Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as
permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or
Rule 14a-12
Capitol Square Funds
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1),
14a-6(j)(2) or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to
Exchange Act Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules
14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction
applies:
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2) Aggregate number of securities to which transaction
applies:
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3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth
the amount on which the filing fee is calculated and state
how it was determined):
------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
<PAGE>
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
1) Amount previously paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing party:
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4) Date filed:
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<PAGE>
CAPITOL SQUARE FUNDS
SPECIAL MEETING OF SHAREHOLDERS
FEBRUARY 26, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
Capitol Square Bond Fund
The undersigned hereby appoints Tina D. Hosking and Roderick H. Dillon, Jr., and
each of them, as Proxies with power of substitution and hereby authorizes each
of them to represent and to vote as provided on the reverse side, all shares of
beneficial interest of the above Fund which the undersigned is entitled to vote
at the special meeting of shareholders to be held on February 26, 1997 or at any
adjournment thereof.
The undersigned acknowledges receipt of the Notice of Special Meeting and Proxy
Statement dated February __, 1997.
Date: February __, 1997
NOTE: Please sign exactly as your name appears on
this proxy. If signing for an estate, trust or
corporation, title or capacity should be stated.
If the shares are held jointly, both signers shall
sign, although the signature of one will bind the
other.
-------------------------------
--------------------------------
Signature(s) PLEASE SIGN IN BOX
ABOVE
<PAGE>
PLEASE INDICATE YOUR VOTE BY FILLING IN THE APPROPRIATE BOX
BELOW, AS SHOWN, USING BLUE OR BLACK INK OR DARK PENCIL. DO NOT
USE RED INK.
IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR THE ELECTION
OF TRUSTEES AND FOR THE PROPOSALS DESCRIBED HEREIN.
1. With respect to approval of a new sub-advisory agreement with
Midwest Group Financial Services, Inc., to become effective upon
the closing of the proposed acquisition of Leshner Financial,
Inc. by Countrywide Credit Industries, Inc.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. In their discretion, the Proxies are authorized to vote upon such other
matters as may properly come before the meeting.
PLEASE MARK YOUR PROXY, DATE AND SIGN IT ON THE REVERSE SIDE, AND
RETURN IT PROMPTLY IN THE ACCOMPANYING ENVELOPE WHICH REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
February __, 1997
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders
of the Capitol Square Bond Fund to be held on Wednesday, February 26, 1997 at
10:00 a.m., Eastern time, at the offices of MGF Service Corp. at 312 Walnut
Street, 21st Floor, Cincinnati, Ohio 45202.
The purpose of the Special Meeting is to approve or disapprove a new
sub-advisory agreement with Midwest Group Financial Services, Inc. The Board of
Trustees has given full and careful consideration to this matter and has
concluded that the proposal is in the best interests of the Capitol Square Bond
Fund and its shareholders. The Board of Trustees therefore recommends that you
vote "FOR" the matter discussed herein.
Regardless of the number of shares you own, it is important that they
are represented and voted. If you cannot personally attend the special
shareholders' meeting, we would appreciate you promptly voting, signing and
returning the enclosed proxy in the postage-paid envelope provided.
Very truly yours,
Roderick H. Dillon, Jr.
President
<PAGE>
CAPITOL SQUARE FUNDS
CAPITOL SQUARE BOND FUND
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 26, 1997
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of the
Capitol Square Bond Fund, a series of Capitol Square Funds (the "Trust"), will
be held at the offices of MGF Service Corp. at 312 Walnut Street, 21st Floor,
Cincinnati, Ohio 45202, on Wednesday, February 26, 1997 at 10:00 a.m., Eastern
time, to consider and vote on the following matters:
1. To approve or disapprove a new sub-advisory agreement with
Midwest Group Financial Services, Inc., to become effective
upon the closing of the proposed acquisition of Leshner
Financial, Inc. by Countrywide Credit Industries, Inc.; and
2. To transact any other business, not currently contemplated,
that may properly come before the meeting in the discretion
of the proxies or their substitutes.
Shareholders of record at the close of business on January 24, 1997 are
entitled to notice of and to vote at this meeting or any adjournment thereof.
By order of the Board of Trustees,
Tina D. Hosking
Secretary
February __, 1997
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Please execute the enclosed proxy and return it promptly in the enclosed
envelope, thereby avoiding unnecessary expense and delay. No postage is required
if mailed in the United States. The proxy is revocable and will not affect your
right to vote in person if you attend the meeting.
<PAGE>
CAPITOL SQUARE FUNDS
SPECIAL MEETING OF SHAREHOLDERS OF
CAPITOL SQUARE BOND FUND
To Be Held on February 26, 1997
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PROXY STATEMENT
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This Proxy Statement is furnished in connection with the solicitation
by the Board of Trustees of Capitol Square Funds (the "Trust") of proxies for
use at the special meeting of shareholders or at any adjournment thereof. The
Proxy Statement and form of proxy were first mailed to shareholders on or about
February __, 1997.
The purpose of the meeting is to consider approval of a new sub-advisory
agreement for the Capitol Square Bond Fund (the "Fund") as a result of a
proposed transaction whereby the sub- adviser of the Fund, Midwest Group
Financial Services, Inc. (the "Sub-Adviser"), by means of an exchange of stock
of the Sub- Adviser's parent company, will become a wholly-owned indirect
subsidiary of Countrywide Credit Industries, Inc. Upon completion of such
transaction, it is anticipated that the Sub- Adviser will continue to carry on
its business with its current management at its current location.
A proxy, if properly executed, duly returned and not revoked, will be
voted in accordance with the specifications thereon. A proxy which is properly
executed that has no voting instructions to a proposal will be voted for that
proposal. A shareholder may revoke a proxy at any time prior to use by filing
with the Secretary of the Trust an instrument revoking the proxy, by submitting
a proxy bearing a later date, or by attending and voting at the meeting.
The cost of the solicitation, including the printing and mailing of the
proxy materials, will be borne by the Fund's investment manager, Dillon Capital
Management ("Dillon Capital"). In addition to solicitation through the mails,
proxies may be solicited by officers, employees and agents of the Fund at the
expense of Dillon Capital, without cost to the Fund. Such solicitation may be by
telephone, facsimile or otherwise. Dillon Capital will reimburse brokers,
custodians, nominees and fiduciaries for the reasonable expenses incurred by
them in connection with forwarding solicitation materials to the beneficial
owners of shares held of record by such persons.
<PAGE>
OUTSTANDING SHARES AND VOTING REQUIREMENTS
The Board of Trustees has fixed the close of business on January 24,
1997 as the record date for the determination of shareholders entitled to notice
of and to vote at the Special Meeting of Shareholders or any adjournment
thereof. As of the record date there were ____________ shares of beneficial
interest, no par value, of the Fund outstanding. All full shares of the Fund are
entitled to one vote, with proportionate voting for fractional shares.
On January 24, 1997, ________________________________, owned of record
________% of the outstanding shares of the Fund. No other person owned of record
and, according to information available to the Trust, no other person owned
beneficially 5% or more of the Fund's outstanding shares on the record date.
If a quorum (more than 50% of the outstanding shares of the Fund) is
represented at the meeting, the vote of a majority of the outstanding shares of
the Fund is required for approval of the new sub-advisory agreement with the
Sub-Adviser. The vote of a majority of the outstanding shares means the vote of
the lesser of (1) 67% or more of the shares present or represented by proxy at
the meeting, if the holders of more than 50% of the outstanding shares are
present or represented by proxy, or (2) more than 50% of the outstanding shares.
If a quorum is present at the meeting but sufficient votes to approve the new
sub- advisory agreement with the Sub-Adviser are not received, the persons named
as proxies may propose one or more adjournments of the meeting to permit further
solicitation of proxies. Any such adjournment will require the affirmative vote
of a majority of those shares represented at the meeting in person or by proxy.
A shareholder vote may be taken on one or more of the proposals in this proxy
statement prior to any such adjournment if sufficient votes have been received
and it is otherwise appropriate. Abstentions and "broker non-votes" are counted
for purposes of determining whether a quorum is present but do not represent
votes cast with respect to a proposal. "Broker non-votes" are shares held by a
broker or nominee for which an executed proxy is received by the Fund, but are
not voted as to one or more proposals because instructions have not been
received from the beneficial owners or persons entitled to vote and the broker
or nominee does not have discretionary voting power.
The Trustees of the Trust intend to vote all of their shares in favor
of the proposal described herein. On January 24, 1997, Roderick H. Dillon, Jr.,
President and a trustee of the Trust, owned of record or beneficially _____% of
the outstanding shares of the Fund and ___________________, a trustee of the
Trust, owned of record _____% of the outstanding shares of the Fund. All
Trustees and officers as a group owned of record or beneficially less than ___%
of the Fund's outstanding shares on the record date.
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<PAGE>
I. APPROVAL OR DISAPPROVAL OF A NEW SUB-ADVISORY AGREEMENT WITH
MIDWEST GROUP FINANCIAL SERVICES, INC.
Dillon Capital currently provides general investment supervisory
services to the Fund pursuant to an Advisory Agreement between the Trust and
Dillon Capital. Dillon Capital has retained the Sub-Adviser to manage the Fund's
investments pursuant to a Sub-Advisory Agreement among the Trust, the Sub-
Adviser and Dillon Capital (the "Present Sub-Advisory Agreement"). The Present
Sub-Advisory Agreement is dated August 27, 1996 and was approved by the Board of
Trustees, including a majority of the Trustees who are not interested persons,
as defined in the Investment Company Act of 1940, as amended (the "1940 Act"),
of Dillon Capital, the Sub-Adviser or the Trust (the "Independent Trustees"), on
that date. The Roderick H. Dillon, Jr. Foundation, as sole shareholder of the
Fund, also approved the Present Sub-Advisory Agreement on August 27, 1996.
Pursuant to an Agreement for Exchange of Stock (the "Acquisition
Agreement") dated December 10, 1996 between Countrywide Credit Industries,
Inc.("CCI") and the shareholders of Leshner Financial, Inc. ("LFI"), CCI has
agreed to acquire all of the outstanding common stock of LFI in exchange for
newly issued common stock of CCI (the "Acquisition"). The Sub-Adviser is a
wholly-owned subsidiary of LFI, of which Robert H. Leshner is the controlling
shareholder. MGF Service Corp., the Trust's administrator, transfer agent and
accounting and pricing agent, is also a wholly-owned subsidiary of LFI. As a
result of the Acquisition, the Sub-Adviser and MGF Service Corp. will become
wholly-owned indirect subsidiaries of CCI. The Acquisition could be viewed as
constituting a "change in control" of the Sub- Adviser for purposes of the 1940
Act and cause the "assignment" and resulting termination of the Present
Sub-Advisory Agreement. Under the 1940 Act, a transaction which results in a
change of control or management of an investment adviser may be deemed an
"assignment." The 1940 Act further provides that an investment advisory
agreement will automatically terminate in the event of its assignment.
Accordingly, the Board of Trustees proposes that a new sub-advisory agreement
among the Trust, Dillon Capital and the Sub-Adviser (the "New Sub-Advisory
Agreement") be approved by shareholders of the Fund.
The terms and conditions of the New Sub-Advisory Agreement are
identical in all material respects to those of the Present Sub-Advisory
Agreement, with the exception of the effective date. Upon completion of the
Acquisition, the Sub-Adviser expects to retain the services of all of its
current management personnel. The employees of the Sub-Adviser who currently
provide portfolio management services to the Fund are expected to continue to
provide such services and there will be no change in their responsibilities with
respect to the Fund following the Acquisition. Furthermore, no changes in the
Sub-Adviser's method of operation or the location where it conducts its
business, are contemplated.
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<PAGE>
TERMS OF THE ACQUISITION. The Acquisition Agreement contemplates that
the Sub-Adviser will become a wholly-owned indirect subsidiary of CCI. The value
of the CCI common stock to be issued in the Acquisition is $18.5 million,
subject to certain adjustments in the event that the trading price of CCI common
stock at the closing is either greater than $29 per share or less than $24 per
share. Pursuant to the Acquisition Agreement, $2.5 million of the purchase price
payable to Mr. Leshner and members of his family will be withheld at closing and
paid over the next five years based on the achievement of specified pre-tax
earnings goals.
In addition, the Acquisition Agreement contemplates that certain key
personnel of the Sub-Adviser will enter into employment and non-competition
agreements with CCI, which is intended to assure that the Sub-Adviser will
continue to operate with its same investment personnel and officers. Upon
completion of the Acquisition, the Sub-Adviser expects to retain the services of
all of its current management personnel, including Robert H. Leshner, who
intends to enter into a five-year employment agreement with CCI.
Section 15(f) of the 1940 Act provides that when a change in the
control of an investment adviser occurs, the investment adviser or any of its
affiliated persons may receive any amount or benefit in connection therewith as
long as two conditions are satisfied. First, an "unfair burden" must not be
imposed on the investment company as a result of the transaction relating to the
change of control, or any express or implied terms, conditions or understandings
applicable thereto. The term includes any arrangement during the two-year period
after the change in control whereby the investment adviser (or predecessor or
successor adviser), or any interested person of any such adviser, receives or is
entitled to receive any compensation, directly or indirectly, from the
investment company or its security holders (other than fees for bona fide
investment advisory or other services) or from any person in connection with the
purchase or sale of securities or other property to, from, or on behalf of the
investment company (other than fees for bona fide principal underwriting
services). No such compensation arrangements are contemplated in the
Acquisition.
The second condition is that, during the three-year period immediately
following consummation of the transaction, at least 75% of the Trust's Board of
Trustees must not be "interested persons" of the investment adviser or
predecessor investment adviser within the meaning of the 1940 Act. No interested
person of the Sub-Adviser within the meaning of the 1940 Act will serve on the
Board of Trustees of the Trust during such period if such service would cause
this condition to be violated.
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<PAGE>
THE NEW SUB-ADVISORY AGREEMENT. The terms and conditions of the New
Sub-Advisory Agreement are identical in all material respects to those of the
Present Sub-Advisory Agreement with the exception of the effective date.
Under the New Sub-Advisory Agreement, the Sub-Adviser will select portfolio
securities for investment by the Fund, purchase and sell securities of the Fund,
and upon making any purchase or sale decision, place orders for the execution of
such portfolio transactions, all in accordance with the 1940 Act and any rules
thereunder, the Internal Revenue Code of 1986, applicable state securities laws,
the supervision 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 objectives, policies and restrictions of the Fund,
and instructions from Dillon Capital. The Sub-Adviser will receive a monthly fee
from Dillon Capital at the rate of 12 1/2% of the "net management fees" Dillon
Capital receives for its services to the Fund. For purposes of calculating this
fee, "net management fees" are defined as the advisory fees paid to Dillon
Capital less Dillon Capital'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 Dillon Capital in the
operation and administration of the Fund. This is the same fee that the
Sub-Adviser currently receives from Dillon Capital under the Present
Sub-Advisory Agreement. Dillon Capital is solely responsible for the payment of
fees to the Sub-Adviser and the Sub-Adviser agrees to seek payment of its fees
solely from Dillon Capital.
The New Sub-Advisory Agreement directs the Sub-Adviser to give primary
consideration to the best qualitative execution in the selection of brokers and
dealers to execute portfolio transactions for the Fund, 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. In addition to including provision of brokerage and research
services as one of the factors to be considered in the determination of best
execution, the New Sub-Advisory Agreement specifically authorizes the
Sub-Adviser to select brokers or dealers who also provide brokerage and research
services to the Fund and the other accounts over which the Sub-Adviser exercises
investment discretion if 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
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<PAGE>
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. Research services furnished by brokers in connection with
portfolio transactions of the Fund may be used by the Sub-Adviser in servicing
its other clients, and not all such services may be used by the Sub-Adviser in
connection with the Fund. Likewise, research services provided by brokers
servicing other clients of the Sub-Adviser may be useful to the Sub-Adviser in
providing investment advice or brokerage services to the Fund. 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.
If the New Sub-Advisory Agreement is approved by the Fund's
shareholders, it will become effective upon the consummation of the Acquisition.
The New Sub-Advisory Agreement provides that it 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 (as defined in the 1940
Act) of the outstanding voting securities of the Fund, provided that in either
event continuance is also approved by a majority of the Independent Trustees, by
a vote cast in person at a meeting called for the purpose of voting such
approval. The New 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 a majority of the outstanding voting securities of the
Fund, by Dillon Capital, or by the Sub- Adviser. The New Sub-Advisory Agreement
automatically terminates in the event of its assignment, as defined by the 1940
Act and the rules thereunder.
The New Sub-Advisory Agreement 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 conferred upon it by such Agreement, or in accordance
with (or in the absence of) specific instructions from the Trust, provided 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 such
Agreement, or breach of its duties or of its obligations thereunder.
The New Sub-Advisory Agreement is attached as Exhibit A. The
description set forth in this Proxy Statement of the New Sub- Advisory Agreement
is qualified in its entirety by reference to Exhibit A.
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<PAGE>
In the event that shareholders of the Fund do not approve the New
Sub-Advisory Agreement and the Acquisition is consummated, the Board of Trustees
will promptly seek to obtain for the Fund interim advisory services either from
the Sub-Adviser or from another advisory organization. Thereafter, the Board of
Trustees would either negotiate a new sub-advisory agreement with an advisory
organization selected by the Board or make other appropriate arrangements, in
either event subject to approval by the shareholders of the Fund. In the event
the Acquisition is not completed for any reason, the Sub-Adviser will continue
to serve as the sub-adviser of the Fund pursuant to the terms of the Present
Sub-Advisory Agreement.
INFORMATION CONCERNING CCI. CCI is a New York Stock Exchange listed
company principally engaged in residential mortgage lending. CCI offers a
variety of mortgage products to home buyers, including home equity loans and
subprime credit quality first-lien mortgages. In addition, CCI has a loan
servicing operation which serves over 1.4 million homeowners as well as a
variety of ancillary financial products and services which augment its mortgage
lending and servicing operations. Founded in 1969, CCI is the nation's largest
independent residential mortgage lender and servicer. CCI has more than 5,500
employees and 350 offices across the nation. According to recent reports filed
with the Securities and Exchange Commission, Neuberger & Berman, 605 Third
Avenue, New York, New York 10158, is the beneficial owner of 14.6% of the
outstanding shares of CCI common stock and Oppenheimer Group, Inc., Oppenheimer
Tower, World Financial Center, New York, New York 10281, is the beneficial owner
of 15.6% of the outstanding shares of CCI common stock.
INFORMATION CONCERNING THE SUB-ADVISER. The Sub-Adviser is a
wholly-owned subsidiary of LFI, of which Robert H. Leshner is the controlling
shareholder. Mr. Leshner, his wife and two daughters together own of record and
beneficially 64.2% of the issued and outstanding shares of LFI. Mr. Leshner, in
his capacity as trustee of LFI's Employee Stock Ownership Plan, is the record
owner of an additional 32.2% of the issued and outstanding shares of LFI. James
A. Markley, Jr. and Noretta Markley, as trustees of the Noretta Markley Trust,
are the record owners of 3.6% of the issued and outstanding shares of LFI.
- 7 -
<PAGE>
During LFI's fiscal year ended September 30, 1996, Mr. Leshner
purchased a total of 8,441.75 shares (representing approximately 7.4% of the
outstanding shares) of the common stock of LFI from three officers of LFI.
During such fiscal year, LFI purchased and retired as treasury shares a total of
1,840.5 shares (representing approximately 1.6% of the outstanding shares) of
its common stock from two officers of LFI. The purchase price for each
transaction was $163 per share. Upon consummation of the Acquisition, the
current shareholders of LFI will own of record and beneficially less than 1% of
the outstanding common shares of CCI.
The directors and principal executive officers of the Sub- Adviser are
Robert H. Leshner, who is Chairman of the Board and a director of the
Sub-Adviser, MGF Service Corp. and LFI; Michael F. Andrews, who is President of
the Sub-Adviser and a director and Vice President of LFI; Maryellen Peretzky,
who is Vice President, Assistant Secretary and a director of the Sub-Adviser,
Vice President of MGF Service Corp. and Vice President and a director of LFI;
and James A. Markley, Jr., who is a director of the Sub-Adviser, MGF Service
Corp. and LFI and President of LFI. The address of the Sub-Adviser and of each
director and principal executive officer is 312 Walnut Street, Cincinnati, Ohio
45202.
Robert G. Dorsey, Treasurer of the Sub-Adviser, is also Vice President
of the Trust. John F. Splain, Secretary and General Counsel of the Sub-Adviser,
is also Assistant Secretary of the Trust.
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<PAGE>
The Sub-Adviser serves as investment adviser to the registered investment
companies listed below:
Amount of the
Net Assets as of Sub-Adviser's Annual
Name of Fund December 31, 1996 Advisory Fees
- ------------ ----------------- ---------------
MIDWEST GROUP
TAX FREE TRUST:
Tax-Free Money Fund $ 36,930,361 With respect to each
Ohio Tax-Free Money Fund, .50% of average
Fund 279,687,085 daily net assets up to
California Tax-Free $100 million; .45% of
Money Fund* 38,659,316 next $100 million of
Royal Palm Florida such assets; .40% of
Tax-Free Money Fund* 48,845,225 next $100 million of
Tax-Free Intermediate such assets; and .375%
Term Fund 69,675,882 of such assets in
Ohio Insured Tax-Free excess of $300 million
Fund 77,542,779
MIDWEST TRUST:
Short Term Government With respect to each
Income Fund $98,489,436 Fund, .50% of average
Intermediate Term daily net assets up
Government Income to $50 million; .45%
Fund 57,617,457 of next $100 million
Adjustable Rate U.S. of such assets; .40%
Government of next $100 million
Securities Fund* 14,269,802 of such assets; and
.375% of such assets
in excess of $250
million
Institutional
Government Income Fund* 39,717,199 .20% of average
daily net assets
Global Fund* 19,242,377 .70% of average
daily net assets up to
$100 million and .60%
of such assets in
excess of $100 million
MIDWEST STRATEGIC
TRUST:
U.S. Government With respect to each
Securities Fund* $20,574,996 Fund, .75% of average
Treasury Total daily net assets up to
Return Fund* 11,211,196 $200 million; .70% of
Utility Fund 42,381,631 next $300 million of
Equity Fund* 16,714,752 such assets; and .50%
of such assets in
excess of $500 million
* During the 1996 fiscal year, the Sub-Adviser waived all or a portion of
its advisory fees for such funds. There is no assurance that any fee
waivers will continue in the future.
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<PAGE>
INFORMATION CONCERNING MGF SERVICE CORP. MGF Service Corp. ("MGF") is
retained by Dillon Capital to provide transfer agency, shareholder servicing,
accounting and pricing, and administrative services to the Fund. The address of
MGF is 312 Walnut Street, 21st Floor, Cincinnati, Ohio 45202. MGF receives from
Dillon Capital (not the Fund) a monthly fee at the rate of 37 1/2% of the "net
management fees" (as defined above) received by Dillon Capital for its services
to the Fund.
If the Acquisition is consummated, MGF will continue to provide
transfer agency, shareholder servicing, accounting and pricing, and
administrative services to the Fund at the same rates as are currently in
effect, pursuant to a new service agreement which was approved by the Board of
Trustees, including a majority of the Independent Trustees, on February 4, 1997.
EVALUATION BY THE BOARD OF TRUSTEES. On February 4, 1997, the Board of
Trustees, including a majority of the Independent Trustees, by vote cast in
person, unanimously approved, subject to the required shareholder approval
described herein, the New Sub-Advisory Agreement.
In considering approval of the New Sub-Advisory Agreement, the Board of
Trustees carefully evaluated information they deemed necessary to enable them to
determine whether the New Sub-Advisory Agreement will be in the best interests
of the Fund and its shareholders. In making this recommendation, the Trustees
evaluated the experience of the Sub-Adviser's key personnel in investing, the
quality of services the Sub-Adviser is expected to provide to the Fund and the
compensation proposed to be paid to the Sub-Adviser. The Trustees have given
careful consideration to all factors deemed to be relevant to the Fund,
including, but not limited to: (1) the nature and quality of the services
expected to be rendered to the Fund by the Sub-Adviser; (2) the distinct
investment objective and policies of the Fund; (3) that the compensation payable
to the Sub-Adviser under the New Sub-Advisory Agreement will be at the same rate
as the compensation now payable to the Sub-Adviser under the Present
Sub-Advisory Agreement; (4) that the terms of the New Sub- Advisory Agreement
are the same in all respects as the terms of the Present Sub-Advisory Agreement
except for a different effective date; (5) the history, reputation,
qualification and background of the Sub-Adviser and CCI, as well as the
qualifications of their personnel and their respective financial conditions; (6)
the Sub-Adviser's investment performance records; and (7) the substantial
benefits expected to be realized as a result of the Sub-Adviser's ownership by
CCI, such as the opportunity to gain access to CCI's managerial and
technological resources.
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<PAGE>
In making the determination to recommend approval of the New Sub-Advisory
Agreement to shareholders of the Fund, the Board of Trustees gave substantial
weight to the Sub-Adviser's representations that (i) the Acquisition should
benefit the Sub- Adviser by preserving its independent management structure and
portfolio management style, while providing stability from a strengthening
balance sheet and more attractive financial incentives to the Sub-Adviser's
employees and increased resources for the Sub-Adviser's operations; (ii) that
the Acquisition will not materially affect the advisory operations of the
Sub-Adviser or the level or quality of advisory services provided to the Fund;
(iii) that the same personnel at the Sub-Adviser who currently provide services
to the Fund will continue to do so after the Acquisition; (iv) that the Fund
will not be subject to any unfair burden as a result of the Acquisition; and (v)
access to CCI's broad managerial, financial and technological resources should
allow the Sub-Adviser to increase the range and quality of services provided to
the Fund. In considering approval of the New Sub-Advisory Agreement, the Board
of Trustees reviewed the most recent audited financial statements of the
Sub-Adviser and of CCI. The Board of Trustees believes that the Acquisition
should benefit the Sub-Adviser and the Fund and that the Fund should receive
investment advisory services under the New Sub- Advisory Agreement equal or
superior to those currently received under the Present Sub-Advisory Agreement,
at the same fee levels. The Board of Trustees therefore unanimously recommends
approval of the New Sub-Advisory Agreement by shareholders of the Fund.
OTHER INFORMATION. Dillon Capital also serves as the investment
adviser to two other series of the Trust, the Capitol Square Large Cap Fund and
the Capitol Square Small Cap Fund. Dillon Capital is controlled by DiCap, Inc.,
its General Partner. Roderick H. Dillon, Jr., President and a Trustee of the
Trust, is the controlling shareholder of DiCap, Inc. and the President of
Dillon Capital. T. Calloway Robertson III, a Trustee of the Trust, is Vice
President of Dillon Capital.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS APPROVE
THE NEW SUB-ADVISORY AGREEMENT.
II. OTHER BUSINESS
The proxy holders have no present intention of bringing any matter
before the meeting other than that specifically referred to above or matters in
connection with or for the purpose of effecting the same. Neither the proxy
holders nor the Board of Trustees are aware of any matters which may be
presented by others. If any other business shall properly come before the
meeting, the proxy holders intend to vote thereon in accordance with their best
judgment.
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<PAGE>
Any shareholder proposal intended to be presented at the next
shareholder meeting must be received by the Trust for inclusion in its proxy
statement and form of proxy relating to such meeting at a reasonable time before
the solicitation of proxies for the meeting is made.
By Order of the Board of Trustees,
Tina D. Hosking
Secretary
Date: February __, 1997
Please complete, date and sign the enclosed Proxy and return it
promptly in the enclosed reply envelope. NO POSTAGE IS REQUIRED
IF MAILED IN THE UNITED STATES.
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<PAGE>
Exhibit A
SUB-ADVISORY AGREEMENT
Midwest Group Financial Services, Inc.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
Ladies and Gentlemen:
Capitol Square Funds (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 of 1986, applicable state securities laws,
the supervision 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,
<PAGE>
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 duties 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
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<PAGE>
shall notify the Trust in writing sufficiently in advance of any 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
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<PAGE>
year and that there has been no violation of the Sub-Adviser's 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 until August 27,
1998, 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 FUNDS
By: By:
Title: President Title: President
Date: _________, 1997 Date: _________, 1997
ACCEPTANCE
The foregoing Agreement is hereby accepted.
MIDWEST GROUP FINANCIAL
SERVICES, INC.
By:
Title: Chairman of the Board
Date: _________, 1997
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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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<PAGE>
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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<PAGE>
SCHEDULE B
COMPENSATION
The Adviser 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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