<PAGE> 1
CAPSTONE GROWTH FUND, INC.
SUPPLEMENT DATED JUNE 7, 1995
to
PROSPECTUS DATED JANUARY 17, 1995
THE FOLLOWING SENTENCE IS ADDED TO THE SECOND PARAGRAPH OF THE MANAGEMENT OF THE
FUND - ADVISER SECTION ON PAGE 12 OF THE PROSPECTUS:
Dr. Watson has been the Fund's portfolio manager since 1983; Dr. Santa Luca
was appointed as co-manager in October 1994.
THE FOLLOWING PARAGRAPH IS ADDED TO THE END OF THE PURCHASING SHARES SECTION ON
PAGE 16 OF THE PROSPECTUS:
Effective June 7, 1995, payment for all orders to purchase Fund shares must
be received by the Fund's Transfer Agent within three business days after the
order was placed.
THE FOLLOWING INFORMATION REPLACES THE LAST TWO SENTENCES OF THE PURCHASING
SHARES - TELEPHONE PURCHASE AUTHORIZATION (INVESTING BY PHONE) SECTION ON PAGE
16 OF THE PROSPECTUS:
Effective June 7, 1995, payment for the telephone purchase must be received
by the Transfer Agent within three business days after the order is placed. If
payment is not received within three business days after the order is placed,
the stockholder will be liable for all losses incurred as a result of the
purchase. (Prior to June 7, 1995, payment must be received by the Transfer
Agent within 7 days).
<PAGE> 2
CAPSTONE GROWTH FUND, INC.
(Formerly Capstone U.S. Trend Fund, Inc.)
5847 San Felipe, Suite 4100
Houston, TX 77057
1-800-262-6631
January 17, 1995
PROSPECTUS
Capstone Growth Fund, Inc. (the "Fund") is a diversified, open-end management
investment company. The Fund's investment objective is to seek long-term
capital appreciation. The Fund invests primarily in common stocks, although the
Fund can also invest in preferred and convertible preferred stocks, as well a
other instruments. The Fund would expect to invest primarily in securities of
U.S. issuers, but there is no limit on the extent to which it can invest in
securities of foreign issuers.
This Prospectus sets forth certain information about Capstone Growth Fund, Inc.
that a prospective investor should know before investing. Investors should read
and retain this Prospectus for future reference.
A STATEMENT OF ADDITIONAL INFORMATION about Capstone Growth Fund, Inc. dated
January 17, 1995 has been filed with the Securities and Exchange Commission and
contains further information about the Fund. A copy of the Statement of
Additional Information may be obtained without charge by calling or writing the
Fund at the telephone number or address listed above. The Statement of
Additional Information is incorporated herein by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSIONER
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSIONER PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 3
CAPSTONE GROWTH FUND, INC.
<TABLE>
<S> <C>
Investment Adviser: Shareholder Servicing Agent:
Capstone Asset Management Company Fund/Plan Services, Inc.
5847 San Felipe, Suite 4100 P.O. Box 874
Houston, Texas 77057 2 W. Elm Street
Conshohocken, Pennsylvania 19428
Distributor:
Capstone Asset Planning Company
5847 San Felipe, Suite 4100
Houston, Texas 77057
</TABLE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . .3
Fund Expenses. . . . . . . . . . . . . . . . . . . . . . . . .4
Financial Highlights . . . . . . . . . . . . . . . . . . . . .6
Investment Objective and Policies. . . . . . . . . . . . . . .7
Investments and Investment Practices . . . . . . . . . . . . .7
Investment Restrictions . . . . . . . . . . . . . . . . . . .9
Performance Information . . . . . . . . . . . . . . . . . . 10
Management of the Fund . . . . . . . . . . . . . . . . . . . 11
Purchasing Shares. . . . . . . . . . . . . . . . . . . . . . 13
Distributions and Taxes. . . . . . . . . . . . . . . . . . . 17
Redemption and Repurchase of Shares. . . . . . . . . . . . . 18
Determination of Net Asset Value . . . . . . . . . . . . . . 20
Stockholder Services . . . . . . . . . . . . . . . . . . . . 20
General Information. . . . . . . . . . . . . . . . . . . . . 22
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
No dealer, salesman, or any other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus, in connection with the offer contained in this Prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Fund or its Distributor. This Prospectus does
not constitute an offer by the Fund or by the Distributor to sell or a
solicitation of an offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful for the Fund or the
Distributor to make such offer or solicitation in such jurisdiction.
2
<PAGE> 4
CAPSTONE GROWTH FUND, INC.
PROSPECTUS SUMMARY
Type of Company . . . . . The Fund is an open-end diversified management
investment company. (see page 22)
Investment Objective. . . The Fund seeks long-term capital appreciation. There
is no assurance that this objective will be achieved.
(see page 7)
Investment Policies . . . The Fund will invest primarily in common stocks,
although the Fund can also invest in preferred and
convertible preferred stocks and certain other
instruments. The Fund would expect to invest
primarily in securities of U.S. issuers, but there is
no limit on the extent to which it can invest in
securities of foreign issuers. The Fund may also
engage in certain hedging transactions. (see page 7)
Risk Factors. . . . . . . For hedging purposes, the Fund may invest up to 2% of
its total net assets in stock options and options on
stock indexes and up to 5% of the market value of its
assets in margin deposits on stock index futures and
options on stock index futures. The Fund may also
enter into forward foreign currency exchange contracts
as a hedge in connection with its foreign investments.
These investments entail special risks. The Fund's
investments in foreign securities involve different
risks than investments in securities of U.S. issuers.
See "Investments and Investment Practices."
Additionally, there can be no assurance that the Fund
will achieve its investment objective and investors
should be aware that the value of the Fund's shares
will fluctuate, which may cause a loss in principal
value. (see page 7)
Investment Adviser. . . . Capstone Asset Management Company (the Adviser") is
the Fund's Investment Adviser. The Adviser provides
advisory and/or administrative services to the other
mutual funds in the Capstone Group. (see page 11)
Expenses of the Fund. . . For the last fiscal year, the Fund's total operating
expenses, including investment advisory fees, were
1.28% of its average net assets. (see page 13)
Dividends and . . . . . . The Fund pays any dividends from net investment income
Distributions and distributions from capital gains at least
annually. (see page 17)
3
<PAGE> 5
Offering Price and. . . . The public offering price is equal to the net asset
Sales Charge value plus a sales charge equal to 4.75% of the public
offering price (4.99% of the amount invested), reduced
on investments of $100,000 or more. The Fund pays
certain expenses pursuant to a Rule 12b-1 distribution
plan. (see page 14)
Minimum Purchase. . . . . The minimum initial investment is $200, except for
continuous investment plans, and there is no minimum
for subsequent purchases. (see page 13)
Redemption. . . . . . . . Shares of the Fund can be redeemed at the next
determined net asset value, without charge. (see page
19)
Distributor . . . . . . . The Distributor is Capstone Asset Planning Company.
4
<PAGE> 6
FUND EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases 4.75% on initial investment
(as a percentage of offering price)
Maximum Sales Load Imposed on Reinvested
Dividends (as a percentage of offering
price) 0%
Deferred Sales Load (as a percentage of
original purchase price or redemption
of proceeds, as applicable) 0%
Redemption Fee (as a percentage of
amount redeemed, if applicable) 0%
Exchange Fee 0%
A 4.75% maximum sales load applies
to exchanges of shares that have not
been outstanding at least 15 days
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 0.68%
12b-1 Fees* 0.35%
Other Expenses 0.26%
Total Fund Operating Expenses 1.29%
</TABLE>
EXAMPLE
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses $60 $86 $115 $196
on a $1,000 investment, assuming (1)
5% annual return and (2) redemption
at the end of each time period:
</TABLE>
_____________
* Under rules of the National Association of Securities Dealers, Inc. (the
"NASD"), a 12b-1 fee may be treated as a sales charge for certain purposes
under those rules. Because the 12b-1 fee is an annual fee charged against the
assets of a Fund, long-term stockholders may indirectly pay more in total
sales charges than the economic equivalent of the maximum front-end sales
charge permitted by rules of the NASD (see "Distributor").
The purpose of the foregoing table is to assist investors in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. The information disclosed in the table under the heading
"Shareholder Transaction Expenses" is based on the maximum sales load now in
effect for the Fund. See "Purchasing Shares" and "Redemption and Repurchase of
Shares" below for more complete descriptions of those expenses, including a
description of available reductions in the sales charge. The management fee
information contained in the table is based on the maximum asset-based fees
currently in effect and does not include any deduction for expense
reimbursements or waivers by the Fund's Adviser. An administrative charge is
also included in the expense information contained in the table. See
"Management of the Fund" for a more complete
5
<PAGE> 7
description of the fees paid to the Adviser. The information disclosed in the
table for "12b-1 Fees" has been restated to reflect the maximum distribution
expense that may be incurred by the Fund. The actual amount paid by the Fund
during the fiscal year ended October 31, 1994 was 0.34% of its average net
assets. The information disclosed in the table for "Other Expenses" is based on
expenses actually incurred by the Fund during its last fiscal year ended October
31, 1994. The example which immediately follows the table should not be
considered a representation of past or future expenses. Actual Fund expenses
may be greater or lesser than those shown in the example or in the table.
6
<PAGE> 8
CAPSTONE GROWTH FUND, INC.
FINANCIAL HIGHLIGHTS
The following table sets forth the per share operating performance data for
a share of capital stock outstanding, total return, ratios to average net assets
and other supplemental data for each year indicated. This information has been
derived from information provided in the Fund's financial statements which have
been examined by Tait, Weller & Baker, independent certified public accountants.
The Fund's Annual Report contains additional performance information and is
available free of charge upon request by calling the Fund at 800-262-6631.
<TABLE>
<CAPTION>
Year Ended October 31,
-----------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value at beginning of year . . $14.43 $14.00 $14.65 $11.88 $14.76 $12.12 $11.40 $14.71 $12.35 $12.45
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income. . . . . . . . . . 0.11 0.17 0.20 0.30 0.37 0.37 0.31 0.28 0.32 0.24
Net realized and unrealized gain (loss)
on investments . . . . . . . . . . . . (0.23) 0.80 0.56 3.42 (1.48) 2.92 1.01 0.49 2.59 1.05
----- ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment operations . . . . (0.12) 0.97 0.76 3.72 (1.11) 3.29 1.32 0.77 2.91 1.29
----- ------ ------ ------ ------ ------ ------ ------ ------ ------
Less Distributions:
From net investment income . . . . . . . 0.13 0.22 0.24 0.37 0.40 0.36 0.31 0.32 0.23 0.27
From net realized gain on investments. . 0.95 0.32 1.17 0.58 1.37 0.29 0.29 3.76 0.32 1.12
----- ------ ------ ------ ------ ----- ------ ----- ------ ------
Total distributions. . . . . . . . . . . 1.08 0.54 1.41 0.95 1.77 0.65 0.60 4.08 0.55 1.39
----- ------ ------ ------ ------ ------ ------ ----- ------ ------
Net asset value at end of year . . . . . $13.23 $14.43 $14.00 $14.65 $11.88 $14.76 $12.12 11.40 $14.71 $12.35
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN+. . . . . . . . . . . . . . (0.67)% 7.05% 5.83% 33.58% (8.55)% 28.47% 12.23% 6.76% 24.15% 11.48%
RATIOS/SUPPLEMENTAL DATA
Net assets at the end of year
(in thousands) . . . . . . . . . . . .$80,941 $96,465 $97,076 $95,606 $76,780 $86,243 $88,658 $89,729 $83,685 $70,062
Ratio of operating expenses to
average net assets . . . . . . . . . . 1.28% 1.24% 1.10% 0.97% 0.94% 0.95% 1.01% 0.94% 1.01% 1.11%
Ratio of net investment income to
to average net assets. . . . . . . . . 0.78% 0.19% 1.43% 2.21% 2.77% 2.76% 2.76% 2.14% 2.21% 1.92%
Portfolio turnover rate. . . . . . . . 12% 45% 22% 38% 48% 50% 62% 56% 214% 45%
</TABLE>
______________
+ Calculated without a sales charge
7
<PAGE> 9
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to seek long-term capital appreciation.
his investment objective is a fundamental policy of the Fund and cannot be
changed without stockholder approval. There can be no assurance the Fund's
objective will be achieved. In pursuit of its investment objective of long-term
capital appreciation, the Fund invests primarily in common stocks of rapidly
growing companies that have demonstrated the ability to gain market share and
achieve and maintain consistent profitability. The Fund may also invest in
preferred and convertible preferred stocks. Although the Fund's investments are
expected to be primarily in securities of U.S. issuers, it may invest without
limit in securities of foreign issuers. For temporary defensive purposes, the
Fund may invest to an unlimited extent in securities of the U.S. Government, its
agencies and instrumentalities. The Fund may also invest, to a limited extent,
in securities of other investment companies.
Although the Fund anticipates normally being substantially invested in
stocks, the Fund is permitted to invest up to 35% of its assets in bonds and
other fixed income securities and may invest without limit in such securities
during abnormal market conditions for temporary defensive purposes. The Fund's
fixed income investments may include securities of the U.S. Government, its
agencies and instrumentalities, corporate notes and bonds, commercial paper,
bankers' acceptances, and certificates of deposit. Fixed income securities must
be rated at least A by Standard & Poor's Corporation or Moody's Investors
Service, or deemed of comparable quality by the Adviser, at the time of purchase
by the Fund. A security held by the Fund which is downgraded below such
ratings will be sold or retained based on the Adviser's determination of what is
best for the Fund and its stockholders.
Prior to September 6, 1994, the Fund's investment objective was to seek
long-term capital appreciation and current income. Stockholders approved a
change to the present investment objective, as well as the Fund's current name,
at a meeting held August 25, 1994.
INVESTMENTS AND INVESTMENT PRACTICES
U.S. Government Securities - Securities of the U.S. Government, its
agencies and instrumentalities include instruments backed by the full faith and
credit of the U.S. Treasury, such as Treasury bills, notes and bonds and
obligations of the Government National Mortgage Association. Other such
instruments, including obligations of the Federal Home Loan Banks, Federal Farm
Credit Bank, Bank for Cooperatives, Federal Intermediate Credit Banks and the
Federal Land Bank, are guaranteed by the right of the issuer to borrow from the
U.S. Treasury. Still others, such as obligations of the Federal National
Mortgage Association, are supported by the discretionary authority of the U.S.
Government to purchase certain of the agency's obligations or, in the case of
agencies such as the Student Loan Marketing Association and the Tennessee Valley
Authority, are backed only by the credit of the issuing agency. For investments
not backed by the full faith and credit of the United States, the investor must
look principally to the agency issuing or guaranteeing the obligation for
ultimate repayment.
Options and Futures - The Fund may employ special investment practices as a
hedge against changes in the value of securities held in the Fund's portfolio or
securities it intends to purchase.
The Fund may purchase put and call options on stock and stock indexes for
hedging purposes. The Fund will not purchase a call or put option if as a
result the premium paid for the option together
8
<PAGE> 10
with premiums paid for all other stock options and options on stock indexes then
held by the Fund exceed 2% of the Fund's total net assets.
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 stock 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 stock index.
The purchase of put and call options does involve certain risks. Through
investment inoptions, the Fund can profit from favorable movements in the price
of an underlying stock to a greater extent than if the Fund purchased the stock
directly. However, if the stock 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 stock directly.
Generally, transactions in stock index options pose the same type of risks
as do transactions in stock options. Price movements in securities which the
Fund owns or intends to purchase probably will not correlate perfectly with
movements in the level of an index and, therefore, the Fund bears the risk of a
loss on an index option which may not completely offset movements in the price
of such securities.
The Fund may also (i) invest up to 5% of its total assets in stock index
futures contracts and options on stock index futures and (ii) engage in margin
transactions with respect to such investments.
A stock 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 stock index at the beginning and at the end of the
contract period. When the Fund enters into a stock 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 stock 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 stock index futures contracts are similar to options on stocks
except that an option on a stock index futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a stock 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 Fund will not leverage its portfolio by purchasing an amount of
contracts that would increase its exposure to stock market movements beyond the
exposure of a portfolio that was 100% invested in common stocks. The Fund will
not enter into transactions in futures contracts and options on such contracts
to the extent that, immediately thereafter, the sum of its initial margin
deposits on open futures contracts and premiums paid for options, exceeds 5% of
the market value of the Fund's total assets. In addition, the Fund will not
enter into futures contracts and options on such contracts to the extent that
its outstanding obligations under these contracts would exceed 20% of the Fund's
total assets.
Successful use by the Fund of stock index futures contracts is subject to
certain special risk considerations. A liquid index futures market may not be
available when the Fund seeks to offset adverse market movements. In addition,
there may be an imperfect correlation between movements in the securities
included in the index and movements in the securities in the Fund's portfolio.
Successful use of stock index futures contracts and options on
9
<PAGE> 11
such contracts is further dependent on the Adviser'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 stock index futures contracts are discussed further in the
Statement of Additional Information.
Foreign Securities - Investment in foreign securities entails certain
special cost and risks. Although the Fund does not expect to invest extensively
in foreign securities, stockholders should be aware that such investments often
involve higher brokerage and custody costs, currency conversion costs and longer
settlement time. Other special factors regarding foreign investing include
thinner and more volatile trading markets; less extensive information about
securities, markets and issuers; lower levels of government regulation;
difficulties in enforcing obligations; different accounting standards;
fluctuations in values of foreign currencies against the U.S. dollar; and the
risk of negative government actions such as expropriation, nationalization,
imposition of withholding, confiscatory or other taxes, currency blockages or
restrictions on transfer.
Forward Foreign Currency Exchange Transactions - The Fund may enter into
forward foreign currency exchange contracts in an attempt to hedge against
adverse movements in the relative rates of exchange between the U.S. dollar and
the currencies in which any non-U.S. investments are denominated, or between two
foreign currencies. The Fund may enter into this type of contract with respect
to a specific transaction or as a hedge for the Fund's portfolio positions.
These contracts involve an obligation to purchase or sell a specific currency at
a specified future date at a specified price. These contracts are traded in the
interbank market conducted between currency traders (generally large commercial
banks) and their customers. Although the Fund would enter into such a contract
to minimize the risk of loss due to adverse currency fluctuations, such a
contract may also limit the extent to which the Fund could gain from positive
fluctuations. There can be no assurance that these activities will be
successful in protecting the Fund against negative effects of currency
fluctuation. For more information on foreign securities and forward contracts,
see the Statement of Additional Information.
INVESTMENT RESTRICTIONS
The Fund has adopted certain investment restrictions which, together with
the investment objective and policies of the Fund, cannot be changed without
approval by holders of a majority of the Fund's outstanding voting shares. Such
majority is defined by the Investment Company Act of 1940 as the lesser of (i)
67% or more of the voting securities present in person or by proxy at a meeting,
if the holders of more than 50% of the outstanding voting securities are present
or represented by proxy, or (ii) more than 50% of the outstanding voting
securities. These restrictions,
10
<PAGE> 12
which are designed to enhance the realization of the Fund's investment
objective, provide, among other things, that the Fund may not:
1. Engage in margin transactions or short sales, except that the Fund may
engage in margin transactions with respect to transactions in stock index
futures contracts and options on stock index futures.
2. Invest more than 5% of the value of its total assets (at time of
investment) in the securities of any one issuer except the United States
Government and its instrumentalities.
3. Invest in companies for the purpose of exercising control of
Management.
4. Borrow any amount in excess of 5% of the value of its total assets
less all liabilities not represented by senior securities at the time the loan
is made, or amounts in excess of 10% of the gross assets of the Fund taken at
cost, whichever is less, and provided further that any such borrowings shall be
undertaken only as a temporary measure for extraordinary or emergency purposes.
Normally the Fund will borrow only to permit timely payment for shares
liquidated by stockholders for which it does not have ready funds to make
payment. While authorized to borrow, the Fund has never done so and has no
plans to do so.
5. Invest in securities of companies having a record of less than three
years continuous operation, if such purchase at the time would cause more than
5% of the total assets to be invested in the securities of such company or
companies.
6. Purchase or retain securities of a company, if those officers or
directors of the Fund or the Adviser who individually own beneficially more than
1/2 of 1% of the shares or securities of such company together own beneficially
more than 5% of the shares or securities of such company.
7. Invest in commodities or commodity contracts except that the Fund may
enter into stock index futures contracts and options on stock index futures
contracts to the extent that, (a) immediately thereafter, the sum of its initial
margin deposits on such open contracts and premiums paid for options on such
futures contracts does not exceed 5% of the market value of the Fund's total
assets and (b) its outstanding obligations under such contracts and options does
not exceed 20% of the Fund's total assets.
Any investment restriction which involves a maximum percentage of
securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after an acquisition of securities.
Additional investment restrictions of the Fund which may not be change
without stockholder approval are found under the caption "Investment
Restrictions" in the Fund's Statement of Additional Information.
PERFORMANCE INFORMATION
The Fund may from time to time include figures indicating the Fund's yield,
total return or average annual total return in advertisements or reports to
stockholders or prospective investors. Quotations of the Fund's yield will be
based on all investment income per share earned during a given 30-day period
(including dividends and interest), less expenses accrued during the period
("net investment income"), and will be computed by dividing net investment
income by the
11
<PAGE> 13
maximum public offering price per share 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 the Fund over a specified period.
Both calculations assume that all income dividends and capital gain
distributions during the period are reinvested at net asset value in additional
Fund shares. Quotations of the average annual total return reflect the
deduction of the maximum sales charge and a proportional share of Fund expenses
on an annual basis. The results, which are annualized, represent an average
annual compounded rate of return on a hypothetical investment in the Fund over a
period of 1,5 and 10 years ending on the most recent calendar quarter.
Quotations of total return, which are not annualized, represent historical
earnings and asset value fluctuations. Total return figures used in
advertisements or sales literature will not usually reflect the deduction of the
maximum sales charge which if deducted would reduce the Fund's total return.
Total return is based on past performance and is not a guarantee of future
results.
MANAGEMENT OF THE FUND
The Fund is an open-end diversified management investment company, commonly
called a mutual fund. Through the purchase of shares of the Fund, investors
with goals similar to the investment objective of the Fund can participate in
the investment performance of the portfolio of investments held by the Fund.
The management and affairs of the Fund are supervised by its Board of Directors.
ADVISER
Capstone Asset Management Company, a wholly-owned subsidiary of Capstone
Financial Services, Inc., acts as the Investment Adviser to the Fund. The
address of the Adviser is 5847 San Felipe, Suite 4100, Houston, Texas 77057.
The Adviser provides investment advisory and/or administrative services to five
other mutual funds: Capstone Government Income Fund, Capstone Balanced Fund
(formerly Capstone Fund of the Southwest), Capstone Nikko Japan Fund, Capstone
New Zealand Fund and Medical Research Investment Fund, Inc. (the "Capstone
Group"), pension and profit sharing accounts, corporations and individuals.
Total assets under management are approximately $1.4 billion.
Investment decisions for the Fund are made by two portfolio managers, Dan
E. Watson, Ph.D. and Albert P. Santa Luca, Ph.D. Dr. Watson began his career in
1971 at Texas Commerce Bank with planning responsibilities for the company's
life insurance operations. In 1977 he joined Tenneco Inc. and was subsequently
named Assistant to the Chairman of the Board. In 1981 he helped form Tenneco
Financial Services, the predecessor organization to Capstone Financial Services,
Inc., the parent company of the Adviser and Distributor.
Dr. Santa Luca began his investment career in 1984 at Team Bank/Texas
American Bank by managing common fund investing in midcap value and growth
stocks, and managing accounts for large charitable foundations, employee benefit
plans and high net worth individuals. In 1993 Team Bank/Team American Bank
became BancOne -- BancOne Investment Advisors. Dr. Santa Luca was subsequently
appointed as back-up manager and, in 1994, fund manager for the One Group Small
Company Growth Fund, a $400 million small capitalization growth fund.
12
<PAGE> 14
Pursuant to the terms of an investment advisory agreement which was
approved by stockholders on February 18, 1992, the Fund retains the Adviser to
(1) provide a program of continuous investment management for the Fund in
accordance with the Fund's investment objectives, policies and limitations, (2)
make investment decisions for the Fund, (3) place orders to purchase and sell
securities for the Fund, subject to the supervision of the Board of Directors,
and (4) provide administrative services for the Fund. In accordance with the
Fund's policy of allocating portfolio brokerage described in the Statement of
Additional Information, the Adviser is permitted to consider sales of Fund
shares as a factor in selecting broker-dealers to execute portfolio
transactions, subject to best execution, and may also place orders for Fund
portfolio transactions with the Fund's Distributor and Williams McKay Jordan &
Mills, Inc, broker-dealer affiliates of the Adviser.
The Fund pays all expenses incurred in the operation of the Fund other than
those borne by the Adviser under the Advisory Agreement. Expenses payable by
the Fund include: fees of directors who are not "interested persons" (as
defined in the 1940 Act) of the Adviser or its affiliates; Board of Director
meeting-related expenses of the directors and officers; expenses for legal and
auditing services; data processing and pricing services; costs of printing and
mailing proxies, stock certificates and stockholder reports; charges of the
custodian, transfer agent, registrar or dividend disbursing agent; expenses
pursuant to the Service and Distribution Plan; Securities and Exchange
Commission fees; membership fees in trade associations; fidelity bond coverage
for the Fund's officers; directors' and officers' errors and omissions insurance
coverage; interest; brokerage costs; taxes; expenses of qualifying the Fund's
shares for sale in various states; litigation; and other extraordinary or
non-recurring expenses and other expenses properly payable by the Fund.
For its services, the Adviser receives an annual fee on the basis of a
percentage of net assets. For the fiscal year ended October 31, 1994, the Fund
paid advisory fees equal to 0.68% of the average net assets of the Fund.
The Adviser also performs certain accounting, bookkeeping and pricing
services. For these ervices the Adviser receives a monthly fee to reimburse the
Adviser for its costs. This amount is not intended to include any profit to the
Adviser and is in addition to the advisory fees described above.
DISTRIBUTOR
Pursuant to a Distribution Agreement with the Fund dated May 11, 1992,
Capstone Asset Planning Company (the "Distributor") is the principal underwriter
of the Fund and, acting as exclusive agent, sells shares of he Fund to the
public on a continuous basis.
The Fund has adopted a Service and Distribution Plan (the "Plan") pursuant
to which it uses its assets to finance activities relating to the distribution
of its shares to investors and provision of certain stockholder services. The
Plan permits payments to be made by the Fund to the Distributor to reimburse it
for expenditures incurred by it in connection with the distribution of the Fund
shares to investors and provision of certain stockholder services including but
not limited to the payment of compensation, including incentive compensation, to
securities dealers (which may include the Distributor itself) and other
financial institutions and organizations (collectively, the "Service
Organizations") to obtain various distribution related and/or administrative
services for the Fund. These services include, among other things, processing
new stockholder account applications, preparing and transmitting to the Fund's
Transfer Agent computer processable tapes of all transactions by customers and
serving as the primary source of information to customers in
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<PAGE> 15
answering questions concerning the Fund and their transactions with the Fund.
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 payment by the Fund of the cost of
preparing, printing and distributing Fund Prospectuses and Statements of
Additional Information to prospective investors and of implementing and
operating the Plan.
Under the Plan, payments made to the Distributor may not exceed an amount
computed at an annual rate of 0.35% of the average net assets of the Fund. Of
this amount, the Distributor may reallocate amounts up to 0.25% of the Fund's
average net assets to Service Organizations (which may include the Distributor).
Any amounts not so allocated will be retained by the Distributor for the
purposes described above. The Distributor is permitted to collect the fees
under the Plan on a monthly basis. Any expenditures incurred by the Distributor
in excess of the limitation described above during a given month may be carried
forward up to twelve months for reimbursement, subject always to the 0.35%
limit, and no interest or carrying charges will be payable by the Fund on
amounts carried forward. The Plan may be terminated by the Fund at any time and
the Fund will not be liable for amounts not reimbursed as of the termination
date.
The Plan was last approved by a majority of the Fund's directors, including
a majority of the directors who have no direct or indirect financial interest in
the operation of the Plan or any of its agreements ("Plan Directors") on
November 13,1994. The Plan was approved by the Fund's stockholders on February
18, 1992 and took effect on March 1, 1992. The Plan may be continued from year
to year, provided that such continuance is approved at least annually by a vote
of a majority of the Board of Directors, including a majority of the Plan
Directors.
The Glass-Steagall Act and other applicable laws currently prohibit banks
from engaging in the business of underwriting, selling or distributing
securities. Accordingly, unless such laws are changed, if the Fund engages
banks as Service Organizations, the banks would perform only administrative and
stockholder servicing functions. If a bank were prohibited from acting as a
Service Organization, alternative means for continuing the servicing of such
stockholders would be sought. State law may differ from Federal law and banks
and other financial institutions may be required to be registered as broker-
dealers to perform administrative and stockholder servicing functions.
The staff of the SEC has proposed amendments to Rule 12b-1. If the rule is
amended as proposed or in some other manner, it may be necessary for the Fund to
consider amending the Plan and any related agreements.
EXPENSES
The Fund's expenses are accrued daily and are deducted from its total
income before dividends are paid. The Fund's total operating expenses during
the fiscal year ended October 31, 1994 were 1.28% of its average net assets.
14
<PAGE> 16
PURCHASING SHARES
Capstone Asset Planning Company (the "Distributor"), located at 5847 San
Felipe, Suite 4100, Houston, Texas 77057, is the principal underwriter of the
Fund and, acting as exclusive agent, sells shares of the Fund to the public on a
continuous basis. Edward L. Jaroski, a director and officer of the Fund, is
President and director of the Distributor and the Adviser. Most officers of the
Fund are also officers of the Adviser, the Distributor and their parent company,
Capstone Financial Services, Inc.
Shares of the Fund are sold in a continuous offering and may be purchased
on any business day through authorized investment dealers or directly from the
Fund's Distributor. Only the Distributor and investment dealers which have a
sales agreement with the Distributor are authorized to sell shares of the Fund.
For further information, reference is made to the caption "Distributor" in the
Fund's Statement of Additional Information.
Shares will be credited to a stockholder's account at the public offering
price next computed after an order is received by the Distributor. The minimum
initial investment is $200, except for continuous investment plans which have no
minimum, and there is no minimum for subsequent purchases. No stock
certificates representing shares purchased will be issued except upon written
request to the Fund's Transfer Agent. The Fund's management reserves the right
to reject any purchase order if, in its opinion, it is in the Fund's best
interest to do so.
The public offering price is the net asset value (see "Determination of Net
Asset Value") plus a sales charge which varies in accordance with the amount of
the purchase as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS A DEALER
PERCENTAGE OF REALLOWANCE
---------------------- AS A
NET PERCENTAGE
OFFERING AMOUNT OF OFFERING
AMOUNT OF SINGLE TRANSACTION PRICE INVESTED PRICE
- -------------------------------------- -------- -------- -----------
<S> <C> <C> <C>
Less than $100,000 . . . . . . . . . . 4.75% 4.99% 4.25%
$100,000 but less than $250,000. . . . 3.50% 3.63% 3.00%
$250,000 but less than $500,000. . . . 2.50% 2.56% 2.00%
$500,000 but less than $1,000,000. . . 2.00% 2.04% 1.75%
$1,000,000 but less than $2,500,000. . 1.00% 1.01% .90%
$2,500,000 but less than $5,000,000. . .50% .50% .45%
$5,000,000 and over. . . . . . . . . . .00% .00% .00%*
</TABLE>
______________
* A negotiated broker commission will be paid by the Distributor.
The size of investment shown in the above table applies to the total amount
being invested by any person in shares of the Fund alone or in any combination
of shares of the Fund and shares of certain other mutual funds sponsored by the
Adviser. See "Reduced Sales Charges". The Distributor retains the entire sales
charge when it makes sales directly to the public. Dealers who receive 90% or
more of the entire sales charge may be deemed to be underwriters under the
Securities Act of 1933.
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 under which the Distributor, during
15
<PAGE> 17
such programs, will reallow an amount not exceeding the total applicable sales
charges on the sales generated by the dealer to any dealer that sponsors sales
contests or recognition programs conforming to criteria established by the
Distributor, or participates in sales programs sponsored by the Distributor. In
addition, the Adviser and/or the Distributor in their discretion may from time
to time, pursuant to objective criteria established by the Adviser and/or
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 Fund. These programs will not change the price you pay for your
shares or the amount that the Fund will receive from such sale.
INVESTING THROUGH AUTHORIZED DEALERS
If any authorized dealer receives an order of at least $200, the dealer may
contact the Distributor directly. Orders received by dealers by the close of
trading on the New York Stock Exchange on a business day that are transmitted to
the Distributor by 4:00 p.m. Central time on that day will be based on the
public offering price per share determined as of the close of trading on the New
York Stock Exchange on that day. Otherwise, the orders will be based on the
next determined public offering price. It is the dealer's responsibility to
transmit orders so that they will be received by the Distributor before 4:00
p.m. Central time.
After each investment, the stockholder and the authorized investment dealer
receive confirmation statements of the number of shares purchased and owned.
PURCHASES THROUGH THE DISTRIBUTOR
An account may be opened by mailing a check or other negotiable bank draft
(payable to Capstone Growth Fund, Inc.) for $200 or more together with the
completed Investment Application Form included with this Prospectus to the
Transfer Agent: Capstone Growth Fund, Inc., c/o Fund/Plan Services, Inc., P.O.
Box 874, 2 W. Elm Street, Conshohocken, Pennsylvania 19428. The $200 minimum
initial investment may be waived by the Distributor for plans involving
continuing investments (see "Stockholder Services"). There is no minimum for
subsequent investments, which may be mailed directly to the Transfer Agent. All
such investments are made at the public offering price of Fund shares next
computed following receipt of payment by the Transfer Agent. Confirmations of
the opening of an account and of all subsequent transactions in the account are
forwarded by the Transfer Agent to the stockholder's address of record.
TELEPHONE PURCHASE AUTHORIZATION (INVESTING BY PHONE)
Stockholders who have completed the Telephone Purchase Authorization
section of the Investment Application Form may purchase additional shares by
telephoning the Fund's Transfer Agent at (800) 845-2340. The minimum telephone
purchase is $1,000 and the maximum is five times the net asset value of shares
(for which certificates have not been issued) held by the stockholder on the day
preceding such telephone purchase for which payment has been received. The
telephone purchase will be made at the offering price next computed after
receipt of the call by the Transfer Agent. Payment for the telephone purchase
must be received by the Transfer Agent within seven days. If payment is not
received within seven days, the stockholder will be liable for all losses
incurred as a result of the purchase.
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<PAGE> 18
INVESTING BY WIRE
Investors having an account with a commercial bank that is a member of the
Federal Reserve System may purchase shares of the Fund by requesting their bank
to transmit funds by wire to: United Missouri Bank KC NA, ABA #10-10-00695,
For: Fund/Plan Services, Inc. Account #98-7037-0719; Further Credit Capstone
Growth Fund, Inc. The investor's name and account number must be specified
in the wire.
Initial Purchases - Before making an initial investment by wire, an
investor must first telephone (800) 845-2340 to be assigned an account number.
The investor's name, account number, taxpayer identification or social security
number, and address must be specified in the wire. In addition, the investment
application which accompanies this Prospectus should be promptly forwarded to
Capstone Growth Fund, Inc., c/o Fund/Plan Services, Inc., P.O. Box 874, 2 W. Elm
Street, Conshohocken, Pennsylvania 19428.
Subsequent Purchases - Additional investments may be made at any time
through the wire procedures described above, which must include the investor's
name and account number. The investor's bank may impose a fee for investments
by wire.
REDUCED SALES CHARGES
Investors can utilize one of the programs described below to reduce the
sales charge on purchases of shares of the Fund alone or on purchases of shares
of the Fund and certain other Capstone Funds.
Quantity Discounts - Purchases of shares of the Fund and certain other
Capstone Funds made at the same time by a "Purchaser" may be combined to receive
a quantity discount. The term "Purchaser" is defined as:
- an individual, his/her spouse and children under the age of 21, trust
or custodial accounts established for their sole benefit(s), and any
corporation, partnership or sole proprietorship which is 100% owned,
either alone or in combination, with any of the foregoing;
- a trustee or other fiduciary purchasing for a single trust estate or a
single fiduciary account; and
- a "company" as defined in Section 2(a)(8) of the Investment Company
Act of 1940.
Rights of Accumulation - A Purchaser may also qualify for reduced sales
charges by combining the amount being invested in shares of the Fund and shares
of the Capstone Funds owned by the Purchaser calculated at the then current
offering price. To qualify for obtaining the discount on a particular purchase,
the Purchaser must send the Distributor a list of account numbers and the names
in which such accounts of the Purchaser are registered at the time the purchase
is made. If shares are being purchased through an authorized dealer, such
information must be communicated by the dealer to the Distributor at the time of
purchase.
Letter of Intent - A Letter of Intent provides an opportunity for a
Purchaser to obtain a reduced sales charge by aggregating the investments in the
Fund and the Capstone Funds over a thirteen-month period to determine the sales
charge applicable to the amount invested. An alternative is to compute the
thirteen-month period starting up to ninety days before the date of the
execution of the
17
<PAGE> 19
Letter of Intent. Each investment made during the period receives the reduced
sales commission applicable to the total amount of the investment goal. If all
shares are not purchased, a price adjustment is made, depending upon the actual
amount invested within the period covered by the Letter of Intent, by the
redemption of sufficient shares held in escrow for the account of the Purchaser.
During the period of the Letter of Intent the Transfer Agent will hold a portion
of the shares purchased in escrow. Those shares will be released upon
completion of the intended investment. Additional information regarding this
procedure is contained in Appendix A in the back of the Prospectus.
401(k) Plans - For information concerning reduced sales charges applicable
to 401(k) plans, reference is made to the caption "Reduced Sales Charges" in the
Fund's Statement of Additional Information.
SALES AT NET ASSET VALUE
Purchases of the Fund's shares at net asset value without a sales charge
may be made by the following persons: (a) tax-exempt entities whose minimum
initial investment (or whose investment pursuant to a Letter of Intent) is
$250,000 or more, (b) purchases by a bank or trust company in a single account
where such bank or trust company is named as trustee and the minimum initial
investment (or whose investment pursuant to a Letter of Intent) is $250,000 or
more, (c) any current or retired officer, director or employee, or any member of
the immediate family of such person of the Fund, Adviser, Distributor or its
affiliates thereof, (d) the Fund's Adviser, Distributor or any affiliated
company thereof, (e) any employee benefit plan established for employees of the
Adviser, Distributor or its affiliates, (f) advisory clients of the Adviser,
other than those persons participating in an asset allocation plan established
by the Adviser, who do not qualify for net asset value purchases under any other
category, (g) registered representatives and their spouses and minor children
and employees of broker-dealers who have entered into Selling Group Agreements
with the Distributor, (h) separate accounts of life insurance companies or
commingled accounts of financial institutions, (i) Tenneco Inc. and its
affiliates, present, future and retired employees and any employee benefit plan
established for such employees, (j) stockholders of the Fund as of February 28,
1986, (k) investors who are clients of recognized consulting firms which provide
consulting services to pension funds or corporations, state and local
governments, Taft-Hartley Plans and foundations and endowments which have
contacted the Fund, the Adviser or the Distributor with respect to furnishing
advice to such clients of such consulting firm or with respect to distribution
of securities of the Fund by such client or purchase of securities of the Fund
by such client, and (l) in connection with the Fund's merger with or acquisition
of any investment company or trust. In the opinion of the Fund's management
these sales will result in less selling effort and expense.
If purchases by tax-exempt entities, bank or trust companies, separate
accounts or commingled accounts at net asset value are made through dealers who
have executed dealer agreements with respect to the Capstone Group, the
Distributor may make a payment out of its own resources to such dealers.
18
<PAGE> 20
DISTRIBUTIONS AND TAXES
PAYMENT OPTIONS
Distributions (whether treated for tax purposes as ordinary income or long-
term capital gains) to stockholders of the Fund are paid in additional shares of
the Fund, with no sales charge, based on the Fund's net asset value as of the
close of business on the record date for such distributions. However, a
stockholder may elect on the application form which accompanies this Prospectus
to receive distributions as follows:
Option 1. To receive income dividends in cash and capital gain
distributions in additional Fund shares, or
Option 2. To receive all income dividends and capital gain distributions
in cash.
The Fund intends to pay any dividends from investment company taxable
income and distributions representing capital gain at least annually, usually in
November. The Fund will advise each stockholder annually of the amounts of
dividends from investment company taxable income and of net capital gain
distributions reinvested or paid to the stockholder during the calendar year.
If you select Option 1 or Option 2 and the U.S. Postal Service cannot
deliver your checks, or if your checks remain uncashed for six months, your
distribution checks will be reinvested in your account at the then current net
asset value and your election will be converted to the purchase of additional
shares.
TAXES
The Fund intends to continue to qualify and elect to be treated as a
regulated investment company under the Federal tax law. In any taxable year in
which the Fund so qualifies and distributes at least 90% of its investment
company taxable income (which includes, among other items, dividends, interest,
and the excess of realized net short-term capital gain over realized net long-
term capital loss), the Fund generally will be relieved of Federal income tax on
its investment company taxable income and net capital gain (the excess of
realized net long-term capital gains over realized net short-term capital
losses) distributed to stockholders. Amounts not distributed on a timely basis
in accordance with a calendar year distribution requirement are also subject to
a nondeductible 4% excise tax. To prevent application of the excise tax, the
Fund intends to make its distributions in accordance with the calendar year
distribution requirement. A distribution will be treated as paid on December 31
of the calendar year if it is declared by the Fund in October, November or
December of that year to stockholders of record on a date in such a month and
paid by the Fund during January of the following calendar year. Such
distributions will be taxable to stockholders in the calendar year in which the
distributions are declared, rather than the calendar year in which the
distributions are received.
Distributions from investment company taxable income are taxable to
stockholders as ordinary income. Distributions of the net capital gain
designated by the Fund as capital gain dividends are taxable as long-term
capital gains regardless of the length of time a stockholder may have held
shares of the Fund. The tax treatment of distributions treated as ordinary
income or capital gain will be the same whether the stockholder reinvests the
distributions in additional shares or elects to receive them in cash.
19
<PAGE> 21
Stockholders will be notified each year of the amounts and nature of
dividends and distributions including the amounts (if any) for that year which
have been designated as capital gain dividends.
Special tax rules may apply to the Fund's purchase of put and call options,
its acquisition of stock index futures, and its acquisition of options on such
futures. Such rules, among other things: (i) may affect whether capital gains
and losses from such transactions are considered to be short-term or long-term;
(ii) may have the effect of converting capital gains and losses into ordinary
income and losses; (iii) may have the effect of deferring losses and/or
accelerating the recognition of gains or losses; and (iv) for purposes of
qualifying as a regulated company, may limit the extent to which the Fund will
be able to engage in such transactions.
Upon the sale, redemption or other disposition of shares of the Fund, a
stockholder generally will realize a taxable gain or loss, depending upon his
basis in the shares. Such gain or loss will be treated as capital gain or loss
if the shares are capital assets in the stockholder's hands and generally will
be long-term or short-term, depending upon the stockholder's holding period for
the shares. Any loss realized on a sale or exchange will be disallowed to the
extent the shares disposed of are replaced (including shares acquired pursuant
to the reinvestment plan) 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. Any
loss realized by a stockholder on a disposition of Fund shares held by the
stockholder for six months or less will be treated as a long-term capital loss
to the extent of any capital gain dividends received by the stockholder with
respect to such shares.
The Fund may be required to withhold Federal income tax at the rate of 31%
of all taxable distributions (including gross proceeds from the redemption of
Fund shares) payable to stockholders who fail to provide the Fund with their
correct taxpayer identification number or to make required certifications, or
where the Fund or the stockholder has been notified by the Internal Revenue
Service that the stockholder is subject to backup withholding. Corporate
stockholders and certain other stockholders specified in the Code generally are
exempt from such backup withholding. Backup withholding is not an additional
tax. Any amounts withheld may be credited against the stockholder's Federal
income tax liability.
Distributions also may be subject to additional state, local, and foreign
taxes depending upon each stockholder's particular situation. In addition,
foreign stockholders may be subject to Federal income tax rules that differ
significantly from those described above. Stockholders are advised to consult
their tax advisers with respect to the particular tax consequences to them of an
investment in the Fund.
REDEMPTION AND REPURCHASE OF SHARES
Generally, stockholders may require the Fund to redeem their shares by
sending a written request, signed by the record owner(s), to Capstone Growth
Fund, Inc., c/o Fund/Plan Services, Inc., P.O. Box 874, 2 W. Elm Street,
Conshohocken, Pennsylvania 19428. In addition, certain expedited redemption
methods described below are available. If stock certificates have been issued
for shares being redeemed, such certificates must accompany the written request
with the stockholder's signature guaranteed by an "eligible guarantor
institution", as defined in Rule 17Ad-15 under the Securities Exchange Act of
1934, which participates in a signature
20
<PAGE> 22
guarantee program. Eligible guarantor institutions include banks, brokers,
dealers, credit unions, national securities exchanges, registered securities
associations, clearing agencies and savings associations. A broker-dealer
guaranteeing signatures must be a member of a clearing corporation or maintain
net capital of at least $100,000. Credit unions must be authorized to issue
signature guarantees. No signature guarantees for shares for which no
certificates have been issued are required when an application is on file at the
Transfer Agent and payment is to be made to the stockholder of record at the
stockholder's address of record. However, if the proceeds of the redemption
are to be paid to someone other than the registered holder, or to other than the
stockholder's address of record, or if the shares are to be transferred, the
owner's signature must be guaranteed by a commercial bank or by a securities
firm having membership on a recognized national securities exchange. The
redemption price shall be the net asset value per share next computed after
receipt of the redemption request. See "Determination of Net Asset Value".
In addition, the Distributor is authorized as agent for the Fund to offer
to repurchase shares which are presented by telephone or telegraph to the
Distributor by authorized investment dealers. The repurchase price is the net
asset value per share next determined after the request is received. See
"Determination of Net Asset Value". Broker-dealers may charge for their
services in connection with the repurchase, but the Distributor and its
affiliates will not charge any fee for such repurchase. Payment for shares
presented for repurchase or redemption by authorized investment dealers will be
made within seven days after receipt by the Transfer Agent of a written notice
and/or certificate in proper order.
The Fund reserves the right to pay any portion of redemption requests in
excess of $1 million in readily marketable securities from the Fund's portfolio.
In this case, the stockholder may incur brokerage charges on the sale of the
securities.
The right of redemption and payment of redemption proceeds are subject to
suspension for any period during which the New York Stock Exchange is closed,
other than customary weekend and holiday closings, or when trading on the New
York Stock Exchange is restricted as determined by the Securities and Exchange
Commission; during any period when an emergency as defined by the rules and
regulations of the Securities and Exchange Commission exists; or during any
period when the Securities and Exchange Commission has by order permitted such
suspension. The Fund will not mail redemption proceeds until checks (including
certified checks or cashier's checks) received for the shares purchased have
cleared, which can be as long as 15 days.
The value of shares on repurchase or redemption may be more or less than
the investor's cost depending upon the market value of the Fund's portfolio
securities at the time of redemption. No redemption fee is charged for the
redemption of shares.
EXPEDITED TELEPHONE REDEMPTION
A stockholder redeeming at least $1,000 of shares (for which certificates
have not been issued), and who has authorized expedited redemption on the
application form filed with the Transfer Agent may at the time of such
redemption request that funds be mailed or wired to the commercial bank or
registered broker-dealer he has previously designated on the application form by
telephoning the Transfer Agent at (800) 845-2340. Redemption proceeds will be
sent on the next business day following receipt of the telephone redemption
request. If a stockholder seeks to use an expedited method of redemption of
shares recently purchased by check, the Fund may withhold the
21
<PAGE> 23
redemption proceeds until it is reasonably assured of the collection of the
check representing the purchase. The Fund, Distributor and Transfer Agent
reserve the right at any time to suspend or terminate the expedited redemption
procedure or to impose a fee for this service. During periods of unusual
economic or market changes, stockholders may experience difficulties or delays
in effecting telephone redemptions.
When exchange or redemption requests are made by telephone, the Fund has
procedures in place designed to give reasonable assurance that such telephone
instructions are genuine, including recording telephone calls and sending
written confirmations of transactions. The Fund will not be liable for losses
due to unauthorized or fraudulent telephone transactions unless it does not
follow such procedures, in which case it may be liable for such losses.
DETERMINATION OF NET ASSET VALUE
The net asset value per share 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, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day. The net asset value per share is computed by deducting total
liabilities from total assets of the Fund and dividing the remainder by the
total number of shares outstanding. The net asset value so computed will be
used for all purchase orders and redemption requests received between such
computation and the preceding computation.
Portfolio securities listed on an exchange or quoted on a national market
system are valued at the last sales price. Other securities are valued at the
mean between the most recent bid and asked prices. In the event a listed
security is traded on more than one exchange, it is valued at the last sale
price on the exchange on which it is principally traded. If there are no
transactions in a security during the day, it is valued at the mean between the
most recent bid and asked price. However, debt securities (other than short-
term obligations) including listed issues, may be 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.
For information concerning pricing of financial futures, see "Determination of
Net Asset Value" in the Fund's Statement of Additional Information. Securities
as to which market quotations are not readily available and other assets held by
the Fund, if any, are valued at their fair value as determined in good faith by
the Board of Directors.
All portfolio securities, except options on stock and stock indexes and
except for stock index futures and options thereon, are valued as of the close
of regular trading on the New York Stock Exchange (which is currently 4:00 p.m.
Eastern time). Options on stock and stock indexes traded on national securities
exchanges, and stock index futures and options thereon, which are traded on
commodities exchanges, are valued at their last daily settlement prices as of
the close of such exchanges (which is currently 4:15 p.m. Eastern time).
22
<PAGE> 24
STOCKHOLDER SERVICES
Capstone Growth Fund, Inc. provides its stockholders with a number of
services and conveniences designed to assist investors in the management of
their investments. These stockholder services include the following:
TAX-DEFERRED RETIREMENT PLANS
Shares may be purchased by virtually all types of tax-deferred retirement
plans. The Distributor or its affiliates make available plan forms and/or
custody agreements for the following:
o Individual Retirement Accounts (for individuals and their non-employed
spouses who wish to make limited tax deductible contributions to a
tax-deferred account for retirement); and
o Simplified Employee Pension Plans.
Dividends and distributions will be automatically reinvested without a
sales charge. For further details, including fees charged, tax consequences and
redemption information, see the specific plan documents which can be obtained
from the Fund.
Investors should consult with their tax adviser before establishing any of
the tax-deferred retirement plans described above.
EXCHANGE PRIVILEGE
Shares of the Fund which have been outstanding 15 days or more may be
exchanged for shares of other Capstone Funds with no administrative charge. The
exchange of shares held 15 days or more will be effected at net asset value,
plus an amount equal to the difference, if any, between the sales charges
previously paid or deemed applicable with respect to the shares being exchanged,
and the sales charge payable on shares of the Capstone Fund for which those
shares are being exchanged, determined in accordance with applicable legal
requirements. A stockholder requesting such an exchange will be sent a current
prospectus for the fund into which the exchange is requested. Shares held less
than 15 days cannot be exchanged. In such instances, the shares will be
redeemed at the next computed net asset value and the entire sales commission
paid on the purchase will be refunded to the investor.
Purchases, redemptions and exchanges should be made for investment purposes
only. A pattern of frequent exchanges, purchases and sales may be deemed
abusive by the Adviser and, at the discretion of the Adviser, can be limited by
the Fund's refusal to accept further purchase and/or exchange orders from the
investor. Although the Adviser will consider all factors it deems relevant in
determining whether a pattern of frequent purchases, redemptions and/or
exchanges by a particular investor is abusive and not in the best interests of
the Fund or its other stockholders, as a general policy investors should be
aware that engaging in more than one exchange or purchase-sale transaction
during any thirty-day period with respect to a particular fund may be deemed
abusive and therefore subject to the above restrictions.
An exchange of shares is treated for Federal income tax purposes as a sale
of shares given in exchange and the stockholders may, therefore, realize a
taxable gain or loss. The exchange privilege may be exercised only in those
states where shares of the fund for which shares held
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are being exchanged may be legally sold, and the privilege may be amended or
terminated upon 60 days' notice to stockholders.
Under certain circumstances, the sales charge incurred in acquiring shares
of the Fund may not be taken into account in determining the gain or loss on the
disposition of those shares. This rule applies where shares of the Fund are
exchanged within 90 days after the date they were purchased and new shares of a
Capstone Fund or another regulated investment company are acquired without a
sales charge or at a reduced sales charge. In that case, the gain or loss
recognized on the exchange will be determined by excluding from the tax basis of
the shares exchanged all or a portion of the sales charge incurred in acquiring
those shares. This exclusion applies to the extent that the otherwise
applicable sales charge with respect to the newly acquired shares is reduced as
a result of having incurred a sales charge initially. The portion of the sales
charge affected by this rule will be treated as a sales charge paid for the new
shares.
The stockholder may exercise the following exchange privilege options:
Exchange by Mail - Stockholders may mail a written notice requesting
an exchange to the Fund's Transfer Agent.
Exchange by Telephone - Stockholders must authorize telephone exchange
on the application form filed with the Transfer Agent to exchange
shares by telephone. Telephone exchanges may be made from 9:30 a.m.
to 4:00 p.m. Eastern time, Monday through Friday, except holidays. If
certificates have been issued to the investor, this procedure may be
utilized only if he delivers his certificates, duly endorsed for
transfer, to the Transfer Agent prior to giving telephone
instructions. During periods of unusual economic or market changes,
stockholders may experience difficulties or delays in effecting
exchanges over the telephone.
When exchange or redemption requests are made by telephone, the Fund has
procedures in place designed to give reasonable assurance that such telephone
instructions are genuine, including recording telephone calls and sending
written confirmations of transactions. The Fund will not be liable for losses
due to unauthorized or fraudulent telephone transactions unless it does not
follow such procedures, in which case it may be liable for such losses.
PRE-AUTHORIZED PAYMENT
A stockholder who has completed the Pre-Authorized Payment section of the
Investment Application Form may arrange to make regular monthly investments of
$25 or more automatically from his checking account by authorizing the Fund's
Transfer Agent to withdraw the payment from his checking account.
SYSTEMATIC WITHDRAWAL PLAN
Investors may open a withdrawal plan providing for withdrawals of $50 or
more monthly, quarterly, semi-annually or annually if they have made a minimum
investment of $5,000 in shares of the Fund. The minimum amount which may be
withdrawn pursuant to this plan is $50.
These payments may constitute return of initial capital and do not
represent a yield or return on investment. In addition, such payments may
deplete or eliminate the investment. Stockholders cannot be assured that they
will receive payment for any specific period because payments will
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terminate when all shares have been redeemed. The number of such payments will
depend primarily upon the amount and frequency of payments and the yield on the
remaining shares. Under this plan, any distributions must be reinvested in
additional shares at net asset value.
The Systematic Withdrawal Plan is voluntary, flexible, and under the
stockholder's control and direction at all times, and does not limit or alter
the stockholder's right to redeem shares. Such Plan may be terminated in
writing at any time by either the stockholder or the Fund. The cost of
operating the Systematic Withdrawal Plan is borne by the Fund. It would not be
advisable for investors to make purchases of shares involving any sales charge
while participating in the Systematic Withdrawal Plan.
GENERAL INFORMATION
The Fund is an open-end diversified management investment company, as
defined in the Investment Company Act of 1940, as amended. It was incorporated
in New Jersey in 1952 and merged into a Pennsylvania corporation in 1967.
Effective May 11, 1992 the Fund was reorganized as a Maryland corporation and
its name was changed from U.S. Trend Fund, Inc. to Capstone U.S. Trend Fund,
Inc. The Fund's name was changed to Capstone Growth Fund, Inc. effective
September 6, 1994, upon approval by the Fund's stockholders at a special meeting
held on August 25, 1994.
The Fund's authorized capitalization consists of twenty-five million shares
of $0.001 par value common stock. There is no other class of security
outstanding. All shares have equal voting and liquidation rights and have one
vote per share. Voting rights are non-cumulative, which means that holders of
more than 50% of the shares voting for the election of directors may elect 100%
of the directors if they choose to do so, and in such event the holders of the
remaining less than 50% of the shares voting for the directors will not be able
to elect any directors. All shares have equal dividend rights, are fully paid,
nonassessable and freely transferable and have no conversion, pre-emptive or
subscription rights. Fractional shares have the same rights, pro rata, as full
shares.
If additional series are added, on all matters submitted to stockholder
vote, all shares of the Fund then issued and outstanding, irrespective of
series, will be voted in the aggregate and not by individual series except (i)
when required by the Investment Company Act of 1940, shares will be voted by
individual series, and (ii) when a matter is determined by the directors to
affect less than all of the Fund's series, then only holders of shares of the
affected series will be entitled to vote on such matter.
As of January 3, 1995 NationsBank, as trustee under the Tenneco Inc. Thrift
Plan, owned approximately 38.3% and PliFunds Investment Plans owned
approximately 7.4% of the outstanding shares of the Fund.
The Fund's securities are held by The Fifth Third Bank, Cincinnati, Ohio,
under a Custodian Agreement with the Fund. Fund/Plan Services, Inc. acts as
both Transfer Agent and dividend paying agent for the Fund.
Inquiries by stockholders of the Fund should be addressed to the Fund at
its address stated on the cover page of this Prospectus.
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ANNUAL MEETING
The Fund is not required to hold an annual meeting of its stockholders;
however, stockholders have the right to require the Secretary of the Fund to
call a stockholders' meeting upon the written request of stockholders entitled
to vote not less than ten percent of all votes entitled to be cast at such
meeting, provided that (1) such request shall state the purposes of such meeting
and the matters proposed to be acted on, and (2) the stockholders requesting
such meeting shall have paid to the Fund the reasonably estimated cost of
preparing and mailing the notice thereof, which the Secretary shall determine
and specify to such stockholders. No meeting shall be called upon the request
of stockholders to consider any matter which is substantially the same as a
matter voted upon at any special meeting of the stockholders held during the
preceding twelve months, unless requested by the holders of a majority of all
shares entitled to be voted at such meeting.
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APPENDIX A
INFORMATION PERTAINING TO LETTER OF INTENT
Subject to conditions specified below, each purchase during the thirteen-
onth period subsequent to the effective date of a Letter of Intent (the
"Letter") will be made at the public offering price applicable to a single
transaction of the dollar amount indicated, as described in the then effective
prospectus. The offering price may be further reduced under the Rights of
Accumulation if the Transfer Agent is advised of any shares previously purchased
and still owned. At any time during the period the investor may revise upward
his stated intention by submitting a written request to that effect. Such
revision shall provide for the escrowing of additional shares. The original
period of the Letter, however, shall remain unchanged. Each separate purchase
made pursuant to the Letter is subject to the terms and conditions contained in
the prospectus in effect at the time of that particular purchase. The Letter
does not constitute a commitment to purchase shares, but if purchases so made
within thirteen months from the effective date of a Letter do not aggregate the
amount specified, the investor must pay the increased amount of sales charge
prescribed in the terms of escrow. The investor or his dealer must refer to the
Letter of Intent in placing each order for shares while the Letter is in effect.
When remitting funds directly to the Transfer Agent for investment in an
account, specific reference must be made to the Letter.
TERMS OF ESCROW
1. To assure compliance with provisions of the Investment Company Act of
1940, out of the initial purchase (or subsequent purchase if necessary) 5% of
the dollar amount indicated on the application form will be held in escrow in
the form of shares (computed to the nearest full share at the applicable public
offering price) registered in the Purchaser's name. These shares will be held
at the Fund's Transfer Agent and be subject to the terms of escrow.
2. If total purchases pursuant to the Letter equal the amount specified
as the expected aggregate purchases, escrow shares will be released from
restriction.
3. If the total purchases pursuant to the Letter are less than the amount
specified, the Purchaser shall remit to the Distributor an amount equal to the
difference between the dollar amount of sales charge actually paid and the
amount of sales charge which would have been paid on the total purchases if all
such purchases had been made at a single time. If the Distributor, within 10
business days after request, does not receive said difference in sales charge,
it will instruct the Fund's Transfer Agent to redeem an appropriate number of
escrow shares to realize such difference. If the proceeds from this redemption
are inadequate, the Purchaser will be liable to the Distributor for the
difference. The remaining shares after the redemption will be deposited to his
account unless otherwise instructed.
4. The investor irrevocably constitutes and appoints the Fund's Transfer
Agent as attorney to surrender for redemption any or all shares on the books of
the Fund, under the conditions previously outlined, with full power of
substitution in the premises.
REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
As all income dividends and/or capital gains distributions are reinvested
at net asset value without sales commissions; shares acquired through
reinvestment are not applied to the Letter of Intent.
PROVISIONS FOR PRICE ADJUSTMENT
If total purchases made under a Letter of Intent and the Rights of
Accumulation are large enough to qualify for a lower sales charge than that
applicable to the amount initially specified, or if trades not initially made
under the Letter subsequently qualify for a lower sales charge through the 90-
day back-dating provisions (see "Reduced Sales Charges -- Letter of Intent" in
the Prospectus), an adjustment will be made at the expiration of this Letter to
give effect to the lower charge. Such adjustment in sales charge will be used
to purchase additional shares for the investor.
CANCELLATION OR LIQUIDATION
If at any time prior to or after completion of the Letter of Intent a
Purchaser wishes to cancel the Letter, he must notify the Distributor in
writing. If at any time prior to the completion of the Letter of Intent the
Purchaser requests the Fund's Transfer Agent to liquidate his total shares, a
cancellation of the Letter will automatically be effected. Under either of the
above conditions the total purchased pursuant to the Letter may be less than the
amount specified as the expected aggregate purchases. If so, the Fund's
Transfer Agent will redeem an appropriate number of escrowed shares and remit to
the Distributor an amount equal to the difference between the dollar amount of
sales charge actually paid and the amount of sales charge which would have been
paid on the total purchases if all such purchases had been made at a single
time.
