As filed with the Securities and Exchange Commission on February 25, 2000
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. 54 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. ___ /X/
(Check appropriate box or boxes)
CAPSTONE CHRISTIAN VALUES FUND, 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
<PAGE>
CHRISTIAN STEWARDSHIP FUNDS
A Series of 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
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.
<PAGE>
TABLE OF CONTENTS
PAGE
----
THE FUNDS: INVESTMENTS, RISKS EXPENSES .............................
ABOUT THE CHRISTIAN STEWARDSHIP FUNDS...........................
GENERAL INVESTMENT OBJECTIVES AND STRATEGIES....................
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.
Fund Type -- Each Fund is an "index-type fund" -- i.e., each Fund is
designed to produce performance generally comparable to a designated index or
"Benchmark" before expenses.
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.
GENERAL INVESTMENT OBJECTIVES AND STRATEGIES
- --------------------------------------------------------------------------------
Each of the Funds seeks to match the performance of a designated index
(Benchmark) before expenses. 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
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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 Fund 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 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
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Investment Objective Capital appreciation
Principal Investment Strategies
The Fund pursues this objective by attempting to match the performance before
Fund expenses 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 in securities of other investment
companies by the Fund and its affiliated persons to no more than 3% of the total
outstanding stock. 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, except for continuous investment plans. 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 Declaration Service Company
555 North Lane, Suite 6160
Conshohocken, PA 19428
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: Declaration Service Company
Account # _______________________
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 1-800-695-3208.
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 1-800-695-3208.
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 1-800-695-3208 (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
A Series of Capstone Christian Values Fund, Inc.
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.
TABLE OF CONTENTS
GENERAL INFORMATION.......................................
INVESTMENT RESTRICTIONS...................................
INVESTMENTS AND INVESTMENT STRATEGIES.....................
PERFORMANCE AND YIELD INFORMATION.........................
DIRECTORS AND EXECUTIVE OFFICERS..........................
INVESTMENT ADVISORY AGREEMENT.............................
ADVISORY COMMITTEE AND CONSULTANT.........................
ADMINISTRATION AGREEMENT..................................
DISTRIBUTOR...............................................
OTHER SERVICES............................................
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.......
PORTFOLIO TRANSACTIONS AND BROKERAGE......................
DETERMINATION OF NET ASSET VALUE..........................
HOW TO BUY AND REDEEM SHARES..............................
DIVIDENDS AND DISTRIBUTIONS...............................
TAXES.....................................................
OTHER INFORMATION.........................................
<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
SEC 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.
PERFORMANCE AND YIELD INFORMATION
CSF 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 Dr., Garland, Texas 75044. Managing
Director of Benefit Capital South West, Inc. (financial services). Director/
Trustee of other Capstone Funds; Director: Associated Materials, Inc. (tire
cord, siding and industrial cable manufacturer); MESBIC Ventures, Inc.
(minority enterprise small business investment company); Quest Products Corp.
(consumer products); Prospect Street High Income Fund (closed end mutual fund).
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 and Director. 5847 San Felipe, Suite 4100,
Houston, Texas 77057. President (since 1992) and Director (since 1987) of
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, Compliance 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 $2,000
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 committee meetings and
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>
Pension or Estimated Total Compensation
Aggregate Retirement Benefits Annual From Registrant
Compensation Accrued As Part Benefits Upon and Fund Complex
Name of Person, Position From Registrant(1) 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 10 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 investment 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
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 securities 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 Directors. 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 the 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.
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. Declaration Services
Company, performs accounting, bookkeeping and pricing services for the Company.
For these services, Declaration 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) membership 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 Declaration Services Company, 555 North Lane, Suite 6160,
Conshohocken, PA 19428. 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 CAPSTONE CHRISTIAN VALUE FUND, INC.
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.
(g)(2) Form of proposed Foreign Custody Manager 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 Declaration Service
Company.
****(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.
*** Filed with Post-Effective Amendment No. 53.
**** 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 and Director
Leticia N. Jaroski Secretary --
Carla Homer Treasurer --
Linda G. Giuffre Vice President, Compliance Secretary/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 Declaration Service Company, the Registrant's shareholder service
agent, 555 North Lane, Suite 6160, Conshohocken, PA 19428, 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 certifies that this
Amendment meets all the requirements for effectiveness pursuant to Rule 485(b)
under the Securities Act of 1933 and has duly caused this Registration Statement
or Amendment to be signed on its behalf by the undersigned, thereunto duly
authorized in the city of Houston, and State of Texas on the 25th day of
February, 2000.
THE CHRISTIAN STEWARDSHIP FUNDS
Registrant
By: Edward L. Jaroski
------------------------
Edward L. Jaroski
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
- ------------------------- Director February 25, 2000
*Bernard J. Vaughan
- ------------------------- Director February 25, 2000
*James F. Leary
- ------------------------- Director February 25, 2000
*John R. Parker
Edward L. Jaroski Director and President February 25, 2000
- ------------------------- (Principal Executive Officer)
Edward L. Jaroski
Linda Giuffre Secretary/Treasurer
- -------------------------- (Principal Financial & February 25, 2000
Linda Giuffre Accounting Officer)
By: Edward L. Jaroski
--------------------------------
*Edward L. Jaroski, Attorney In Fact
FIFTH THIRD BANK
GLOBAL CUSTODY ADDENDUM
This GLOBAL CUSTODY ("ADDENDUM") dated as of February 11, 2000 by
and between Capstone Christian Values Fund, Inc. (the
"Customer"), and FIFTH THIRD BANK, a banking corporation
organized pursuant to the laws of the State of Ohio ("Bank"), is
made as an addendum to the Custody Agreement dated February 11,
2000 (the "Custody Agreement") between the Customer and Bank;
WHEREAS, Bank has been appointed by Customer as the
Custodian of the assets of its portfolio of funds and Customer
desires to establish one or more custody accounts through Bank
for Global Custody;
NOW, THEREFORE, in consideration of the premises and of the
mutual promises and covenants contained herein, the parties
hereto agree as follows:
1. Appointment of Bank as Global Custodian. Bank is
hereby authorized and directed to, and shall, open and maintain
one or more custody accounts (the "Account") in such name or
names as Customer may, from time to time, direct; and will
accept, in accordance with the terms hereof, all cash and
currency (collectively referred to herein as "Cash") and all
securities, instruments and other intangible assets as may be
agreed upon by Bank and Customer which shall from time to time be
delivered to or received by it or any Sub-custodian in the United
States or in a country approved by Customer for deposit in or
otherwise held in the Account (collectively referred to herein as
"Securities") (Cash and Securities are collectively referred to
herein as "Assets"). Bank assumes no obligation to review
investments in the Account or to recommend the purchase,
retention or sale of any Assets unless provided for by a separate
written agreement between the parties.
2. Maintenance of Assets Outside the United States. Bank
is hereby authorized and directed to hold the Assets in the
countries with the Sub-custodians set forth on Schedule A annexed
hereto (the "Foreign Sub-custodians"), which Schedule A may be
amended (by deleting, adding or changing Sub-custodians or
deleting countries) from time to time by Bank without Customer
approval. Bank shall notify (either orally or in writing)
Customer of any such amendment or change.
3. Foreign Sub-Custodians. Except as may otherwise be
agreed upon in writing, Assets of the Fund shall at all times be
maintained in custody of an "Eligible Foreign Custodian" as
defined in or exempt under the 1940 Act. With respect to holding
Property with an Eligible Foreign Custodian, it is expressly
understood and agreed that:
(i) Bank will endeavor, to the extent feasible,
to hold securities in the country or other jurisdiction
in which the principal trading market for such
Securities is located, where such Securities are to be
presented for cancellation and/or payment and/or
registration, or where such Securities are acquired;
(ii) Cash which is maintained in a foreign country
will be in any currency which may be legally held in
such country and may be held in non-interest bearing
accounts;
(iii) Foreign Sub-custodians may hold
Securities in central securities depositories or
clearing agencies in which such participates;
(iv) Unless otherwise agreed to in writing by the
parties hereto or otherwise required by local law or
practice, Securities deposited with Eligible Foreign
Custodians will be held in a commingled account in the
name of Bank or its designee sub-custodian as custodian
or trustee for its customers;
(v) Settlement of and payment for Securities
received for, and delivered from the Account may be
made in accordance with the customary or established
securities trading or securities processing practices
and procedures in the jurisdiction or market in which
the transaction occurs,
including without limitation, the delivery of Securities to a
purchaser, broker, dealer or their prospective agents
either against a receipt for future payment or without
any payment (so-called "free delivery"); and
(vi) Customer is solely responsible for the
payment of and the reclamation, where applicable, of
taxes. Bank will, however, cooperate with Customers in
connection with Customer's payment or reclamation of
taxes and shall make the necessary filings in
connection with obtaining tax exemptions and tax
reclamations which are available to the Customer.
4. Powers of Bank. (a) General Powers. Subject to
and in accordance with Customer's instruction, Bank, as
Customer's agent, and for the account and risk of Customer, is
hereby authorized and empowered, with respect to Securities held
outside the United States with Foreign Sub-custodians, to
authorize and empower Foreign Sub-custodians to:
(i) receive and deliver Property;
(ii) receive all payments of principal, interest,
dividends and other income and distributions payable
with respect to Property;
(iii) exchange Securities in temporary or
bearer form for Securities in definitive or registered
form; effect an exchange of shares where the par value
of stock is changed; and surrender Securities at
maturity or earlier when advised of a call for
redemption (provided, however,that Bank shall not be
liable for failure to so exchange or surrender any
security or take other action (A) if notice of such
exchange or call for redemption or other action was not
actually received by Bank from the issuer (with respect
to Securities issued in the United States) or from one
of the nationally or internationally recognized bond or
corporate action services to which Bank subscribes or
from the Customer or (B) if, at the time of deposit,
any Security so deposited is subject to call, exchange,
redemption or similar action, unless specifically
instructed to do so by Customer);
(iv) hold Property (A) in its vaults, (B) at a
domestic or foreign entity that provides handling,
clearing or safekeeping service, (C) with issuer in non-
certificated form, (D) on Federal Book Entry at the
Federal Reserve Bank or (E) with the prior approval of
Customer at any other location;
(v) register and/or hold Property in the name of
any nominee of Bank or its Foreign Sub-custodians or
any of their respective nominees or any authorized
agent, subsidiary or other entity, including (without
limiting the generality of the foregoing) the nominee
of any central depository, clearing corporation or
other entity with which securities may be deposited
(and Customer hereby indemnifies and holds harmless
Bank and any such nominee against any liability as a
holder of record);
(vi) hold any investment in bearer form;
(vii) in connection with the receipt of
Property, accept documents in lieu of such Property as
long as such documents contain the agreement of the
issuer thereof to hold such Property subject to Bank's
sole order;
(viii) make, execute, acknowledge and deliver
as agent, any and all documents or instruments
(including but not limited to all declarations,
affidavits and certificates of ownership) that may be
necessary or appropriate to carry out the powers
granted herein;
(ix) employ and consult with, and obtain advice
from, suitable agents, including auditors and legal
counsel (who may be counsel to Customer or the Bank or
other advisers, and Bank shall incur no liability in
acting in good faith in accordance with the reasonable
advice and opinion of such agents or advisers;
(x) make any payments incidental to or in
connection with this paragraph 3(a); and
(xi) exercise all other rights and powers and to
take any action it deems necessary in carrying out the
purposes of this Agreement.
(b) Discretionary Corporate Action. Whenever Securities or
instruments (including, but not limited to, warrants, options,
tenders, options to tender or non-mandatory puts or calls) confer
optional rights on Customer or provide for discretionary action
or alternative courses of action by Customer, Customer shall be
responsible for making any decisions relating thereto and for
instructing Bank to act. In order for Bank to act, it must
receive Customer's instructions at Bank's offices, addressed as
Bank may from time to time request, by no later than noon
(Eastern Standard Time) at least two (2) business days prior to
the last scheduled date to act with respect to such securities or
instruments (or such earlier date or time as Bank may notify
Customer). Absent Bank's timely receipt of such instruction,
Bank shall not be liable for failure to take any action relating
to or to exercise any rights conferred by such securities or
instruments.
(c) Voting. With respect to all Securities, however
registered, the voting rights are to be exercised by Customer or
its designee. With respect to Securities issued in the United
States, Bank's only duty shall be to mail to Customer any
documents (including proxy statements, annual reports and signed
proxies) relating to the exercise of such voting rights. With
respect to Securities issued outside the United States at the
request of Customer, Bank will provide Customer with access to a
provider of global proxy services (the cost of which will be paid
by Customer). If Customer determines not to utilize the services
of such global proxy services provider, Bank will endeavor to
provide Customer with proxy material actually received by Bank
from Sub-Custodians, but otherwise shall have no obligations with
respect to voting.
(d) Foreign Exchange Transactions. Bank, as principal, is
authorized to enter into spot or forward foreign exchange
contracts with Customer and may provide such foreign exchange
services to Customer through its subsidiaries or affiliates or
through Foreign Sub-Custodians. Instructions, including standing
instructions, may be issued with respect to such contracts, but
Bank may establish rules or limitations concerning any foreign
exchange facility made available to Customer. In all cases where
Bank, its subsidiaries or affiliates or Foreign Sub-custodians
enter into foreign exchange contracts relating to the Account,
the terms and conditions of such foreign exchange contracts shall
apply to such transaction. Neither Bank nor any Foreign Sub-
custodian shall be liable for any fluctuations or changes in
foreign exchange rates, which shall be the sole risk and
liability of Customer.
5. Agreements with Foreign Sub-Custodians. Each agreement
with a Foreign Sub-custodian shall provide that: (a) the Funds'
assets will not be subject to any right, charge, security
interest, lien or claim of any kind in favor of the foreign sub-
custodian or its creditors or agent, except a claim of payment
for their safe custody or administration; (b) beneficial
ownership of the Fund's assets will be freely transferable
without the payment of money or value other than for custody or
administration; (c) adequate records will be maintained
separately identifying the assets; (d) officers of or auditors
employed by, or other representatives of the Fund and any sub-
custodian, including to the extent permitted under applicable law
the independent public accountants for the Fund, will be given
access to the books and records of the Foreign Sub-custodian
relating to its actions under its agreement with the Foreign Sub-
custodian; and (e) assets of the Fund held by the Foreign Sub-
custodian will be subject only to the instructions of the Bank,
its' sub-custodian or its agents.
6. Transactions in Foreign Custody Account.
(a) Except as otherwise provided in Paragraph (b) of this
Section 7, the provisions of Section 3 of the Custody Agreement
shall apply, equally to the Securities of the Fund held outside
the United States by Foreign Sub-custodian.
(b) Notwithstanding any provision of this Agreement to the
contrary, settlement and payment for Securities received for the
account of the Fund and delivery of Securities maintained for the
account of the Fund may be effected in accordance with the
customary established securities trading or securities processing
practices and procedures in the jurisdiction or market in which
the transaction occurs, including, without limitation, delivering
securities to the purchaser thereof or to a dealer therefor (or
an agent for such purchaser or dealer) against a receipt with
expectation of receiving later payment for such securities from
such purchaser or dealer.
(c) Securities maintained in the custody of a Foreign Sub-
custodian may be maintained in the name of such entity's nominee
to the same extent as set forth in Section 3 of this Agreement,
and the Fund agrees to hold any such nominee harmless from any
liability as a holder of record of such securities.
7. Liability of Foreign Sub-Custodians. Each agreement
pursuant to which the Bank or its Sub-custodian employs a foreign
banking institution as a Foreign Sub-custodian shall to the
extent applicable require the institution to exercise the
customary standard of care in the performance of its duties and
to indemnify, and hold harmless, the Bank and any Sub-Custodian
for the benefit of the Fund for and against any loss, damage,
cost, expense, liability or claim arising out of or in connection
with the institution's performance of such obligations. At the
election of the Fund, it shall be entitled to be subrogated to
the rights of any sub-custodian with respect to any claims
against a Foreign Sub-custodian as a consequence of any such
loss, damage, cost, expense, liability or claim if and to the
extent that the Fund has not been made whole for any such loss,
damage, cost, expense, liability or claim.
8. Tax Law. The Bank shall have no responsibility or
liability for any obligations now or hereafter imposed on the
Fund or any sub-custodian by the tax law of the United States of
America or any state or political subdivision thereof. It shall
be the responsibility of the Fund to notify the Bank and any sub-
custodian of the obligations imposed on the Fund or any as sub-
custodian of the Fund by the tax law of jurisdictions other than
those mentioned in the above sentence, including responsibility
for withholding and other taxes, assessments or other
governmental charges, certifications and governmental reporting.
The sole responsibility of the Bank with regard to such tax law
shall be to use reasonable efforts to assist the fund with
respect to any claim for exemption or refund.
9. Compensation, Fees, Expenses and Taxes.
(a) In consideration of the services to be rendered
pursuant to this Addendum, Customer shall compensate Bank in
accordance with and pursuant to the Fee Schedule annexed hereto
as Schedule B, which Fee Schedule may be amended from time to
time upon thirty (30) days' prior written notice to Customer.
(b) In addition, Customer shall be responsible for and
shall reimburse Bank for all costs, expenses, and fees incurred
by Bank in connection with this Agreement, including (without
limiting the generality of the foregoing) all brokerage fees and
costs and transfer taxes incurred in connection with the
purchase, sale or disposition of Property, and all income taxes
or other taxes of any kind whatsoever which may be levied or
assessed under existing or future laws upon or in respect to the
Property, and all other similar expenses related to the
administration of the Account incurred by Bank in the performance
of its duties hereunder (including reasonable attorneys' fees and
expenses).
(c) Fees and reimbursement for costs and expenses shall be
paid monthly after the last business day of each calendar month,
with the first payment for the calendar month following any
activity. Bank is hereby authorized to charge the Account for
such fees, costs and expenses.
(d) In the event services are rendered for less than a
calendar month or this Addendum is terminated prior to the end of
a calendar month, Customer shall pay Bank's fee prorated for the
portion of the calendar month such services are rendered, plus
any costs and expenses incurred by Bank for Customer's Account up
to or subsequent to the date of termination.
10. Limitation of Liability; Indemnification. (a) Bank
shall not be liable for any Losses (as defined below) or action
taken or omitted or for any loss or injury resulting from its
actions or its performance or lack of performance of its duties
hereunder in the absence of gross negligence or willful
misconduct on its part. With respect to Losses incurred by
Customer as a result of the acts or the failure to act by any Sub-
custodian or Foreign Sub-custodian, Bank shall take appropriate
action to recover such Losses from such sub-custodian; and Bank's
sole responsibility and liability to Customer shall be limited to
amounts so received from such Sub-custodian (exclusive of costs
and expenses incurred by Bank). In no event shall Bank or any
Sub-custodian be liable (i) for acting in accordance with
instructions from Customer or any agent of Customer, (ii) for
special or consequential damages, (iii) for the acts or omissions
of its nominees, correspondents, designees or subagents, (iv) for
holding Property in any particular country, including, but not
limited to, Losses resulting from nationalization, expropriation
or other governmental actions; regulation of the banking or
securities industry; currency controls or restrictions,
devaluations or fluctuations; or market conditions which prevent
the orderly execution of securities transactions or affect the
value of Property, or (v) for any Losses due to forces beyond the
control of Bank or any sub-custodian, including, without
limitation, strikes, work stoppages, acts of war or terrorism,
insurrection, revolution, nuclear or natural catastrophes or acts
of God, and interruptions, loss or malfunctions of utilities,
communications or computer (software and hardware) services.
(b) Customer shall be liable for and shall indemnify Bank
and hold it harmless against any and all claims, losses,
liabilities, damages or expenses (including reasonable attorneys'
fees and expenses) (collectively referred to herein as "Losses")
however arising from or in connection with this Addendum or the
performance of its duties hereunder, provided, however, that
nothing contained herein shall limit or in any way impair the
right of Bank to indemnification under any other provision of
this Agreement.
(c) No legal action, shall be instituted against Bank after
one year from the date of the first Confirmation, Statement of
Assets or Statement of Accounts that reflects the information,
error or omission which provides the basis for such claim.
(d) Customer understands that when a sub-custodian is
instructed to deliver Property against payment, it may deliver
such Property prior to actually receiving final payment and that,
as a matter of bookkeeping convenience, it may credit Customer's
Account with anticipated proceeds of sale prior to actual receipt
of final payment. The risk of non-receipt of payment shall be
Customer's and Bank or said sub-custodian shall have no liability
therefor.
(e) All credits to the Account of Customer of anticipated
proceeds of sales and redemptions of Property and of anticipated
income from Property shall be conditional upon receipt of final
payment and may be reversed to the extent final payment is not
received. In the event that Bank in its description advances
funds to Customer to facilitate the settlement of any
transaction, or elects to permit Customer to use funds credited
to the Account in anticipation of final payment, or if Customer
otherwise becomes indebted to Bank (including indebtedness as a
result of overdrafts in the Account), Customer shall, immediately
upon demand, reimburse Bank for such amounts plus any interest
thereon.
(f) Bank's duties and responsibilities are solely those set
forth herein and it shall not be obligated to perform any
services or take any action not provided for herein unless
specifically agreed to by it in writing. Nothing contained in
this Agreement shall cause Bank to be deemed a trustee or
fiduciary for or on behalf of Customer.
11. Reports; Statements of Account; Computer Services. (a)
Written Reports. Bank shall provide Customer on a periodic basis
with Statements of Assets in the Account ("Statement of Assets")
and Statements of Account showing all transactions in the Account
("Statement of Account"). Statement of Assets, Statement of
Account and Confirmations shall identify the Property held, and
transactions involving, each Sub-custodian.
(b) Examination of Reports. Customer shall examine
promptly each such Confirmation, Statement of Account and
Statement of Assets. Unless Customer files with Bank a written
exception or objection within ninety (90) days after the date of
such Confirmation or the closing date of the period covered by
the first such Statement of Assets or Statement of Account that
reflects an error or omission, Customer shall be conclusively
deemed to have waived any such exception or objection or claim
based thereon.
12. Notices, Instructions and Other Communications. Unless
otherwise specified herein, all Statements of Assets, Statements
of Account and Confirmations shall be in writing and all notices,
instructions or other communications may be given either orally
or in writing (including by tested telex, telecopy or other
electronic transmission, which may include Trade Reports issued
by the Institutions Delivery System or Depository Trust Company).
All Statements of Assets, Statements of Account, Confirmations,
notices, instructions and other communications shall be delivered
to the address (post office, telephone, telex or other electronic
address) set forth on Schedule C annexed hereto, which address
may be changed upon thirty (30) days' prior written notice to the
other party. Customer shall furnish, and shall cause each
Investment Manger to furnish, to Bank a certificate indicating
those person who are authorized to give Bank instructions
hereunder and with specimen signatures of such person. Bank is
authorized to comply with and rely upon any such notices,
instructions or other communications believed by it to have been
sent or given by an authorized person. Bank's understanding of
any oral notice, instruction or other communication shall be
deemed controlling (whether given or received by Bank),
notwithstanding any discrepancy between such understanding and
any subsequent confirming document or communication.
13. Appointment of Investment Manager. Customer may, from
time to time, appoint one or more investment managers (each an
"Investment Manager") to manage the Property in the Account, to
vote securities in the Account, to purchase, sell or otherwise
acquire or dispose of Property in the Account, and to engage in
foreign exchange transactions on behalf of Customer. Upon
receipt of notice of the appointment of any Investment Manager,
which notice shall be annexed hereto as Schedule D (as such
Schedule may be amended from time to time by Customer), and
except as otherwise provided herein, Bank is to rely upon and
comply with (and shall have no liability for relying upon and
complying with) instructions and directions from the Investment
Manager (including instructions and directions with respect to
the voting of securities in the Account, the purchase, sale or
other acquisition or disposition of Property in the Account and
the furnishing of information and records relating to the Account
to the Investment Manager) to the same extent as if such
instructions and directions were given by Customer and Bank shall
have no duty or obligation to determine the propriety or
appropriateness of such instructions or directions. Any such
appointment shall remain in full force and effect unless and
until Bank receive written notice from Customer to the contrary.
14. Termination. This Addendum shall be continuing and
shall remain in full force and effect until terminated by Bank or
Customer upon the termination of the Custody Agreement between
Customer and Bank.
15. Assignment. Neither Bank nor Customer shall assign
this Addendum without first obtaining the written consent of the
other party hereto.
16. Headings and Capital Terms. The section and paragraph
headings contained herein are for convenience and reference only
and are not intended to define or limit the scope of any
provision of this Agreement. All capitalized terms used in this
Addendum but not defined shall have the meanings assigned to such
terms in the Custody Agreement.
17. Entire Agreement; Amendment. This Addendum shall
constitute the entire agreement of the parties with respect to
the subject matter and supersedes all prior oral or written
agreements in regard thereto. Except as otherwise provided, this
Addendum may be amended only by an instrument in writing duly
executed by both parties hereto.
18. Governing Law; Jurisdiction; Certain Waivers. (a)
This Addendum shall be interpreted and construed in accordance
with the internal substantive laws (and not the choice of law
rules) of the State of Ohio.
(b) The invalidity, illegality or unenforceability of any
provision of this Addendum shall in no away affect the validity,
legality or enforceability of any other provision; and if any
provision is held to be unenforceable as a matter of law, the
other provisions shall not be affected thereby and shall remain
in full force and effect.
19. Rights and Remedies. The rights and remedies conferred
upon the parties hereto shall be cumulative, and the exercise of
waiver of any such rights or remedy shall not preclude or inhibit
the exercise or any additional rights or remedies. The waiver of
any right or remedy hereunder shall not preclude or inhibit the
subsequent exercise of such right or remedy.
IN WITNESS WHEREOF, this Addendum has been executed and
attested as of the day and year first above written, by the duly
authorized offices of Customer and Bank.
Capstone Christian Values Fund, Inc.
Attest:
By:
Name: Name:
Title: Title:
THE FIFTH THIRD BANK
Attest:
By:
Name: Name:
Title: Title:
SCHEDULE A
THE FIFTH THIRD BANK
GLOBAL CUSTODY NETWORK
COUNTRIES AND SUB-CUSTODIANS
FOR
CAPSTONE CHRISTIAN VALUES FUND, INC.
February 11, 2000
COUNTRY SUB-CUSTODIAN
Argentina Banco Rio de la Plata, SA
Australia Commonwealth Bank of Australia, Ltd.
Austria Bank Austria AG
Bangladesh Standard Chartered Bank
Belgium Banque Bruxelles Lambert
Bermuda The Bank of Bermuda
Botswana SCMB (Stanbic Bank Botswana)
Brazil The Bank of Boston
Bulgaria ING Bank Sofia
Canada Royal Bank of Canada
Chile The Bank of Boston
China Standard Chartered Bank
Colombia Cititrust
Croatia Privredna Banka
Cyprus Bank of Cyprus
Czech Republic Ceskoslovenska Obchodni Bank
Denmark Den Danske Bank
EASDAQ Banque Bruxelles Lambert
Ecuador Citibank
Egypt Citibank
Estonia Hansabank
Euromarkets Euroclear
Finland Merita Bank, Ltd.
France Banque Paribas
Germany Dresdner Bank
Ghana SCMB (Merchant Bank of Ghana Ltd.)
Greece Paribas, Athens
Hong Kong Hongkong and Shanghai Banking Corp.
Hungary Citibank Budapest
Iceland Landsbanki
India State Bank of India
Indonesia Hongkong and Shanghai Banking Corp.
Ireland Allied Irish Banks Plc.
Israel Bank Leumi LE- Israel B.M.
Italy Banca Commerciale Italiana
Ivory Coast Societe Generale de Banques en Cote d'Ivoire
Japan Bank of Tokyo Mitsubishi Ltd.
Jordan The British Bank of Middle East
Kenya SCMB (Stanbic Bank of Kenya Ltd)
Latvia Societe Generale
Lebanon The British Bank of the Middle East
Lithuania Vilniaus Bankas
Luxembourg Banque Internationale a Luxembourg
Malaysia Hongkong Bank Malaysia Berhad
Mauritius Hongkong and Shanghai Banking Corp.
Mexico Banco Nacional de Mexico
Morocco Banque Commerciale du Maroc
Namibia SCMB (Stanbic Bank Nambia Ltd.)
Netherlands Mees Pierson
New Zealand ANZ Banking Group Ltd.
Nigeria SCMB (Stanbic Bank Nigeria Ltd.)
Norway Den Norske Bank
Oman The British Bank of the Middle East)
Pakistan Standard Chartered Bank
Peru Citibank NA
Philippines Hongkong and Shanghai Banking Corp
Poland Bank Handlowy WWarszawie
Portugal Banco Comercial Portugues
Romania ING Bank- Bucharest Branch
Russia (Min Fin only) Bank for Foreign Trade
Russia (Equities & Bonds) Unexim Bank
Russia (Equities) Credit Suisse First Bonston Ltd- Moscow
Singapore Development Bank of Singapore
Slovakia Ceskoslovenska Obchodna Banka
Slovenia Banka
South Africa Standard Bank of South Africa
South Korea Standard Chartered Bank
Spain Banco Bilbao Vizcaya
Sri Lanka Standard Chartered Bank
Swaziland SCMB (Stanbic Bank Swaziland Ltd)
Sweden Skandinaviska Enskilda Banken
Switzerland Union Bank of Switzerland
Taiwan Hongkon and Shanghai Banking Corp.
Thailand Standard Chartered Bank
Tunisia Banque Internationale Arabe de Tunisie
Turkey Ottoman Bank
Ukraine Bank Ukraina
United Kingdom The Bank of New York
Uruguay BankBoston
Venezuela Citibank NA
Zambia SCMB (Stanbic Bank Zambia LTd)
Zimbabwe SCMB (Stanbic Bank Zimbabwe Ltd)
SCHEDULE B
THE FIFTH THIRD BANK
GLOBAL CUSTODY AGREEMENT
FEE SCHEDULE
SCHEDULE C
THE FIFTH THIRD BANK
GLOBAL CUSTODY AGREEMENT
NOTICES
February 11, 2000
TO THE FIFTH THIRD BANK:
Post Office Address: Fifth Third Center
38 Fountain Square Plaza
Mail Drop 1090E5
Cincinnati, Ohio 45263
Attention: Christine Y. Ok
Telephone: (513) 744-7969
Telex: (513) 744-6622
TO CAPSTONE CHRISTIAN VALUES FUND, INC.:
Post Office Address: Capstone Christian Values Fund, Inc.
5847 San Felipe
Suite 4100
Houston, TX 77057
SCHEDULE D
THE FIFTH THIRD BANK
GLOBAL CUSTODY AGREEMENT
INVESTMENT MANAGERS
, 2000
INCUMBENCY AND SIGNATURE CERTIFICATE
The undersigned hereby certifies to The Fifth Third Bank that I
am Secretary of Treasurer of the State of Ohio (the
"Corporation"), a corporation, and that, as
such, I am duly authorized to execute this Certificate on behalf
of the Corporation, and further certifies that each of the
following persons, as of the date hereof, is a duly elected,
qualified and acting officer of the Corporation, holding the
office of the Corporation set opposite his name below; and that
the signatures of each such person appearing opposite such
person's name is such person's own true signature:
Name: Officer: Signature:
WITNESS the seal of the Corporation and the signature of the
undersigned this , 2000.
[Corporate Seal]
Secretary
The undersigned, the President of the Corporation and one of the
officers named in the foregoing Certificate, hereby confirms such
Certificate on the date hereof.
Name:
Title: President
Name:
Title:
CORPORATE RESOLUTION
The undersigned hereby certifies to The Fifth Third Bank that the
Board of Directors of , a corporation organized
under the laws of , duly adopted the following
resolutions on the day of , 19
, and that such resolutions are in full force and effect:
RESOLVED, that any of the
following officers, employees or agents of this
corporation, acting (alone)(jointly), be and hereby
(is)(are) authorized and empowered to enter into a
Global Custody Agreement with The Fifth Third Bank
substantially in the form attached hereto with such
changes thereto as the person executing that same shall
deem advisable. The execution of such agreement by
such person to be conclusive evidence of such approval.
Name Title
and RESOLVED, that any of the
following persons, acting (alone)(jointly), be and
hereby (is)(are) authorized from time to time to
designate in writing to The Fifth Third Bank those
officers, employees and other agents of this
corporation authorized to issue instructions under such
Agreement, including, without limitation, with respect
to deposit or withdrawal of cash and the deposit,
withdrawal, purchase or sale of securities and other
property without limitation as to price, items or
condition and otherwise to deal therewith, all pursuant
to the provisions of such Global Custody Agreement:
Name Title
and RESOLVED, that notice of any change in these
resolutions be communicated in writing to The Fifth
Third Bank, and, until The Fifth Third Bank has
actually received such notice, it is authorized to act
pursuant to these resolutions.
IN WITNESS WHEREOF, I have hereunto set my hand as secretary of
said corporation and affixed the corporate seal this day
of , 19 .
[CORPORATE SEAL]
Secretary
STATE OF OHIO )
) SS
COUNTY OF HAMILTON )
On the day of , 19 , before me
personally came , to me
known, who, being by me duly sworn, did depose and say that
he/she resides at ; that
he/she is of The Fifth Third
Bank one of the corporations described in and which executed the
above instrument; that he/she knows the corporate seal of said
corporation; that the seal affixed to said instrument is such
corporate seal; that it was so affixed by the authority of the
Board of Directors of said corporation; and that he/she signed
his/her name thereto by like authority.
Notary Public
STATE OF OHIO )
) SS
COUNTY OF HAMILTON )
On the day of , 19 , before me
personally came , to me
known, who, being by me duly sworn, did depose and say that
he/she resides at ; that
he/she is of
one of the corporations described in and which executed the above
instrument; that he/she knows the corporate seal of said
corporation; that the seal affixed to said instrument is such
corporate seal; that it was so affixed by the authority of the
Board of Directors of said corporation; and that he/she signed
his/her name thereto by like authority.
Notary Public
FOREIGN CUSTODY MANAGER AGREEMENT
AGREEMENT, made as of February 11, 2000, between the Capstone
Christian Values Fund, Inc. (the "Fund") and THE FIFTH THIRD BANK ("Fifth
Third").
WITNESSETH:
WHEREAS, the Fund desires to appoint Fifth Third as a Foreign Custody
Manager on the terms and conditions contained herein;
WHEREAS, Fifth Third desires to serve as a Foreign Custody Manager and
perform the duties set forth herein on the terms and conditions contained
herein;
NOW, THEREFORE, in consideration of the mutual promises hereinafter
contained in this Agreement, the Fund and Fifth Third hereby agree as
follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings;
1 . Capitalized terms used in the Agreement and not otherwise defined
in the Agreement shall have
the meanings given such terms in the Rule.
2. "Board" shall mean the board of directors or board of
trustees, as the case may be, of the Fund.
3. "Eligible Foreign Custodian" shall have the meaning
provided in the rule, except that it shall not include any Securities
Depository the use of which is mandatory (i) by law or regulation, or (ii)
because securities cannot be withdrawn from such Securities Depository, or
(iii) because maintaining securities outside such Securities Depository is
not consistent with prevailing custodial practices.
4. "Monitoring System" shall mean a system established by Fifth
Third to fulfill the Responsibilities specified in clauses (1)(d) and
(1)(e) of Article III of this Agreement.
5. "Responsibilities" shall mean the responsibilities delegated to
Fifth Third as a Foreign Custody Manager with respect to each Specified
Country, as such responsibilities are more fully described in Article III
of this Agreement.
6. "Rule" shall mean Rule l7f-5 under the Investment Company Act of
1940, as amended, as such Rule became effective on June 16, 1997.
7. "Specified Country" shall mean each country listed on
Schedule I attached hereto and each country, other than United States,
constituting the primary market for a security with respect to which the
Fund has given settlement instruction to The Fifth Third Bank as custodian
(the "Custodian") under its Custody Agreement with the Fund.
ARTICLE II
FIFTH THIRD AS FOREIGN CUSTODY MANAGER
1 The Fund on behalf of its Board hereby delegates to Fifth Third
with respect to each Specified Country the Responsibilities.
2. Fifth Third accepts the Board's delegation of
Responsibilities with respect to each Specified Country and agrees in
performing the Responsibilities as a Foreign Custody Manager to exercise
reasonable care, prudence and diligence such as a person having
responsibility for the safekeeping of the Fund's assets would exercise.
3. Fifth Third shall provide to the Board, no later than 15
days after the end of each calendar quarter, written reports notifying the
Board of the placement of assets of the Fund with a particular Eligible
Foreign Custodian within a Specified Country selected by Fifth Third and of
any material change in the Arrangements with respect to the Fund with any
such Eligible Foreign Custodian.
ARTICLE III
RESPONSIBILITIES
1 . Fifth Third shall with respect to each Specified Country and each
Eligible Foreign Custodian selected by Fifth Third: (a) determine that
assets of the Fund held by such Eligible Foreign Custodian will be subject
to reasonable care, based on the standards applicable to custodians in the
relevant market in which such Eligible Foreign Custodian operates, after
considering all factors relevant to the safekeeping of such assets,
including, without limitation, those contained in Section (c)(1) of the
Rule; (b) determine that the Fund's foreign custody arrangements with each
Eligible Foreign Custodian selected by Fifth Third are governed by a
written contract with the Custodian (or, in the case of an Eligible Foreign
Custodian selected by Fifth Third which is a Securities Depository, by such
a contract, by the rules or established practices or procedures of the
Securities Depository, or by any combination of the foregoing) which will
provide reasonable care for the Fund's assets based on the standards
specified in paragraph (c)(1) of the Rule; (c) determine that each contract
described in the preceding clause (b) (or, in the case of an Eligible
Foreign Custodian selected by Fifth Third which is a Securities Depository,
by such a contract, by the rules or established practices or procedures of
the Securities Depository, or by any combination of the foregoing) shall
include the provisions specified in paragraph (c)(2)(i)(A) through (F) of
the Rule or , alternatively, in lieu of any or all of such (c)(2)(i)(A)
through (F) provisions, such other provisions as Fifth Third determines
will provide, in their entirety, the same or a greater level of care and
protection for the assets of the Fund as such specified provisions; (d)
monitor pursuant to the Monitoring System the appropriateness of
maintaining the assets of the Fund with a particular Eligible Foreign
Custodian selected by Fifth Third and the contract governing the
arrangement; and (e) advise the Fund whenever an arrangement described in
the preceding clause (d) no longer meets the requirements of the Rule that
the Fund must withdraw its assets from such Eligible Foreign Custodian as
soon as reasonably practicable. The Fund agrees that Fifth Third may
employ, consult and obtain advice from suitable advisors, agents and third
parties as Fifth Third deems appropriate in its sole discretion in
connection with actions taken by Fifth Third hereunder to fulfill the
Responsibilities.
2. For purposes of clause (d) of the preceding Section 1 of this
Article, appropriateness shall not include, nor be deemed to include, any
risks associated with investment in a particular country. Maintaining
assets of the Fund with an Eligible Foreign Custodian selected by Fifth
Third will on any day be considered appropriate; if Fifth Third on such day
would select such Eligible Foreign custodian in accordance with Articles II
and III of this Agreement.
2
ARTICLE IV
REPRESENTATIONS
1. The Fund hereby represents that: (a) this Agreement has been
duly authorized, executed and delivered by the Fund, constitutes a valid
and legally binding obligation of the Fund enforceable in accordance with
its terms, and no statute, regulation, rule, order, judgment or contract
binding on the Fund prohibits the Fund's execution or performance of this
Agreement; (b) this Agreement has been approved and ratified by the Board
at a meeting duly called and at which a quorum was at all times present;
and (c) the Board has considered the risks associated with investment in
each Specified Country listed on Schedule 1 and will have considered such
risks prior to any settlement instructions being given to the Custodian
with respect to any other Specified Country.
2. Fifth Third hereby represents that: (a) Fifth Third is duly
organized and existing under the laws of the State of Ohio, with full power
to carry on its businesses as now conducted, and to enter into this
Agreement and to perform its obligations hereunder; (b) this Agreement has
been duly authorized, executed and delivered by Fifth Third, constitutes a
valid and legally binding obligation of Fifth Third enforceable in
accordance with its terms, and no statute, regulation, rule, order,
judgment or contract binding on Fifth Third prohibits Fifth Third's
execution or performance of this Agreement; and (c) Fifth Third has
established the Monitoring System.
ARTICLE V
CONCERNING FIFTH THIRD
1 . Fifth Third shall not be liable for any costs, expenses,
damages, liabilities or claims, including attorneys' and accountants' fees,
sustained or incurred by, or asserted against, the Fund except to the
extent the same arises out of the failure of Fifth Third to exercise the
care, prudence and diligence required by Section 2 of Article II hereof. In
no event shall Fifth Third be liable to the Fund, the Board, or any third
party for special, indirect or consequential damages, or for lost profits
or loss of business, arising in connection with this Agreement.
2. The Fund agrees to indemnify Fifth Third and holds it
harmless from and against any and all costs, expenses, damages, liabilities
or claims, including attorneys' and accountants' fees, sustained or
incurred by or asserted against Fifth Third by reason or as a result of any
action or inaction, arising out of Fifth Third's performance hereunder,
provided that the Fund shall not indemnify Fifth Third to the extent any
such costs, expenses, damages, liabilities or claims arise out of Fifth
Third's failure to exercise the reasonable care, prudence and diligence
required by Section 2 of Article 11 hereof.
3. Fifth Third shall only have such duties as are expressly set
forth herein. Without limiting the generality of the foregoing, in no event
shall Fifth Third be liable for any risks associated with investments in a
particular country, but shall only be liable for the risks associated in
placing assets of the Fund with a particular Eligible Foreign custodian
selected by Fifth Third.
ARTICLE VI
MISCELLANEOUS
1 . This Agreement constitutes the entire agreement between the
Fund and Fifth Third, and no provision in the Custody Agreement between the
Fund and the Custodian shall affect the duties and obligations of Fifth
Third hereunder, nor shall any provision in this Agreement affect the
duties or obligations of the Custodian under the Custody Agreement.
3
2. Any notice or other instrument in writing, authorized or
required by this Agreement to be given to Fifth Third, shall be
sufficiently given if received by it at its offices at Fifth Third Center,
511 Walnut Street, Cincinnati, Ohio 45263, Attention: Mutual Fund Client
Services, or at such other place as Fifth Third may from time to time
designate in writing.
3. Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Fund shall be sufficiently
given if received by it at its offices at Capstone Christian Values Fund,
Inc., 5847 San Felipe, Suite 4100, Houston, Texas 77057, Attention: Linda
Guiffre.
4. In case any provision in or obligation under this Agreement
shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions shall not
in any way be affected thereby. This Agreement may not be amended or
modified in any manner except by a written agreement executed by both
parties. This Agreement shall extend to and be binding upon the parties
hereto, and their respective successors and assigns; provided, however,
that this Agreement shall not be assignable by either party without the
written consent of the other.
5. This Agreement shall be construed in accordance with the
internal substantive laws of the State of Ohio, without regard to conflicts
of laws and principles thereof. The Fund and Fifth Third each hereby
irrevocably waive any and all rights to a trial by jury in any legal
proceeding arising out of or relating to this Agreement.
6. The parties hereto agree that in performing hereunder, Fifth
Third is acting solely on behalf of the Fund and no contractual or service
relationship shall be deemed to be established hereby between Fifth Third
and any other person.
7. This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but such counterparts
shall, together, constitute only one instrument.
8. This Agreement shall terminate simultaneously with the
termination of the Custody Agreement between the Fund and the Custodian,
and may otherwise be terminated by either party giving to the other party a
notice in writing specifying the date of such termination, which shall be
not less than thirty (30) days after the date of such notice.
9. In consideration of the service provided by Fifth Third
hereunder, the Fund shall pay to Fifth Third such compensation and
out-of-pocket expenses as may be agreed upon from time to time.
IN WITNESS WHEREOF, the Fund and Fifth Third have caused this
Agreement to be executed by their respective officers, thereunto duly
authorized, as of the date first above written.
CAPSTONE CHRISTIAN VALUES FUND,
INC.
By:
_______________________________
Title:
_______________________________
FIFTH THIRD BANK
By:
________________________________
Title:
________________________________
Christian Stewardship Funds, a Series of
Capstone Christian Values Fund, Inc.
Investment Company Services Agreement
This Agreement, dated as of the 1st of March 2000, made by
and between the Christian Stewardship Funds (the "Fund"), a
Maryland corporation organized under Articles of Incorporation
dated May 11, 1992, (the "Articles") and 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 and Declaration Service Company
("Declaration"), a corporation duly organized under the laws of
the Commonwealth of Pennsylvania (collectively, the "Parties").
Witnesseth That:
Whereas, the Fund is authorized by its Articles to issue
separate series of shares representing interests in separate
investment portfolios which are identified on Schedule "C"
attached hereto and which Schedule "C" may be amended from time
to time by mutual agreement of the Fund and Declaration; and
Whereas, the Parties desire to enter into an agreement
whereby Declaration will provide the services to the Fund as
specified herein and set forth in particular in Schedule "A"
which is attached hereto and made a part hereof.
Now Therefore, in consideration of the premises and mutual
covenants contained herein, and in exchange of good and valuable
consideration, the sufficiency and receipt of which are hereby
acknowledged, the Parties hereto, intending to be legally bound,
do hereby agree as follows:
General Provisions
Section 1. Appointment. The Fund hereby appoints
Declaration as servicing agent and Declaration hereby accepts
such appointment. In order that Declaration may perform its
duties under the terms of this Agreement, the Board of Directors
of the Fund shall direct the officers, investment adviser(s),
legal counsel, independent accountants and custodian of the Fund
to cooperate fully with Declaration and, upon request of
Declaration, to provide such information, documents and advice
relating to the Fund which Declaration requires to execute its
responsibilities hereunder. In connection with its duties,
Declaration shall be entitled to rely, and will be held harmless
by the Fund when acting in reasonable reliance, upon any
instruction, advice or document relating to the Fund as provided
to Declaration by any of the aforementioned persons on behalf of
the Fund. All fees charged by any such persons acting on behalf
of the Fund will be deemed an expense of the Fund.
Any services performed by Declaration under this Agreement
will conform to the requirements of:
(a) the provisions of the Act and the Securities Act of
1933, as amended, and any rules or regulations in force
thereunder;
(b) any other applicable provision of state and federal
law;
(c) the provisions of the Fund Instrument and the by-laws
as amended from time to time and delivered to Declaration;
(d) any policies and determinations of the Board of Fundees
of the Fund which are communicated to Declaration; and
(e) the policies of the Fund as reflected in the Fund's
registration statement as filed with the U.S. Securities and
Exchange Commission.
Nothing in this Agreement will prevent Declaration or any
officer thereof from providing the same or comparable services
for or with any other person, firm or corporation. While the
services supplied to the Fund may be different than those
supplied to other persons, firms or corporations, Declaration
will provide the Fund equitable treatment in supplying services.
The Fund recognizes that it will not receive preferential
treatment from Declaration as compared with the treatment
provided to other Declaration clients.
Section 2. Duties and Obligations of Declaration.
Subject to the provisions of this Agreement, Declaration
will provide to the Fund the specific services as set forth in
Schedule "A" attached hereto.
Section 3. Definitions. For purposes of this Agreement:
"Certificate" will mean any notice, instruction, or other
instrument in writing, authorized or required by this Agreement.
To be effective, such Certificate shall be given to and received
by the custodian and shall be signed on behalf of the Fund by any
two of its designated officers, and the term Certificate shall
also include instructions communicated to the custodian by
Declaration.
"Custodian" will refer to that agent which provides
safekeeping of the assets of the Fund.
"Instructions" will mean communications containing
instructions transmitted by electronic or telecommunications
media including, but not limited to, Industry Standardization for
Institutional Trade Communications, computer-to-computer
interface, dedicated transmission line, facsimile transmission
(which may be signed by an officer or unsigned) and tested telex.
"Oral Instruction" will mean an authorization, instruction,
approval, item or set of data, or information of any kind
transmitted to Declaration in person or by telephone, telegram,
telecopy or other mechanical or documentary means lacking
original signature, by a person or persons reasonably identified
to Declaration to be a person or persons so authorized by a
resolution of the Board of Directors of the Fund to give Oral
Instructions to Declaration on behalf of the Fund.
"Shareholders" will mean the registered owners of the shares
of the Fund in accordance with the share registry records
maintained by Declaration for the Fund.
"Shares" will mean the issued and outstanding shares of the
Fund.
"Signature Guarantee" will mean the guarantee of signatures
by an "eligible guarantor institution" as defined in Rule 17Ad-15
under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Eligible guarantor institutions include banks,
brokers, dealers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and savings
associations. Broker-dealers guaranteeing signatures must be
members of a clearing corporation or maintain net capital of at
least $100,000. Signature guarantees will be accepted from any
eligible guarantor institution which participates in a signature
guarantee program.
"Written Instruction" will mean an authorization,
instruction, approval, item or set of data or information of any
kind transmitted to Declaration in an original writing containing
an original signature or a copy of such document transmitted by
telecopy including transmission of such signature reasonably
identified to Declaration to be the signature of a person or
persons so authorized by a resolution of the Board of Directors
of the Fund, or so identified by the Fund to give Written
Instructions to Declaration on behalf of the Fund.
Concerning Oral and Written Instructions For all
purposes under this Agreement, Declaration is
authorized to act upon receipt of the first of any
Written or Oral Instruction it receives from the Fund
or its agents. In cases where the first instruction is
an Oral Instruction that is not in the form of a
document or written record, a confirmatory Written
Instruction or Oral Instruction in the form of a
document or written record shall be delivered. In
cases where Declaration receives an Instruction,
whether Written or Oral, to enter a portfolio
transaction onto the Fund's records, the Fund shall
cause the broker/dealer executing such transaction to
send a written confirmation to the Custodian.
Declaration shall be entitled to rely on the first
Instruction received. For any act or omission
undertaken by Declaration in compliance therewith, it
shall be free of liability and fully indemnified and
held harmless by the Fund, provided however, that in
the event a Written or Oral Instruction received by
Declaration is countermanded by a subsequent Written or
Oral Instruction received prior to acting upon such
countermanded Instruction, Declaration shall act upon
such subsequent Written or Oral Instruction. The sole
obligation of Declaration with respect to any follow-up
or confirmatory Written Instruction or Oral Instruction
in documentary or written form shall be to make
reasonable efforts to detect any such discrepancy
between the original Instruction and such confirmation
and to report such discrepancy to the Fund. The Fund
shall be responsible and bear the expense of its taking
any action, including any reprocessing, necessary to
correct any discrepancy or error. To the extent such
action requires Declaration to act, the Fund shall give
Declaration specific Written Instruction as to the
action required.
The Fund will file with Declaration a certified copy of each
resolution of the Fund's Board of Directors authorizing
execution of Written Instructions or the transmittal of Oral
Instructions as provided above.
Section 4. Indemnification.
(a) Declaration, its directors, officers, employees,
shareholders, and agents will be liable for any loss suffered by
the Fund resulting from the willful misfeasance, bad faith,
negligence or disregard on the part of Declaration in the
performance of its obligations and duties under this Agreement.
(b) Any director, officer, employee, shareholder or agent
of Declaration, who may be or become an officer, director,
employee or agent of the Fund, will be deemed, when rendering
services to the Fund, or acting on any business of the Fund
(other than services or business in connection with Declaration'
duties hereunder), to be rendering such services to or acting
solely for the Fund and not as a director, officer, employee,
shareholder or agent of, or under the control or direction of
Declaration even though such person may be receiving compensation
from Declaration.
(c) The Fund agrees to indemnify and hold Declaration
harmless, together with its directors, officers, employees,
shareholders and agents from and against any and all claims,
demands, expenses and liabilities (whether with or without basis
in fact or law) of any and every nature which Declaration may
sustain or incur or which may be asserted against Declaration by
any person by reason of, or as a result of:
(i) any action taken or omitted to be taken by
Declaration except claims, demands, expenses and liabilities
arising from willful misfeasance, bad faith, negligence or
disregard on the part of Declaration in the performance of its
obligations and duties under this Agreement; or
(ii) any action taken or omitted to be taken by
Declaration in reliance upon any Certificate, instrument, order
or stock certificate or other document reasonably believed by
Declaration to be genuine and signed, countersigned or executed
by any duly authorized person, upon the Oral Instructions or
Written Instructions of an authorized person of the Fund, or upon
the written opinion of legal counsel for the Fund or Declaration;
or
(iii) the offer or sale of shares of the Fund to
any person, natural or otherwise, which is in violation of any
state or federal law.
If a claim is made against Declaration as to which
Declaration may seek indemnity under this Section, Declaration
will notify the Fund promptly after receipt of any written
assertion of such claim threatening to institute an action or
proceeding with respect thereto and will notify the Fund promptly
of any action commenced against Declaration within ten (10) days
after Declaration has been served with a summons or other legal
process. Failure to notify the Fund will not, however, relieve
the Fund from any liability which it may have on account of the
indemnity under this Section so long as the Fund has not been
prejudiced in any material respect by such failure.
The Fund and Declaration will cooperate in the control of
the defense of any action, suit or proceeding in which
Declaration is involved and for which indemnity is being provided
by the Fund to Declaration. The Fund may negotiate the
settlement of any action, suit or proceeding subject to
Declaration's approval, which will not be unreasonably withheld.
Declaration reserves the right, but not the obligation, to
participate in the defense or settlement of a claim, action or
proceeding with its own counsel. Costs or expenses incurred by
Declaration in connection with, or as a result of such
participation, will be borne solely by the Fund if:
(i) Declaration has received an opinion of counsel
from counsel to the Fund stating that the use of counsel to the
Fund by Declaration would present an impermissible conflict of
interest;
(ii) the defendants in, or targets of, any such action
or proceeding include both Declaration and the Fund, and legal
counsel to Declaration has reasonably concluded that there are
legal defenses available to it which are different from or
additional to those available to the Fund or which may be adverse
to or inconsistent with defenses available to the Fund (in which
case the Fund will not have the right to direct the defense of
such action on behalf of Declaration); or
(iii) the Fund authorizes Declaration to employ
separate counsel at the expense of the Fund.
(d) The terms of this Section will survive the termination
of this Agreement.
Section 5. Representations and Warranties.
(a) Declaration represents and warrants that:
(i) it is a corporation duly organized and
existing and in good standing under the laws of the Commonwealth
of Pennsylvania;
(ii) it is empowered under applicable laws and by
its Certificate of Incorporation and by-laws to enter into and
perform this Agreement;
(iii) all requisite corporate proceedings have
been taken to authorize Declaration to enter into and perform
this Agreement;
(iv) it has and will continue to have access to the
facilities, personnel and equipment required to fully perform its
duties and obligations hereunder;
(v) no legal or administrative proceeding have been
instituted or threatened which would impair Declarations'
ability to perform its duties and obligations under this
Agreement;
(vi) its entrance into this Agreement shall not cause a
material breach or be in material conflict with any other
agreement or obligation of Declaration or any law or regulation
applicable to it;
(vii) it is registered as a transfer agent under
Section 17A(c)(2) of the Exchange Act;
(viii) this Agreement has been duly authorized by
Declaration and, when executed and delivered, will constitute
valid, legal and binding obligation of Declaration, enforceable
in accordance with its terms.
(b) The Fund represents and warrants that:
(i) it is a Maryland corporation duly organized and
existing and in good standing under the laws of the State of
Maryland;
(ii) it is empowered under applicable laws and by its
Articles and by-laws to enter into and perform this Agreement;
(iii) all requisite proceedings have been taken to
authorize the Fund to enter into and perform this Agreement;
(iv) no legal or administrative proceedings have been
instituted or threatened which would impair the Fund's ability to
perform its duties and obligations under this Agreement;
(v) the Fund's entrance into this Agreement shall not
cause a material breach or be in material conflict with any other
agreement or obligations of the Fund, or any law or regulation
applicable to either;
(vi) the Shares are properly registered or otherwise
authorized for issuance and sale;
(vii) this Agreement has been duly authorized by
the Fund and, when executed and delivered, will constitute valid,
legal and binding obligation of the Fund, enforceable in
accordance with its terms.
(c) Delivery of Documents
The Fund will furnish or cause to be furnished to
Declaration the following documents;
(i) current Prospectus and Statement of Additional Information;
(ii) most recent Annual Report;
(iii) most recent Semi-Annual Report for registered
investment companies on Form N-SAR;
(iv) certified copies of resolutions of the Fund's
Board of Directors authorizing the execution of
Written Instructions or the transmittal of Oral
Instructions and those persons authorized to give
those Instructions.
(d) Record Keeping and Other Information
Declaration will create and maintain all records required of
it pursuant to its duties hereunder and as set forth in Schedule
"A" in accordance with all applicable laws, rules and
regulations, including records required by Section 31(a) of the
Act. All such records will be the property of the Fund and will
be available during regular business hours for inspection,
copying and use by the Fund. Where applicable, such records will
be maintained by Declaration for the periods and in the places
required by Rule 31a-2 under the Act. Upon termination of this
Agreement, Declaration will deliver all such records to the Fund
or such person as the Fund may designate.
Section 6. Compensation. The Fund agrees to pay
Declaration compensation for its services, and to reimburse it
for expenses at the rates, times, manner and amounts as set forth
in Schedule "B" attached hereto and incorporated herein by
reference and as will be set forth in any amendments to such
Schedule "B" agreed upon in writing by the Parties. Upon receipt
of an invoice therefor, Declaration is authorized to collect such
fees by debiting the Fund's custody account following review and
approval of such fees by an authorized representative of the
Fund, which will not be unreasonably withheld. In addition, the
Fund agrees to reimburse Declaration for any out-of-pocket
expenses paid by Declaration on behalf of the Fund within five
(5) calendar days of the Fund's receipt and approval of an
invoice therefor, such approval will not be unreasonably
withheld.
For the purpose of determining fees payable to Declaration,
the value of the Fund's net assets will be computed at the times
and in the manner specified in the Fund's Prospectus and
Statement of Additional Information then in effect, and the fees
due Declaration will be calculated daily and paid monthly on the
value of the Fund's assets thus determined.
During the term of this Agreement, should the Fund seek
services or functions in addition to those outlined below or in
Schedule "A" attached hereto, a written amendment to this
Agreement specifying the additional services and corresponding
compensation will be executed by the Parties.
In the event that the Fund is more than sixty (60) days
delinquent in its payments of monthly billings in connection with
this Agreement (with the exception of specific amounts which may
be contested in good faith by the Fund), this Agreement may be
terminated upon thirty (30) days' written notice to the Fund by
Declaration. The Fund must notify Declaration in writing of any
contested amounts within five (5) days of receipt of a billing
for such amounts. Disputed amounts are not due and payable while
they are being disputed
Section 7. Days of Operation. Nothing contained in this
Agreement is intended to or will require Declaration, in any
capacity hereunder, to perform any functions or duties on any
holiday, day of special observance or any other day on which the
New York Stock Exchange ("NYSE") is closed. Functions or duties
normally scheduled to be performed on such days will be performed
on and as of the next succeeding business day on which the NYSE
is open. Notwithstanding the foregoing, Declaration will compute
the net asset value of the Fund on each day required pursuant to
Rule 22c-1 promulgated under the Act.
Section 8. Acts of God, etc. Declaration will not be
liable or responsible for delays or errors caused by acts of God
or by reason of circumstances beyond its control including, acts
of civil or military authority, national emergencies,
insurrection, war, riots, or failure or unavailability of
transportation, communication or power supply, fire, flood or
other catastrophe.
In the event of equipment failures beyond Declaration'
control, Declaration will, at no additional expense to the Fund,
take reasonable steps to minimize service interruptions but will
have no liability with respect thereto. The foregoing obligation
will not extend to computer terminals located outside of premises
maintained by Declaration. Declaration has entered into and
maintains in effect agreements making reasonable provision for
emergency use of electronic data processing equipment.
Section 9. Inspection and Ownership of Records. In the
event of a request or demand for the inspection of the records of
the Fund, Declaration will use its best efforts to notify the
Fund and to secure instructions as to permitting or refusing such
inspection. Declaration may, however, make such records
available for inspection to any person in any case where it is
advised in writing by its counsel that it may be held liable for
failure to do so after notice to the Fund.
Declaration recognizes that the records it maintains for the
Fund are the property of the Fund and will be surrendered to the
Fund upon written notice to Declaration as outlined under Section
10(c) below. The Fund is responsible for the payment in advance
of any fees owed to Declaration. Declaration agrees to maintain
the records and all other information of the Fund in a
confidential manner and will not use such information for any
purpose other than the performance of Declaration' duties under
this Agreement. Declaration will maintain off site secured
storage of all electronic records of the Fund. Fund understands
Declaration maintains storage for physical records at
Declaration's location.
Section 10. Duration and Termination.
(a) The initial term of this Agreement will be for the
period of twenty four (24) months, commencing on the date
hereinabove first written (the "Effective Date") and will
continue thereafter subject to termination by either Party as set
forth in subsection (c) below.
(b) The fee schedules set forth in Schedule "B" attached
hereto will be fixed for the initial term commencing on the
Effective Date of this Agreement and will continue thereafter
subject to review and any adjustment.
(c) After the initial term of this Agreement, a Party may
give written notice to the other (the day on which the notice is
received by the Party against which the notice is made shall be
the "Notice Date") of a date on which this Agreement shall be
terminated ("Termination Date"). The Termination Date shall be
set on a day not less than sixty (60) days after the Notice Date.
The period of time between the Notice Date and the Termination
Date is hereby identified as the "Notice Period". Any time up
to, but not later than fifteen (15) days prior to the Termination
Date, the Fund will pay to Declaration such compensation as may
be due as of the Termination Date and will likewise reimburse
Declaration for any out-of-pocket expenses and disbursements
reasonably incurred or expected to by incurred by Declaration up
to and including the Termination Date.
(d) In connection with the termination of this Agreement,
if a successor to any of Declaration' duties or responsibilities
under this Agreement is designated by the Fund by written notice
to Declaration, Declaration will promptly, on the Termination
Date and upon receipt by Declaration of any payments owed to it
as set forth in Section 10(c) above, transfer to the successor,
at the Fund's expense, all records which belong to the Fund and
will provide appropriate, reasonable and professional cooperation
in transferring such records to the named successor.
(e) Should the Fund desire to move any of the services
outlined in this Agreement to a successor service provider prior
to the Termination Date, Declaration shall make a good faith
effort to facilitate the conversion on such prior date, however,
there can be no guarantee that Declaration will be able to
facilitate a conversion of services prior to the end of the
Notice Period. Should services be converted to a successor
service provider prior to the end of the Notice Period, or if the
Fund is liquidated or its assets merged or purchased or the like
with another entity, payment of fees to Declaration shall be
accelerated to a date prior to the conversion or termination of
services and calculated as if the services had remained at
Declaration until the expiration of the Notice Period and shall
be calculated through the Notice Date.
(f) Notwithstanding the foregoing, this Agreement may be
terminated at any time by either Party in the event of a material
breach by the other Party involving negligence, willful
misfeasance, bad faith or a disregard of its obligations and
duties under this Agreement provided that such breach shall have
remained unremedied for sixty (60) days or more after receipt of
written specification thereof.
Section 11. Rights of Ownership. All computer programs and
procedures developed to perform services required to be provided
by Declaration under this Agreement are the property of
Declaration. All records and other data, except such computer
programs and procedures are the exclusive property of the Fund
and all such other records and data will be furnished to the Fund
in appropriate form as soon as practicable after termination of
this Agreement for any reason. Ownership and control of toll free
telephone lines 800-846-7526 and 800-662-0201 will be retained by
the Fund, even though these lines may be connected from time to
time to the telephone system of Declaration.
Section 12. Amendments to Documents. The Fund will furnish
Declaration written copies of any amendments to, or changes in,
the Fund Instrument, by-laws, Prospectus or Statement of
Additional Information in a reasonable time prior to such
amendments or changes becoming effective. In addition, the Fund
agrees that no amendments will be made to the Prospectus or
Statement of Additional Information of the Fund which might have
the effect of changing the procedures employed by Declaration in
providing the services agreed to hereunder or which amendment
might affect the duties of Declaration hereunder unless the Fund
first obtains Declaration' approval of such amendments or
changes.
Section 13. Confidentiality. Both Parties hereto agree
that any non-public information obtained hereunder concerning the
other Party is confidential and may not be disclosed to any other
person without the consent of the other Party, except as may be
required by applicable law or at the request of the U.S.
Securities and Exchange Commission or other governmental agency.
Declaration agrees that it will not use any non-public
information for any purpose other than performance of its duties
or obligations hereunder. The obligations of the Parties under
this Section will survive the termination of this Agreement. The
Parties further agree that a breach of this Section would
irreparably damage the other Party and accordingly agree that
each of them is entitled, without bond or other security, to an
injunction or injunctions to prevent breaches of this provision.
Section 14. Notices. Except as otherwise provided in this
Agreement, any notice or other communication required by or
permitted to be given in connection with this Agreement will be
in writing and will be delivered in person or sent by first class
mail, postage prepaid or by prepaid overnight delivery service to
the respective parties as follows:
If to the Fund: If to Declaration:
Christian Stewardship Funds Declaration Service Company.
5847 San Felipe, Suite 4100 555 North Lane, Suite 6160
Houston, TX 77057 Conshohocken, PA 19428
Attention: Edward L. Jaroski Attention: Terence P. Smith
President Chief Executive Officer
Section 15. Amendment. No provision of this Agreement may
be amended or modified in any manner except by a written
agreement properly authorized and executed by the Parties. This
Agreement may be amended from time to time by supplemental
agreement executed by the Parties and the compensation stated in
Schedule "B" attached hereto may be adjusted accordingly as
mutually agreed upon.
Section 16. Authorization. The Parties represent and
warrant to each other that the execution and delivery of this
Agreement by the undersigned officer of each Party has been duly
and validly authorized; and when duly executed, this Agreement
will constitute a valid and legally binding enforceable
obligation of each Party.
Section 17. Counterparts. This Agreement may be executed
in two or more counterparts, each of which when so executed will
be deemed to be an original, but such counterparts will together
constitute but one and the same instrument.
Section 18. Assignment. This Agreement will extend to and
be binding upon the Parties hereto and their respective
successors and assigns; provided, however, that this Agreement
will not be assignable by the Fund without the written consent of
Declaration or by Declaration without the written consent of the
Fund which consent shall be authorized or approved by a
resolution by its respective Boards of Directors.
Section 19. Governing Law. This Agreement will be governed
by the laws of the Commonwealth of Pennsylvania and the
exclusive venue of any action arising under this Agreement will
be Montgomery County, Commonwealth of Pennsylvania.
Section 20. Severability. If any part, term or provision
of this Agreement is held by any court to be illegal, in
conflict with any law or otherwise invalid, the remaining
portion or portions will be considered severable and not be
affected and the rights and obligations of the parties will be
construed and enforced as if the Agreement did not contain the
particular part, term or provision held to be illegal or
invalid, provided that the basic agreement is not thereby
materially impaired.
In Witness Whereof, the Parties hereto have caused this
Agreement consisting of seventeen (17) typewritten pages,
together with Schedules "A," "B" and "C" (pages 18- 23,
attached), to be signed by their duly authorized officers as
of the day and year first above written.
Christian Stewardship Funds Declaration Service Company
By: Edward L. Jaroski By: Terence P. Smith
President Chief Executive Officer
SCHEDULE A
Accounting Services Provided by Declaration Service Company
t Journalize each Portfolio's investment, capital share and
income and expense activities.
t Verify investment buy/sell trade tickets when received
from the advisor and transmit trades to the Fund's custodian
for proper settlement.
t Maintain individual ledgers for investment securities.
t Maintain historical tax lots for each security.
t Reconcile cash and investment balances of each Portfolio
with the custodian, and provide the advisor with the beginning
cash balance available for investment purposes.
t Update the cash availability throughout the day as
required by the advisor.
t Post to and prepare each Portfolio's Statement of Assets
and Liabilities and Statement of Operations.
t Calculate expenses payable pursuant to the Fund's various
contractual obligations.
t Control all disbursements from the Fund on behalf of each
Portfolio and authorize such disbursements upon instructions of
the Fund.
t Calculate capital gains and losses.
t Determine each Portfolio's net income.
t Obtain security market prices or if such market prices are
not readily available, then obtain such prices from services
approved by the advisor, and in either case calculate the
market or fair value of each Portfolio's investments.
t Where applicable, calculate the amortized cost value of
debt instruments.
t Transmit or mail a copy of the portfolio valuations to the
advisor.
t Compute the net asset value of each Portfolio.
t Report applicable net asset value and performance data to
performance tracking organizations.
t Compute each Portfolio's yields, total returns, expense
ratios and portfolio turnover rate.
t Prepare and monitor the expense accruals and notify Fund
management of any proposed adjustments.
t Prepare monthly financial statements, which will include,
without limitation, the Schedule of Investments, the Statement of
Assets and Liabilities, the Statement of Operations, the
Statement of Changes in Net Assets, the Cash Statement, and the
Schedule of Capital Gains and Losses.
t Prepare monthly security transactions listings.
t Prepare monthly broker security transactions summaries.
t Supply various Fund and Portfolio statistical data as
requested on an ongoing basis.
t Assist in the preparation of support schedules necessary for
completion of Federal and state tax returns.
t Assist in the preparation and filing of the Fund's annual
and semiannual reports with the SEC on Form N-SAR.
t Assist in the preparation and filing of the Fund's annual
and semiannual reports to shareholders and proxy statements.
t Assist with the preparation of amendments to the Fund's
Registration Statements on From N-1A and other filings relating
to the registration of shares.
t Monitor each Portfolio's status as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986,
as amended from time to time ("Code").
t Determine the amount of dividends and other distributions
payable to shareholders as necessary to, among other things,
maintain the qualification as a regulated investment company of
each Portfolio of the Fund under the Code.
t Prepare and file Blue Sky Registrations as needed for
initial registrations and renewals.
t Provide other accounting services as may be agreed upon from
time to time in writing by the Fund and Declaration.
Transfer Agent, Shareholder Servicing Agent and Dividend
Disbursing Agent Services provided by Declaration Service Company
t Examine and process new accounts, subsequent payments,
liquidations, exchanges, transfers, telephone transactions, check
redemptions, automatic withdrawals, and wire order trades.
t Reinvest or pay dividends and make other distributions.
t Answer investor and dealer telephone and/or written
inquiries, except as otherwise agreed by the Transfer Agent and
the Fund.
t Process and confirm address changes.
t Process standard account record changes as required, i.e.
Dividend Codes, etc.
t Microfilm and/or store source documents for transactions,
such as account applications and correspondence.
t Perform backup withholding for those accounts in accordance
with Federal regulations.
t Solicit missing taxpayer identification numbers.
t Provide remote access inquiry to Fund records via Fund
supplied hardware (Fund responsible for connection line and
monthly fee).
t Maintain the following shareholder information in such a
manner as the Transfer Agent shall determine:
o Name and address, including zip code.
o Balance of Shares.
o Number of Shares, issuance date of each share outstanding and
cancellation date of each share no longer outstanding, if issued.
o Balance of dollars available for redemption.
o Dividend code (daily accrual, monthly reinvest,monthly cash or
quarterly cash).
o Type of account code.
o Establishment date indicating the date an account was opened,
carrying forward pre-conversion data as available.
o Original establishment date for accounts opened by exchange.
o W-9 withholding status and periodic reporting.
o State of residence code.
o Social security or taxpayer identification number, and indication
of certification.
o Historical transactions on the account for the most recent 18
months, or other period as mutually agreed to from time to time.
o Indication as to whether phone transaction can be accepted for
this account. Beneficial owner code, i.e. male, female, joint
tenant, etc.
t Provide the following reports and statements:
o Prepare daily journals for Fund reflecting all shares and
dollar activity for the previous day.
o Supply information monthly for Fund's preparation
of Blue Sky reporting.
o Supply monthly purchase, redemption and liquidation information
for use in Fund's N-SAR report.
o Provide monthly average daily balance reports for the Fund.
o Prepare and mail copies of summary statements to dealers and
investment advisors.
o Mail transaction confirmation statements daily to investors.
o Mail periodic statement to investors.
o Compute, prepare and furnish all necessary reports to
governmental authorities: Forms 1099R, 1099DIV, 1099B, 1042 and
1042S.
o Enclose various marketing material as designated by the Fund in
statement mailings, i.e. monthly and quarterly statements
(material must be adaptable to mechanical equipment as reasonably
specified by the Transfer Agent).
t Prepare and mail confirmation statements to dealers daily.
t Prepare certified list of stockholders for proxy mailing.
SCHEDULE B
Compensation Schedule for Services Provided by Declaration
Service Company
Asset Charge on Combined Assets of all Portfolios
0.03% on first $50 million of average annual assets
0.02% on next $50 million of average annual assets
0.01% in excess of $100 million of average annual assets
Transfer Agent/ Shareholder Services:
$7,500 Annual Fee, per portfolio
$12.00 per shareholder account
Second Class of Shares per portfolio:
50% of base annual fee
Third Class of Shares per portfolio:
25% of base annual fee
Fund Accounting/ Portfolio Valuation Fee per portfolio:
Domestic: $17,000 per portfolio
International: $22,000 per portfolio
Second and Third Class of Shares per portfolio:
Domestic: $8,500 per portfolio
International: $11,000 per portfolio
Plus out-of-pocket expenses to include, but not limited to: wire
fees, bank service charges, printing, copying, postage, courier,
account statement/ confirmation (including programming costs for
specialized statements/ confirmations), Fund/SERV and Networking
Costs, portfolio price quotation service, corporate action remote
feeds, asset allocation charges, travel, telephone, registration
fees, and other standard miscellaneous items.
SCHEDULE C
Capstone Christian Values Fund, Inc.
Series and Portfolios covered by this Agreement:
Christian Stewardship Funds:
Christian Stewardship Large Cap Equity Index Fund
Christian Stewardship Small Cap Equity Index Fund
Christian Stewardship International Index Fund
Christian Stewardship Bond Index Fund
