As filed with the Securities and Exchange Commission on December 14, 1999
Registration No. 2-28174
Investment Company Act File No. 811-1597
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. ___ / /
Post-Effective Amendment No. 53 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. ___ /X/
(Check appropriate box or boxes)
CAPSTONE CAPSTONE FIXED INCOME SERIES, INC.
(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
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--------------------------------
(Name and Address of Agent for Service)
Allan S. Mostoff, Esq.
Dechert Price & Rhoads
1775 Eye Street, NW
Washington, DC 20006-2401
It is proposed that this filing will become effective 75 days after filing
pursuant to paragraph (a)(2) of Rule 485.
<PAGE>
CHRISTIAN STEWARDSHIP FUNDS
Fixed Income Fund
Christian Stewardship Bond Index Fund
Equity Funds
Christian Stewardship Large Cap Equity Index Fund
Christian Stewardship Small Cap Equity Index Fund
International Fund
Christian Stewardship International Index Fund
PROSPECTUS
[Date]
The Securities and Exchange Commission has not approved or disapproved the
shares described in this prospectus or determined whether this prospectus is
accurate or complete. Any representation to the contrary is a criminal offense.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
TABLE OF CONTENTS
PAGE
----
THE FUNDS: INVESTMENTS, RISKS EXPENSES .............................
ABOUT THE CHRISTIAN STEWARDSHIP FUNDS...........................
BENCHMARK FUNDS.................................................
BOND INDEX FUND.................................................
LARGE CAP EQUITY INDEX FUND.....................................
SMALL CAP EQUITY INDEX FUND.....................................
INTERNATIONAL INDEX FUND........................................
PRINCIPAL RISKS......................................................
PERFORMANCE INFORMATION..............................................
FEES AND EXPENSES....................................................
MANAGEMENT...........................................................
PURCHASING FUND SHARES...............................................
REDEEMING FUND SHARES................................................
EXCHANGING FUND SHARES...............................................
DIVIDENDS, DISTRIBUTIONS AND TAXES...................................
HOW TO GET MORE INFORMATION..........................................
<PAGE>
THE FUNDS: INVESTMENTS, RISKS, EXPENSES
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ABOUT THE CHRISTIAN STEWARDSHIP FUNDS (CSF)
The portfolios (Funds) offered by CSF and described in this prospectus are as
follows:
Fixed Income Fund
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Christian Stewardship Bond Index Fund
Domestic Equity Funds
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Christian Stewardship Large Cap Equity Index Fund
Christian Stewardship Small Cap Equity Index Fund
International Fund
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Christian Stewardship International Index Fund
Each of CSF's four Funds has different investment policies.
Benchmark Funds -- Each Fund is an "index-type fund" -- i.e., each Fund is
designed to produce performance generally comparable to a designated index or
"Benchmark."
Values-Based Investment Policies -- Each Fund follows certain values-based
criteria in making its investments. The Funds avoid investing in companies whose
primary business is the manufacture, operation, distribution or promotion of
abortion, alcohol, gambling, pornography, or tobacco, although some of these
companies may be indirectly represented in derivatives in which a Fund invests.
Two Classes of Shares -- Each of the Funds offers Individual shares and
Institutional shares, which differ in terms of expenses and minimum investments.
(See "Shareholder Information.")
Adviser and Administrator -- The Funds' investment adviser and administrator is
Capstone Asset Management Company. The investment objectives and principal
investment strategies of each Fund are described below. The investment
objective(s) of a Fund may be changed without shareholder approval.
BENCHMARK FUNDS
- --------------------------------------------------------------------------------
Each of the Funds seeks to match the performance of a designated index
(Benchmark). The Adviser and Administrator will select portfolio investments for
each Fund using statistical methods designed to produce total returns that will
be comparable to the designated Benchmark. Thus, the Adviser and Administrator
will not be using traditional methods of security selection based on analysis of
market conditions and particular issuers. Additionally, these 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'
values-based investment policies, a Fund may be limited in its ability to match
the performance of a particular Benchmark. Other factors, such as variations in
a Fund's size, the availability of various investment techniques, and regulatory
limitations on the use of certain techniques from time to time may also
interfere with a Fund's ability to match its Benchmark's performance. Because
the Adviser and 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 Benchmark. 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. To the extent consistent with prudent management, the
Adviser and Administrator will take positions in futures contracts to gain
exposure to relevant securities markets when incoming cash cannot be immediately
invested in suitable securities. Neither the Fund, the Adviser and
Administrator, nor their affiliates are in any way sponsored by or affiliated
with the firms that publish the reference Benchmarks.
BOND INDEX FUND
- --------------------------------------------------------------------------------
Investment Objective: Current income
Principal Investment Strategies
The Fund pursues its objective by attempting to match the price and yield
performance, before Fund expenses, of the Lehman Brothers Aggregate Bond ("LBA")
Index. The LBA Index is a broad measure of the performance of taxable bonds in
the US market, with maturities of at least one year. The Fund's portfolio will
be structured in a manner designed to provide generally comparable performance
by investing primarily in similar types of securities having a broad range of
maturities.
Under normal market conditions, at least 65% of the Fund's total assets will be
invested in bonds. The instruments in which the Fund invests may have fixed,
variable or floating rates of interest and include government, corporate,
mortgage-backed, asset-backed, and international dollar-denominated bonds. 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 futures as a temporary
substitute for investment in bonds. The Fund may purchase securities on a
when-issued or forward commitment basis.
LARGE CAP EQUITY INDEX FUND
- --------------------------------------------------------------------------------
Investment Objective Capital growth and income.
Principal Investment Strategies
The Fund pursues its objective by attempting to match the price and yield
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 most highly priced 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. The Fund will seek to match the performance of
this index by investing primarily in equity securities of the type that are
included in this index. "Equity securities" include common stocks (including
SPDRs, see below), preferred stocks, and securities convertible or exchangeable
for common stock. At least 65% of the Fund's total assets will be, under normal
market conditions, invested in equity securities of issuers whose
capitalization, at the time of investment, is equal to or exceeds the minimum
capitalization of issuers in the S&P 500 Index. As of December 9, 1999, the
minimum capitalization of issuers included in that index was $385 million. The
Fund may also, however, have small portions of its portfolio in cash or
short-term money market instruments and in repurchase agreements. The Fund may
purchase futures contracts as a temporary substitute for investment in equity
securities. The Fund may invest up to 10% of its total assets in S&P 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 INDEX FUND
- --------------------------------------------------------------------------------
Investment Objective Capital appreciation.
Principal Investment Strategies
The Fund pursues its objective by attempting to match the performance before
Fund expenses, of the S&P Small Cap 600 Index. The S&P Small Cap 600 Index
consists of 600 stocks with generally smaller capitalization than those included
in the S&P 500 Index. As of December 9, 1999, issuers represented in this index
had capitalization ranging from about $25.8 million to about $4.4 billion. The
Fund will seek to match the performance of this index by investing primarily in
equity securities of the type that are included in this index. At least 65% of
the Fund's total assets will, under normal market conditions, be invested in
equity securities (as defined for Large Cap Equity Index Fund, above) of issuers
whose capitalization, at the time of investment, falls within the capitalization
range of issuers in the S&P Small Cap 600 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 purchase futures contracts as a
temporary substitute for investment in equity securities. Like the Large Cap
Equity Index Fund, this Fund may invest up to 10% of its total assets in SPDRs.
INTERNATIONAL EQUITY INDEX FUND
- --------------------------------------------------------------------------------
Investment Objective Capital appreciation
Principal Investment Strategies
The Fund pursues this objective by attempting to match the performance
characteristics of the Morgan Stanley Capital International Europe, Australia,
Far East ("EAFE") Index, net of withholding taxes. 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. The Fund will seek to match the performance of
this index by investing primarily in securities with characteristics generally
comparable to those that are included in this index or whose performance is
expected to be comparable to that of the index or a portion of the index. The
Fund may invest in securities of other investment companies. Applicable law
limits investments by the Fund and its affiliated persons to no more than 3% of
the total outstanding stock of a particular other investment company. Further,
the Fund may, in any 30-day period, redeem an amount equal to no more than 1% of
the other investment company's total outstanding securities. The Fund will
monitor its investments in other investment companies to assure compliance with
its policy to have no more than 15% of its net assets invested in illiquid
securities. The Fund's investment company investments will include shares of
other investment companies that invest in foreign securities. The Fund may
invest in World Equity Benchmark SharesSM ("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's investments may be in the form of American Depositary
Receipts ("ADRs"), European Depositary Receipts ("EDRs") and similar
instruments. (See "Foreign Securities," below.) 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. The Fund may purchase futures contracts as a temporary
substitute for investment in equity securities. Under normal market conditions,
at least 65% of the Fund's assets will be invested, either directly or through
other investment companies, in securities and other instruments representing
issuers whose headquarters or principal business activities are in at least
three countries.
PRINCIPAL RISKS
Investment in any of the Funds involves risk. There can be no assurance that a
Fund will achieve its investment objective. Additionally, there can be no
assurance that a Benchmark Fund will match the performance of its benchmark
index(es). You can lose money on your investment. When you sell your Fund
shares, they may be worth less than you paid for them. No Fund, by itself,
constitutes a balanced investment program.
Fixed Income Fund
Bond Index Fund is not a bank deposit and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or by any other government agency.
Interest Rate Risk. The value of fixed income securities fluctuates with changes
in interest rates, and if interest rates rise, the value of securities held by a
Fund will fall. If interest rates fall, a Fund must invest new funds and
proceeds of expired investments at a lower interest rate, reducing the Fund's
yield.
Credit Risk. The issuer of a fixed income security may fail to make payments of
interest and principal in a timely manner, or may default entirely. Also, when
an issuer's credit rating drops or it ceases to be rated, the value of its
securities tends to fall. These developments can cause the value of a Fund's
shares and/or its yield to decline. When a security ceases to be rated or its
rating is downgraded below the minimum required for purchase by a Fund, the
Adviser and Administrator will determine whether it is in the best interest of
Bond Index Fund to continue to hold the security, subject to a 5% limit on
below-investment grade holdings by any of these Funds.
Prepayment Risk. Investments in mortgage-related securities are subject to the
risk that the principal amount of the underlying mortgage may be prepaid prior
to the bond's scheduled maturity date. Such prepayments are more common when
interest rates decline. Prepayments cause the Fund to lose anticipated return on
its investment and expose the Fund to potentially lower rates of return upon
reinvestment of principal.
Foreign Security Risk. The Fund's investments in international
dollar-denominated bonds may involve greater costs than investments in U.S.
bonds and expose the Fund to risks associated with investing in foreign markets.
(See International Fund, below.)
Bond Index Fund may invest in securities rated BBB or Baa by Moody's or S&P.
Obligations rated BBB or Baa may have speculative characteristics and changes in
economic conditions or other circumstances may lead to a weakened capacity to
make principal and interest payments relative to higher grade bonds.
Equity Funds
Equity Risk. Equity securities have no guaranteed value and may fluctuate -- at
times dramatically -- in response to various factors, including market
conditions, political and other events, and developments affecting the
particular issuer or its industry or geographic segment.
International Fund
In addition to the risks noted below, the International Index Fund has risks
similar to those of the Equity Funds.
Foreign Security Risk. Foreign securities investments involve higher costs and
some risks that are different from its investments in U.S. securities. These
different risks come from differences in securities markets in other countries,
in tax policies, in the level of regulation and in accounting standards, as well
as from fluctuations in currency values. Further, there is often more limited
information about foreign issuers, and there is the possibility of negative
governmental actions and of political and social unrest.
Other Risks of the Funds
Index Risk. Because each Fund is an index-type fund, each Fund's performance is
intended to track that of the particular market its Benchmark is designed to
reflect. When the value of a Fund's index declines, the value of the Fund's
shares can also be expected to decline.
Investments in Other Investment Companies -- A Fund, particularly International
Index Fund, may invest in shares of other investment companies ("funds"). A Fund
bears a proportional share of the expenses of any such other fund, which are in
addition to those of the Fund. For example, a Fund will bear a portion of the
other fund's investment advisory fees, although the fees paid by the Fund to the
Adviser and Administrator will not be proportionally reduced.
PERFORMANCE INFORMATION
Because the Funds commenced operations on __________, 2000, they do not yet have
performance that reflects a full calendar year of operations.
FEES AND EXPENSES
This table describes the fees and expenses you will pay if you invest in
the Funds. As you can see, the Funds have no fees that are charged directly to
shareholders. Shareholders of a Fund do, however, bear indirectly a portion of
that Fund's operating expenses.
FEE TABLE
Shareholder Fees (fees paid directly from your investment)
Maximum front-end sales charge None
Maximum deferred sales charge None
Maximum sales charge on reinvested dividends and distributions
None
Redemption fee None
Exchange fee None
Maximum account fee None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
Bond Large Cap Equity
Individual Institutional Individual Institutional
<S> <C> <C> <C> <C> <C> <C>
Investment Advisory Fees 0.15% 0.15% 0.15% 0.15%
Distribution (12b -1 Fees) 0.25% 0.05% 0.25% 0.05%
Other Expenses 0.15% 0.15% 0.15% 0.15%
Total Annual Fund Operating Expenses 0.55% 0.35% 0.55% 0.35%
Small Cap Equity International
Individual Institutional Individual Institutional
Investment Advisory Fees 0.15% 0.15% 0.15% 0.15%
Distribution (12b -1 Fees)* 0.25% 0.05% 0.25% 0.05%
Other Expenses** 0.15% 0.15% 0.15% 0.15%
Total Annual Fund Operating Expenses 0.55% 0.35% 0.55% 0.35%
- -------
<FN>
* The Funds have adopted Rule 12b-1 plans that permit each Fund to pay portions
of the average net assets of each class of shares each year for distribution
costs. These fees are an ongoing charge to the each class of shares of the Fund
and therefore are an indirect expense to you. Over time these fees may cost you
more than other types of sales charge. ** "Other Expenses" include such items as
custody, transfer agent, legal, accounting and registration fees.
</FN>
</TABLE>
EXAMPLE
The following table shows how much each Fund's expenses described above
could cost you as an investor in a Fund for the illustrated time periods. The
example assumes that you initially invested $10,000 in a Fund, that the Fund
returns 5% each year, and that its expenses remain at a constant percentage. It
also assumes that you reinvest all dividends and distributions in additional
shares of the Fund. Because these assumptions may vary from your actual
experience, your actual return and expenses may be different.
<TABLE>
<CAPTION>
1 Year 3 Years
------ -------
Individual Institutional Individual Institutional
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Bond Index Fund $ 56 $ 36 $176 $113
Large Cap Equity Index Fund $ 56 $ 36 $176 $113
Small Cap Equity Index Fund $ 56 $ 36 $176 $113
International Index Fund $ 56 $ 36 $176 $113
</TABLE>
<TABLE>
<CAPTION>
5 Years 10 Years
------- --------
Individual Institutional Individual Institutional
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Bond Index Fund $307 $197 $689 $443
Large Cap Equity Index Fund $307 $197 $689 $443
Small Cap Equity Index Fund $307 $197 $689 $443
International Index Fund $307 $197 $689 %443
</TABLE>
MANAGEMENT
Adviser and Administrator
Capstone Asset Management Company ("CAMCO"), a wholly-owned subsidiary of
Capstone Financial Services, Inc. located at 5847 San Felipe, Suite 4100,
Houston, Texas 77057, acts as investment adviser and administrator for the
Funds. CAMCO provides investment management and administrative services to other
mutual funds, and provides investment management services to pension and
profit-sharing accounts, corporations and individuals. As of December 9, 1999,
CAMCO manages assets in excess of $2.5 billion.
For its investment advisory services, CAMCO receives fees based on the aggregate
average daily net assets of the Funds, as a group, and the resulting total fees
are pro-rated among the funds based on their relative net assets, at the
following percentage rates: 0.15% on the first $500 million, 0.125% on the next
$500 million and 0.10% of assets over $1 billion. CAMCO also receives fees from
each Fund for administrative services.
Advisory Committee
The Funds' Board of Directors has appointed an Advisory Committee that consults
with the Board regarding the application of the Funds' values to their
investment policies, and various other philosophical, structural and operational
matters concerning the Funds. Advisory Committee members serve without fee but
are compensated for expenses of attending Fund-related meetings.
Capital Structure
The Funds are separate series of Capstone Christian Values Fund, Inc., organized
as a Maryland corporation on May 11, 1992. Overall responsibility for management
of the Funds is vested in the Board of Directors. Shareholders are entitled to
one vote for each full share held and a proportionate factional vote for any
factional shares held and will vote in the aggregate and not by series except as
otherwise expressly required by law.
BUYING AND SELLING FUND SHARES
Share Price
The purchase and redemption price for shares of each class of shares of a Fund
is the net asset value (NAV) per share of the particular class that is next
determined after your purchase or sale order is received. NAV is generally
calculated as of 4:00 p.m. Eastern time, except on days when the Federal Reserve
wire system is closed and 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. NAV of a class reflects the
aggregate assets of a Fund less the liabilities attributable to that class. For
the other Funds, exchange-traded securities are valued at their market value at
that time (certain derivatives are priced at 4:15 Eastern time). Other equity
securities are valued at the last current bid quotation prior to the valuation
time. Prices for debt securities may be obtained from independent pricing
services, except that short-term securities are valued at amortized cost. If
market value quotations are not readily available for an investment, the
investment will be valued at fair value as determined in good faith by the Board
of Directors. For investments in securities traded on foreign exchanges that
close prior to the time at which a Fund's net asset value is determined, 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 investment was so established but before the Fund's net
asset value per share is determined that is likely materially to change the
Fund's net asset value, the Fund instrument would be valued using fair value
considerations established by the Board of Directors.
Minimum Investment
Individual shares -- The minimum initial investment per Fund is $2,000, except
for continuous investment plans which have a $25 minimum. There is no minimum
for subsequent purchases. The minimum telephone purchase is $1,000.
Institutional shares -- The minimum initial aggregate investment in the Funds is
$500,000, with no minimum per Fund. There is no minimum for subsequent
purchases. The minimum telephone purchase is $50,000.
Share Certificates
The Funds will not issue certificates representing shares.
Telephone Transactions
In your investment application, you may authorize the Funds to accept orders for
additional purchases, redemptions and exchanges by phone. You will be liable for
any fraudulent order as long as the Funds have taken reasonable steps to assure
that the order was proper. Also note that, during unusual market conditions, you
may experience delays in placing telephone orders. In that event, you should try
one of the alternative procedures described below.
Frequent Transactions
The Funds reserve the right to limit additional purchases by any investor who
makes frequent purchases, redemptions or exchanges that the Adviser and
Administrator believes might harm the Funds. In general, more than one
purchase-sale, or exchange transaction per month may be viewed as excessive.
PURCHASING FUND SHARES
You may use any of the following methods to purchase Fund shares:
Through Authorized Dealers You may place your order through any dealer
authorized to take orders for the Funds. If the order is received by the
authorized dealer by 4:00 p.m. Eastern time and transmitted to the Funds by 4:00
p.m. Central time, it will be priced at the NAV per share for the applicable
class of shares on that day. Later orders will receive the NAV per share next
determined. It is the dealer's responsibility to transmit orders timely.
Through the Distributor You may place orders directly with the Funds'
distributor by mailing a completed Investment Application with a check or other
negotiable bank draft payable to Christian Stewardship Funds, to the Funds'
Transfer Agent:
Transfer Agent's Address
------------------------
Christian Stewardship Funds
c/o _______________________
___________________________
___________________________
Remember to make your check for at least any applicable minimum noted above.
Payment for all orders must be received by the Transfer Agent within three
business days after the order was placed or you will be liable for any losses
resulting from your purchase order. Checks from third parties will not be
accepted. Subsequent investments may be mailed to the same address.
Confirmations of each purchase and transaction in the account are sent to the
stockholder's address of record.
Investing By Wire You may purchase shares by wire if you have an account with a
commercial bank that is a member of the Federal Reserve System. Your bank may
charge a fee for this service.
For an initial investment by wire, you must first call 1-800-695-3208 to be
assigned a Fund account number. Ask your bank to wire the amount of your
investment to:
Fifth Third Bank NA, ABA #042000314
For: _____________________________
___________________________________
Further Credit Christian Stewardship Funds (Insert Name of Fund
and class)
Note that the wire must include your name and address, your Fund account number,
and your social security or tax identification number. You must follow up your
wire with a completed Investment Application. This application is contained in
the Funds' prospectus. Mail the application to the Transfer Agent's address (see
above).
Subsequent investments may also be made by wire at any time by following the
above procedures. The wire must include your name and your Fund account number.
Telephone Investment
After you have opened your account, you may make additional investments by
telephone if you completed the "Telephone Purchase Authorization" section of
your Investment Application. You may place a telephone order by calling the
Transfer Agent at 1-800-845-2340.
The minimum telephone purchase for Individual shares is $1,000 and the maximum
is the greater of $1,000 or five time the NAV of your shares held, for which
payment has been received, on the day preceding your order. For Institutional
shares, the minimum telephone purchase is $50,000 and the maximum is the greater
of $50,000 or five times the NAV of your shares held, for which payment has been
received, on the day preceding your order.
Your telephone purchase will be priced at the NAV next determined after your
call. Payment for your order must be received within three business days. Mail
your payment to the Transfer Agent's address (see above). If your payment is not
received within three business days, you will be liable for any losses caused by
your purchase.
Pre-Authorized Investment
If you hold or are purchasing Individual shares, you may arrange to make regular
monthly investments of at least $25 automatically from your checking account by
completing the Pre-Authorized Payment section of the Investment Application.
Tax-Deferred Retirement Plans
Fund shares may be used for virtually all types of tax-deferred retirement
plans, including traditional, Roth and Education IRAs and Simplified Employee
Pension Plans. For more information, call 1-800-262-6631.
REDEEMING FUND SHARES
You may redeem your Fund shares on any business day using one of the following
procedures:
Through Authorized Dealers -- You may request a redemption through any
broker-dealer authorized to take orders for the Fund. The broker-dealer will
place the redemption order by telephone or telegraph directly with the Funds'
distributor and your share price will be the NAV next determined after the order
is received. The Funds do not charge a fee for these redemptions, but a dealer
may impose a charge for this service. Redemption proceeds will paid within three
days after the Transfer Agent receives a redemption order in proper form.
Through the Distributor -- You may redeem your Fund shares by writing to the
Transfer Agent's address (see "Purchasing Fund Shares," above). You will
generally receive a check for your redemption amount within a week. The Funds do
not charge any fee for redemptions. If you request the proceeds to be sent to
your address of record, you generally will not need a signature guarantee. A
signature guarantee will be required if:
o you want the proceeds mailed to a different address or to be paid to
someone other than the record owner; or
o you want to transfer ownership of the shares.
Signature Guarantee: A signature guarantee can be provided by most banks,
broker-dealers and savings associations, as well as by some credit unions.
Redemption of Shares Purchased by Check: -- redemptions of amounts
purchased by check may be withheld until the purchase check has cleared, which
may take up to 15 days from the purchase date.
Expedited Redemption
If you want to redeem at least $1,000 of Fund shares and have authorized
expedited redemption on the Investment Application currently on file with the
Transfer Agent, you may request that your redemption proceeds be mailed or wired
to a broker-dealer or commercial bank that you previously designated on the
Investment Application by calling the Transfer Agent at _______________.
Redemption proceeds will be forwarded the next day to the designated entity. You
are urged to place your redemption request early in the day to permit efficient
management of the Funds' cash reserves. The Funds do not impose a fee for this
service, but they (and their service providers) reserve the right to modify or
not to offer this service in the future. They will attempt to give shareholders
reasonable notice of any change.
Systematic Withdrawal
If you hold Individual shares, you may arrange for periodic withdrawals of $50
or more if you have invested at least $5,000 in a Fund. Your withdrawals under
this plan may be monthly, quarterly, semi-annual or annual. If you elect this
plan, you must elect to have all your dividends and distributions reinvested in
shares of the particular Fund.
Note that payments under this plan come from redemptions of your Fund shares.
The payments do not represent a yield from the Fund and may be a return of
capital, thus depleting your investment. Payments under this plan will terminate
when all your shares have been redeemed. The number of payments you receive will
depend on the size of your investment, the amount and frequency of your
withdrawals, and the yield and share price of the Fund, which can be expected to
fluctuate.
You may terminate this plan at any time by writing to the Transfer Agent. You
continue to have the right to redeem your shares at any time. The cost of the
plan is borne by the Funds and there is no direct charge to you.
Redemption in Kind
If you request a redemption in excess of $1 million, each Fund reserves the
right to pay any portion of the redemption proceeds in securities from the
Fund's portfolio rather than in cash, in accordance with applicable legal
requirements. In that case, you will bear any brokerage costs imposed when you
sell those securities.
Redemption Suspensions or Delays
Although you may normally redeem your shares at any time, redemptions may not be
permitted at times when the New York Stock Exchange is closed for unusual
circumstances, or when the Securities and Exchange Commission allows redemptions
to be suspended.
EXCHANGING FUND SHARES
You may exchange your shares of a Fund for shares of the same class of another
Fund at a price based on the respective NAVs of the particular class of shares
of each Fund. There is no sales charge or other fee. Please read the information
in the Funds' prospectus concerning the Fund into which you wish to exchange.
Your exchange must satisfy the applicable minimum investment and other
requirements for the class of shares of the Fund into which you wish to
exchange. The Fund into which you are exchanging must be available for sale in
your state, and the exchange privilege may be amended or terminated upon 60
days' notice to shareholders.
You may place an exchange order by:
o mailing your exchange order to the Transfer Agent's address.
o telephoning ______________ (only if you have authorized telephone
exchanges on the Investment Application. Telephone exchange orders may
be placed from 9:30 to 4:00 p.m. Eastern time on any business day.
Remember that your exchange involves a sale of shares, with possible tax
consequences. See "Dividends, Distributions and Taxes."
DIVIDENDS, DISTRIBUTION AND TAXES
Dividends and Distributions
Each Fund pays dividends from its net investment income and distributions from
it net realized capital gains in additional shares of the Fund, with no sales
charge. However, you may elect on the Investment Application to:
o receive income dividends in cash and capital gain distributions in
additional Fund shares; or
o receive all dividend and capital gain distributions in cash.
Each of the Funds intends to declare and pay dividends of its net investment
income, if any, quarterly. Capital gains, if any, will be paid at least
annually, generally in December.
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 future dividends and distributions will be paid in Fund shares.
Tax Treatment of Dividends, Distributions and Redemptions
If you are a taxable investor, you will generally be subject to federal income
tax each year on dividend and distribution payments you receive from the Funds,
as well as on any gain realized when you sell (redeem) or exchange shares of a
Fund. If you hold shares through a tax-deferred account (such as a retirement
plan), you generally will not owe tax until you receive a distribution from the
account.
The Funds will let you know each year which amounts of your dividend and
distribution payments are subject to taxation as ordinary income or as long-term
capital gain. The tax treatment of capital gains distributions from a Fund does
not depend on how long you have held your Fund shares or on whether you receive
payments in cash or additional shares. The tax treatment of any gain or loss
when you sell shares of a Fund will depend on how long you held those shares.
Some dividends paid by a Fund may be taxable in the year in which they are
declared, even if they are paid or appear on your account statement the
following year.
You should consult your tax adviser about any special circumstances that could
affect the federal, state and local tax treatment of your Fund distributions and
transactions.
HOW TO GET MORE INFORMATION
Further information about the Funds is contained in:
o the Statement of Additional Information ("SAI"). The SAI contains more
detail about some of the matters discussed in this Prospectus. The SAI is
incorporated into the Prospectus by reference.
o Annual and Semi-Annual Reports about the Funds describe their
performance and list their portfolio securities. They also include letters from
Fund management describing the Funds' strategies and discussing market
conditions and trends and their implications for the Funds.
You may obtain free copies of the SAI or reports, or other information about the
Funds or your account by calling 1-800-262-6631.
You may also get copies of the SAI, reports, or other information about the
Funds directly from the Securities and Exchange Commission ("SEC") by:
o visiting the SEC's public reference room. (Call 1-800-SEC-0330 for
information.)
o sending a written request, plus a duplicating fee, to the SEC's Public
Reference Section, Washington, D.C. 20549-6009.
o visiting the SEC's website -- http:/wwww.sec.gov
The Funds' Investment Company Act File Number with the SEC is: 811-01597.
<PAGE>
CHRISTIAN STEWARDSHIP FUNDS
STATEMENT OF ADDITIONAL INFORMATION
_________, 2000
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 for the Funds and should be read in conjunction with the Prospectus.
The Statement of Additional Information and the related Prospectus are all dated
__________, 2000. This Statement of Additional Information is incorporated in
its entirety into the Prospectus. The 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.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
TABLE OF CONTENTS
GENERAL INFORMATION........................................2
INVESTMENT RESTRICTIONS....................................2
INVESTMENTS AND INVESTMENT STRATEGIES......................3
PERFORMANCE AND YIELD INFORMATION..........................6
DIRECTORS AND EXECUTIVE OFFICERS...........................7
INVESTMENT ADVISORY AGREEMENT..............................8
ADVISORY COMMITTEE AND CONSULTANT..........................9
ADMINISTRATION AGREEMENT...................................9
DISTRIBUTOR...............................................10
OTHER SERVICES............................................11
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.......11
PORTFOLIO TRANSACTIONS AND BROKERAGE......................11
DETERMINATION OF NET ASSET VALUE..........................12
HOW TO BUY AND REDEEM SHARES..............................12
DIVIDENDS AND DISTRIBUTIONS...............................13
TAXES.....................................................13
OTHER INFORMATION.........................................17
<PAGE>
GENERAL INFORMATION
The Christian Stewardship Funds ("CSF") are series of Capstone Christian Values
Fund, Inc. ("Company") an "open-end diversified management company" registered
under the Investment Company Act of 1940 and include four series ("Funds").
Shares of each Fund have been divided into two classes, including Individual and
Institutional shares. Each class represents an interest in a Fund, but is
subject to different rights, expenses and privileges. The Company was originally
incorporated in Delaware in 1968 and commenced business shortly thereafter as an
open-end diversified management company under the Investment Company Act of
1940. On February 18, 1992, stockholders approved a plan of reorganization
pursuant to which the Company became, on May 11, 1992, a Maryland series
company, Capstone Fixed Income Series, Inc. The Company's name was changed to
its present name on ____________.
Capstone Asset Management Company (the "Adviser and Administrator") provides
investment advisory and administrative services to the Funds. The Adviser and
Administrator and Capstone Asset Planning Company (the "Distributor") are
wholly-owned subsidiaries of Capstone Financial Services, Inc.
INVESTMENTS AND INVESTMENT STRATEGIES
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, except that a Fund will not hold
below-investment grade securities totaling more than 5% of its net assets.
However, the Adviser and Administrator will consider such event in its
determination of whether a Fund should continue to hold the security. To the
extent the ratings given by Moody's Investors Service ("Moody's), Standard &
Poors Corporation ("S&P") or another nationally recognized statistical rating
organization ("NRSRO") may change as a re sult 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 the Prospectus.
The Funds may invest in debt securities rated Baa by Moody's or BBB by S&P. Such
securities may have speculative characteristics and changes in economic
conditions or other circumstances may lead to a weakened capacity to make
principal and interest payments that is the case with higher grade bonds.
Government Obligations (All Funds)
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 rated A or better by Moody's or S&P, 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 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 have a
remaining maturity of no more than 270 days from the date of purchase by a Fund,
and must be rated at least A-1 or P-1 by an NRSRO, or deemed of comparable
quality by the Investment Adviser and Administrator. No Fund may invest more
than 5% of its total assets in commercial paper of a single issuer.
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. No Fund will invest in corporate
debt securities that, at the time of investment, are rated below BBB by S&P or
Baa by Moody's, or if not rated, are determined by the Adviser and Administrator
to be below such quality.
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 Adviser and 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 Directors. 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.
When-Issued and Delayed Delivery Securities (All Funds)
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 and
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 three 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)
The 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 o r 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. 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 generally determined by several factors, including the forces of
supply and demand in the foreign exchange markets. These forces are affected by
the international balance of payments, interest rate movements and other
economic and financial conditions, government or central bank intervention,
speculation and other factors.
On January 1, 1999, the European Monetary Union (EMU) implemented a new currency
union, the Euro. It may not be clear how financial contracts outstanding prior
to January 1, 1999 that refer to existing currencies rather than the Euro will
be treated, and there may be uncertainties regarding exchange rates and the
creation of suitable clearing and settlement payment systems for the new
currency. These or other factors, including political risks, could cause market
disruptions during the early years following introduction of the Euro, and could
adversely affect the value of securities held by the Funds.
Investments in securities of foreign issuers involve certain costs, and other
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. 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.
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)
Each Fund may enter into forward foreign currency exchange contracts in
connection with its investments in foreign securities that are denominated in
foreign currencies. 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.
Corporate Bonds (All Funds)
Corporate bonds are issued by businesses that want to borrow money for some
purpose -- often to develope a new product or service, to expand into a new
market, or to buy another company. As with other types of bonds, the issuer
promises to repay the principal on a specific date and to make interest payments
in the meantime. The amount of interest offered depends on market conditions and
also on the financial health of the corporation issuing the bonds; a company
whose credit rating is not strong will have to offer a higher interest rate to
obtain buyers for its bonds.
Mortgage-Backed Securities (Bond Index Fund)
Mortgage-backed securities represent interests in underlying pools of mortgages.
Unlike ordinary bonds, which generally pay a fixed rate of interest at regular
intervals and then pay principal upon maturity, mortgage-backed securities pay
both interest and principal as part of their regular payments. Because the
mortgages underlying the securities can be prepaid at any time by homeowners or
corporate borrowers, mortgage-backed securities are subject to prepayment risk.
Prepayment risk is the possibility that, during periods of falling interest
rates, a homeowner will repay a higher-interest mortgage earlier than scheduled.
The Fund would then be forced to reinvest the unanticipated proceeds at lower
interest rates and would lose both the higher yield from its prior investment
and the opportunity to sell that investment at a premium. Mortgage-backed
securities are issued by a number of government agencies, including the
Government National Mortgage Association (GNMA or "Ginnie Mae"), the Federal
Home Loan Mortgage Corporation (FHLMC), and the Federal National Mortgage
Association (FNMA or "Fannie Mae"). GNMAs are guaranteed by the full faith and
credit of the U.S. government as to the timely payment of principal and
interest; mortgage securities issued by other government agencies or private
corporations are not. Bond Index Fund may also invest to a lesser extent in
conventional mortgage securities, which are packaged by private corporations and
are not guaranteed by the U.S. government.
Eurodollar and Yankee Dollar Investments (Bond Index Fund)
The Bond Index Fund may invest in Eurodollar and Yankee Dollar instruments.
Eurodollar instruments are bonds of foreign corporate and government issuers
that pay interest and principal in U.S. dollars generally held in banks outside
the United States, primarily in Europe. Yankee Dollar instruments are U.S.
dollar denominated bonds typically issued in the U.S. by foreign governments and
their agencies and foreign banks and corporations. These Funds may invest in
Eurodollar Certificates of Deposit ("ECDs"), Eurodollar Time Deposits ("ETDs")
and Yankee Certificates of Deposit ("Yankee CDs"). ECDs are U.S.
dollar-denominated certificates of deposit issued by foreign branches of
domestic banks; ETDs are U.S. dollar-denominated deposits in a foreign branch of
a U.S. bank or in a foreign bank; and Yankee CDs are U.S. dollar-denominated
certificates of deposit issued by a U.S. branch of a foreign bank and held in
the U.S. These investments involve risks that are different from investments in
securities issued by U.S. issuers, including potential unfavorable political and
economic developments, foreign withholding or other taxes, seizure of foreign
deposits, currency controls, interest limitations or other governmental
restrictions which might affect payment of principal or interest.
Investment Companies and Investment Funds (All Funds)
Each of the Funds is permitted to invest in shares of other open-end or
closed-end investment companies, to the extent consistent with its investment
objective and policies. A Fund's investments (together with those of its
affiliated persons) in any other single investment company are limited to no
more than 3% of the outstanding shares of that other investment company.
Additionally, a Fund, in any 30-day period, may not redeem any amount in excess
of 1% of the total outstanding share of such other investment company. On issues
on which shareholders of such another investment company are asked to vote, the
Funds will vote their shares in the same proportion as the vote of all other
holders of shares of that investment company. 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.
Restricted and Illiquid Securities (All Funds)
Each Fund may invest up to 15% of its net assets in illiquid securities.
Illiquid securities include those that are not readily marketable, repurchase
agreements maturing in more than seven days, time deposits with a notice or
demand period of more than seven days, certain OTC options, certain investment
company securities, and certain restricted securities. Based upon continuing
review of the trading markets for a specific restricted security, the security
may be determined to be eligible for resale to qualified institutional buyers
pursuant to Rule 144A under the Securities Act of 1933 and, therefore, to be
liquid. Also, certain securities deemed to be illiquid may subsequently be
determined to be liquid if they are found to satisfy relevant liquidity
requirements.
Investments by the Funds in securities of other investment companies may be
subject to restrictions regarding redemption. In particular, the Money Market
and International Funds will invest in securities of other investment companies
in reliance on provisions of the 1940 Act that limit each Fund's redemptions to
no more than 1% of another investment company's total outstanding securities
during any period less than 30 days. To the extent a Fund owns securities of
such a company in excess of 1% of that company's total outstanding securities,
such holdings by a Fund could be deemed to be illiquid and would be subject to
the Fund's 15% (10%) limit on illiquid investments.
The Board of Directors has adopted guidelines and delegated to the Adviser and
Administrator the daily function of determining and monitoring the liquidity of
portfolio securities, including restricted and illiquid securities. The Board of
Directors, however, retains oversight and is ultimately responsible for such
determinations. The purchase price and subsequent valuation of illiquid
securities normally reflect a discount, which may be significant, from the
market price of comparable securities for which a liquid market exists.
Options and Futures
To the extent consistent with their investment policies, the Funds may employ
special investment practices as a means of obtaining market exposure to
securities without purchasing the securities directly. These practices include
the purchase of put and call options on securities and securities indexes.
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.
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 Fund will use futures as a temporary means of
gaining exposure to its particular market prior to making investments of
incoming cash in additional securities.
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 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 purchase or sell a contract. In addition, there
may be an imperfect correlation between movements in the securities included in
the index and movements in the prices of securities the Fund wishes to purchase.
Successful use of securities index futures contracts and options on such
contracts is further dependent on the Adviser and 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.
The SEC generally requires that when investment companies, such as the Funds,
effect transactions of the foregoing nature, such funds must segregate either
cash or readily marketable securities with its Custodian in the amount of its
obligations under the foregoing transactions, or cover such obligations by
maintaining positions in portfolio securities or options that would serve to
satisfy or offset the risk of such obligations. When effecting transactions of
the foregoing nature, the Funds will comply with such segregation or cover
requirements.
Securities Index Futures and Related Options (All Funds)
A Fund may engage in transactions in options on securities and securities
indices, and securities index futures and options on such futures as a proxy for
investing in underlying securities in accordance with the Fund's investment
policies.
A Fund may purchase 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.
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 limited by the fact that the correlation between movements in the
price of futures contracts or options on futures contracts and movements in
prices of securities in a particular Benchmark may not be perfect.
A Fund will purchase and sell securities futures contracts and will purchase put
and call options on securities index contracts only as a means of obtaining
market exposure to securities in its Benchmark. 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 in a segregated account with 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 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.
Below-Investment Grade Securities (All Funds)
Although a Fund may not purchase debt obligations rated below Baa by Moody's or
BBB by S&P (or, if unrated, deemed of comparable quality by the Adviser and
Administrator), a Fund will not necessarily sell securities whose rating falls
below Baa or BBB (or, if unrated, whose quality is deemed by the Adviser and
Administrator to be below Baa or BBB). However, a Fund may not hold such
downgraded securities in an amount in excess of 5% of its net assets.
Below-investment grade securities (sometimes referred to as "junk bonds") are
considered predominantly speculative with respect to their capacity to pay
interest and to repay principal. They generally involve a greater risk of
default and have more price volatility than securities in higher rating
categories. The risk of default can increase with changes in the financial
condition of the issuer or with changes in the U.S. economy, such as a
recession.
INVESTMENT RESTRICTIONS
The Funds are subject to investment restrictions designed to reflect their
socially acceptable investment policies. In addition, the Funds have adopted the
following investment restrictions which 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
Company.
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
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 a 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 each 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.
With respect to senior securities, borrowing and concentrating investments, the
Investment Company Act of 1940, as amended, and regulatory interpretations of
relevant provisions of that Act establish the following general limits. Open-end
registered investment companies ("funds"), such as the Funds, are not permitted
to issue any class of senior security or to sell any senior security of which
they are the issuers. Funds are, however, permitted to issue separate series of
shares (the Funds are series of the Company) and to divide those series into
separate classes (Individual and Institutional are such separate classes.) The
Funds have no intention to issue senior securities, except that the Company may
issue its shares in separate series and divide those series into classes of
shares. Although borrowings could be deemed to be senior securities, a fund is
"permitted to borrow from a bank provided that immediately after any such
borrowing there is a n asset coverage of at least 300 per cent for all
borrowings by the fund. The Act also permits a fund to borrow for temporary
purposes only in an amount not exceeding 5 per cent of the value of the total
assets of the issuer at the time when the loan is made. (A loan shall be
presumed to be for temporary purposes if it is repaid within 60 days and is not
extended or renewed.) The Securities and Exchange Commission ("SEC") has
indicated, however, that certain types of transactions, which cou ld be deemed
"borrowings" (such as firm commitment agreements and reverse repurchase
agreements), are permissible if a fund "covers" the agreements by establishing
and maintaining segregated accounts, subject, however to the 300% asset coverage
requirement. The Funds presently do not intend to borrow except when advisable
to satisfy redemptions and a Fund will make no purchases if its outstanding
borrowings exceed 5% of its total assets. With respect to concentration, the SE
C staff takes the position that investment of 25% or more of a fund's assets in
any one industry represents concentration.
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%.
PERFORMANCE AND YIELD INFORMATION
SERV 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.
Large Cap Equity Index Fund, Small Cap Equity Index Fund and International
Equity Index Fund: The Funds may from time to time include figures indicating
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 class of shares of 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 shares of that class. Quotations of the average annual total
return reflect the deduction of a proportional share of Fund and class expenses
on an annual basis. The results, which are annualized, represent an average
annual compounded rate of return on a hypothetical investment in the particular
class of shares of the Fund over a period of 1, 3, 5 and 10 y ears (or life of
the Fund or class) ending on the most recent calendar quarter. Quotations of
total return, which are not annualized, represent historical earnings and asset
value fluctuations.
Bond Index Fund: Quotations of the 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 class of shares of the Fund
and show the performance of a hypothetical investment. Yield refers to the net
investment income generated by the Fund's portfolio with respect to a particular
class of shares over a specified seven-day period. This income is then
annualized. That is, the amount of income generated with respect to that class
of shares 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 a
particular class of shares of 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
class of shares of the Fund will vary based upon, among other things, changes in
market conditions, the level of interest rates and the level of expenses borne
by the class.
Performance and yield calculations are based on past performance and are not a
guarantee of future results. A more detailed description of the methods used to
determine the Funds' average annual total return, total return, yield and
effective yield follows.
Quotations of yield for each class of shares of a Fund will be based on the
investment income per share earned during a particular 30-day period, less
expenses accrued with respect to that class during the period ("net investment
income"), and will be computed by dividing net investment income for the class
by the maximum offering price per share of that class on the last day of the
period, according to the following formula:
YIELD = 2[(a-b + 1)6-1]/cd
where a = dividends and interest earned during the period, b = expenses accrued
for the period (net of any reimbursements), c = the average daily number of
shares of the class outstanding during the period that were entitled to receive
dividends, and d = the maximum offering price per share of the class on the last
day of the period.
Average annual total return and total return figures represent the increase (or
decrease) in the value of an investment in a class of shares of 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 shares of the class.
Quotations of the average annual total return reflect the deduction of a
proportional share of class expenses on an annual basis. The results, which are
annualized, represent an average annual compounded rate of return on a
hypothetical investment in the particular class of shares of the Fund over a
period of 1, 5 and 10 years ending on the most recent calendar quarter, or the
life of the Fund or class, 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 of a class of shares. 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.
MANAGEMENT OF THE COMPANY
Directors and Executive Officers
The Directors are responsible for the overall management and supervision of the
Company and to perform the functions of Directors under the Company's Articles
of Incorporation, its principal governing document, as amended from time to
time. The Directors, while retaining overall supervisory responsibility, have
delegated day-to-day operating responsibilities to Capstone Asset Management
Company, the Adviser and Administrator; Fifth Third Bank of Cincinnati, Ohio,
the custodian; and {Declaration Services Company}, which acts as fund
accounting, transfer and shareholder servicing agent.
CSF's Directors and executive officers are listed below:
BERNARD J. VAUGHAN (71), Director. 113 Bryn Mawr Avenue, Bala Cynwyd,
Pennsylvania 19004. Director or Trustee of other Capstone Funds; formerly Vice
President of Fidelity Bank (1979-1993).
JAMES F. LEARY (69), Director. 2006 Peakwood Drive, Garland, Texas 75044.
President of Sunwestern Management, Inc. (since June 1982) and President of SIF
Management (since January 1992), venture capital limited partnership concerns;
General Partner of Sunwestern Advisors, L.P., Sunwestern Associates, Sunwestern
Associates II, Sunwestern Partners, L.P. and Sunwestern Ventures, Ltd. (venture
capital limited partnership entities affiliated with Sunwestern Management, Inc.
an d SIF Management, Inc.). Director or Trustee of: other Capstone Funds;
Director, Anthem Financial, Inc. (financial services), Associated Materials,
Inc. (tire cord, siding and industrial cable manufacturer), The Flagship Group,
Inc. (vertical market microcomputer software), Marketing Mercadeo International
(public relations and marketing consultants), MaxServ, Inc. (appliance repair
database systems), MESBIC Ventures, Inc. (minority enterprise small business
investment company) , OpenConnect Systems, Inc. (computer networking hardware
and software), PhaseOut of America, Inc. (smoking cessation products), and
Search Capital Group, Inc. (financial services).
JOHN R. PARKER (53), Director. 541 Shaw Hill, Stowe, Vermont 05672. Consultant
and private investor (since 1990); Director of Nova Natural Resources (oil, gas,
minerals); Director or Trustee of other Capstone Funds; formerly Senior Vice
President of McRae Capital Management, Inc. (1991-1995); and registered
representative of Rickel & Associates (1988-1991).
*EDWARD L. JAROSKI (53), 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 (51), Executive Vice President. 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.
LINDA G. GIUFFRE (38), Secretary/Treasurer. 5847 San Felipe, Suite 4100,
Houston, Texas 77057. Vice President of Capstone Financial Services, Inc.,
Capstone Asset Management Company and Capstone Planning Company; Officer of
other Capstone Funds.
Each independent Director serves on the Board of ten (10) other mutual funds,
comprising the Capstone Complex of Mutual Funds. The independent Directors are
entitled to $2,000 per meeting attended and are paid an annual retainer of
$6,000. In addition, each independent Director is paid $500 per committee for
serving on four (4) committees. The Lead Director is paid an additional _____
for serving the complex. All fees received by the Directors are allocated among
the funds based on net assets. The Directors and officers of the Company are
also reimbursed for expenses incurred in attending meetings of the Board of
Directors/Trustees.
The following table represents the projected compensation to be received by the
independent Directors during fiscal 2000 from the Capstone Funds complex.
Compensation Table
<TABLE>
<CAPTION>
Aggregate Pension or Retirement Estimated Annual Total Compensation From
Compensation Benefits Accrued As Benefits Upon Registrant and Fund Complex
Name of Person, Position From Registrant(1) Part of Fund Expenses Retirement Paid to Directors
- ------------------------ --------------- ----------------------- --------------- ---------------------------
<S> <C> <C> <C> <C>
James F. Leary, Director (4) $0 $0 $16,000 (1)(2)(3)
John R. Parker, Director (4) $0 $0 $16,000 (1)(2)(3)
Bernard J. Vaughan, Director (4) $0 $0 $16,000 (1)(2)(3)
- ---------------
<FN>
(1) Company does not pay deferred compensation.
(2) Director of Capstone Growth Fund, Inc., Trustee of Capstone Social Ethics
and Religious Values Fund, and Trustee of Capstone International Series
Trust
(3) Fund Complex includes 15 funds.
(4) Compensation received by independent Directors/Trustees is allocated among
the Capstone Complex of Mutual Funds based on net assets. Therefore,
compensation from the Company cannot be accurately predicted.
</FN>
</TABLE>
Adviser and Administrator
Pursuant to the terms of an investment advisory agreement dated _________,
2000,(the "Advisory Agreement"), the Company employs Capstone Asset Management
Company (the "Adviser and Administrator") to furnish investment advisory
services. The Adviser and Administrator was formed in 1982 as a wholly-owned
subsidiary of Capstone Financial Services, Inc. The Adviser and Administrator is
located at 5847 San Felipe, Suite 4100, Houston, Texas 77057. The Adviser and
Administrator provides investme nt management services to pension and profit
sharing accounts, corporations and individuals, and serves as investment adviser
and/or administrator to fourteen (14) registered investment companies. The
Adviser and Administrator manages assets in excess of $2.5 billion.
The Investment Advisory Agreement provides that the Adviser and 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 Articles of
Incorporation. The Adviser and Administrator is authorized, with the consent of
the Directors, to engage sub-advisers for the Funds. The Adviser and
Administrator has sole authority to select broker-dealers to execute
transactions for the Funds, subject to the reserved authority of the Directors
to designate particular broker-dealers for this purpose. The Adviser and
Administrator will vote proxies on portfolio securities of the Funds, subject to
any guidelines that may be established by the Directors. The Investment Advisory
Agreement provides that the Adviser and 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 Adviser and
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, the Adviser and Administrator receives investment advisory
fees monthly, in arrears, from each Fund at the following annual rates. The fee
rates indicated are applied to the aggregate average daily net assets of the
Funds, as a group, and the resulting total fees are pro rated among the Funds
based on their relative net assets.
Annual Fee rate as a percentage
of average daily net assets
------------------------------
0.15% of the first $500 million 0.125% of the next $500 million 0.10% of
assets over $1 billion
For the fiscal year ended ___________, 1999, each Fund paid the following
investment advisory fees: [PLEASE PROVIDE; separately indicate any amounts
waived.] These fees were allocated to each class of shares based on their
relative asset values.
Pursuant to the Advisory Agreement, the Adviser and Administrator pays the
compensation and expenses of all of its directors, officers and employees who
serve as officers and executive employees of the Company (including the
Company's share of payroll taxes), except expenses of travel to attend meetings
of the Company's Board of Directors or committees or advisers to the Board. The
Adviser and Administrator also agrees to make available, without expense to the
Company, the services of its directors, officers and employees who serve as
officers of the Company.
The Advisory Agreement provides that the Adviser and 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 Adviser and 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 and the Adviser and Administrator shall not be liable for the
acts of third parties.
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 Company's Board of Directors 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 Directors 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 Company upon the vote of a
majority of the Directors or, as to a Fund, by vote of the majority of that
Fund's outstanding voting securities, upon 60 days' written notice to the
Adviser and Administrator or (b) by the Adviser and Administrator at any time
without penalty, upon 90 days' written notice to the Company. The Advisory
Agreement will also terminate automatically in the event of its assignment (as
defined in the 1940 Act).
Advisory Committee
The Board of Directors has appointed an advisory committee ("Advisory
Committee") to consult with and make recommendations to the Directors regarding
the application of social, ethical and religious values principles in selecting
investments for the Funds, as well as on other matters regarding the structure,
philosophy and operations of the Funds. Members of the Advisory Committee are
not compensated for their services, although they will be reimbursed by the
Company for expenses of attendance at Fund-related meetings. The Advisory
Committee consists of members selected by the Board of Directors on the basis of
their qualifications to provide this type of advice to the Board. Neither the
Board of Directors nor the Adviser and Administrator are obliged to accept the
recommendations of any Advisory Committee.
Administration Agreement
Pursuant to an Administration Agreement dated _________, 2000 between the
Company and Capstone Asset Management Company, the Adviser and 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 Adviser and
Administrator. For these services, the Funds will pay to the Adviser and
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 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"), 5847 San Felipe, Suite
4100, Houston, Texas 77057, acts as the principal underwriter of the Funds'
shares pursuant to a written agreement with the Company dated __________, 2000
(the "Distribution Agreement"). The Distributor has the exclusive right (except
for distributions of shares directly by the Company) 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.
Edward L. Jaroski is President of the Company and is a Director and President of
the Adviser and Administrator and the Distributor. Some other officers of the
Company are also officers of the Adviser and Administrator, the Distributor, and
their parent, Capstone Financial Services.
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
Company's Board of Directors 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 Directors 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 not ice.
The Company has adopted a Service and Distribution Plan (the "Plan") pursuant to
Rule 12b-1 of the Investment Company Act of 1940 for the Funds' Individual
shares which permits Individual shares of each Fund to compensate the
Distributor for its services in connection with the distribution of its
Individual shares and provision of certain services to Individual shareholders.
These services include, but are not limited to, the payment of compensation,
including incentive compensation, to securi ties dealers (which may include the
Distributor itself) and other financial institutions and organizations
(collectively, "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 t o
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 Individual
shares of each Fund to bear the cost of preparing, printing and distributing
Fund prospectuses and Statements of Additional Information to prospective
Individual investors and of implementing and operating the Plan.
Under the Plan, payments are made to the Distributor at an annual rate of 0.25%
of the average net assets of Individual shares of each of the Funds and 0.05% of
the average net assets of Institutional shares of each of the Funds. Subject to
these limits, the Distributor may reallow to Service Organizations (which may
include the Distributor itself) amounts at an annual rate up to 0.25% for
Individual shares and 0.05% for Institutional shares for each Fund based on the
average net asset value of shares held by shareholders for whom the Service
Organization provides services. Any remaining amounts not so allocated will be
retained by the Distributor. The Distributor collects the fees under the Plan on
a monthly basis.
Rule 12b-1 requires that the Plan and related agreements have been approved by a
vote of the Company's Board of Directors and by a vote of the Directors who are
not "interested persons" of the Company 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 Directors"). The Plan will continue in effect for
successive one year periods provided that such continuance is specifically
approved at least annually by a majority of the Directors, including a majority
of the Plan D irectors. In determining whether to adopt or continue the Plan,
the Directors must request and evaluate information they believe is necessary to
make an informed determination of whether the Plan and related agreements should
be implemented, and must conclude, 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
Individual shareholders. Any change in th e Plan that would materially increase
the distribution expenses to be paid requires approval by shareholders of
Individual shares of each affected Fund, but otherwise, the Plan may be amended
by the Directors, including a majority of the Plan Directors.
As required by Rule 12b-1, the Directors 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 Directors 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 Directors for the Company is committed to the
discretion of the Directors who are not "interested persons" as defined under
the 1940 Act.
[Gramm-Bliley-Leach disclosure to be added]
Other Services
Under the Administration Agreement, the Company 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. ______________________,
performs accounting, bookkeeping and pricing services for the Company. For these
services, _____________- receives a monthly fee from the Company.
Expenses
The Funds pays all of their expenses not borne by the Adviser and 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, state filings,
dividend disbursing, and custodian services, (iv) the expenses of issue,
repurchase, or redemption of shares, (v) interest, taxes and brokerage
commissions, (vi) memb ership dues in the Investment Company Institute allocable
to the Company, (vii) the cost of reports and notices to shareholders, and
(viii) fees to Directors and salaries of any officers or employees who are not
affiliated with the Adviser and Administrator, if any.
Each Fund's expenses and expenses of each class of shares are accrued daily and
are deducted from total income before dividends are paid. Company expenses are
generally allocated among the Funds based on their respective net asset values.
Fund expenses, as well as a Fund's share of Company expenses, are generally
allocated between classes based on their respective net asset values, except
that Individual and Institutional expenses pursuant to the Service and
Distribution Plan are borne by Individual and Institutional shares and the
Directors may determine that other expenses are specific to a particular class
and should be borne by that class alone.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser and 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 Adviser and 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 Adviser and Administrator
seeks the best security price at the most favorable commission rate. In
selecting dealers and in negotiating commissions, the Adviser and 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 Adviser and Administrator. In
addition, the Adviser and 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 Adviser and 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 Adviser and
Administrator's overall responsibilities to the Fund and the Adviser and
Administrator's other clients. Such research services must provide lawful and
appropriate assistance to the Adviser and 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.
The Adviser and 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 Adviser and Administrator in servicing all of its accounts; not all of such
services may be used by the Adviser and Administrator in connection with the
Fund. The Adviser and Administrator has arrangements to receive research only
with respect to accounts for which it exercises brokerage discretion, including
the Funds. This research may be used in providing service to accounts for which
the Adviser and Administrator does not exercise discretion. Research received
with respect to the latter accounts although not by a specific arrangement may
also be used by the Adviser and Administrator in providing service to other
accounts, including the Funds. In the opinion of the Adviser and Administrator,
the benefits from research services to each of the accounts (including the
Funds) managed by the Adviser and Administrator cannot be measured separately.
The Adviser and 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 a Fund. In
making such allocations among the Funds and other advisory accounts, the main
factors considered by the Adviser and 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.
From time to time, the Adviser and Administrator may effect securities
transactions through Capstone Asset Planning Company ("CAPCO"), a broker-dealer
affiliate of the Adviser and Administrator.
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 Directors may determine, the Adviser and Administrator
may consider sales of shares of the Funds as a factor in the selection of
dealers to execute portfolio transactions for the Funds.
Personal Trading Policies
The Funds, the Adviser and Administrator, and the Distributor have adopted Codes
of Ethics under Rule 17j-1 under the Investment Company Act of 1940. Consistent
with requirements of that Rule, the Codes permit persons subject to the Codes to
invest in securities, including securities that may be purchased by a Fund. The
codes and the Rule require these transactions to be monitored.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of 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, 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.
The net asset value of each of the 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 Directors.
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. After each investment, the
stockholder and the authorized investment dealer receive confirmation statements
of the number of shares purchased and owned.
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
Individual shares must be at least $2,000; 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 Institutional shares is $500,000 in aggregate, with no minimum required for
subsequent purchases. No stock certificates representing shares purchased will
be issued. The Company's management reserves the right to reject any purchase
order if, in its opinion, it is in the Company'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
Adviser and Administrator and/or the Distributor in their discretion may from
time to time, pursuant to objective criteria established by the Adviser and
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 paid by a stockholder for shares of a Fund or the amount that
the Funds will receive from such sale.
Generally, shareholders may require the Funds to redeem their shares by sending
a written request, signed by the record owner(s), to The Christian Stewardship
Funds, c/o ____________________________________________________________________.
In addition, certain expedited redemption methods are available.
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 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. 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 or her 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 Company is organized as a Maryland corporation and, under current law, is
not liable for any income or franchise tax in the State of Maryland, provided
that each of the Funds qualifies as a regulated investment company for purposes
of Maryland 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 a 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.
Properly designated distributions of net capital gains, if any, will generally
be taxable to shareholders as long-term capital gains, regardless of how long
the stockholder has held the Fund's shares, and are not eligible for the
dividends received deduction.
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 Company, performs annual audits of each Fund's financial statements.
Legal Counsel. Dechert Price & Rhoads, 1775 Eye Street, N.W., Washington, DC
20006, is legal counsel to the Company.
<PAGE>
THE CHRISTIAN STEWARDSHIP FUNDS
OTHER INFORMATION
(PART C TO REGISTRATION STATEMENT NO. 2-28174)
Item 23. 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) Copy of Articles of Incorporation dated May 11, 1992.
*(b) Copy of by-laws.
(c) None.
(d) Copy of Investment Advisory Agreement between Capstone
Christian Values Fund, Inc. on behalf of the Christian
Stewardship Funds, and Capstone Asset Management Company.
(e)(1) copy of General Distribution Agreement between Capstone
Christian Values Fund, Inc. on behalf of the Christian
Stewardship Funds, and Capstone Asset Planning Company.
(e)(2) Copy of Selling Group Agreement/Service Agreement.
(f) None.
(g)(1) Form of proposed Custodian Agreement between Capstone
Christian Values Fund, Inc., on behalf of the Christian
Stewardship Funds, and Fifth Third Bank.
(h)(1) Copy of Administration Agreement between Capstone
Christian Values Fund, Inc. on behalf of the Christian
Stewardship Funds, and Capstone Asset Management Company.
(h)(2) Form of proposed Shareholder Services Agreement between
Capstone Christian Values Fund, Inc., on behalf of the
Christian Stewardship Funds, and ________________.
***(i) Opinion of Dechert Price & Rhoads.
**(j) Power of Attorney of Messrs. Bernard J. Vaughan, James F.
Leary and John R. Parker.
(k) None.
(l) None.
(m) Service and Distribution Plan.
(n) Rule 18f-3 Plan.
(o) Codes of Ethics.
- -------------------------
* Filed with Post-Effective Amendment No. 41.
** Filed with Post-Effective Amendment No. 50.
*** To be filed by amendment.
<PAGE>
Item 24. Persons Controlled by or under Common Control with Registrant
Registrant does not control and is not under common control with any
person.
Item 25. Indemnification
The Articles of Incorporation of the Registrant include the following:
Article 7.4
Indemnification. The Corporation, including its successors and assigns,
shall indemnify its directors and officers and make advance payment of related
expenses to the fullest extent permitted, and in accordance with the procedures
required, by the General Laws of the State of Maryland and the Investment
Company Act of 1940. The By-Laws may provide that the Corporation shall
indemnify its employees and/or agents in any manner and within such limits as
permitted by applicable law. Such indemnification sha ll be in addition to any
other right or claim to which any director, officer, employee or agent may
otherwise be entitled. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust or other enterprise or
employee benefit plan, against any liability [(including, with respect to
employee benefit plans, excise taxes)] asserted against and incurred by such
person in any such capacity or arising out of such person's position, whether or
not the Corporation would have had the power to indemnify against such
liability. The rights provided to any person by this Article 7.4 shall be
enforceable against the Corporation by such person who shall be presumed to have
relied upon such rights in serving or continuing to serve in the capacities
indicated herein. No amendment of these Articles of Incorporation shall impair
the rights of any person arising at any time with respect to events occurring
prior to such amendment.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, 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 director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, 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 Articles of Incorporation, By-Laws or any other
instrument pursuant to which the Registrant is organized or administered
indemnify any director 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 interpreted from time to
time by authorized regulatory, judicial or other authorities.
Item 26. 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., Social Ethics and Religious Values 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 27. Principal Underwriters
(a) The principal underwriter of the Registrant, Capstone Asset
Planning Company, also acts as principal underwriter for Social Ethics and
Religious Values 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
Edward L. Jaroski President and Director President
Leticia N. Jaroski Vice President --
Linda G. Giuffre Vice President, Secretary Secretary/Treasurer
and Treasurer
- -------------
* 5847 San Felipe, Suite 4100, Houston, Texas 77057
Item 28. 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 __________________________________________, the Registrant's
shareholder service agent, 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 29. Management Services
Not applicable.
Item 30. Undertakings
N/A
<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
Post-Effective Amendment No. 53 to its 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 14th day of December, 1999.
THE CHRISTIAN STEWARDSHIP FUNDS
Registrant
By: Edward L. Jaroski
------------------------
Edward L. Jaroski
Pursuant to the requirements of the Securities Act of 1993, this Amendment
No. 53 to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
- ------------------------- Director December 14, 1999
*Bernard J. Vaughan
- ------------------------- Director December 14, 1999
*James F. Leary
- ------------------------- Director December 14, 1999
*John R. Parker
Edward L. Jaroski Director and President December 14, 1999
- ------------------------- (Principal Executive Officer)
Edward L. Jaroski
Linda Giuffre Secretary/Treasurer
- -------------------------- (Principal Financial & December 14, 1999
Linda Giuffre Accounting Officer)
By: Edward L. Jaroski
--------------------------------
*Edward L. Jaroski, Attorney In Fact
CAPSTONE CHRISTIAN VALUES FUND
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, effective commencing on ______________, 2000, between
CAPSTONE ASSET MANAGEMENT COMPANY (the "Adviser") and CAPSTONE CHRISTIAN VALUES
FUND, INC. (the "Fund") with respect to its Series, the Christian Stewardship
Bond Index Fund, the Christian Stewardship Large Cap Equity Index Fund, the
Christian Stewardship Small Cap Equity Index Fund and the Christian Stewardship
International Index Fund (the "Series").
WHEREAS, the Fund is a Maryland corporation organized under Articles of
Incorporation dated May 11, 1992, (the "Articles") 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 Series are separate series of the Fund'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 Fund wishes to retain the Adviser to render investment
advisory services to the Series and the Adviser is willing to furnish such
services to the Series;
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the Fund and the Adviser as follows:
1. Appointment. The Fund hereby appoints the Adviser to act as
investment adviser to the Series 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
Directors of the Fund, the Adviser will (a) provide a program of continuous
investment management for the Series in accordance with the Series' investment
objectives, policies and limitations as stated in the Fund's combined prospectus
and Statement of Additional Information included as part of the Fund'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 Fund; (b) make investment decisions for the Series; and (c) place
orders to purchase and sell securities for the Series.
In performing its investment management services to the Series
hereunder, the Adviser will provide the Series 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
Series will purchase, sell, enter into or use, and will provide an ongoing
evaluation of the Series' portfolios. The Adviser will determine what portion of
the Series' 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 Directors;
(b) use reasonable efforts to manage the Series so that the Fund 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
Series directly with the issuer, or with any broker or dealer, in
accordance with applicable policies expressed in the Fund's
combined prospectus and/or Statement of Additional Information and
in accordance with applicable legal requirements;
(d) furnish to the Series whatever statistical information the Series
may reasonably request with respect to the Series' assets or
contemplated investments. In addition, the Adviser will keep the
Series and the Directors informed of developments materially
affecting the Series' portfolios and shall, on the Adviser's own
initiative, furnish to the Series and the Fund from time to time
whatever information the Adviser believes appropriate for this
purpose;
(e) make available to the Series' administrator, Capstone Asset
Management Company (the "Administrator"), and the Series, promptly
upon their request, copies of all its investment records and
ledgers with respect to the Series to assist the Administrator and
the Series in their compliance with applicable laws and
regulations. The Adviser will furnish the Directors with such
periodic and special reports regarding the Series as they may
reasonably request;
(f) immediately notify the Fund 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 Fund
immediately of any material fact known to the Adviser respecting
or relating to the Adviser that is not contained in the Fund's
Registration Statement with respect to the Series, 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 Fund (including the Fund's share of payroll taxes) and of all
Directors of the Fund who are interested persons of the Adviser, and the Adviser
shall make available, without expense to the Fund or the Series, the service of
its directors, officers and employees who may be duly elected officers of the
Fund, 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 Fund or
the Series 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 Fund's employees as are directors, officers or
employees of the Adviser whose services may be involved, for the following
expenses of the Fund or the Series: organization and certain offering expenses
of the Series (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 Series in connection with membership in investment company
trade organizations; cost of insurance relating to fidelity coverage for the
Fund's officers and employees, fees and expenses of the Series' Administrator or
of any custodian, subcustodian, transfer agent, registrar, or dividend
disbursing agent of the Fund on behalf of the Series; 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 Series; expenses relating to investor and
public relations; expenses of registering and qualifying shares of the Series
for sale; freight, insurance and other charges in connection with the shipment
of the Series' portfolio securities; brokerage commissions or other costs of
acquiring or disposing of any portfolio securities or other assets of the
Series, 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 Fund business) of
Directors, officers and employees of the Fund who are not interested persons of
the Adviser or Administrator; and travel expenses (or an appropriate portion
thereof) of Directors and officers of the Fund 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 Directors of the Fund 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 Series if and to the
extent that (i) such expenses are assumed or required to be borne by the Series'
principal underwriter or some other party, or (ii) the Fund on behalf of the
Series shall have adopted a plan in conformity with Rule 12b-1 under the 1940
Act providing that the Series (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 Series (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 Series will pay the Adviser at
the end of each calendar month an advisory fee computed daily at the following
rates based on the average net assets of each Series:
<TABLE>
<CAPTION>
Name of Series Fee
<S> <C>
Each of Christian Stewardship Bond Index Fund,
Christian Stewardship Large Cap Equity Index Fund, 0.15% of the first $500 million
Christian Stewardship Small Cap Equity Index Fund, 0.125% of the next $500 million
Christian Stewardship International Index Fund 0.10% of assets over $1 billion
</TABLE>
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 Articles 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 Fund on behalf of the Series 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 Fund and will be
surrendered promptly to the Fund 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 Fund
or the Series 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 Fund or the Series 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 Fund, the Series or to holders of the Series' 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
Series) 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 Series and to
the Fund 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 Fund on behalf of the
Series, such transactions will be executed on a basis that is fair and equitable
to the Fund. In connection with purchases or sales of portfolio securities for
the account of the Series, 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 Series, the Adviser shall act solely as investment counsel for
such clients and not in any way on behalf of the Series.
8. Duration and Termination. This Agreement shall continue with respect
to each Series until ___________, 2002, and thereafter shall continue
automatically for successive annual periods, provided such continuance is
specifically approved with respect to each Series at least annually by (i) the
Directors or (ii) a vote of a "majority" (as defined in the 1940 Act) of each
Series' outstanding voting securities (as defined in the 1940 Act), provided
that in either event the continuance is also approved by a majority of the
Directors 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 with respect to any or all Series: (a) at any time
without penalty by the Fund upon the vote of a majority of the Directors or by
vote of the majority of each affected Series' 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 the 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
with respect to a Series until approved by an affirmative vote of (i) a majority
of the outstanding voting securities of that Series, and (ii) a majority of the
Directors 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. Miscellaneous.
(a) This Agreement shall be governed by the laws of the State of
Maryland, 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 Fund or the Series.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of _________________, 2000.
CAPSTONE CHRISTIAN VALUES FUND, INC.
By __________________________________
President
CAPSTONE ASSET MANAGEMENT COMPANY
By ___________________________________
President
GENERAL DISTRIBUTION AGREEMENT
AGREEMENT, effective commencing on ______________, 2000, between CAPSTONE ASSET
PLANNING COMPANY (the "Distributor"), a Delaware corporation having its
principal place of business in Houston, Texas and CAPSTONE CHRISTIAN VALUES
FUND, INC. (the "Fund") with respect to its Series, the Christian Stewardship
Bond Index Fund, the Christian Stewardship Large Cap Equity Index Fund, the
Christian Stewardship Small Cap Equity Index Fund and the Christian Stewardship
International Index Fund (the "Series").
WHEREAS, the Fund is a Maryland corporation organized under Articles of
Incorporation dated May 11, 1992, (the "Articles") 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 Series are separate series of the Fund's shares of beneficial
interest;
WHEREAS, in consideration of the mutual promises and undertakings herein
contained, the parties agree as follows:
1. Sale of Shares - The Fund grants to the Distributor the right to sell
shares on behalf of the Christian Stewardship Fund Bond Index Fund, the
Christian Stewardship Fund Large Cap Equity Index Fund, the Christian
Stewardship Fund Small Cap Equity Index Fund and the Christian Stewardship
Fund International Index Fund ("Series"), each a series of the Fund,
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 Fund,
shares authorized for issue and registered under the 1933 Act.
2. Sale of Shares by the Fund - The rights granted to the Distributor shall
be nonexclusive in that the Fund reserves the right to sell its shares to
investors on applications received and accepted by the Fund. Further, the
Fund reserves the right to issue shares in connection with the merger or
consolidation, or acquisition by the Fund 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 Fund, shares of the Fund held in its treasury in the event
that in the discretion of the Fund treasury shares shall be sold, and
shares of the Fund repurchased for resale. It shall apply to each series
of shares that may be offered by the Fund.
4. Public Offering Price - Except as otherwise noted in the Fund's current
Prospectus, all shares sold to investors by the Distributor or the Fund
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 Fund's current Prospectus, plus a sales charge
(if any) described in the Fund's current Prospectus for that series. The
Fund, 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 Fund. The Distributor may also receive
payments from the Fund 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 Fund'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 Fund 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 Fund if, in
the judgment of the Fund, it is in the best interests of the Fund to do
so. Suspension will continue for such period as may be determined by the
Fund.
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
Fund. 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 Fund
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 Fund 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 Fund 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 Fund.
9. Registration of Shares - The Fund 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 Fund shall make available to the
Distributor such number of copies of its currently effective Prospectus as
the Distributor may reasonably request. The Fund 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 Fund.
10.Expenses - The Fund 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 Fund 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 Fund 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
Fund'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 Fund that Capstone Asset Management Company may reimburse the
Distributor for its direct and indirect expenses incurred in the
distribution of the Fund's shares.
11.Indemnification - The Fund 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 Fund (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
Fund 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 Fund by or on behalf of the
Distributor. In no case (i) is the indemnity of the Fund in favor of the
Distributor or any person indemnified to be deemed to protect the
Distributor or any person against any liability to the Fund 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 Fund 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
Fund 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 Fund of any claim shall
not relieve the Fund 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 Fund 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 Fund 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 Fund 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 Fund 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 Fund agrees to notify the Distributor
promptly of the commencement of any litigation or proceedings against it
or any of its officers or Directors 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 Fund and each of its Board members and officers and each
person, if any, who controls the Fund 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 Fund (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 Fund by or on
behalf of the Distributor. In no case (i) is the indemnity of the
Distributor in favor of the Fund or any person indemnified to be deemed to
protect the Fund or any person against any liability to which the Fund 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 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 Fund or any person indemnified unless the Fund 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 Fund or upon such person (or after the Fund 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 Fund 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 Fund, 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 Fund 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 Fund, 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 Fund 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 Fund. 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 Fund, or, if so directed, to any duly appointed
transfer or shareholder servicing agent of the Fund. 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 Fund 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 Fund for any amount by which the Fund'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 Fund for either of such reasons in
respect to other purchase orders. The Fund 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 Fund, 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 Fund, 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 Fund 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 Fund, at 5847 San Felipe, Suite 4100, Houston, Texas,
and if to the Distributor, at 5847 San Felipe, Suite 4100, Houston, Texas.
IN WITNESS, the Fund 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 CHRISTIAN VALUES FUND, INC.
By: ____________________________________
Name: _________________________________
Title: __________________________________
CAPSTONE ASSET PLANNING COMPANY
By: ___________________________________
President
ADMINISTRATION AGREEMENT
THIS ADMINSTRATION AGREEMENT, is made this _________ date of _______________,
2000 by and between CAPSTONE ASSET MANAGEMENT COMPANY (the "Administrator"), a
Delaware corporation having its principal place of business in Houston, Texas
and CAPSTONE CHRISTIAN VALUES FUND, INC. (the "Fund"), a Maryland corporation
having it's principal place of business in Houston, Texas, with respect to its
Series, the Christian Stewardship Bond Index Fund, the Christian Stewardship
Large Cap Equity Index Fund, the Christian Stewardship Small Cap Equity Index
Fund and the Christian Stewardship International Index Fund (the "Series").
W I T N E S S E T H
WHEREAS, the Fund 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 Fund desires to retain the Administrator to render supervisory and
administrative services to the Fund in connection with the Series 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 Fund hereby employs the
Administrator to perform the duties with respect to the Series 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 Fund in any way or otherwise be deemed an agent of the Fund.
2. Duties of the Administrator. The Administrator, subject to the
direction of the Board of Directors and officers of the Fund,
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 Series, 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 Series, (ii)
providing the Series, 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 Series, including duties in connection with
shareholder relations, reports, redemption requests and account
adjustments and the maintenance of certain books and records of
the Series, (iii) the preparation of registration statements,
prospectuses, reports, proxy solicitation materials and amendments
thereto and the furnishing of legal services to the Series except
for services provided by outside counsel to be selected by the
Board of Directors, and (iv) providing the Series, at the
Administrator's expense, with adequate office space and related
services necessary for their operations as contemplated in this
Agreement.
(b) Other Obligations and Services. The Administrator shall make its
officers and employees available to the Board of Directors and
officers of the Fund for consultation and discussions regarding
the administrative management of the Series.
3. Expenses of the Series.
(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 Series' custodial system), office space and facilities
necessary to perform its obligations under this Agreement, and
shall pay all compensation of officers of the Fund and the fees of
all directors of the Fund who are affiliated persons of the
Administrator.
(b) The Fund. The Fund and the Series assume and shall pay or shall
arrange to pay all other expenses of the Fund and the Series,
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 directors other than those
who are affiliated persons of the Adviser or the Administrator;
(iv) fees of outside counsel to and of independent accountants of
Series selected by the Board of Directors; (v) custodian,
registrar and transfer agent fees and expenses; (vi) expenses
related to the repurchase or redemption of the Series' shares
including expenses related to a program of periodic repurchases or
redemptions; (vii) expenses related to the issuance of the Series'
shares against payment therefor by or on behalf of the subscribers
thereto; (viii) fees and related expenses of registering and
qualifying the Series 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 Series; (x) all other
expenses incidental to holding meetings of the shareholders of the
Series 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 Series in trade associations approved by the
Board of Directors; and (xiv) such non-recurring expenses as may
arise, including those associated with actions, suits or
proceedings arising out of the activities of the Fund or the
Series to which the Fund or the Series are a party and the legal
obligation which the Fund or the Series may have to indemnify the
officers and directors with respect thereto. To the extent that
any of the foregoing expenses are allocated among the Fund, the
Series and any other party, such allocations shall be made
pursuant to methods approved by the Board of Directors.
4. Compensation. As compensation for the services rendered, the
facilities furnished and the expenses assumed by the Administrator,
each Series 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
that Series 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 Series 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 Series 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 Fund, the Series, or to any
shareholder of the Fund or the Series 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 __________, 2002 or until
terminated in accordance with Paragraph 8 hereof.
8. Termination.
(a) Prior to _________, 2002, this Agreement may be terminated with
respect to one or more Series 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 Directors of the Fund 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 _________, 2000, this Agreement may be terminated with
respect to one or more Series without the payment of any penalty
(i) by the Fund on 60 days' notice to the Administrator and (ii)
by the Administrator on 90 days' written notice to the Fund.
9. 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 Directors of the Fund, and in accordance with
any applicable regulatory requirements.
10. 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 Fund:
Capstone Christian Values Fund, Inc.
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 10.
11. 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.
12. 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.
13. 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.
14. 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 Fund, including the Series, as a
diversified open-end management company.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
on the date first written above.
CAPSTONE CHRISTIAN VALUES FUND, INC.
By ________________________________
Name:
Title:
CAPSTONE ASSET MANAGEMENT COMPANY
By ________________________________
Name:
Title:
CAPSTONE CHRISTIAN VALUES FUND, INC.
Christian Stewardship Bond Index Fund
Christian Stewardship Large Cap Equity Index Fund
Christian Stewardship Small Cap Equity Index Fund
Christian Stewardship International Index Fund
(series of Capstone Christian Values Fund, Inc.)
SERVICE AND DISTRIBUTION PLAN
Introduction: It has been determined that series and classes indicated on
Schedule A hereto (each a "Fund" and "Class," respectively), which are series
and classes of Capstone Christian Values Fund, Inc. ("CCVF"), will pay specified
amounts to Capstone Asset Planning Company ("Distributor") as compensation for
providing certain distribution-related and shareholder-servicing services with
respect to shares and shareholders of such Fund and Class. The Board of
Directors of CCVF therefore adopts the Service and Distribution Plan (the
"Plan") for the Funds and Classes, as 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 Funds 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 Funds and Classes 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 Funds, Classes and their shareholders.
The Plan: The material aspects of the financing by the Funds and Classes of
distribution and shareholder servicing activities to be performed for the Funds
and are as follows:
1. Each Fund or Class, as applicable, will compensate the Distributor for
services provided and expenses incurred in connection with the
distribution and marketing of shares of the particular Fund or Class and
for the servicing shareholders of that Fund or Class. Such distribution,
marketing and shareholder servicing activities to be provided by the
Distributor may include (1) printing and advertising expenses; (2)
payments to employees or agents of the Distributor who engage in or
support distribution of the Funds' 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 Funds' transfer agent and answering questions of shareholders;
(6) payments of fees to one or more broker-dealers (which may include
the Distributor 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 shares of a Fund or Class 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 Funds' Board of Directors determines to be reasonably calculated
to result in the sale of the shares of the Funds and Classes.
Subject to the limitations of applicable law and regulation, including
rules of the National Association of Securities Dealers ("NASD"), the
Distributor will be compensated monthly for such services at the annual
rate indicated in Schedule A based on the average daily net assets of
the Funds or Classes.
2. Out of the amounts provided in Schedule A, the Distributor may
periodically pay to one or more Service Organizations (which may include
the Distributor itself) a fee in respect of the shares of a Fund or
Class 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 the Distributor at such
annual rates as may be determined from time to time by the Board of
Directors, consistent with applicable law, regulation and regulatory
interpretation, and disclosed in the Funds' prospectus, such rates to be
based on the average daily net asset value of the shares of the Funds or
Classes 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. Subject to
the limits herein and the requirements of applicable law and
regulations, including rules of the NASD, the Distributor may designate
as "Service Fees," as that term is defined by applicable rules and
regulatory interpretations applicable to payments under a plan such as
the Plan, some or all of any payments made to Service Organizations
(including the Distributor itself) for services that may be covered by
"Service Fees," as so defined.
The payment to a Service Organization is subject to compliance by the
Service Organization with the terms of a written agreement between the
Service Organization and the Distributor (the "Agreement"), in such
form(s) as may be approved by the Directors from time to time. If a
shareholder of a Fund or Class ceases to be a client of a Service
Organization that has entered into an agreement with the Distributor,
but continues to hold shares of the Fund or Class, the Distributor will
be entitled to receive a similar payment in respect of the servicing
provided to such shareholder. For the purposes of determining the fees
payable under the Plan, the average daily net asset value of the shares
of a Fund or Class, as applicable, shall be computed in the manner
specified in CCVF's Articles of Incorporation, including any
Establishment and Designation of Series, and the Funds' current
prospectus for the computation of the net asset value of the Fund or
Class.
3. The Plan will become effective immediately upon approval, with respect
to each Fund and Class, by (a) a majority of the Board of Directors,
including a majority of the Directors who are not "interested persons"
(as defined in the Act) of CCVF and who 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. Additional series or classes of
shares may be added to the Plan effective as to each such series and
class upon approval by (a) a majority of the outstanding voting
securities of such series or class, as applicable, if shares of the
series or class have been sold to persons who are not "affiliated
persons" (as defined in the Act) of CCVF, promoters of CCVF, or
affiliated persons of either of the foregoing, and (b) majorities of
both the Board of Directors and the Plan Directors, pursuant to votes
cast in person at a meeting called for such purpose. Each such series or
class added to the Plan shall become a "Fund" or "Class" hereunder.
4. 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.
5. The Plan may be amended at any time by the Board of Directors provided
that (a) any amendment to increase materially the amounts which a Fund
or Class may pay 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 Fund or Class, as applicable and (b)
any material amendments of the terms of the Plan shall become effective
only upon approval by vote of a majority of the Directors and by vote of
a majority of the Plan Directors, cast in person at a meeting called for
the purpose of voting on such amendment.
6. The Plan is terminable without penalty at any time with respect to any
Fund or Class by (a) vote of a majority of the Plan Directors, or (b)
vote of a majority of the outstanding voting securities of the
respective Fund or Class, as applicable.
7. Any person authorized to direct the disposition of monies paid or
payable by a Fund or Class 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.
8. While the Plan is in effect, the selection and nomination of Directors
who are not "interested persons" (as defined in the Act) of CCVF shall
be committed to the discretion of the Directors who are not "interested
persons".
9. CCVF shall preserve copies of the Plan, any agreement into connection
with the Plan, and any report made pursuant to paragraph 7 hereof, for a
period of not less than six years from the date of the Plan, such
agreement or report, the first two years in an easily accessible place.
CAPSTONE CHRISTIAN VALUES FUND, INC.
Date: _____________ By:_______________________________
President
Attest:
_____________________
Secretary
<PAGE>
SERVICE AND DISTRIBUTION PLAN
CAPSTONE CHRISTIAN VALUES FUND, INC.
SCHEDULE A
The amounts payable to the Distributor pursuant the Service and
Distribution Plan are as indicated below for the listed Funds and Classes. The
Distributor shall be paid monthly at the following annual rates to be applied to
the average daily net asset value of the respective Fund or Class:
<TABLE>
<CAPTION>
Name of Fund Class of Shares Annual Fee Rate
- ------------ --------------- ---------------
<S> <C> <C>
Christian Stewardship Bond Index Fund Institutional 0.05%
Individual 0.25%
Christian Stewardship Large Cap Equity Index Fund Institutional 0.05%
Individual 0.25%
Christian Stewardship Small Cap Equity Index Fund Institutional 0.05%
Individual 0.25%
Christian Stewardship International Index Fund Institutional 0.05%
Individual 0.25%
</TABLE>
