

Dayton, Ohio

Independent Auditor's Report

The Shareholder and Trustees
of the Capitol Square Funds:

We have audited the accompanying statements of assets and liabilities of the
Capitol Square Funds (comprising, respectively, the Capitol Square Large Cap
Fund, Capitol Square Small Cap Fund, and Capitol Square Bond Fund,
collectively the Funds) as of August 23, 1996. These financial statements are
the responsibility of the Funds' management. Our responsibility is to express
an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Funds as of August 23,
1996 in conformity with generally accepted accounting principles.

/s/ KPMG Peat Marwick LLP

Cincinnati, Ohio
August 23, 1996

Member Firm of
Klynveld Peat Marwick Goerdeler

- 32 -
<PAGE>
<TABLE>
CAPITOL SQUARE FUNDS

STATEMENTS OF ASSETS AND LIABILITIES

AS OF AUGUST 23, 1996

CAPITOL SQUARE CAPITOL SQUARE CAPITOL SQUARE
LARGE CAP FUND SMALL CAP FUND BOND FUND
<S> <C> <C> <C>
ASSETS:
Cash $30,000 $30,000 $40,000
------- ------- -------
Total assets $30,000 $30,000 $40,000
------- ------- -------
LIABILITIES:
Accrued expenses 0 0 0
------- ------- -------
Total liabilities 0 0 0
------- ------- -------
Net assets for shares of
beneficial interest
outstanding $30,000 $30,000 $40,000
======= ======= =======
Shares outstanding 3,000 3,000 4,000
======= ======= =======
Net asset value,
redemption price,
and offering price
per share $ 10.00 $ 10.00 $ 10.00
======= ======= =======
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>

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<PAGE>

CAPITOL SQUARE FUNDS

NOTES TO STATEMENTS OF ASSETS AND LIABILITIES

AUGUST 23, 1996

1. Capitol Square Funds (the "Trust") is an open-end management
investment company established as an Ohio business trust
under a Declaration of Trust dated July 2, 1996. The Trust
has established three fund series: the Capitol Square Large
Cap Fund, the Capitol Square Small Cap Fund, and the Capitol
Square Bond Fund. The Trust has had no operations except
for the initial issuance of shares. On August 23, 1996,
3,000 shares of each of the Capitol Square Large Cap Fund
and the Capitol Square Small Cap Fund and 4,000 shares of
the Capitol Square Bond Fund were issued for cash at $10.00
per share to Roderick H. Dillon, Jr. Foundation, of which
Roderick H. Dillon, Jr., the President of the Trust, serves
as trustee.

2. Dillon Capital Management, Inc., the Trust's investment
manager, intends to pay all expenses associated with the
organization of the Trust and the registration of its
shares.

3. Reference is made to the Prospectus and this Statement of Additional
Information for a description of the Advisory Agreements,
Sub-Advisory Agreement, the Administration, Accounting and Transfer
Agency Agreement, tax aspects of the Funds and the calculation of the
net asset value per share of each Fund.

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<PAGE>