As filed with the Securities and Exchange Commission on April 13, 1998
Registration No. 333-_____
Investment Company Act File No. 811-_____
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-------------------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. ___ / /
Post-Effective Amendment No. ___ / /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. __ / /
(Check appropriate box or boxes)
CAPSTONE INVESTMENT SERIES TRUST
(Exact Name of Registrant as Specified in Charter)
5847 San Felipe, Suite 4100, Houston, TX 77057
(Address of Principal Executive Office)
Registrant's Telephone Number: (713) 260-9000
-------------------------------------
--------------------------------
(Name and Address of Agent for Service)
Allan S. Mostoff, Esq.
Dechert Price & Rhoads
1775 Eye Street, NW
Washington, DC 20006-2401
Proposed Maximum
Number of Offering Price Proposed Amount of
Title of Shares Per Share (within Maximum Registration
Securities Being 15 days of filing) Offering Fee
Being Registered Registered Price
Shares of Indefinite* N/A N/A $_________
Beneficial
Interest, Par
Value $.001
* Registrant elects to register an indefinite number of shares of beneficial
interest pursuant to Rule 24f-2 under the Investment Company Act of 1940.
Registrant intends to file the notice required by Rule 24f-2 with respect to
its fiscal year ending November 30, 1998 no later than 90 days after the end
of such year.
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 this Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
CAPSTONE INVESTMENT SERIES TRUST
CROSS REFERENCE SHEET
BETWEEN
ITEMS OF FORM N-1A AND PROSPECTUS
(PART A TO REGISTRATION STATEMENT NO. 33-_____)
Item Number Form N-1A Heading Caption in Prospectus
- ---------------------------------------- ---------------------------
1. Cover Page Prospectus Cover Page
2. Synopsis Summary Information
3. Condensed Financial Information Inapplicable
4. General Description of The Funds: Investment
Registrant Objective and Policies;
Investment Policies;
Investment Restrictions;
Management of the Trust;
General Information
5. Management of the Fund Management of the Trust
6. Capital Stock and Other General Information;
Securities Distributions and Taxes
7. Purchase of Securities Being Determination of Net
Offered Asset Value; Purchasing
Shares
8. Redemption or Repurchase Redemption and Repurchase
of Shares
9. Pending Legal Proceedings Inapplicable
<PAGE>
CAPSTONE INVESTMENT SERIES TRUST
CROSS REFERENCE SHEET
BETWEEN
ITEMS OF FORM N-1A AND THE
STATEMENT OF ADDITIONAL INFORMATION
(PART B TO REGISTRATION STATEMENT NO. 33-_____)
Caption in Statement of
Item Number Form N-1A Heading Additional Information
- ---------------------------------------- ----------------------------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and Other Information
History
13. Investment Objectives and Investment Restrictions
Policies
14. Management of the Fund Trustees and Executive
Officers
15. Control Persons and Inapplicable
Principal Holders of
Securities
16. Investment Advisory and Investment Advisory
Other Services Agreement; Administration
Agreement; Other Information
17. Brokerage Allocation Portfolio Transactions and
Brokerage
18. Capital Stock and Other Dividends and Distributions
Securities
19. Purchase, Redemption and Determination of Net Asset
Pricing of Securities Being Value; How to Buy and Redeem
Offered Shares
20. Tax Status Taxes
21. Underwriter Distributor
22. Calculation of Performance Performance Information
Data
23. Financial Statements Inapplicable
<PAGE>
SUBJECT TO COMPLETION: DATED APRIL 13, 1998
CAPSTONE INVESTMENT SERIES TRUST
5847 San Felipe, Suite 4100
Houston, Texas 77057
1-800-262-6631
[Date]
PROSPECTUS
This combined Prospectus describes the six investment portfolios ("Funds")
of the Capstone Investment Series Trust ("Trust"), a Massachusetts business
trust registered as a diversified open-end investment company. The Funds offered
by this combined Prospectus are as follows:
Fixed Income Funds Equity Funds International Fund
Money Market Fund* Large Cap Equity Fund International Equity Fund
Short-Term Bond Fund Small Cap Equity Fund
Intermediate-Term Bond Fund
* An investment in the Money Market Fund is neither insured nor guaranteed
by the U.S. Government. Although the Money Market Fund seeks to maintain a
stable net asset value of $1.00 per Unit, there can be no assurance this value
can be maintained.
The Money Market Fund seeks to provide current income, stability of capital
and liquidity. The investment objective of the Short-Term Bond Fund is current
income and relative capital stability. The Intermediate-Term Bond Fund seeks to
provide high current income. The investment objective of the Large Cap Equity
Fund is capital growth and income. The Small Cap Equity Fund and the
International Equity Fund each seek capital appreciation.
This combined Prospectus sets forth certain information about the Trust
and the Funds that a prospective investor should know before investing and
should be retained for future reference.
A combined Statement of Additional Information ("SAI"), dated [_____], has
been filed with the Securities and Exchange Commission and contains further
information about the Trust. A copy of the SAI may be obtained without charge by
calling or writing the Trust at the address or phone number listed above. The
SAI is incorporated into this Prospectus by reference.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there by any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY ANY STATE OR OTHER SECURITIES REGULATORY AUTHORITY,
NOR HAS THE COMMISSION OR ANY SUCH AUTHORITY PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
.
<PAGE>
TABLE OF CONTENTS
Page
Summary Information..............................................3
Fund Expenses ...................................................4
The Funds: Investment Objective and Policies ...................5
Money Market Fund..............................................5
Indexed Funds..................................................6
Short-Term Bond Fund...........................................6
Intermediate-Term Bond Fund....................................7
Large Cap Equity Fund..........................................8
Small Cap Equity Fund..........................................8
International Equity Fund......................................8
Investment Policies..............................................9
Bank Obligations...............................................9
Commercial Paper...............................................9
Corporate Debt Securities......................................9
Repurchase Agreements.........................................10
Variable and Floating Rate Demand and Master Demand Notes.....10
Mortgage-Related Securities...................................11
Loans of Portfolio Securities.................................12
Foreign Securities............................................12
Forward Foreign Currency Exchange Contracts...................13
Investment Companies and Investment Funds.....................13
Investment Restrictions.........................................14
Performance and Yield Information...............................15
Management of the Trust.........................................15
Investment Adviser/Administrator..............................16
Distributor...................................................17
Expenses......................................................18
Purchasing Shares ..............................................18
Investing Through Authorized Dealers..........................19
Purchases Through the Distributor.............................19
Telephone Purchase Authorization..............................20
Investing by Wire.............................................20
Distributions and Taxes ........................................20
Payment Options...............................................20
Taxes.........................................................21
Redemption and Repurchase of Shares.............................21
Expedited Telephone Redemption................................22
Determination of Net Asset Value ...............................23
Stockholder Services ...........................................24
Tax-Deferred Retirement Plans.................................24
Exchange Privilege............................................24
Pre-Authorized Payment........................................25
Systematic Withdrawal Plan....................................25
General Information ............................................26
No dealer, salesman, or any other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus, in connection with the offer contained in this Prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Trust or its Distributor. This Prospectus does
not constitute an offer by the Trust or by the Distributor to sell or a
solicitation of an offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful for the Trust or the
Distributor to make such offer or solicitation in such jurisdiction.
SUMMARY INFORMATION
The Trust The Trust is a Massachusetts
business trust formed on April 13,
1998.
Socially Responsible Funds The investment policies of each of the
six Funds offered by the Trust are
designed to avoid investments in
companies whose primary business is the
manufacture of alcohol, caffeine or
tobacco products, meat processing,
pornography, or casino and other
gambling concerns.
Investment Objectives and The Money Market Fund seeks to provide
Policies current income, stability of capital
and liquidity. The Short-Term Bond Fund
seeks current income and relative
capital stability. The Intermediate-
Term Bond Fund seeks high current
income. Large Cap Equity Fund seeks
capital growth and income. Small Cap
Equity Fund and International Equity
Fund each seek capital appreciation.
There can be no assurance that any Fund
will achieve its objective.
Investment Adviser/Administrator Capstone Asset Management Company acts
as Investment Adviser/Administrator to
each of the Funds. Formed in 1982 as
a wholly-owned subsidiary of Capstone
Financial Services, Inc. the
Investment Adviser/Administrator acts
as investment adviser and/or
administrator to registered investment
companies, and is investment adviser
to pension and profit-sharing
accounts, corporations and
individuals. Its assets under
management total approximately $1.8
billion.
Class of Shares Each Fund offers two classes of
shares: Class A and Class C. The
classes differ principally in the
required minimum investment and in
that Class A shares bear certain
expenses pursuant to a Rule 12b-1
distribution plan. Under this plan,
Class A shares of each Fund may pay up
to 0.25%, on an annual basis, of the
average net assets of its Class A
shares to the Distributor. Fund
expenses (including a Fund's share of
Trust expenses) are generally
allocated between the classes based on
their respective net asset values.
Other expenses borne by each class may
vary, including federal and state
registration and filing fees, certain
printing and other class specific
costs.
Distributor and Offering Price Shares of the Funds are continuously
offered for sale through the Trust's
Distributor at net asset value per
share with no sales charge. Class A
shares of the Funds bear certain
expenses pursuant to a written Rule
12b-1 distribution plan.
Minimum Investments The minimum initial investment in each
Fund is $200 for Class A shares and
$50,000 for Class C shares, except that
for [certain trusts accounts] investing
in class C shares, the minimum is
$1,000. There is no minimum for
subsequent purchases of Class A shares;
the minimum for subsequent purchases of
Class C shares is $1,000. There is no
minimum for withdrawals.
Distributions Each Fund will pay dividends from the
income of each class of its shares as
follows: Money Market Fund, monthly;
Short-Term Bond Fund,
Intermediate-Term Bond Fund, Large Cap
Equity Fund, Small Cap Equity Fund and
International Equity Fund, quarterly.
Capital gains distributions, if any,
will be paid annually in December.
Redemptions Shares may be redeemed at the next
determined net asset value for the
particular Fund on any business day,
without charge.
<PAGE>
FUND EXPENSES
Shareholder Transaction Expenses (All Funds)
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price) None
Deferred Sales Load (as a percentage of original
purchase price or redemption of proceeds, as applicable) None
Redemption Fees (as a percentage of amount redeemed) None
Exchange Fee None
Estimated Annual Fund Operating Expenses (as a percentage of average net assets)
<TABLE>
<S> <C> <C> <C> <C>
Short-Term Bond, Intermediate-
Money Market Term Bond, Large Cap Equity, Small
Fund Cap Equity & Int'l. Equity Funds
Class A Class C Class A Class C
Management Fees 0.10% 0.10% 0.15% 0.15%
12b-1 Fees* 0.10% 0.00% 0.25% 0.00%
Other Expenses 0.15% 0.15% 0.15% 0.15%
Total Fund Operating Expenses 0.35% 0.25% 0.55% 0.30%
</TABLE>
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Short-Term Bond, Intermediate-
Term Bond, Large Cap Equity,
Money Market Small Cap Equity & Int'l. Equity
Fund Funds
Class A Class C Class A Class C
1 Year $4 $3 $6 $3
3 Years $11 $8 $18 $10
</TABLE>
* Under rules of the National Association of Securities Dealers, Inc. (the
"NASD"), a 12b-1 fee may be treated as a sales charge for certain purposes
under those rules. Because the 12b-1 fee is an annual fee charged against the
assets of a Fund, long-term stockholders may pay more in total sales charges
than the economic equivalent of the maximum front-end sales charge permitted
by rules of the NASD (see "Distributor").
The purpose of the foregoing table is to assist investors in understanding
the various costs and expenses that an investor in the Funds will bear directly
or indirectly. The information under the heading "Estimated Annual Fund
Operating Expenses" is based on projected expenses the Funds will incur during
their first year of operation and assumes the average net assets of each Fund to
be $50 million. THE EXAMPLE WHICH IMMEDIATELY FOLLOWS THE TABLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL FUND EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN IN THE EXAMPLE OR IN THE TABLE.
THE FUNDS:
INVESTMENT OBJECTIVES AND POLICIES
The investment policy of each of the six Funds is to invest in companies that
are managed in a socially responsible manner. The Funds will not invest in
companies whose primary business is the manufacture of alcohol, caffeine or
tobacco products, meat processing, pornography, or casinos and other gambling
concerns.
The investment objectives and policies of each of the Funds are described below.
The investment objectives of each Fund are not fundamental policies of the Fund
and may be changed without shareholder approval. There can be no assurance that
a Fund will achieve its investment objectives.
Money Market Fund
The objective of the Fund is to provide current income, stability of capital and
liquidity. It seeks to maintain a constant net asset value of $1.00 per share,
although there can be no assurance this goal will be achieved.
The Fund invests in other money market funds that are rated at least AAA by
Standard & Poor's (S&P) or Aaa by Moody's Investor Service, Inc. ("Moody's") and
in a variety of short-term money market instruments rated A1/P1 or above by a
nationally recognized statistical rating organization ("NRSRO") or deemed of
comparable quality by the Investment Adviser/Administrator, including
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; obligations of supranational organizations; bankers
acceptances, certificates of deposit, deposit notes and time deposits of U.S.
banks and their foreign branches; obligations of savings and loan institutions;
corporate obligations such as notes, bonds, loans, loan participations and
commercial paper; securities with variable or floating rates; securities with
various types of credit enhancement or with "put" arrangements that enhance
liquidity; asset-backed securities; municipal securities; and repurchase
agreements. The Fund may purchase securities on a when-issued or delayed
delivery basis. To the extent consistent with applicable law, the Fund may
invest in shares of one or more unaffiliated money market funds. To the extent
the Fund invests in shares of other money market funds, it will bear a portion
of the expenses of that fund, which are in addition to the expenses of the Fund,
itself. Among other things, such expenses will include fees paid by the
underlying fund to its investment adviser, although the Fund's own fees to the
Investment Adviser/Administrator will not be reduced.
A security whose rating declines below the above standards or which becomes
unrated will be sold unless the Investment Manger determines that such sale
would not be in the Fund's best interests. Generally, the Fund will purchase
only securities that have a remaining maturity of 397 calendar days or less, and
the Fund will maintain an average weighted portfolio maturity of no greater than
90 days.
The Investment Adviser/Administrator intends to calculate the Fund's net asset
value in accordance with amortized cost procedures pursuant to a rule adopted by
the Securities and Exchange Commission with respect to money market funds.
Dividends, including net realized capital gain or loss, will be declared and
paid monthly.
Indexed Funds
Each of the Funds, except for the Money Market Fund, will be managed as an
"index" fund- i.e., its portfolio will be designed to have investment
characteristics of a designated published index (or blended index) of comparable
securities. The Investment Adviser/Administrator will select portfolio
investments for each Fund using statistical methods designed to produce total
returns that will be comparable to the designated index. Thus, the Investment
Adviser/Administrator will not be using traditional methods of security
selection based on analysis of market conditions and particular issuers.
Additionally, the Indexed Funds will not assume temporary defensive positions
when market or other conditions negatively affect the classes of securities
reflected in their portfolios. It should be noted that in avoiding investments
that are inconsistent with the Funds' socially responsible investment policies,
a Fund may be limited in its ability to match the performance of a particular
index. Because the Investment Adviser/Administrator may use a variety of
techniques to pursue each Fund's investment objective, the Funds are unlikely to
hold securities identical to, or in the same proportions as, those in any
reference index. Further each Fund must maintain some portion of its assets in
cash or short-term money market instruments and repurchase agreements to meet
redemptions and to cover other Fund expenses. Additionally, it should be noted
that a Fund must reach an appropriate size for its portfolio to be "indexable"
and to fully implement its stated investment policies. Neither the Fund, the
Investment Adviser/Administrator, nor their affiliates are in any way sponsored
by or affiliated with the firms that publish the reference indexes.
Short-Term Bond Fund
The investment objective of this Fund is to provide current income and relative
capital stability. The Fund pursues this objective by attempting to match the
price and yield performance, before Fund expenses, of a blended short-term index
consisting of three sub-portfolios -- one-third U.S. Treasury securities,
one-third U.S. government agency securities, and one-third investment grade
corporate obligations -- each consisting of securities with a maximum maturity
of three years. ("Investment grade" securities are those that are rated at least
BBB by S&P or Baa by Moody's or deemed by the Investment Adviser/Administrator
to be of comparable quality.) Thus, once the Fund reaches indexable size, the
Fund's assets will generally be divided in roughly equal proportions among the
three sub-portfolios, each with a maximum maturity of three years, provided that
the Fund may, from time to time, have small portions of its portfolio in cash or
short-term money market instruments or repurchase agreements. Each sub-portfolio
will seek to match the total return of an appropriate corresponding index. The
indexes used for this purpose are the Merrill Lynch 1-3 Year Treasury Index, the
Merrill Lynch 1-3 Year U.S. Government Agency Index and the Merrill Lynch 1-3
Year Investment Grade Corporate Index, provided that the Investment
Adviser/Administrator may select other indexes having closely comparable
characteristics.
The securities in which each of these sub-portfolios will be invested are as
follows:
The U.S. Treasury sub-portfolio will consist primarily of obligations backed by
the full faith and credit of the U.S. Treasury that have remaining maturities
not greater than three years. These obligations include Treasury bills, which
generally mature in one year or less from their date of issue, and Treasury
notes, which have original maturities of one to ten years. This sub-portfolio
may also include Treasury bonds that have remaining maturities of no more than
three years.
The U.S. government agency sub-portfolio will include primarily securities, with
remaining maturities of no more than three years, issued or guaranteed by U.S.
government agencies or instrumentalities, including (but not limited to) the
Government National Mortgage Association, the Federal National Mortgage
Association, the Federal Home Loan Mortgage Corporation, the Export-Import Bank
of the United States, the Farmers Home Administration, the Small Business
Administration, the Federal Farm Credit Bank, the Bank for Cooperatives, the
Federal Land Bank, the Student Loan Marketing Association, the Tennessee Valley
Authority, and the Federal Intermediate Credit Banks. Obligations of some of
these organizations are backed by the full faith and credit of the U.S. Treasury
(for example, securities issued by the Government National Mortgage
Association). Others are backed by the ability of the agency to borrow from the
Treasury (such as securities issued by the Federal Home Loan Bank), while others
are supported only by the credit of the issuer (such as securities issued by the
Federal Farm Credit Bank) with no assurance of financial support from the U.S.
Treasury.
The investment grade corporate obligation sub-portfolio will include primarily
dollar-denominated obligations issued by domestic and foreign corporations that
are rated within the top four rating categories (BBB by S&P or Baa by Moody's or
a comparable rating by another Nationally Recognized Statistical Rating
Organization ("NRSRO")) or deemed of comparable quality by the Investment
Adviser/Administrator and have remaining maturities of no more than three years.
These obligations may include corporate bonds, debentures, notes (including
demand and master demand notes) and other similar corporate debt instruments.
The instruments in which the Fund invests may have fixed, variable or floating
rates of interest. The Fund may have small portions of its portfolio in cash or
short-term money market instruments. It may also invest in repurchase agreements
with respect to permitted portfolio investments. The Fund may purchase
securities on a when-issued or forward commitment basis.
Intermediate-Term Bond Fund
The investment objective of this Fund is to provide high current income. The
Fund pursues this objective by attempting to match the price and yield
performance, before Fund expenses, of the Lehman Brothers Intermediate
Government/Corporate ("LBIG/C") Index. The Fund will pursue this objective by
investing primarily in obligations of the U.S. government, its agencies and
instrumentalities, and investment grade corporate obligations having a remaining
maturity of no more than ten years. The LBIG/C Index is comprised of U.S.
Treasury obligations, U.S. government agency/instrumentality obligations, and
investment grade corporate obligations. Once the Fund reaches indexable size,
the Fund's portfolio will be structured in a manner designed to provide
generally comparable performance by investing primarily in similar types of
securities.
The instruments in which the Fund invests may have fixed, variable or floating
rates of interest. The Fund may have small portions of its portfolio in cash or
short-term money market instruments. It may also invest in repurchase agreements
with respect to permitted portfolio investments. The Fund may purchase
securities on a when-issued or forward commitment basis.
Large Cap Equity Fund
The investment objective of this Fund is to provide capital growth and income.
The Fund pursues this objective by attempting to match the performance, before
expenses, of the S&P 500 Index. This index consists of 500 common stocks of
large companies whose securities are widely held and have an active trading
market. Each security's weight in the index is proportional to its market value.
Thus, the largest stocks included in the index will comprise a disproportionate
portion of the value of the index. The securities in the index represent a
variety of industries. Most securities in the index are listed on the New York
Stock Exchange, but NASDAQ and American Stock Exchange securities are also
represented. Once the Fund reaches indexable size, the Fund will seek to match
the performance of this index by investing primarily in securities of the type
that are included in this index. It may also, however, have small portions of
its portfolio in cash or short-term money market instruments and in repurchase
agreements. The Fund may invest in S&P's Depository Receipts ("SPDRs"). SPDRs
are interests in the SPDR Trust, a unit investment trust that seeks to provide
investment results generally comparable to the price and yield performance of
the S&P 500 Index.
Small Cap Equity Fund
The investment objective of this Fund is to provide capital appreciation. The
Fund pursues this objective by attempting to match total return before Fund
expenses, of the S&P SmallCap 600 Index. The S&P SmallCap 600 Index consists of
600 stocks with smaller capitalization than those included in the S&P 500 Index.
As of August 29, 1997, issuers represented in this index had aggregate
capitalization ranging from about $40 million to about $3.0 billion. Once the
Fund reaches indexable size, the Fund will seek to match the performance of this
index by investing primarily in securities of the type that are included in this
index. It may also, however, have small portions of its portfolio in cash or
short-term money market instruments and in repurchase agreements. Like the Large
Cap Equity Fund, this Fund may invest in S&P's Depository Receipts ("SPDRs").
International Equity Fund
The investment objective of this Fund is capital appreciation. The Fund pursues
this objective by attempting to match the performance and yield characteristics
of the Morgan Stanley Capital International Europe, Australia, Far East ("EAFE")
Index. The EAFE Index is based on the share prices of more than 1,000 companies
listed on the stock exchanges of Europe, Australia, New Zealand and the Far
East. Europe includes Austria, Belgium, Denmark, Finland, France, Germany,
Italy, The Netherlands, Norway, Spain, Sweden, Switzerland and the United
Kingdom. The Far East includes Japan, Hong Kong and Singapore/Malaysia. Once the
Fund reaches indexable size, the Fund will seek to match the performance of this
index by investing primarily in securities generally comparable to those that
are included in this index. Its investments may be in the form of American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") and similar
instruments. (See "Foreign Securities," below.) Subject to rules limiting the
Fund's investments in shares of other investment companies, the Fund may invest
in World Equity Benchmark Shares (sm) ("WEBS"). WEBS are shares of various
Series of WEBS Index Fund, Inc., a registered open-end investment company, each
of whose Series seeks to provide investment results that correspond generally to
the price and yield performance of publicly traded securities in the aggregate
in particular markets, as represented by an index for that market compiled by
Morgan Stanley Capital International. WEBS are available for at least the
following markets: Australia, Austria, Belgium, Canada, France, Germany, Hong
Kong, Italy, Japan, Malaysia, Mexico, Netherlands, Singapore, Spain, Sweden,
Switzerland and the United Kingdom. WEBS are listed for trading on the American
Stock Exchange. The Fund may invest in forward foreign currency exchange
contracts. It may also, however, have small portions of its portfolio in cash or
short-term money market instruments and in repurchase agreements.
INVESTMENT POLICIES
About Ratings
After purchase by a Fund, a security may cease to be rated or its rating may be
reduced below the minimum required for purchase by the Fund. Neither event will
require a sale of such security by the Fund. However, the Investment
Adviser/Administrator will consider such event in its determination of whether
the Fund should continue to hold the security. To the extent the ratings given
by Moody's, S&P or another NRSRO may change as a result of changes in such
organizations or their rating systems, the Funds will attempt to use comparable
ratings as standards for investments in accordance with the investment policies
contained in this Prospectus.
Government Obligations. Some obligations issued or guaranteed by agencies or
instrumentalities of the U.S. government are backed by the full faith and credit
of the U.S. Treasury. No assurances can be given that the U.S. government will
provide financial support to other agencies or instrumentalities, since it is
not obligated to do so. These agencies and instrumentalities are supported by:
o the issuer's right to borrow an amount limited to a specific line of credit
from the U.S. Treasury;
o the discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
o the credit of the agency or instrumentality.
Bank Obligations (All Funds)
These obligations include negotiable certificates of deposit and bankers'
acceptances. A certificate of deposit is a short-term, interest-bearing
negotiable certificate issued by a commercial bank against funds deposited in
the bank. A bankers' acceptance is a short-term draft drawn on a commercial bank
by a borrower, usually in connection with an international commercial
transaction. The borrower is liable for payment as is the bank, which
unconditionally guarantees to pay the draft at its face amount on the maturity
date. The Funds will limit their bank investments to dollar-denominated
obligations of U.S. or foreign banks that have more than $1 billion in total
assets at the time of investments and, in the case of U.S. banks, are members of
the Federal Reserve System or are examined by the Comptroller of the Currency,
or whose deposits are insured by the Federal Deposit Insurance Corporation.
Commercial Paper (All Funds)
Commercial paper includes short-term unsecured promissory notes, variable rate
demand notes and variable rate master demand notes issued by domestic and
foreign bank holding companies, corporations and financial institutions and
similar taxable instruments issued by government agencies and instrumentalities.
All commercial paper purchased by a Fund must be rated within the top two rating
categories by an NRSRO, or deemed of comparable quality by the Investment
Adviser/Administrator.
Corporate Debt Securities (All Funds)
Fund investments in these securities are limited to corporate debt securities
(corporate bonds, debentures, notes and similar corporate debt instruments) that
meet the particular Fund's quality standards.
Repurchase Agreements (All Funds)
The Funds may invest in securities subject to repurchase agreements with U.S.
banks or broker-dealers. A repurchase agreement is a transaction in which the
seller of a security commits itself at the time of the sale to repurchase that
same security from the buyer at a mutually agreed-upon time and price. The
repurchase price exceeds the sale price, reflecting an agreed-upon interest rate
effective for the period the buyer owns the security subject to repurchase. The
agreed-upon rate is unrelated to the interest rate on that security. The
agreement will be fully collateralized by the underlying securities and will be
marked-to-market on a daily basis during the term of the repurchase agreement to
insure that the value of the collateral always equals or exceeds the repurchase
price. The Investment Adviser/Administrator will enter into repurchase
agreements only with firms that present minimal credit risks as determined in
accordance with guidelines adopted by the Board of Trustees. In the event of
default by the seller under the repurchase agreement, the Funds may have
problems in exercising their rights to the underlying securities and may incur
costs and experience time delays in connection with the disposition of such
securities.
Variable and Floating Rate Demand and Master Demand Notes (All Funds)
The Funds may, from time to time, buy variable rate demand notes issued by
corporations, bank holding companies and financial institutions and similar
instruments issued by government agencies and instrumentalities. These
securities will typically have a maturity in the 5 to 20 year range but carry
with them the right of the holder to put the securities to a remarketing agent
or other entity on short notice, typically seven days or less. The obligation of
the issuer of the put to repurchase the securities is backed up by a letter of
credit or other obligation issued by a financial institution. The purchase price
is ordinarily par plus accrued and unpaid interest. Ordinarily, the remarketing
agent will adjust the interest rate every seven days (or at other intervals
corresponding to the notice period for the put), in order to maintain the
interest rate at the prevailing rate for securities with a seven-day maturity. A
Fund's investment in demand instruments which provide that the Fund will not
receive the principal note amount within seven days' notice, in combination with
the Fund's other investments in illiquid securities, will be limited to an
aggregate total of 10% of the Money Market Fund's net assets and no more than
15% of the net assets of each of the other Funds.
The Funds may also buy variable rate master demand notes. The terms of these
obligations permit the investment of fluctuating amounts by the Funds at varying
rates of interest pursuant to direct arrangements between a Fund, as lender, and
the borrower. They permit weekly, and in some instances, daily, changes in the
amounts borrowed. The Funds have the right to increase the amount under the note
at any time up to the full amount provided by the note agreement, or to decrease
the amount, and the borrower may prepay up to the full amount of the note
without penalty. The notes may or may not be backed by bank letters of credit.
Because the notes are direct lending arrangements between the lender and the
borrower, it is not generally contemplated that they would be traded, and there
is no secondary market for them, although they are redeemable (and thus,
immediately repayable by the borrower) at principal amount, plus accrued
interest, at any time. Subject to the Funds' socially responsible investment
policies, the Funds have no limitations on the type of issuer from whom the
notes will be purchased. However, in connection with such purchase and on an
ongoing basis, the Investment Adviser/Administrator will consider the earning
power, cash flow and other liquidity ratios of the issuer, and its ability to
pay principal and interest on demand, including a situation in which all holders
of such notes make demand simultaneously. While master demand notes, as such,
are not typically rated by credit rating agencies, if not so rated, the Funds
may invest in them only if at the time of investment, the Investment
Adviser/Administrator determines that the quality of their issuer meets the
quality standards of the particular Fund.
Floating rate demand and master demand notes are similar to variable rate
instruments except that their interest rates vary with a designated market index
or market rate, such as the coupon equivalent of the U.S. Treasury bill rate.
Mortgage-Related Securities (All Funds)
To the extent otherwise consistent with their investment policies, securities in
which the Funds may invest may include various types of mortgage-related
securities, including mortgage-pass-through securities and collateralized
mortgage obligations.
Mortgage pass-through securities are securities representing interests in
"pools" of mortgages in which payments of both interest and principal on the
securities are made monthly, in effect passing through the monthly payments make
by the individual borrowers on the underlying mortgage loans net of certain
fees. In cases when an underlying mortgage is paid off early, often because the
mortgage borrower wants to refinance at current lower interest rates, the
related principal amount of the mortgage pass-through securities is also paid
back early and must be reinvested by the holder, typically at current lower
rates. Although the value of already-issued debt securities generally falls when
interest rates rise, and rises when interest rates fall, due to the prepayment
risk, the value of a mortgage-related security will generally not rise as much
as that of other obligations when interest rates fall. Additionally, when
interest rates rise, the average life of a mortgage-related security tends to
lengthen, making it subject to more price volatility, and possibly causing the
Investment Adviser/Administrator to reconsider whether the term of the security
is consistent with the particular Fund's investment policies.
Payment of principal and interest on mortgage-related securities (but not their
market value) have varying degrees of protection. Securities backed by a
government related agency may be guaranteed by the full faith and credit of the
U.S. government (such as securities guaranteed by the Government National
Mortgage Association ("GNMA")) or guaranteed only by the particular sponsoring
agency (such as securities guaranteed by the Federal National Mortgage
Association ("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC"),
which are supported only by the discretionary authority of the U.S. government
to purchase the agency's obligations). Mortgage-pass through securities created
by nongovernmental issuers may be supported by various types of insurance or
guarantees, such as individual loan, title, pool and hazard insurance, and
letters of credit, which may be issued by governmental entities, private
insurers or the mortgage poolers.
Where consistent with a Fund's rating requirements and other policies, a Fund
may invest in collateralized mortgage obligations ("CMOs"), which are hybrid
instruments with characteristics of both mortgage-backed bonds and mortgage
pass-through securities. Similar to a bond, interest and prepaid principal on a
CMO are paid, in most cases, semi-annually. CMOs may be collateralized by whole
mortgage loans but are more typically collateralized by portfolios of mortgage
pass-through securities guaranteed by GNMA, FHLMC or FNMA.
When-Issued and Delayed Delivered Transactions. The Funds may purchase
securities on a when-issued or delayed delivery basis. These transactions are
arrangements in which the Funds purchase securities with payment and delivery
scheduled for a future time. The seller's failure to complete these transactions
may cause a Fund to miss a price or yield considered to be advantageous.
Settlement dates may be a month or more after entering into these transactions,
and the market values of the securities purchased may vary from the purchase
price. Accordingly, a Fund may pay more or less than the market value of the
securities on the settlement date.
The Funds may dispose of a commitment prior to settlement if the
Adviser/Administrator deems it appropriate to do so. In addition, the Funds may
enter into transactions to sell their purchase commitments to third parties at
current market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Funds may realize short-term profits or
losses upon the sale of such commitments.
Loans of Portfolio Securities (All Funds)
The Funds may lend their portfolio securities to brokers, dealers and financial
institutions, provided: (1) the loan is secured continuously by collateral
consisting of U.S. Government securities or cash or letters of credit maintained
on a daily mark-to-market basis in an amount at least equal to the current
market value of the securities loaned; (2) the Funds may at any time call the
loan and obtain the return of the securities loaned within five business days;
and (3) the Funds will receive any interest or dividends paid on the loaned
securities.
The Funds will earn income for lending their securities because cash collateral
pursuant to these loans will be invested in short-term money market instruments.
In connection with lending securities, the Funds may pay reasonable finders,
administrative and custodial fees. Loans of securities involve a risk that the
borrower may fail to return the securities or may fail to provide additional
collateral.
Foreign Securities (All Funds)
Changes in foreign exchange rates will affect the value of the securities
denominated or quoted in currencies other than the U.S. dollar.
The Money Market Fund's investments in securities of non-U.S. issuers will be
only in dollar-denominated instruments. The other Funds may invest directly in
both sponsored and unsponsored U.S. dollar or foreign currency-denominated
corporate securities (including preferred or preference stock), certificates of
deposit and bankers' acceptances issued by foreign banks, U.S.
dollar-denominated bonds sold in the United States ("Yankee bonds"), other bonds
denominated in U.S. dollars or other currencies and sold to investors outside
the United States ("Eurobonds"), and obligations of foreign governments or their
subdivisions, agencies and instrumentalities, international agencies and
supranational entities. There may be less information available to a Fund
concerning unsponsored securities, for which the paying agent is located outside
the United States.
The Funds may purchase foreign securities traded in the United States or in
foreign markets. The Funds may invest directly in foreign equity securities and
in securities represented by European Depositary Receipts ("EDRs"), American
Depositary Receipts ("ADRs") and similar securities. ADRs are dollar-denominated
receipts generally issued by domestic banks, which represent the deposit with
the bank of a security of a foreign issuer, and which are publicly traded on
exchanges or over-the-counter in the United States. EDRs are receipts similar to
ADRs and are issued and traded in Europe.
There are certain risks associated with investments in unsponsored ADR programs.
Because the non-U.S. company does not actively participate in the creation of
the ADR program, the underlying agreements for service and payment will be
between the depositary and the shareholders. The company issuing the stock
underlying the ADRs pays nothing to establish the unsponsored facility, as fees
for ADR issuance and cancellation are paid by brokers. Investors directly bear
the expenses associated with certificate transfer, custody and dividend payment.
In addition, in an unsponsored ADR program, there may be several depositaries
with no defined legal obligations to the non-U.S. company. The duplicate
depositaries may lead to marketplace confusion because there would be no central
source of information to buyers, sellers and intermediaries. The efficiency of
centralization gained in a sponsored program can greatly reduce the delays in
delivery of dividends and annual reports.
Since certain Funds may invest in securities denominated in currencies other
than the U.S. dollar, and since those Funds may, for various periods pending
investment for non-speculative purposes, hold funds in bank deposits or other
money market investments denominated in foreign currencies, a Fund may be
affected favorably or unfavorably by exchange control regulations or changes in
the exchange rate between such currencies and the dollar. Changes in foreign
currency exchange rates will influence values of securities in the Fund's
portfolio, from the perspective of U.S. investors. Changes in foreign currency
exchange rates may also affect the value of dividends and interest earned, gains
and losses realized on the sale of securities, and net investment income and
gains, if any, to be distributed to shareholders by a Fund. The rate of exchange
between the U.S. dollar and other currencies is generally determined by the
forces of supply and demand in the foreign exchange markets. These forces are
affected by the international balance of payments and other economic and
financial conditions, government intervention, speculation and other factors.
Forward Foreign Currency Exchange Contracts (All Funds, except Money Market
Fund)
Those Funds that purchase foreign currency-denominated securities may enter into
forward foreign currency exchange contracts in order to protect against
uncertainty in the level of future foreign exchange rates. A forward foreign
currency exchange contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. These contracts are entered into in the interbank market conducted
between currency traders (usually large commercial banks) and their customers.
Forward foreign currency exchange contracts may be bought or sold to protect a
Fund against a possible loss resulting from an adverse change in the
relationship between foreign currencies and the U.S. dollar, or between foreign
currencies. Although such contracts are intended to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time, they
tend to limit any potential gain which might result should the value of such
currency increase.
Options and Futures
To the extent consistent with their investment policies, the Funds may employ
special investment practices as a hedge against changes in the value of
securities held in the Funds' portfolios or securities they intend to purchase.
A Fund may purchase put and call options on securities and securities
indexes for hedging purposes.
A call option gives the purchaser of the option, in return for premium paid, the
right to buy the underlying security at a specified price at any point during
the term of the option. A put option gives the purchaser the right to sell the
underlying security at the exercise price during the option period. In the case
of an option on a securities index, the option holder has the right to obtain,
upon exercise of the option, a cash settlement based on the difference between
the exercise price and the value of the underlying index.
The purchase of put and call options does involve certain risks. Through
investment in options, a Fund can profit from favorable movements in the price
of an underlying security to a greater extent than if the Fund purchased the
security directly. However, if the security does not move in the anticipated
direction during the term of the option in an amount greater than the premium
paid for the option, the Fund may lose a greater percentage of its investment
than if the transaction were effected in the security directly.
Generally, transactions in securities index options pose the same type of risks
as do transactions in securities options. Price movements in securities which a
Fund owns or intends to purchase probably will not correlate perfectly with
movements in the level of an index and, therefore, the Fund bears the risk of a
loss on an index option which may not completely offset movements in the price
of such securities.
Subject to certain limits imposed by the Commodity Futures Trading Commission
("CFTC"), a Fund may also (i) invest in securities index futures contracts and
options on securities index futures and (ii) engage in margin transactions with
respect to such investments.
A securities index futures contract is an agreement under which two parties
agree to take or make delivery of an amount of cash based on the difference
between the value of a securities index at the beginning and at the end of the
contract period. When a Fund enters into a securities index futures contract, it
must make an initial deposit, known as "initial margin," as a partial guarantee
of its performance under the contract. As the value of the securities index
fluctuates, the Fund may be required to make additional margin deposits, known
as "variation margin," to cover any additional obligation it may have under the
contract.
Options on securities index futures contracts are similar to options on
securities except that an option on a securities index futures contract gives
the purchaser the right, in return for the premium paid, to assume a position in
a securities index futures contract (a long position if the option is a call and
a short position if the option is a put), upon deposit of required margin. In
the alternative, the purchaser may resell the option, if it has value, or simply
let it expire. Upon expiration, the purchaser will either realize a gain or the
option will expire worthless, depending on the closing price of the index on
that day. Thus, the purchaser's risk is limited to the premium paid for the
option.
The Funds' transactions in futures contracts and related options are subject to
limits under certain rules of the Commodity Futures Trading Commission ("CFTC").
Under these rules, initial margin deposits and premiums paid by a Fund for such
transactions, except those for bona fide hedging purposes, are limited to no
more than 5% of the fair market value of the Fund's total assets.
Successful use by a Fund of securities index futures contracts is subject to
certain special risk considerations. A liquid index futures market may not be
available when a Fund seeks to offset adverse market conditions. In addition,
there may be an imperfect correlation between movements in the securities
included in the index and movements in the securities in the Fund's portfolio.
Successful use of securities index futures contracts and options on such
contracts is further dependent on the Adviser/Administrator's ability to predict
correctly movements in the direction of the stock markets, and no assurance can
be given that its judgment in this respect will be correct. Risks in the
purchase and sale of securities index futures contracts are discussed further in
the Statement of Additional Information.
Investment Companies and Investment Funds
Each of the Funds is permitted to invest in shares of other open-end or
closed-end investment companies, such as money market funds, bank pooled funds,
SPDRs or WEBS. Such investments are subject to regulations limiting investments
by one investment company in securities of other investment companies. To the
extent a Fund invests a portion of its assets in other investment companies,
those assets will be subject to the expenses of any such investment company as
well as to the expenses of the Fund itself. A Fund may not purchase shares of
any affiliated investment company except as permitted by SEC rule or order.
INVESTMENT RESTRICTIONS
The following investment restrictions are fundamental policies of each of the
Funds (except as otherwise noted) and may not be changed with respect to a Fund
without approval by vote of a majority of the outstanding shares of the
particular Fund. For this purpose such a majority vote means the lesser of (1)
67% or more of the voting securities present at an annual or special meeting of
shareholders, if holders of more than 50% of the outstanding voting securities
of the particular Fund are present or represented by proxy or (2) more than 50%
of the outstanding voting securities of the Fund.
Each of the Funds has elected to be qualified as a diversified series of the
Trust.
A Fund may not:
borrow money, except as permitted under the Investment Company Act of
1940, as amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time;
issue senior securities, except as permitted under the Investment
Company Act of 1940, as amended, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time;
concentrate its investments in a particular industry, as that term
is used in the Investment Company Act of 1940, as amended, and as
interpreted or modified by regulatory authority having jurisdiction,
from time to time (except that the Money Market Fund reserves freedom
of action to concentrate its investments in instruments issued by
domestic banks and in government securities, as that term is defined
in the Investment Company Act of 1940 and in relevant rules and
regulatory interpretations thereunder, as amended from time to time;
engage in the business of underwriting securities issued by others,
except to the extent that the Fund may be deemed to be an underwriter
in connection with the disposition of portfolio securities;
purchase or sell real estate, which does not include securities of
companies which deal in real estate or mortgages or investments
secured by real estate or interests therein, except that the Fund
reserves freedom of action to hold and to sell real estate acquired as
a result of the Fund's ownership of securities;
purchase physical commodities or contracts relating to physical
commodities; or
make loans to other persons, except (i) loans of portfolio securities,
and (ii) to the extent that entry into repurchase agreements and the
purchase of debt instruments or interests in indebtedness in
accordance with the Fund's investment objective and policies may be
deemed to be loans.
PERFORMANCE AND YIELD INFORMATION
Large Cap Equity Fund, Small Cap Equity Fund and International Equity Fund: The
Funds may from time to time include figures indicating the Funds' total return
or average annual total return in advertisements or reports to stockholders or
prospective investors. Average annual total return and total return figures are
calculated for each Class of shares and represent the increase (or decrease) in
the value of an investment in a Fund over a specified period. Both calculations
assume that all income dividends and capital gain distributions during the
period are reinvested at net asset value in additional Fund shares. Quotations
of the average annual total return reflect the deduction of a proportional share
of Fund expenses on an annual basis. The results, which are annualized,
represent an average annual compounded rate of return on a hypothetical
investment in the Fund over a period of 1, 5 and 10 years (or life of the Fund)
ending on the most recent calendar quarter. Quotations of total return, which
are not annualized, represent historical earnings and asset value fluctuations.
Money Market Fund, Short-Term Bond Fund and Intermediate-Term Bond Fund:
Quotations of a Fund's yield and effective yield may be included along with
total return or average annual total return calculations in advertisements or
reports to stockholders or prospective investors. Both yield figures are based
on the historical performance of a Fund and show the performance of a
hypothetical investment. Yield refers to the net investment income generated by
a Fund's portfolio over a specified seven-day period. This income is then
annualized. That is, the amount of income generated by the portfolio during that
week is assumed to be generated during each week over a 52-week period and is
shown as a percentage. The effective yield is expressed similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested. The effective yield will be slightly higher than the yield because
of the compounding effect on the assumed reinvestment. Yield and effective yield
for a Fund will vary based upon, among other things, changes in market
conditions, the level of interest rates and the level of the Fund's expenses.
Performance and yield calculations are based on past performance and are not a
guarantee of future results. For a more detailed description of the methods used
to determine the Funds' average annual total return, total return, yield and
effective yield, see the Statement of Additional Information.
MANAGEMENT OF THE TRUST
The Trustees are responsible for the overall management and supervision of the
Trust and to perform the functions of Trustees under the Trust's Declaration of
Trust, its principal governing document, as amended from time to time. The
Trustees, while retaining overall supervisory responsibility, have delegated
day-to-day operating responsibilities to Capstone Asset Management Company, the
Investment Adviser/Administrator, and to the Custodian, Fifth Third Bank of
Cincinnati, Ohio.
Investment Adviser/Administrator
Capstone Asset Management Company ("Capstone"), a wholly-owned subsidiary of
Capstone Financial Services, Inc., acts as Investment Adviser/Administrator
pursuant to Investment Advisory and Administration Agreements between the Trust
and Capstone. Capstone is located at 5847 San Felipe, Suite 4100, Houston, Texas
77057. The Investment Adviser/Administrator provides investment management
services to pension and profit sharing accounts, corporations and individuals,
and serves as investment adviser and/or administrator to four registered
investment companies. The Investment Adviser/Administrator manages assets of
about $1.8 billion.
The Investment Advisory Agreement provides that the Investment
Adviser/Administrator shall have full discretion to manage the assets of the
Funds in accordance with their investment objectives and policies and the terms
of the Declaration of Trust. The Investment Adviser/Administrator is authorized,
with the consent of the Trustees, to engage sub-advisers for the Funds. The
Investment Adviser/Administrator has sole authority to select broker-dealers to
execute transactions for the Funds, subject to the reserved authority of the
Trustees to designate particular broker-dealers for this purpose. The Investment
Adviser/Administrator will vote proxies on portfolio securities of the Funds,
subject to any guidelines that may be established by the Trustees. The
Investment Advisory Agreement provides that the Investment Adviser/Administrator
will generally not be liable in connection with its services except for acts or
omissions that constitute misfeasance, bad faith or gross negligence, and the
Investment Adviser/Administrator shall not be liable for the acts of third
parties. The Investment Advisory Agreement provides that it may be terminated at
any time without penalty on sixty days' notice by either party.
For its services under the Agreement, the Funds will pay the Investment
Adviser/Administrator fees monthly, in arrears, at the following annual rates.
The fee rate indicated for the Money Market Fund is based on the average daily
net assets of that Fund. The fee rates indicated for the other five Funds are
applied to the aggregate average daily net assts of those Funds, as a group, and
the resulting total fees are pro rated among those Funds based on their relative
net assets.
Annual Fee rate as a percentage
Name of Fund of average daily net assets
Money Market Fund 0.05%
Aggregate assets of Short-Term Bond 0.15% of the first $500 million
Fund, Intermediate-Term Bond Fund, 0.10% of the next $250 million
Large Cap Equity Fund, Small Cap Equity 0.075% of the next $250 million
Fund, International Equity Fund 0.05% of assets over $1 billion
Pursuant to the Administration Agreement between Capstone and the Trust,
the Investment Adviser/Administrator provides administrative services to the
Funds, supervises the Funds' daily business affairs, coordinates the activities
of persons providing services to the Funds, and furnishes office space and
equipment to the Funds. These services are subject to general review by the
Trust's Board of Trustees. As compensation for its services, the Administration
Agreement provides that the Investment Adviser/Administrator receives from each
Fund a fee, computed daily and payable monthly in arrears, at an annual rate of
0.05% of each Fund's average net assets.
Accounting, bookkeeping, custody and pricing services for the Funds are provided
by Fifth Third Bank of Cincinnati, Ohio.
Distributor
Pursuant to a Distribution Agreement with the Trust dated ________________,
1998, Capstone Asset Planning Company (the "Distributor") is the principal
underwriter of the Funds and, acting as exclusive agent, sells shares of the
Funds to the public on a continuous basis.
The Trust has adopted a Service and Distribution Plan (the "Plan") for the Class
A shares of each Fund pursuant to which Class A shares of each Fund may bear
expenses relating to the distribution of Class A shares and provision of certain
stockholder services. Payments under the Plan may be made to the Distributor to
reimburse it for expenditures incurred by it in connection with the distribution
of Class A shares of each Fund and provision of certain stockholder services
including but not limited to the payment of compensation, including incentive
compensation, to securities dealers (which may include the Distributor itself)
and other financial institutions and organizations (collectively, the "Service
Organizations") to obtain various distribution related and/or administrative
services for the Funds. These services include, among other things, processing
new stockholder account applications, preparing and transmitting to the Funds'
Transfer Agent computer processable tapes of all transactions by customers and
serving as the primary source of information to customers in answering questions
concerning the Funds and their transactions with the Funds. The Distributor is
also authorized to engage in advertising, the preparation and distribution of
sales literature and other promotional activities on behalf of the Fund. In
addition, the Plan authorizes Class A shares of each Fund to bear the cost of
preparing, printing and distributing Fund Prospectuses and Statements of
Additional Information to prospective investors and of implementing and
operating the Plan.
Under the Plan, payments made to the Distributor may not exceed an amount
computed at an annual rate of 0.10% of the average net assets of Class A shares
of the Money Market Fund and 0.25% of the average net assets of Class A shares
of each other Fund. Subject to these limits, the Distributor may reallow to
firms ("Service Organizations") providing certain services to shareholders
(which firms may include the Distributor) amounts at an annual rate up to 0.10%
for Money Market Fund and up to 0.25% for each other Fund based on the average
net asset value of shares held by shareholders for whom the firm provides
services. Any remaining amounts not so allocated will be retained by the
Distributor for the purposes described above. The Distributor is permitted to
collect the fees under the Plan on a monthly basis. Any expenditures incurred by
the Distributor in excess of the limitation described above during a given month
may be carried forward up to twelve months for reimbursement, subject always to
the limit of the Plan for the particular Fund, and no interest or carrying
charges will be payable by Class A shares of a Fund on amounts carried forward.
The Plan may be terminated by the Trust or a Fund at any time and the Funds will
not be liable for amounts not reimbursed as of the termination date.
The Plan was approved by a majority of the Trustees, including a majority of the
Trustees who have no direct or indirect financial interest in the operation of
the Plan or any of its agreements ("Plan Trustees") on _____________, 1998. The
Plan will be continued from year to year provided that such continuance is
approved at least annually by a vote of a majority of the Board of Trustees,
including a majority of the Plan Trustees.
The Glass-Steagall Act and other applicable laws currently prohibit banks from
engaging in the business of underwriting, selling or distributing securities.
Accordingly, unless such laws are changed, if the Funds engage banks as Service
Organizations, the banks would perform only administrative and stockholder
servicing functions. If a bank were prohibited from acting as a Service
Organization, alternative means for continuing the servicing of such
stockholders would be sought. State law may differ from Federal law and banks
and other financial institutions may be required to be registered as
broker-dealers to perform administrative and stockholder servicing functions.
Expenses
Each Fund's expenses and expenses of each class of shares, are accrued daily and
are deducted from total income before dividends are paid. These expenses
include, but are not limited to: fees paid to the Investment
Adviser/Administrator; taxes; legal fees; custodian and auditing fees; transfer
agent fees; fees paid to outside firms providing pricing and accounting services
to the Funds; and printing and other miscellaneous expenses paid by the Funds.
Class A shares also incur certain expenses pursuant to the Service and
Distribution Plan. Fund expenses (including a Fund's shares of Trust expenses)
are generally allocated between classes based on their respective net asset
values. Certain class specific expenses, however, will be borne by the class
incurring the expense, such as federal registration and state notice filing
fees, certain printing and other class specific costs.
PURCHASING SHARES
Capstone Asset Planning Company (the "Distributor"), located at 5847 San Felipe,
Suite 4100, Houston, Texas 77057, is the principal underwriter of the Funds and,
acting as exclusive agent, sells shares of the Funds to the public on a
continuous basis. Edward L. Jaroski is President of the Trust, and a Director
and President of the Investment Adviser/Administrator and the Distributor. Some
other officers of the Trust are also officers of the Investment
Adviser/Administrator, the Distributor and Capstone Financial Services, Inc.
Shares of the Funds are sold in a continuous offering and may be purchased on
any business day through authorized investment dealers or directly from the
Fund's Distributor. Except for the Funds themselves, only the Distributor and
investment dealers which have a sales agreement with the Distributor are
authorized to sell shares of the Funds. For further information, reference is
made to the caption "Distributor" in the Trust's Statement of Additional
Information.
Shares of each class of share of the Fund are sold at net asset value for that
class,, without a sales charge, and will be credited to a stockholder's account
at the net asset value for the particular class next computed after an order is
received. The minimum initial investment for Class A shares is $200, except for
continuous investment plans which have no minimum, and there is no minimum for
subsequent purchases. The minimum initial investment for Class C shares is
$50,000, with a $1,000 minimum required for subsequent purchases, except that
for [certain trust accounts] investing in Class C shares, the minimum initial
investment is $1,000. No stock certificates representing shares purchased will
be issued. The Trust's management reserves the right to reject any purchase
order if, in its opinion, it is in the Trust's best interest to do so.
At various times the Distributor may implement programs under which a dealer's
sales force may be eligible to win nominal awards for certain sales efforts or
recognition programs conforming to criteria established by the Distributor, or
to participate in sales programs sponsored by the Distributor. In addition, the
Investment Adviser/Administrator and/or the Distributor in their discretion may
from time to time, pursuant to objective criteria established by the Investment
Adviser/Administrator and/or the Distributor, sponsor programs designed to
reward selected dealers for certain services or activities which are primarily
intended to result in the sale of shares of the Funds. Such payments are made
out of their own assets, and not out of the assets of the Funds. These programs
will not change the price you pay for your shares or the amount that the Funds
will receive from such sale.
Payment for all orders to purchase Fund shares must be received by the Transfer
Agent within three business days after the order was placed. Checks made payable
to third parties will not be accepted.
Investing Through Authorized Dealers
If any authorized dealer receives an order of at least $200 for Class A shares
or $50,000 for Class C shares (or $1,000 for eligible trust accounts), the
dealer may contact the Distributor directly. Orders received by dealers by the
close of trading on the New York Stock Exchange on a business day that are
transmitted to the Distributor by 4:00 p.m. Central time on that day will be
effected at the net asset value per share determined as of the close of trading
on the New York Stock Exchange that day. It is the dealer's responsibility to
transmit orders so that they will be received by the Distributor before 4:00
p.m. Central time.
After each investment, the stockholder and the authorized investment dealer
receive confirmation statements of the number of shares purchased and owned.
Purchases Through the Distributor
An account may be opened by mailing a check or other negotiable bank draft
(payable to Capstone Indexed Series Trust) together with the completed
Investment Application Form to the Fund's Transfer Agent: Capstone Indexed
Series Trust, c/o First Data Investor Services Group, Inc., 3200 Horizon Drive,
P.O. Box 61503, King of Prussia, Pennsylvania 19406-0903. The $200 minimum
initial investment applicable to the purchase of Class A shares will be waived
by the Distributor for plans involving continuing investments (see "Stockholder
Services"). Subsequent investments may be mailed directly to the Transfer Agent.
All such investments are effected at the net asset value of Fund shares next
computed following receipt of payment by the Transfer Agent. Confirmations of
the opening of an account and of all subsequent transactions in the account are
forwarded by the Transfer Agent to the stockholder's address of record.
Telephone Purchase Authorization (Investing by Phone)
Stockholders who have completed the Telephone Purchase Authorization section of
the Investment Application Form may purchase additional shares by telephoning
the Transfer Agent at (800) 845-2340. The minimum telephone purchase for Class A
shares is $1,000 and the maximum is the greater of $1,000 or five times the net
asset value of shares held by the stockholder on the day preceding such
telephone purchase for which payment has been received. The minimum telephone
purchase for Class C shares is $__________ and the maximum is the greater of
$________ or five times the net asset value of shares held by the stockholder on
the day preceding such telephone purchase for which payment has been received.
The telephone purchase will be effected at the net asset value next computed
after receipt of the call by the Transfer Agent. Payment for the telephone
purchase must be received by the Transfer Agent within three business days after
the order is placed. If payment is not received within three business days, the
stockholder will be liable for all losses incurred as a result of the purchase.
Investing By Wire
Investors having an account with a commercial bank that is a member of the
Federal Reserve System may purchase shares of the Fund by requesting their bank
to transmit funds by wire to: United Missouri Bank KC NA, ABA #10-10-00695, For:
First Data Investor Services Group, Inc., Account #98-7037-0719; Further Credit
Capstone Indexed Series Trust (Insert Fund Name). The investor's name and
account number must be specified in the wire.
Initial Purchases - Before making an initial investment by wire, an
investor must first telephone (800) 845-2340 to be assigned an account number.
The investor's name, account number, taxpayer identification or social security
number, and address must be specified in the wire. In addition, the investment
application should be promptly forwarded to Capstone Investment Series Trust,
c/o First Data Investor Services Group, Inc., 3200 Horizon Drive, P.O. Box
61503, King of Prussia, Pennsylvania 19406-0903.
Subsequent Purchases - Additional investments may be made at any time
through the wire procedures described above, which must include the investor's
name and account number. The investor's bank may impose a fee for investments by
wire.
DISTRIBUTIONS AND TAXES
Payment Options
Distributions (whether treated for tax purposes as ordinary income or long-term
capital gains) to each Fund's stockholders are paid in additional shares of each
Fund, with no sales charge, based on the Fund's net asset value as of the close
of business on the record date for such distributions. However, a stockholder
may elect on the application form to receive distributions as follows:
Option 1. To receive income dividends in cash and capital gain
distributions in additional Fund shares, or
Option 2. To receive all dividend and capital gain distributions
in cash.
The Money Market Fund intends to declare as dividends all of its investment
company taxable income daily and to pay such amounts as dividends monthly. Each
other Fund intends to declare and pay such dividends quarterly. Capital gains,
if any, will be paid annually in December. The Funds will advise each
stockholder annually of the amounts of dividends from investment income and of
long-term capital gain distributions reinvested or paid in cash to the
stockholder during the calendar year.
If you select Option 1 or Option 2 and the U.S. Postal Service cannot deliver
your checks, or if your checks remain uncashed for six months, your distribution
checks will be reinvested in your account at the then-current net asset value
and your election will be converted to the purchase of additional shares.
Taxes
Each Fund intends to qualify as a regulated investment company under the U.S.
Federal tax law. As such, a Fund generally will not pay Federal income tax on
the income and gains it pays as dividends to its stockholders. In order to avoid
a 4% Federal excise tax, each Fund intends to distribute each year all of its
net income and gains.
Stockholders will be taxed on dividends received from each Fund, regardless of
whether received in cash or reinvested in additional shares. Stockholders must
treat dividends, other than capital gain dividends, as ordinary income.
Dividends designated as capital gain dividends are taxable to stockholders as
long-term capital gains, but the rate of tax will depend on the Fund's holding
period of the assets whose sale results in the gain. Certain dividends declared
during a calendar year are taxable to stockholders as though received on
December 31 of that year if paid to stockholders during January of the following
calendar year. The Funds will advise stockholders annually of the amount and
nature of dividends paid to them.
Investors are advised to consult their tax advisers with respect to the
particular tax consequences to them of an investment in the Funds. A more
detailed description of tax consequences to stockholders is contained in the
Statement of Additional Information.
REDEMPTION AND REPURCHASE OF SHARES
Generally, stockholders may require a Fund to redeem their shares by sending a
written request, signed by the record owner(s), to Capstone Indexed Series
Trust, c/o First Data Investor Services Group, Inc., 3200 Horizon Drive, P.O.
Box 61503, King of Prussia, Pennsylvania 19406-0903. In addition, certain
expedited redemption methods described below are available. If the proceeds of
the redemption are to be paid to someone other than the registered holder, or to
other than the stockholder's address of record, or the shares are to be
transferred, the owner's signature must be guaranteed by an "eligible guarantor
institution", as defined in Rule 17Ad-15 under the Securities Exchange Act of
1934, which participates in a signature guarantee program. Eligible guarantor
institutions include banks, brokers, dealers, credit unions, national securities
exchanges, registered securities associations, clearing agencies and savings
associations. A broker-dealer guaranteeing signatures must be a member of a
clearing corporation or maintain net capital of at least $100,000. Credit unions
must be authorized to issue signature guarantees. Signature guarantees will be
accepted from any eligible guarantor institution which participates in a
signature guarantee program. The redemption price shall be the net asset value
per share next computed after receipt of the redemption request. See
"Determination of Net Asset Value".
In addition, the Distributor is authorized as agent for the Funds to offer to
repurchase shares which are presented by telephone or telegraph to the
Distributor by authorized investment dealers. The repurchase price is the net
asset value per share next determined after the request is received. See
"Determination of Net Asset Value". Broker-dealers may charge for their services
in connection with the repurchase, but the Distributor and its affiliates will
not charge any fee for such repurchase. Payment for shares presented for
repurchase or redemption by authorized investment dealers will be made within
seven days after receipt by the Transfer Agent of a written notice in proper
order.
Each Fund reserves the right to pay any portion of redemption requests in excess
of $1 million in readily marketable securities from the Fund's portfolio. In
this case, the redeeming stockholder may incur brokerage charges on the sale of
the securities.
The right of redemption and payment of redemption proceeds are subject to
suspension for any period during which the New York Stock Exchange is closed,
other than customary weekend and holiday closings, or when trading on the New
York Stock Exchange is restricted as determined by the Securities and Exchange
Commission; during any period when an emergency as defined by the rules and
regulations of the Securities and Exchange Commission exists; or during any
period when the Securities and Exchange Commission has by order permitted such
suspension. The Funds will not mail redemption proceeds until checks (including
certified checks or cashier's checks) received for the shares purchased have
cleared, which can be as long as 15 days.
The value of shares on repurchase or redemption may be more or less than the
investor's cost depending upon the market value of a Fund's portfolio securities
at the time of redemption. No redemption fee is charge for the redemption of
shares.
Expedited Telephone Redemption
A stockholder redeeming at least $1,000 of shares and who has authorized
expedited redemption on the application form filed with the Fund's Transfer
Agent may at the time of such redemption request that funds be mailed or wired
to the commercial bank or registered broker-dealer he has previously designated
on the application form by telephoning the Transfer Agent at (800) 845-2340.
Redemption proceeds will be sent to the investor on the next business day
following receipt of the telephone redemption request. In order to allow the
Investment Adviser/Administrator to manage the Funds more effectively,
stockholders are strongly urged to initiate redemptions as early in the day as
possible. If a stockholder seeks to use an expedited method of redemption of
shares recently purchased by check, the Fund may withhold the redemption
proceeds until it is reasonably assured of the collection of the check
representing the purchase, which may take up to 15 days from the purchase date.
The Funds, Distributor and Transfer Agent reserve the right at any time to
suspend or terminate the expedited redemption procedure or to impose a fee for
this service. At the present time there is no fee charged for this service.
During periods of unusual economic or market changes, stockholders may
experience difficulties or delays in effecting telephone redemptions.
When exchange or redemption requests are made by telephone, the Funds has
procedures in place designed to give reasonable assurance that such telephone
instructions are genuine, including recording telephone calls and sending
written confirmation of transactions. The Funds will not be liable for losses
due to unauthorized or fraudulent telephone transactions unless it does not
follow such procedures, in which case it may be liable for such losses.
DETERMINATION OF NET ASSET VALUE
The next asset value for each class of shares of each Fund is computed daily,
Monday through Friday, as of the close of regular trading on the New York Stock
Exchange, which is currently 4:00 p.m. Eastern time. The net asset values will
not be computed on the following holidays: New Year's Day, Martin Luther King's
Birthday, President's Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
Each Fund's net asset value per share for each class is computed by dividing the
value (amortized cost value for the Money Market Fund) of the securities held by
the Fund plus any cash or other assets (including any accrued expenses) by the
total number of Fund shares outstanding at such time. To avoid large
fluctuations in the computed net asset value, accrued expenses will be charged
against each class on a daily basis, i.e. 1/360 of the annual amount due by the
Fund or class each year.
Any assets or liabilities initially expressed in terms of foreign currencies are
translated into U.S. dollars at the prevailing market rates at 17:00 Greenwich
Mean Time on each U.S.
business day.
Portfolio securities which are primarily traded on securities exchanges are
valued at the last sale price on that exchange or, if there is no recent last
sale price available, at the last current bid quotation. A security which is
listed or traded on more than one exchange is valued at the quotation on the
exchange determined to be the primary market for such security. All other equity
securities not so traded are valued at the last current bid quotation prior to
the time of valuation.
Debt securities, except short-term obligations, are valued by using market
quotations or independent pricing services which use prices provided by market
makers or estimates of market values obtained from yield data relating to
instruments or securities with similar characteristics. Other securities,
including restricted securities, and other assets are valued at fair value as
determined in good faith by the Board of Trustees. Because of the need to obtain
prices of foreign securities as of the close of trading on foreign securities
exchanges, the calculation of net asset value does not take place
contemporaneously with the determination of the prices of those securities. If
an event were to occur after the value of a Fund instrument was so established
but before the net asset value per share is determined which is likely to
materially change the net asset value, the Fund instrument would be valued using
fair value considerations established by the Board of Trustees.
STOCKHOLDER SERVICES
The Funds provide stockholders with a number of services and conveniences
designed to assist investors in the management of their investments. These
stockholder services include the following:
Tax-Deferred Retirement Plans
Shares may be purchased by virtually all types of tax-deferred retirement plans.
The Distributor or its affiliates make available plan forms and/or custody
agreements for the following:
o Individual Retirement Accounts (for individuals and their
non-employed spouses who wish to make limited tax deductible
contributions to a tax-deferred account for retirement); and
o Simplified Employee Pension Plans.
Dividends and distributions will be automatically reinvested without a sales
charge. For further details, including fees charged, tax consequences and
redemption information, see the specific plan documents which can be obtained
from the Funds.
Investors should consult with their tax adviser before establishing any of the
tax-deferred retirement plans described above.
Exchange Privilege
Shares of a Fund which have been outstanding for 15 days or more may be
exchanged for shares of the same class of another Fund at a price based on the
respective net asset values of the Funds' shares, with no sales or
administrative charge. Any exchange must meet applicable minimum investment and
other requirements for the class of shares of the Fund into which the exchange
is requested. Shares held less than 15 days cannot be exchanged; such shares
will be redeemed at the next computed net asset value.
Purchases, redemptions and exchanges should be made for investment purposes
only. A pattern of frequent exchanges, purchases and sales may be deemed abusive
by the Investment Adviser/Administrator and, at the discretion of the Investment
Adviser/Administrator, can be limited by a Fund's refusal to accept further
purchase and/or exchange orders from the investor. Although the Investment
Adviser/Administrator will consider all factors it deems relevant in determining
whether a pattern of frequent purchases, redemptions and/or exchanges by a
particular investor is abusive and not in the best interests of a Fund or its
other stockholders, as a general policy investors should be aware that engaging
in more than one exchange or purchase-sale transaction during any thirty-day
period with respect to a particular Fund may be deemed abusive and therefore
subject to the above restrictions.
An exchange of shares is treated for Federal income tax purposes as a sale of
shares given in exchange and the stockholders may, therefore, realize a taxable
gain or loss. The exchange privilege may be exercised only in those states where
shares of the Fund for which shares held are being exchanged may be legally
sold, and the privilege may be amended or terminated upon 60 days' notice to
stockholders.
The stockholder may exercise the following exchange privilege options:
Exchange by Mail - Stockholders may mail a written notice requesting
an exchange to the Fund's Transfer Agent.
Exchange by Telephone - Stockholders must authorize telephone
exchange on the application form filed with the Transfer Agent to
exchange shares by telephone. Telephone exchanges may be made from
9:30 a.m. to 4:00 p.m. Eastern time, Monday through Friday, except
holidays. During periods of unusual economic or market changes,
stockholders may experience difficulties or delays in effecting
telephone exchanges.
When exchange or redemption requests are made by telephone, the Funds have
procedures in place designed to give reasonable assurance that such telephone
instructions are genuine, including recording telephone calls and sending
written confirmation of transactions. A Fund will not be liable for losses due
to unauthorized or fraudulent telephone transactions unless it does not follow
such procedures, in which case it may be liable for such losses.
Pre-Authorized Payment
A stockholder holding Class A shares may arrange to make regular monthly
investments of $25 or more automatically from his checking account by
authorizing the Transfer Agent to withdraw the payment from his checking
account.
Systematic Withdrawal Plan
Investors holding Class A shares may open a withdrawal plan providing for
withdrawals of $50 or more monthly, quarterly, semi-annually or annually if they
have made a minimum investment in the shares of a Fund of $5,000. The minimum
amount which may be withdrawn pursuant to this plan is $50.
These payments do not represent a yield or return on investment and may
constitute return of initial capital. In addition, such payments may deplete or
eliminate the investment. Stockholders cannot be assured that they will receive
payment for any specific period because payments will terminate when all shares
have been redeemed. The number of such payments will depend primarily upon the
amount and frequency of payments and the yield on the remaining shares. Under
this plan, any distributions must be reinvested in additional shares of a Fund
at net asset value.
This Systematic Withdrawal Plan is voluntary, flexible, and under the
stockholder's control and direction at all times, and does not limit or alter
the stockholder's right to redeem shares. Such Plan may be terminated in writing
at any time by either the stockholder or a Fund. The cost of operating the
Systematic Withdrawal Plan is borne by the Funds.
GENERAL INFORMATION
Capstone Innvestment Series Trust is an open-end diversified management
investment company, as defined in the Investment Company Act of 1940, as
amended. It was organized in Massachusetts on April 13, 1998 as a business
trust. The Funds are established as separate series of the Trust. The Trust is
authorized to issue an unlimited number of shares of beneficial interest of
$0.01 par value and to divide such shares into separate series (or funds).
Shares of each Fund have been divided into multiple classes. Each class
represents an interest in a Fund, but is subject to different rights, expenses
and privileges. Stockholders are entitled to one vote for each full share held
and to fractional votes for fractional shares held in the election of Trustees
(to the extent hereafter provided) and on other matters submitted to the vote of
stockholders of the particular Fund. The Trust is not required to hold regular
annual meetings of stockholders and will do so only when required by law. There
are no cumulative voting rights. Matters submitted to stockholder vote must be
approved by each Fund as to that Fund except (i) as to matters required by the
Investment Company Act of 1940 to be voted on by all stockholders of the Trust
as a single class and (ii) as to matters determined by the Trustees not to
affect a particular Fund or class, which will not be submitted to vote by
stockholders of that Fund or class and (iii) matters affecting only a particular
class, or affecting that class in a manner different from other classes must be
approved by each such class. Stockholders may, in accordance with the
Declaration of Trust, cause a meeting of stockholders to be held for the purpose
of voting on the removal of Trustees. Shares of a Fund have equal dividend
rights, are fully paid, nonassessable and freely transferable and have no
conversion, pre-emptive or subscription rights. Fractional shares have the same
rights, pro rata, as full shares.
Under Massachusetts law, stockholders of a business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust. The Declaration of Trust contains an express disclaimer of stockholder
liability for acts or obligations of the Trust. The Declaration of Trust
provides for indemnification out of the Trust's property for any stockholder
held personally liable for the obligations of the Trust. Thus, the risk of a
stockholder's incurring financial loss on account of stockholder's liability is
limited to circumstances in which the Trust itself would be unable to meet its
obligations.
The Trust's securities are held by Fifth Third Bank under a Custodian
Agreement with the Fund. First Data Investor Services Group, Inc. acts as both
Transfer Agent and dividend paying agent for the Trust.
Stockholders should address inquiries to the Trust at its address stated on the
cover page of this Prospectus.
<PAGE>
SUBJECT TO COMPLETION: DATED APRIL 13, 1998
CAPSTONE INVESTMENT SERIES TRUST
STATEMENT OF ADDITIONAL INFORMATION
_____________________________, 1998
This Statement of Additional Information is not a Prospectus but contains
information in addition to and more detailed than that set forth in the
Prospectus and should be read in conjunction with the Prospectus. The Statement
of Additional Information and the related Prospectus are both dated
_______________, 1998. A Prospectus may be obtained without charge by contacting
Capstone Asset Planning Company, by phone at (800) 262-6631 or by writing to it
at 5847 San Felipe, Suite 4100, Houston, Texas 77057.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may any
offers to buy be accepted prior to the time the registration statement becomes
effective.
TABLE OF CONTENTS
GENERAL INFORMATION.........................................................37
INVESTMENT RESTRICTIONS.....................................................37
Foreign Securities (All Funds)........................................38
Forward Foreign Currency Exchange Transactions
(All Funds, except Money Market Fund).................................39
PERFORMANCE INFORMATION.....................................................39
TRUSTEES AND EXECUTIVE OFFICERS.............................................41
INVESTMENT ADVISORY AGREEMENT...............................................42
ADMINISTRATION AGREEMENT....................................................43
DISTRIBUTOR.................................................................44
PORTFOLIO TRANSACTIONS AND BROKERAGE........................................45
DETERMINATION OF NET ASSET VALUE............................................46
HOW TO BUY AND REDEEM SHARES................................................47
DIVIDENDS AND DISTRIBUTIONS.................................................48
TAXES...................................................................... 48
OTHER INFORMATION...........................................................54
<PAGE>
GENERAL INFORMATION
The Trust is an "open-end diversified management company" under the
Investment Company Act of 1940 which has six series ("Funds"). Shares of each
Fund have been divided into multiple classes, including Class A and Class C
shares. Each class represents an interest in a Fund, but is subject to different
rights, expenses and privileges. The Trust was organized as a Massachusetts
business trust on April 13, 1998.
The Trust is a member of a group of investment companies sponsored by
Capstone Asset Management Company (the "Investment Adviser/Administrator"),
which provides investment advisory and administrative services to the Funds. The
Investment Adviser/Administrator and Capstone Asset Planning Company (the
"Distributor") are wholly-owned subsidiaries of Capstone Financial Services,
Inc.
INVESTMENT RESTRICTIONS
The Funds have adopted the following restrictions which cannot be changed
with regard to a Fund without approval by the holders of a majority of that
Fund's outstanding shares.
Each Fund has elected to be qualified as a diversified series of the Trust.
A Fund may not:
1. borrow money, except as permitted under the Investment Company Act of
1940, as amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time;
2. issue senior securities, except as permitted under the Investment
Company Act of 1940, as amended, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time;
3. concentrate its investments in a particular industry, as that term is
used in the Investment Company Act of 1940, as amended, and as
interpreted or modified by regulatory authority having jurisdiction,
from time to time (except that the Money Market Fund reserves the
freedom of action to concentrate its investments in instruments issued
by domestic banks and in government securities, as that term is
defined in the Investment Company Act of 1940 and in relevant
rules and regulatory interpretations thereunder, as amended from time
to time;
4. engage in the business of underwriting securities issued by others,
except to the extent that the Fund may be deemed to be an underwriter
in connection with the disposition of portfolio securities;
5. purchase or sell real estate, which does not include securities of
companies which deal in real estate or mortgages or investments
secured by real estate or interests therein, except that the Fund
reserves freedom of action to hold and to sell real estate acquired as
a result of the Fund's ownership of securities;
6. purchase physical commodities or contracts relating to physical
commodities;
7. make loans to other persons, except (i) loans of portfolio securities,
and (ii) to the extent that entry into repurchase agreements and the
purchase of debt instruments or interests in indebtedness in
accordance with a Fund's investment objective and policies may be
deemed to be loans.
The portfolio securities of a Fund may be turned over whenever necessary
or appropriate in the opinion of the Fund's management to seek the achievement
of the basic objective of the Fund. The turnover rate of each of the Funds is
not expected to exceed 30%.
Foreign Securities (All Funds)
The Money Market Fund's investments in foreign securities must be U.S.
dollar-denominated. The other Funds may invest in U.S. dollar- or foreign
currency-denominated foreign equity and debt securities in the United States or
in foreign markets. These investments may include securities represented by
European Depositary Receipts ("EDRs") and American Depositary Receipts ("ADRs")
and similar types of investments. Investments in securities of foreign issuers
involve certain costs, risks and considerations not typically associated with
investments in U.S. issuers. These include: differences in accounting, auditing
and financial reporting standards; generally higher commission rates on foreign
portfolio transactions; the possibility of nationalization, expropriation or
confiscatory taxation; adverse changes in investment or exchange control
regulations (which may include suspension of the ability to transfer currency
from a country); and political instability which could affect U.S. investments
in foreign countries. Additionally, foreign securities, and dividends and
interest payable on those securities, may be subject to foreign taxes, including
taxes withheld from payments on those securities. Foreign securities often trade
with less frequency and volume than domestic securities and, therefore, may
exhibit greater price volatility and less liquidity. Additional costs associated
with an investment in foreign securities may include higher custodial fees and
transaction costs than are typical of U.S. investments, as well as currency
conversion costs. Changes in foreign exchange rates also will affect the value
of securities denominated or quoted in currencies other than the U.S. dollar. A
Fund's objective may be affected either favorably or unfavorably by fluctuations
in the relative rates of exchange between the currencies of different nations,
by exchange control regulations and by indigenous economic and political
developments. A decline in the value of any particular currency against the U.S.
dollar will cause a decline in the U.S. dollar value of a Fund's holdings of
securities denominated in such currency and, therefore, will cause an overall
decline in the Fund's net asset value and any net investment income and capital
gains to be distributed in U.S. dollars to shareholders. The rate of exchange
between the U.S. dollar and other currencies is determined by several factors
including the supply and demand for particular currencies, central bank efforts
to support particular currencies, the movement of interest rates, the pace of
business activity in certain other countries and the United States, and other
economic and financial conditions affecting the world economy.
Although each Fund values its assets daily in terms of U.S. dollars, the
Funds do not intend to convert any holdings of foreign currencies into U.S.
dollars on a daily basis. When effected, currency conversion involves costs in
the form of a "spread" between the foreign exchange dealer's buying and selling
prices.
Forward Foreign Currency Exchange Transactions (All Funds, except Money
Market Fund)
Each Fund may enter into forward foreign currency exchange contracts in
connection with its investments in foreign securities. A forward foreign
currency exchange contract ("forward contract") is an agreement to purchase or
sell a specific amount of a particular foreign currency at a specified price on
a specified future date. These contracts are traded in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers. A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for trades. Closing transactions with
respect to forward contracts are effected with the currency trader who is a
party to the original forward contract.
A Fund will enter into a forward contract only for hedging purposes, with
respect to specific anticipated portfolio transactions (including receivables
and payables) or with respect to portfolio positions denominated in a particular
currency. By entering into such a contract, the Fund hopes to protect against,
or benefit from, an anticipated change in relevant currency exchange rates. For
example, when the Fund anticipates purchasing or selling a security, or
receiving a dividend payment, it may enter into a forward contract to set the
rate at which the relevant currencies will be exchanged at the time of the
transaction. Or, if the Fund anticipates a decline in the value of a currency in
which some of its assets are denominated, it may attempt to "lock in" the
current more favorable rate by entering into a contract to sell an amount of
that currency which approximates the current value of those securities. Each
such contract involves some cost to the Fund and requires that the Fund maintain
with its custodian a segregated account of liquid assets sufficient to satisfy
its obligations under the contract. In the event that the currencies do not move
in the direction, or to the extent, or within the time frame, anticipated, the
Fund may lose some or all of the protection or benefit hoped for.
Securites Index Futures and Related Options
A Fund may engage in transactions in options on securities and securities
indices, and securities index futures and options on such futures as a hedge
against changes in the value of securities held in the Fund's portfolio or
securities it intends to purchase.
To protect the value of its portfolio against declining stock prices, a
Fund may purchase put options on securities indices. To protect against an
increase in the value of the securities that it wants to purchase, a Fund may
purchase call options on securities indices. A securities index (such as the S&P
500) assigns relative values to the securities included in the index and the
index fluctuates with the changes in the market values of the securities so
included. Options on securities indices are similar to options on securities
except that, rather than giving the purchaser the right to take delivery of the
securities at a specified price, an option on a securities index gives the
purchaser the right to receive cash. The amount of cash is equal to the
difference between the closing price of the index and the exercise price of the
option, expressed in dollars, times a specified multiple (the "multiplier"). The
writer of the option is obligated, in return for the premium received, to make
delivery of this amount. Gain or loss with respect to options on securities
indices depends on price movements in the stock market generally rather than
price movements in individual securities.
The multiplier for an index option performs a function similar to the unit
of trading for a securities option. It determines the total dollar value per
contract of each point in the difference between the exercise price of an option
and the current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indices may have
different multipliers.
Because the value of the securities index option depends upon movements in
the level of the index rather than the price of a particular security, whether a
fund will realize a gain or loss on the purchase of a put or call option on a
securities index depends upon movements in the level of prices in the market
generally or in an industry or market segment rather than movements in the price
of a particular security. Accordingly, successful use by a Fund of both put and
call options on securities indices will be subject to the
Adviser/Administrator's ability to accurately predict movements in the direction
of the securities market generally or of a particular industry. In cases where
the Adviser/Administrator's prediction proves to be inaccurate, a Fund will lose
the premium paid to purchase the option and it will have failed to realize any
gain.
In addition, a Fund's ability to hedge effectively all or a portion of its
securities through transactions in options on securities indices (and therefore
the extent of its gain or loss on such transactions) depends on the degree to
which price movements in the underlying index correlate with price movements in
the Fund's securities. Inasmuch as such securities will not duplicate the
components of an index, the correlation probably will not be perfect.
Consequently, a Fund will bear the risk that the prices of the securities being
hedged will not move in the same amount as the option. This risk will increase
as the composition of the Fund's portfolio diverges from the composition of the
index.
A securities index futures contract is a bilateral agreement to which two
parties agree to take or make delivery of an amount of cash equal to a specified
dollar amount times the difference between the index value at the close of the
last trading day of the contract and the futures contract price. The value of a
unit is the current value of the securities index. For example, the Standard &
Poor's Stock Index is composed of 500 selected common stocks, most of which are
listed on the New York Stock Exchange. The S&P 500 Index assigns relative
weightings to the value of one share of each of these 500 common stocks included
in the Index, and the Index fluctuates with changes in the market values of the
shares of those common stocks. In the case of the S&P 500 Index, contracts are
to buy or sell 500 units. Thus, if the value of the S&P 500 Index Futures were
$150, one contract would be worth $75,000 (500 units X $150). Stock index
futures contracts specify that no delivery of the actual stocks making up the
index will take place. Instead, settlement in cash must occur upon the
termination of a contract, with the settlement being the difference between the
contract price and the actual level of the stock index at the expiration of the
contract. For example, a Fund enters into a futures contract to buy 500 units of
the S&P 500 Index at a specified future date at a contract price of $150 and the
S&P 500 Index is at $154 on that future date, the Fund will gain $2,000 (500
units X gain of $4). If the Fund enters into a futures contract to sell 500
units of the stock index at a specified future date at a contract price of $150
and the S&P 500 Index is at $154 on that future date, the Fund will lose $2,000
(500 units X loss of $4).
Options on securities index futures contracts are similar to options on
securities except that an option on a securities index futures contract gives
the purchaser the right, in return for a premium paid, to assume a position in a
securities index futures contract (a long position if the option is a call and a
short position if the option is a put), upon deposit of required margin. In the
alternative, the purchaser may resell the option, if it has value, or simply let
it expire. Upon expiration the purchaser will either realize a gain or the
option will expire worthless, depending on the closing price of the index on
that day. Thus, the purchaser's risk is limited to the premium paid for the
option.
Successful use of securities index futures contracts and options on such
contracts is subject to the Adviser/Administrator's ability to predict correctly
movements in the direction of the stock markets. No assurance can be given that
the Adviser/Administrator's judgment in this respect will be correct.
Additionally, the correlation between movements in the price of futures
contracts or options on futures contracts and movements in prices of securities
being hedged or used for cover is not perfect.
A Fund will purchase and sell securities futures contracts and will
purchase put and call options on securities index contracts only as a hedge
against changes in the value of securities held in the Fund's portfolio or which
it intends to purchase and where the transactions are economically appropriate
to the reduction of the risks inherent in the ongoing management of the Fund.
Generally, a Fund may hedge its securities portfolio against a period of market
decline by selling securities index futures contracts or by purchasing puts on
securities index futures contracts for the purpose of protecting its portfolio
against such decline. Conversely, a Fund may purchase securities index futures
contracts or call options thereon as a means of protecting against an increase
in the prices of securities which the Fund intends to purchase. A Fund will not
engage in transactions in securities index futures contracts or options on such
contracts for speculation and will not write options on securities index futures
contracts.
When purchasing securities index futures contracts, a Fund will be required
to post a small initial margin deposit, held by the Fund's custodian in the name
of the futures broker selected by the Fund; the remaining portion of the
contracts' value will be retained in short-term investments in order to meet
variation margin requirements or net redemptions. In the event of net
redemptions, the Fund would close out open futures contracts and meet
redemptions with cash realized from liquidating short-term investments.
A Fund will not leverage its portfolio by purchasing an amount of contracts
that would increase its exposure to securities market movements beyond the
exposure of a portfolio that was 100% invested in those securities.
A Fund's transactions in futures and related options are subject to limits
under rules of the Commodity Futures Trading Commission ("CFTC"). In accordance
with those rules, a Fund will not enter into transactions involving futures
contracts and options on futures contracts to the extent that, immediately
thereafter, the sum of its initial margin deposits on open futures contracts and
premiums paid for options on futures contracts, other than contracts entered
into for bona fide hedging purposes, as defined by applicable rules of the CFTC,
would exceed 5% of the market value of the Fund's total assets.
Securities index futures contracts by their terms settle at settlement date
on a cash basis. In most cases, however, the contracts are "closed out" before
the settlement date. Closing out an open futures position is done by taking an
opposite position ("buying" a contract which has previously been "sold" or
selling a previously purchased contract) in an identical contract to terminate
the position.
Positions in securities index futures contracts may be closed out only on
an exchange which provides a secondary market for such futures. There can be no
assurance, however, that a liquid secondary market will exist for any particular
futures contract at any specified time. Thus, it may not be possible to close
out a futures position, which could have an adverse impact on the cash position
of a Fund, and which could possibly force the sale of portfolio securities at a
time when it may be disadvantageous to do so. In the option of the Funds'
management, the risk that a Fund will be unable to close out a futures contract
will be minimized by entering only into futures contracts which are traded on
national futures exchanges and for which there appears to be a liquid secondary
market.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required and to the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to an investor. Because a Fund will only
engage in futures strategies for hedging purposes, the Funds' management does
not believe that the Funds will be subject to the risks of substantial loss that
may be associated with futures transactions.
PERFORMANCE INFORMATION
The Trust may from time to time include figures indicating a Fund's yield,
total return or average annual total return in advertisements or reports to
shareholders or prospective investors.
a. The Money Market Fund
From time to time, quotations of the Money Market Fund's yield may be
included in advertisements, sales literature or shareholder reports. These yield
figures are calculated in the following manner:
The current yield is the net annualized yield based on a specified 7
calendar-days calculated at simple interest rates. Current yield is calculated
by determining the net change, exclusive of capital changes, in the value of a
hypothetical pre-existing account having a balance of one share at the beginning
of the period and dividing such change by the value of the account at the
beginning of the base period to obtain the base-period return. The base-period
return is then annualized by multiplying it by 365/7; the resultant product
equals net annualized current yield. The current yield figure is stated to the
nearest hundredth of one percent.
The effective yield is the net annualized yield for a specified 7
calendar-days assuming a reinvestment in Fund shares of all dividends during the
period, i.e., compounding. Effective yield is calculated by using the same
base-period return used in the calculation of current yield except that the
base-period return is compounded by adding 1, raising the sum to a power equal
to 365 divided by 7, and subtracting 1 from the result, according to the
following formula:
Effective Yield = [(Base Period Return + 1)365/7]-1.
As described above, current yield and effective yield are based on
historical earnings, show the performance of a hypothetical investment and are
not intended to indicate future performance. Current yield and effective yield
will vary based on changes in market conditions and the level of Fund expenses.
In connection with communicating its current yield and effective yield to
current or prospective shareholders, the Fund also may compare these figures to
the performance of other mutual funds tracked by mutual fund rating services or
to other unmanaged indices which may assume reinvestment of dividends but
generally do not reflect deductions for administrative and management costs.
b. Other Funds
Average annual total return and total return figures represent the
increase (or decrease) in the value of an investment in a Fund over a specified
period. Both calculations assume that all income dividends and capital gains
distributions during the period are reinvested at net asset value in additional
Fund shares. Quotations of the average annual total return reflect the deduction
of a proportional share of Fund expenses on an annual basis. The results, which
are annualized, represent an average annual compounded rate of return on a
hypothetical investment in the Fund over a period of 1, 5 and 10 years ending on
the most recent calendar quarter calculated pursuant to the following formula:
P(1 + T)n = ERV
where P.....= a hypothetical initial payment of $1,000,
T.....= the average annual total return,
n.....= the number of years, and
ERV = the ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period.
Quotations of total return, which are not annualized, represent historical
earnings and asset value fluctuations. Total return is based on past performance
and is not a guarantee of future results.
Performance information for the Funds may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Price Index
("S&P 500 Index"), the Dow Jones Industrial Average ("DJIA"), or other
appropriate unmanaged indices of performance of various types of investments, so
that investors may compare the Fund's results with those of indices widely
regarded by investors as representative of the securities markets in general;
(ii) other groups of mutual funds tracked by Lipper Analytical Services, a
widely used independent research firm which ranks mutual funds by overall
performance, investment objectives, and assets, or tracked by other services,
companies, publications, or persons who rank mutual funds on overall performance
or other criteria; and (iii) the Consumer Price Index (a measure of inflation)
to assess the real rate of return from an investment in a Fund. Unmanaged
indices may assume the reinvestment of dividends, but generally do not reflect
deductions for administrative and management costs and expenses.
Performance information for the Funds reflects only the performance of a
hypothetical investment in a Fund during the particular time period on which the
calculations are based. Performance information should be considered in light of
each Fund's investment objectives and policies, the types and quality of the
Fund's portfolio investments, market conditions during the particular time
period and operating expenses. Such information should not be considered as a
representation of a Fund's future performance.
TRUSTEES AND EXECUTIVE OFFICERS
The Trust's Trustee and executive officers are listed below:
BERNARD J. VAUGHAN (69), Trustee. 113 Bryn Mawr Avenue, Bala Cynwyd,
Pennsylvania 19004. Director of other Capstone Funds; formerly Vice President of
Fidelity Bank (1979-1993).
*EDWARD L. JAROSKI (51), President. 5847 San Felipe, Suite 4100, Houston,
Texas 77057. President (since 1992) and Director (since 1987) of the Capstone
Asset Management Company; President and Director of Capstone Asset Planning
Company and Capstone Financial Services, Inc. (since 1987); Director/Trustee and
Officer of other Capstone Funds.
DAN E. WATSON (49), Executive Vice President and Treasurer. 5847 San
Felipe, Suite 4100, Houston, Texas 77057. Chairman of the Board (since 1992) and
Director of Capstone Asset Management Company (since 1987); Chairman of the
Board and Director of Capstone Asset Planning Company and Capstone Financial
Services, Inc. (since 1987); Officer of other Capstone Funds.
IRIS R. CLAY (45), Secretary. 5847 San Felipe, Suite 4100, Houston, Texas
77057. Secretary (since February 1996); Assistant Vice President (1994-1996) and
Assistant Secretary (1990-1994) of Capstone Financial Services, Inc., Capstone
Asset Management Company and Capstone Planning Company; Officer of other
Capstone Funds.
The Trustee is entitled to $500 for each Board meeting attended, and is
paid a $2,000 annual retainer by the Trust. The Trustee and officers of the
Trust are also reimbursed for expenses incurred in attending meetings of the
Board of Trustees.
INVESTMENT ADVISORY AGREEMENT
Pursuant to the terms of an investment advisory agreement dated
_________________ (the "Advisory Agreement"), the Trust employs Capstone Asset
Management Company (the "Investment Adviser/Administrator") to furnish
investment advisory services. The Investment Adviser/Administrator is a
wholly-owned subsidiary of Capstone Financial Services, Inc.
For its services, the Investment Adviser/Administrator receives investment
advisory fees monthly, in arrears, from each Fund at the following annual rates.
The indicated rate for the Money Market Fund is based on the average daily net
assets of that Fund. The fee rates indicated for the other five Funds are
applied to the aggregate average daily net assets of those Funds, as a group,
and the resulting total fees are pro rated among those Funds based on their
relative net assets.
Name of Fund Annual Fee rate as a percentage of
average daily net assets
Money Market Fund 0.05%
Aggregate assets of Short-Term 0.15% of the first $500 million
Bond Fund, Intermediate-Term 0.10% of the nest $250 million
Bond Fund, Large Cap Equity 0.075% of the next $250 million
Fund, Small Cap Equity Fund, 0.05% of assets over $1 billion
International Equity Fund
Pursuant to the Advisory Agreement, the Investment Adviser/Administrator
pays the compensation and expenses of all of its directors, officers and
employees who serve as officers and executive employees of the Trust (including
the Trust's share of payroll taxes), except expenses of travel to attend
meetings of the Trust's Board of Trustees or committees or advisers to the
Board. The Investment Adviser/Administrator also agrees to make available,
without expense to the Trust, the services of its directors, officers and
employees who serve as officers of the Trust.
The Advisory Agreement provides that the Investment Adviser/Administrator
shall not be liable for any error of judgment or of law, or for any loss
suffered by a Fund in connection with the matters to which the agreement relates
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of the Investment Adviser/Administrator in the performance of its
obligations and duties, or by reason of its reckless disregard of its
obligations and duties under the Advisory Agreement.
The Advisory Agreement will remain in effect for an initial two year
period and thereafter from year to year provided its renewal in each case and as
to each Fund is specifically approved (a) by the Trust's Board of Trustees or,
as to each Fund, by vote of a majority of the Fund's outstanding voting
securities, and (b) by the affirmative vote of a majority of the Trustees who
are not parties to the agreement or interested persons of any such party, by
votes cast in person at a meeting called for such purpose. The Advisory
Agreement may be terminated (a) at any time without penalty by the Trust upon
the vote of a majority of the Trustees or, as to a Fund, by vote of the majority
of that Fund's outstanding voting securities, upon 60 days' written notice to
the Investment Adviser/Administrator or (b) by the Investment
Adviser/Administrator at any time without penalty, upon 90 days' written notice
to the Trust. The Advisory Agreement will also terminate automatically in the
event of its assignment (as defined in the 1940 Act).
ADMINISTRATION AGREEMENT
Pursuant to an Administration Agreement dated _______________, 1998
between the Trust and Capstone Asset Management Company, the Investment
Adviser/Administrator supervises all aspects of the Funds' operations. It
oversees the performance of administrative and professional services to the
Funds by others; provides office facilities; prepares reports to stockholders
and the Securities and Exchange Commission; and provides personnel for
supervisory, administrative and clerical functions. Except as noted below, the
costs of these services are borne by the Investment Adviser/Administrator. For
these services, the Funds will pay to the Investment Adviser/Administrator a
fee, calculated daily and payable monthly in arrears, equal to an annual rate of
0.05% of each Fund's average net assets.
The Trust pays all of its expenses not borne by the Investment
Adviser/Administrator pursuant to the Administration Agreement including such
expenses as (i) advisory and administrative fees, (ii) fees under the Service
and Distribution Plan (see "Distributor"), (iii) fees for legal, auditing,
transfer agent, dividend disbursing, and custodian services, (iv) the expenses
of issue, repurchase, or redemption of shares, (v) interest, taxes and brokerage
commissions, (vi) membership dues in the Investment Company Institute allocable
to the Trust, (vii) the cost of reports and notices to shareholders, and (viii)
fees to Trustees and salaries of any officers or employees who are not
affiliated with the Investment Adviser/Administrator, if any.
Under the Administration Agreement, the Trust bears the cost of the Funds'
accounting services, which includes maintaining the financial books and records
of the Funds and calculating daily net asset value. The Fifth Third Bank of
Cincinnati, Ohio performs accounting, bookkeeping and pricing services for the
Trust. For these services, Fifth Third Bank receives a monthly fee from the
Trust.
The Administration Agreement will remain in effect for an initial two-year
period and will continue thereafter until terminated by either party.
DISTRIBUTOR
Capstone Asset Planning Company (the "Distributor") acts as the principal
underwriter of the Funds' shares pursuant to a written agreement with the Trust
dated ____________ (the "Distribution Agreement"). The Distributor has the
exclusive right (except for distributions of shares directly by the Trust) to
distribute shares of the Funds in a continuous offering through affiliated and
unaffiliated dealers. The Distributor's obligation is an agency or "best
efforts" arrangement under which the Distributor is required to take and pay for
only such Fund shares as may be sold to the public. The Distributor is not
obligated to sell any stated number of shares. Except to the extent otherwise
permitted by the Service and Distribution Plan (see below), the Distributor
bears the cost of printing (but not typesetting) prospectuses used in connection
with this offering and the cost and expense of supplemental sales literature,
promotion and advertising.
The Distribution Agreement shall continue for an initial two-year term and
is renewable from year to year if approved in each case as to each Fund (a) by
the Trust's Board of Trustees or, with respect to a Fund, by a vote of a
majority of the Fund's outstanding voting securities and (b) by the affirmative
vote of a majority of Trustees who are not parties to the Distribution Agreement
or interested persons of any party, by votes cast in person at a meeting called
for such purpose. The Distribution Agreement provides that it will terminate if
assigned, and that it may be terminated without penalty by either party on 60
days' written notice.
On ________________, the Trust adopted a Service and Distribution Plan
(the "Plan") pursuant to Rule 12b-1 of the Investment Company Act of 1940 for
the Funds' Class A shares which permits Class A shares of each Fund to absorb
certain expenses in connection with the distribution of its Class A shares and
provision of certain services to Class A shareholders. As required by Rule
12b-1, the Trust's Plan and related agreements were approved by a vote of the
Trust's Board of Trustees, and by a vote of the Trustees who are not "interested
persons" of the Trust as defined under the 1940 Act and have no direct or
indirect interest in the operation of the Plan or any agreements related to the
Plan (the "Plan Trustees") on _____________________.
As required by Rule 12b-1, the Trustees will review quarterly reports
prepared by the Distributor on the amounts expended and the purposes for the
expenditures. The Plan and related agreements may be terminated at any time by a
vote of the Plan Trustees or, as to a Fund, by vote of a majority of the Fund's
outstanding voting securities. As required by Rule 12b-1, selection and
nomination of disinterested Trustees for the Trust is committed to the
discretion of the Trustees who are not "interested persons" as defined under the
1940 Act.
Any change in the Plan that would materially increase the distribution
expenses to be paid requires approval by shareholders of Class A shares of each
affected Fund, but otherwise, the Plan may be amended by the Trustees, including
a majority of the Plan Trustees.
The Plan will continue in effect for successive one year periods provided
that such continuance is specifically approved by a majority of the Trustees,
including a majority of the Plan Trustees. In compliance with the Rule, the
Trustees, in connection with the adoption of the Plan, requested and evaluated
information they thought necessary to make an informed determination of whether
the Plan and related agreements should be implemented, and concluded, in the
exercise of reasonable business judgment and in light of their fiduciary duties,
that there is a reasonable likelihood that the Plan and related agreements will
benefit the Funds and their shareholders.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Investment Adviser/Administrator is responsible for decisions to buy
and sell securities for each Fund and for the placement of its portfolio
business and the negotiation of the commissions paid on such transactions. It is
the policy of the Investment Adviser/Administrator to seek the best security
price available with respect to each transaction. In over-the-counter
transactions, orders are placed directly with a principal market maker unless it
is believed that a better price and execution can be obtained by using a broker.
The Investment Adviser/Administrator seeks the best security price at the most
favorable commission rate. In selecting dealers and in negotiating commissions,
the Investment Adviser/Administrator considers the firm's reliability, the
quality of its execution services on a continuing basis and its financial
condition. When more than one firm are believed to meet these criteria,
preference may be given to firms which also provide research services to the
Funds or the Investment Adviser/ Administrator. In addition, the Investment
Adviser/Administrator may cause a Fund to pay a broker that provides brokerage
and research services a commission in excess of the amount another broker might
have charged for effecting a securities transaction. Such higher commission may
be paid if the Investment Adviser/Administrator determines in good faith that
the amount paid is reasonable in relation to the services received in terms of
the particular transaction or the Investment Adviser/Administrator's overall
responsibilities to the Fund and the Investment Adviser/Administrator's other
clients. Such research services must provide lawful and appropriate assistance
to the Investment Adviser/Administrator in the performance of its investment
decision-making responsibilities and may include advice, both directly and in
writing, as to the value of the securities, the advisability of investing in,
purchasing or selling securities, and the availability of securities, or
purchasers or sellers of securities, as well as furnishing analyses and reports
concerning issuers, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts.
From time to time, the Investment Adviser/Administrator may effect
securities transactions through Capstone Asset Planning Company ("CAPCO"),
TradeStar Investments, Inc. and Williams MacKay Jordan & Co., Inc. ("WMJ"),
broker-dealer affiliates of the Investment Adviser/Administrator. WMJ is deemed
to be an affiliated broker since one of the principals of that firm serves as a
director of Capstone Financial Services, Inc., the parent company of the
Investment Adviser/Administrator and CAPCO.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to seeking best execution and such other
policies as the Board of Trustees may determine, the Investment
Adviser/Administrator may consider sales of shares of the Funds as a factor in
the selection of dealers to execute portfolio transactions for the Funds.
The Investment Adviser/Administrator places portfolio transactions for
other advisory accounts including other investment companies. Research services
furnished by firms through which a Fund effects its securities transactions may
be used by the Investment Adviser/Administrator in servicing all of its
accounts; not all of such services may be used by the Investment
Adviser/Administrator in connection with the Fund. In the opinion of the
Investment Adviser/Administrator, the benefits from research services to each of
the accounts (including the Funds) managed by the Investment
Adviser/Administrator cannot be measured separately.
The Investment Adviser/Administrator seeks to allocate portfolio
transactions equitably whenever concurrent decisions are made to purchase or
sell securities by a Fund and another advisory account. In some cases, this
procedure could have an adverse effect on the price or the amount of securities
available to the Fund. In making such allocations among the Fund and other
advisory accounts, the main factors considered by the Investment
Adviser/Administrator are the respective investment objectives, the relative
size of portfolio holdings of the same or comparable securities, the
availability of cash for investment, the size of investment commitments
generally held, and opinions of the persons responsible for recommending the
investment.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each Fund is computed daily, Monday
through Friday, as of the close of regular trading on the New York Stock
Exchange, which is currently 4:00 p.m. Eastern Time, except that the net asset
value will not be computed on the following holidays: New Year's Day, Martin
Luther King's Birthday, President's Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day, and Christmas Day.
a) Money Market Fund
The valuation of the Money Market Fund's portfolio securities is based
upon their amortized cost which does not take into account unrealized securities
gains or losses. This method involves initially valuing an instrument at its
cost and thereafter amortizing to maturity any discount or premium, regardless
of the impact of fluctuating interest rates on the market value of the
instrument. While this method provides certainty in valuation, it may result in
periods during which value, as determined by amortized cost, is higher or lower
than the price the Fund would receive if it sold the instrument. During periods
of declining interest rates, the quoted yield on shares of the Fund may tend to
be higher than a like computation made by a fund with identical investments
utilizing a method of valuation based upon market prices and estimates of market
prices for all of its portfolio instruments. The converse would apply in a
period of rising interest rates. Other securities and assets for which market
quotations are not readily available are valued in good faith at fair value
using methods determined by the Trustees and applied on a consistent basis. For
example, securities with remaining maturities of more than 60 days for which
market quotations are not readily available are valued on the basis of market
quotations for securities of comparable maturity, quality and type. The Trustees
review the valuation of the Fund's securities through receipt of regular reports
from the Investment Adviser/Administrator at each regular Trustees' meeting.
b) The Other Funds
The net asset value of each of the other Funds' shares is computed by
dividing the value of all securities plus other assets, less liabilities, by the
number of shares outstanding, and adjusting to the nearest cent per share. Such
computation is made by (i) valuing securities listed on an exchange or quoted on
the NASDAQ national market system at the last reported sale price, or if there
has been no sale that day at the mean between the last reported bid and asked
prices, (ii) valuing other securities at the mean between the last reported bid
and asked prices and (iii) valuing any securities for which market quotations
are not readily available and any other assets at fair value as determined in
good faith by the Board of Trustees.
However, debt securities (other than short-term obligations) including
listed issues, are valued on the basis of valuations furnished by a pricing
service which utilizes electronic data processing techniques to determine
valuations for normal institutional size trading units of debt securities,
without exclusive reliance upon exchange or over-the-counter prices. Short-term
obligations are valued at amortized cost.
HOW TO BUY AND REDEEM SHARES
Shares of each Fund are sold in a continuous offering without a sales
charge and may be purchased on any business day through authorized dealers,
including Capstone Asset Planning Company. Certain broker-dealers assist their
clients in the purchase of shares from the Distributor and may charge a fee for
this service in addition to a Fund's net asset value.
Shares will be credited to a shareholder's account at the net asset value
next computed after an order is received by the Distributor. Initial purchases
of Class A shares must be at least $200; however, this requirement may be waived
by the Distributor for plans involving continuing investments. There is no
minimum for subsequent purchases of shares. The minimum initial investment for
Class C shares is $50,000, with a $1,000 minimum required for subsequent
purchases. No stock certificates representing shares purchased will be issued
except. The Trust's management reserves the right to reject any purchase order
if, in its opinion, it is in the Trust's best interest to do so. See "Purchasing
Shares" in the Prospectus.
Generally, shareholders may require the Fund to redeem their shares by
sending a written request, signed by the record owner(s), to Capstone Indexed
Series Trust, c/o First Data Investor Services Group, Inc., P.O. Box 61503, 3200
Horizon Drive, King of Prussia, Pennsylvania 19406-0903. In addition, certain
expedited redemption methods are available. See "Redemption and Repurchase of
Shares" in the Prospectus.
DIVIDENDS AND DISTRIBUTIONS
Each Fund's policy is to distribute each year to shareholders
substantially all of its investment company taxable income (which includes,
among other items, dividends, interest and the excess of net short-term capital
gains over net long-term capital losses). Each Fund intends similarly to
distribute to shareholders at least annually any net realized capital gains (the
excess of net long-term capital gains over net short-term capital losses). The
Money Market Fund intends to declare such amounts as dividends daily and to pay
such amounts as dividends monthly. The other Funds intend to declare and pay
such amounts as dividends quarterly. All dividends and capital gain
distributions are reinvested in shares of the particular Fund at net asset value
without sales commission, except that any shareholder may otherwise instruct the
Transfer Agent in writing and receive cash. Shareholders are informed as to the
sources of distributions at the time of payment. Except with respect to the
Money Market Fund, any dividend or distribution paid shortly after a purchase of
shares by an investor will have the effect of reducing the per share net asset
value of his shares by the amount of the dividend or distribution. All or a
portion of any such dividend or distribution, although in effect a return of
capital, may be taxable, as set forth below.
TAXES
Set forth below is a discussion of certain U.S. federal income tax issues
concerning the Funds and the purchase, ownership, and disposition of Fund
shares. This discussion does not purport to be complete or to deal with all
aspects of federal income taxation that may be relevant to shareholders in light
of their particular circumstances. This discussion is based upon present
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the
regulations promulgated thereunder, and judicial and administrative ruling
authorities, all of which are subject to change, which change may be
retroactive. Prospective investors should consult their own tax advisors with
regard to the federal tax consequences of the purchase, ownership, or
disposition of Fund shares, as well as the tax consequences arising under the
laws of any state, foreign country, or other taxing jurisdiction.
Each Fund intends to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
Accordingly, each Fund generally must, among other things, (a) derive in each
taxable year at least 90% of its gross income from dividends, interest, payments
with respect to certain securities loans, and gains from the sale or other
disposition of stock, securities or foreign currencies, or other income derived
with respect to its business of investing in such stock, securities or
currencies; and (b) diversify its holdings so that, at the end of each fiscal
quarter, (i) at least 50% of the value of the Fund's total assets is represented
by cash and cash items, U.S. Government securities, the securities of other
regulated investment companies and other securities, with such other securities
limited, in respect of any one issuer, to an amount not greater than 5% of the
value of the Fund's total assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities and the securities of other regulated investment companies).
As a regulated investment company, a Fund generally is not subject to U.S.
federal income tax on income and gains that it distributes to shareholders, if
at least 90% of the Fund's investment company taxable income (which includes,
among other items, dividends, interest and the excess of any net short-term
capital gains over net long-term capital losses) for the taxable year is
distributed. Each Fund intends to distribute substantially all of such income.
Amounts not distributed on a timely basis in accordance with a calendar year
distribution requirement are subject to a nondeductible 4% excise tax at the
Fund level. To avoid the tax, each Fund must distribute during each calendar
year an amount equal to the sum of (1) at least 98% of its ordinary income (not
taking into account any capital gains or losses) for the calendar year, (2) at
least 98% of its capital gains in excess of its capital losses (adjusted for
certain ordinary losses) for a one-year period generally ending on October 31 of
the calendar year, and (3) all ordinary income and capital gains for previous
years that were not distributed during such years. To avoid application of the
excise tax, the Funds intend to make distributions in accordance with the
calendar year distribution requirement. A distribution will be treated as paid
on December 31 of a calendar year if it is declared by the Fund in October,
November or December of that year with a record date in such a month and paid by
the Fund during January of the following year. Such distributions will be
taxable to shareholders in the calendar year in which the distributions are
declared, rather than the calendar year in which the distributions are received.
The Trust is organized as a Massachusetts business trust and, under
current law, is not liable for any income or franchise tax in the Commonwealth
of Massachusetts, provided that each of the Funds qualifies as a regulated
investment company for purposes of Massachusetts law.
Market Discount
If a Fund purchases a debt security at a price lower than the stated
redemption price of such debt security, the excess of the stated redemption
price over the purchase price is "market discount". If the amount of market
discount is more than a de minimis amount, a portion of such market discount
must be included as ordinary income (not capital gain) by the Fund in each
taxable year in which the Fund owns an interest in such debt security and
receives a principal payment on it. In particular, the Fund will be required to
allocate that principal payment first to the portion of the market discount on
the debt security that has accrued but has not previously been includable in
income. In general, the amount of market discount that must be included for each
period is equal to the lesser of (i) the amount of market discount accruing
during such period (plus any accrued market discount for prior periods not
previously taken into account) or (ii) the amount of the principal payment with
respect to such period. Generally, market discount accrues on a daily basis for
each day the debt security is held by a Fund at a constant rate over the time
remaining to the debt security's maturity or, at the election of the Fund, at a
constant yield to maturity which takes into account the semi-annual compounding
of interest. Gain realized on the disposition of a market discount obligation
must be recognized as ordinary interest income (not capital gain) to the extent
of the "accrued market discount."
Original Issue Discount
Certain debt securities acquired by the Funds may be treated as debt
securities that were originally issued at a discount. Very generally, original
issue discount is defined as the difference between the price at which a
security was issued and its stated redemption price at maturity. Although no
cash income on account of such discount is actually received by a Fund, original
issue discount that accrues on a debt security in a given year generally is
treated for federal income tax purposes as interest and, therefore, such income
would be subject to the distribution requirements applicable to regulated
investment companies.
Some debt securities may be purchased by the Funds at a discount that
exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for federal income tax purposes
(see above).
Options, Futures and Forward Contracts
Any regulated futures contracts and certain options (namely, nonequity
options and dealer equity options) in which a Fund may invest may be "section
1256 contracts." Gains (or losses) on these contracts generally are considered
to be 60% long-term and 40% short-term capital gains or losses. Also, section
1256 contracts held by a Fund at the end of each taxable year (and on certain
other dates prescribed in the Code) are "marked to market" with the result that
unrealized gains or losses are treated as though they were realized.
Transactions in options, futures and forward contracts undertaken by the
Funds may result in "straddles" for federal income tax purposes. The straddle
rules may affect the character of gains (or losses) realized by a Fund, and
losses realized by the Fund on positions that are part of a straddle may be
deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which the losses are
realized. In addition, certain carrying charges (including interest expense)
associated with positions in a straddle may be required to be capitalized rather
than deducted currently. Certain elections that a Fund may make with respect to
its straddle positions may also affect the amount, character and timing of the
recognition of gains or losses from the affected positions.
Because only a few regulations implementing the straddle rules have been
promulgated, the consequences of such transactions to the Funds are not entirely
clear. The straddle rules may increase the amount of short-term capital gain
realized by a Fund, which is taxed as ordinary income when distributed to
shareholders. Because application of the straddle rules may affect the character
of gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to a fund that did not engage
in such transactions.
Constructive Sales
Recently enacted rules may affect the timing and character of gain if a
Fund engages in transactions that reduce or eliminate its risk of loss with
respect to appreciated financial positions. If a Fund enters into certain
transactions in property while holding substantially identical property, the
Fund would be treated as if it had sold and immediately repurchased the property
and would be taxed on any gain (but not loss) from the constructive sale. The
character of gain from a constructive sale would depend upon the Fund's holding
period in the property. Loss from a constructive sale would be recognized when
the property was subsequently disposed of, and its character would depend on the
Fund's holding period and the application of various loss deferral provisions of
the Code.
Currency Fluctuations - Section 988 Gains or Losses
Gains or losses attributable to fluctuations in exchange rates which occur
between the time a Fund accrues income or other receivables or accrues expenses
or other liabilities denominated in a foreign currency and the time the Fund
actually collects such receivables or pays such liabilities generally are
treated as ordinary income or ordinary loss. Similarly, on disposition of some
investments, including debt securities and certain forward contracts denominated
in a foreign currency, gains or losses attributable to fluctuations in the value
of the foreign currency between the acquisition and disposition of the position
also are treated as ordinary gain or loss. These gains and losses, referred to
under the Code as "section 988" gains or losses, increase or decrease the amount
of a Fund's investment company taxable income available to be distributed to its
shareholders as ordinary income. If section 988 losses exceed other investment
company taxable income during a taxable year, a Fund would not be able to make
any ordinary dividend distributions, or distributions made before the losses
were realized would be recharacterized as a return of capital to shareholders,
rather than as an ordinary dividend, reducing each shareholder's basis in his or
her Fund shares.
Passive Foreign Investment Companies
The Funds may invest in shares of foreign corporations that may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross income
is investment-type income. If a Fund receives a so-called "excess distribution"
with respect to PFIC stock, the Fund itself may be subject to a tax on a portion
of the excess distribution, whether or not the corresponding income is
distributed by the Fund to shareholders. In general, under the PFIC rules, an
excess distribution is treated as having been realized ratably over the period
during which the Fund held the PFIC shares. Each Fund will itself be subject to
tax on the portion, if any, of an excess distribution that is so allocated to
prior Fund taxable years and an interest factor will be added to the tax, as if
the tax had been payable in such prior taxable years. Certain distributions from
a PFIC as well as gain from the sale of PFIC shares are treated as excess
distributions. Excess distributions are characterized as ordinary income even
though, absent application of the PFIC rules, certain excess distributions might
have been classified as capital gain.
The Funds may be eligible to elect alternative tax treatment with respect
to PFIC shares. Under an election that currently is available in some
circumstances, a Fund generally would be required to include in its gross income
its share of the earnings of a PFIC on a current basis, regardless of whether
distributions were received from the PFIC in a given year. If this election were
made, the special rules, discussed above, relating to the taxation of excess
distributions, would not apply. In addition, another election would involve
marking to market the Fund's PFIC shares at the end of each taxable year, with
the result that unrealized gains would be treated as though they were realized
and reported as ordinary income. Any mark-to-market losses and any loss from an
actual disposition of Fund shares would be deductible as ordinary losses to the
extent of any net mark-to-market gains included in income in prior years.
Distributions
Distributions of investment company taxable income are taxable to a U.S.
shareholder as ordinary income, whether paid in cash or shares. Dividends paid
by a Fund to a corporate shareholder, to the extent such dividends are
attributable to dividends received by the Fund from U.S. corporations, may,
subject to limitation, be eligible for the dividends received deduction.
However, the alternative minimum tax applicable to corporations may reduce the
value of the dividends received deduction.
The excess of net long-term capital gains over the short-term capital
losses realized and distributed by a Fund, whether paid in cash or reinvested in
Fund shares, will generally be taxable to shareholders as either "20% Gain" or
"28% Gain," depending upon the Fund's holding period for the assets sold. "20%
Gains" arise from sales of assets held by a Fund for more than 18 months and are
subject to a maximum tax rate of 20%; "28% Gains" arise from sales of assets
held by a Fund for more than one year but no more than 18 months and are subject
to a maximum tax rate of 28%. Net capital gains from assets held for one year or
less will be taxed as ordinary income. Distributions will be subject to these
capital gains rates regardless of how long a shareholder has held Fund shares.
Shareholders will be notified annually as to the U.S. federal tax status
of distributions, and shareholders receiving distributions in the form of newly
issued shares will receive a report as to the net asset value of the shares
received.
If the net asset value of shares is reduced below a shareholder's cost as
a result of a distribution by a Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Investors should
be careful to consider the tax implications of buying shares of a Fund just
prior to a distribution. The price of shares purchased at this time will include
the amount of the forthcoming distribution, but the distribution will generally
be taxable to the shareholder.
If a Fund retains its net capital gains, although there are no plans to do
so, the Fund may elect to treat such amounts as having been distributed to
shareholders. As a result, the shareholders would be subject to tax on
undistributed capital gain, would be able to claim their proportionate share of
the federal income taxes paid by the Fund on such gain as a credit against their
own federal income tax liabilities, and would be entitled to an increase in the
basis of their Fund shares.
Disposition of Shares
Upon a redemption, sale or exchange of shares of a Fund, a shareholder
will realize a taxable gain or loss depending upon his or her basis in the
shares. A gain or loss will be treated as capital gain or loss if the shares are
capital assets in the shareholder's hands, and the rate of tax will depend upon
the shareholder's holding period for the shares. Any loss realized on a
redemption, sale or exchange will be disallowed to the extent the shares
disposed of are replaced (including through reinvestment of dividends) within a
period of 61 days, beginning 30 days before and ending 30 days after the shares
are disposed of. In such a case the basis of the shares acquired will be
adjusted to reflect the disallowed loss. If a shareholder holds Fund shares for
six months or less and during that period receives a distribution taxable to the
shareholder as long-term capital gain, any loss realized on the sale of such
shares during such six-month period would be a long-term loss to the extent of
such distribution.
Backup Withholding
Each Fund generally will be required to withhold federal income tax at a
rate of 31% ("backup withholding") from dividends paid, capital gain
distributions, and redemption proceeds to shareholders if (1) the shareholder
fails to furnish the Fund with the shareholder's correct taxpayer identification
number or social security number, (2) the IRS notifies the shareholder or the
Fund that the shareholder has failed to report properly certain interest and
dividend income to the IRS and to respond to notices to that effect, or (3) when
required to do so, the shareholder fails to certify that he or she is not
subject to backup withholding. Any amounts withheld may be credited against the
shareholder's federal income tax liability.
Other Taxation
Distributions may be subject to additional state, local and foreign taxes,
depending on each shareholder's particular situation. Non-U.S. shareholders may
be subject to U.S. tax rules that differ significantly from those summarized
above, including the likelihood that ordinary income dividends to them would be
subject to withholding of U.S. tax at a rate of 30% (or a lower treaty rate, if
applicable).
OTHER INFORMATION
Custody of Assets. All securities owned by the Funds and all cash,
including proceeds from the sale of shares of the Funds and of securities in the
Funds' investment portfolio, are held by The Fifth Third Bank, 38 Fountain
Square, Cincinnati, Ohio 45263, as custodian.
Shareholder Reports. Semi-annual statements are furnished to shareholders,
and annually such statements are audited by the independent accountants.
Independent Accountants. Briggs, Bunting & Dougherty, LLP, Two Logan
Square, Suite 2121, Philadelphia, Pennsylvania 19103-4901, the independent
accountants for the Trust, performs annual audits of each Fund's financial
statements.
Legal Counsel. Dechert Price & Rhoads, 1775 I Street, N.W., Washington, DC
20006, is legal counsel to the Trust.
<PAGE>
CAPSTONE INVESTMENT SERIES TRUST
OTHER INFORMATION
(PART C TO REGISTRATION STATEMENT NO. 33-_____)
Item 24. Financial Statements and Exhibits
Exhibits not incorporated by reference to a prior filing are designated
by an asterisk; all exhibits not so designated are incorporated hereby by
reference to a prior filing as indicated.
(a) Financial Statements (included in Part B):
Statement of Assets and Liabilities at _____________, 1998 (to be
filed by amendment).
(b) Exhibits:
*1 Copy of Declaration of Trust dated _____________, 1998.
2 Copy of by-laws (to be filed by amendment).
3 None.
4 None.
*5 Copy of Investment Advisory Agreement between Capstone
Investment Series Trust and Capstone Asset Management
Company.
*6(a) Copy of General Distribution Agreement between Capstone
Investment Series Trust and Capstone Asset Planning
Company.
*6(b) Copy of Selling Group Agreement/Service Agreement.
7 None.
8 Custodian Agreement between Capstone Investment Series
Trust and Fifth Third Bank (to be filed by amendment).
*9(a) Copy of Administration Agreement between Capstone
Investment Series Trust and Capstone Asset Management
Company.
- -------------------------
* Filed herewith
<PAGE>
9(b) Shareholder Services Agreement between Capstone
Investment Series Trust and First Data Investor
Services Group, Inc. (to be filed by amendment).
10 Opinion of Dechert Price & Rhoads (to be filed by
amendment).
*11 Power of Attorney of Mr. Bernard J. Vaughan.
12 None.
13 None.
14 None.
15 Service and Distribution Plan (to be filed by amendment).
16 None.
17 None.
18 Multi Class Plan pursuant to Rule 18f-3 (to be filed by
amendment).
Item 25. Persons Controlled by or under Common Control with Registrant
Registrant does not control and is not under common control with any
person.
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Class as of March 30, 1998
-------------- --------------------
Shares of beneficial None
interest, par value $0.01
- -------------------------
* Filed herewith
<PAGE>
Item 27. Indemnification
The Declaration of Trust of the Registrant includes the following:
Section 4.3 Mandatory Indemnification.
(a) Subject to the exceptions and limitations
contained in paragraph (b) below:
(i) every person who is, or has been, a Trustee or
officer of the Trust shall be indemnified by the
Trust to the fullest extent permitted by law
against all liability and against all expenses
reasonably incurred or paid by him in connection
with any claim, action, suit or proceeding in
which he becomes involved as a party or otherwise
by virtue of his being or having been a Trustee
or officer and against amounts paid or incurred
by him in the settlement thereof;
(ii) the words "claim," "action," "suit,"
or "proceeding" shall apply to all
claims, actions, suits or proceedings
(civil, criminal, administrative or
other, including appeals), actual or
threatened; and the words "liability"
and "expenses" shall include, without
limitation, attorneys' fees, costs,
judgments, amounts paid in settlement,
fines, penalties and other
liabilities.
(b) No indemnification shall be provided
hereunder to a Trustee or officer:
(i) against any liability to the Trust, a
Series thereof, or the Shareholders by
reason of a final adjudication by a
court or other body before which a
proceeding was brought that he engaged
in willful misfeasance, bad faith,
gross negligence or reckless disregard
of the duties involved in the conduct
of his office;
(ii) with respect to any matter as to which
he shall have been finally adjudicated
not to have acted in good faith in the
reasonable belief that his action was
in the best interest of the Trust;
(iii)in the event of a settlement or other
disposition not involving a final
adjudication as provided in paragraph
(b)(i) or (b)(ii) resulting in a
payment by a Trustee or officer,
unless there has been a determination
that such Trustee or officer did not
engage in willful misfeasance, bad
faith, gross negligence or reckless
disregard of the duties involved in
the conduct of his office:
(a) by the court or other body approving the
settlement or other disposition; or
(b) based upon a review of readily available
facts (as opposed to a full trial-type
inquiry) by (x) vote of a majority of the
Disinterested Trustees acting on the
matter (provided that a majority of the
Disinterested Trustees then in office act
on the matter) or (y) written opinion of
independent legal counsel.
(c) The rights of indemnification herein
provided may be insured against by
policies maintained by the Trust,
shall be severable, shall not affect
any other rights to which any Trustee
or officer may now or hereafter be
entitled, shall continue as to a person
who has ceased to be such Trustee or
officer and shall inure to the benefit of
the heirs, executors, administrators and
assigns of such a person. Nothing
contained herein shall affect any rights
to indemnification to which personnel of
the Trust other than Trustees and officers
may be entitled by contract or otherwise
under law.
(d) Expenses of preparation and presentation
of a defense to any claim, action, suit or
proceeding of the character described in
paragraph (a) of this Section 4.3 may be
advanced by the Trust prior to final
disposition thereof upon receipt of an
undertaking by or on behalf of the
recipient to repay such amount if
it is ultimately determined that he is
not entitled to indemnification under
this Section 4.3, provided that 1either:
(i) such undertaking is secured by a
surety bond or some other appropriate
security provided by the recipient, or
the Trust shall be insured against
losses arising out of any such
advances; or
(ii) a majority of the Disinterested
Trustees acting on the matter
(provided that a majority of the
Disinterested Trustees act on the
matter) or an independent legal
counsel in a written opinion shall
determine, based upon a review of
readily available facts (as opposed to
a full trial-type inquiry), that there
is reason to believe that the
recipient ultimately will be found
entitled to indemnification.
As used in this Section 4.3, a
"Disinterested Trustee" is one who is not
(i) an Interested Person of the Trust
(including anyone who has been exempted
from being an Interested Person by any
rule, regulation or order of the
Commission), or (ii) involved in the
claim, action, suit or proceeding.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised by the Securities and Exchange Commission that, in
the opinion of the Commission, such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by 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 or not such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
To the extent that the Declaration of Trust, By-Laws or any other
instrument pursuant to which the Registrant is organized or administered
indemnify any trustee or officer of the Registrant, or that any contract or
agreement indemnifies any person who undertakes to act as investment adviser or
principal underwriter to the Registrant, any such provision protecting or
purporting to protect such persons against any liability to the Registrant or
its security holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence, in the performance of his duties,
or by reason of his reckless disregard of his duties pursuant to the conduct of
his office or obligations pursuant to such contract or agreement, will be
interpreted and enforced in a manner consistent with the provisions of Sections
17(h) and (i) of the Investment Company Act of 1940, as amended, and Release No.
IC-11330 issued thereunder.
Item 28. Business and Other Connections of Investment Adviser
The investment adviser of the Registrant is also the investment adviser
and/or administrator of four other investment companies: Capstone Growth Fund,
Inc., Capstone Government Income Fund, Capstone Japan Fund and Capstone New
Zealand Fund. Such adviser also manages private accounts. For further
information, see "Directors and Officers" in Part B. hereof.
Item 29. Principal Underwriters
(a) The principal underwriter of the Registrant, Capstone Asset
Planning Company, also acts as principal underwriter for Capstone Government
Income Fund, Capstone Growth Fund, Inc., Capstone New Zealand Fund and Capstone
Japan Fund.
(b)
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
Dan E. Watson Chairman of the Board and Executive Vice
Director President &
Treasurer
Edward L. Jaroski President and Director President
Leticia N. Jaroski Vice President --
Iris R. Clay Secretary Secretary
Linda G. Giuffre Vice President and Treasurer --
- -------------
* 5847 San Felipe, Suite 4100, Houston, Texas 77057
Item 30. Location of Accounts and Records
Capstone Asset Management Company, the investment adviser and
administrator to the Registrant, 5847 San Felipe, Suite 4100, Houston, TX 77057,
The Fifth Third Bank, the Registrant's custodian, 38 Fountain Square,
Cincinnati, Ohio 45263, and First Data Investor Services Group, Inc., 3200
Horizon Drive, King of Prussia, Pennsylvania 19406-0903 maintain physical
possession of each account, book or other document required to be maintained by
Section 31(a) of Investment Company Act of 1940 and the rules promulgated
thereunder.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) The Registrant hereby 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
the Registration Statement under the Securities Act of 1933.
(b) The Registrant hereby undertakes to file a post-effective
amendment, using certified financial statements, showing the
initial capital received before accepting subscriptions from any
persons in excess of 25.
(c) 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) Registrant undertakes to call a meeting of shareholders for the
purpose of voting upon the question of removal of a person
serving as Trustee if requested in writing to do so by the
holders of not less than 10% of the outstanding shares of
Registrant.
<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 on its behalf by the undersigned, thereunto duly
authorized, in the city of Houston, and State of Texas on the 30th day of March,
1998.
CAPSTONE INVESTMENT SERIES TRUST
Registrant
By: Edward L. Jaroski
------------------------
Edward L. Jaroski
Pursuant to the requirements of the Securities Act of 1993, this Amendment
to Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated. Signatures Title Date
- ------------------------- Trustee March 30, 1998
*Bernard J. Vaughan
Edward L. Jaroski President March 30, 1998
- ------------------------- (Principal Executive Officer)
Edward L. Jaroski
Dan E. Watson Executive Vice President &
- -------------------------- Treasurer March 30, 1998
Dan E. Watson (Principal Financial &
Accounting Officer
By: Edward L. Jaroski
--------------------------------
*Edward L. Jaroski, Attorney In Fact
<PAGE>
INDEX TO EXHIBITS
Exhibit Description of Exhibits
Number
1 Declaration of Trust dated April 13, 1998
5 Form of Investment Advisory Agreement between Capstone
Investment Series Trust and Capstone Asset Management
Company
6(a) Form of General Distribution Agreement between Capstone
Investment Series Trust and Capstone Asset Planning Company
6(b) Form of Selling Group Agreement/Service Agreement
9(a) Form of Administration Agreement between Capstone Investment
Series Trust and Capstone Asset Management Company
11 Power of Attorney for Mr. Bernard J. Vaughan
CAPSTONE INVESTMENT SERIES TRUST
DECLARATION OF TRUST
DATED APRIL 13, 1998
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I....................................................................1
Section 1.1. Name......................................................1
Section 1.2. Definitions...............................................1
Section 1.3 Principal Office and Place of Business....................1
ARTICLE II...................................................................2
Section 2.1. General Powers............................................2
Section 2.2. Investments...............................................3
Section 2.3. Legal Title...............................................4
Section 2.4. Issuance and Repurchase of Shares.........................5
Section 2.5. Delegation; Committees....................................5
Section 2.6. Collection and Payment....................................5
Section 2.7. Expenses..................................................5
Section 2.8. Manner of Acting; By-laws.................................5
Section 2.9. Miscellaneous Powers......................................6
Section 2.10. Principal Transactions...................................6
Section 2.11. Number of Trustees.......................................6
Section 2.12. Election and Term........................................7
Section 2.13. Resignation and Removal..................................7
Section 2.14. Vacancies................................................7
Section 2.15. Delegation of Power to Other Trustees....................8
Section 2.16. Shareholder Vote, etc....................................8
ARTICLE III..................................................................8
Section 3.1. Distribution Contract.....................................8
Section 3.2. Advisory or Management Contract...........................8
Section 3.3. Affiliations of Trustees or Officers, Etc.................8
Section 3.4. Compliance with 1940 Act..................................9
ARTICLE IV...................................................................9
Section 4.1. No Personal Liability of Shareholders, Trustees, Etc......9
Section 4.2. Non-Liability of Trustees, Etc...........................10
Section 4.3. Mandatory Indemnification................................10
Section 4.4. No Bond Required of Trustees.............................11
Section 4.5. No Duty of Investigation; Notice in Trust
Instruments, Etc.........................................11
Section 4.6. Reliance on Experts, Etc.................................12
ARTICLE V...................................................................12
Section 5.1. Beneficial Interest......................................12
Section 5.2. Rights of Shareholders...................................12
Section 5.3. Trust Only...............................................12
Section 5.4. Issuance of Shares.......................................13
Section 5.5. Register of Shares.......................................13
Section 5.6. Transfer of Shares.......................................13
Section 5.7. Notices, Reports.........................................14
Section 5.8. Treasury Shares..........................................14
Section 5.9. Voting Powers............................................14
Section 5.10. Meetings of Shareholders................................15
Section 5.11. Series Designation......................................15
Section 5.12. Assent to Declaration of Trust..........................16
Section 5.13. Class Designation.......................................16
ARTICLE VI..................................................................17
Section 6.1. Redemption of Shares.....................................17
Section 6.2. Price....................................................17
Section 6.3. Payment..................................................18
Section 6.4. Effect of Suspension of Determination of Net Asset Value.18
Section 6.5. Repurchase by Agreement..................................18
Section 6.6. Redemption of Shareholder's Interest.....................18
Section 6.7. Redemption of Shares in Order to Qualify as Regulated
Investment Company; Disclosure of Holding..................19
Section 6.8. Reductions in Number of Outstanding Shares Pursuant to Net
Asset Value Formula........................................19
Section 6.9. Suspension of Right of Redemption........................19
ARTICLE VII.................................................................20
Section 7.1. Net Asset Value..........................................20
Section 7.2. Distributions to Shareholders............................20
Section 7.3. Determination of Net Income; Constant Net Asset Value;
Reduction of Outstanding Shares............................21
Section 7.4. Allocation Between Principal and Income..................21
Section 7.5. Power to Modify Foregoing Procedures.....................22
ARTICLE VIII................................................................22
Section 8.1. Duration.................................................22
Section 8.2. Termination of Trust.....................................22
Section 8.3. Amendment Procedure......................................23
Section 8.4. Merger, Consolidation and Sale of Assets.................23
Section 8.5. Incorporation............................................23
ARTICLE IX..................................................................24
ARTICLE X...................................................................24
Section 10.1. Filing..................................................24
Section 10.2. Governing Law...........................................24
Section 10.3. Counterparts............................................25
Section 10.4. Reliance by Third Parties...............................25
Section 10.5. Provisions in Conflict with Law or Regulations..........25
<PAGE>
DECLARATION OF TRUST
OF
CAPSTONE INVESTMENT SERIES TRUST
DATED APRIL 13, 1998
DECLARATION OF TRUST made April 13, 1998, by the undersigned Trustee as
follows:
ARTICLE I
NAME AND DEFINITIONS
Section 1.1. Name.
The name of the Trust created hereby is "Capstone Investment Series Trust".
Section 1.2. Definitions.
Wherever they are used herein, the following terms have the following
respective meanings:
(a) "By-laws" means the By-laws referred to in Section 2.8 hereof, as
from time to time amended.
(b) "Class" means the two or more Classes as may be established and
designated from time to time by the Trustees pursuant to Section 5.13 hereof.
(c) The term "Commission" has the meaning given it in the 1940 Act. The
term "Interested Person" has the meaning given it in the 1940 Act, as modified
by any applicable order or orders of the Commission. Except as otherwise defined
by the Trustees in conjunction with the establishment of any series of Shares,
the term "vote of a majority of the Shares outstanding and entitled to vote"
shall have the same meaning as the term "vote of a majority of the outstanding
voting securities" given it in the 1940 Act.
(d) "Custodian" means any Person other than the Trust who has custody of
any Trust Property as required by Section 17(f) of the 1940 Act, but does not
include a system for the central handling of securities described in said
Section 17(f).
(e) "Declaration" means this Declaration of Trust as amended from time to
time. Reference in this Declaration of Trust to "Declaration," "hereof,"
"herein," and "hereunder" shall be deemed to refer to this Declaration rather
than exclusively to the article or section in which such words appear.
(f) "Distributor" means the party, other than the Trust, to the contract
described in Section 3.1 hereof.
(g) "His" shall include the feminine and neuter, as well as the masculine
genders.
(h) "Investment Adviser" means the party, other than the Trust, to the
contract described in Section 3.2 hereof.
(i) "Municipal Bonds" means obligations issued by or on behalf of states,
territories of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities, or other issuers, the
interest from which is exempt from regular Federal income tax.
(j) The "1940 Act" means the Investment Company Act of 1940, as amended
from time to time.
(k) "Person" means and includes individuals, corporations, partnerships,
trusts, associations, joint ventures and other entities, whether or not legal
entities, and governments and agencies and political subdivisions thereof.
(l) "Series" individually or collectively means the two or more Series as
may be established and designated from time to time by the Trustees pursuant to
Section 5.11 hereof. Unless the context otherwise requires, the term "Series"
shall include Classes into which shares of the Trust, or of a Series, may be
divided from time to time.
(m) "Shareholder" means a record owner of Outstanding Shares.
(n) "Shares" means the equal proportionate units of interest into which
the beneficial interest in the Trust shall be divided from time to time,
including the Shares of any and all Series and Classes which may be established
by the Trustees and includes fractions of Shares as well as whole Shares.
"Outstanding Shares" means those Shares shown as of a time and from time to time
on the books of the Trust or its Transfer Agent as then issued and outstanding,
but shall not include Shares which have been redeemed or repurchased by the
Trust and which are at the time held in the Treasury of the Trust.
(o) "Transfer Agent" means any one or more Persons other than the Trust
who maintains the Shareholder records of the Trust, such as the list of
Shareholders, the number of Shares credited to each account, and the like.
(p) The "Trust" means Capstone Investment Series Trust.
(q) The "Trust Property" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of the
Trust or the Trustees.
(r) The "Trustees" means the person or persons who has or have signed
this Declaration, so long as he or they shall continue in office in accordance
with the terms hereof, and all other persons who may from time to time be duly
qualified and serving as Trustees in accordance with the provisions of Article
II hereof, and reference herein to a Trustee or the Trustees shall refer to such
person or persons in this capacity or their capacities as trustees hereunder.
Section 1.3 Principal Office and Place of Business.
The principal office and place of business of the Trust is Capstone
Indexed Series Trust, 5847 San Felipe, Suite 4100, Houston, TX 77507.
ARTICLE II
TRUSTEES
Section 2.1. General Powers.
The Trustees shall have exclusive and absolute control over the Trust
Property and over the business of the Trust to the same extent as if the
Trustees were the sole owners of the Trust Property and business in their own
right, but with such powers of delegation as may be permitted by this
Declaration. The Trustees shall have power to conduct the business of the Trust
and carry on its operations in any and all of its branches and maintain offices
both within and without the Commonwealth of Massachusetts, in any and all states
of the United States of America, in the District of Columbia, and in any and all
commonwealths, territories, dependencies, colonies, possessions, agencies or
instrumentalities of the United States of America and of foreign governments,
and to do all such other things and execute all such instruments as they deem
necessary, proper or desirable in order to promote the interests of the Trust
although such things are not herein specifically mentioned. Any determination as
to what is in the interests of the Trust made by the Trustees in good faith
shall be conclusive. In construing the provisions of this Declaration, the
presumption shall be in favor of a grant of power to the Trustees.
The enumeration of any specific power herein shall not be construed as
limiting the aforesaid power. Such powers of the Trustees may be exercised
without order of or resort to any court.
Section 2.2. Investments.
The Trustees shall have the power:
(a) To operate as and carry on the business of an investment company, and
exercise all the powers necessary and appropriate to the conduct of such
operations.
(b) To invest in, hold for investment, or reinvest in, securities,
including shares of open-end investment companies; common and preferred stocks;
warrants; bonds, debentures, bills, time notes and all other evidences of
indebtedness; negotiable or non-negotiable instruments; government securities,
including securities of any state, municipality or other political subdivision
thereof, or any governmental or quasi-governmental agency or instrumentality;
and money market instruments including bank certificates of deposit, finance
paper, commercial paper, bankers acceptances and all kinds of repurchase
agreements, of any corporation, company, trust, association, firm or other
business organization however established, and of any country, state,
municipality or other political subdivision, or any governmental or
quasi-governmental agency or instrumentality.
(c) To acquire (by purchase, subscription or otherwise), to hold, to
trade in and deal in, to acquire any rights or options to purchase or sell, to
sell or otherwise dispose of, to lend, and to pledge any such securities and to
enter into repurchase agreements and forward foreign currency exchange
contracts, to purchase and sell futures contracts on securities, securities
indices and foreign currencies, to purchase or sell options on such contracts,
foreign currency contracts, and foreign currencies and to engage in all types of
hedging and risk management transactions.
(d) To exercise all rights, powers and privileges of ownership or
interest in all securities, repurchase agreements, futures contracts and options
and other assets included in the Trust Property, including the right to vote
thereon and otherwise act with respect thereto and to do all acts for the
preservation, protection, improvement and enhancement in value of all such
assets.
(e) To acquire (by purchase, lease or otherwise) and to hold, use,
maintain, develop and dispose of (by sale or otherwise) any property, real or
personal, including cash, and any interest therein.
(f) To borrow money and in this connection issue notes or other evidence
of indebtedness; to secure borrowings by mortgaging, pledging or otherwise
subjecting as security the Trust Property; to endorse, guarantee, or undertake
the performance of any obligation or engagement of any other Person and to lend
Trust Property.
(g) To aid by further investment any corporation, company, trust,
association or firm, any obligation of or interest in which is included in the
Trust Property or in the affairs of which the Trustees have any direct or
indirect interest; to do all acts and things designed to protect, preserve,
improve or enhance the value of such obligation or interest, and to guarantee or
become surety on any or all of the contracts, stocks, bonds, notes, debentures
and other obligations of any such corporation, company, trust, association or
firm.
(h) To enter into a plan of distribution and any related agreements
whereby the Trust may finance directly or indirectly any activity which is
primarily intended to result in the sale of Shares.
(i) To invest, through a transfer of cash, securities and other assets or
otherwise, all or a portion of the Trust Property, or to sell all or a portion
of the Trust Property and invest the proceeds of such sales, in another
investment company that is registered under the 1940 Act.
(j) In general to carry on any other business in connection with or
incidental to any of the foregoing powers, to do everything necessary, suitable
or proper for the accomplishment of any purpose or the attainment of any object
or the furtherance of any power hereinbefore set forth, either alone or in
association with others, and to do every other act or thing incidental or
appurtenant to or growing out of or connected with the aforesaid business or
purposes, objects or powers.
The foregoing clauses shall be construed both as objects and powers, and
the foregoing enumeration of specific powers shall not be held to limit or
restrict in any manner the general powers of the Trustees.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.
Section 2.3. Legal Title.
Legal title to all the Trust Property, including the property of any
Series of the Trust, shall be vested in the Trustees as joint tenants except
that the Trustees shall have power to cause legal title to any Trust Property to
be held by or in the name of one or more of the Trustees, or in the name of the
Trust, or in the name of any other Person as nominee, on such terms as the
Trustees may determine, provided that the interest of the Trust therein is
deemed appropriately protected. The right, title and interest of the Trustees in
the Trust Property and the property of each Series of the Trust shall vest
automatically in each Person who may hereafter become a Trustee. Upon the
termination of the term of office, resignation, removal or death of a Trustee he
shall automatically cease to have any right, title or interest in any of the
Trust Property or the property of any Series of the Trust, and the right, title
and interest of such Trustee in the Trust Property shall vest automatically in
the remaining Trustees. Such vesting and cessation of title shall be effective
whether or not conveyancing documents have been executed and delivered.
Section 2.4. Issuance and Repurchase of Shares.
The Trustees shall have the power to issue, sell, repurchase, redeem,
retire, cancel, acquire, hold, resell, reissue, dispose of, transfer, and
otherwise deal in Shares and, subject to the provisions set forth in Articles VI
and VII and Section 5.11 hereof, to apply to any such repurchase, redemption,
retirement, cancellation or acquisition of Shares any funds or property of the
particular Series of the Trust with respect to which such Shares are issued,
whether capital or surplus or otherwise, to the full extent now or hereafter
permitted by the laws of the Commonwealth of Massachusetts governing business
corporations.
Section 2.5. Delegation; Committees.
The Trustees shall have power to delegate from time to time to such of
their number or to officers, employees or agents of the Trust the doing of such
things and the execution of such instruments either in the name of the Trust or
the names of the Trustees or otherwise as the Trustees may deem expedient, to
the same extent as such delegation is permitted by the 1940 Act.
Section 2.6. Collection and Payment.
The Trustees shall have power to collect all property due to the Trust; to
pay all claims, including taxes, against the Trust Property; to prosecute,
defend, compromise or abandon any claims relating to the Trust Property; to
foreclose any security interest securing any obligations, by virtue of which any
property is owed to the Trust; and to enter into releases, agreements and other
instruments.
Section 2.7. Expenses.
The Trustees shall have the power to incur and pay any expenses which in
the opinion of the Trustees are necessary or incidental to carry out any of the
purposes of this Declaration, and to pay reasonable compensation from the funds
of the Trust to themselves as Trustees. The Trustees shall fix the compensation
of all officers, employees and Trustees.
Section 2.8. Manner of Acting; By-laws.
Except as otherwise provided herein or in the By-laws, any action to be
taken by the Trustees may be taken by a majority of the Trustees present at a
meeting of Trustees (a quorum being present), including any meeting held by
means of a conference telephone circuit or similar communications equipment by
means of which all persons participating in the meeting can hear each other, or
by written consents of the entire number of Trustees then in office. The
Trustees may adopt By-laws not inconsistent with this Declaration to provide for
the conduct of the business of the Trust and may amend or repeal such By-laws to
the extent such power is not reserved to the Shareholders.
Notwithstanding the foregoing provisions of this Section 2.8 and in
addition to such provisions or any other provision of this Declaration or of the
By-laws, the Trustees may by resolution appoint a committee consisting of less
than the whole number of Trustees then in office, which committee may be
empowered to act for and bind the Trustees and the Trust, as if the acts of such
committee were the acts of all the Trustees then in office, with respect to the
institution, prosecution, dismissal, settlement, review or investigation of any
action, suit or proceeding which shall be pending or threatened to be brought
before any court, administrative agency or other adjudicatory body.
Section 2.9. Miscellaneous Powers.
Subject to Section 5.11 hereof, the Trustees shall have the power to: (a)
employ or contract with such Persons as the Trustees may deem desirable for the
transaction of the business of the Trust; (b) enter into joint ventures,
partnerships and any other combinations or associations; (c) remove Trustees or
fill vacancies in or add to their number, elect and remove such officers and
appoint and terminate such agents or employees as they consider appropriate, and
appoint from their own number, and terminate, any one or more committees which
may exercise some or all of the power and authority of the Trustees as the
Trustees may determine; (d) purchase, and pay for out of Trust Property,
insurance policies insuring the Shareholders, Trustees, officers, employees,
agents, investment advisers, distributors, selected dealers or independent
contractors of the Trust against all claims arising by reason of holding any
such position or by reason of any action taken or omitted by any such Person in
such capacity, whether or not constituting negligence, or whether or not the
Trust would have the power to indemnify such Person against such liability; (e)
establish pension, profit-sharing, share purchase, and other retirement,
incentive and benefit plans for any Trustees, officers, employees and agents of
the Trust; (f) to the extent permitted by law, indemnify any person with whom
the Trust has dealings, including the Investment Adviser, Distributor, Transfer
Agent and selected dealers, to such extent as the Trustees shall determine; (g)
guarantee indebtedness or contractual obligations of others; (h) determine and
change the fiscal year of the Trust and the method by which its accounts shall
be kept; and (i) adopt a seal for the Trust, but the absence of such seal shall
not impair the validity of any instrument executed on behalf of the Trust.
Section 2.10. Principal Transactions.
Except in transactions not permitted by the 1940 Act or rules and
regulations adopted by the Commission, the Trustees may, on behalf of the Trust,
buy any securities from or sell any securities to, or lend any assets of the
Trust to, any Trustee or officer of the Trust or any firm of which any such
Trustee or officer is a member acting as principal, or have any such dealings
with the Investment Adviser, Distributor or Transfer Agent or with any
Interested Person of such Person; and the Trust may employ any such Person, or
firm or company in which such Person is an Interested Person, as broker, dealer,
legal counsel, registrar, Transfer Agent, dividend disbursing agent or Custodian
upon customary terms.
Section 2.11. Number of Trustees.
The number of Trustees shall initially be one (1), and thereafter shall be
such number as shall be fixed from time to time by a written instrument signed
by a majority of the Trustees, provided, however, that the number of Trustees
shall in no event be more than fifteen (15).
Section 2.12. Election and Term.
Except for the Trustees named herein or appointed to fill vacancies
pursuant to Section 2.14 hereof, the Trustees shall be elected by the
Shareholders owning of record a plurality of the Shares voting at a meeting of
Shareholders. Such a meeting shall be held on a date fixed by the Trustees.
Except in the event of resignation or removals pursuant to Section 2.13 hereof,
each Trustee shall hold office until such time as less than a majority of the
Trustees holding office have been elected by Shareholders, and thereafter until
the holding of a Shareholders' meeting as required by the next following
sentence. In such event the Trustees then in office will call a Shareholders'
meeting for the election of Trustees. Except for the foregoing circumstances,
the Trustees shall continue to hold office and may appoint successor Trustees.
Section 2.13. Resignation and Removal.
Any Trustee may resign his trust (without the need for any prior or
subsequent accounting) by an instrument in writing signed by him and delivered
to the other Trustees and such resignation shall be effective upon such
delivery, or at a later date according to the terms of the instrument. Any of
the Trustees may be removed (provided the aggregate number of Trustees after
such removal shall not be less than one) with cause, by the action of two-thirds
of the remaining Trustees. Any Trustee may be removed at any meeting of
Shareholders by vote of two-thirds of the Outstanding Shares. The Trustees shall
promptly call a meeting of the Shareholders for the purpose of voting upon the
question of removal of any such Trustee or Trustees when requested in writing so
to do by the holders of not less than ten percent of the Outstanding Shares and,
in that connection, the Trustees will assist shareholder communications to the
extent provided for in Section 16(c) under the 1940 Act. Upon the resignation or
removal of a Trustee, or his otherwise ceasing to be a Trustee, he shall execute
and deliver such documents as the remaining Trustees shall require for the
purpose of conveying to the Trust or the remaining Trustees any Trust Property
or property of any Series of the Trust held in the name of the resigning or
removed Trustee. Upon the incapacity or death of any Trustee, his legal
representative shall execute and deliver on his behalf such documents as the
remaining Trustees shall require as provided in the preceding sentence.
Section 2.14. Vacancies.
The term of office of a Trustee shall terminate and a vacancy shall occur
in the event of the death, resignation, removal, bankruptcy, adjudicated
incompetence or other incapacity to perform the duties of the office of a
Trustee. No such vacancy shall operate to annul the Declaration or to revoke any
existing agency created pursuant to the terms of the Declaration. In the case of
an existing vacancy, including a vacancy existing by reason of an increase in
the number of Trustees, subject to the provisions of Section 16(a) of the 1940
Act, the remaining Trustees shall fill such vacancy by the appointment of such
other person as they in their discretion shall see fit, made by a written
instrument signed by a majority of the Trustees then in office. Any such
appointment shall not become effective, however, until the person named in the
written instrument of appointment shall have accepted in writing such
appointment and agreed in writing to be bound by the terms of the Declaration.
An appointment of a Trustee may be made in anticipation of a vacancy to occur at
a later date by reason of retirement, resignation or increase in the number of
Trustees, provided that such appointment shall not become effective prior to
such retirement, resignation or increase in the number of Trustees. Whenever a
vacancy in the number of Trustees shall occur, until such vacancy is filled as
provided in this Section 2.14, the Trustees in office, regardless of their
number, shall have all the powers granted to the Trustees and shall discharge
all the duties imposed upon the Trustees by the Declaration. A written
instrument certifying the existence of such vacancy signed by a majority of the
Trustees in office shall be conclusive evidence of the existence of such
vacancy.
Section 2.15. Delegation of Power to Other Trustees.
Any Trustee may, by power of attorney, delegate his power for a period not
exceeding six (6) months at any one time to any other Trustee or Trustees;
provided that in no case shall less than two (2) Trustees personally exercise
the powers granted to the Trustees under this Declaration except as herein
otherwise expressly provided.
Section 2.16. Shareholder Vote, etc.
Not Required. Except to the extent specifically provided to the contrary
in this Declaration, the Trustees may exercise each of the powers granted to
them in this Declaration without the vote, approval or agreement of the
Shareholders, unless such a vote, approval or agreement is required by the 1940
Act or applicable laws of the Commonwealth of Massachusetts.
ARTICLE III
CONTRACTS
Section 3.1. Distribution Contract.
The Trustees may in their discretion from time to time enter into an
exclusive or non-exclusive underwriting contract or contracts providing for the
sale of the Shares at a price based on the net asset value of a Share, whereby
the Trustees may either agree to sell the Shares to the other party to the
contract or appoint such other party their sales agent for the Shares, and in
either case on such terms and conditions, if any, as may be prescribed in the
By-laws, and such further terms and conditions as the Trustees may in their
discretion determine not inconsistent with the provisions of this Article III or
of the By-laws; and such contract may also provide for the repurchase of the
Shares by such other party as agent of the Trustees.
Section 3.2. Advisory or Management Contract.
The Trustees may in their discretion from time to time enter into an
investment advisory or management contract or separate advisory contracts with
respect to one or more Series whereby the other party to such contract shall
undertake to furnish to the Trust such management, investment advisory,
statistical and research facilities and services and such other facilities and
services, if any, and all upon such terms and conditions as the Trustees may in
their discretion determine, including the grant of authority to such other party
to determine what securities shall be purchased or sold by the Trust and what
portion of its assets shall be uninvested, which authority shall include the
power to make changes in the investments of the Trust or any Series.
The Trustees may also employ, or authorize the Investment Adviser to
employ, one or more sub-advisers from time to time to perform such of the acts
and services of the Investment Adviser and upon such terms and conditions as may
be agreed upon between the Investment Adviser and such sub-advisers and approved
by the Trustees. Any reference in this Declaration to the Investment Adviser
shall be deemed to include such sub-advisers unless the context otherwise
requires.
Section 3.3. Affiliations of Trustees or Officers, Etc.
The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee, manager,
adviser or distributor of or for any partnership, corporation, trust,
association or other organization or of or for any parent or affiliate of
any organization, with which a contract of the character described in
Sections 3.1 or 3.2 above or for services as Custodian, Transfer Agent,
accounting agent or disbursing agent or for related services may have been
or may hereafter be made, or that any such organization, or any parent or
affiliate thereof, is a Shareholder of or has an interest in the Trust, or
that
(ii) any partnership, corporation, trust, association or other
organization with which a contract of the character described in Sections
3.1 or 3.2 above or for services as Custodian, Transfer Agent, accounting
agent or disbursing agent or for related services may have been or may
hereafter be made also has any one or more of such contracts with one or
more other partnerships, corporations, trusts, associations or other
organizations, or has other business or interests, shall not affect the
validity of any such contract or disqualify any Shareholder, Trustee or
officer of the Trust from voting upon or executing the same or create any
liability or accountability to the Trust or its Shareholders.
Section 3.4. Compliance with 1940 Act.
Any contract entered into pursuant to Sections 3.1 or 3.2 shall be
consistent with and subject to the requirements of Section 15 of the 1940 Act
(including any amendment thereof or other applicable act of Congress hereafter
enacted), as modified by any applicable order or orders of the Commission, with
respect to its continuance in effect, its termination and the method of
authorization and approval of such contract or renewal thereof.
ARTICLE IV
LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
TRUSTEES AND OTHERS
Section 4.1. No Personal Liability of Shareholders, Trustees, Etc.
No Shareholder shall be subject to any personal liability whatsoever to
any Person in connection with Trust Property or the acts, obligations or affairs
of the Trust. No Trustee, officer, employee or agent of the Trust shall be
subject to any personal liability whatsoever to any Person, other than to the
Trust or its Shareholders, in connection with Trust Property or the affairs of
the Trust, save only that arising from bad faith, willful misfeasance, gross
negligence or reckless disregard of his duties with respect to such Person; and
all such Persons shall look solely to the Trust Property for satisfaction of
claims of any nature arising in connection with the affairs of the Trust. If any
Shareholder, Trustee, officer, employee, or agent, as such, of the Trust, is
made a party to any suit or proceeding to enforce any such liability of the
Trust, he shall not, on account thereof, be held to any personal liability. The
Trust shall indemnify and hold each Shareholder harmless from and against all
claims and liabilities, to which such Shareholder may become subject by reason
of his being or having been a Shareholder, and shall reimburse such Shareholder
for all legal and other expenses reasonably incurred by him in connection with
any such claim or liability. The indemnification and reimbursement required by
the preceding sentence shall be made only out of the assets of the one or more
Series of which the Shareholder who is entitled to indemnification or
reimbursement was a Shareholder at the time the act or event occurred which gave
rise to the claim against or liability of said Shareholder. The rights accruing
to a Shareholder under this Section 4.1 shall not impair any other right to
which such Shareholder may be lawfully entitled, nor shall anything herein
contained restrict the right of the Trust to indemnify or reimburse a
Shareholder in any appropriate situation even though not specifically provided
herein.
Section 4.2. Non-Liability of Trustees, Etc.
No Trustee, officer, employee or agent of the Trust shall be liable to the
Trust, its Shareholders, or to any Shareholder, Trustee, officer, employee, or
agent thereof for any action or failure to act (including without limitation the
failure to compel in any way any former or acting Trustee to redress any breach
of trust) except for his own bad faith, willful misfeasance, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
Section 4.3. Mandatory Indemnification.
(a) Subject to the exceptions and limitations contained in paragraph (b)
below:
(i) every person who is, or has been, a Trustee or officer of the
Trust shall be indemnified by the Trust to the fullest extent permitted by
law against all liability and against all expenses reasonably incurred or
paid by him in connection with any claim, action, suit or proceeding in
which he becomes involved as a party or otherwise by virtue of his being
or having been a Trustee or officer and against amounts paid or incurred
by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall
apply to all claims, actions, suits or proceedings (civil, criminal,
administrative or other, including appeals), actual or threatened; and the
words "liability" and "expenses" shall include, without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement, fines,
penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or
officer:
(i) against any liability to the Trust, a Series thereof, or the
Shareholders by reason of a final adjudication by a court or other body
before which a proceeding was brought that he engaged in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office;
(ii) with respect to any matter as to which he shall have been
finally adjudicated not to have acted in good faith in the reasonable
belief that his action was in the best interest of the Trust;
(iii) in the event of a settlement or other disposition not
involving a final adjudication as provided in paragraph (b)(i) or (b)(ii)
resulting in a payment by a Trustee or officer, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office:
(A) by the court or other body approving the settlement or
other disposition; or
(B) based upon a review of readily available facts (as
opposed to a full trial-type inquiry) by (x) vote of a majority of
the Disinterested Trustees acting on the matter (provided that a
majority of the Disinterested Trustees then in office act on the
matter) or (y) written opinion of independent legal counsel.
(c) The rights of indemnification herein provided may be insured against
by policies maintained by the Trust, shall be severable, shall not affect any
other rights to which any Trustee or officer may now or hereafter be entitled,
shall continue as to a person who has ceased to be such Trustee or officer and
shall inure to the benefit of the heirs, executors, administrators and assigns
of such a person. Nothing contained herein shall affect any rights to
indemnification to which personnel of the Trust other than Trustees and officers
may be entitled by contract or otherwise under law.
(d) Expenses of preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described in paragraph (a) of this
Section 4.3 may be advanced by the Trust prior to final disposition thereof upon
receipt of an undertaking by or on behalf of the recipient to repay such amount
if it is ultimately determined that he is not entitled to indemnification under
this Section 4.3, provided that either:
(i) such undertaking is secured by a surety bond or some other
appropriate security provided by the recipient, or the Trust shall be
insured against losses arising out of any such advances; or
(ii) a majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees act on the matter)
or an independent legal counsel in a written opinion shall determine,
based upon a review of readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the recipient
ultimately will be found entitled to indemnification.
As used in this Section 4.3, a "Disinterested Trustee" is one who is
not (i) an Interested Person of the Trust (including anyone who has been
exempted from being an Interested Person by any rule, regulation or order
of the Commission), or (ii) involved in the claim, action, suit or
proceeding.
Section 4.4. No Bond Required of Trustees.
No Trustee shall be obligated to give any bond or other security for the
performance of any of his duties hereunder.
Section 4.5. No Duty of Investigation; Notice in Trust
Instruments, Etc.
No purchaser, lender, Transfer Agent or other Person dealing with the
Trustees or any officer, employee or agent of the Trust shall be bound to make
any inquiry concerning the validity of any transaction purporting to be made by
the Trustees or by said officer, employee or agent or be liable for the
application of money or property paid, loaned or delivered to or on the order of
the Trustees or of said officer, employee or agent. Every obligation, contract,
instrument, certificate, Share, other security of the Trust or undertaking, and
every other act or thing whatsoever executed in connection with the Trust shall
be conclusively presumed to have been executed or done by the executors thereof
only in their capacity as Trustees under this Declaration or in their capacity
as officers, employees or agents of the Trust. Every written obligation,
contract, instrument, certificate, Share, other security of the Trust or
undertaking made or issued by the Trustees may recite that the same is executed
or made by them not individually, but as Trustees under the Declaration, and
that the obligations of the Trust under any such instrument are not binding upon
any of the Trustees or Shareholders individually, but bind only the trust
estate, and may contain any further recital which they or he may deem
appropriate, but the omission of such recital shall not operate to bind the
Trustees individually. The Trustees shall at all times maintain insurance for
the protection of the Trust Property, its Shareholders, Trustees, officers,
employees and agents in such amount as the Trustees shall deem adequate to cover
possible tort liability, and such other insurance as the Trustees in their sole
judgment shall deem advisable.
Section 4.6. Reliance on Experts, Etc.
Each Trustee and officer or employee of the Trust shall, in the
performance of his duties, be fully and completely justified and protected with
regard to any act or any failure to act resulting from reliance in good faith
upon the books of account or other records of the Trust, upon an opinion of
counsel, or upon reports made to the Trust by any of its officers or employees
or by the Investment Adviser, the Distributor, Transfer Agent, selected dealers,
accountants, appraisers or other experts or consultants selected with reasonable
care by the Trustees, officers or employees of the Trust, regardless of whether
such counsel or expert may also be a Trustee.
ARTICLE V
SHARES OF BENEFICIAL INTEREST
Section 5.1. Beneficial Interest.
The interest of the beneficiaries hereunder shall be divided into
transferable Shares of beneficial interest, all of one class, except as provided
in Section 5.11 and Section 5.13 hereof, par value $.01 per share. The number of
Shares of beneficial interest authorized hereunder is unlimited. All Shares
issued hereunder including, without limitation, Shares issued in connection with
a dividend in Shares or a split of Shares, shall be fully paid and
non-assessable.
Section 5.2. Rights of Shareholders.
The ownership of the Trust Property and the property of each Series of the
Trust of every description and the right to conduct any business hereinbefore
described are vested exclusively in the Trustees, and the Shareholders shall
have no interest therein other than the beneficial interest conferred by their
Shares, and they shall have no right to call for any partition or division of
any property, profits, rights or interests of the Trust nor can they be called
upon to share or assume any losses of the Trust or suffer an assessment of any
kind by virtue of their ownership of Shares. The Shares shall be personal
property giving only the rights specifically set forth in this Declaration. The
Shares shall not entitle the holder to preference, preemptive, appraisal,
conversion or exchange rights, except as the Trustees may determine with respect
to any Series of Shares.
Section 5.3. Trust Only.
It is the intention of the Trustees to create only the relationship of
Trustee and beneficiary between the Trustees and each Shareholder from time to
time. It is not the intention of the Trustees to create a general partnership,
limited partnership, joint stock association, corporation, bailment or any form
of legal relationship other than a trust. Nothing in this Declaration shall be
construed to make the Shareholders, either by themselves or with the Trustees,
partners or members of a joint stock association.
Section 5.4. Issuance of Shares.
The Trustees in their discretion may, from time to time without vote of
the Shareholders, issue Shares, in addition to the then issued and outstanding
Shares and Shares held in the treasury, to such party or parties and for such
amount and type of consideration, including cash or property, at such time or
times and on such terms as the Trustees may deem best, and may in such manner
acquire other assets (including the acquisition of assets subject to, and in
connection with the assumption of liabilities) and businesses. In connection
with any issuance of Shares, the Trustees may issue fractional Shares and Shares
held in the treasury. The Trustees may from time to time divide or combine the
Shares into a greater or lesser number without thereby changing the
proportionate beneficial interests in the Trust. Contributions to the Trust may
be accepted for, and Shares shall be redeemed as, whole Shares and/or 1/1,000ths
of a Share or integral multiples thereof.
Section 5.5. Register of Shares.
A register shall be kept at the principal office of the Trust or an office
of the Transfer Agent which shall contain the names and addresses of the
Shareholders and the number of Shares held by them respectively and a record of
all transfers thereof. Such register shall be conclusive as to who are the
holders of the Shares and who shall be entitled to receive dividends or
distributions or otherwise to exercise or enjoy the rights of Shareholders. No
Shareholder shall be entitled to receive payment of any dividend or
distribution, nor to have notice given to him as herein or in the By-laws
provided, until he has given his address to the Transfer Agent or such other
officer or agent of the Trustees as shall keep the said register for entry
thereon. It is not contemplated that certificates will be issued for the Shares;
however, the Trustees, in their discretion, may authorize the issuance of share
certificates and promulgate appropriate rules and regulations as to their use.
Section 5.6. Transfer of Shares.
Except as otherwise provided by the Trustees, Shares shall be transferable
on the records of the Trust only by the record holder thereof or by his agent
thereunto duly authorized, upon delivery to the Trustees or the Transfer Agent
of a duly executed instrument of transfer, together with such evidence of the
genuineness of each such execution and authorization and of other matters as may
reasonably be required. Upon such delivery the transfer shall be recorded on the
register of the Trust. Until such record is made, the Shareholder of record
shall be deemed to be the holder of such Shares for all purposes hereunder and
neither the Trustees nor any Transfer Agent or registrar nor any officer,
employee or agent of the Trust shall be affected by any notice of the proposed
transfer.
Any person becoming entitled to any Shares in consequence of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation of
law, shall be recorded on the register of Shares as the holder of such Shares
upon production of the proper evidence thereof to the Trustees or the Transfer
Agent, but until such record is made, the Shareholder of record shall be deemed
to be the holder of such Shares for all purposes hereunder and neither the
Trustees nor any Transfer Agent or registrar nor any officer or agent of the
Trust shall be affected by any notice of such death, bankruptcy or incompetence,
or other operation of law.
Section 5.7. Notices, Reports.
Any and all notices to which any Shareholder may be entitled and any and
all communications shall be deemed duly served or given if mailed, postage
prepaid, addressed to any Shareholder of record at his last known address as
recorded on the register of the Trust. A notice of a meeting, an annual report
and any other communication to Shareholders need not be sent to a Shareholder
(i) if an annual report and a proxy statement for two consecutive shareholder
meetings have been mailed to such Shareholder's address and have been returned
as undeliverable, (ii) if all, and at least two, checks (if sent by first class
mail) in payment of dividends on Shares during a twelve-month period have been
mailed to such Shareholder's address and have been returned as undeliverable or
(iii) in any other case in which a proxy statement concerning a meeting of
security holders is not required to be given pursuant to the Commission's proxy
rules as from time to time in effect under the Securities Exchange Act of 1934.
However, delivery of such proxy statements, annual reports and other
communications shall resume if and when such Shareholder delivers or causes to
be delivered to the Trust written notice setting forth such Shareholder's then
current address.
Section 5.8. Treasury Shares.
Shares held in the treasury shall, until reissued pursuant to Section 5.4,
not confer any voting rights on the Trustees, nor shall such Shares be entitled
to any dividends or other distributions declared with respect to the Shares.
Section 5.9. Voting Powers.
The Shareholders shall have power to vote only (i) for the election of
Trustees as provided in Section 2.12; (ii) for the removal of Trustees as
provided in Section 2.13; (iii) with respect to termination of the Trust as
provided in Section 8.2; (iv) with respect to any amendment of this Declaration
to the extent and as provided in Section 8.3; (v) to the same extent as the
stockholders of Massachusetts business corporation as to whether or not a court
action, proceeding or claim should or should not be brought or maintained
derivatively or as a class action on behalf of the Trust or any Series or Class
thereof or the Shareholders (provided, however, that a Shareholder of a
particular Series or Class shall not be entitled to bring a derivative or class
action on behalf of any other Series or Class (or Shareholder of any other
Series or Class) of the Trust); and (vi) with respect to such additional matters
relating to the Trust as may be required by this Declaration, the By-laws or any
registration of the Trust as an investment company under the 1940 Act with the
Commission (or any successor agency) or as the Trustees may consider necessary
or desirable. Each whole Share shall be entitled to one vote as to any matter on
which it is entitled to vote and each fractional Share shall be entitled to a
proportionate fractional vote, except that the Trustees may, in conjunction with
the establishment of any Series or Class of Shares, establish or reserve the
right to establish conditions under which the several Series or Classes shall
have separate voting rights or, if a Series or Class would not, in the sole
judgment of the Trustees, be materially affected by a proposal, no voting
rights. There shall be no cumulative voting in the election of Trustees. Until
Shares are issued, the Trustees may exercise all rights of Shareholders and may
take any action required by law, this Declaration or the By-laws to be taken by
Shareholders. The By-laws may include further provisions for Shareholders' votes
and meetings and related matters.
Section 5.10. Meetings of Shareholders.
Meetings of Shareholders may be called at any time by the President, and
shall be called by the President and Secretary at the request in writing or by
resolution, of a majority of Trustees, or at the written request of the holder
or holders of ten percent (10%) or more of the total number of Shares then
issued and outstanding of the Trust entitled to vote at such meeting. Any such
request shall state the purpose of the proposed meeting.
Section 5.11. Series Designation.
The Trustees, in their discretion, may authorize the division of Shares
into two or more Series, and the different Series shall be established and
designated, and the variations in the relative rights and preferences as between
the different Series shall be fixed and determined, by the Trustees; provided,
that all Shares shall be identical except that there may be variations so fixed
and determined between different Series as to investment objective, purchase
price, allocation of expenses, right of redemption, special and relative rights
as to dividends and on liquidation, conversion rights, and conditions under
which the several Series shall have separate voting rights. All references to
Shares in this Declaration shall be deemed to be Shares of any or all Series as
the context may require.
(a) All provisions herein relating to the Trust shall apply equally to
each Series of the Trust except as the context requires otherwise.
(b) The number of authorized Shares and the number of Shares of each
Series that may be issued shall be unlimited. The Trustees may classify or
reclassify any unissued Shares or any Shares previously issued and reacquired of
any Series into one or more Series that may be established and designated from
time to time. The Trustees may hold as treasury Shares (of the same or some
other Series), reissue for such consideration and on such terms as they may
determine, or cancel any Shares of any Series reacquired by the Trust at their
discretion from time to time.
(c) All consideration received by the Trust for the issue or sale of
Shares of a particular Series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that Series for all purposes, subject only to the rights
of creditors of such Series and except as may otherwise be required by
applicable laws, and shall be so recorded upon the books of account of the
Trust. In the event that there are any assets, income, earnings, profits, and
proceeds thereof, funds, or payments which are not readily identifiable as
belonging to any particular Series, the Trustees shall allocate them among any
one or more of the Series established and designated from time to time in such
manner and on such basis as they, in their sole discretion, deem fair and
equitable. Each such allocation by the Trustees shall be conclusive and binding
upon the Shareholders of all Series for all purposes.
(d) The assets belonging to each particular Series shall be charged with
the liabilities of the Trust in respect of that Series and with all expenses,
costs, charges and reserves attributable to that Series, and any general
liabilities, expenses, costs, charges or reserves of the Trust which are not
readily identifiable as belonging to any particular Series shall be allocated
and charged by the Trustees to and among any one or more of the Series
established and designated from time to time in such manner and on such basis as
the Trustees in their sole discretion deem fair and equitable. Each allocation
of liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the Shareholders of all Series for all purposes. The
Trustees shall have full discretion, to the extent not inconsistent with the
1940 Act, to determine which items are capital; and each such determination and
allocation shall be conclusive and binding upon the Shareholders. The assets of
a particular Series of the Trust shall, under no circumstances, be charged with
liabilities attributable to any other Series of the Trust. All persons extending
credit to, or contracting with or having any claim against a particular Series
of the Trust shall look only to the assets of that particular Series for payment
of such credit, contract or claim. No Shareholder or former Shareholder of any
Series shall have any claim on or right to any assets allocated or belonging to
any other Series.
(e) Each Share of a Series of the Trust shall represent a beneficial
interest in the net assets of such Series. Each holder of Shares of a Series
shall be entitled to receive his pro rata share of distributions of income and
capital gains made with respect to such Series, except as provided in Section
5.13 hereof. Upon redemption of his Shares or indemnification for liabilities
incurred by reason of his being or having been a Shareholder of a Series, such
Shareholder shall be paid solely out of the funds and property of such Series of
the Trust. Upon liquidation or termination of a Series of the Trust,
Shareholders of such Series shall be entitled to receive a pro rata share of the
net assets of such Series, except as provided in Section 5.13 hereof. A
Shareholder of a particular Series of the Trust shall not be entitled to
participate in a derivative or class action on behalf of any other Series or the
Shareholders of any other Series of the Trust.
(f) The establishment and designation of any Series of Shares shall be
effective upon the execution by a majority of the then Trustees of an instrument
setting forth such establishment and designation and the relative rights and
preferences of such Series, or as otherwise provided in such instrument. The
Trustees may by an instrument executed by a majority of their number abolish any
Series and the establishment and designation thereof. Except as otherwise
provided in this Article V, the Trustees shall have the power to determine the
designations, preferences, privileges, limitations and rights, of each class and
Series of Shares. Each instrument referred to in this paragraph shall have the
status of an amendment to this Declaration.
Section 5.12. Assent to Declaration of Trust.
Every Shareholder, by virtue of having become a shareholder, shall be held
to have expressly assented and agreed to the terms hereof and to have become a
party hereto.
Section 5.13. Class Designation.
The Trustees, in their discretion, may authorize the division of the Shares of
the Trust, or, if any Series be established, the Shares of any Series, into two
or more Classes, and the different Classes shall be established and designated,
and the variations in the relative rights and preferences as between the
different Classes shall be fixed and determined, by the Trustees; provided, that
all Shares of the Trust or of any Series shall be identical to all other Shares
of the Trust or the same Series, as the case may be, except that there may be
variations between different Classes as to allocation of expenses, right of
redemption, special and relative rights as to dividends and on liquidation,
conversion rights, and conditions under which the several Classes shall have
separate voting rights. All references to Shares in this Declaration shall be
deemed to be Shares of any or all Classes as the context may require.
(a) All provisions herein relating to the Trust, or any Series of the
Trust, shall apply equally to each Class of Shares of the Trust or of any Series
of the Trust, except as the context requires otherwise.
(b) The number of Shares of each Class that may be issued shall be
unlimited. The Trustees may classify or reclassify any Shares or any Series of
any Shares into one or more Classes that may be established and designated from
time to time. The Trustees may hold as treasury Shares (of the same or some
other Class), reissue for such consideration and on such terms as they may
determine, or cancel any Shares of any Class reacquired by the Trust at their
discretion from time to time.
(c) Liabilities, expenses, costs, charges and reserves related to the
distribution of, and other identified expenses that should properly be allocated
to, the Shares of a particular Class may be charged to and borne solely by such
Class and the bearing of expenses solely by a Class of Shares may be
appropriately reflected (in a manner determined by the Trustees) and cause
differences in the net asset value attributable to, and the dividend, redemption
and liquidation rights of, the Shares of different Classes. Each allocation of
liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the Shareholders of all Classes for all purposes.
(d) The establishment and designation of any Class of Shares shall be
effective upon the execution by a majority of the then Trustees of an instrument
setting forth such establishment and designation and the relative rights and
preferences of such Class, or as otherwise provided in such instrument. The
Trustees may, by an instrument executed by a majority of their number, abolish
any Class and the establishment and designation thereof. Each instrument
referred to in this paragraph shall have the status of an amendment to this
Declaration.
ARTICLE VI
REDEMPTION AND REPURCHASE OF SHARES
Section 6.1. Redemption of Shares.
All Shares of the Trust shall be redeemable, at the redemption price
determined in the manner set out in this Declaration. Redeemed or repurchased
Shares may be resold by the Trust.
The Trust shall redeem the Shares upon the appropriately verified written
application of the record holder thereof (or upon such other form of request as
the Trustees may determine) at such office or agency as may be designated from
time to time for that purpose in the Trust's then effective registration
statement under the Securities Act of 1933. The Trustees may from time to time
specify additional conditions, not inconsistent with the 1940 Act, regarding the
redemption of Shares in the Trust's then effective registration statement under
the Securities Act of 1933.
Section 6.2. Price.
Shares shall be redeemed at a priced based on their net asset value,
determined as set forth in Section 7.1 hereof as of such time as the Trustees
shall have theretofore prescribed by resolution, subject to reduction to the
extent of any lawfully imposed charges as may be adopted by the Trustees from
time to time. In the absence of such resolution setting a time, the redemption
price of Shares deposited shall be based on the net asset value of such Shares
next determined as set forth in Section 7.1 hereof after receipt of such
application.
Section 6.3. Payment.
Payment for such Shares shall be made in cash or in property out of the
assets of the relevant Series of the Trust to the Shareholder of record at such
time and in the manner, not inconsistent with the 1940 Act or other applicable
laws, as may be specified from time to time in the Trust's then effective
registration statement under the Securities Act of 1933, subject to the
provisions of Section 6.4 hereof.
Section 6.4. Effect of Suspension of Determination of Net Asset
Value.
If, pursuant to Section 6.9 hereof, the Trustees shall declare a
suspension of the determination of net asset value, the rights of Shareholders
(including those who shall have applied for redemption pursuant to Section 6.1
hereof but who shall not yet have received payment) to have Shares redeemed and
paid for by the Trust shall be suspended until the termination of such
suspension is declared. Any record holder who shall have his redemption right so
suspended may, during the period of such suspension, by appropriate written
notice of revocation at the office or agency where application was made, revoke
any application for redemption not honored and withdraw any certificates on
deposit. The redemption price of Shares for which redemption applications have
not been revoked shall be based on the net asset value of such Shares next
determined as set forth in Section 7.1 after the termination of such suspension,
and payment shall be made within seven (7) days after the date upon which the
application was made plus the period after such application during which the
determination of net asset value was suspended.
Section 6.5. Repurchase by Agreement.
The Trust may repurchase Shares directly, or through the Distributor or
another agent designated for the purpose, by agreement with the owner thereof at
a price not exceeding the current net asset value per Share as of the time when
the purchase or contract of purchase is made or the net asset value as of any
time which may be later determined pursuant to Section 7.1 hereof, provided
payment is not made for the Shares prior to the time as of which such net asset
value is determined.
Section 6.6. Redemption of Shareholder's Interest.
(a) The Trust shall have the right at any time without prior notice to
the Shareholder to redeem Shares of any Shareholder at a price based on their
then current net asset value per Share, determined as provided in Section 6.2
hereof, if at such time the Shareholder owns Shares having an aggregate net
asset value of less than an amount set from time to time by the Trustees subject
to such terms and conditions as the Trustees may approve, and subject to the
Trust's giving general notice to all Shareholders of its intention to avail
itself of such right, either by publication in the Trust's registration
statement, if any, or by such other means as the Trustees may determine.
Section 6.7. Redemption of Shares in Order to Qualify as
Regulated Investment Company; Disclosure of Holding.
If the Trustees shall, at any time and in good faith, be of the opinion
that direct or indirect ownership of Shares or other securities of the Trust has
or may become concentrated in any Person to an extent which would disqualify any
Series of the Trust as a regulated investment company under the Internal Revenue
Code, then the Trustees shall have the power by lot or other means deemed
equitable by them (i) to call for redemption by any such Person of a number, or
principal amount, of Shares or other securities of the Trust sufficient to
maintain or bring the direct or indirect ownership of Shares or other securities
of the Trust into conformity with the requirements for such qualification and
(ii) to refuse to transfer or issue Shares or other securities of the Trust to
any Person whose acquisition of the Shares or other securities of the Trust in
question would result in such disqualification. The redemption shall be effected
at the redemption price and in the manner provided in Section 6.1.
The holders of Shares or other securities of the Trust shall upon demand
disclose to the Trustees in writing such information with respect to direct and
indirect ownership of Shares or other securities of the Trust as the Trustees
deem necessary to comply with the provisions of the Internal Revenue Code, or to
comply with the requirements of any other taxing authority.
Section 6.8. Reductions in Number of Outstanding Shares Pursuant
to Net Asset Value Formula.
The Trust may also reduce the number of Outstanding Shares pursuant to the
provisions of Section 7.3.
Section 6.9. Suspension of Right of Redemption.
The Trust may declare a suspension of the right of redemption or postpone
the date of payment or redemption for the whole or any part of any period (i)
during which the New York Stock Exchange is closed other than customary week-end
and holiday closings, (ii) during which trading on the New York Stock Exchange
is restricted, (iii) during which an emergency exists as a result of which
disposal by the Trust of securities owned by it is not reasonably practicable or
it is not reasonably practicable for the Trust fairly to determine the value of
its net assets, or (iv) during any other period when the Commission may for the
protection of Shareholders of the Trust by order permit suspension of the right
of redemption or postponement of the date of payment or redemption; provided
that applicable rules and regulations of the Commission shall govern as to
whether the conditions prescribed in (ii), (iii), or (iv) exist. Such suspension
shall take effect at such time as the Trust shall specify but not later than the
close of business on the business day next following the declaration of
suspension, and thereafter there shall be no right of redemption or payment on
redemption until the Trust shall declare the suspension at an end, except that
the suspension shall terminate in any event on the first day on which said stock
exchange shall have reopened or the period specified in (ii) or (iii) shall have
expired (as to which in the absence of an official ruling by the Commission, the
determination of the Trust shall be conclusive). In the case of a suspension of
the right of redemption, a Shareholder may either withdraw his request for
redemption or receive payment based on the net asset value existing after the
termination of the suspension.
ARTICLE VII
DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS
Section 7.1. Net Asset Value.
The value of the assets of the Trust or any Series of the Trust shall be
determined by appraisal of the securities of the Trust or allocated to such
Series, such appraisal to be on the basis of such method as shall be deemed to
reflect the fair value thereof, determined in good faith by or under the
direction of the Trustees. From the total value of said assets, there shall be
deducted all indebtedness, interest, taxes, payable or accrued, including
estimated taxes on unrealized book profits, expenses and management charges
accrued to the appraisal date, net income determined and declared as a
distribution and all other items in the nature of liabilities attributable to
the Trust or such Series or Class thereof which shall be deemed appropriate. The
net asset value of a Share shall be determined by dividing the net asset value
of the Class, or, if no Class has been established, of the Series, or, if no
Series has been established, of the Trust, by the number of Shares of that
Class, or Series, or of the Trust, as applicable, outstanding. The net asset
value of Shares of the Trust or any Class or Series of the Trust shall be
determined pursuant to the procedure and methods prescribed or approved by the
Trustees in their discretion and as set forth in the most recent Registration
Statement of the Trust as filed with the Securities and Exchange Commission
pursuant to the requirements of the Securities Act of 1933, as amended, the 1940
Act, as amended, and the Rules thereunder. The net asset value of the Shares
shall be determined at least once on each business day, as of the close of
trading on the New York Stock Exchange or as of such other time or times as the
Trustees shall determine. The power and duty to make the daily calculations may
be delegated by the Trustees to the Investment Adviser, the Custodian, the
Transfer Agent or such other Person as the Trustees may determine by resolution
or by approving a contract which delegates such duty to another Person. The
Trustees may suspend the daily determination of net asset value to the extent
permitted by the 1940 Act.
Section 7.2. Distributions to Shareholders.
The Trustees shall from time to time distribute ratably among the
Shareholders of the Trust or a Series such proportion of the net profits,
surplus (including paid-in surplus), capital, or assets of the Trust or such
Series held by the Trustees as they may deem proper. Such distributions may be
made in cash or property (including without limitation any type of obligations
of the Trust or such Series or any assets thereof), and the Trustees may
distribute ratably among the Shareholders additional Shares of the Trust or such
Series issuable hereunder in such manner, at such times, and on such terms as
the Trustees may deem proper. Such distributions may be among the Shareholders
of record at the time of declaring a distribution or among the Shareholders of
record at such other date or time or dates or times as the Trustees shall
determine. The Trustees may in their discretion determine that, solely for the
purposes of such distributions, Outstanding Shares shall exclude Shares for
which orders have been placed subsequent to a specified time on the date the
distribution is declared or on the next preceding day if the distribution is
declared as of a day on which relevant banks or other financial institutions are
not open for business, all as described in the registration statement under the
Securities Act of 1933. The Trustees may always retain from the net profits such
amount as they may deem necessary to pay the debts or expenses of the Trust or
the Series or to meet obligations of the Trust or the Series, or as they may
deem desirable to use in the conduct of its affairs or to retain for future
requirements or extensions of the business. The Trustees may adopt and offer to
Shareholders such dividend reinvestment plans, cash dividend payout plans or
related plans as the Trustees shall deem appropriate. The above provisions may
be modified to the extent required by a plan adopted by the Trustees to
establish Classes of Shares of the Trust or of a Series.
Inasmuch as the computation of net income and gains for Federal income tax
purposes may vary from the computation thereof on the books, the above
provisions shall be interpreted to give the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust or the Series to avoid or reduce liability for taxes.
Section 7.3. Determination of Net Income; Constant Net Asset
Value; Reduction of Outstanding Shares.
Subject to Section 5.11 and Section 5.13 hereof, the net income of the
Trust or any Series shall be determined in such manner as the Trustees shall
provide by resolution. Expenses of the Trust or a Series, including the advisory
or management fee, shall be accrued each day. Such net income may be determined
by or under the direction of the Trustees as of the close of trading on the New
York Stock Exchange on each day on which such Exchange is open or as of such
other time or times as the Trustees shall determine, and, except as provided
herein, all the net income of the Trust or any Series, as so determined, may be
declared as a dividend on the Outstanding Shares of the Trust or such Series.
If, for any reason, the net income of the Trust or any Series, determined at any
time is a negative amount, the Trustees shall have the power with respect to the
Trust or such Series (i) to offset each Shareholder's pro rata share of such
negative amount from the accrued dividend account of such Shareholder, or (ii)
to reduce the number of Outstanding Shares of the Trust or such Series by
reducing the number of Shares in the account of such Shareholder by that number
of full and fractional Shares which represents the amount of such excess
negative net income, or (iii) to cause to be recorded on the books of the Trust
or such Series an asset account in the amount of such negative net income, which
account may be reduced by the amount, provided that the same shall thereupon
become the property of the Trust or such Series with respect to the Trust or
such Series and shall not be paid to any Shareholder, of dividends declared
thereafter upon the Outstanding Shares of the Trust or such Series on the day
such negative net income is experienced, until such asset account is reduced to
zero; or (iv) to combine the methods described in clauses (i) and (ii) and (iii)
of this sentence, in order to cause the net asset value per Share of the Trust
or such Series to remain at a constant amount per Outstanding Share immediately
after each such determination and declaration. The Trustees shall also have the
power to fail to declare a dividend out of net income for the purpose of causing
the net asset value per Share to be increased to a constant amount. The Trustees
shall not be required to adopt, but may at any time adopt, discontinue or amend
the practice of maintaining the net asset value per Share of the Trust or a
Series at a constant amount.
Section 7.4. Allocation Between Principal and Income.
The Trustees shall have full discretion to determine whether any cash or
property received shall be treated as income or as principal and whether any
item of expense shall be charged to the income or the principal account, and
their determination made in good faith shall be conclusive upon the
Shareholders. In the case of stock dividends received, the Trustees shall have
full discretion to determine, in the light of the particular circumstances, how
much if any of the value thereof shall be treated as income, the balance, if
any, to be treated as principal.
Section 7.5. Power to Modify Foregoing Procedures.
Notwithstanding any of the foregoing provisions of this Article VII, the
Trustees may prescribe, in their absolute discretion, such other bases and times
for determining the per Share net asset value or net income, or the declaration
and payment of dividends and distributions as they may deem necessary or
desirable.
ARTICLE VIII
DURATION; TERMINATION OF TRUST;
AMENDMENT; MERGERS, ETC.
Section 8.1. Duration.
The Trust shall continue without limitation of time but subject to the
provisions of this Article VIII.
Section 8.2. Termination of Trust.
(a) The Trust or any Series of the Trust may be terminated by an
instrument in writing signed by a majority of the Trustees, or by the
affirmative vote of the holders of a majority of the Shares of the Trust or
Series outstanding and entitled to vote at any meeting of Shareholders. Upon the
termination of the Trust or any Series,
(i) the Trust or any Series shall carry on no business except
for the purpose of winding up its affairs;
(ii) the Trustees shall proceed to wind up the affairs of the Trust
or Series and all of the powers of the Trustees under this Declaration
shall continue until the affairs of the Trust or Series shall have been
wound up, including the power to fulfill or discharge the contracts of the
Trust or Series, collect its assets, sell, convey, assign, exchange,
transfer or otherwise dispose of all or any part of the remaining Trust
Property or property of the Series to one or more persons at public or
private sale for consideration which may consist in whole or in part of
cash, securities or other property of any kind, discharge or pay its
liabilities, and do all other acts appropriate to liquidate its business;
and
(iii) after paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and refunding
agreements as they deem necessary for their protection, the Trustees may
distribute the remaining Trust Property or property of the Series, in cash
or in kind or partly each, among the Shareholders of the Trust or Series
according to their respective rights.
(b) After termination of the Trust or any Series and distribution to the
Shareholders as herein provided, a majority of the Trustees shall execute and
lodge among the records of the Trust an instrument in writing setting forth the
fact of such termination, and the Trustees shall thereupon be discharged from
all further liabilities and duties hereunder, and the rights and interests of
all Shareholders of the Trust or Series shall thereupon cease.
Section 8.3. Amendment Procedure.
(a) This Declaration may be amended by a vote of the holders of a
majority of the Shares outstanding and entitled to vote. Amendments shall be
effective upon the taking of action as provided in this section or at such later
time as shall be specified in the applicable vote or instrument. The Trustees
may also amend this Declaration without the vote or consent of Shareholders if
they deem it necessary to conform this Declaration to the requirements of
applicable federal or state laws or regulations or the requirements of the
regulated investment company provisions of the Internal Revenue Code (including
those provisions of such Code relating to the retention of the exemption from
federal income tax with respect to dividends paid by the Trust out of interest
income received on Municipal Bonds), but the Trustees shall not be liable for
failing so to do. The Trustees may also amend this Declaration without the vote
or consent of Shareholders if they deem it necessary or desirable to change the
name of the Trust, to supply any omission, to cure, correct or supplement any
ambiguous, defective or inconsistent provision hereof, or to make any other
changes in the Declaration which do not materially adversely affect the rights
of Shareholders hereunder.
(b) No amendment may be made under this Section 8.3 which would change
any rights with respect to any Shares of the Trust or Series by reducing the
amount payable thereon upon liquidation of the Trust or Series or by diminishing
or eliminating any voting rights pertaining thereto, except with the vote or
consent of the holders of two-thirds of the Shares of the Trust or Series
outstanding and entitled to vote. Nothing contained in this Declaration shall
permit the amendment of this Declaration to impair the exemption from personal
liability of the Shareholders, Trustees, officers, employees and agents of the
Trust or to permit assessments upon Shareholders.
(c) A certificate signed by a majority of the Trustees setting forth an
amendment and reciting that it was duly adopted by the Shareholders or by the
Trustees as aforesaid or a copy of the Declaration, as amended, and executed by
a majority of the Trustees, shall be conclusive evidence of such amendment when
lodged among the records of the Trust.
Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of securities of the Trust shall have become
effective, this Declaration may be terminated or amended in any respect by the
affirmative vote of a majority of the Trustees or by an instrument signed by a
majority of the Trustees.
Section 8.4. Merger, Consolidation and Sale of Assets.
The Trust or any Series thereof may merge or consolidate with any other
corporation, association, trust or other organization or may sell, lease or
exchange all or substantially all of the Trust Property or the property of any
Series, including its good will, upon such terms and conditions and for such
consideration when and as authorized by an instrument in writing signed by a
majority of the Trustees.
Section 8.5. Incorporation.
When authorized by an instrument in writing signed by a majority of the
Trustees, the Trustees may cause to be organized or assist in organizing a
corporation or corporations under the laws of any jurisdiction or any other
trust, partnership, association or other organization to take over all of the
Trust Property or the property of any Series or to carry on any business in
which the Trust or the Series shall directly or indirectly have any interest,
and to sell, convey and transfer the Trust Property or the property of any
Series to any such corporation, trust, association or organization in exchange
for the Shares or securities thereof or otherwise, and to lend money to,
subscribe for the Shares or securities of, and enter into any contracts with any
such corporation, trust, partnership, association or organization, or any
corporation, partnership, trust, association or organization in which the Trust
or the Series holds or is about to acquire shares or any other interest. The
Trustees may also cause a merger or consolidation between the Trust or any
Series or any successor thereto and any such corporation, trust, partnership,
association or other organization if and to the extent permitted by law, as
provided under the law then in effect. Nothing contained herein shall be
construed as requiring approval of Shareholders for the Trustees to organize or
assist in organizing one or more corporations, trusts, partnerships,
associations or other organizations and selling, conveying or transferring a
portion of the Trust Property to such organization or entities.
ARTICLE IX
REPORTS TO SHAREHOLDERS
Section 9... The Trustees shall at least semi-annually submit to the
Shareholders a written financial report, which may be included in the Trust's
prospectus or statement of additional information, of the transactions of the
Trust, including financial statements which shall at least annually be certified
by independent public accountants.
ARTICLE X
MISCELLANEOUS
Section 10.1. Filing.
This Declaration and any amendment hereto shall be filed in the office of
the Secretary of the Commonwealth of Massachusetts and in such other places as
may be required under the laws of the Commonwealth of Massachusetts and may also
be filed or recorded in such other places as the Trustees deem appropriate.
Unless the amendment is embodied in an instrument signed by a majority of the
Trustees, each amendment filed shall be accompanied by a certificate signed and
acknowledged by a Trustee stating that such action was duly taken in a manner
provided herein. A restated Declaration, integrating into a single instrument
all of the provisions of the Declaration which are then in effect and operative,
may be executed from time to time by a majority of the Trustees and shall, upon
filing with the Secretary of the Commonwealth of Massachusetts, be conclusive
evidence of all amendments contained therein and may hereafter be referred to in
lieu of the original Declaration and the various amendments thereto. The
restated Declaration may include any amendment which the Trustees are empowered
to adopt, whether or not such amendment has been adopted prior to the execution
of the restated Declaration.
Section 10.2. Governing Law.
This Declaration is executed by the Trustees and delivered in the
Commonwealth of Massachusetts and with reference to the internal laws thereof,
and the rights of all parties and the validity and construction of every
provision hereof shall be subject to and construed according to the internal
laws of said State without regard to the choice of law rules thereof.
Section 10.3. Counterparts.
This Declaration may be simultaneously executed in several counterparts,
each of which shall be deemed to be an original, and such counterparts,
together, shall constitute one and the same instrument, which shall be
sufficiently evidenced by any such original counterpart.
Section 10.4. Reliance by Third Parties.
Any certificate executed by an individual who, according to the records of
the Trust appears to be a Trustee hereunder, certifying to: (a) the number or
identity of Trustees or Shareholders, (b) the due authorization of the execution
of any instrument or writing, (c) the form of any vote passed at a meeting of
Trustees or Shareholders, (d) the fact that the number of Trustees or
Shareholders present at any meeting or executing any written instrument
satisfies the requirements of this Declaration, (e) the form of any By-laws
adopted by or the identity of any officers elected by the Trustees, or (f) the
existence of any fact or facts which in any manner relate to the affairs of the
Trust, shall be conclusive evidence as to the matters so certified in favor of
any Person dealing with the Trustees and their successors.
Section 10.5. Provisions in Conflict with Law or Regulations.
The provisions of this Declaration are severable, and if the Trustees
shall determine, with the advice of counsel, that any of such provisions is in
conflict with the 1940 Act, the regulated investment company provisions of the
Internal Revenue Code or with other applicable laws and regulations, the
conflicting provision shall be deemed never to have constituted a part of this
Declaration; provided, however, that such determination shall not affect any of
the remaining provisions of this Declaration or render invalid or improper any
action taken or omitted prior to such determination.
If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provisions in any other jurisdiction or any other provision of this
Declaration in any jurisdiction.
IN WITNESS WHEREOF, the undersigned has executed this instrument this
13th day of April, 1998.
------------------------------------
as Trustee and not Individually
c/o Dechert Price & Rhoads
Ten Post Office Square South
Boston, MA 02109-4603
THE COMMONWEALTH OF MASSACHUSETTS
County of Suffolk April 13, 1998
Then personally appeared the above-named ___________________ who
acknowledged the foregoing instrument to be his/her free act and deed.
Before me,
------------------------------
Notary Public
My commission expires: __________
CAPSTONE INVESTMENT SERIES TRUST
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, effective commencing on ______________, 1998, between CAPSTONE
ASSET MANAGEMENT COMPANY (the "Adviser") and CAPSTONE INVESTMENT SERIES TRUST
(the "Trust") with respect to the Money Market Fund, the Short-Term Bond Fund,
the Intermediate-Term Bond Fund, the Large Cap Equity Fund, the Small Cap Equity
Fund and the International Equity Fund (the "Funds").
WHEREAS, the Trust is a Massachusetts business trust organized under a
Declaration of Trust dated ________, 1998 ("Declaration of Trust") and is
authorized to divide and classify its shares of beneficial interest into
separate series of shares and is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end, diversified management
investment company;
WHEREAS, the Funds are separate series of the Trust's shares of beneficial
interest;
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940 ("Advisers Act");
WHEREAS, the Trust wishes to retain the Adviser to render investment
advisory services to the Funds and the Adviser is willing to furnish such
services to the Funds;
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the Trust and the Adviser as follows:
1. Appointment. The Trust hereby appoints the Adviser to act as
investment adviser to the Funds for the periods and on the terms set forth in
this Agreement. The Adviser accepts such appointment and agrees to furnish the
services herein set forth, for the compensation herein provided.
2. Investment Advisory Duties. Subject to the supervision of the
Trustees of the Trust, the Adviser will (a) provide a program of continuous
investment management for the Funds in accordance with the Funds' investment
objectives, policies and limitations as stated in the Trust's combined
prospectus and Statement of Additional Information included as part of the
Trust's Registration Statement filed with the Securities and Exchange
Commission, as they may be amended from time to time, copies of which shall be
provided to the Adviser by the Trust; (b) make investment decisions for the
Funds; and (c) place orders to purchase and sell securities for the Funds.
In performing its investment management services to the Funds
hereunder, the Adviser will provide the Funds with ongoing investment guidance
and policy direction, including oral and written research, analysis, advice,
statistical and economic data and judgments regarding individual investments,
general economic conditions and trends and long-range investment policy. The
Adviser will determine the securities, instruments, currencies, repurchase
agreements, futures, options and other investments and techniques that the Funds
will purchase, sell, enter into or use, and will provide an ongoing evaluation
of the Funds' portfolios. The Adviser will determine what portion of the Funds'
portfolios shall be invested in securities and other assets and what portion, if
any, should be held uninvested.
The Adviser further agrees that it will:
(a) comply with the 1940 Act and all rules and regulations thereunder,
the Advisers Act, the Internal Revenue Code (the "Code") and all other
applicable federal and state laws and regulations, and with any applicable
procedures adopted by the Trustees;
(b) use reasonable efforts to manage the Funds so that the Trust will
qualify, and continue to qualify, as a regulated investment company under
Subchapter M of the Code and regulations issued thereunder;
(c) place orders pursuant to its investment determinations for the
Funds directly with the issuer, or with any broker or dealer, in accordance with
applicable policies expressed in the Trust's combined prospectus and/or
Statement of Additional Information and in accordance with applicable legal
requirements;
(d) furnish to the Funds whatever statistical information the Funds may
reasonably request with respect to the Funds' assets or contemplated
investments. In addition, the Adviser will keep the Funds and the Trustees
informed of developments materially affecting the Funds' portfolios and shall,
on the Adviser's own initiative, furnish to the Funds and the Trust from time to
time whatever information the Adviser believes appropriate for this purpose;
(e) make available to the Funds' administrator, Capstone Asset
Management Company (the "Administrator"), and the Funds, promptly upon their
request, copies of all its investment records and ledgers with respect to the
Funds to assist the Administrator and the Funds in their compliance with
applicable laws and regulations. The Adviser will furnish the Trustees with such
periodic and special reports regarding the Funds as they may reasonably request;
(f) immediately notify the Trust in the event that the Adviser or any of
its affiliates: (1) becomes subject to a statutory disqualification that
prevents the Adviser from serving as investment adviser pursuant to this
Agreement; or (2) has been the subject of an administrative proceeding or
enforcement action by the Securities and Exchange Commission ("SEC") or other
regulatory authority. The Adviser further agrees to notify the Trust immediately
of any material fact known to the Adviser respecting or relating to the Adviser
that is not contained in the Trust's Registration Statement with respect to the
Funds, or any amendment or supplement thereto, and of any statement contained
therein that becomes untrue in any material request.
3. Allocation of Charges and Expenses. Except as otherwise specifically
provided in this section 3, the Adviser shall pay the compensation and expenses
of all its directors, officers and employees who serve as officers and executive
employees of the Trust (including the Trust's share of payroll taxes) and of all
Trustees of the Trust who are interested persons of the Adviser, and the Adviser
shall make available, without expense to the Trust or the Funds, the service of
its directors, officers and employees who may be duly elected officers of the
Trust, subject to their individual consent to serve and to any limitations
imposed by law.
The Adviser shall not be required to pay any expenses of the Trust or
the Funds other than those specifically allocated to the Adviser in this section
3. In particular, but without limiting the generality of the foregoing, the
Adviser shall not be responsible, except to the extent of the reasonable
compensation of such of the Trust's employees as are directors, officers or
employees of the Adviser whose services may be involved, for the following
expenses of the Trust or the Funds: organization and certain offering expenses
of the Funds (including out-of-pocket expenses, but not including the Adviser's
overhead and employee costs); fees payable to the Adviser and to any other Fund
advisers or consultants; legal expenses; auditing and accounting expenses;
interest expenses; telephone, telex, facsimile, postage and other communications
expenses; taxes and governmental fees; fees, dues and expenses incurred by or
with respect to the Funds in connection with membership in investment company
trade organizations; cost of insurance relating to fidelity coverage for the
Trust's officers and employees, fees and expenses of the Funds' Administrator or
of any custodian, subcustodian, transfer agent, registrar, or dividend
disbursing agent of the Trust on behalf of the Funds; payments for portfolio
pricing or valuation services to pricing agents, accountants, bankers and other
specialists; expenses in connection with the issuance, offering, distribution or
sale of securities issued by the Funds; expenses relating to investor and public
relations; expenses of registering and qualifying shares of the Funds for sale;
freight, insurance and other charges in connection with the shipment of the
Funds' portfolio securities; brokerage commissions or other costs of acquiring
or disposing of any portfolio securities or other assets of the Funds, or of
entering into other transactions or engaging in any investment practices with
respect to the Fund; expenses of printing and distributing prospectuses,
Statements of Additional Information, reports, notices and dividends to
shareholders; costs of stationery; any litigation expenses; costs of
shareholders' and other meetings; the compensation and all expenses
(specifically including travel expenses relating to the Trust business) of
Trustees, officers and employees of the Trust who are not interested persons of
the Adviser or Administrator; and travel expenses (or an appropriate portion
thereof) of Trustees and officers of the Trust who are directors, officers or
employees of the Adviser or the Administrator to the extent that such expenses
relate to attendance at meetings of the Board of Trustees of the Trust or any
committees thereof or advisers thereto.
The Adviser shall not be required to pay expenses of any activity
which is primarily intended to result in sales of shares of the Funds if and to
the extent that (i) such expenses are assumed or required to be borne by the
Funds' principal underwriter or some other party, or (ii) the Trust on behalf of
the Funds shall have adopted a plan in conformity with Rule 12b-1 under the 1940
Act providing that the Funds (or some other party) shall assume some or all of
such expenses. The Adviser shall be required to pay such of the foregoing sales
expenses as are not assumed or required to be paid by the principal underwriter
or some other party or are not permitted to be paid by the Funds (or some other
party) pursuant to such a plan.
4. Compensation. As compensation for the services provided and expenses
assumed by the Adviser under this Agreement, each Fund will pay the Adviser at
the end of each calendar month an advisory fee computed daily at the following
annual rates. The fee rate indicated for the Money Market Fund is based on the
average daily net assets of that Fund. The annual fee rates indicated for the
other five Funds are applied to the aggregate average daily net assets of those
Funds, as a group, and the resulting total fees are pro rated among those Funds
based on their relative net assets.
Annual Fee rate as a percentage
Name of Fund of average daily net assets
Money Market Fund 0.05%
Aggregate assets of Short-Term Bond 0.15% of the first $500 million
Fund, Intermediate-Term Bond Fund, 0.10% of the next $250 million
Large Cap Equity Fund, Small Cap 0.075% of the next $250 million
Equity Fund, International Equity Fund 0.05% of assets over $1 billion
The "average daily net assets" of a Fund shall mean the average of the values
placed on the Fund's net assets as of 4:00 p.m. (New York time) on each day on
which the net asset value of the Fund is determined consistent with the
provisions of Rule 22c-1 under the 1940 Act or, if the Fund lawfully determines
the value of its net assets as of some other time on each business day, as of
such other time. The value of net assets of the Fund shall always be determined
pursuant to the applicable provisions of the Declaration of Trust and the
Registration Statement. If, pursuant to such provisions, the determination of
net asset value is suspended for any particular business day, then for the
purposes of this section 4, the value of the net assets of the Fund as last
determined shall be deemed to be the value of its net assets as of the close of
the New York Stock Exchange, or as of such other time as the value of the net
assets of the Fund's portfolio may lawfully be determined, on that day. If the
determination of the net asset value of the shares of the Fund has been so
suspended for a period including any month end when the Adviser's compensation
is payable pursuant to this section, then the Adviser's compensation payable at
the end of such month shall be computed on the basis of the value of the net
assets of the Fund as last determined (whether during or prior to such month).
If the Fund determines the value of the net assets of its portfolio more than
once on any day, then the last such determination thereof on that day shall be
deemed to be the sole determination thereof on that day for the purposes of this
section 4.
5. Books and Records. The Adviser agrees to maintain such books and records
with respect to its services to the Trust on behalf of the Funds as are required
by Section 31 under the 1940 Act, and rules adopted thereunder, and by other
applicable legal provisions, and to preserve such records for the periods and in
the manner required by that Section, and those rules and legal provisions. The
Adviser also agrees that records it maintains and preserves pursuant to Rules
31a-1 and Rule 31a-2 under the 1940 Act and otherwise in connection with its
services hereunder are the property of the Trust and will be surrendered
promptly to the Trust upon its request. And the Adviser further agrees that it
will furnish to regulatory authorities having the requisite authority any
information or reports in connection with its services hereunder which may be
requested in order to determine whether the operations of the Trust or the Funds
are being conducted in accordance with applicable laws and regulations.
6. Standard of Care and Limitation of Liability. The Adviser shall exercise
its best judgment in rendering the services provided by it under this Agreement.
The Adviser shall not be liable for any error of judgment or mistake of law or
for any loss suffered by the Trust or the Funds in connection with the matters
to which this Agreement relates, provided that nothing in this Agreement shall
be deemed to protect or purport to protect the Adviser against any liability to
the Trust, the Funds or to holders of the Funds' shares to which the Adviser
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or by reason of the
Adviser's reckless disregard of its obligations and duties under this Agreement.
7. Services Not Exclusive. It is understood that the services of the
Adviser are not exclusive, and nothing in this Agreement shall prevent the
Adviser from providing similar services to other investment companies (whether
or not their investment objectives and policies are similar to those of the
Funds) or from engaging in other activities, provided such other services and
activities do not, during the term of this Agreement, interfere in a material
manner with the Adviser's ability to meet its obligations to the Funds and to
the Trust hereunder. When the Adviser recommends the purchase or sale of a
security for other investment companies and other clients, and at the same time
the Adviser recommends the purchase or sale of the same security for a Fund, it
is understood that in light of its fiduciary duty to the Trust on behalf of the
Funds, such transactions will be executed on a basis that is fair and equitable
to the Trust. In connection with purchases or sales of portfolio securities for
the account of the Funds, neither the Adviser nor any of its directors, officers
or employees shall act as a principal or agent or receive any commission. If the
Adviser provides any advice to its clients concerning the shares of the Funds,
the Adviser shall act solely as investment counsel for such clients and not in
any way on behalf of the Funds.
8. Duration and Termination. This Agreement shall continue until
___________, 2000, and thereafter shall continue automatically for successive
annual periods, provided such continuance is specifically approved at least
annually by (i) the Trustees or (ii) a vote of a "majority" (as defined in the
1940 Act) of each Fund's outstanding voting securities (as defined in the 1940
Act), provided that in either event the continuance is also approved by a
majority of the Trustees who are not "interested persons" (as defined in the
1940 Act) of any party to this Agreement, by vote cast in person at a meeting
called for the purpose of voting on such approval. Notwithstanding the
foregoing, this Agreement may be terminated: (a) at any time without penalty by
the Trust upon the vote of a majority of the Trustees or by vote of the majority
of each Fund's outstanding voting securities, upon sixty (60) days' written
notice to the Adviser or (b) by the Adviser at any time without penalty, upon
ninety (90) days' written notice to a Fund. This Agreement will also terminate
automatically in the event of its assignment (as defined in the 1940 Act).
9. Amendments. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved by an affirmative vote of (i) a majority of the outstanding
voting securities of the Funds, and (ii) a majority of the Trustees who are not
interested persons of any part to this Agreement, cast in person at a meeting
called for the purpose of voting on such approval, if such approval is required
by applicable law.
10. Limitation of Liability for Claim. The Declaration of Trust of the
Trust, a copy of which, together with all amendments thereto, is on file in the
Office of the Secretary of the Commonwealth of Massachusetts, provides that the
name "Capstone Indexed Series Trust" refers to the Trustees under the
Declaration of Trust collectively as trustees and not as individuals or
personally, and that no shareholder of the Funds, or Trustee, officer, employee
or agent of the Trust, shall be subject to claims against or obligations of the
Trust or of the Funds to any extent whatsoever, but that the Trust estate only
shall be liable.
The Adviser is hereby expressly put on notice of the limitation of
liability as set forth in the Declaration of Trust and hereby agrees that the
obligations assumed by the Trust on behalf of the Funds pursuant to this
Agreement shall be limited in all cases to the Funds and their assets, and the
Adviser shall not seek satisfaction of any such obligation from shareholders or
any shareholder of the Funds or any other series of the Trust or their
shareholders, or from any Trustee, officer, employee or agent of the Trust. The
Adviser understands that the rights and obligations of each Fund, or series,
under the Declaration are separate and distinct from those of any and all other
series.
11. Miscellaneous.
a. This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, the Advisers Act, or rules or orders of the SEC
thereunder.
b. The captions of this Agreement are included for convenience only and in
no way define or limit any of the provisions hereof or otherwise affect their
construction or effect.
c. 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 hereby and, to this extent, the provisions of this
Agreement shall be deemed to be severable.
d. Nothing herein shall be construed as constituting the Adviser as an
agent of the Trust or the Funds.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of _________________, 1998.
CAPSTONE INVESTMENT SERIES TRUST
By ___________________________________
President
CAPSTONE ASSET MANAGEMENT COMPANY
By ___________________________________
President
GENERAL DISTRIBUTION AGREEMENT
Agreement made this ____ day of ___________, 1998, between CAPSTONE
INVESTMENT SERIES TRUST ("Trust"), a Massachusetts business trust having its
principal place of business in Houston, Texas, and CAPSTONE ASSET PLANNING
COMPANY ("Distributor"), a Delaware corporation having its principal place of
business in Houston, Texas.
In consideration of the mutual promises and undertakings herein contained,
the parties agree as follows:
1. Sale of Shares - The Trust grants to the Distributor the right to sell
shares on behalf of the Money Market Fund, the Short-Term Bond Fund, the
Intermediate-Term Bond Fund, the Large Cap Equity Fund, the Small Cap Equity
Fund and the International Equity Fund ("Funds"), each a series of the Trust,
during the term of this Agreement and subject to the registration requirements
of the Securities Act of 1933, as amended ("1933 Act"), and applicable laws
governing the sale of securities in the various states ("Blue Sky Laws") under
the following terms and conditions: the Distributor shall have the right to
sell, as agent on behalf of the Trust, shares authorized for issue and
registered under the 1933 Act.
2. Sale of Shares by the Trust - The rights granted to the Distributor
shall be nonexclusive in that the Trust reserves the right to sell its shares to
investors on applications received and accepted by the Trust. Further, the Trust
reserves the right to issue shares in connection with the merger or
consolidation, or acquisition by the Trust through purchase or otherwise, with
any other investment company, trust, or personal holding company.
3. Shares Covered by this Agreement - This agreement shall apply to
unissued shares of the Trust, shares of the Trust held in its treasury in the
event that in the discretion of the Trust treasury shares shall be sold, and
shares of the Trust repurchased for resale. It shall apply to each series of
shares that may be offered by the Trust.
4. Public Offering Price - Except as otherwise noted in the Trust's current
Prospectus, all shares sold to investors by the Distributor or the Trust will be
sold at the public offering price of each series. The public offering price for
each series, for all accepted subscriptions, will be the net asset value per
share of the particular series, as determined in the manner described in the
Trust's current Prospectus, plus a sales charge (if any) described in the
Trust's current Prospectus for that series. The Trust, on behalf of the
respective series, shall in all cases receive the net asset value per share on
all sales of each series. If a sales charge is in effect, the Distributor shall
have the right, subject to such rules or regulations of the Securities and
Exchange Commission as may then be in effect pursuant to Section 22 of the
Investment Company Act of 1940, to retain the sales charges or to reallow all or
a portion of the sales charge to dealers or to reallow all or a portion of the
sales charge to dealers who have sold shares of the Trust. The Distributor may
also receive payments from the Trust for distribution-related services pursuant
to any plan pursuant to Rule 12b-1 under the Investment Company Act of 1940
("1940 Act") that may be adopted by the Trust's Board of Directors.
5. Suspension of Sales - If and whenever the determination of net asset
value for any series is suspended and until such suspension is terminated, no
further orders for sales for that series shall be processed by the Distributor
except such unconditional orders placed with the Distributor before it had
knowledge of the suspension. In addition, the Trust reserves the right to
suspend sales of any series and the Distributor's authority to process orders
for shares of any series on behalf of the Trust if, in the judgment of the
Trust, it is in the best interests of the Trust to do so. Suspension will
continue for such period as may be determined by the Trust.
6. Solicitation of Sales - In consideration of these rights granted to the
Distributor, the Distributor agrees to use all reasonable efforts, consistent
with its other business, to secure purchasers for shares of the Trust. This
shall not prevent the Distributor from entering into like arrangements
(including arrangements involving the payment of underwriting commissions) with
other entities, including other investment companies. This does not obligate the
Distributor to register as a broker or dealer under the Blue Sky Laws of any
jurisdiction in which it is not now registered or to maintain its registration
in any jurisdiction in which it is now registered.
7. Authorized Representations - The Distributor is not authorized by the
Trust to give any information or to make any representations other than those
contained in the appropriate registration statements or Prospectuses filed with
the Securities and Exchange Commission under the 1933 Act (as these registration
statements and Prospectuses may be amended from time to time), or contained in
shareholder reports or other material that may be prepared by or on behalf of
the Trust for the Distributor's use. This shall not be construed to prevent the
Distributor from preparing and distributing sales literature or other material
as it may be deem appropriate.
8. Portfolio Securities - Portfolio securities of the Trust may be bought
or sold by or through the Distributor, and the Distributor may participate
directly or indirectly in brokerage commissions or "spreads" for transactions in
portfolio securities of the Trust.
9. Registration of Shares - The Trust agrees that it will take all action
necessary to register shares of each of its series under the 1933 Act (subject
to the necessary approval of its shareholders) so that there will be available
for sale the number of shares of each series the Distributor may reasonably be
expected to sell. The Trust shall make available to the Distributor such number
of copies of its currently effective Prospectus as the Distributor may
reasonably request. The Trust shall furnish to the Distributor copies of all
information, financial statements and other papers which the Distributor may
reasonably request for use in connection with the distribution of shares of the
Trust.
10. Expenses - The Trust shall pay all fees and expenses (a) in connection
with the preparation, setting in type and filing of any registration statement
and Prospectus under the 1933 Act and amendments for the issue of its shares,
(b) in connection with making notice filings and satisfying other requirements
related to the offering and sale of shares of each series in the various states
in which the Board of the Trust shall determine it is advisable to offer and
sell such shares, (c) of preparing, setting in type, printing and mailing any
report or other communication to shareholders of the Trust in their capacity as
such, and (d) of preparing, setting in type, printing and mailing Prospectuses
sent annually to existing shareholders. Except as may be otherwise provided by
any plan pursuant to Rule 12b-1 under the 1940 Act that may be adopted by the
Trust's Board of Directors, the Distributor shall pay expenses of (a) printing
and distributing any Prospectuses or reports prepared for its use in connection
with the offering of the shares for sale to the public, (b) other literature
used by the Distributor in connection with such offering, and (c) advertising in
connection with such offering. It is recognized by the Trust that Capstone Asset
Management Company may reimburse the Distributor for its direct and indirect
expenses incurred in the distribution of the Trust's shares.
11. Indemnification - The Trust agrees to indemnify and hold harmless the
Distributor and each of its directors and officers and each person, if any, who
controls the Distributor within the meaning of Section 15 of the 1933 Act
against any loss, liability, claim, damages or expenses (including the
reasonable cost of investigating or defending any alleged loss, liability,
claim, damages, or expense and reasonable counsel fees incurred in connection
therewith), arising by reason of any person acquiring any shares, based upon the
grounds that the registration statement, Prospectus, shareholder reports or
other information filed or made public by the Trust (as from time to time
amended), included an untrue statement of a material fact or omitted to state a
material fact required to be stated or necessary in order to make the statements
not misleading under the 1933 Act, or any other statute or the common law.
However, the Trust does not agree to indemnify the Distributor or hold it
harmless to the extent that the statement or omission was made in reliance upon,
and in conformity with, information furnished to Trust by or on behalf of the
Distributor. In no case (i) is the indemnity of the Trust in favor of the
Distributor or any person indemnified to be deemed to protect the Distributor or
any person against any liability to the Trust or its security holders to which
the Distributor or such person would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of its reckless disregard of its obligations and duties under this
Agreement, or (ii) is the Trust to be liable under its indemnity agreement
contained in this paragraph with respect to any claim made against the
Distributor or any person indemnified unless the Distributor or any person shall
have notified the Trust in writing of the claim within a reasonable time after
the summons or other first written notification giving information of the nature
of the claim shall have been served upon the Distributor or any person (or after
the Distributor or the person shall have received notice of service on any
designated agent). However, failure to notify the Trust of any claim shall not
relieve the Trust from any liability which it may have to the Distributor or any
person against whom such action is brought otherwise than on account of its
indemnity agreement contained in this paragraph. The Trust shall be entitled to
participate at its own expense in the defense, or, if it so elects, to assume
the defense of any suit brought to enforce any claims, but if the Trust elects
to assume the defense, the defense shall be conducted by counsel chosen by it
and satisfactory to the Distributor or person or persons, defendant or
defendants in the suit. In the event the Trust elects to assume the defense of
any suit and retain counsel, the Distributor, officers or directors or
controlling person or persons, defendant or defendants in the suit, shall bear
the fees and expenses of any additional counsel retained by them. If the Trust
does not elect to assume the defense of any suit, it will reimburse the
Distributor, officers or directors or controlling person or persons, defendant
or defendants in the suit, for the reasonable fees and expenses of any counsel
retained by them. The Trust agrees to notify the Distributor promptly of the
commencement of any litigation or proceedings against it or any of its officers
or trustees in connection with the issuance of sale of any of the shares.
The Distributor also covenants and agrees that it will indemnify and
hold harmless the Trust and each of its Board members and officers and each
person, if any, who controls the Trust within the meaning of Section 15 of the
1933 Act, against any loss, liability, damages, claim or expense (including the
reasonable counsel fees incurred in connection therewith) arising by reason
of any person acquiring any shares, based upon the 1933 Act or any other
statute or common law, alleging that the registration statement, any Prospectus,
shareholder reports or other information filed or made public by the Trust (as
from time to time amended), included an untrue statement of a material fact or
omitted to state a material fact required to be stated or necessary in order
to make the statements not misleading, insofar as the statement or omission
was made in reliance upon, and in conformity with information furnished to the
Trust by or on behalf of the Distributor. In no case (i) is the indemnity of the
Distributor in favor of the Trust or any person indemnified to be deemed to
protect the Trust or any person against any liability to which the Trust or
such person would otherwise be subject by reason f willful misfeasance, bad
faith or gross negligence in the performance of its duties or by reason or its
reckless disregard of its obligations and duties under this Agreement, or (ii)
is the Distributor to be liable under its indemnity agreement contained in
this paragraph with respect to any claim made against the Trust or any
person indemnified unless the Trust or person, as the case may be, shall have
notified the Distributor in writing of the claim within a reasonable time
after the summons or other first written notification giving information of the
nature of the claim shall have been served upon the Trust or upon such person
(or after the Trust or such person shall have received notice of service on any
designated agent. However, failure to notify the Distributor of any claim shall
not relieve the Distributor from any liability which it may have to the Trust
or any person against whom the action is brought otherwise than on account of
its indemnity agreement contained in this paragraph. In the case of any
notice to the Distributor, it shall be entitled to participate, at its own
expense, in the defense or, if it so elects, to assume the defense or any
suit brought to enforce the claim, but if the Distributor elects to assume
the defense, the defense shall be conducted by counsel chosen by it and
satisfactory to the Trust, to its officers and Board and to any controlling
person or persons, defendant or defendants in the suit. In the event that the
Distributor elects to assume the defense of any suit and retain counsel, the
Trust or controlling persons, defendant or defendants in the suit, shall bear
the fees and expenses of any additional counsel retained by them. If the
Distributor does not elect to assume the defense of any suit, it will reimburse
the Trust, officers and Board or controlling person or persons, defendant or
defendants in the suit, for the reasonable fees and expenses of any counsel
retained by them. The Distributor agrees to notify the Trust promptly of the
commencement of any litigation or proceedings against it in connection
with the issue and sale of any of the shares.
12. Acceptance or Rejection of Orders - The Distributor shall have the
right to accept or reject orders for the purchase of shares of the Trust. Any
consideration received in connection with a rejected purchase order will be
returned promptly. The Distributor agrees to promptly issue confirmations of all
accepted purchase orders and to transmit a copy of such confirmations to the
Trust, or, if so directed, to any duly appointed transfer or shareholder
servicing agent of the Trust. The net asset value of all shares which are the
subject of such confirmations, computed in accordance with the applicable rules
under the Investment Company Act of 1940, shall be a liability of the
Distributor to the Trust to be paid promptly after receipt of payment from the
originating dealer and not later than eleven business days after such
confirmation even if the Distributor has not actually received payment from the
originating dealer. If the originating dealer should fail to make timely
settlement of its purchase order in accordance with the rules of the National
Association of Securities Dealers, Inc., the Distributor shall have the right to
cancel such purchase order and, at the Distributor's account and risk, to hold
responsible the originating dealer. The Distributor agrees to promptly reimburse
the Trust for any amount by which the Trust's losses attributable to any such
cancellation, or to errors on the part of the Distributor in relation to the
effective date of accepted purchase orders, exceed contemporaneous gains
realized by the Trust for either of such reasons in respect to other purchase
orders. The Trust shall register or cause to be registered all shares sold by
the Distributor pursuant to the provisions hereof in such name or names and
amounts as the Distributor may request from time to time. All shares of the
Trust, when so issued and paid for, shall be fully paid and non-assessable.
13. Effective Date - This agreement shall be effective upon its execution,
and unless terminated as provided, shall continue in force for two (2) years
from the effective date and thereafter from year to year, provided continuance
as to each particular Fund after the two (2) year period is approved annually by
either (i) the vote of a majority of the Board members of the Trust, or by the
vote of a majority of the outstanding voting securities of that Fund, and (ii)
the vote of a majority of those Board members of the Trust who are not parties
to this Agreement or interested persons of any party, cast in person at a
meeting called for the purpose of voting on the approval. As used in this
paragraph the terms "vote of a majority of the outstanding voting securities"
and "interested person," shall have the respective meanings specified in the
Investment Company Act of 1940 as now in effect or as hereafter amended.
14. Termination - This Agreement shall automatically terminate in the event
of its assignment. As used in this paragraph the term "assignment" shall have
the respective meaning specified in the Investment Company Act of 1940 as now in
effect or as hereafter amended. In addition to termination by failure to approve
continuance or by assignment, this Agreement may at any time be terminated by
either party upon not less than sixty days' prior written notice to the other
party.
15. Notice - Any notice required or permitted to be given by either party
to the other shall be deemed sufficient if sent by registered or certified mail,
postage prepaid, addressed by the party giving notice to the other party at the
last address furnished by the other party to the party giving notice: if to the
Trust, at 5847 San Felipe, Suite 4100, Houston, Texas, and if to the
Distributor, at 5847 San Felipe, Suite 4100, Houston, Texas.
16. Limitation of Liability for Claim. The Declaration of Trust of the
Trust, a copy of which, together with all amendments thereto, is on file in the
Office of the Secretary of the Commonwealth of Massachusetts, provides that the
name "Capstone Indexed Series Trust" refers to the Trustees under the
Declaration of Trust collectively as trustees and not as individuals or
personally, and that no shareholder of the Funds, or Trustee, officer, employee
or agent of the Trust, shall be subject to claims against or obligations of the
Trust or of the Funds to any extent whatsoever, but that the Trust estate only
shall be liable.
The Distributor is hereby expressly put on notice of the limitation
of liability as set forth in the Declaration of Trust and hereby agrees that the
obligations assumed by the Trust on behalf of the Funds pursuant to this
Agreement shall be limited in all cases to the Funds and their assets, and the
Distributor shall not seek satisfaction of any such obligation from shareholders
or any shareholder of the Funds or any other series of the Trust or their
shareholders, or from any Trustee, officer, employee or agent of the Trust. The
Distributor understands that the rights and obligations of each Fund, or series,
under the Declaration are separate and distinct from those of any and all other
series.
<PAGE>
IN WITNESS, the Trust has executed this instrument in its name and behalf,
and its seal affixed, by one of its officers duly authorized, and the
Distributor has executed this instrument in its name and behalf, and its
corporate seal affixed, by one of its officers duly authorized, as of the day
and year above written.
CAPSTONE INVESTMENT SERIES TRUST
By:
----------------------------------
Name:
Title:
CAPSTONE ASSET PLANNING COMPANY
By:
----------------------------------
President
CAPSTONE ASSET
PLANNING COMPANY
5847 SAN FELIPE, SUITE 4100
HOUSTON, TEXAS 77057
713-260-9000
800-262-6631
SELLING GROUP AGREEMENT
Ladies/Gentlemen:
We invite you to participate in the distribution of the shares of any
open-end investment companies (herein collectively referred to as the "shares"),
of which we are or may become the principal underwriter (herein collectively
referred to as the "Funds" and individually as a "Fund"), subject to the
following terms:
1. You agree to use your best efforts in the development and promotion of
shares of the Funds. In all sales of shares of the Funds to the public, you
shall act as dealer for your own account, and in no transaction shall you have
any authority to act as agent for the Fund or for us.
2. Orders for the purchase of shares of a Fund will be accepted by us only
at its public offering price (net asset value plus the applicable sales
commission, if any) described in the Fund's then current prospectus and in
accordance with the terms and conditions set forth in the prospectus. You will
forward to us the orders in accordance with our procedures then in effect.
3. All orders are subject to acceptance or rejection by us and become
effective only upon confirmation by us. We reserve the right not to accept any
specific order for the purchase of shares. We will not accept a conditional
order.
4. Payment for shares purchased from us must be received by us within five
business days after the acceptance of your order or such shorter time as may be
required by law. If such payment is not so received, we reserve the right,
without notice, forthwith to cancel the sale or, at our option, to sell the
shares ordered by you back to the Fund, in which latter case you may be held
responsible for any loss, including loss of profit, suffered by us and/or the
Fund resulting from your failure to make the aforesaid payment. Where sales of
any Fund shares are contingent upon the Fund's receipt of funds in payment
therefor, you will forward promptly to us any purchase orders and payments
received by you from investors.
5. You shall purchase shares only from us or from your customers. If you
purchase shares from us, all such purchases shall be made only to cover orders
received by you from customers or for your own bona fide investment. If you
purchase shares from your customers, you shall pay such customers not less than
the applicable redemption price as established by the then current prospectus.
6. You shall sell shares only: (a) to customers at the applicable public
offering price; and (b) to us as agent for the Fund at the repurchase price. In
such a sale to us, you may act either as principal for your own account or as
agent for your customer. If you act as agent for your customer in selling shares
to us, you agree not to charge your customer more than a fair commission for
handling the transaction.
7. You shall not withhold placing with us orders received from your
customers so as to profit yourself as a result of such withholding; e.g., by a
change in the net asset value from that used in determining the public offering
price to your customers.
8. Unless at the time of transmitting an order you advise us to the
contrary, we may consider the order to be the total holding of the investor and
assume that the investor is not entitled to any reduction in sales price beyond
that accorded to the amount of the purchase as determined by the schedule set
forth in the then current prospectus.
9. We shall pay to you a commission on each order solicited by you and
accepted by us equal to the amount calculated pursuant to the commission
schedule in effect on the day such order is accepted. We may amend such schedule
from time to time by providing written notice of amendment to you. You shall not
share or rebate any portion of such commissions or otherwise grant any
concessions, discounts or other allowances to any person who is not a broker or
dealer actually engaged in the investment banking or securities business. No
commission will be payable with respect to a purchase of shares involving the
reinvestment of income dividends and capital gain distributions.
10. If any shares sold pursuant to an order solicited by you under the
terms of this Agreement are redeemed by any of the Funds (including redemptions
resulting from an exchange for shares of another investment company) or are
repurchased by us as agent for the Fund or are tendered to a Fund for redemption
within seven business days after the confirmation to you of the original
purchase order for such shares, you shall pay forthwith to us the full amount of
the commission allowed to you on the original sale, provided we notify you of
such repurchase or redemption within ten days of the date upon which written
redemption requests and, if applicable, share certificates are delivered to us
or to the Fund.
<PAGE>
11. (a) To the extent you provide distribution and shareholder services to
shareholders of any Fund which has adopted a Service and Distribution Plan
("12b-1 Plan") pursuant to Rule 12b-1 of the Investment Company Act of 1940 (the
"Act"), we shall pay you a fee, as established by the Board of Directors or
Trustees and stated in the then current Fund prospectus, based upon the average
net asset value of Fund shares for which you are the dealer of record or holder
of record, or owned by shareholders with whom you have a servicing relationship.
These distribution and shareholder services may include, among other items,
services in connection with the distribution of Fund shares to your clients;
answering client inquiries about the Fund; assisting clients in changing
dividend options, account designations and addresses; performance of
sub-accounting; establishing and maintaining shareholder accounts and records;
processing purchase and redemption transactions; investing client account cash
balances automatically in shares of the Fund; providing periodic statements with
those of other transactions and balances in the client's other accounts serviced
by you; arranging for bank wires; and such other information and services as may
be requested, to the extent permitted by applicable statute, rule or regulation.
You shall provide such office space and equipment, telephone facilities and
personnel as is necessary or beneficial for providing information and services
to shareholders of the Fund, and to assist you in servicing accounts of clients.
You shall transmit promptly to clients all communications sent to you for
transmittal to clients by or on behalf of the Fund, us or the Fund's investment
adviser, custodian or transfer or dividend disbursing agent.
(b) You shall furnish us with such information as shall reasonably be
requested by us or by directors or trustees of the Fund with respect to fees
paid to you pursuant to this Section. It is our obligation to furnish to the
directors or trustees, for their review, (1) on a quarterly basis, a written
report of the amounts expended under this Section, and the purposes for which
such expenditures were made, and (2) on an annual basis, such information as may
be reasonably necessary to make an informed determination as to whether the
12b-1 Plan should be continued.
(c) The provisions of this Section shall continue in full force and
effect (1) from year to year only so long as such continuance is specifically
approved at least annually by vote of the Fund's Board of Director or Trustees,
and of the directors or trustees who are not "interested persons" of the Fund as
defined in the Act and have no direct or indirect financial interest in the
12b-1 Plan or in any agreements related to the 12b-1 Plan, cast in person at a
meeting called for the purpose of voting on the 12b-1 Plan or this Section, and
(2) only so long as the Fund's Distribution Agreement with us or this Agreement
remains in effect. The provisions of this Section may be terminated at any time,
without the payment of any penalty, by vote of the directors or trustees, or by
vote of a majority of the Fund's outstanding voting securities, and shall be
terminated immediately in the event of assignment as that term is defined in the
Act. The provisions of the 12b-1 Plan and the Distribution Agreement between the
Fund and us, insofar as they relate to this Section, are incorporated herein by
reference. The 12b-1 Plans in effect on the date of this Agreement are
substantially in the form set forth as Exhibit A hereto.
12. You represent that (check one):
(a) You are a member of the National Association of Securities
Dealers, Inc. ("NASD") and agree to maintain membership in the NASD. You agree
to abide by all the rules and regulations of the Securities and Exchange
Commission and the NASD which are binding upon underwriters and dealers in the
distribution of the securities of open-end investment companies, including
without limitation, Section 26 of Article III of the NASD Rules of Fair
Practice, all of which are incorporated herein as if set forth in full. You
shall comply with all applicable state and Federal laws and the rules and
regulations of authorized regulatory agencies. You will not sell or offer for
sale shares of any Fund in any state where (i) you are not qualified to act as a
dealer or (ii) the shares are not qualified for sale under the Blue Sky laws and
regulations for such state, except for states in which they are exempt from
qualification. You agree to notify us immediately if your license or
registration to act as a broker-dealer is revoked or suspended by any Federal,
self-regulatory or state agency; or
(b) You are a broker or dealer in a country other than the United
States who is not eligible for membership in the NASD (or any other registered
securities association) and, as a condition of your receipt of commissions
hereunder with respect to transactions in Fund shares, you agree that, in making
sales to purchasers within the United States of Fund shares as to which
commissions are paid to you hereunder, you will conform, to the same extent as
if you were an NASD member, to the provisions of paragraphs (a) and (b) of
Section 25 of the NASD Rules of Fair Practice, which paragraphs are attached
hereto and incorporated herein.
13. Stock certificates for shares sold to you shall be issued only if
specifically requested.
14. Each Fund reserves the right in its discretion, and we reserve the
right in our discretion, without notice, to suspend sales or withdraw the
offering of shares entirely. We reserve the right, without notice, to amend,
modify or cancel this Agreement.
15. We may cooperate with other broker-dealers who are licensed members of
the NASD, registered with the SEC and duly licensed by the appropriate
regulatory agency of each state in which they will solicit orders to purchase
shares of the Funds and with qualified broker-dealers in other countries. Such
other broker-dealers may be employed by us on terms and conditions identical or
similar to this Agreement and to that extent such other broker-dealers shall
compete with you in the sale of shares.
16. This Agreement shall become effective as of the date when it is
executed and dated by you below. After this Agreement becomes effective, either
party may terminate it at any time for any reason by giving 30 days' written
notice to the other party. This Agreement shall automatically terminate at the
first occurrence of any of the following events: (a) the Registration Statement
shall cease to be effective; (b) the Fund shall be dissolved or liquidated; or
(c) your license or registration to act as a broker-dealer shall be revoked or
suspended by any Federal, self-regulatory or state agency, or, with respect to a
firm that has checked paragraph 12(b), above, by any equivalent non-United
States regulatory organization.
17. Any and all notices or other communications required or permitted under
this Agreement shall be in writing and shall be delivered at or mailed to you at
the address specified below and to us at Capstone Asset Planning Company -
Compliance Dept., 5847 San Felipe, Suite 4100, Houston, Texas 77057. Either
party may change the address to which notices are to be delivered to it by
providing the other party with written notice of such change of address. Any
notice required or permitted under this Agreement shall not be deemed given
until actual receipt.
18. This Agreement shall not be assigned by either party without the prior
written consent of the other party.
19. This Agreement shall be construed and enforced in accordance with the
laws of the State of Texas without giving effect to conflict of laws.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first below written.
<PAGE>
CAPSTONE ASSET PLANNING COMPANY
By ______________________________________________
President
Accepted and Agreed to this ____ day of __________, 19__.
________________________________________________________________________________
(Firm)
________________________________________________________________________________
(Firm's Tax Identification Number)
By:_____________________________________________________________________________
Name:___________________________________________________________________________
Title:__________________________________________________________________________
Address:________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Telephone:______________________________________________________________________
Rev. 09/94
<PAGE>
EXHIBIT A
FORM OF 12b-1 PLANS
The 12b-1 Plans adopted by Funds in the Capstone Group with such Plans are
substantially in the following form:
SERVICE AND DISTRIBUTION PLAN
INTRODUCTION: It has been determined that the Fund will pay for certain costs
and expenses incurred in connection with the distribution of its shares and
servicing of its shareholders and adopt the Service and Distribution Plan (the
"Plan") set forth herein pursuant to Rule 12b-1 under the Investment Company Act
of 1940 (the "Act").
The Board of Directors, in considering whether the Fund should implement
the Plan, has requested and evaluated such information as it deemed necessary to
make an informed determination as to whether the Plan should be implemented and
has considered such pertinent factors as it deemed necessary to form the basis
for a decision to use assets of the Fund for such purposes.
In voting to approve the implementation of the Plan, the directors have
concluded, in the exercise of their reasonable business judgment and in light of
their respective fiduciary duties, that there is a reasonable likelihood that
the Plan will benefit the Fund and its existing and future shareholders.
THE PLAN: The material aspects of the financing by the Fund of distribution
expenses to be incurred in connection with securities of which it is the issuer
are as follows:
1. The Fund will reimburse Capstone Asset Planning Company ("CAPCO") for
costs and expenses incurred in connection with the distribution and marketing of
shares of the Fund and servicing of Fund shareholders. Such distribution and
servicing costs and expenses may include: (1) printing and advertising expenses;
(2) payments to employees or agents of CAPCO who engage in or support
distribution of the Fund's shares, including salary, commissions, travel and
related expenses; (3) the costs of preparing, printing and distributing
prospectuses and reports to prospective investors; (4) expenses of organizing
and conducting sales seminars; (5) expenses related to selling and servicing
efforts, including processing new account applications, transmitting customer
transaction information to the Fund's transfer agent and answering questions of
shareholders; (6) payments of fees to one or more broker-dealers (which may
include CAPCO itself), financial institutions or other industry professionals,
such as investment advisers, accountants and estate planning firms (severally, a
"Service Organization"), in respect of the average daily value of the Fund's
shares owned by shareholders for whom the Service Organization is the dealer of
record or holder of record, or owned by shareholders with whom the Service
Organization has a servicing relationship; (7) costs and expenses incurred in
implementing and operating the Plan; and (8) such other similar services as the
Fund's Board of Directors determines to be reasonably calculated to result in
the sale of Fund shares.
CAPCO will be reimbursed monthly for such costs, expenses or payments
at an annual rate of up to but not more than ______% of the average daily net
assets of the Fund. Any expense payable hereunder may be carried forward for
reimbursement for up to twelve months beyond the date in which it is incurred,
subject always to the limit that not more than ______% of the Fund's average
daily net assets may be used in any month to pay expenses pursuant to the Plan.
The Fund shall incur no interest or carrying charges for expenses carried
forward. In the event the Plan is terminated as herein provided, the Fund shall
have no liability for expenses that were not reimbursed as of the date of
termination.
2. CAPCO may periodically pay to one or more Service Organizations (which
may include CAPCO itself) a fee in respect of the Fund's shares owned by
shareholders for whom the Service Organizations are the dealers of record or
holders of record, or owned by shareholders with whom the Service Organizations
have servicing relationships. Such fees will be computed daily and paid
quarterly by CAPCO at an annual rate not exceeding ______% of the average net
asset value of the Fund's shares owned by shareholders for whom the Service
Organizations are the dealers of record or holders of record, or owned by
shareholders with whom the Service Organizations have servicing relationships.
The payment to a Service Organization is subject to compliance by the
Service Organization with the terms of a Selling Group Agreement between the
Service Organization and CAPCO (the "Agreement"), the form of which is attached
hereto as Exhibit A. If a shareholder of the Fund ceases to be a client of a
Service Organization that has entered into an Agreement with CAPCO, but
continues to hold shares of the Fund, CAPCO will be entitled to receive a
similar payment in respect of the servicing provided to such investors. For the
purposes of determining the fees payable under the Plan, the average daily net
asset value of the Fund's shares shall be computed in the manner specified in
the Fund's current prospectus for the computation of the value of the Fund's net
asset value per share.
3. The Board of Directors shall be provided, at least quarterly, with a
written report of all amounts expended pursuant to the Plan. The report shall
state the purposes for which the amounts were expended.
4. The Plan will become effective immediately upon approval by (a) a
majority of the outstanding voting securities of the Fund, and (b) a majority of
the Board of Directors, including a majority of the directors who are not
"interested persons" (as defined in the Act) of the Fund and have no direct or
indirect financial interest in the operation of the Plan or in any agreements
entered into in connection with the Plan (the "Plan Directors"), pursuant to a
vote cast in person at a meeting called for the purpose of voting on the
approval of the Plan. If additional series are added to the Fund, the Plan will
become effective as to each such series upon approval by (a) a majority of the
outstanding voting securities of such series, and (b) a majority of the Board of
Directors, including a majority of the Plan Directors, pursuant to a vote cast
in person at a meeting called for such purpose.
5. The Plan shall continue for a period of one year from its effective
date, unless earlier terminated in accordance with its terms, and thereafter
shall continue automatically for successive annual periods, provided such
continuance is approved by a majority of the Board of Directors, including a
majority of the Plan Directors pursuant to a vote cast in person at a meeting
called for the purpose of voting on the continuance of the Plan.
6. The Plan may be amended at any time by the Board of Directors provided
that (a) any amendment to increase materially the costs which the Fund or a
series may bear for distribution pursuant to the Plan shall be effective only
upon approval by a vote of a majority of the outstanding voting securities of
the respective series of the Fund and (b) any material amendments of the terms
of the Plan shall become effective only upon approval as provided in paragraph
4(b) hereof.
7. The Plan is terminable without penalty at any time with respect to any
series of the Fund by (a) vote of a majority of the Plan Directors, or (b) vote
of a majority of the outstanding voting securities of the respective series of
the Fund.
8. Any person authorized to direct the disposition of monies paid or
payable by the Fund pursuant to the Plan or any agreement entered into in
connection with the Plan shall provide to the Board of Directors, and the Board
of Directors shall review, at least quarterly, a written report of the amounts
expended pursuant to the Plan and the purposes for which such expenditures were
made.
9. While the Plan is in effect, the selection and nomination of directors
who are not "interested persons" (as defined in the Act) of the Fund shall be
committed to the discretion of the directors who are not "interested persons."
10. The Fund shall preserve copies of the Plan, any agreement in connection
with the Plan, and any report made pursuant to paragraph 8 hereof, for a period
of not less than six years from the date of the Plan or such agreement or
report, the first two years in an easily accessible place.
ADMINISTRATION AGREEMENT
THIS ADMINISTRATION AGREEMENT is made ____ day of ___________, 1998 by and
between CAPSTONE INVESTMENT SERIES TRUST, a Massachusetts business trust (the
"Trust"), and CAPSTONE ASSET MANAGEMENT COMPANY, a Delaware corporation (the
"Administrator").
W I T N E S S E T H
WHEREAS, the Trust intends to engage in business as a diversified open-end
management investment company and register as such under the Investment Company
Act of 1940 (the "Act"); and
WHEREAS, the Administrator is engaged in the business of rendering
administrative and supervisory services to investment companies; and
WHEREAS, the Trust desires to retain the Administrator to render
supervisory and administrative services to the Trust in connection with the
separate series of the Trust (each a "Fund"), in the manner and on the terms
hereinafter set forth;
NOW THEREFORE, in consideration of the premises and the terms and
provisions hereinafter set forth, the parties hereto agree as follows:
1. Employment of the Administrator. The Trust hereby employs the
Administrator to perform the duties set forth in Paragraph 2 hereof for the
period and on the terms hereinafter set forth. The Administrator hereby accepts
such employment and agrees during such period to render the services herein set
forth for the compensation herein provided. The Administrator shall for all
purposes herein be deemed to be an independent contractor and, except as
expressly provided or authorized (whether herein or otherwise), shall have no
authority to act for or represent the Trust in any way or otherwise be deemed an
agent of the Trust.
2. Duties of the Administrator. The Administrator, subject to the
direction of the Board of Trustees and officers of the Trust, undertakes to
provide the following services and to assume the following obligations:
(a) Administrative Services. The Administrator shall conduct
and manage the day-to-day operations of the Funds, including (i) the
coordination of all matters relating to the functions of the
investment Adviser, custodian, transfer agent, other shareholder
service agents, accountants, attorneys and other parties performing
services or operational functions for the Funds, (ii) providing the
Funds, at the Administrator's expense, with services of persons
competent to perform such administrative and clerical functions as
are necessary in order to provide effective administration of the
Fund, including duties in connection with shareholder relations,
reports, redemption requests and account adjustments and the
maintenance of certain books and records of the Fund, (iii) the
preparation of registration statements, prospectuses, reports, proxy
solicitation materials and amendments thereto and the furnishing of
legal services to the Funds except for services provided by outside
counsel to be selected by the Board of Trustees, and (iv) providing
the Funds, at the Administrator's expense, with adequate office
space and related services necessary for its operations as
contemplated in this Agreement.
(b) Other Obligations and Services. The Administrator shall
make its officers and employees available to the Board of Trustees
and officers of the Trust for consultation and discussions regarding
the administrative management of the Fund.
3. Expenses of the Fund.
(a) The Administrator. The Administrator assumes and shall pay
for maintaining the staff and personnel and shall at its own expense
provide the equipment (other than equipment used in connection with
the Funds' custodial system), office space and facilities necessary
to perform its obligations under this Agreement, and shall pay all
compensation of officers of the Trust and the fees of all trustees
of the Trust who are affiliated persons of the Administrator.
(b) The Trust. The Trust and the Funds assume and shall pay or
shall arrange to pay all other expenses of the Trust and the Funds,
including (i) interest and taxes; (ii) brokerage commissions and
other costs in connection with the purchase and sale of portfolio
investments; (iii) compensation of its trustees other than those who
are affiliated persons of the Adviser or the Administrator; (iv)
fees of outside counsel to and of independent accountants of the
Trust and/or the Funds selected by the Board of Trustees; (v)
custodian, registrar and transfer agent fees and expenses; (vi)
expenses related to the repurchase or redemption of the Funds'
shares including expenses related to a program of periodic
repurchases or redemptions; (vii) expenses related to the issuance
of the Funds' shares against payment therefor by or on behalf of the
subscribers thereto; (viii) fees and related expenses of registering
and qualifying the Trust, the Funds and their shares for
distribution under state and federal securities laws; (ix) expenses
of printing and mailing of registration statements, prospectuses,
reports, notices and proxy solicitation materials of the Trust and
the Funds; (x) all other expenses incidental to holding meetings of
the shareholders of the Trust and the Funds including proxy
solicitations therefor; (xi) expenses for servicing shareholder
accounts; (xii) insurance premiums for fidelity coverage and errors
and omissions insurance; (xiii) dues for membership of the Trust and
the Funds in trade associations approved by the Board of Trustees;
and (xiv) such non-recurring expenses as may arise, including those
associated with actions, suits or proceedings arising out of the
activities of the Trust or the Funds to which the Trust or the Funds
are a party and the legal obligation which the Trust or the Funds
may have to indemnify the officers and trustees with respect
thereto. To the extent that any of the foregoing expenses are
allocated among the Trust, the Funds and any other party, such
allocations shall be made pursuant to methods approved by the Board
of Trustees.
4. Compensation. As compensation for the services rendered, the
facilities furnished and the expenses assumed by the Administrator, each Fund
shall pay to the Administrator at the end of each month a fee at the annual rate
of 0.05% of the average daily net assets of each Fund as determined and computed
in accordance with the description of the method of determination of net asset
value contained in the combined prospectus and statement of additional
information of the Trust as in effect from time to time under the Securities Act
of 1933. If the Administrator shall serve for less than any whole quarter, the
compensation described in the preceding sentence shall be prorated.
5. Activities of the Administrator. The services of the
Administrator to the Trust hereunder are not to be deemed exclusive and the
Administrator shall be free to render similar services to others.
6. Liabilities of the Administrator. In the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of obligations or
duties hereunder on the part of the Administrator, the Administrator shall not
be liable to the Trust, the Funds, or to any shareholder of the Trust or the
Funds for any act or omission in the course of, or in connection with, rendering
services hereunder or for any losses that may be sustained in the purchase,
holding or sale of any security.
7. Renewal. The term of this Agreement shall commence on the date
hereof and shall continue in effect until _____________, 2000 or until
terminated in accordance with Paragraph 9 hereof.
9. Termination.
(a) Prior to _____________, 2000, this Agreement may be terminated
by either party only for cause and upon 60 days' written notice to the other
party. Such termination shall be without penalty to the terminating party. For
purposes of this Paragraph 9(a), "cause" is defined as a finding made in good
faith by the Trustees of the Trust or the directors of the Administrator, as
applicable, that (i) the other party has failed on a continuing basis to perform
its duties pursuant to this Agreement in a satisfactory manner consistent with
then current industry standards and practices or (ii) the terms and provisions
of this Agreement are no longer reasonable in light of then current industry
standards and practices and the parties hereto cannot agree on a mutually
satisfactory amendment.
(b) After ____________, 1998, this Agreement may be terminated
without the payment of any penalty (i) by the Trust on 60 days' notice to the
Administrator and (ii) by the Administrator on 90 days' written notice to the
Trust.
10. Amendments. This Agreement may be amended by written agreement
between the parties at any time provided such amendment is authorized or
approved by the Board of Trustees of the Trust, and in accordance with any
applicable regulatory requirements.
11. Notices. Any and all notices or other communications required or
permitted under this Agreement shall be in writing and shall be deemed
sufficient when mailed by United States certified mail, return receipt
requested, or delivered in person against receipt to the party to whom it is to
be given, at the address of such party set forth below:
If to the Administrator:
Capstone Asset Management Company
5847 San Felipe, Suite 4100
Houston, Texas 77057
If to the Trust:
Capstone Investment Series Trust
5847 San Felipe, Suite 4100
Houston, Texas 77057
or to such other address as the party shall have furnished in writing in
accordance with the provisions of this Section 11.
12. Severability. If any provision of this Agreement is invalid,
illegal or unenforceable, the balance of this Agreement shall remain in full
force and effect and this Agreement shall be construed in all respects as if
such invalid, illegal or unenforceable provision were omitted.
13. Headings. Any paragraph headings in this Agreement are for
convenience of reference only, and shall be given no effect in the construction
or interpretation of this Agreement or any provisions thereof.
14. Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, and which
together shall constitute but one and the same instrument.
15. Governing Law. This Agreement shall be subject to the laws of
the State of Texas, and shall be interpreted and construed to further and
promote the operation of the Trust, including the Funds, as a diversified
open-end management company.
16. Limitation of Liability for Claim. The Declaration of Trust of the
Trust, a copy of which, together with all amendments thereto, is on file in the
Office of the Secretary of the Commonwealth of Massachusetts, provides that the
name "Capstone Indexed Series Trust" refers to the Trustees under the
Declaration of Trust collectively as trustees and not as individuals or
personally, and that no shareholder of the Funds, Trustee, officer, employee or
agent of the Trust, shall be subject to claims against or obligations of the
Trust or of the Funds to any extent whatsoever, but that the Trust estate only
shall be liable.
The Administrator is hereby expressly put on notice of the
limitation of liability as set forth in the Declaration of Trust and hereby
agrees that the obligations assumed by the Trust on behalf of the Funds pursuant
to this Agreement shall be limited in all cases to the Funds and their assets,
and the Administrator shall not seek satisfaction of any such obligation from
shareholders or any shareholder of the Funds or any other series of the Trust or
their shareholders, or from any Trustee, officer, employee or agent of the
Trust. The Administrator understands that the rights and obligations of each
Fund, or series, under the Declaration are separate and distinct from those of
any and all other series.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed on the date first written above.
CAPSTONE INVESTMENT SERIES TRUST
By ________________________________
Name:
Title:
CAPSTONE ASSET MANAGEMENT COMPANY
By ________________________________
Name:
Title:
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below appoints Edward L. Jaroski as his true and lawful
attorney-in-fact, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact full power and authority to do and perform each and every
act and thing requisite and necessary to be done in connection therewith, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
/s/BERNARD J. VAUGHAN Trustee March 30, 1998
Bernard J. Vaughan
