U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
--
Pre-Effective Amendment No. 1
Post-Effective Amendment No.
and/or
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
--
Amendment No. 1
(Check appropriate box or boxes)
CAPITOL SQUARE FUNDS
(Exact Name of Registrant as Specified in Charter)
Capitol Square
21 East State Street, Suite 1410
Columbus, Ohio 43215
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (614) 222-4200
Roderick H. Dillon, Jr.
Capitol Square Funds
Capitol Square
21 East State Street, Suite 1410
Columbus, Ohio 43215
(Name and Address of Agent for Service)
Copies to:
Tina D. Hosking
MGF Service Corp.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
Approximate Date of Proposed Public Offering: As soon as practicable
after this Registration Statement becomes effective.
Registrant hereby declares its intention to register an indefinite
number of shares of beneficial interest pursuant to Rule 24f-2 under the
Investment Company Act of 1940.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a)
may determine.
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CAPITOL SQUARE FUNDS
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(A)
UNDER THE SECURITIES ACT OF 1933
PART A
Item No. Registration Statement Caption Caption in Prospectus
1. Cover Page Cover Page
2. Synopsis Expense Information
3. Condensed Financial Information Performance Information
4. General Description of Registrant Investment Objectives,
Investment Policies and Risk
Considerations; Operation of
the Funds
5. Management of the Fund Operation of the Funds
6. Capital Stock and Other Securities Cover Page; Operation of the
Funds; Dividends and
Distributions; Taxes
7. Purchase of Securities Being Offered How to Purchase Shares;
Shareholder Services;
Exchange Privilege;
Calculation of Share Price;
Application
8. Redemption or Repurchase How to Redeem Shares;
Shareholder Services;
Exchange Privilege
9. Pending Legal Proceedings Inapplicable
PART B
Caption in Statement
of Additional
Item No. Registration Statement Caption Information
10. Cover Page Cover Page
11. Table of Contents Table of Contents
(i)
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12. General Information and History The Trust
13. Investment Objectives and Policies Definitions, Policies and
Risk Considerations; Quality
Ratings of Corporate Bonds
and Preferred Stocks;
Investment Limitations;
Securities Transactions;
Portfolio Turnover
14. Management of the Fund Trustees and Officers
15. Control Persons and Principal Holders Inapplicable
of Securities
16. Investment Advisory and Other Services The Investment Adviser; The
Sub-Adviser; Custodian;
Auditors; MGF Service Corp.
17. Brokerage Allocation and Other Securities Transactions
Practices
18. Capital Stock and Other Securities The Trust
19. Purchase, Redemption and Pricing of Calculation of Share
Securities Being Offered Price; Redemption in Kind
20. Tax Status Taxes
21. Underwriters Inapplicable
22. Calculation of Performance Data Historical Performance
Information
23. Financial Statements Statements of Assets and
Liabilities
PART C
The information required to be included in Part C is set forth
under the appropriate Item, so numbered, in Part C to this Registration
Statement.
(ii)
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PROSPECTUS
October 1, 1996
CAPITOL SQUARE FUNDS
CAPITOL SQUARE
21 EAST STATE STREET, SUITE 1410
COLUMBUS, OHIO 43215
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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 debt securities rated BBB
or higher by Standard and Poor's Ratings Group or Baa by Moody's Investors
Service, Inc., or U.S. Government obligations.
Dillon Capital Management (the "Adviser"), Capitol Square, 21 East
State Street, 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.
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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.
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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 $10. See "How to Redeem Shares."
Annual Fund Operating Expenses (as a percentage of average net assets)
Large Small
Cap Cap Bond
Fund Fund Fund
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)
(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.
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 Large Small
investment, assuming Cap Cap Bond
Fund Fund Fund
(1) 5% annual return and ----- ----- ----
(2) redemption at the end
of each time period: 1 Year $15 $18 $10
3 Years 47 55 32
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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
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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.
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
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(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.
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 less 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 greater than $1 billion.
The Fund may invest a substantial portion of its assets in small,
unseasoned companies. While smaller companies generally have potential for rapid
growth, they often involve higher risks because they lack the management
experience, financial resources, product diversification and competitive
strengths of larger corporations. In addition, in many instances, the securities
of smaller companies are traded only over-the-counter or on a regional
securities exchange, and the frequency and volume of
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their trading is substantially less than is typical of larger companies.
Therefore, the securities of smaller companies may be subject to wider price
fluctuations. When making large sales, the Fund may have to sell portfolio
holdings at discounts from quoted prices or may have to make a series of small
sales over an extended period of time.
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
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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 or repurchase agreements.
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
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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.
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
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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.
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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
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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.
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
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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.
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
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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. 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.
The Trust mails you confirmations of all purchases or
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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 or endorsed 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
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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.
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
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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.
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 an $10 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
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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 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.
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, Columbus, Ohio 43215.
An exchange will be effected at the next determined net asset value after
receipt of a request by
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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.
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<PAGE>
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.
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
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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, 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.
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
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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.
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
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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.
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.
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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.
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<PAGE>
CAPITOL SQUARE FUNDS
Capitol Square
21 East State Street, Suite 1410
Columbus, Ohio 43215
Nationwide: (Toll-Free) 888-254-6870
Cincinnati: 513-629-2283
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
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.......................................................
Investment Objectives, Investment Policies and
Risk Considerations.....................................................
How to Purchase Shares....................................................
Shareholder Services......................................................
How to Redeem Shares......................................................
Exchange Privilege........................................................
Dividends and Distributions...............................................
Taxes.....................................................................
Operation of the Funds....................................................
Calculation of Share Price................................................
Performance Information...................................................
- --------------------------------------------------------------------------
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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.
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CAPITOL SQUARE FUNDS
ACCOUNT APPLICATION
<TABLE>
<CAPTION>
Please mail account application to: (check appropriate Fund)
MGF Service Corp.
P.O. Box 5354
Cincinnati, Ohio 45201-5354 ACCOUNT NO. ___________________________
<S> <C> <C> (For Fund Use Only)
o CAPITOL SQUARE LARGE CAP FUND $_____________________
o CAPITOL SQUARE SMALL CAP FUND $_____________________ FOR BROKER/DEALER USE ONLY
o CAPITOL SQUARE BOND FUND $_____________________ Firm Name:_______________________________________
Home Office Address:_____________________________
TOTAL $_____________________ 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, Organization, or Minor, etc. (In case of custodial 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, Corporate Officer, Trustee, etc. Signature of Joint Owner, if Any
____________________________________________________________________ _______________________________________________________
Title of Corporate Officer, Trustee, etc. Date
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.
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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 month in (Check applicable Fund) ABA Routing Number _________________________________
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 as it appears on FI Records) (Signature of Joint Tenant - if any)
(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 Withdrawal Schedule (Check One): Please indicate which Fund:
o Capitol Square Large Cap Fund
o MONTHLY -- Withdrawals will be made on the last business day of each month. o Capitol Square Small Cap Fund
o QUARTERLY -- Withdrawals will be made on or about 3/31, 6/30, 9/30 and 12/31. o Capitol Square Bond Fund
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 $10.00 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.
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<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.
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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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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 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.
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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 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-
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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 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
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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 that the private
insurers or guarantors can meet their obligations under the insurance policies
or guarantee arrangements. The Fund may buy mortgage-backed securities
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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 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,
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<PAGE>
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.
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<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.
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
by the seller of a repurchase agreement, a Fund could experience both delays in
liquidating the underlying security and losses. To minimize these possibilities,
each Fund intends to enter into repurchase agreements only with its Custodian,
with banks having assets in excess of $10 billion and with broker-dealers who
are recognized as primary dealers in U.S. Government obligations by the Federal
Reserve Bank of New York. Collateral for repurchase agreements is held in
safekeeping in the customer-only account of the Funds' Custodian at the Federal
Reserve Bank. 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 its net
assets would be invested in such securities and other illiquid securities.
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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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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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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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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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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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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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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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
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in 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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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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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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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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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., 312 Walnut Street, Cincinnati,
Ohio (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-
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pocket expenses, fund accounting licensing fees, and any other direct costs
incurred by the Adviser in the operation and administration of the Trust.
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.
- 23 -
<PAGE>
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 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
- 24 -
<PAGE>
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
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.
- 25 -
<PAGE>
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.
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
- 26 -
<PAGE>
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.
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
- 27 -
<PAGE>
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.
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
- 28 -
<PAGE>
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 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
The firm of KPMG Peat Marwick LLP 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.
- 29 -
<PAGE>
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 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.
- 30 -
<PAGE>
CAPITOL SQUARE FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
AS OF
AUGUST 23, 1996
TOGETHER WITH
AUDITORS' REPORT
- 31 -
<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>
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
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
======= ======= =======
The accompanying notes are an integral part of these
statements.
- 33 -
<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.
- 34 -
<PAGE>
CAPITOL SQUARE FUNDS
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) (i) Financial Statements included in Part A:
None
(ii) Financial Statements included in Part B:
Statements of Assets and Liabilities, August 23,
1996
Notes to Financial Statements
Report of Independent Accountants
(b) Exhibits
(1) (i) Agreement and Declaration of Trust*
(ii) Amendment No. 1 to Agreement and Declaration
of Trust
(2) Bylaws*
(3) Inapplicable
(4) Inapplicable
(5) (i) Advisory Agreement with Dillon Capitol
Management for the Capitol Square Large Cap
Fund and Capitol Square Small Cap Fund
(ii) Advisory Agreement with Dillon Capitol
Management for the Capitol Square Bond Fund
(iii) Sub-Advisory Agreement with Midwest Group
Financial Services, Inc.
(6) Inapplicable
(7) Inapplicable
(8) Custody Agreement with Star Bank N.A.
(9) Administration, Accounting and Transfer
Agency Agreement with MGF Service Corp.
(10) Opinion and Consent of Counsel
(11) Consent of Independent Public Accountants
<PAGE>
(12) Inapplicable
(13) Agreement Relating to Initial Capital
(14) Inapplicable
(15) Inapplicable
(16) Inapplicable
(17) (i) Financial Data Schedule for the Capitol
Square Large Cap Fund
(ii) Financial Data Schedule for the Capitol
Square Small Cap Fund
(iii) Financial Data Schedule for the Capitol
Square Bond Fund
(18) Inapplicable
- --------------------------------------
* Incorporated by reference to the Trust's initial registration
statement on Form N-1A.
Item 25. Persons Controlled by or Under Common Control with
Registrant
After commencement of the public offering of the Registrant's
shares, the Registrant expects that no person will be directly
or indirectly controlled by or under common control with the
Registrant.
Item 26. Number of Holders of Securities
As of August 15, 1996, there are no holders of the shares of
beneficial interest of the Registrant.
Item 27. Indemnification
Article VI of the Registrant's Agreement and Declaration of
Trust provides for indemnification of officers and Trustees as
follows:
"Section 6.4 INDEMNIFICATION OF TRUSTEES, OFFICERS,
ETC. Subject to and except as otherwise provided in
the Securities Act of 1933, as amended, and the 1940
Act, the Trust shall indemnify each of its Trustees
and officers, including persons who serve at the
Trust's request as directors, officers or trustees of
another organization in which the Trust has any
interest as a shareholder, creditor or otherwise
(hereinafter referred to as a "Covered Person")
<PAGE>
against all liabilities, including but not limited to
amounts paid in satisfaction of judgments, in
compromise or as fines and penalties, and expenses,
including reasonable accountants' and counsel fees,
incurred by any Covered Person in connection with the
defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any
court or administrative or legislative body, in which
such Covered Person may be or may have been involved
as a party or otherwise or with which such person may
be or may have been threatened, while in office or
thereafter, by reason of being or having been such a
Trustee or officer, director or trustee, and except
that no Covered Person shall be indemnified against
any liability to the Trust or its Shareholders to
which such Covered Person would otherwise be subject
by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties
involved in the conduct of such Covered Person's
office.
Section 6.5 ADVANCES OF EXPENSES. The Trust shall
advance attorneys' fees or other expenses incurred by
a Covered Person in defending a proceeding to the
full extent permitted by the Securities Act of 1933,
as amended, the 1940 Act, and Ohio Revised Code
Chapter 1707, as amended. In the event any of these
laws conflict with Ohio Revised Code Section
1701.13(E), as amended, these laws, and not Ohio
Revised Code Section 1701.13(E), shall govern.
Section 6.6 INDEMNIFICATION NOT EXCLUSIVE, ETC. The
right of indemnification provided by this Article VI
shall not be exclusive of or affect any other rights
to which any such Covered Person may be entitled. As
used in this Article VI, "Covered Person" shall
include such person's heirs, executors and
administrators. Nothing contained in this article
shall affect any rights to indemnification to which
personnel of the Trust, other than Trustees and
officers, and other persons may be entitled by
contract or otherwise under law, nor the power of the
Trust to purchase and maintain liability insurance on
behalf of any such person."
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to Trustees, officers
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such
<PAGE>
indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by
a Trustee, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is
asserted by such Trustee, officer or controlling person in
connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
The Registrant maintains a standard mutual fund and investment
advisory professional and directors and officers liability
policy. The policy provides coverage to the Registrant, its
Trustees and officers, Dillon Capital Management (the
"Adviser") and Midwest Group Financial Services, Inc. (the
"Sub-Adviser"). Coverage under the policy will include losses
by reason of any act, error, omission, misstatement,
misleading statement, neglect or breach of duty.
The Advisory Agreements with the Adviser provide that, in the
absence of willful misfeasance, bad faith, gross negligence,
or reckless disregard of obligations or duties hereunder on
the part of the Adviser, the Adviser shall not be subject to
liability to the Fund or to any shareholder of the Fund for
any act or omission in the course of, or connected with,
rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any security.
The Sub-Advisory Agreement with the Sub-Adviser provides that
the Sub-Adviser shall not be liable for any action taken,
omitted or suffered to be taken by it in its reasonable
judgment, in good faith and believed by it to be authorized or
within the discretion or rights or powers conferred upon it by
the Agreement, or in accordance with (or in the absence of)
specific directions or instructions from the Trust, provided,
however, that such acts or omissions shall not have resulted
from the Sub-Adviser's willful misfeasance, bad faith or gross
negligence, a violation of the standard of care established by
and applicable to the Sub-Adviser in its actions under the
Agreement or breach of its duty or of its obligations
hereunder.
<PAGE>
Item 28. Business and Other Connections of the Investment
Adviser
(a) The Adviser is a registered investment adviser providing
investment advisory services to individual, institutional and
corporate clients.
The Sub-Adviser is a registered investment adviser providing
investment advisory services to five series of the Midwest
Trust, seven series of Midwest Group Tax Free Trust and to
four series of Midwest Strategic Trust, all of which are
registered investment companies. The Sub-Adviser provides
investment advisory services to individual and institutional
accounts and is a registered broker-dealer.
(b) The directors and officers of the Adviser and any other
business, profession, vocation or employment of a substantial
nature engaged in at any time during the past two years:
(i) Roderick H. Dillon, Jr. - President of the
Adviser.
President and a Trustee of the Registrant.
(ii) T. Calloway Robertson, III - Vice President of the
Adviser.
A Trustee of the Registrant.
(iii) Randall J. Demyan - Secretary and Treasurer of the
Adviser.
The directors and officers of the Sub-Adviser and any
other business, profession, vocation or employment of
a substantial nature engaged in at any time during
the past two years:
(i) Robert H. Leshner - Chairman of the Board and a
Director of the Sub-Adviser.
President and a Trustee of Midwest Strategic Trust,
Midwest Trust and Midwest Group Tax Free Trust,
registered investment companies.
Chairman of the Board and a Director of Leshner
Financial, Inc., a financial services company.
Chairman of the Board and a Director of MGF Service
Corp., a registered transfer agent.
President and a Director of Leshner Financial
Services, Inc., a registered investment adviser and
registered broker-dealer until December 1994.
<PAGE>
(ii) Michael F. Andrews - President of the Sub-Adviser.
President of ABT Financial Services, Inc., 340
Royal Palm Way, Palm Beach, Florida 33480, until
June 1995.
(iii) James A. Markley, Jr. - A Director of the Sub-
Adviser.
President and a Director of Leshner Financial,
Inc.
A Director of MGF Service Corp.
A Director of Sycamore National Bank, 3209 West
Galbraith Road, Cincinnati, Ohio 45239.
President of the Sub-Adviser until July 1995.
President of MGF Service Corp. until December
1994.
A Director of Leshner Financial Services, Inc.
until December 1994.
(iv) John J. Goetz - Chief Investment Officer of the
Sub-Adviser.
Vice President of Leshner Financial, Inc.
Vice President-Investments of Leshner Financial
Services, Inc. until December 1994.
(v) Maryellen Peretzky - Vice President, Assistant
Secretary and a Director of the Sub-Adviser.
Vice President and a Director of Leshner
Financial, Inc.
Vice President of MGF Service Corp.
Assistant Secretary of The Tuscarora Investment
Trust
Vice President and a Director of Leshner Financial
Services, Inc. until December 1994.
(vi) Sharon L. Karp - Vice President of the Sub-
Adviser.
Vice President of Leshner Financial, Inc.
(vii) John F. Splain - Secretary and General Counsel of
the Sub-Adviser.
Secretary, General Counsel and a Director of
Leshner Financial, Inc.
<PAGE>
Secretary and General Counsel of MGF Service Corp.
Secretary of Midwest Group Tax Free Trust, Midwest
Trust, Midwest Strategic Trust, Brundage, Story and
Rose Investment Trust, Leeb PERSONAL FINANCETM
Investment Trust, Williamsburg Investment Trust,
Markman MultiFund Trust, The Tuscarora Investment
Trust, PRAGMA Investment Trust and Maplewood
Investment Trust, registered investment companies.
Assistant Secretary of Fremont Mutual Funds, Inc. and
Schwartz Investment Trust, registered investment
companies.
Secretary and General Counsel of Leshner Financial
Services, Inc. until December 1994.
(viii) Robert G. Dorsey - Treasurer of the Sub-Adviser.
President of MGF Service Corp.
Treasurer and a Director of Leshner Financial,
Inc.
Vice President of Brundage, Story and Rose Investment
Trust, Leeb PERSONAL FINANCETM Investment Trust,
Markman MultiFund Trust, PRAGMA Investment Trust and
Maplewood Investment Trust.
Assistant Vice President of Williamsburg
Investment Trust, Schwartz Investment Trust,
Fremont Mutual Funds, Inc. and The Tuscarora
Investment Trust
Treasurer of Leshner Financial Services, Inc.
until December 1994.
(ix) Susan F. Flischel - Vice President-Investments of
the Sub-Adviser.
Assistant Vice President-Investments of Leshner
Financial Services, Inc. until December 1994.
(x) Terrie A. Wiedenheft - Controller of the Sub-
Adviser.
(xi) Michele McClellan Hawkins - Assistant Vice
President of the Sub-Adviser.
(xii) Scott Weston - Assistant Vice President-
Investments of the Sub-Adviser.
(xiii) Elizabeth A. Santen - Assistant Secretary of the
Sub-Adviser.
Assistant Secretary of Leshner Financial, Inc.
Assistant Vice President of MGF Service Corp.
<PAGE>
Assistant Secretary of Midwest Trust, Midwest
Group Tax Free Trust, Midwest Strategic Trust,
The Tuscarora Investment Trust and Maplewood
Investment Trust.
Assistant Secretary of Leshner Financial Services,
Inc. until December 1994.
Item 29. Principal Underwriters
(a) Inapplicable
(b) Inapplicable
(c) Inapplicable
Item 30. Location of Accounts and Records
Accounts, books and other documents required to be maintained
by Section 31(a) of the Investment Company Act of 1940 and the
Rules promulgated thereunder will be maintained by the
Registrant at its offices located at Capitol Square, 21 East
State Street, Suite 1410, Columbus, Ohio 43215, as well as at
the offices of the Registrant's transfer agent located at 312
Walnut Street, 21st Floor, Cincinnati, Ohio 45202.
Item 31. Management Services Not Discussed in Parts A or B
Inapplicable
Item 32. Undertakings
(a) Inapplicable
(b) The Registrant undertakes to file a post-effective amendment,
using financial statements which need not be certified, within
four to six months from the effective date of this
Registration Statement.
(c) The Registrant undertakes to furnish each person to whom a
Prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without
charge.
(d) The Registrant undertakes to call a meeting of shareholders,
if requested to do so by holders of at least 10% of the
Trust's outstanding shares, for the purpose of voting upon the
question of removal of a trustee or trustees and to assist in
communications with other shareholders as required by Section
16(c) of the Investment Company Act of 1940.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed below on its behalf by the undersigned, thereunto duly
authorized, in the City of Columbus and State of Ohio, on the 16th day of
September, 1996.
CAPITOL SQUARE FUNDS
By:/s/ Roderick H. Dillon, Jr.
Roderick H. Dillon, Jr.
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ Roderick H. Dillon, Jr. President September 16, 1996
Roderick H. Dillon, Jr. and Trustee
/s/ T. Calloway Robertson III Trustee September 16, 1996
T. Calloway Robertson III
/s/ Mark J. Seger Treasurer September 16, 1996
Mark J. Seger
Trustee By:/s/ Tina D. Hosking
Archie M. Griffin* Tina D. Hosking
Attorney-in-Fact*
September 16, 1996
Trustee
Susan J. Insley*
Trustee
Jonathan L. York*
<PAGE>
INDEX TO EXHIBITS
(1)(i) Agreement and Declaration of Trust*
(ii) Amendment No. 1 to Agreement and Declaration of Trust
(2) Bylaws*
(3) Inapplicable
(4) Inapplicable
(5)(i) Advisory Agreement with Dillon Capitol Management for the
Capitol Square Large Cap Fund and Capitol Square Small
Cap Fund
(5)(ii) Advisory Agreement with Dillon Capitol Management for the
Capitol Square Bond Fund
(5)(iii) Sub-Advisory Agreement with Midwest Group Financial
Services, Inc.
(6) Inapplicable
(7) Inapplicable
(8) Custody Agreement with Star Bank, N.A.
(9) Administration, Accounting and Transfer Agency Agreement
with MGF Service Corp.
(10) Opinion and Consent of Counsel
(11) Consent of Independent Public Accountants
(12) Inapplicable
(13) Agreement Relating to Initial Capital
(14) Inapplicable
(15) Inapplicable
(16) Inapplicable
(17)(i) Financial Data Schedule for the Capitol Square Large Cap
Fund
(ii) Financial Data Schedule for the Capitol Square Small Cap
Fund
(iii) Financial Data Schedule for the Capitol Square Bond Fund
(18) Inapplicable
- ----------------------------
* Incorporated by reference to the Trust's initial registration
statement on Form N-1A.
CAPITOL SQUARE INVESTMENT TRUST
AMENDMENT NO. 1 TO AGREEMENT AND DECLARATION OF TRUST
(CHANGE OF NAME TO CAPITOL SQUARE FUNDS)
The undersigned hereby certifies that she is the duly elected
Secretary of Capitol Square Investment Trust and that pursuant to Section 3.2 of
the Agreement and Declaration of Trust dated July 2, 1996 the Trustees, by means
of an instrument in writing signed as of August 30, 1996 by a majority of such
Trustees, adopted the following resolutions:
"RESOLVED, that the name of Capitol Square Investment Trust be changed
to "Capitol Square Funds"; and
FURTHER RESOLVED, that the Trust's Agreement and Declaration of Trust
and other Trust documents and records, as necessary or appropriate, be
amended to reflect the change in name of the Trust; and
FURTHER RESOLVED, that the officers of the Trust are hereby authorized
to take such further actions as necessary to effect the purpose of
these resolutions."
The undersigned certifies that the actions to effect the foregoing
Amendment were duly taken in the manner provided by the Agreement and
Declaration of Trust, that said Amendment is to be effective September 6, 1996
and that she is causing this Certificate to be signed and filed as provided in
Section 7.3 of the Agreement and Declaration of Trust.
Witness my hand this 30th day of August, 1996.
/s/ Tina D. Hosking
Tina D. Hosking, Secretary
<PAGE>
ADVISORY AGREEMENT
AGREEMENT made this 27th day of August, 1996, between Capitol Square
Investment Trust (the "Trust"), a business trust organized under the laws of the
State of Ohio, and Dillon Capital Management (the "Adviser"), a limited
partnership organized under the laws of the State of Ohio.
WHEREAS, the Trust has been organized to operate as an open-end management
investment company registered under the Investment Company Act of 1940, as
amended (the "1940 Act");
WHEREAS, the Adviser is registered as an investment adviser under th
Investment Advisers Act of 1940, as amended; and
WHEREAS, the Trust's shares of beneficial interest are divided into
separate series or funds, each having separate investment objectives and
policies; and
WHEREAS, the Capitol Square Large Cap Fund and the Capitol Square Small Cap
Fund (the "Funds") have been established as series of the Trust; and
WHEREAS, the Funds have been created for the purpose of investing and
reinvesting their assets in securities pursuant to its investment objective and
policies as set forth in the Trust's registration statements under the 1940 Act
and the Securities Act of 1933 ("Registration Statements"), as heretofore
amended and supplemented; and the Trust desires to avail itself of the services,
information, advice, assistance and facilities of a manager and to have a
manager provide or perform for it various management, statistical and other
services for the Funds;
NOW, THEREFORE, the Trust and the Adviser agree as follows:
1. Employment of the Adviser. The Trust hereby employs the Adviser to
manage the investment and reinvestment of the assets of the Funds in the manner
set forth in paragraph 2 of this Agreement, subject to the direction of the
Board of Trustees and the officers of the Trust, for the period, in the manner,
and on the terms hereinafter set forth. The Adviser hereby accepts such
employment and agrees during such period to render the services and to assume
the obligations herein set forth. The Adviser shall for all purposes herein be
deemed to be an independent contractor and shall, except as expressly provided
or authorized (whether herein or otherwise), have no authority to act for or
represent the Funds in any way or otherwise be deemed an agent of the Funds.
2. Obligation of and Services to be Provided by the Adviser. The Adviser
undertakes to provide the services hereinafter set forth and to assume the
following obligations:
- 1 -
<PAGE>
A. Investment Management Services.
(a) The Adviser shall have responsibility for the
management and investment of the assets and portfolio
securities of the Funds subject to and in accordance
with the investment objective and policies of each
Fund, and any directions which the Trust's Board of
Trustees may issue to the Adviser from time to time.
(b) The Adviser shall provide overall investment programs
and strategies for each Fund, shall revise such
programs as necessary and shall monitor and report
periodically to the Board of Trustees concerning the
implementation of the programs.
(c) The Adviser shall provide or arrange for and
supervise the provision by third parties to the Funds
of custody, transfer agency, administrative,
accounting, legal, audit and similar services.
(d) The Adviser shall render regular reports to the
Trust, at regular meetings of the Board of Trustees,
of, among other things, the portfolio investments of
the Funds and measurement and analysis of the results
achieved by the Funds.
B. Provision of Information Necessary for Preparation of
Securities Registration Statements, Amendments and
Other Materials.
The Adviser will make available and provide financial,
accounting and statistical information required by the Trust
in the preparation of registration statements, reports and
other documents required by federal and state securities laws,
and such information as the Trust may reasonably request for
use in the preparation of registration statements, reports and
other documents required by federal and state securities laws.
C. Other Obligations and Services.
The Adviser shall make available its officers and employees to
the Board of Trustees and officers of the Trust for
consultation and discussions regarding the administration and
management of the Funds and their investment activities.
3. Execution and Allocation of Portfolio Brokerage Commissions. The
Adviser, subject to the limitations contained in this paragraph 3, shall place,
on behalf of the Funds, orders for the execution of portfolio transactions. The
Adviser is not authorized by the Funds to take any action, including the
- 2 -
<PAGE>
purchase or sale of securities for a Fund's account, (a) in contravention
of (i) any investment restrictions set forth in the 1940 Act and the rules
thereunder, (ii) specific instructions adopted by the Board of Trustees and
communicated to the Adviser, (iii) the investment objective, policies and
restrictions of each Fund as set forth in the Trust's Registration Statement, or
(iv) instructions from the Trust communicated to the Adviser, or (b) which would
have the effect of causing a Fund to fail to qualify or to cease to qualify as a
regulated investment company under the Internal Revenue Code of 1986, as
amended, or any succeeding statute.
Subject to the foregoing, the Adviser shall determine the securities to be
purchased or sold by the Funds and will place orders pursuant to its
determination with or through such persons, brokers or dealers in conformity
with the policy with respect to brokerage as set forth in the Trust's
Registration Statement or as the Board of Trustees may direct from time to time.
It is recognized that, in providing the Funds with investment supervision of the
placing of orders for portfolio transactions, the Adviser will give primary
consideration to securing the best qualitative execution, 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. Consistent with this policy, the Adviser may select brokers or
dealers who also provide brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Exchange Act of 1934) to the other
accounts over which it exercises investment discretion. It is understood that
neither the Trust nor the Adviser have adopted a formula for allocation of
either Fund's investment transaction business. It is also understood that it is
desirable for the Funds that the Adviser have access to supplemental investment
and market research and security and economic analyses provided by certain
brokers who may execute brokerage transactions at a higher commission to the
Funds than may result when allocating brokerage to other brokers on the basis of
seeking the lowest commission. Therefore, the Adviser is authorized to place
orders for the purchase and sale of securities for the Funds with such certain
brokers, subject to review by the Trust's Board of Trustees from time to time
with respect to the extent and continuation of this practice, provided that the
Adviser determines in good faith that the amount of the commission is reasonable
in relation to the value of the brokerage and research services provided by the
executing broker or dealer. The determination may be viewed in terms of either a
particular transaction or the Adviser's overall responsibilities with respect to
the Fund and to other accounts over which it exercises investment discretion. It
is understood that although the information may be useful to the Funds and the
Adviser, it is
- 3 -
<PAGE>
not possible to place a dollar value on such information. Consistent with
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc., and subject to seeking best qualitative execution, the 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.
On occasions when the Adviser deems the purchase or sale of a security to
be in the best interest of the Funds as well as other clients, the Adviser, to
the extent permitted by applicable laws and regulations, may, but shall be under
no obligation to, aggregate the securities to be sold or purchased in order to
obtain the most favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the securities so purchased or sold, as
well as expenses incurred in the transaction, will be made by the Adviser in the
manner it considers to be the most equitable and consistent with its fiduciary
obligations to the Funds and to such other clients.
Consistent with the policies described in this paragraph 3, the Adviser may
execute any portfolio transactions for a Fund's account with a broker or dealer
which is an "affiliated person" (as defined in the Act) of the Trust or the
Adviser, subject to review by the Trust's Board of Trustees from time to time
with respect to the extent and continuation of this practice.
For each fiscal quarter of the Funds, the Adviser shall render reports to
the Trust's Board of Trustees of the total brokerage business placed by the
Funds and the manner in which the allocation has been accomplished.
4. Expenses of the Funds. The Adviser will pay all of the expenses of the
Funds (including the fees and charges of third-party service providers engaged
pursuant to paragraph 2 above) except the following: interest; taxes; brokerage
commissions; extraordinary expenses; and the fees and expenses, including
ordinary counsel fees, of those Trustees who are not "interested persons" as
defined in the 1940 Act (hereinafter referred to as the "Independent Trustees").
The Adviser will provide the Trust with such facilities and personnel as may,
from time to time, be required to carry on the business of the Funds including
but not limited to office space, office furniture, fixtures and equipment,
office supplies, computer hardware and software and salaried and hourly paid
personnel. The Adviser may at its expense employ others to provide all or any
part of such facilities and personnel.
5. Activities and Affiliates of the Adviser.
A. The services of the Adviser hereunder are not to be deemed
exclusive, and the Adviser and any of its affiliates shall be
free to render similar services to others. The Adviser shall
use the same skill and care
- 4 -
<PAGE>
in the management of the Funds' assets as it uses in the
administration of other accounts to which it provides asset
management, consulting and portfolio manager selection
services, but shall not be obligated to give the Funds more
favorable or preferential treatment vis-a-vis its other
clients.
B. Subject to and in accordance with the Agreement and
Declaration of Trust and Bylaws of the Trust and to Section
10(a) of the 1940 Act, it is understood that Trustees,
officers and agents of the Trust and shareholders of the Funds
are or may be interested in the Adviser or its affiliates as
directors, officers, agents, stockholders or partners of the
Adviser or its affiliates; that directors, officers, agents,
stockholders or partners of the Adviser or its affiliates are
or may be interested in the Trust as Trustees, officers,
agents, shareholders or otherwise; that the Adviser or its
affiliates may be interested in the Trust as shareholders or
otherwise; and that the effect of any such interests shall be
governed by said Declaration of Trust, Bylaws and the 1940
Act.
6. Compensation of Adviser. (a) As full compensation for the services and
such facilities as may from time to time be furnished by the Adviser under this
Agreement, the Capitol Square Large Cap Fund agrees to pay 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, less the accrued fees and
expenses, including ordinary counsel fees, of the Independent Trustees of the
Trust. The Capitol Square Small Cap Fund agrees to pay 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, less the accrued fees and expenses,
including ordinary counsel fees, of the Independent Trustees of the Trust. Such
fees shall be accrued daily and payable monthly. For purposes of calculating
such fees, net asset value shall be determined by taking the average of all
determinations of net asset value made in the manner provided in the Funds'
current Prospectus and Statement of Additional Information.
(b) For any period less than a full month during which this Agreement is in
effect the compensation payable to the Adviser hereunder shall be prorated
according to the proportion which such period bears to a full month.
(c) The Adviser agrees that if total expenses of a Fund for any fiscal year
exceed the permissible limits applicable to such Fund in any state in which such
Fund's shares are then qualified
- 5 -
<PAGE>
for sale, the compensation due the Adviser for such fiscal year shall be
reduced by the amount of such excess by a reduction or refund thereof at the
time such compensation is payable after the end of each calendar month during
such fiscal year of such Fund, subject to readjustment during such Fund's fiscal
year.
7. Liabilities of the Adviser.
A. In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or
duties hereunder on the part of the Adviser, the
Adviser shall not be subject to liability to the Funds
or to any shareholder of the Funds for any act or
omission in the course of, or connected with, rendering
services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any
security.
B. No provision of this Agreement shall be construed to protect
any Trustee, director, officer or agent of the Trust or the
Adviser from liability in violation of Sections 17(h) and (i)
of the 1940 Act.
8. Renewal and Termination.
A. This Agreement shall become effective on the date first
written above and shall remain in full force and effect
for two (2) years from the date hereof and from year to
year thereafter, but only so long as such continuance
is specifically approved at least annually by the vote
of a majority of the Trustees who are not interested
persons of the Trust or the Adviser, cast in person at
a meeting called for the purpose of voting on such
approval and by a vote of the Board of Trustees or of a
majority of the outstanding voting securities of each
Fund. The aforesaid provision that this Agreement may
be continued "annually" shall be construed in a manner
consistent with the Act and the rules and regulations
thereunder.
B. This Agreement:
(a) may at any time be terminated, without the payment of
any penalty, either by vote of the Board of Trustees
of the Trust or, with respect to each Fund, by vote
of a majority of the outstanding voting securities of
such Fund, on sixty (60) days' written notice to the
Adviser;
(b) shall immediately terminate in the event of its
assignment; and
- 6 -
<PAGE>
(c) may be terminated by the Adviser on sixty (60)
days' written notice to the Trust.
C. As used in this Section 8, the terms "assignment," "interested
person" and "vote of a majority of the outstanding voting
securities" shall have the meanings set forth in the 1940 Act
and the rules and regulations thereunder.
D. Any notice under this Agreement shall be given in writing
addressed and delivered or mailed postpaid, to the other party
to this Agreement at its principal place of business.
9. Severability. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby.
10. Limitation of Liability. It is expressly agreed that the obligations of
the Trust hereunder shall not be binding upon any of the Trustees, shareholders,
nominees, officers, agents or employees of the Trust, personally, but bind only
the trust property of the Trust, as provided in the Declaration of Trust of the
Trust. The execution and delivery of this Agreement have been authorized by the
Trustees and shareholders of the Trust and signed by the officers of the Trust,
acting as such, and neither such authorization by such Trustees and shareholders
nor such execution and delivery by such officers shall be deemed to have been
made by any of them individually or to impose any liability on any of them
personally, but shall bind only the trust property of the Trust as provided in
its Declaration of Trust.
11. Use of Name. The Adviser may use the name "Capitol Square" or any
derivation thereof in connection with another business enterprise, including any
registered investment company with which the Adviser is, or may become
associated, so long as such use is permitted under the Act and other applicable
law. The Trust will discontinue any use of the name "Capitol Square" if the
Adviser ceases to be employed as the Trust's investment manager.
12. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, and no amendment of this
Agreement shall be effective until approved by vote of the holders of a majority
of the outstanding voting securities of the affected Fund and by the Board of
Trustees, including a majority of the Independent Trustees, cast in person at a
meeting called for the purpose of voting on such approval.
- 7 -
<PAGE>
13. Governing Law. To the extent that state law has not been preempted by
the provisions of any law of the United States heretofore or hereafter enacted,
as the same may be amended from time to time, this Agreement shall be
administered, construed and enforced according to the laws of the State of Ohio.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed, as of the day and year first written above.
CAPITOL SQUARE INVESTMENT TRUST
ATTEST: By:/s/ Roderick H. Dillon, Jr.
/s/ Tina D. Hosking Title: President
DILLON CAPITAL MANAGEMENT
ATTEST: By:/s/ Roderick H. Dillon, Jr.
/s/ Tina D. Hosking Title: President
- 8 -
<PAGE>
ADVISORY AGREEMENT
AGREEMENT made this 27th day of August, 1996, between Capitol Square
Investment Trust (the "Trust"), a business trust organized under the laws of the
State of Ohio, and Dillon Capital Management (the "Adviser"), a limited
partnership organized under the laws of the State of Ohio.
WHEREAS, the Trust has been organized to operate as an open-end management
investment company registered under the Investment Company Act of 1940, as
amended (the "1940 Act");
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended; and
WHEREAS, the Trust's shares of beneficial interest are divided into
separate series or funds, each having separate investment objectives and
policies; and
WHEREAS, the Capitol Square Bond Fund (the "Fund") has been established as
a series of the Trust; and
WHEREAS, the Fund has been created for the purpose of investing and
reinvesting its assets in securities pursuant to its investment objective and
policies as set forth in the Trust's registration statements under the 1940 Act
and the Securities Act of 1933 ("Registration Statements"), as heretofore
amended and supplemented; and the Trust desires to avail itself of the services,
information, advice, assistance and facilities of a manager and to have a
manager provide or perform for it various management, statistical, portfolio
adviser selection and other services for the Fund;
NOW, THEREFORE, the Trust and the Adviser agree as follows:
1. Employment of the Adviser. The Trust hereby employs the Adviser to
manage the investment and reinvestment of the assets of the Fund in the manner
set forth in paragraph 2 of this Agreement, subject to the direction of the
Board of Trustees and the officers of the Trust, for the period, in the manner,
and on the terms hereinafter set forth. The Adviser hereby accepts such
employment and agrees during such period to render the services and to assume
the obligations herein set forth. The Adviser shall for all purposes herein be
deemed to be an independent contractor and shall, except as expressly provided
or authorized (whether herein or otherwise), have no authority to act for or
represent the Fund in any way or otherwise be deemed an agent of the Fund.
2. Obligation of and Services to be Provided by the Adviser. The Adviser
undertakes to provide the services hereinafter set forth and to assume the
following obligations:
- 1 -
<PAGE>
A. Investment Management Services.
(a) The Adviser shall have overall supervisory
responsibility for the general management and
investment of the assets and portfolio securities of
the Fund subject to and in accordance with the
investment objective and policies of the Fund, and
any directions which the Trust's Board of Trustees
may issue to the Adviser from time to time.
(b) The Adviser shall provide overall investment programs
and strategies for the Fund, shall revise such
programs as necessary and shall monitor and report
periodically to the Board of Trustees concerning the
implementation of the programs.
(c) The Adviser shall provide or arrange for and
supervise the provision by third parties to the Fund
of custody, transfer agency, administrative,
accounting, legal, audit and similar services.
(d) The Adviser, with the approval of the Board of
Trustees of the Trust as to particular
appointments, intends to (i) appoint one or more
persons or companies (the "Sub-Adviser") and,
subject to the terms and conditions of this
Agreement, the Sub-Adviser shall have full
investment discretion and shall make all
determinations with respect to the investment of
the Fund's assets and the purchase and sale of
portfolio securities with those assets, and (ii)
take such steps as may be necessary to implement
such appointments. The Adviser shall be solely
responsible for paying the fees and expenses of
the Sub-Adviser for its services to the Fund. The
Adviser shall not be responsible or liable for the
investment merits of any decision by the Sub-
Adviser to purchase, hold or sell a portfolio
security for the Fund.
(e) The Adviser shall evaluate potential Sub-Advisers
and shall recommend to the Board of Trustees the
Sub-Adviser which the Adviser believes is best
suited to invest the assets of the Fund; shall
monitor and evaluate the investment performance of
the Sub-Adviser; shall recommend changes in the
Sub-Adviser when appropriate; shall coordinate the
investment activities of the Sub-Adviser to ensure
compliance with applicable restrictions and
limitations applicable to the Fund; and shall
compensate the Sub-Adviser.
- 2 -
<PAGE>
(f) The Adviser shall render regular reports to the
Trust, at regular meetings of the Board of Trustees,
of, among other things, the portfolio investments of
the Fund and measurement and analysis of the results
achieved by the Fund.
B. Provision of Information Necessary for Preparation of
Securities Registration Statements, Amendments and Other
Materials.
The Adviser will make available and provide financial,
accounting and statistical information required by the Trust
in the preparation of registration statements, reports and
other documents required by federal and state securities laws,
and such information as the Trust may reasonably request for
use in the preparation of registration statements, reports and
other documents required by federal and state securities laws.
C. Other Obligations and Services.
The Adviser shall make available its officers and employees to
the Board of Trustees and officers of the Trust for
consultation and discussions regarding the administration and
management of the Fund and its investment activities.
3. Execution and Allocation of Portfolio Brokerage Commissions. The
Sub-Adviser, subject to the limitations contained in this paragraph 3, shall
place, on behalf of the Fund, orders for the execution of portfolio
transactions. The Sub-Adviser is not authorized by the Fund to take any action,
including the purchase or sale of securities for the Fund's account, (a) in
contravention of (i) any investment restrictions set forth in the 1940 Act and
the rules thereunder, (ii) specific instructions adopted by the Board of
Trustees and communicated to the Sub-Adviser, (iii) the investment objective,
policies and restrictions of the Fund as set forth in the Trust's Registration
Statement, or (iv) instructions from the Adviser communicated to the
Sub-Adviser, or (b) which would have the effect of causing the Fund to fail to
qualify or to cease to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended, or any succeeding statute.
Subject to the foregoing, the Sub-Adviser shall determine the securities to
be purchased or sold by the Fund and will place orders pursuant to its
determination with or through such persons, brokers or dealers in conformity
with the policy with respect to brokerage as set forth in the Trust's
Registration Statement or as the Board of Trustees may direct from time to time.
It is recognized that, in providing the Fund with investment supervision of the
placing of orders for portfolio
- 3 -
<PAGE>
transactions, the Sub-Adviser will give primary consideration to securing the
best qualitative execution, 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. Consistent
with this policy, the Sub-Adviser may select brokers or dealers who also provide
brokerage and research services (as those terms are defined in Section 28(e) of
the Securities Exchange Act of 1934) to the other accounts over which it
exercises investment discretion. It is understood that neither the Trust, the
Adviser nor the Sub-Adviser have adopted a formula for allocation of the Fund's
investment transaction business. It is also understood that it is desirable for
the Fund that the Sub-Adviser have access to supplemental investment and market
research and security and economic analyses provided by certain brokers who may
execute brokerage transactions at a higher commission to the Fund than may
result when allocating brokerage to other brokers on the basis of seeking the
lowest commission. Therefore, the Sub-Adviser is authorized to place orders for
the purchase and sale of securities for the Fund with such certain brokers,
subject to review by the Trust's Board of Trustees from time to time with
respect to the extent and continuation of this practice, provided that the
Sub-Adviser determines in good faith that the amount of the commission is
reasonable in relation to the value of the brokerage and research services
provided by the executing broker or dealer. The determination may be viewed in
terms of either a particular transaction or the Sub-Adviser's overall
responsibilities with respect to the Fund and to other accounts over which it
exercises investment discretion. It is understood that although the information
may be useful to the Fund and the Sub-Adviser, it is not possible to place a
dollar value on such information. Consistent with the Rules of Fair Practice of
the National Association of Securities Dealers, Inc., and subject to seeking
best qualitative execution, the Sub- Adviser may give consideration to sales of
shares of the Fund as a factor in the selection of brokers and dealers to
execute portfolio transactions of the Fund.
On occasions when the Sub-Adviser deems the purchase or sale of a security
to be in the best interest of the Fund as well as other clients, the
Sub-Adviser, to the extent permitted by applicable laws and regulations, may,
but shall be under no obligation to, aggregate the securities to be sold or
purchased in order to obtain the most favorable price or lower brokerage
commissions and efficient execution. In such event, allocation of the securities
so purchased or sold, as well as expenses incurred in the transaction, will be
made by the Sub-Adviser in the manner it considers to be the most equitable and
consistent with its fiduciary obligations to the Fund and to such other clients.
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<PAGE>
Consistent with the policies described in this paragraph 3, the Sub-Adviser
may execute any portfolio transactions for the Fund's account with a broker or
dealer which is an "affiliated person" (as defined in the Act) of the Trust, the
Adviser or the Sub-Adviser, subject to review by the Trust's Board of Trustees
from time to time with respect to the extent and continuation of this practice.
The Adviser agrees that it will provide the Sub- Adviser with a list of brokers
and dealers which are "affiliated persons" of the Trust or the Adviser.
For each fiscal quarter of the Fund, the Sub-Adviser shall render reports
to the Adviser and the Trust's Board of Trustees of the total brokerage business
placed by the Fund and the manner in which the allocation has been accomplished.
4. Expenses of the Fund. The Adviser will pay all of the expenses of the
Fund (including the fees and charges of third-party service providers, including
the Sub-Adviser engaged pursuant to paragraph 2 above) except the following:
interest; taxes; brokerage commissions; extraordinary expenses; and the fees and
expenses, including ordinary counsel fees, of those Trustees who are not
"interested persons" as defined in the 1940 Act (hereinafter referred to as the
"Independent Trustees"). The Adviser will provide the Trust with such facilities
and personnel as may, from time to time, be required to carry on the business of
the Fund including but not limited to office space, office furniture, fixtures
and equipment, office supplies, computer hardware and software and salaried and
hourly paid personnel. The Adviser may at its expense employ others to provide
all or any part of such facilities and personnel.
5. Activities and Affiliates of the Adviser.
A. The services of the Adviser hereunder are not to be deemed
exclusive, and the Adviser and any of its affiliates shall be
free to render similar services to others. The Adviser shall
use the same skill and care in the management of the Fund's
assets as it uses in the administration of other accounts to
which it provides asset management, consulting and portfolio
manager selection services, but shall not be obligated to give
the Fund more favorable or preferential treatment vis-a-vis
its other clients.
B. Subject to and in accordance with the Agreement and
Declaration of Trust and Bylaws of the Trust and to Section
10(a) of the 1940 Act, it is understood that Trustees,
officers and agents of the Trust and shareholders of the Fund
are or may be interested in the Adviser or its affiliates as
directors, officers, agents, stockholders or partners of the
Adviser or its
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<PAGE>
affiliates; that directors, officers, agents, stockholders or
partners of the Adviser or its affiliates are or may be
interested in the Trust as Trustees, officers, agents,
shareholders or otherwise; that the Adviser or its affiliates
may be interested in the Trust as shareholders or otherwise;
and that the effect of any such interests shall be governed by
said Declaration of Trust, Bylaws and the 1940 Act.
6. Compensation of Adviser. (a) As full compensation for the services and
such facilities as may from time to time be furnished by the Adviser under this
Agreement, the Capitol Square Bond Fund agrees to pay to 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, less the accrued fees and expenses,
including ordinary counsel fees, of the Independent Trustees of the Trust. Such
fee shall be accrued daily and payable monthly. For purposes of calculating such
fee, such net asset value shall be determined by taking the average of all
determinations of net asset value made in the manner provided in the Fund's
current Prospectus and Statement of Additional Information.
(b) For any period less than a full month during which this Agreement is in
effect the compensation payable to the Adviser hereunder shall be prorated
according to the proportion which such period bears to a full month.
(c) The Adviser agrees that if total expenses of the Fund for any fiscal
year exceed the permissible limits applicable to the Fund in any state in which
the Fund's shares are then qualified for sale, the compensation due the Adviser
for such fiscal year shall be reduced by the amount of such excess by a
reduction or refund thereof at the time such compensation is payable after the
end of each calendar month during such fiscal year of the Fund, subject to
readjustment during the Fund's fiscal year.
7. Liabilities of the Adviser.
A. In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or duties
hereunder on the part of the Adviser, the Adviser shall not be
subject to liability to the Fund or to any shareholder of the
Fund for any act or omission in the course of, or connected
with, rendering services hereunder or for any losses that may
be sustained in the purchase, holding or sale of any security.
B. No provision of this Agreement shall be construed to protect
any Trustee, director, officer or agent of the Trust or the
Adviser from liability in violation of Sections 17(h) and (i)
of the 1940 Act.
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<PAGE>
8. Renewal and Termination.
A. This Agreement shall become effective on the date first
written above and shall remain in full force and effect for
two (2) years from the date hereof and from year to year
thereafter, but only so long as such continuance is
specifically approved at least annually by the vote of a
majority of the Trustees who are not interested persons of the
Trust, the Adviser or the Sub-Adviser, cast in person at a
meeting called for the purpose of voting on such approval and
by a vote of the Board of Trustees or of a majority of the
outstanding voting securities of the Fund. The aforesaid
provision that this Agreement may be continued "annually"
shall be construed in a manner consistent with the Act and the
rules and regulations thereunder.
B. This Agreement:
(a) may at any time be terminated, without the payment of
any penalty, either by vote of the Board of Trustees
of the Trust or by vote of a majority of the
outstanding voting securities of the Fund, on sixty
(60) days' written notice to the Adviser;
(b) shall immediately terminate in the event of its
assignment; and
(c) may be terminated by the Adviser on sixty (60) days'
written notice to the Trust.
C. As used in this Section 8, the terms "assignment," "interested
person" and "vote of a majority of the outstanding voting
securities" shall have the meanings set forth in the 1940 Act
and the rules and regulations thereunder.
D. Any notice under this Agreement shall be given in writing
addressed and delivered or mailed postpaid, to the other party
to this Agreement at its principal place of business.
9. Severability. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby.
10. Limitation of Liability. It is expressly agreed that the obligations of
the Trust hereunder shall not be binding upon any of the Trustees, shareholders,
nominees, officers, agents or employees of the Trust, personally, but bind only
the trust property of the Trust, as provided in the Declaration of Trust of
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<PAGE>
the Trust. The execution and delivery of this Agreement have been authorized by
the Trustees and shareholders of the Trust and signed by the officers of the
Trust, acting as such, and neither such authorization by such Trustees and
shareholders nor such execution and delivery by such officers shall be deemed to
have been made by any of them individually or to impose any liability on any of
them personally, but shall bind only the trust property of the Trust as provided
in its Declaration of Trust.
11. Use of Name. The Adviser may use the name "Capitol Square" or any
derivation thereof in connection with another business enterprise, including any
registered investment company with which the Adviser is, or may become
associated, so long as such use is permitted under the Act and other applicable
law. The Trust will discontinue any use of the name "Capitol Square" if the
Adviser ceases to be employed as the Trust's investment manager.
12. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, and no amendment of this
Agreement shall be effective until approved by vote of the holders of a majority
of the outstanding voting securities of the Fund and by the Board of Trustees,
including a majority of the Independent Trustees, cast in person at a meeting
called for the purpose of voting on such approval.
13. Governing Law. To the extent that state law has not been preempted by
the provisions of any law of the United States heretofore or hereafter enacted,
as the same may be amended from time to time, this Agreement shall be
administered, construed and enforced according to the laws of the State of Ohio.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed, as of the day and year first written above.
CAPITOL SQUARE INVESTMENT TRUST
ATTEST: By:/s/ Roderick H. Dillon, Jr.
/s/ Tina D. Hosking Title: President
DILLON CAPITAL MANAGEMENT
ATTEST: By:/s/ Roderick H. Dillon, Jr.
/s/ Tina D. Hosking Title: President
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<PAGE>
SUB-ADVISORY AGREEMENT
Midwest Group Financial Services, Inc.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
Ladies and Gentlemen:
Capital Square Investment Trust (the "Trust") is a diversified open-end
management investment company registered under the Investment Company Act of
1940, as amended (the "1940 Act"), and subject to the rules and regulations
promulgated thereunder. The Trust's shares of beneficial interest are divided
into separate series or funds. The Capitol Square Bond Fund (the "Fund") has
been established as one series of the Trust.
Dillon Capital Management (the "Adviser") acts as the investment manager
for the Fund pursuant to the terms of an Advisory Agreement. The Adviser is
responsible for the coordination of investment of the Fund's assets in portfolio
securities. The Adviser is also responsible for retaining and supervising third
parties to make specific portfolio purchases and sales for the investment
portfolio of the Fund, subject to approval by the Board of Trustees of the
Trust.
1. Appointment as Sub-Adviser. The Trust and the Adviser, being duly
authorized, hereby appoint and employ Midwest Group Financial Services, Inc.
(the "Sub-Adviser") as the discretionary portfolio manager of the Fund, on the
terms and conditions set forth herein.
2. Acceptance of Appointment; Standard of Performance. The Sub-Adviser
accepts the appointment as the discretionary portfolio manager of the Fund and
agrees to use its best professional judgment to make timely investment decisions
for the Fund in accordance with the provisions of this Agreement.
3. Portfolio Management Services of Sub-Adviser. The Sub- Adviser is hereby
employed and authorized to select portfolio securities for investment by the
Fund, to purchase and sell securities of the Fund, and upon making any purchase
or sale decision, to place orders for the execution of such portfolio
transactions in accordance with paragraphs 5 and 6 hereof. In providing
portfolio management services to the Fund, the Sub- Adviser shall be subject to
such investment restrictions as are set forth in the 1940 Act and the rules
thereunder, the Internal Revenue Code, applicable state securities laws, the
supervision
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<PAGE>
and control of the Board of Trustees of the Trust, such specific instructions as
the Board of Trustees may adopt and communicate to the Sub-Adviser, the
investment objective, policies and restrictions of the Fund furnished pursuant
to paragraph 4, the provisions of Schedule A hereto and instructions from the
Adviser. The Sub-Adviser is not authorized by the Trust to take any action,
including the purchase or sale of securities for the Fund, in contravention of
any restriction, limitation, objective, policy or instruction described in the
previous sentence. The Sub-Adviser shall maintain on behalf of the Fund the
records listed in Schedule A hereto (as amended from time to time). At the
Trust's reasonable request, the Sub-Adviser will consult with the Adviser with
respect to any decision made by it with respect to the investments of the Fund.
4. Investment Objective, Policies and Restrictions. The Trust will provide
the Sub-Adviser with the information concerning the investment objective,
policies and restrictions applicable to the Fund as contained in the Trust's
registration statement under the 1940 Act and the Securities Act of 1933, and
any instructions adopted by the Board of Trustees supplemental thereto. The
Trust will provide the Sub-Adviser with such further information concerning the
investment objective, policies and restrictions applicable thereto as the
Sub-Adviser may from time to time reasonably request. The Trust retains the
right, on written notice to the Sub-Adviser from the Trust or the Adviser, to
modify any such objective, policies or restrictions in any manner at any time.
5. Transaction Procedures. All transactions will be consummated by payment
to or delivery by Star Bank, N.A. or any successor custodian (the "Custodian"),
or such depositories or agents as may be designated by the Custodian in writing,
as custodian for the Fund, of all cash and/or securities due to or from the
Fund, and the Sub-Adviser shall not have possession or custody thereof. The
Sub-Adviser shall advise the Custodian and confirm in writing to the Trust and
to the Adviser all investment orders for the Fund placed by it with brokers and
dealers. The Sub-Adviser shall issue to the Custodian such instructions as may
be appropriate in connection with the settlement of any transaction initiated by
the Sub-Adviser. It shall be the responsibility of the Sub-Adviser to take
appropriate action if the Custodian fails to confirm in writing proper execution
of the instructions.
6. Allocation of Brokerage. The Sub-Adviser shall have the authority and
discretion to select brokers and dealers to execute portfolio transactions
initiated by the Sub-Adviser, and for the selection of the markets on or in
which the transactions will be executed.
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<PAGE>
A. In doing so, the Sub-Adviser will give primary consideration to
securing the best qualitative execution, 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. Consistent with this policy, the Sub-Adviser may select brokers or
dealers who also provide brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Exchange Act of 1934) to the other
accounts over which it exercises investment discretion. It is understood that
neither the Trust, the Adviser nor the Sub-Adviser have adopted a formula for
allocation of the Fund's investment transaction business. It is also understood
that it is desirable for the Fund that the Sub-Adviser have access to
supplemental investment and market research and security and economic analyses
provided by certain brokers who may execute brokerage transactions at a higher
commission to the Fund than may result when allocating brokerage to other
brokers on the basis of seeking the lowest commission. Therefore, the
Sub-Adviser is authorized to place orders for the purchase and sale of
securities for the Fund with such certain brokers, subject to review by the
Trust's Board of Trustees from time to time with respect to the extent and
continuation of this practice, provided that the Sub-Adviser determines in good
faith that the amount of the commission is reasonable in relation to the value
of the brokerage and research services provided by the executing broker or
dealer. The determination may be viewed in terms of either a particular
transaction or the Sub-Adviser's overall responsibilities with respect to the
Fund and to the other accounts over which it exercises investment discretion. It
is understood that although the information may be useful to the Fund and the
Sub-Adviser, it is not possible to place a dollar value on such information.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to seeking best qualitative execution, the
Sub-Adviser may give consideration to sales of shares of the Fund as a factor in
the selection of brokers and dealers to execute portfolio transactions of the
Fund.
B. On occasions when the Sub-Adviser deems the purchase or sale of a
security to be in the best interest of the Fund as well as other clients, the
Sub-Adviser, to the extent permitted by applicable laws and regulations, may,
but shall be under no obligation to, aggregate the securities to be sold or
purchased in order to obtain the most favorable price or lower brokerage
commissions and efficient execution. In such event, allocation of the securities
so purchased or sold, as well as expenses incurred in the transaction, will be
made by the Sub- Adviser in the manner it considers to be the most equitable and
consistent with its fiduciary obligations to the Fund and to such other clients.
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<PAGE>
C. Consistent with the policies described in this paragraph 6, the
Sub-Adviser may execute any portfolio transactions for the Fund's account with a
broker or dealer which is an "affiliated person" (as defined in the 1940 Act) of
the Trust, the Adviser or the Sub-Adviser, subject to review by the Trust's
Board of Trustees from time to time with respect to the extent and continuation
of this practice. The Adviser agrees that it will provide the Sub-Adviser with a
list of brokers and dealers which are "affiliated persons" of the Trust or the
Adviser.
D. For each fiscal quarter of the Fund, the Sub- Adviser shall prepare
and render reports to the Adviser and the Trust's Board of Trustees of the total
brokerage business placed by the Fund and the manner in which the allocation has
been accomplished. Such reports shall set forth at a minimum the information
required to be maintained by Rule 31a-1(b)(9) under the 1940 Act.
7. Proxies. The Trust will vote all proxies solicited by or with respect to
the issuers of securities in which assets of the Fund may be invested from time
to time. At the Trust's request, the Sub-Adviser shall provide the Trust with
its recommendations as to the voting of such proxies.
8. Reports to the Sub-Adviser. The Trust will provide the Sub-Adviser with
such periodic reports concerning the status of the Fund as the Sub-Adviser may
reasonably request.
9. Fees for Services. For performing its services under this Agreement, the
Adviser shall pay the Sub-Adviser a monthly fee in accordance with the schedule
attached hereto as Schedule B. The Sub-Adviser's fees shall be payable monthly
within ten days following the end of each month. Pursuant to the provisions of
the Advisory Agreement between the Trust and the Adviser, the Adviser is solely
responsible for the payment of fees to the Sub- Adviser, and the Sub-Adviser
agrees to seek payment of the Sub- Adviser's fees solely from the Adviser.
10. Other Investment Activities of the Sub-Adviser. The Trust acknowledges
that the Sub-Adviser or one or more of its affiliates may have investment
responsibilities or render investment advice to or perform other investment
advisory services for other individuals or entities and that the Sub- Adviser,
its affiliates or any of its or their directors, officers, agents or employees
may buy, sell or trade in any securities for its or their respective accounts
("Affiliated Accounts"). Subject to the provisions of paragraph 2 hereof, the
Trust agrees that the Sub-Adviser or its affiliates may give advice or exercise
investment responsibility and take such other action with respect to other
Affiliated Accounts which may differ
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<PAGE>
from the advice given or the timing or nature of action taken with respect to
the Fund, provided that the Sub-Adviser acts in good faith, and provided
further, that it is the Sub-Adviser's policy to allocate, within its reasonable
discretion, investment opportunities to the Fund over a period of time on a fair
and equitable basis relative to the Affiliated Accounts, taking into account the
investment objective and policies of the Fund and any specific investment
restrictions applicable thereto. The Trust acknowledges that one or more of the
Affiliated Accounts may at any time hold, acquire, increase, decrease, dispose
of or otherwise deal with positions in investments in which the Fund may have an
interest from time to time, whether in transactions which involve the Fund or
otherwise. The Sub-Adviser shall have no obligation to acquire for the Fund a
position in any investment which any Affiliated Account may acquire, and the
Trust shall have no first refusal, co-investment or other rights in respect of
any such investment, either for the Fund or otherwise.
11. Certificate of Authority. The Trust, the Adviser and the Sub-Adviser
shall furnish to each other from time to time certified copies of the
resolutions of their Board of Trustees or Board of Directors or executive
committees, as the case may be, evidencing the authority of officers and
employees who are authorized to act on behalf of the Trust, the Adviser and/or
the Sub-Adviser.
12. Limitation of Liability. The Sub-Adviser shall not be liable for any
action taken, omitted or suffered to be taken by it in its reasonable judgment,
in good faith and believed by it to be authorized or within the discretion or
rights or powers conferred upon it by this Agreement, or in accordance with (or
in the absence of) specific directions or instructions from the Trust, provided,
however, that such acts or omissions shall not have resulted from the
Sub-Adviser's willful misfeasance, bad faith or gross negligence, a violation of
the standard of care established by and applicable to the Sub-Adviser in its
actions under this Agreement or breach of its duty or of its obligations
hereunder. Nothing in this paragraph 12 shall be construed in a manner
inconsistent with Sections 17(h) and (i) of the 1940 Act.
13. Confidentiality. Subject to the duty of the Sub- Adviser and the Trust
to comply with applicable law, including any demand of any regulatory or taxing
authority having jurisdiction, the parties hereto shall treat as confidential
all information pertaining to the Fund and the actions of the Sub- Adviser and
the Trust in respect thereof.
14. Assignment. No assignment of this Agreement shall be made by the
Sub-Adviser, and this Agreement shall terminate automatically in the event of
such assignment. The Sub-Adviser shall notify the Trust in writing sufficiently
in advance of any
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<PAGE>
proposed change of control, as defined in Section 2(a)(9) of the 1940 Act, as
will enable the Trust to consider whether an assignment will occur, and to take
the steps necessary to enter into a new contract with the Sub-Adviser.
15. Representations, Warranties and Agreements of the Trust. The Trust
represents, warrants and agrees that:
A. The Sub-Adviser has been duly appointed by the Board of Trustees of
the Trust to provide investment services to the Fund as contemplated hereby.
B. The Trust will deliver to the Sub-Adviser a true and complete copy
of the then current prospectus and statement of additional information for the
Fund as effective from time to time and such other documents or instruments
governing the investments of the Fund and such other information as is necessary
for the Sub-Adviser to carry out its obligations under this Agreement.
C. The Trust is currently in compliance and shall at all times comply
with the requirements imposed upon the Fund by applicable laws and regulations.
16. Representations, Warranties and Agreements of the Sub- Adviser. The
Sub-Adviser represents, warrants and agrees that:
A. The Sub-Adviser is registered as an "investment adviser" under the
Investment Advisers Act of 1940.
B. The Sub-Adviser will maintain, keep current and preserve on behalf
of the Trust, in the manner and for the time periods required or permitted by
the Act, the records identified in Schedule A. The Sub-Adviser agrees that such
records (unless otherwise indicated on Schedule A) are the property of the
Trust, and will be surrendered to the Trust promptly upon request.
C. The Sub-Adviser will complete such reports concerning purchases or
sales of securities on behalf of the Fund as the Adviser or the Trust may from
time to time require to ensure compliance with the Act, the Internal Revenue
Code and applicable state securities laws.
D. The Sub-Adviser has adopted a written code of ethics complying with
the requirements of Rule 17j-1 under the Act and will provide the Trust with a
copy of the code of ethics and evidence of its adoption. Within forty-five (45)
days of the end of the last calendar quarter of each year while this Agreement
is in effect, the president or a vice president of the Sub-Adviser shall certify
to the Trust that the Sub-Adviser has complied with the requirements of Rule
17j-1 during the previous year and that there has been no violation of the
Sub-Adviser's
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<PAGE>
code of ethics or, if such a violation has occurred, that appropriate action was
taken in response to such violation. Upon the written request of the Trust, the
Sub-Adviser shall submit to the Trust the reports required to be made to the
Sub-Adviser by Rule 17j-1(c)(1).
E. Upon request of the Trust, the Sub-Adviser will furnish a copy of
any amendment to its Form ADV to the Trust and to the Adviser.
F. The Sub-Adviser will immediately notify the Trust and the Adviser
of the occurrence of any event which would disqualify the Sub-Adviser from
serving as an investment adviser of an investment company pursuant to Section
9(a) of the 1940 Act or otherwise.
17. Amendment. This Agreement may be amended at any time, but only by
written agreement between the Sub-Adviser, the Adviser and the Trust, which
amendment, other than amendments to Schedule A, is subject to the approval of
the Board of Trustees and the shareholders of the Fund in the manner required by
the 1940 Act and the rules thereunder, subject to any applicable exemptive order
of the Securities and Exchange Commission modifying the provisions of the Act
with respect to approval of amendments to this Agreement.
18. Effective Date; Term. This Agreement shall become effective on the date
of its execution and shall remain in full force and effect for two (2) years
from the date hereof and from year to year thereafter but only so long as such
continuance is specifically approved at least annually by the vote of a majority
of the Trustees who are not interested persons of the Trust, the Adviser or the
Sub-Adviser, cast in person at a meeting called for the purpose of voting on
such approval, and by a vote of the Board of Trustees or of a majority of the
outstanding voting securities of the Fund. The aforesaid requirement that this
Agreement may be continued "annually" shall be construed in a manner consistent
with the Act and the rules and regulations thereunder.
19. Termination. This Agreement may be terminated by either party hereto,
without the payment of any penalty, immediately upon written notice to the other
in the event of a breach of any provision thereof by the party so notified, or
otherwise upon sixty (60) days' written notice to the other, but any such
termination shall not affect the status, obligations or liabilities of any party
hereto to the other.
20. Shareholder Liability. The Sub-Adviser is hereby expressly put on
notice of the limitation of shareholder liability as set forth in the
Declaration of Trust of the Trust and agrees that obligations assumed by the
Trust pursuant to this
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<PAGE>
Agreement shall be limited in all cases to the Trust and its assets. The
Sub-Adviser agrees that it shall not seek satisfaction of any such obligations
from the shareholders or any individual shareholder of the Fund, nor from the
Trustees or any individual Trustee of the Trust.
21. Definitions. As used in paragraphs 14 and 18 of this Agreement, the
terms "assignment," interested person" and "vote of a majority of the
outstanding voting securities" shall have the meanings set forth in the 1940 Act
and the rules and regulations thereunder.
22. Applicable Law. To the extent that state law is not preempted by the
provisions of any law of the United States heretofore or hereafter enacted, as
the same may be amended from time to time, this Agreement shall be administered,
construed and enforced according to the laws of the State of Ohio.
DILLON CAPITAL MANAGEMENT CAPITOL SQUARE
INVESTMENT TRUST
By:/s/ Roderick H. Dillon, Jr. By: Roderick H. Dillon, Jr.
Title: President Title: President
Date: August 27, 1996 Date: August 27, 1996
ACCEPTANCE
The foregoing Agreement is hereby accepted.
MIDWEST GROUP FINANCIAL
SERVICES, INC.
By:/s/ Robert G. Dorsey
Title: Treasurer
Date: August 27, 1996
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<PAGE>
SCHEDULE A
RECORDS TO BE MAINTAINED BY THE SUB-ADVISER
1. (Rule 31a-1(b)(5) and (6)) A record of each brokerage order, and all
other portfolio purchases or sales, given by the Sub-Adviser on behalf of the
Fund for, or in connection with, the purchase or sale of securities, whether
executed or unexecuted. Such records shall include:
A. The name of the broker;
B. The terms and conditions of the order and of any
modification or cancellation thereof;
C. The time of entry or cancellation;
D. The price at which executed;
E. The time of receipt of a report of execution; and
F. The name of the person who placed the order on behalf
of the Fund.
2. (Rule 31a-1(b)(9)) A record for each fiscal quarter, completed within
ten (10) days after the end of the quarter, showing specifically the basis or
bases upon which the allocation of orders for the purchase and sale of portfolio
securities to named brokers or dealers was effected, and the division of
brokerage commissions or other compensation on such purchase and sale orders.
Such record:
A. Shall include the consideration given to:
(i) The sale of shares of the Fund by brokers or
dealers.
(ii) The supplying of services or benefits by brokers
or dealers to:
(a) The Trust;
(b) the Adviser;
(c) the Sub-Adviser;
(d) any person affiliated with the foregoing
persons.
(iii) Any other consideration other than the technical
qualifications of the brokers and dealers as
such.
B. Shall show the nature of the services or benefits made
available.
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C. Shall describe in detail the application of any general or
specific formula or other determinant used in arriving at such
allocation of purchase and sale orders and such division of
brokerage commissions or other compensation.
D. The name of the person responsible for making the
determination of such allocation and such division of
brokerage commissions or other compensation.
3. (Rule 31a-1(b)(10)) A record in the form of an appropriate memorandum
identifying the person or persons, committees or groups authorizing the purchase
or sale of portfolio securities. Where an authorization is made by a committee
or group, a record shall be kept of the names of its members who participate in
the authorization. There shall be retained as part of this record: any
memorandum, recommendation or instruction supporting or authorizing the purchase
or sale of portfolio securities and such other information as is appropriate to
support the authorization.*
4. (Rule 31a-1(f)) Such accounts, books and other documents as are required
to be maintained by registered investment advisers by rules adopted under
Section 204 of the Investment Advisers Act of 1940, to the extent such records
are necessary or appropriate to record the Sub-Adviser's transactions with
respect to the Fund.
*Such information might include: the current Form 10-K, annual and
quarterly reports, press releases, reports by analysts and from brokerage firms
(including their recommendation; i.e., buy, sell, hold) or any internal reports
or portfolio adviser reviews.
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SCHEDULE B
COMPENSATION
Dillon will pay the Sub-Adviser twelve and one-half percent (12 1/2%) of
the net management fees it receives for its services to the Fund. For purposes
of this Agreement, net management fees are defined as gross management fees less
operating costs. Operating costs will include the following:
- 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, such as printing
and typesetting
- Transfer agent out-of-pocket expenses, including, but not
limited to postage, envelopes, checks, drafts, statements,
telephone lines, outside mailing firms and outside record
storage
- Sunguard Fund accounting licensing fees
- Any other direct costs incurred in connection with the
operation and administration of the Trust
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CUSTODY AGREEMENT
This AGREEMENT, dated as of August 27, 1996, by and between CAPITOL
SQUARE INVESTMENT TRUST (the "Trust"), a business trust organized under the laws
of the State of Ohio, acting with respect to CAPITOL SQUARE LARGE CAP FUND,
CAPITOL SQUARE SMALL CAP FUND, AND CAPITOL SQUARE BOND FUND (individually, a
"Fund" and, collectively, the "Funds"), each of them a series of the Trust and
each of them operated and administered by the Trust, Dillon Capital Management
("Dillon"), an Ohio limited partnership, and STAR BANK, N.A., a national banking
association (the "Custodian").
W I T N E S S E T H:
WHEREAS, the Trust desires that the Funds' Securities and cash be held
and administered by the Custodian pursuant to this Agreement; and
WHEREAS, the Trust is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"); and
WHEREAS, Dillon is registered as an investment adviser under the
Investment Advisers Act of 1940 and provides advisory services to the Trust
pursuant to Advisory Agreements; and
WHEREAS, under the Advisory Agreements, Dillon is responsible for
retaining and compensating agents to provide non- advisory services to the
Trust; and
<PAGE>
WHEREAS, the Custodian represents that it is a bank having the
qualifications prescribed in Section 26(a)(i) of the 1940 Act;
NOW, THEREFORE, in consideration of the mutual agreements herein made,
the Trust, Dillon and the Custodian hereby agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
1.1 "Authorized Person" means any Officer or other person duly
authorized by resolution of the Board of Trustees to give Oral Instructions and
Written Instructions on behalf of the Funds and named in Exhibit A hereto or in
such resolutions of the Board of Trustees, certified by an Officer, as may be
received by the Custodian from time to time.
1.2 "Board of Trustees" shall mean the Trustees from time to time
serving under the Trust's Agreement and Declaration of Trust, as from time to
time amended.
1.3 "Book-Entry System" shall mean a federal book-entry system as
provided in Subpart O of Treasury Circular No. 300, 31 CFR 306, in Subpart B of
31 CFR Part 350, or in such book-entry regulations of federal agencies as are
substantially in the form of such Subpart O.
1.4 "Business Day" shall mean any day recognized as a settlement day
by The New York Stock Exchange, Inc. and any other day for which the Trust
computes the net asset value of Shares of any Fund.
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1.5 "Fund Custody Account" shall mean any of the accounts in the name
of the Trust, which is provided for in Section 3.2 below.
1.6 "NASD" shall mean The National Association of Securities Dealers,
Inc.
1.7 "Officer" shall mean the President, any Vice President, any
Assistant Vice President, the Secretary, any Assistant Secretary, the
Treasurer, or any Assistant Treasurer of the Trust.
1.8 "Oral Instructions" shall mean instructions orally transmitted to
and accepted by the Custodian because such instructions are: (i) reasonably
believed by the Custodian to have been given by an Authorized Person, (ii)
recorded and kept among the records of the Custodian made in the ordinary course
of business and (iii) orally confirmed by the Custodian. The Trust shall cause
all Oral Instructions to be confirmed by Written Instructions prior to the end
of the next Business Day. If such Written Instructions confirming Oral
Instructions are not received by the Custodian prior to a transaction, it shall
in no way affect the validity of the transaction or the authorization thereof by
the Trust. If Oral Instructions vary from the Written Instructions which purport
to confirm them, the Custodian shall notify the Trust of such variance but such
Oral Instructions will govern unless the Custodian has not yet acted.
1.9 "Proper Instructions" shall mean Oral Instructions or Written
Instructions. Proper Instructions may be continuing Written Instructions when
deemed appropriate by both parties.
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1.10 "Securities Depository" shall mean The Depository Trust Company
and (provided that Custodian shall have received a copy of a resolution of the
Board of Trustees, certified by an Officer, specifically approving the use of
such clearing agency as a depository for the Funds) any other clearing agency
registered with the Securities and Exchange Commission under Section 17A of the
Securities and Exchange Act of 1934 as amended (the "1934 Act"), which acts as a
system for the central handling of Securities where all Securities of any
particular class or series of an issuer deposited within the system are treated
as fungible and may be transferred or pledged by bookkeeping entry without
physical delivery of the Securities.
1.11 "Securities" shall include, without limitation, common and
preferred stocks, bonds, call options, put options, debentures, notes, bank
certificates of deposit, bankers' acceptances, mortgage-backed securities or
other obligations, and any certificates, receipts, warrants or other instruments
or documents representing rights to receive, purchase or subscribe for the same,
or evidencing or representing any other rights or interests therein, or any
similar property or assets that the Custodian has the facilities to clear and to
service.
1.12 "Shares" shall mean, with respect to a Fund, the units of
beneficial interest issued by the Trust on account of such Fund.
1.13 "Sub-Custodian" shall mean and include (i) any branch of a
"qualified U.S. bank," as that term is defined in Rule 17f-5 under the 1940 Act,
(ii) any "eligible foreign custodian," as
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that term is defined in Rule 17f-5 under the 1940 Act, approved by the Board of
Trustees and having a contract with the Custodian which contract has been
approved by the Board of Trustees, and (iii) any securities depository or
clearing agency, incorporated or organized under the laws of a country other
than the United States, which operates the central system for handling of
securities or equivalent book-entries in that country or a transnational system
for the central handling of securities or equivalent book-entries, which
securities depository or clearing agency has been approved by the Board of
Trustees; provided, that the Custodian, or a Sub-Custodian has entered into an
agreement with such securities depository or clearing agency.
1.14 "Written Instructions" shall mean (i) written communications
actually received by the Custodian and signed by an Authorized Person, or (ii)
communications by telex or any other such system from one or more persons
reasonably believed by the Custodian to be Authorized Persons, or (iii)
communications between electro-mechanical or electronic devices provided that
the use of such devices and the procedures for the use thereof shall have been
approved by resolutions of the Board of Trustees, a copy of which, certified by
an Officer, shall have been delivered to the Custodian.
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ARTICLE II
APPOINTMENT OF CUSTODIAN
2.1 Appointment. The Trust and Dillon hereby constitute and appoint the
Custodian as custodian of all Securities and cash owned by or in the possession
of the Funds at any time during the period of this Agreement.
2.2 Acceptance. The Custodian hereby accepts appointment as such
custodian and agrees to perform the duties thereof as hereinafter set forth.
2.3 Documents to be Furnished. The following documents, including any
amendments thereto, will be provided contemporaneously with the execution of the
Agreement to the Custodian by the Trust:
a. A copy of the Declaration of Trust of the Trust
certified by the Secretary;
b. A copy of the Bylaws of the Trust certified by the
Secretary;
c. A copy of the resolution of the Board of Trustees
of the Trust appointing the Custodian, certified
by the Secretary;
d. A copy of the then current Prospectus of the
Funds; and
e. A certification of the President and Secretary of
the Trust setting forth the names and signatures
of the current Officers of the Trust and other
Authorized Persons.
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<PAGE>
2.4 Notice of Appointment of Dividend and Transfer Agent. The Trust
and Dillon agree to notify the Custodian in writing of the appointment,
termination or change in appointment of any Dividend and Transfer Agent of the
Funds.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
3.1 Segregation. All Securities and non-cash property held by the
Custodian for the account of a Fund (other than Securities maintained in a
Securities Depository or Book-Entry System) shall be physically segregated from
other Securities and non-cash property in the possession of the Custodian
(including the Securities and non-cash property of the other Funds) and shall be
identified as subject to this Agreement.
3.2 Fund Custody Accounts. As to each Fund, the Custodian shall open
and maintain in its trust department a custody account in the name of the Trust
coupled with the name of such Fund, subject only to draft or order of the
Custodian, in which the Custodian shall enter and carry all Securities, cash and
other assets of such Fund which are delivered to it.
3.3 Appointment of Agents. In its discretion, the Custodian may appoint
one or more Sub-Custodians to act as Securities Depositories or as
sub-custodians to hold Securities and cash of the Funds and to carry out such
other provisions of this Agreement as it may determine, provided, however, that
the appointment of any such agents and maintenance of any Securities and cash of
the Fund shall be at the Custodian's expense and
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<PAGE>
shall not relieve the Custodian of any of its obligations or liabilities under
this Agreement.
3.4 Delivery of Assets to Custodian. The Trust shall deliver, or cause
to be delivered, to the Custodian all of the Funds' Securities, cash and other
assets, including (a) all payments of income, payments of principal and capital
distributions received by the Funds with respect to such Securities, cash or
other assets owned by the Funds at any time during the period of this Agreement,
and (b) all cash received by the Funds for the issuance, at any time during such
period, of Shares. The Custodian shall not be responsible for such Securities,
cash or other assets until actually received by it.
3.5 Securities Depositories and Book-Entry Systems. The
Custodian may deposit and/or maintain Securities of the Funds in a Securities
Depository or in a Book-Entry System, subject to the following provisions:
(a) Prior to a deposit of Securities of the Funds in any
Securities Depository or Book-Entry System, the Trust
shall deliver to the Custodian a resolution of the
Board of Trustees, certified by an Officer, authorizing
and instructing the Custodian on an on-going basis to
deposit in such Securities Depository or Book-Entry
System all Securities eligible for deposit therein and
to make use of such Securities Depository or Book-Entry
System to the extent possible and practical in
connection with its performance hereunder, including,
without limitation, in connection with settlements of
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<PAGE>
purchases and sales of Securities, loans of Securities, and
deliveries and returns of collateral consisting of Securities.
(b) Securities of the Funds kept in a Book-Entry System or
Securities Depository shall be kept in an account ("Depository
Account") of the Custodian in such Book- Entry System or
Securities Depository which includes only assets held by the
Custodian as a fiduciary, custodian or otherwise for
customers.
(c) The records of the Custodian with respect to Securities of a
Fund maintained in a Book-Entry System or Securities
Depository shall, by book-entry, identify such Securities as
belonging to such Fund.
(d) If Securities purchased by a Fund are to be held in a
Book-Entry System or Securities Depository, the
Custodian shall pay for such Securities upon (i)
receipt of advice from the Book-Entry System or
Securities Depository that such Securities have been
transferred to the Depository Account, and (ii) the
making of an entry on the records of the Custodian to
reflect such payment and transfer for the account of
such Fund. If Securities sold by a Fund are held in a
Book-Entry System or Securities Depository, the
Custodian shall transfer such Securities upon (i)
receipt of advice from the Book-Entry System or
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<PAGE>
Securities Depository that payment for such Securities has
been transferred to the Depository Account, and (ii) the
making of an entry on the records of the Custodian to reflect
such transfer and payment for the account of such Fund.
(e) The Custodian shall provide the Trust with copies of any
report (obtained by the Custodian from a Book-Entry System or
Securities Depository in which Securities of the Funds are
kept) on the internal accounting controls and procedures for
safeguarding Securities deposited in such Book-Entry System or
Securities Depository.
(f) Anything to the contrary in this Agreement
notwithstanding, the Custodian shall be liable to the
Trust for any loss or damage to a Fund resulting (i)
from the use of a Book-Entry System or Securities
Depository by reason of any negligence or willful
misconduct on the part of Custodian or any Sub-
Custodian appointed pursuant to Section 3.3 above or
any of its or their employees, or (ii) from failure of
Custodian or any such Sub-Custodian to enforce
effectively such rights as it may have against a Book-
Entry System or Securities Depository. At its
election, the Trust shall be subrogated to the rights
of the Custodian with respect to any claim against a
Book-Entry System or Securities Depository or any other
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<PAGE>
person from any loss or damage to the Funds arising from the
use of such Book-Entry System or Securities Depository, if and
to the extent that the Funds have not been made whole for any
such loss or damage.
3.6 Disbursement of Moneys from Fund Custody Accounts. Upon receipt
of Proper Instructions, the Custodian shall disburse moneys from a Fund
Custody Account but only in the following cases:
(a) For the purchase of Securities for the Fund but only in
accordance with Section 4.1 of this Agreement and only
(i) in the case of Securities (other than options on
Securities, futures contracts and options on futures
contracts), against the delivery to the Custodian (or
any Sub-Custodian appointed pursuant to Section 3.3
above) of such Securities registered as provided in
Section 3.9 below or in proper form for transfer, or if
the purchase of such Securities is effected through a
Book-Entry System or Securities Depository, in
accordance with the conditions set forth in Section 3.5
above; (ii) in the case of options on Securities,
against delivery to the Custodian (or such Sub-
Custodian) of such receipts as are required by the
customs prevailing among dealers in such options; (iii)
in the case of futures contracts and options on futures
contracts, against delivery to the Custodian (or such
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<PAGE>
Sub-Custodian) of evidence of title thereto in favor of the
Fund or any nominee referred to in Section 3.9 below; and (iv)
in the case of repurchase or reverse repurchase agreements
entered into between the Trust and a bank which is a member of
the Federal Reserve System or between the Trust and a primary
dealer in U.S. Government securities, against delivery of the
purchased Securities either in certificate form or through an
entry crediting the Custodian's account at a Book-Entry System
or Securities Depository with such Securities;
(b) In connection with the conversion, exchange or surrender, as
set forth in Section 3.7(f) below, of Securities owned by
the Fund;
(c) For the payment of any dividends or capital gain distributions
declared by the Fund;
(d) In payment of the redemption price of Shares as provided in
Section 5.1 below;
(e) For the payment of any expense or liability incurred by
the Fund, including but not limited to the following
payments for the account of the Fund: interest; taxes;
administration, investment advisory, accounting,
auditing, transfer agent, custodian, trustee and legal
fees; and other operating expenses of the Fund; in all
cases, whether or not such expenses are to be in whole
or in part capitalized or treated as deferred expenses;
(f) For transfer in accordance with the provisions of any
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<PAGE>
agreement among the Trust, the Custodian and a broker-dealer
registered under the 1934 Act and a member of the NASD,
relating to compliance with rules of The Options Clearing
Corporation and of any registered national securities exchange
(or of any similar organization or organizations) regarding
escrow or other arrangements in connection with transactions
by the Fund;
(g) For transfer in accordance with the provision of any
agreement among the Trust, the Custodian, and a futures
commission merchant registered under the Commodity
Exchange Act, relating to compliance with the rules of
the Commodity Futures Trading Commission and/or any
contract market (or any similar organization or
organizations) regarding account deposits in connection
with transactions by the Fund;
(h) For the funding of any uncertificated time deposit or other
interest-bearing account with any banking institution
(including the Custodian), which deposit or account has a term
of one year or less; and
(i) For any other proper purpose, but only upon receipt, in
addition to Proper Instructions, of a copy of a resolution of
the Board of Trustees, certified by an Officer, specifying the
amount and purpose of such payment, declaring such purpose to
be a proper
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<PAGE>
corporate purpose, and naming the person or persons to
whom such payment is to be made.
3.7 Delivery of Securities from Fund Custody Accounts. Upon receipt
of Proper Instructions, the Custodian shall release and deliver Securities from
a Fund Custody Account but only in the following cases:
(a) Upon the sale of Securities for the account of the Fund
but only against receipt of payment therefor in cash,
by certified or cashiers check or bank credit;
(b) In the case of a sale effected through a Book-Entry
System or Securities Depository, in accordance with the
provisions of Section 3.5 above;
(c) To an offeror's depository agent in connection with tender or
other similar offers for Securities of the Fund; provided
that, in any such case, the cash or other consideration is to
be delivered to the Custodian;
(d) To the issuer thereof or its agent (i) for transfer
into the name of the Fund, the Custodian or any Sub-
Custodian appointed pursuant to Section 3.3 above, or
of any nominee or nominees of any of the foregoing, or
(ii) for exchange for a different number of certificates
or other evidence representing the same aggregate face
amount or number of units; provided that, in any such
case, the new Securities are to be delivered to the
Custodian;
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<PAGE>
(e) To the broker selling Securities, for examination in
accordance with the "street delivery" custom;
(f) For exchange or conversion pursuant to any plan or
merger, consolidation, recapitalization, reorganization
or readjustment of the issuer of such Securities, or
pursuant to provisions for conversion contained in such
Securities, or pursuant to any deposit agreement,
including surrender or receipt of underlying Securities
in connection with the issuance or cancellation of
depository receipts; provided that, in any such case,
the new Securities and cash, if any, are to be
delivered to the Custodian;
(g) Upon receipt of payment therefor pursuant to any
repurchase or reverse repurchase agreement entered into
by the Fund;
(h) In the case of warrants, rights or similar Securities, upon
the exercise thereof, provided that, in any such case, the new
Securities and cash, if any, are to be delivered to the
Custodian;
(i) For delivery in connection with any loans of Securities of the
Fund, but only against receipt of such collateral as the Trust
shall have specified to the Custodian in Proper Instructions;
(j) For delivery as security in connection with any
borrowings by the Fund requiring a pledge of assets by
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the Trust, but only against receipt by the Custodian of
the amounts borrowed;
(k) Pursuant to any authorized plan of liquidation,
reorganization, merger, consolidation or
recapitalization of the Trust;
(l) For delivery in accordance with the provisions of any
agreement among the Trust, the Custodian and a broker-
dealer registered under the 1934 Act and a member of
the NASD, relating to compliance with the rules of The
Options Clearing Corporation and of any registered
national securities exchange (or of any similar
organization or organizations) regarding escrow or
other arrangements in connection with transactions by
the Fund;
(m) For delivery in accordance with the provisions of any
agreement among the Trust, the Custodian, and a futures
commission merchant registered under the Commodity
Exchange Act, relating to compliance with the rules of
the Commodity Futures Trading Commission and/or any
contract market (or any similar organization or
organizations) regarding account deposits in connection
with transactions by the Fund; or
(n) For any other proper corporate purpose, but only upon
receipt, in addition to Proper Instructions, of a copy
of a resolution of the Board of Trustees, certified by
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<PAGE>
an Officer, specifying the Securities to be delivered, setting
forth the purpose for which such delivery is to be made,
declaring such purpose to be a proper corporate purpose, and
naming the person or persons to whom delivery of such
Securities shall be made.
3.8 Actions Not Requiring Proper Instructions. Unless otherwise
instructed by the Trust, the Custodian shall with respect to all Securities held
for a Fund:
(a) Subject to Section 7.4 below, collect on a timely basis all
income and other payments to which the Fund is entitled either
by law or pursuant to custom in the securities business;
(b) Present for payment and, subject to Section 7.4 below, collect
on a timely basis the amount payable upon all Securities which
may mature or be called, redeemed, or retired, or otherwise
become payable;
(c) Endorse for collection, in the name of the Fund,
checks, drafts and other negotiable instruments;
(d) Surrender interim receipts or Securities in temporary
form for Securities in definitive form;
(e) Execute, as custodian, any necessary declarations or
certificates of ownership under the federal income tax laws or
the laws or regulations of any other taxing authority now or
hereafter in effect, and prepare and submit reports to the
Internal Revenue Service ("IRS")
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and to the Trust at such time, in such manner and
containing such information as is prescribed by the
IRS;
(f) Hold for the Fund, either directly or, with respect to
Securities held therein, through a Book-Entry System or
Securities Depository, all rights and similar securities
issued with respect to Securities of the Fund; and
(g) In general, and except as otherwise directed in Proper
Instructions, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with Securities and assets of the
Fund.
3.9 Registration and Transfer of Securities. All Securities held for a
Fund that are issued or issuable only in bearer form shall be held by the
Custodian in that form, provided that any such Securities shall be held in a
Book-Entry System if eligible therefor. All other Securities held for a Fund may
be registered in the name of such Fund, the Custodian, or any Sub- Custodian
appointed pursuant to Section 3.3 above, or in the name of any nominee of any of
them, or in the name of a Book-Entry System, Securities Depository or any
nominee of either thereof. The Trust shall furnish to the Custodian appropriate
instruments to enable the Custodian to hold or deliver in proper form for
transfer, or to register in the name of any of the nominees hereinabove referred
to or in the name of a Book-Entry System or Securities Depository, any
Securities registered in the name of a
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<PAGE>
Fund.
3.10 Records. (a) The Custodian shall maintain, by Fund, complete and
accurate records with respect to Securities, cash or other property held for the
Funds, including (i) journals or other records of original entry containing an
itemized daily record in detail of all receipts and deliveries of Securities and
all receipts and disbursements of cash; (ii) ledgers (or other records)
reflecting (A) Securities in transfer, (B) Securities in physical possession,
(C) monies and Securities borrowed and monies and Securities loaned (together
with a record of the collateral therefor and substitutions of such collateral),
(D) dividends and interest received, and (E) dividends receivable and interest
receivable; and (iii) canceled checks and bank records related thereto. The
Custodian shall keep such other books and records of the Funds as the Trust
shall reasonably request, or as may be required by the 1940 Act, including, but
not limited to, Section 31 of the 1940 Act and Rule 31a-2 promulgated
thereunder.
(b) All such books and records maintained by the Custodian shall (i) be
maintained in a form acceptable to the Trust and in compliance with rules and
regulations of the Securities and Exchange Commission, (ii) be the property of
the Trust and at all times during the regular business hours of the Custodian be
made available upon request for inspection by duly authorized officers,
employees or agents of the Trust and employees or agents of the Securities and
Exchange Commission, and (iii) if
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required to be maintained by Rule 31a-1 under the 1940 Act, be preserved for the
periods prescribed in Rule 31a-2 under the 1940 Act.
3.11 Fund Reports by Custodian. The Custodian shall furnish the Trust
with a daily activity statement by Fund and a summary of all transfers to or
from each Fund Custody Account on the day following such transfers. At least
monthly and from time to time, the Custodian shall furnish the Trust with a
detailed statement, by Fund, of the Securities and moneys held by the Custodian
and the Sub-Custodians for the Funds under this a Agreement.
3.12 Other Reports by Custodian. The Custodian shall provide the Trust
with such reports, as the Trust may reasonably request from time to time, on the
internal accounting controls and procedures for safeguarding Securities, which
are employed by the Custodian or any Sub-Custodian appointed pursuant to Section
3.3 above.
3.13 Proxies and Other Materials. The Custodian shall cause all proxies
relating to Securities which are not registered in the name of a Fund, to be
promptly executed by the registered holder of such Securities, without
indication of the manner in which such proxies are to be voted, and shall
promptly deliver to the Trust such proxies, all proxy soliciting materials and
all notices relating to such Securities.
3.14 Information on Corporate Actions. The Custodian shall
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<PAGE>
promptly deliver to the Trust all information received by the Custodian and
pertaining to Securities being held by the Funds with respect to optional tender
or exchange offers, calls for redemption or purchase, or expiration of rights as
described in the Standards of Service Guide attached as Exhibit B. If the Trust
desires to take action with respect to any tender offer, exchange offer or other
similar transaction, the Trust shall notify the Custodian at least five Business
Days prior to the date on which the Custodian is to take such action. The Trust
will provide or cause to be provided to the Custodian all relevant information
for any Security which has unique put/option provisions at least five Business
Days prior to the beginning date of the tender period.
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUNDS
4.1 Purchase of Securities. Promptly upon each purchase of Securities
for a Fund, Written Instructions shall be delivered to the Custodian, specifying
(a) the Fund for which the purchase was made, (b) the name of the issuer or
writer of such Securities, and the title or other description thereof, (c) the
number of shares, principal amount (and accrued interest, if any) or other units
purchased, (d) the date of purchase and settlement, (e) the purchase price per
unit, (f) the total amount payable upon such purchase, and (g) the name of the
person to whom such amount is
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<PAGE>
payable. The Custodian shall upon receipt of such Securities purchased by a Fund
pay out of the moneys held for the account of such Fund the total amount
specified in such Written Instructions to the person named therein. The
Custodian shall not be under any obligation to pay out moneys to cover the cost
of a purchase of Securities for a Fund, if in the relevant Fund Custody Account
there is insufficient cash available to the Fund for which such purchase was
made.
4.2 Liability for Payment in Advance of Receipt of Securities
Purchased. In any and every case where payment for the purchase of Securities
for a Fund is made by the Custodian in advance of receipt of the Securities
purchased but in the absence of specified Written Instructions to so pay in
advance, the Custodian shall be liable to the Fund for such Securities to the
same extent as if the Securities had been received by the Custodian.
4.3 Sale of Securities. Promptly upon each sale of Securities by a
Fund, Written Instructions shall be delivered to the Custodian, specifying (a)
the Fund for which the sale was made, (b) the name of the issuer or writer of
such Securities, and the title or other description thereof, (c) the number of
shares, principal amount (and accrued interest, if any), or other units sold,
(d) the date of sale and settlement, (e) the sale price per unit, (f) the total
amount payable upon such sale, and (g) the person to whom such Securities are to
be delivered. Upon
- 22 -
<PAGE>
receipt of the total amount payable to the Fund as specified in such Written
Instructions, the Custodian shall deliver such Securities to the person
specified in such Written Instructions. Subject to the foregoing, the Custodian
may accept payment in such form as shall be satisfactory to it, and may deliver
Securities and arrange for payment in accordance with the customs prevailing
among dealers in Securities.
4.4 Delivery of Securities Sold. Notwithstanding Section 4.3 above or
any other provision of this Agreement, the Custodian, when instructed to deliver
Securities against payment, shall be entitled, if in accordance with generally
accepted market practice, to deliver such Securities prior to actual receipt of
final payment therefor. In any such case, the Fund for which such Securities
were delivered shall bear the risk that final payment for such Securities may
not be made or that such Securities may be returned or otherwise held or
disposed of by or through the person to whom they were delivered, and the
Custodian shall have no liability for any for the foregoing.
4.5 Payment for Securities Sold, etc. In its sole discretion and from
time to time, the Custodian may credit the relevant Fund Custody Account, prior
to actual receipt of final payment thereof, with (i) proceeds from the sale of
Securities which it has been instructed to deliver against payment, (ii)
proceeds from the redemption of Securities or other assets of the Fund, and
(iii) income from cash, Securities or other assets of
- 23 -
<PAGE>
the Fund. Any such credit shall be conditional upon actual receipt by Custodian
of final payment and may be reversed if final payment is not actually received
in full. The Custodian may, in its sole discretion and from time to time, permit
a Fund to use funds so credited to its Fund Custody Account in anticipation of
actual receipt of final payment. Any such funds shall be repayable immediately
upon demand made by the Custodian at any time prior to the actual receipt of all
final payments in anticipation of which funds were credited to the Fund Custody
Account.
4.6 Advances by Custodian for Settlement. The Custodian may, in its
sole discretion and from time to time, advance funds to the Trust to facilitate
the settlement of a Fund's transactions in its Fund Custody Account. Any such
advance shall be repayable immediately upon demand made by Custodian.
ARTICLE V
REDEMPTION OF FUND SHARES
5.1 Transfer of Funds. From such funds as may be available for the
purpose in the relevant Fund Custody Account, and upon receipt of Proper
Instructions specifying that the funds are required to redeem Shares of a Fund,
the Custodian shall wire each amount specified in such Proper Instructions to or
through such bank as the Trust may designate with respect to such amount in such
Proper Instructions.
- 24 -
<PAGE>
5.2 No Duty Regarding Paying Banks. The Custodian shall not be under
any obligation to effect payment or distribution by any bank designated in
Proper Instructions given pursuant to Section 5.1 above of any amount paid by
the Custodian to such bank in accordance with such Proper Instructions.
ARTICLE VI
SEGREGATED ACCOUNTS
Upon receipt of Proper Instructions, the Custodian shall establish and
maintain a segregated account or accounts for and on behalf of a Fund, into
which account or accounts may be transferred cash and/or Securities, including
Securities maintained in a Depository Account,
(a) in accordance with the provisions of any agreement
among the Trust, the Custodian and a broker-dealer
registered under the 1934 Act and a member of the NASD
(or any futures commission merchant registered under
the Commodity Exchange Act), relating to compliance
with the rules of The Options Clearing Corporation and
of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered
contract market), or of any similar organization or
organizations, regarding escrow or other arrangements
in connection with transactions by the Fund,
(b) for purposes of segregating cash or Securities in
connection with securities options purchased or written
- 25 -
<PAGE>
by the Fund or in connection with financial futures
contracts (or options thereon) purchased or sold by the
Fund,
(c) which constitute collateral for loans of Securities
made by the Fund,
(d) for purposes of compliance by the Fund with requirements under
the 1940 Act for the maintenance of segregated accounts by
registered investment companies in connection with reverse
repurchase agreements and when-issued, delayed delivery and
firm commitment transactions, and
(e) for other proper corporate purposes, but only upon receipt of,
in addition to Proper Instructions, a certified copy of a
resolution of the Board of Trustees, certified by an Officer,
setting forth the purpose or purposes of such segregated
account and declaring such purposes to be proper corporate
purposes.
Each segregated account established under this Article VI shall be
established and maintained for a single Fund only. All Proper Instructions
relating to a segregated account shall specify the Fund involved.
- 26 -
<PAGE>
ARTICLE VII
CONCERNING THE CUSTODIAN
7.1 Standard of Care. The Custodian shall be held to the exercise of
reasonable care in carrying out its obligations under this Agreement, and shall
be without liability to the Trust or any Fund for any loss, damage, cost,
expense (including attorneys' fees and disbursements), liability or claim unless
such loss, damage, cost, expense, liability or claim arises from negligence, bad
faith or willful misconduct on its part or on the part of any Sub-Custodian
appointed pursuant to Section 3.3 above. The Custodian shall be entitled to rely
on and may act upon advice of counsel on all matters, and shall be without
liability for any action reasonably taken or omitted pursuant to such advice.
The Custodian shall promptly notify the Trust of any action taken or omitted by
the Custodian pursuant to advice of counsel. The Custodian shall not be under
any obligation at any time to ascertain whether the Trust or a Fund is in
compliance with the 1940 Act, the regulations thereunder, the provisions of the
Trust's charter documents or by-laws, or its investment objectives and policies
as then in effect.
7.2 Actual Collection Required. The Custodian shall not be liable for,
or considered to be the custodian of, any cash belonging to a Fund or any money
represented by a check, draft or other instrument for the payment of money,
until the Custodian or its agents actually receive such cash or collect on such
instrument.
- 27 -
<PAGE>
7.3 No Responsibility for Title, etc. So long as and to the extent that
it is in the exercise of reasonable care, the Custodian shall not be responsible
for the title, validity or genuineness of any property or evidence of title
thereto received or delivered by it pursuant to this Agreement.
7.4 Limitation on Duty to Collect. Custodian shall not be required to
enforce collection, by legal means or otherwise, of any money or property due
and payable with respect to Securities held for a Fund if such Securities are in
default or payment is not made after due demand or presentation.
7.5 Reliance Upon Documents and Instructions. The Custodian shall be
entitled to rely upon any certificate, notice or other instrument in writing
received by it and reasonably believed by it to be genuine. The Custodian shall
be entitled to rely upon any Oral Instructions and any Written Instructions
actually received by it pursuant to this Agreement.
7.6 Express Duties Only. The Custodian shall have no duties or
obligations whatsoever except such duties and obligations as are specifically
set forth in this Agreement, and no covenant or obligation shall be implied in
this Agreement against the Custodian.
7.7 Co-operation. The Custodian shall cooperate with and supply
necessary information, by Fund, to the entity or entities appointed by the Trust
to keep the books of account of the Funds and/or compute the value of the assets
of the Funds. The Custodian shall take all such reasonable actions as the Trust
may
- 28 -
<PAGE>
from time to time request to enable the Trust to obtain, from year to year,
favorable opinions from the Trust's independent accountants with respect to the
Custodian's activities hereunder in connection with (a) the preparation of the
Trust's reports on Form N-1A and Form N-SAR and any other reports required by
the Securities and Exchange Commission, and (b) the fulfillment by the Trust of
any other requirements of the Securities and Exchange Commission.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification by Trust. The Trust shall indemnify and hold
harmless the Custodian and any Sub-Custodian appointed pursuant to Section 3.3
above, and any nominee of the Custodian or of such Sub-Custodian, from and
against any loss, damage, cost, expense (including attorneys' fees and
disbursements), liability (including, without limitation, liability arising
under the Securities Act of 1933, the 1934 Act, the 1940 Act, and any state or
foreign securities and/or banking laws) or claim arising directly or indirectly
(a) from the fact that Securities are registered in the name of any such
nominee, or (b) from any action or inaction by the Custodian or such
Sub-Custodian (i) at the request or direction of or in reliance on the advice of
the Trust, or (ii) upon Proper Instructions, or (c) generally, from the
performance of its obligations under this Agreement or any sub-custody agreement
with a Sub-Custodian appointed pursuant to
- 29 -
<PAGE>
Section 3.3 above, provided that neither the Custodian nor any such
Sub-Custodian shall be indemnified and held harmless from and against any such
loss, damage, cost, expense, liability or claim arising from the Custodian's or
such Sub-Custodian's negligence, bad faith or willful misconduct.
8.2 Indemnification by Custodian. The Custodian shall indemnify and
hold harmless the Trust and Dillon from and against any loss, damage, cost,
expense (including attorneys' fees and disbursements), liability (including
without limitation, liability arising under the Securities Act of 1933, the 1934
Act, the 1940 Act, and any state or foreign securities and/or banking laws) or
claim arising from the negligence, bad faith or willful misconduct of the
Custodian or any Sub-Custodian appointed pursuant to Section 3.3 above, or any
nominee of the Custodian or of such Sub-Custodian.
8.3 Indemnity to be Provided. If the Trust requests the Custodian to
take any action with respect to Securities, which may, in the opinion of the
Custodian, result in the Custodian or its nominee becoming liable for the
payment of money or incurring liability of some other form, the Custodian shall
not be required to take such action until the Trust shall have provided
indemnity therefor to the Custodian in an amount and form satisfactory to the
Custodian.
8.4 Security. If the Custodian advances cash or Securities to a Fund
for any purpose, either at the Trust's request or as otherwise contemplated in
this Agreement, or in the event that
- 30 -
<PAGE>
the Custodian or its nominee incurs, in connection with its performance under
this Agreement, any loss, damage, cost, expense (including attorneys' fees and
disbursements), liability or claim (except such as may arise from its or its
nominee's negligence, bad faith or willful misconduct), then, in any such event,
any property at any time held for the account of such Fund shall be security
therefor, and should such Fund fail promptly to repay or indemnify the
Custodian, the Custodian shall be entitled to utilize available cash of such
Fund and to dispose of other assets of such Fund to the extent necessary to
obtain reimbursement or indemnification.
ARTICLE IX
FORCE MAJEURE
Neither the Custodian, Dillon nor the Trust shall be liable for any
failure or delay in performance of its obligations under this Agreement arising
out of or caused, directly or indirectly, by circumstances beyond its reasonable
control, including, without limitation, acts of God; earthquakes; fires; floods;
wars; civil or military disturbances; sabotage; strikes; epidemics; riots; power
failures; computer failure and any such circumstances beyond its reasonable
control as may cause interruption, loss or malfunction of utility,
transportation, computer (hardware or software) or telephone communication
service; accidents; labor disputes; acts of civil or military authority;
governmental actions; or inability to obtain labor,
- 31 -
<PAGE>
material, equipment or transportation; provided, however, that the Custodian in
the event of a failure or delay (i) shall not discriminate against the Funds in
favor of any other customer of the Custodian in making computer time and
personnel available to input or process the transactions contemplated by this
Agreement and (ii) shall use its best efforts to ameliorate the effects of any
such failure or delay.
ARTICLE X
EFFECTIVE PERIOD; TERMINATION
10.1 Effective Period. This Agreement shall become effective as of
its execution and shall continue in full force and effect until terminated as
hereinafter provided.
10.2 Termination. Any party hereto may terminate this Agreement by
giving to the other party a notice in writing specifying the date of such
termination, which shall be not less than sixty (60) days after the date of the
giving of such notice. If a successor custodian shall have been appointed by the
Board of Trustees, the Custodian shall, upon receipt of a notice of acceptance
by the successor custodian, on such specified date of termination (a) deliver
directly to the successor custodian all Securities (other than Securities held
in a Book-Entry System or Securities Depository) and cash then owned by the
Funds and held by the Custodian as custodian, and (b) transfer any Securities
held in a Book-Entry System or Securities Depository to an account of or for the
benefit of the Funds at the successor custodian, provided that Dillon shall have
paid to the Custodian
- 32 -
<PAGE>
all fees, expenses and other amounts to the payment or reimbursement of which it
shall then be entitled. Upon such delivery and transfer, the Custodian shall be
relieved of all obligations under this Agreement. The Trust may at any time
immediately terminate this Agreement in the event of the appointment of a
conservator or receiver for the Custodian by regulatory authorities or upon the
happening of a like event at the direction of an appropriate regulatory agency
or court of competent jurisdiction.
10.3 Failure to Appoint Successor Custodian. If a successor custodian
is not designated by the Trust on or before the date of termination specified
pursuant to Section 10.1 above, then the Custodian shall have the right to
deliver to a bank or trust company of its own selection, which (a) is a "bank"
as defined in the 1940 Act and (b) has aggregate capital, surplus and undivided
profits as shown on its then most recent published report of not less than $25
million, all Securities, cash and other property held by Custodian under this
Agreement and to transfer to an account of or for the Funds at such bank or
trust company all Securities of the Funds held in a Book-Entry System or
Securities Depository. Upon such delivery and transfer, such bank or trust
company shall be the successor custodian under this Agreement and the Custodian
shall be relieved of all obligations under this Agreement.
- 33 -
<PAGE>
ARTICLE XI
COMPENSATION OF CUSTODIAN
Dillon shall compensate the Custodian as agreed upon from time to time
by the parties. The fees and other charges in effect on the date hereof and
applicable to the Funds are set forth in Exhibit C attached hereto.
ARTICLE XII
LIMITATION OF LIABILITY
It is expressly agreed that the obligations of the Trust hereunder
shall not be binding upon any of the Trustees, shareholders, nominees, officers,
agents or employees of the Trust personally, but shall bind only the trust
property of the Trust as provided in the Trust's Agreement and Declaration of
Trust, as from time to time amended. The execution and delivery of this
Agreement have been authorized by the Trustees, and this Agreement has been
signed and delivered by an authorized officer of the Trust, acting as such, and
neither such authorization by the Trustees nor such execution and delivery by
such officer shall be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but shall bind only the trust
property of the Trust as provided in the above-mentioned Agreement and
Declaration of Trust.
- 34 -
<PAGE>
ARTICLE XIII
NOTICES
Unless otherwise specified herein, all demands, notices, instructions,
and other communications to be given hereunder shall be in writing and shall be
sent or delivered to the recipient at the address set forth after its name
hereinbelow:
To the Trust or to Dillon:
Capitol Square Investment Trust
21 East State Street, Suite 1410
Columbus, Ohio 43215
Attn. Roderick H. Dillon, Jr.
Telephone: (614) 222-4200
Facsimile: (614) 222-4224
To Custodian:
Star Bank, N.A.
425 Walnut Street, M.L. 6118
Cincinnati, Ohio 45202
Attention: Mutual Fund Custody Services
Telephone: (513) 632-3016
Facsimile: (513) 632-4448
or at such other address as either party shall have provided to the other by
notice given in accordance with this Article XIII. Writing shall include
transmissions by or through teletype, facsimile, central processing unit
connection, on-line terminal and magnetic tape.
ARTICLE XIV
MISCELLANEOUS
14.1 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Ohio.
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<PAGE>
14.2 References to Custodian. The Trust shall not circulate any printed
matter which contains any reference to Custodian without the prior written
approval of Custodian, excepting printed matter contained in the prospectus or
statement of additional information for a Fund and such other printed matter as
merely identifies Custodian as custodian for one or more Funds. The Trust shall
submit printed matter requiring approval to Custodian in draft form, allowing
sufficient time for review by Custodian and its counsel prior to any deadline
for printing.
14.3 No Waiver. No failure by either party hereto to exercise, and no
delay by such party in exercising, any right hereunder shall operate as a waiver
thereof. The exercise by either party hereto of any right hereunder shall not
preclude the exercise of any other right, and the remedies provided herein are
cumulative and not exclusive of any remedies provided at law or in equity.
14.4 Amendments. This Agreement cannot be changed orally and no
amendment to this Agreement shall be effective unless evidenced by an instrument
in writing executed by the parties hereto.
14.5 Counterparts. This Agreement may be executed in one or more
counterparts, and by the parties hereto on separate counterparts, each of which
shall be deemed an original but all of which together shall constitute but one
and the same instrument.
14.6 Severability. If any provision of this Agreement
shall be invalid, illegal or unenforceable in any respect under
- 36 -
<PAGE>
any applicable law, the validity, legality and enforceability of the remaining
provisions shall not be affected or impaired thereby.
14.7 Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that this Agreement shall not be assignable by
either party hereto without the written consent of the other party hereto.
14.8 Headings. The headings of sections in this Agreement are for
convenience of reference only and shall not affect the meaning or construction
of any provision of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and delivered in its name and on its behalf by its
representatives thereunto duly authorized, all as of the day and year first
above written.
ATTEST: CAPITOL SQUARE INVESTMENT TRUST
/s/ Tina D. Hosking By:/s/ Roderick H. Dillon, Jr.
Secretary President
ATTEST: STAR BANK, N.A.
/s/ Lynnette C. Gibson By:/s/ Marsha Croxton
Vice President
ATTEST: DILLON CAPITAL MANAGEMENT
/s/ Tina D. Hosking By:/s/ Roderick H. Dillon, Jr.
President
- 37 -
<PAGE>
EXHIBIT A
AUTHORIZED PERSONS
Set forth below are the names and specimen signatures of the persons
authorized by the Trust to administer the Fund Custody Accounts.
Name Signature
Roderick H. Dillon, Jr. /s/ Roderick H. Dillon, Jr.
Robert G. Dorsey /s/ Robert G. Dorsey
Mark J. Seger /s/ Mark J. Seger
M. Kathleen Leugers /s/ M. Kathleen Leugers
Tina D. Hosking /s/ Tina D. Hosking
John F. Splain /s/ John F. Splain
- 38 -
<PAGE>
EXHIBIT B
STAR BANK, N.A.
STANDARDS OF SERVICE GUIDE
Star Bank, N.A., is committeed to providing superior quality service to
all customers and their agents at all times. We have compiled this guide as a
tool for our clients to determine our standards for the processing of security
settlements, payment collection, and capital change transactions. Deadlines
recited in this guide represent the times required for Star Bank to guarantee
processing. Failure to meet these deadlines will result in settlement at our
client's risk. In all cases, Star Bank will make every effort to complete all
processing on a timely basis.
Star Bank is a direct participant of the Depository Trust Company, a
direct member of the Federal Reserve Bank of Cleveland, and utilizes the Bankers
Trust Company as its agent for ineligible and foreign securities.
For corporate reorganizations, Star Bank utilizes SEI's Reorg Source,
Financial Information, Inc., XCITEK, DTC Important Notices, and the Wall Street
Journal,
For bond calls and mandatory puts, Star Bank utilizes SEI's Bond
Source, Kenny Information Systems, Standard & Poor's Corporation, and DTC
Important Notices. Star Bank will not notify clients of optional put
opportunities.
Any securities delivered free to Star Bank or its agents must be
received three (3) business days prior to any payment or settlement in order for
the Star Bank standards of service to apply.
Should you have any quesitons regarding the information contained in
this guide, please feel free to contact your account representative.
The information contained in this Standards of of Service Guide
is subject to change. Should any changes be made Star Bank will
provide you with an updated copy of its Standards of Service Guide.
<PAGE>
<TABLE>
STAR BANK SECURITY SETTLEMENT STANDARDS
<CAPTION>
TRANSACTION TYPE INSTRUCTIONS DEADLINES* DELIVERY INSTRUCTIONS
<S> <C> <C>
DTC 1:30 P.M. on Settlement Date DTC Participant #2219
Agent Bank ID #27895
Institutional #
For Account #
Federal Reserve Book Entry 12:30 P.M. on Settlement Date Federal Reserve Bank of Cinti/Trust
for Star Bank, N.A. ABA# 042000013
For Account #
Federal Reserve Book Entry 1:00 P.M. on Settlement Date Federal Reserve Bank of Cinti/Spec
(Repurchase Agreement for Star Bank, N.A. ABA# 042000013
Collateral Only) For Account #
PTC Securities 12:00 P.M. on Settlement Date PTC For Account BTRST/CUST
(GNMA Book Entry) Sub Account: Star Bank, N.A. #090334
Physical Securities 9:30 A.M. EST on Settlement Date Bankers Trust Company
(for Deliveries, by 4:00 P.M. on 16 Wall Street 4th Floor, Window 43
Settlement Date minus 1) for Star Bank Account #090334
CEDEL/EURO-CLEAR 11:00 A.M. on Settlement Date Euroclear Via Cedel Bridge
minus 2 In favor of Bankers Trust Comp
Cedel 53355
For Star Bank Account #501526354
Cash Wire Transfer 3:00 P.M. Star Bank, N.A. Cinti/Trust ABA# 042000013
Credit Account #9901877
Further Credit to
Account #
<FN>
*All times listed are Cincinnati time.
</FN>
</TABLE>
<PAGE>
STAR BANK PAYMENT STANDARDS
SECURITY TYPE INCOME PRINCIPAL
Equities Payable Date
Municipal Bonds* Payable Date Payable Date
Corporate Bonds* Payable Date Payable Date
Federal Reserve Bank
Book Entry* Payable Date Payable Date
PTC GNMA's (P&I) Payable Date + 1 Payable Date + 1
CMOs*
DTC Payable Date + 1 Payable Date + 1
Bankers Trust Payable Date + 1 Payable Date + 1
SBA Loan Certificates When Received When Received
Unit Investment Trust Payable Date Payable Date
Certificates*
Certificates of Deposit* Payable Date Payable Date
Limited Partnerships When Received When Received
Foreign Securities When Received When Received
*Variable Rate Securities
Federal Reserve Bank
Book Entry Payable Date Payable Date
DTC Payable Date + 1 Payable Date + 1
Bankers Trust Payable Date + 1 Payable Date + 1
NOTE: If a payable date falls on a weekend or bank holiday, payment
will be made on the immediately following business day.
<PAGE>
<TABLE>
STAR BANK CORPORATE REORGANIZATION STANDARDS
<CAPTION>
TYPE OF ACTION NOTIFICATION TO CLIENT DEADLINE FOR CLIENT INSTRUCTIONS TRANSACTION
TO STAR BANK POSTING
<S> <C> <C> <C>
Rights, Warrants, Later of 10 business days prior 5 business days prior to expiration Upon receipt
and Optional Mergers to expiration or receipt of notice
Mandatory Puts with Later of 10 business days prior 5 business days prior to expiration Upon receipt
Option to Retain to expiration or receipt of notice
Class Actions 10 business days prior to 5 business days prior to expiration Upon receipt
expiration date
Voluntary Tenders, Later of 10 business days prior 5 business days prior to expiration Upon receipt
Exchanges, to expiration or receipt of notice
and Conversions
Mandatory Puts, Defaults, At posting of funds or securities None Upon receipt
Liquidations, Bankruptcies, received
Stock Splits, Mandatory
Exchanges
Full and Partial Calls Later of 10 business days prior None Upon receipt
to expiration or receipt of notice
<FN>
NOTE: Fractional shares/par amounts resulting from any of the above will be sold.
</FN>
</TABLE>
<PAGE>
EXHIBIT C
STAR BANK, N.A.
DOMESTIC CUSTODY FEE SCHEDULE
Star Bank, N.A., as Custodian, will receive monthly compensation for services
according to the terms of the following Schedule:
I. PORTFOLIO TRANSACTION FEES:
(a) For each repurchase agreement trade not
executed by Star Bank, N.A. No Charge
(b) For each non-Star Bank repurchase
agreement trade executed by Star Bank, N.A. $50.00
(c) For each portfolio transaction processed
through DTC or Federal Reserve $ 9.00
(d) For each portfolio transaction processed
through our New York custodian $25.00
(e) For each GNMA/Amortized Security Purchase $16.00
(f) For each GNMA/Prin/Int Paydown, GNMA Sales $ 5.00
(g) For each option/future contract written,
exercised or expired $40.00
(h) For each Disbursement (Fund expenses only) $ 5.00
A transaction is a purchase/sale of a security, free receipt/free delivery
(excludes initial conversion), maturity, tender or exchange.
II. AGGREGATE MARKET VALUE FEE
Based upon an annual rate of: Million
.0003 (3 Basis Points) on First $10
.0002 (2 Basis Points) on Next $10
.0001 (1 Basis Points) on Next $330
.00005 (1/2 Basis Points) on Balance
III. MONTHLY MINIMUM FEE-PER FUND $300.00
IV. OUT-OF-POCKET EXPENSES
The only out-of-pocket expenses charged to your account will be shipping fees
or transfer fees.
V. EARNINGS CREDITS
On a montly basis any earnings credits generated from uninvested custody
balances will be applied against any cash management service fees generated.
Earnings credits are based on the average yield on the 91 day U.S. Treasury
Bill for the preceding thirteen weeks less the 10% reserve.
<PAGE>
STAR BANK, N.A.
THIRD PARTY ACCESS COMPENSATION SCHEDULE
Third Party access is available within two (2) weeks and requires dial-up
software which will allow your organization to access its Star Bank account from
any location.
REQUIREMENTS AND EXPENSES
There will be a one time expense for the purchase of software from SEI which
includes internal password control and ability to dial a local IBM Information
Systems number. (Generally anywhere in the continental U.S.A.)
$250.00
ONGOING EXPENSES
Telephone Connect time $.37/minute
<PAGE>
STAR BANK, N.A.
PROPOSED CASH MANAGEMENT FEE SCHEDULE
BUSINESS CHECKING FEES UNIT COST MONTHLY COST
D.D.A. Account Maintenance $14.00
Deposits .399
Deposited Items .109
Checks Paid .159
Deposited Items Returned 6.00
International Returned Items 10.00
NSF Returned Check 25.00
Stop Payments 22.00
CASH MANAGEMENT FEES
Balance Reporting - P.C. Access 50.00 1st Acct
35.00 each add
ACH Transaction .095
ACH Maintenance 40.00
ACH Additions, Deletions,
Changes 3.50
Lockbox Maintenance 55.00
Lockbox items Processed
(with copy of check) .32
(without copy of check) .26
Issued Items .015
Deposited Items Returned 6.00
International Items Returned 10.00
NSF Returned Checks 25.00
Stop Payments 22.00
Data Transmission per account 110.00
Data Capture* .10
Wires Incoming
Domestic: 7.00
International: 10.00
Wires Outgoing
Domestic:
Repetitive 8.00
Non Repetitive 8.00
International:
Repetitive 35.00
Non Repetitive 40.00
PC - Initiated Wires:
Domestic:
Repetitive 8.00
Non Repetitive 8.00
International:
Repetitive 25.00
Non Repetitive 25.00
UNCOLLECTED CHARGE
Star Bank assesses a penalty of prime rate plus 4% on any combined relationship
with average uncollected balances for the month.
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ADMINISTRATION, ACCOUNTING AND TRANSFER AGENCY AGREEMENT
AGREEMENT dated as of August 27, 1996 between Capitol Square Investment
Trust (the "Trust"), an Ohio business trust, Dillon Capitol Management
("Dillon"), an Ohio limited partnership and MGF Service Corp. ("MGF"), an Ohio
corporation.
WHEREAS, the Trust is an investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, Dillon is registered as an investment adviser under the
Investment Advisers Act of 1940 and provides advisory services to the Trust
pursuant to an Advisory Agreement; and
WHEREAS, under the Advisory Agreement, Dillon is responsible for
retaining and compensating agents to provide non-advisory services to the Trust;
and
WHEREAS, Dillon wishes to employ the services of MGF to serve as its
administrative agent, accounting and pricing agent and transfer and dividend
disbursing agent; and
WHEREAS, MGF wishes to provide such services under the
conditions set forth below;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained in this Agreement, the Trust and MGF agree as follows:
1. APPOINTMENT.
Dillon, being hereby authorized, hereby employs MGF as agent
to perform those services described in this Agreement for the Trust. MGF shall
act under such appointment and perform the obligations thereof upon the terms
and conditions hereinafter set forth.
2. DOCUMENTATION.
The Trust will furnish from time to time the following
documents:
A. Each resolution of the Board of Trustees of the Trust
authorizing the original issue of its shares;
B. Each Registration Statement filed with the Securities
and Exchange Commission (the "SEC") and amendments
thereof;
<PAGE>
C. A certified copy of each amendment to the Agreement and
Declaration of Trust and the Bylaws of the Trust;
D. Certified copies of each resolution of the Board of
Trustees authorizing officers to give instructions to
MGF;
E. Specimens of all new forms of share certificates
accompanied by Board of Trustees' resolutions approving
such forms;
F. Such other certificates, documents or opinions which
MGF may, in its discretion, deem necessary or
appropriate in the proper performance of its duties;
G. Copies of all Underwriting and Dealer Agreements in
effect;
H. Copies of all Advisory and Sub-Advisory Agreements in
effect; and
I. Copies of all documents relating to special investment
or withdrawal plans which are offered or may be offered
in the future by the Trust and for which MGF is to act
as plan agent.
3. TRUST ADMINISTRATION.
Subject to the direction and control of Dillon and the
Trustees of the Trust, MGF shall supervise the Trust's business affairs not
otherwise supervised by other agents of Dillon or the Trust. To the extent not
otherwise the primary responsibility of, or provided by, other agents of the
Trust, MGF shall supply (i) office facilities, (ii) internal auditing and
regulatory services, and (iii) executive and administrative services. MGF shall
coordinate the preparation of (i) reports to shareholders of the Trust, (ii)
reports to and filings with the SEC and state securities authorities including
preliminary and definitive proxy materials, post-effective amendments to the
Trust's registration statement, and the Trust's Form N-SAR, and (iii) necessary
materials for Board of Trustees' meetings unless prepared by other parties under
agreement with Dillon or the Trust. MGF shall also supervise the preparation of
all federal, state and local tax returns and reports of the Trust required by
applicable law. MGF shall provide personnel to serve as officers of the Trust if
so elected by the Board of Trustees; provided, however, that Dillon shall
reimburse MGF for the reasonable out-of-pocket expenses incurred by such
personnel in attending Board of Trustees' meetings and shareholders' meetings of
the Trust.
4. CALCULATION OF NET ASSET VALUE.
MGF will maintain and keep current the general ledger for each
series of the Trust, recording all income and expenses, capital share activity
and security transactions of the Trust.
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<PAGE>
MGF will calculate the net asset value of each series of the Trust and the per
share net asset value of each series of the Trust, in accordance with the
Trust's current prospectus and statement of additional information, once daily
as of the time selected by the Trust's Board of Trustees. MGF will prepare and
maintain a daily valuation of all securities and other assets of the Trust in
accordance with instructions from a designated officer of the Trust or Dillon
and in the manner set forth in the Trust's current prospectus and statement of
additional information. In valuing securities of the Trust, MGF may contract
with, and rely upon market quotations provided by, outside services.
5. PAYMENT OF TRUST EXPENSES.
MGF shall process each request received from the Trust or its
authorized agents for payment of the Trust's expenses. Upon receipt of written
instructions signed by an officer or other authorized agent of the Trust, MGF
shall prepare checks in the appropriate amounts which shall be signed by an
authorized officer of MGF and mailed to the appropriate party.
6. MGF TO RECORD SHARES.
MGF shall record the issuance of shares of the Trust and
maintain pursuant to applicable rules of the SEC a record of the total number of
shares of the Trust which are authorized, issued and outstanding, based upon
data provided to it by the Trust. MGF shall also provide the Trust on a regular
basis or upon reasonable request the total number of shares which are
authorized, issued and outstanding, but shall have no obligation when recording
the issuance of the Trust's shares, except as otherwise set forth herein, to
monitor the issuance of such shares or to take cognizance of any laws relating
to the issue or sale of such shares, which functions shall be the sole
responsibility of the Trust.
7. MGF TO VALIDATE TRANSFERS.
Upon receipt of a proper request for transfer and upon
surrender to MGF of certificates, if any, in proper form for transfer, MGF shall
approve such transfer and shall take all necessary steps to effectuate the
transfer as indicated in the transfer request. Upon approval of the transfer,
MGF shall notify the Trust in writing of each such transaction and shall make
appropriate entries on the shareholder records maintained by MGF.
8. SHARE CERTIFICATES.
If the Trust authorizes the issuance of share certificates and
an investor requests a share certificate, MGF will countersign and mail, by
insured first class mail, a share certificate to the investor at his address as
set forth on the transfer books of the Trust, subject to any other instructions
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<PAGE>
for delivery of certificates representing newly purchased shares and subject to
the limitation that no certificates representing newly purchased shares shall be
mailed to the investor until the cash purchase price of such shares has been
collected and credited to the account of the Trust maintained by the Custodian.
The Trust shall supply MGF with a sufficient supply of blank share certificates
and from time to time shall renew such supply upon request of MGF. Such blank
share certificates shall be properly signed, manually or, if authorized by the
Trust, by facsimile; and notwithstanding the death, resignation or removal of
any officers of the Trust authorized to sign share certificates, MGF may
continue to countersign certificates which bear the manual or facsimile
signature of such officer until otherwise directed by the Trust. In case of the
alleged loss or destruction of any share certificate, no new certificates shall
be issued in lieu thereof, unless there shall first be furnished an appropriate
bond satisfactory to MGF and the Trust, and issued by a surety company
satisfactory to MGF and the Trust.
9. RECEIPT OF FUNDS.
Upon receipt of any check or other instrument drawn or
endorsed to it as agent for, or identified as being for the account of, the
Trust, MGF shall stamp the check or instrument with the date of receipt,
determine the amount thereof due the Trust and shall forthwith process the same
for collection. Upon receipt of notification of receipt of funds eligible for
share purchases in accordance with the Trust's then current prospectus and
statement of additional information, MGF shall notify the Trust, at the close of
each business day, in writing of the amount of said funds credited to the Trust
and deposited in its account with the Custodian.
10. PURCHASE ORDERS.
Upon receipt of an order for the purchase of shares of the
Trust, accompanied by sufficient information to enable MGF to establish a
shareholder account, MGF shall, as of the next determination of net asset value
after receipt of such order in accordance with the Trust's then current
prospectus and statement of additional information, compute the number of shares
due to the shareholder, credit the share account of the shareholder, subject to
collection of the funds, with the number of shares so purchased, shall notify
the Trust in writing or by computer report at the close of each business day of
such transactions and shall mail to the shareholder and/or dealer of record a
notice of such credit when required by applicable securities laws or
regulations.
11. RETURNED CHECKS.
In the event that MGF is notified by the Trust's Custodian
that any check or other order for the payment of money is returned unpaid for
any reason, MGF will:
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A. Give prompt notification to the Trust of the non- payment
of said check;
B. In the absence of other instructions from the Trust, take
such steps as may be necessary to redeem any shares purchased on the basis of
such returned check and cause the proceeds of such redemption plus any dividends
declared with respect to such shares to be credited to the account of the Trust
and to request the Trust's Custodian to forward such returned check to the
person who originally submitted the check; and
C. Notify the Trust of such actions and correct the Trust's
records maintained by MGF pursuant to this Agreement.
12. DIVIDENDS AND DISTRIBUTIONS.
The Trust shall furnish MGF with appropriate evidence of
trustee action authorizing the declaration of dividends and other distributions.
MGF shall establish procedures in accordance with the Trust's then current
prospectus and statement of additional information and with other authorized
actions of the Trust's Board of Trustees under which it will have available from
the Custodian or the Trust any required information for each dividend and other
distribution. After deducting any amount required to be withheld by any
applicable laws, MGF shall, as agent for each shareholder who so requests,
invest the dividends and other distributions in full and fractional shares in
accordance with the Trust's then current prospectus and statement of additional
information. If a shareholder has elected to receive dividends or other
distributions in cash, then MGF shall disburse dividends to shareholders of
record in accordance with the Trust's then current prospectus and statement of
additional information. MGF shall, on or before the mailing date of such checks,
notify the Trust and the Custodian of the estimated amount of cash required to
pay such dividend or distribution, and the Trust shall instruct the Custodian to
make available sufficient funds therefor in the appropriate account of the
Trust. MGF shall mail to the shareholders periodic statements, as requested by
the Trust, showing the number of full and fractional shares and the net asset
value per share of shares so credited. When requested by the Trust, MGF shall
prepare and file with the Internal Revenue Service, and when required, shall
address and mail to shareholders, such returns and information relating to
dividends and distributions paid by the Trust as are required to be so prepared,
filed and mailed by applicable laws, rules and regulations.
13. UNCLAIMED DIVIDENDS AND UNCLAIMED REDEMPTION PROCEEDS.
MGF shall, at least annually, furnish in writing to the Trust
the names and addresses, as shown in the shareholder accounts maintained by MGF,
of all shareholders for which there are, as of the end of the calendar year,
dividends, distributions
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<PAGE>
or redemption proceeds for which checks or share certificates mailed in payment
of distributions have been returned. MGF shall use its best efforts to contact
the shareholders affected and to follow any other written instructions received
from the Trust concerning the disposition of any such unclaimed dividends,
distributions or redemption proceeds.
14. REDEMPTIONS AND EXCHANGES.
A. MGF shall process, in accordance with the Trust's then
current prospectus and statement of additional information, each order for the
redemption of shares accepted by MGF. Upon its approval of such redemption
transactions, MGF, if requested by the Trust, shall mail to the shareholder
and/or dealer of record a confirmation showing trade date, number of full and
fractional shares redeemed, the price per share and the total redemption
proceeds. For each such redemption, MGF shall either: (a) prepare checks in the
appropriate amounts for approval and verification by the Trust and signature by
an authorized officer of MGF and mail the checks to the appropriate person, or
(b) in the event redemption proceeds are to be wired through the Federal Reserve
Wire System or by bank wire, cause such proceeds to be wired in federal funds to
the bank account designated by the shareholder, or (c) effectuate such other
redemption procedures which are authorized by the Trust's Board of Trustees or
its then current prospectus and statement of additional information. The
requirements as to instruments of transfer and other documentation, the
applicable redemption price and the time of payment shall be as provided in the
then current prospectus and statement of additional information, subject to such
supplemental instructions as may be furnished by the Trust and accepted by MGF.
If MGF or the Trust determines that a request for redemption does not comply
with the requirements for redemptions, MGF shall promptly notify the shareholder
indicating the reason therefor.
B. If shares of the Trust are eligible for exchange with
shares of any other investment company, MGF, in accordance with the then current
prospectus and statement of additional information and exchange rules of the
Trust and such other investment company, or such other investment company's
transfer agent, shall review and approve all exchange requests and shall, on
behalf of the Trust's shareholders, process such approved exchange requests.
C. MGF shall notify the Trust and the Custodian on each
business day of the amount of cash required to meet payments made pursuant to
the provisions of this Paragraph, and, on the basis of such notice, the Trust
shall instruct the Custodian to make available from time to time sufficient
funds therefor in the appropriate account of the Trust. Procedures for effecting
redemption orders accepted from shareholders or dealers of record by telephone
or other methods shall be established by mutual agreement between MGF and the
Trust consistent with the Trust's then current prospectus and statement of
additional information.
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<PAGE>
D. The authority of MGF to perform its responsibilities under
Paragraph 10, Paragraph 12, and this Paragraph 14 shall be suspended with
respect to any series of the Trust upon receipt of notification by it of the
suspension of the determination of such series' net asset value.
15. AUTOMATIC WITHDRAWAL PLANS.
MGF will process automatic withdrawal orders pursuant to the
provisions of the withdrawal plans duly executed by shareholders and the current
prospectus and statement of additional information of the Trust. Payments upon
such withdrawal order shall be made by MGF from the appropriate account
maintained by the Trust with the Custodian on approximately the last business
day of each month in which a payment has been requested, and MGF will withdraw
from a shareholder's account and present for repurchase or redemption as many
shares as shall be sufficient to make such withdrawal payment pursuant to the
provisions of the shareholder's withdrawal plan and the current prospectus and
statement of additional information of the Trust. From time to time on new
automatic withdrawal plans a check for payment date already past may be issued
upon request by the shareholder.
16. WIRE-ORDER PURCHASES.
MGF will send written confirmations to the dealers of record
containing all details of the wire-order purchases placed by each such dealer by
the close of business on the business day following receipt of such orders by
MGF. Upon receipt of any check drawn or endorsed to the Trust (or MGF, as agent)
or otherwise identified as being payment of an outstanding wire- order, MGF will
stamp said check with the date of its receipt and deposit the amount represented
by such check to MGF's deposit accounts maintained with the Custodian. MGF will
cause the Custodian to transfer federal funds in an amount equal to the net
asset value of the shares so purchased to the Trust's account with the
Custodian, and will notify the Trust before noon of each business day of the
total amount deposited in the Trust's deposit accounts, and in the event that
payment for a purchase order is not received by MGF or the Custodian on the
tenth business day following receipt of the order, prepare an NASD "notice of
failure of dealer to make payment".
17. OTHER PLANS.
MGF will process such accumulation plans, automatic withdrawal
plans, group programs and other plans or programs for investing in shares of the
Trust as are now provided for in the Trust's current prospectus and statement of
additional information and will act as plan agent for shareholders pursuant to
the terms of such plans and programs duly executed by such shareholders.
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<PAGE>
18. RECORDKEEPING AND OTHER INFORMATION.
MGF shall create and maintain all records required by
applicable laws, rules and regulations, including but not limited to records
required by Section 31(a) of the 1940 Act and the rules thereunder, as the same
may be amended from time to time, pertaining to the various functions performed
by it and not otherwise created and maintained by another party pursuant to
contract with Dillon or the Trust. All such records shall be the property of the
Trust at all times and shall be available for inspection and use by the Trust.
Where applicable, such records shall be maintained by MGF for the periods and in
the places required by Rule 31a-2 under the 1940 Act. The retention of such
records shall be at the expense of Dillon. MGF shall make available during
regular business hours all records and other data created and maintained
pursuant to this Agreement for reasonable audit and inspection by the Trust and
Dillon or their agents, or any regulatory agency having authority over the
Trust.
19. SHAREHOLDER RECORDS.
MGF shall maintain records for each shareholder account
showing the following:
A. Names, addresses and tax identifying numbers;
B. Name of the dealer of record, if any;
C. Number of shares held of each series;
D. Historical information regarding the account of each
shareholder, including dividends and distributions in
cash or invested in shares;
E. Information with respect to the source of all dividends
and distributions allocated among income, realized
short-term gains and realized long-term gains;
F. Any instructions from a shareholder including all forms
furnished by the Trust and executed by a shareholder
with respect to (i) dividend or distribution elections
and (ii) elections with respect to payment options in
connection with the redemption of shares;
G. Any correspondence relating to the current maintenance
of a shareholder's account;
H. Certificate numbers and denominations for any
shareholder holding certificates;
I. Any stop or restraining order placed against a
shareholder's account;
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J. Information with respect to withholding in the case of
a foreign account or any other account for which
withholding is required by the Internal Revenue Code of
1986, as amended; and
K. Any information required in order for MGF to perform
the calculations contemplated under this Agreement.
20. TAX RETURNS AND REPORTS.
MGF will prepare in the appropriate form, file with the
Internal Revenue Service and appropriate state agencies and, if required, mail
to shareholders of the Trust such returns for reporting dividends and
distributions paid by the Trust as are required to be so prepared, filed and
mailed and shall withhold such sums as are required to be withheld under
applicable federal and state income tax laws, rules and regulations.
21. FORM N-SAR.
MGF shall maintain such records within its control and shall
be requested by the Trust to assist the Trust in fulfilling the requirements of
Form N-SAR.
22. OTHER INFORMATION TO THE TRUST.
Subject to such instructions, verification and approval of the
Custodian and the Trust as shall be required by any agreement or applicable law,
MGF will also maintain such records as shall be necessary to furnish to the
Trust the following: annual shareholder meeting lists, proxy lists and mailing
materials, shareholder reports and confirmations and checks for disbursing
redemption proceeds, dividends and other distributions or expense disbursements.
23. COOPERATION WITH ACCOUNTANTS.
MGF shall cooperate with the Trust's independent public
accountants and shall take all reasonable action in the performance of its
obligations under this Agreement to assure that the necessary information is
made available to such accountants for the expression of their unqualified
opinion where required for any document for the Trust.
24. SHAREHOLDER SERVICE AND CORRESPONDENCE.
MGF will provide and maintain adequate personnel, records and
equipment to receive and answer all shareholder and dealer inquiries relating to
account status, share purchases, redemptions and exchanges and other investment
plans available to Trust shareholders. MGF will answer written correspondence
from shareholders relating to their share accounts and such other written or
oral inquiries as may from time to time be mutually agreed upon, and MGF will
notify the Trust of any correspondence or inquiries which may require an answer
from the Trust.
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<PAGE>
25. PROXIES.
MGF shall assist the Trust in the mailing of proxy cards and
other material in connection with shareholder meetings of the Trust, shall
receive, examine and tabulate returned proxies and shall, if requested by the
Trust, provide at least one inspector of election to attend and participate as
required by law in shareholder meetings of the Trust.
26. FURTHER ACTIONS.
Each party agrees to perform such further acts and execute
such further documents as are necessary to effectuate the purposes hereof.
27. COMPENSATION.
For performing its services under this Agreement, Dillon shall
pay MGF a monthly fee with respect to each series of the Trust in accordance
with the schedule attached hereto as Schedule A.
28. EXPENSES.
MGF shall furnish, at its expense and without cost to the
Trust (i) the services of its personnel to the extent that such services are
required to carry out its obligations under this Agreement and (ii) use of data
processing equipment. All costs and expenses not expressly assumed by MGF under
this Paragraph 28 shall be paid by Dillon, including, but not limited to, costs
and expenses of officers and employees of MGF in attending meetings of the Board
of Trustees and shareholders of the Trust, as well as costs and expenses for
postage, envelopes, checks, drafts, continuous forms, reports, communications,
statements and other materials, telephone, telegraph and remote transmission
lines, use of outside pricing services, use of outside mailing firms, necessary
outside record storage, media for storage of records (e.g., microfilm,
microfiche, computer tapes), printing, confirmations and any other shareholder
correspondence and any and all assessments, taxes or levies assessed on MGF for
services provided under this Agreement. Postage for mailings of dividends,
proxies, reports and other mailings to all shareholders shall be advanced to MGF
three business days prior to the mailing date of such materials.
29. REFERENCES TO MGF, DILLON OR THE TRUST.
A. Neither the Trust nor Dillon shall circulate any printed
matter which contains any reference to MGF without the prior written approval of
MGF, excepting solely such printed matter as merely identifies MGF as
Administrative Services Agent, Transfer, Shareholder Servicing and Dividend
Disbursing Agent and
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<PAGE>
Accounting Services Agent. The Trust or Dillon will submit printed matter
requiring approval to MGF in draft form, allowing sufficient time for review by
MGF and its counsel prior to any deadline for printing.
B. MGF shall not circulate any printed matter which contains
any reference to the Trust or Dillon without the prior written approval of the
Trust or Dillon, excepting solely such printed matter as merely identifies
Dillon and the Trust as clients of MGF. MGF will submit printed matter requiring
approval to Dillon and/or the Trust in draft form, allowing sufficient time for
review by Dillon and/or the Trust and its counsel prior to any deadline for
printing.
30. EQUIPMENT FAILURES.
In the event of equipment failures beyond MGF's control, MGF
shall take all steps necessary to minimize service interruptions but shall have
no liability with respect thereto. MGF shall endeavor to enter into one or more
agreements making provision for emergency use of electronic data processing
equipment to the extent appropriate equipment is available.
31. INDEMNIFICATION OF MGF.
A. MGF may rely on information reasonably believed by it to be
accurate and reliable. Except as may otherwise be required by the 1940 Act and
the rules thereunder, neither MGF nor its shareholders, officers, directors,
employees, agents, control persons or affiliates of any thereof shall be subject
to any liability for, or any damages, expenses or losses incurred by Dillon or
the Trust in connection with, any error of judgment, mistake of law, any act or
omission connected with or arising out of any services rendered under or
payments made pursuant to this Agreement or any other matter to which this
Agreement relates, except by reason of willful misfeasance, bad faith or
negligence on the part of any such persons in the performance of the duties of
MGF under this Agreement or by reason of reckless disregard by any of such
persons of the obligations and duties of MGF under this Agreement.
B. Any person, even though also a director, officer, employee,
shareholder or agent of MGF, or any of its affiliates, who may be or become an
officer, trustee, employee or agent of the Trust, shall be deemed, when
rendering services to the Trust or acting on any business of the Trust, to be
rendering such services to or acting solely as an officer, trustee, employee or
agent of the Trust and not as a director, officer, employee, shareholder or
agent of or one under the control or direction of MGF or any of its affiliates,
even though paid by one of these entities.
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<PAGE>
C. Notwithstanding any other provision of this Agreement,
Dillon and the Trust shall each indemnify and hold harmless MGF, its directors,
officers, employees, shareholders, agents, control persons and affiliates from
and against any and all claims, demands, expenses and liabilities (whether with
or without basis in fact or law) of any and every nature which MGF may sustain
or incur or which may be asserted against MGF by any person by reason of, or as
a result of: (i) any action taken or omitted to be taken by MGF in good faith in
reliance upon any certificate, instrument, order or share certificate believed
by it to be genuine and to be signed, countersigned or executed by any duly
authorized person, upon the oral instructions or written instructions of an
authorized person of the Trust or upon the opinion of legal counsel for the
Trust or its own counsel; or (ii) any action taken or omitted to be taken by MGF
in connection with its appointment in good faith in reliance upon any law, act,
regulation or interpretation of the same even though the same may thereafter
have been altered, changed, amended or repealed. However, indemnification under
this subparagraph shall not apply to actions or omissions of MGF or its
directors, officers, employees, shareholders or agents in cases of its or their
own negligence, willful misconduct, bad faith, or reckless disregard of its or
their own duties hereunder.
32. TERMINATION
A. The provisions of this Agreement shall be effective on the
date first above written, shall continue in effect for two years from that date
and shall continue in force from year to year thereafter, but only so long as
such continuance is approved (1) by MGF, (2) by Dillon, (3) by vote, cast in
person at a meeting called for the purpose, of a majority of the Trust's
trustees who are not parties to this Agreement or interested persons (as defined
in the 1940 Act) of any such party, and (4) by vote of a majority of the Trust's
Board of Trustees or a majority of the Trust's outstanding voting securities.
B. Any party may terminate this Agreement on any date by
giving the other parties at least sixty (60) days' prior written notice of such
termination specifying the date fixed therefore. Upon termination of this
Agreement, Dillon shall pay to MGF such compensation as may be due as of the
date of such termination, and shall likewise reimburse MGF for any out-of-pocket
expenses and disbursements reasonably incurred by MGF to such date.
C. In the event that in connection with the termination of
this Agreement a successor to any of MGF's duties or responsibilities under this
Agreement is designated by Dillon or the Trust by written notice to MGF, MGF
shall, promptly upon such termination and at the expense of Dillon, transfer all
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<PAGE>
records maintained by MGF under this Agreement and shall cooperate in the
transfer of such duties and responsibilities, including provision for assistance
from MGF's cognizant personnel in the establishment of books, records and other
data by such successor.
33. SERVICES FOR OTHERS.
Nothing in this Agreement shall prevent MGF or any affiliated
person (as defined in the 1940 Act) of MGF from providing services for any other
person, firm or corporation (including other investment companies); provided,
however, that MGF expressly represents that it will undertake no activities
which, in its judgment, will adversely affect the performance of its obligations
to the Trust under this Agreement.
34. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS.
The parties hereto acknowledge and agree that nothing
contained herein shall be construed to require MGF to perform any services for
Dillon or the Trust which services could cause MGF to be deemed an "investment
adviser" of the Trust within the meaning of Section 2(a)(20) of the 1940 Act or
to supersede or contravene the Trust's prospectus or statement of additional
information or any provisions of the 1940 Act and the rules thereunder. Except
as otherwise provided in this Agreement and except for the accuracy of
information furnished to it by MGF, the Trust assumes full responsibility for
complying with all applicable requirements of the 1940 Act, the Securities Act
of 1933, as amended, and any other laws, rules and regulations of governmental
authorities having jurisdiction, it being acknowledged that the Trust is relying
on the best efforts of MGF.
35. LIMITATION OF LIABILITY.
It is expressly agreed that the obligations of the Trust
hereunder shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents or employees of the Trust, personally, but bind only the trust
property of the Trust. The execution and delivery of this Agreement have been
authorized by the Trustees of the Trust and signed by an officer of the Trust,
acting as such, and neither such authorization by such Trustees nor such
execution and delivery by such officer shall be deemed to have been made by any
of them individually or to impose any liability on any of them personally, but
shall bind only the trust property of the Trust.
36. SEVERABILITY.
In the event any provision of this Agreement is determined to
be void or unenforceable, such determination shall not affect the remainder of
this Agreement, which shall continue to be in force.
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<PAGE>
37. QUESTIONS OF INTERPRETATION.
This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio. Any question of interpretation of
any term or provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the 1940 Act shall be resolved by reference
to such term or provision of the 1940 Act and to interpretations thereof, if
any, by the United States Courts or in the absence of any controlling decision
of any such court, by rules, regulations or orders of the SEC issued pursuant to
said 1940 Act. In addition, where the effect of a requirement of the 1940 Act,
reflected in any provision of this Agreement, is revised by rule, regulation or
order of the SEC, such provision shall be deemed to incorporate the effect of
such rule, regulation or order.
38. NOTICES.
All notices, requests, consents and other communications
required or permitted under this Agreement shall be in writing (including telex
and telegraphic communication) and shall be (as elected by the person giving
such notice) hand delivered by messenger or courier service, telecommunicated,
or mailed (airmail if international) by registered or certified mail (postage
prepaid), return receipt requested, addressed to:
To the Trust: Capitol Square Investment Trust
Capitol Square
21 East State Street, Suite 1410
Columbus, Ohio 43215
Attention: Roderick H. Dillon, Jr.
To Dillon: Dillon Capital Management
Capitol Square
21 East State Street, Suite 1410
Columbus, Ohio 43215
Attention: Roderick H. Dillon, Jr.
To MGF: MGF Service Corp.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
Attention: Robert G. Dorsey
or to such other address as any party may designate by notice complying with the
terms of this Paragraph 38. Each such notice shall be deemed delivered (a) on
the date delivered if by personal delivery; (b) on the date telecommunicated if
by telegraph; (c) on the date of transmission with confirmed answer back if by
telex, telefax or other telegraphic method; and (d) on the date upon which the
return receipt is signed or delivery is refused or the notice is designated by
the postal authorities as not deliverable, as the case may be, if mailed.
- 14 -
<PAGE>
39. AMENDMENT.
This Agreement may not be amended or modified except by a
written agreement executed by all parties.
40. BINDING EFFECT.
Each of the undersigned expressly warrants and represents that
he has the full power and authority to sign this Agreement on behalf of the
party indicated, and that his signature will operate to bind the party indicated
to the foregoing terms.
41. COUNTERPARTS.
This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
42. FORCE MAJEURE.
If MGF shall be delayed in its performance of services or
prevented entirely or in part from performing services due to causes or events
beyond its control, including and without limitation, acts of God, interruption
of power or other utility, transportation or communication services, acts of
civil or military authority, sabotages, national emergencies, explosion, flood,
accident, earthquake or other catastrophe, fire, strike or other labor problems,
legal action, present or future law, governmental order, rule or regulation, or
shortages of suitable parts, materials, labor or transportation, such delay or
non-performance shall be excused and a reasonable time for performance in
connection with this Agreement shall be extended to include the period of such
delay or non-performance.
43. MISCELLANEOUS.
The captions in this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
- 15 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
CAPITOL SQUARE INVESTMENT TRUST
By:/s/ Roderick H. Dillon, Jr.
Its: President
Date: August 27, 1996
DILLON CAPITAL MANAGEMENT
By:/s/ Roderick H. Dillon, Jr.
Its: President
Date: August 27, 1996
MGF SERVICE CORP.
By:/s/ Robert G. Dorsey
Its: President
Date: August 27, 1996
- 16 -
<PAGE>
Schedule A
COMPENSATION
Dillon will pay MGF fifty percent (50%) of the net management fees it
receives for services performed for the Capitol Square Large Cap Fund and the
Capitol Square Small Cap Fund and thirty seven and one-half percent (37 1/2%) of
the net management fees it receives for services performed for the Capitol
Square Bond Fund. For purposes of this Agreement, net managements fee are
defined as gross management fees less operating costs for each particular Fund.
Operating costs for each series of the Trust will include the following:
- 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, such as printing
and typesetting
- Transfer agent out-of-pocket expenses, including, but not
limited to postage, envelopes, checks, drafts, statements,
telephone lines, outside mailing firms and outside record
storage
- Sunguard Fund accounting licensing fees
- Any other direct costs incurred by Dillon in
connection with the operation and administration of
the Trust
- 17 -
<PAGE>
MGF
SERVICE CORP
September 11, 1996
Capitol Square Funds
21 East State Street, Suite 1410
Columbus, Ohio 43215
Gentlemen:
You have requested my opinion in connection with the registration by Capitol
Square Funds, an Ohio business trust (the "Trust"), of an indefinite number of
shares of beneficial interest of each of the Capitol Square Large Cap Fund, the
Capitol Square Small Cap Fund and the Capitol Square Bond Fund of the Trust (the
"Shares") authorized by the Trust's Agreement and Declaration of Trust, which
has been filed with the Securities and Exchange Commission as an exhibit to the
Trust's registration statement on Form N-1A (File No. 333-07693), as amended
(the "Registration Statement"), under the Securities Act of 1933 and the
Investment Company Act of 1940.
I have examined and relied upon originals or copies, certified or otherwise
identified to my satisfaction, of such records, agreements, documents and other
instruments and certificates or comparable documents of public officials and of
officers and representatives of the Trust, and I have made such inquiries of the
officers and representatives of the Trust, as I have deemed relevant and
necessary as the basis for the opinion hereinafter set forth.
In such examination, I have assumed, without independent verification, the
genuineness of all signatures (whether original or photostatic) and the
authenticity of all documents submitted to me as originals and the conformity to
authentic original documents of all documents submitted to me as certified or
photostatic copies. As to all questions of fact material to such opinion, I have
relied upon the certificates referred to hereinabove. I have assumed, without
independent verification, the accuracy of the relevant facts stated therein.
This letter expresses my opinion as to the provisions of the Trust's Agreement
and Declaration of Trust and the laws of the State of Ohio applying to business
trusts generally, but does not extend to the Ohio Securities Act or to federal
securities or other laws.
MGF Service Corp.
a subsidiary of Leshner Financial, Inc.
312 Walnut Street / Cincinnati, Ohio 45202 / 513.629.2000 / 800.543.8721
<PAGE>
Capitol Square Funds
September 11, 1996
Page Two
Based on the foregoing, and subject to the qualifications set forth herein, I am
of the opinion that the Shares have been duly and validly authorized, and, when
issued and delivered as described in the Registration Statement, will be fully
paid and nonassessable by the Trust.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement. In giving such consent, I do not thereby admit that I come within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933 or under the rules and regulations of the Securities and Exchange
Commission promulgated thereunder.
Very truly yours,
/s/ Tina D. Hosking
Tina D. Hosking
Counsel
<PAGE>
KPMG Peat Marwick LLP
1600 PNC Center
201 East Fifth Street
Cincinnati, Ohio 45202
Dayton, Ohio
Independent Auditors' Consent
The Shareholder and Trustees
of the Capitol Square Funds:
We consent to the inclusion of our report included herein and to the references
to our firm under the headings "Auditors" and "Statements of Assets and
Liabilities" in the Statement of Additional Information.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Cincinnati, Ohio
September 13, 1996
Member Firm of
Klynveld Peat Marwick Goerdeler
<PAGE>
AGREEMENT RELATING TO INITIAL CAPITAL
August 23, 1996
CAPITOL SQUARE INVESTMENT TRUST
Capitol Square
21 East State Street
Suite 1410
Columbus, Ohio 43215
Dear Sir/Madam:
In conjunction with the purchase by Roderick H. Dillon, Jr., Foundation
(the "Purchaser") of 3,000 shares of beneficial interest of the Capitol Square
Large Cap Fund, 3,000 shares of beneficial interest of the Capitol Square Small
Cap Fund and 4,000 Shares of beneficial interest of the Capitol Square Bond Fund
of the Capitol Square Investment Trust (the "Shares"), the Purchaser hereby
represents that it is acquiring the Shares for investment with no intention of
reselling or otherwise distributing the Shares. The Purchaser hereby further
agrees that any transfer of any of the Shares or any interest therein shall be
subject to the following conditions:
1. The Purchaser shall furnish you and counsel satisfactory to
you prior to the time of transfer, a written description of
the proposed transfer specifying its nature and consequence
and giving the name of the proposed transferee.
2. You shall have obtained from your counsel a written opinion
stating whether in the opinion of such counsel the proposed
transfer may be effected without registration under the
Securities Act of 1933. If such opinion states that such
transfer may be so effected, the Purchaser shall then be
entitled to transfer the Shares in accordance with the terms
specified in its description of the transaction to you. If
such opinion states that the proposed transfer may not be so
effected, the Purchaser will not be entitled to transfer the
Shares unless the Shares are registered.
<PAGE>
The Purchaser hereby authorizes you to take such action as you shall
reasonably deem appropriate to prevent any violation of the Securities Act of
1933 in connection with the transfer of the Shares, including the imposition of
a requirement that any transferee of the Shares sign a letter agreement similar
to this one. The Purchaser agrees that in the event the Shares are redeemed by
the Purchaser or its successors or any current holder prior to the complete
amortization of organization expenses by the Capitol Square Large Cap Fund, the
Capitol Square Small Cap Fund or the Capitol Square Bond Fund, the redemption
proceeds payable in respect of the Shares so redeemed shall be reduced by the
pro-rata share (based on the proportionate share of the Shares redeemed to the
total number of the Shares outstanding at the time of redemption) of the then
unamortized deferred organization expenses as of the date of such redemption.
Very truly yours,
RODERICK H. DILLON, JR., FOUNDATION
By: /s/ Roderick H. Dillon, Jr.
Its: Trustee
- 2 -
<PAGE>
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