<PAGE> 1
REGISTRATION NO. 2-83397
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
Pre-Effective Amendment No. _____ / /
Post-Effective Amendment No. 19 / X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / X /
Capstone Growth Fund, Inc.
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(Exact Name of Registrant as Specified in Charter)
5847 San Felipe, Suite 4100, Houston, Texas 77057
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (713) 260-9000
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Allan S. Mostoff, Esq., Dechert Price & Rhoads
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1500 K Street, N.C., Suite 500, Washington, DC 20005
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
/ X / immediately upon filing pursuant to paragraph (b).
/ / on ________________ pursuant to paragraph (b).
/ / 60 days after filing pursuant to paragraph (a).
/ / on (date) pursuant to paragraph (a) of rule 485.
The Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of
1940, and:
/ X / filed the notice required by that Rule on December 28, 1995; or
/ / intends to file the notice required by that Rule on or about
________________; or
/ / during the most recent fiscal year did not sell any securities
pursuant to Rule 24f-2 under the Investment Company Act of
1940, and, pursuant to Rule 24f-2(b)(2), need not file the
Notice.
Total Pages ______ Exhibit Index Page ______
<PAGE> 2
CAPSTONE GROWTH FUND, INC.
CROSS REFERENCE SHEET
BETWEEN
ITEMS OF FORM N-1A AND PROSPECTUS
(PART A TO REGISTRATION STATEMENT NO. 2-83397)
<TABLE>
<CAPTION>
Item
Number Form N-1A Heading Caption in Prospectus
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<S> <C> <C>
1. Cover Page Prospectus Cover Page
2. Synopsis Prospectus Summary; Fund Expenses
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Investment Objective and Policies;
Investments and Investment Practices;
Investment Restrictions; Management of
the Fund; General Information
5. Management of the Fund Management of the Fund
6. Capital Stock and Other Securities General Information; Distributions and
Taxes
7. Purchase of Securities Being Determination of Net Asset Value;
Offered Purchasing Shares
8. Redemption or Repurchase Redemption and Repurchase of Shares
9. Pending Legal Proceedings Inapplicable
</TABLE>
<PAGE> 3
CAPSTONE GROWTH FUND, INC.
(FORMERLY CAPSTONE U.S. TREND FUND, INC.)
5847 San Felipe, Suite 4100
Houston, TX 77057
1-800-262-6631
FEBRUARY 29, 1996
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 as 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 February 29, 1996 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> 4
CAPSTONE GROWTH FUND, INC.
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
1-800-262-6631
TABLE OF CONTENTS
PAGE
----
Prospectus Summary. . . . . . . . . . . . . . . . . 3
Fund Expenses . . . . . . . . . . . . . . . . . . . 5
Financial Highlights. . . . . . . . . . . . . . . . 7
Investment Objective and Policies . . . . . . . . . 8
Investments and Investment Practices. . . . . . . . 8
Investment Restrictions . . . . . . . . . . . . . .10
Performance Information . . . . . . . . . . . . . 11
Management of the Fund. . . . . . . . . . . . . . 12
Purchasing Shares . . . . . . . . . . . . . . . . .14
Distributions and Taxes . . . . . . . . . . . . . .16
Redemption and Repurchase of Shares . . . . . . . .18
Determination of Net Asset Value. . . . . . . . . .19
Stockholder Services. . . . . . . . . . . . . . . .20
General Information . . . . . . . . . . . . . . . .22
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.
<PAGE> 5
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 8)
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 8)
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 9)
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 12)
Expenses of the Fund. . . . . . For the last fiscal year, the Fund's total
operating expenses, including investment
advisory fees, were 1.31% of its average net
assets. (see page 14)
Dividends and . . . . . . . . . The Fund pays any dividends from net investment
Distributions income and distributions from capital gains at
least annually. (see page 16)
Distributor and . . . . . . . . Shares of the Fund are continuously offered for
Offering Price sale through the Fund's Distributor, Capstone
Asset Planning Company, without a sales load, at
the net asset value next determined after
receipt of the order. The Fund pays certain
expenses pursuant to a Rule 12b-1 distribution
<PAGE> 6
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 15)
Redemption. . . . . . . . . . . Shares of the Fund can be redeemed at the next
determined net asset value, without charge.
(see page 18)
<PAGE> 7
FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases 0%
(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%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 0.69%
12b-1 Fees* 0.25%
Other Expenses 0.28%
Total Fund Operating Expenses 1.22%
EXAMPLE
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
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<S> <C> <C> <C> <C>
You would pay the following expenses
on a $1,000 investment, assuming (1)
5% annual return and (2) redemption
at the end of each time period: $12 $39 $67 $148
_____________
* 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").
<PAGE> 8
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 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 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, effective August 21, 1995,
may be incurred by the Fund. The actual amount paid by the Fund during the
fiscal year ended October 31, 1995 was 0.34% of its average net assets.
(Prior to August 21, 1995 the maximum payout permitted under the 12b-1 Plan
was 0.35% of the Fund's 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, 1995.
THE EXAMPLE WHICH IMMEDIATELY FOLLOWS THE TABLE USES THE "TOTAL FUND
OPERATING EXPENSES" FIGURE ABOVE AND ASSUMES IT WILL REMAIN CONSTANT OVER
THE ILLUSTRATED PERIOD. THE EXAMPLE 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.
<PAGE> 9
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>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value at beginning
of year. . . . . . . . . . $13.23 $14.43 $14.00 $14.65 $11.88 $14.76 $12.12 $11.40 $14.71 $12.35
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income. . . 0.17 0.11 0.17 0.20 0.30 0.37 0.37 0.31 0.28 0.32
Net realized and unrealized
gain (loss) on investments 1.93 (0.23) 0.80 0.56 3.42 (1.48) 2.92 1.01 0.49 2.59
------ ----- ----- ----- ------ ------ ------ ------ ------ ------
Total from investment
operations . . . . . . . 2.10 (0.12) 0.97 0.76 3.72 (1.11) 3.29 1.32 0.77 2.91
------ ----- ----- ----- ------ ----- ------ ------ ------ ------
Less distributions from:
Net investment income. . . 0.16 0.13 0.22 0.24 0.37 0.40 0.36 0.31 0.32 0.23
Net realized gain on
investments. . . . . . . 1.35 0.95 0.32 1.17 0.58 1.37 0.29 0.29 3.76 0.32
------ ------ ------ ------ ------ ----- ------ ------ ------ ------
Total distributions. . . . 1.51 1.08 0.54 1.41 0.95 1.77 0.65 0.60 4.08 0.55
------ ------ ------ ------ ------ ----- ------ ------ ------ ------
Net asset value at end of
year . . . . . . . . . . . $13.82 $13.23 $14.43 $14.00 $14.65 $11.88 $14.76 $12.12 $11.40 $14.71
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN+ . . . . . . . 17.04% (0.67)% 7.05% 5.83% 33.58% (8.55)% 28.47% 12.23% 6.76% 24.15%
RATIOS/SUPPLEMENTAL DATA
Net assets at the end of
year (in thousands). . . . $85,324 $80,941 $96,465 $97,076 $95,606 $76,780 $86,243 $88,658 $89,729 $83,685
Ratio of operating expenses to
average net assets . . . . 1.31% 1.28% 1.24% 1.10% 0.97% 0.94% 0.95% 1.01% 0.94% 1.01%
Ratio of net investment income
to average net assets. . . 1.21% 0.78% 0.19% 1.43% 2.21% 2.77% 2.76% 2.76% 2.14% 2.21%
Portfolio turnover rate. . . 119% 12% 45% 22% 38% 48% 50% 62% 56% 214%
</TABLE>
______________
+ Calculated without a sales charge.
<PAGE> 10
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to seek long-term capital
appreciation. This 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
<PAGE> 11
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 in options, 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.
<PAGE> 12
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 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, 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.
<PAGE> 13
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
changed 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 maximum public
<PAGE> 14
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 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 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 Intermediate Government Fund,
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 $1.3 billion.
Investment decisions for the Fund are made by the portfolio
manager, Albert P. Santa Luca, Ph.D. Dr. Santa Luca was appointed as
co-manager in October 1994 and assumed full responsibility in
July, 1995. 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.
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.,
<PAGE> 15
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, 1995, the Fund paid advisory fees equal to 0.69% of the
average net assets of the Fund.
The Adviser also performs certain accounting, bookkeeping and
pricing services. For these services 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 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 0.25% of the average net
assets of the Fund. (Prior to August 21, 1995, the maximum
<PAGE> 16
payout under the Plan was 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 0.25% 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 May 7, 1995. 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.
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, 1995 were 1.31% of
its average net assets.
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. Except for the Fund itself,
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 of the Fund are sold at net asset value, without a sales
charge, and will be credited to a
<PAGE> 17
stockholder's account at the net asset value 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.
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 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.
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.
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 effected at the net asset value 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 net asset value. 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 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 effected at the net asset value of Fund shares
next computed following receipt of payment by the Transfer Agent.
Confirmations of the opening of an account and of all subsequent
transactions in the account are forwarded by the Transfer Agent to
the stockholder's address of record.
TELEPHONE PURCHASE AUTHORIZATION (INVESTING BY PHONE)
Stockholders who have completed the Telephone Purchase
Authorization section of the
<PAGE> 18
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 effected at the net asset value next
computed after receipt of the call by the Transfer Agent. Payment
for the telephone purchase must be received by the Transfer Agent
within three business days after the order is placed. If payment is
not received within three business days, the stockholder will be
liable for all losses incurred as a result of the purchase.
INVESTING BY WIRE
Investors having an account with a commercial bank that is a
member of the Federal Reserve System may purchase shares of the Fund
by requesting their bank to transmit funds by wire to: United
Missouri Bank KC NA, ABA #10-10-00695, For: 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.
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
<PAGE> 19
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.
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
<PAGE> 20
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 guarantee
program. Eligible guarantor institutions include banks, brokers,
dealers, credit unions, national securities exchanges, registered
securities associations, clearing agencies and savings associations.
A broker-dealer guaranteeing signatures must be a member of a
clearing corporation or maintain net capital of at least $100,000.
Credit unions must be authorized to issue signature guarantees.
Signature guarantees will be accepted from any eligible guarantor
institution which participates in a signature guarantee program. 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 as specified above. 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
<PAGE> 21
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
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,
<PAGE> 22
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).
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.
<PAGE> 23
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 at a price based
on their respective net asset values with no sales or administrative
charge. 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; such shares will
be redeemed at the next computed net asset value.
Purchases, redemptions and exchanges should be made for
investment purposes only. A pattern of frequent exchanges, purchases
and sales may be deemed abusive by the 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 are being exchanged may be legally sold, and the
privilege may be amended or terminated upon 60 days' notice to
stockholders.
The stockholder may exercise the following exchange privilege
options:
Exchange by Mail - Stockholders may mail a written notice
requesting an exchange to the Fund's Transfer Agent.
Exchange by Telephone - Stockholders must authorize
telephone exchange on the application form filed with the
Transfer Agent to exchange shares by telephone. Telephone
exchanges may be made from 9:30 a.m. to 4:00 p.m. Eastern
time, Monday through Friday, except holidays. 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.
<PAGE> 24
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 do not represent a yield or return on investment
and may constitute return of initial capital. In addition, such
payments may deplete or eliminate the investment. Stockholders
cannot be assured that they will receive payment for any specific
period because payments will terminate when all shares have been
redeemed. The number of such payments will depend primarily upon the
amount and frequency of payments and the yield on the remaining
shares. Under this plan, any distributions must be reinvested in
additional shares 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.
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
<PAGE> 25
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 February 15, 1996 NationsBank, as trustee under the
Tenneco Inc. Thrift Plan, owned approximately 34.5% and PliFunds
Investment Plans owned approximately 7.2% 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.
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.
<PAGE> 26
CAPSTONE GROWTH FUND, INC.
CROSS REFERENCE SHEET
BETWEEN
ITEMS OF FORM N-1A AND THE
STATEMENT OF ADDITIONAL INFORMATION
(PART B TO REGISTRATION STATEMENT NO. 2-83397)
<TABLE>
<CAPTION>
Item Caption in Statement of
Number Form N-1A Heading Additional Information
- ----- ----------------- -----------------------
<S> <C> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History General Information
13. Investment Objectives and Policies Investment Restrictions; Risk
Factors
14. Management of the Fund Directors and Executive Officers
15. Control Persons and Principal Control Persons and Principal
Holders of Securities Holders of Securities
16. Investment Advisory and Other Investment Adviser; Other Information
Services
17. Brokerage Allocation Portfolio Transactions and Brokerage
18. Capital Stock and Other Securities Inapplicable
19. Purchase, Redemption and Pricing Determination of Net Asset Value;
of Securities Being Offered How to Buy and Redeem Shares
20. Tax Status Dividends and Distributions; Taxes
21. Underwriter Distributor
22. Calculation of Performance Data Performance Information
23. Financial Statements Financial Statements
</TABLE>
<PAGE> 27
CAPSTONE GROWTH FUND, INC.
(FORMERLY CAPSTONE U.S. TREND FUND, INC.)
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 29, 1996
This Statement of Additional Information is not a Prospectus but
contains information in addition to and more detailed than that set forth
in the Prospectus and should be read in conjunction with the Prospectus.
The Statement of Additional Information and the related Prospectus are both
dated February 29, 1996. A Prospectus may be obtained without charge by
contacting Capstone Asset Planning Company, by phone at (800) 262-6631 or
by writing to it at 5847 San Felipe, Suite 4100, Houston, Texas 77057.
TABLE OF CONTENTS
PAGE
----
General Information. . . . . . . . . . . . . . . . . . . . . .2
Investment Restrictions. . . . . . . . . . . . . . . . . . . .2
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . .3
Performance Information. . . . . . . . . . . . . . . . . . . .7
Directors and Executive Officers . . . . . . . . . . . . . . .8
Investment Adviser . . . . . . . . . . . . . . . . . . . . . 10
Distributor. . . . . . . . . . . . . . . . . . . . . . . . . 12
Portfolio Transactions and Brokerage . . . . . . . . . . . . 13
Determination of Net Asset Value . . . . . . . . . . . . . . 15
How to Buy and Redeem Shares . . . . . . . . . . . . . . . . 15
Dividends and Distributions. . . . . . . . . . . . . . . . . 16
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Control Persons and Principal Holders of Securities. . . . . 19
Other Information. . . . . . . . . . . . . . . . . . . . . . 19
Financial Statements . . . . . . . . . . . . . . . . . . . . 20
<PAGE> 28
GENERAL INFORMATION
The Fund is an "open-end diversified management company" under the
Investment Company Act of 1940. It was incorporated in New Jersey in 1952
and commenced business shortly thereafter. On February 28, 1967, it was
merged into a Pennsylvania corporation and operated under the laws of that
state until May 11, 1992 when it was reorganized as a Maryland corporation
and its name changed from U.S. Trend Fund, Inc. to Capstone U.S. Trend
Fund, Inc. Effective September 6, 1994 the Fund's name was changed to
Capstone Growth Fund, Inc. This change was approved by stockholders at a
meeting held August 25, 1994.
The Fund is a member of a group of investment companies sponsored by
Capstone Asset Management Company (the "Adviser"), which provides
investment advisory and administrative services to the Fund. The Adviser
and Capstone Asset Planning Company (the "Distributor") are wholly-owned
subsidiaries of Capstone Financial Services, Inc.
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions which, along with its
investment objective, cannot be changed without approval by the holders of
a majority of its outstanding shares. In addition to the fundamental
investment limitations set forth in the Fund's Prospectus, the Fund shall
not:
1. Invest in real estate, or other interests in real estate which
are not readily marketable.
2. Underwrite securities issued by others, or invest in any
securities it could not freely sell to the public without
registration under the Securities Act of 1933, as amended, except
that the Fund may invest up to 10% of its assets in securities
which have not been registered under the Securities Act of 1933,
as amended.
3. Purchase the securities of any one issuer if such purchase would
cause more than 10% of any class of outstanding securities,
including outstanding voting securities, of such issuer to be
held by the Fund.
4. Lend any part of its assets apart from the purchase of portions
of issues of publicly distributed bonds, debentures, notes and
other evidences of indebtedness and privately distributed debt
obligations of publicly owned companies.
5. Issue warrants or options for the acquisition of Fund shares.
6. Pledge or otherwise encumber any of its assets to an extent
greater than 15% of the gross assets of the Fund taken at cost.
(In order to comply with Illinois law, management has decided to
follow a more restrictive policy for the present time.
Accordingly, the Fund will not, as a matter of operating policy,
pledge, mortgage or hypothecate its portfolio securities to the
extent that at any time the percentage of pledged securities will
exceed 10% of the offering price of the Fund's shares, except as
permitted in transactions in options and futures.)
<PAGE> 29
7. Invest more than 25% of the value of its assets in a particular
industry.
8. The Fund will not invest in oil, gas or other mineral exploration
or development programs (although the Fund is not prohibited from
investing in issuers that own or invest in such investors).
9. Invest in securities of other investment companies, except (a) in
connection with a merger, consolidation, acquisition, or
reorganization, and (b) the Fund may invest up to 10% of its
total assets in shares of other investment companies.
The portfolio securities of the Fund may be turned over whenever
necessary or appropriate in the opinion of the Fund's management to seek
the achievement of the basic objective of the Fund. The turnover rate of
the Fund's portfolio was 119% for the fiscal year ended October 31, 1995
and 12% for the fiscal year ended October 31, 1994.
RISK FACTORS
STOCK INDEX FUTURES AND RELATED OPTIONS
The Fund may engage in transactions in options on stock and stock
indices, and stock index futures and options on such futures as a hedge
against changes in the value of securities held in the Fund's portfolio or
securities it intends to purchase.
To protect the value of its portfolio against declining stock prices,
the Fund may purchase put options on stock indices. To protect against an
increase in the value of securities that it wants to purchase, the Fund may
purchase call options on stock indices. A stock index (such as the S&P
500) assigns relative values to the common stocks included in the index and
the index fluctuates with the changes in the market values of the common
stocks so included. Options on stock indices are similar to options on
stock except that, rather than giving the purchaser the right to take
delivery of stock at a specified price, an option on a stock 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 stock indices depends on price movements in the stock
market generally rather than price movements in individual stocks.
The multiplier for an index option performs a function similar to the
unit of trading for a stock 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 a stock index option depends upon movements in
the level of the stock index rather than the price of a particular stock,
whether a fund will realize a gain or loss on the purchase of a put or call
option on a stock index depends upon movements in the level of stock prices
in the stock market generally or in an industry or market segment rather
than movements in the price of a particular stock. Accordingly, successful
use by the Fund of both put and call options on stock indices will be
<PAGE> 30
subject to the Adviser's ability to accurately predict movements in the
direction of the stock market generally or of a particular industry. In
cases where the Adviser's prediction proves to be inaccurate, the Fund will
lose the premium paid to purchase the option and it will have failed to
realize any gain.
In addition, the Fund's ability to hedge effectively all or a portion
of its securities through transactions in options on stock indices (and
therefore the extent of its gain or loss on such transactions) depends on
the degree to which price movements in the underlying index correlate with
price movements in the Fund's securities. Inasmuch as such securities will
not duplicate the components of an index, the correlation probably will not
be perfect. Consequently, the Fund will bear the risk that the prices of
the securities being hedged will not move in the same amount as the option.
This risk will increase as the composition of the Fund's portfolio diverges
from the composition of the index.
A stock 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 stock 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 stock
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 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, if the 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 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 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 stock index futures contracts and options on such
contracts is subject to the Adviser's ability to predict correctly
movements in the direction of the stock markets. No assurance can be given
that the Adviser's judgement in this respect will be correct.
Additionally, the correlation between movements in the price of futures
contracts or options on futures contracts and movements in prices of
securities being hedged or used for cover is not perfect.
The Fund will purchase and sell stock index futures contracts and will
purchase put and call options on stock index futures contracts only as a
hedge against changes in the value of securities held in the Fund's
portfolio or which it intends to purchase and where the transactions are
economically
<PAGE> 31
appropriate to the reduction of the risks inherent in the ongoing management
of the Fund. Generally, the Fund may hedge its securities portfolio against
a period of market decline by selling stock index futures contracts or by
purchasing puts on stock index futures contracts for the purpose of
protecting its portfolio against such decline. Conversely, the Fund may
purchase stock index futures contracts or call options thereon as a means of
protecting against an increase in the prices of securities which the Fund
intends to purchase. The Fund will not engage in transactions in stock
index futures contracts or options on such contracts for speculation and will
not write options on stock index futures contracts.
When purchasing stock index futures contracts, the Fund will be
required to post a small initial margin deposit, held by the Fund's
custodian in the name of the futures broker selected by the Fund; the
remaining portion of the contracts' value will be retained in short-term
investments in order to meet variation margin requirements or net
redemptions. In the event of net redemptions, the Fund would close out
open futures contracts and meet redemptions with cash realized from
liquidating short-term investments.
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 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 would exceed
5% of the market value of the Fund's total assets. In addition, the Fund
will not enter into futures contracts and options on futures contracts to
the extent that its outstanding obligations under these contracts and
options would exceed 20% of the Fund's total assets.
Stock 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 stock 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 the Fund, and which could possibly force the
sale of portfolio securities at a time when it may be disadvantageous to do
so. In the opinion of the Fund's management, the risk that the 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 the Fund will only engage in futures strategies for hedging
purposes, the Fund's management does not believe that the Fund will be
subject to the risks of substantial loss that may be associated with
futures transactions.
<PAGE> 32
FOREIGN SECURITIES
Although the Fund expects to invest principally in securities of U.S.
issuers, it may invest in U.S. dollar- or foreign currency-denominated
foreign equity and debt securities traded in the United States or in
foreign markets. Its investments may include securities represented by
European Depositary Receipts ("EDRs) and American Depositary Receipts
("ADRs"). Investments in securities of foreign issuers involve certain
costs, risks and considerations not typically associated with investments
in U.S. issuers. These include: differences in accounting, auditing and
financial reporting standards; generally higher commission rates on foreign
portfolio transactions; the possibility of nationalization, expropriation
or confiscatory taxation; adverse changes in investment or exchange control
regulations (which may include suspension of the ability to transfer
currency from a country); and political instability which could affect U.S.
investments in foreign countries. Additionally, foreign securities, and
dividends and interest payable on those securities, may be subject to
foreign taxes, including taxes withheld from payments on those securities.
Foreign securities often trade with less frequency and volume than domestic
securities and, therefore, may exhibit greater price volatility and less
liquidity. Additional costs associated with an investment in foreign
securities may include higher custodial fees and transaction costs than are
typical of U.S. investments, as well as currency conversion costs. Changes
in foreign exchange rates also will affect the value of securities
denominated or quoted in currencies other than the U.S. dollar. The Fund's
objective may be affected either favorably or unfavorably by fluctuations
in the relative rates of exchange between the currencies of different
nations, by exchange control regulations and by indigenous economic and
political developments. A decline in the value of any particular currency
against the U.S. dollar will cause a decline in the U.S. dollar value of
the Fund's holdings of securities denominated in such currency and,
therefore, will cause an overall decline in the Fund's net asset value and
any net investment income and capital gains to be distributed in U.S.
dollars to shareholders. The rate of exchange between the U.S. dollar and
other currencies is determined by several factors including the supply and
demand for particular currencies, central bank efforts to support
particular currencies, the movement of interest rates, the pace of business
activity in certain other countries and the United States, and other
economic and financial conditions affecting the world economy.
Although the Fund values its assets daily in terms of U.S. dollars,
the Fund does not intend to convert its 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
The Fund may enter into forward foreign currency exchange contracts in
connection with its investments in foreign securities. A forward foreign
currency exchange contract ("forward contract") is an agreement to purchase
or sell a specific amount of a particular foreign currency at a specified
price on a specified future date. These contracts are traded in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for
trades. Closing transactions with respect to forward contracts are
effected with the currency trader who is a party to the original forward
contract.
The 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
<PAGE> 33
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.
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
particular 30-day period (including dividends and interest), less expenses
accrued during the period ("net investment income"), and are computed by
dividing net investment income by the maximum offering price per share
(which includes the maximum sales charge) 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 reimbursements or
waivers),
c = the average daily number of shares outstanding during period that
were entitled to receive dividends, and
d = the maximum offering price per share on the last day of the
period.
For the 30-day period ended October 31, 1995 the Fund's yield was
1.080%.
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 gains distributions during the period are reinvested at net asset
value in additional Fund shares. Quotations of the average annual total
return reflect the deduction of a proportional share of Fund expenses on an
annual basis. The results, which are annualized, represent an average
annual compounded rate of return on a hypothetical investment in the Fund
over a period of 1, 5 and 10 years ending on the most recent calendar
quarter calculated pursuant to the following formula:
P (1 + T)n= ERV
where P = a hypothetical initial payment of $1,000,
T = the average annual total return,
n = the number of years, and
<PAGE> 34
ERV = the ending redeemable value of a hypothetical $1,000 payment made
at the beginning of the period.
For the 1, 5 and 10 year periods ended October 31, 1995 the Fund's
average annual total return was 17.04%, 11.96% and 11.89%, respectively.
Quotations of total return, which are not annualized, represent
historical earnings and asset value fluctuations. Total return is based on
past performance and is not a guarantee of future results. For the 1, 5
and 10 year periods ended October 31, 1995 the Fund's total return was
17.04%, 75.92% and 207.47%, respectively.
Performance information for the Fund 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 the 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 Fund reflects only the performance of
a hypothetical investment in the Fund during the particular time period on
which the calculations are based. Performance information should be
considered in light of the 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 the Fund's future
performance.
DIRECTORS AND EXECUTIVE OFFICERS
The Fund's directors and executive officers are listed below. All
persons named as directors also serve in similar capacities for other
mutual funds sponsored by the Adviser as indicated below.
* EDWARD L. JAROSKI, Chairman of the Board, Executive Vice President and
Director. 5847 San Felipe, Suite 4100, Houston, Texas 77057.
President (since 1992) and Director (since 1987) of the Capstone Asset
Management Company; President and Director of Capstone Asset Planning
Company and Capstone Financial Services, Inc. (since 1987);
Director/Trustee and Officer of other Capstone Funds.
____________
* Director who is an interested person as defined in the Investment
Company Act of 1940 because of his relationship to the Adviser and
Distributor.
<PAGE> 35
JAMES F. LEARY, Director. c/o Search Capital Group, Inc., 700 N.
Pearl Street, Suite 400, L.B. 401, Dallas, Texas 75201-2809. President
of Sunwestern Management, Inc. (since June 1982) and President of SIF
Management (since January 1992), venture capital limited partnership
concerns; General Partner of Sunwestern Advisors, L.P., Sunwestern
Associates, Sunwestern Associates II, Sunwestern Partners, L.P. and
Sunwestern Ventures, Ltd. (venture capital limited partnership entities
affiliated with Sunwestern Management, Inc. and SIF Management, Inc.).
Director of: other Capstone Funds; Anthem Financial, Inc. (financial
services); Associated Materials, Inc. (tire cord, siding and industrial
cable manufacturer); The Flagship Group, Inc. (vertical market
microcomputer software); Marketing Mercadeo International (public
relations and marketing consultants); MaxServ, Inc. (appliance repair
database systems); MESBIC Ventures, Inc. (minority enterprise small
business investment company); OpenConnect Systems, Inc. (computer
networking hardware and software); PhaseOut of America, Inc. (smoking
cessation products); and Search Capital Group, Inc. (financial
services).
JOHN R. PARKER, Director. P.O. Box 42, Woodbury, Vermont 05681.
Consultant and private investor (since 1990); Director of Nova Natural
Resources (oil, gas, minerals); Director of other Capstone Funds;
formerly Senior Vice President of McRae Capital Management, Inc.
(1991-1995); and registered representative of Rickel & Associates
(1988-1991).
PHILIP C. SMITH, Director. 87 Lord's Highway, Weston, Connecticut
06880. Private investor; Director of other Capstone Funds and the
Lexington Mutual Funds.
BERNARD J. VAUGHAN, Director. 113 Bryn Mawr Avenue, Bala Cynwyd,
Pennsylvania 19004. Director of other Capstone Funds; formerly Vice
President of Fidelity Bank (1979-1993).
ALBERT P. SANTA LUCA, President. 5847 San Felipe, Suite 4100,
Houston, Texas 77057. Vice President of Capstone Financial Services,
Inc. and Capstone Asset Management Company (since 1994); Officer of
other Capstone Funds; formerly Vice President and Equity Fund Manager
of BancOne -- BancOne Investment Advisors (1984-1994).
DAN E. WATSON, 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.
IRIS R. CLAY, Secretary. 5847 San Felipe, Suite 4100, Houston, Texas
77057. Secretary (since February 1996), Assistant Vice President
(1994-1996) and Assistant Secretary (1990-1994) of Capstone Financial
Services, Inc., Capstone Asset Management Company and Capstone Asset
Planning Company; Officer of other Capstone Funds.
NORMA R. YBARBO, Assistant Secretary. 5847 San Felipe, Suite 4100,
Houston, Texas 77057. Assistant Compliance Officer (since 1994),
Compliance Analyst (1993-1994) and Compliance Assistant (1987-1993) of
Capstone Financial Services, Inc.; Officer of other Capstone Funds.
LINDA G. GIUFFRE, Treasurer. 5847 San Felipe, Suite 4100, Houston,
Texas 77057. Vice President and Treasurer (since February 1996) of
Capstone Financial Services, Inc., Capstone Asset Management Company
<PAGE> 36
and Capstone Asset Planning Company; Treasurer (1990-1996) and
Secretary (1994-1996) of Capstone Financial Services, Inc. and
Capstone Asset Management Company; Treasurer (1990-1996) and
Secretary (1995-1996) of Capstone Asset Planning Company; Officer of
other Capstone Funds.
The directors and officers of the Fund as a group own less than one
percent of the outstanding shares of the Fund. The directors of the Fund
(other than Mr. Jaroski) also received compensation for serving as
directors of other Capstone Funds.
Each director not affiliated with the Adviser is entitled to $250 for
each Board meeting attended, and is paid a $2,000 annual retainer by the
Fund. The directors and officers of the Fund are also reimbursed for
expenses incurred in attending meetings of the Board of Directors. For the
fiscal year ended October 31, 1995, the Fund paid or accrued for the
account of its officers and directors, as a group for services in all
capacities, a total of $11,306.
The following table represents the fees paid during the 1995 calendar
year to the directors of the Fund and the total compensation each director
received during that period from the Capstone Funds complex.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Total
Compensation
From
Aggregate Pension or Registrant
Compensation Retirement Estimated Annual and Fund
From Benefits Accrued Benefits Upon Complex Paid
Name of Person, Position Registrant* As Part of Fund Retirement to Trustees
- ------------------------ ------------ ---------------- ---------------- ------------
<S> <C> <C> <C> <C>
James F. Leary, Director $2,625 $0 $0 $4,000(1)
John R. Parker, Director 2,500 0 0 3,750(1)
Philip C. Smith, Director 2,500 0 0 6,750(1)(2)(3)
Bernard J. Vaughan, Director 2,625 0 0 6,250(1)(2)
</TABLE>
______________
* Amounts do not include deferred compensation.
(1) Director of Capstone Fixed Income Series, Inc.
(2) Trustee of Capstone International Series Trust
(3) Director of Medical Research Investment Fund, Inc.
INVESTMENT ADVISER
Pursuant to the terms of an investment advisory agreement dated May
11, 1992 (the "Advisory Agreement"), the Fund employs Capstone Asset
Management Company (the "Adviser") to furnish investment advisory and
administrative services. The Adviser is a wholly-owned subsidiary of
Capstone Financial Services, Inc.
For its services, the Adviser receives an annual fee at the rate of
.75 of 1% per annum on the first $50 million of the Fund's net assets, .60
of 1% per annum on the next $150 million of the Fund's net
<PAGE> 37
assets, .50 of 1% per annum on the next $300 million of the Fund's net assets
and .40% of 1% per annum on all of the Fund's net assets in excess of $500
million. The fee is payable monthly at a rate of 1/16th of 1% of the first $50
million of the Fund's net assets, 1/20th of 1% of the next $150 million of
the Fund's net assets, 1/24th of 1% of the next $300 million of the Fund's
net assets and 1/30th of 1% of all of the Fund's net assets in excess of
$500 million, respectively. The Fund's net assets are determined at the
close of the last business day of each month. The fee paid to the Adviser
may be somewhat higher than that paid by other investment companies. For
the fiscal years ended October 31, 1995, 1994 and 1993, the Fund paid
investment advisory fees in the amounts of $560,434, $623,303 and $671,890,
respectively. As a percentage of the average net assets of the Fund, the
investment advisory fee was .69%, .68% and 68%, respectively, for each of
those years.
The Adviser also performs for the Fund certain accounting and
recordkeeping services for which the Adviser receives a monthly fee to
reimburse the Adviser for its costs. The Adviser also receives a monthly
fee to reimburse the Adviser for its costs in making daily computation of
net asset value. These amounts are not intended to include any profit to
the Adviser and are in addition to the advisory fee described above.
The Advisory Agreement contains an expense limitation provision
pursuant to which the Adviser will contribute money to the Fund up to an
amount equal to its advisory fees or waive all or a portion of its advisory
fees to insure that the aggregate annual expenses of the Fund, including
the advisory fee, but excluding certain expenses such as brokerage
commissions, litigation costs and certain distribution plan expenses, do
not exceed the expense limitations of any state having jurisdiction over
the Fund. In such event, the annual advisory fees of the Adviser will be
reduce pro rata (but not below zero) to the extent necessary to comply with
such expense limitations. At the date of this Statement of Additional
Information, the strictest expense limitation applicable to the Fund is
2.5% of the first $30 million of the Fund's average net assets, 2.0% of the
next $70 million of average net assets and 1.5% of the remaining average
net assets for any fiscal year.
Pursuant to the Advisory Agreement, the Adviser pays the compensation
and expenses of all of its directors, officers and employees who serve as
officers and executive employees of the Fund (including the Fund's share of
payroll taxes), except expenses of travel to attend meetings of the Fund's
Board of Directors or committees or advisers to the Board. The Adviser
also agrees to make available, without expense to the Fund, the services of
its directors, officers and employees who serve as officers of the Fund.
The Fund pays all of its expenses not borne by the Adviser pursuant to the
Advisory Agreement including such expenses as (i) the advisory fee, (ii)
fees under the Service and Distribution Plan (see "Distributor"), (iii)
fees for legal, auditing, transfer agent, dividend disbursing, and
custodian services, (iv) the expenses of issue, repurchase, or redemption
of shares, (v) interest, taxes and brokerage commissions, (vi) membership
dues in the Investment Company Institute allocable to the Fund, (vii) the
cost of reports and notices to stockholders, and (viii) fees to directors
and salaries of any officers or employees who are not affiliated with the
Adviser, if any.
The Advisory Agreement provides that the Adviser shall not be liable
for any error of judgment or of law, or for any loss suffered by the 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 in the performance of its obligations and duties, or by
reason of its reckless disregard of its obligations and duties under the
Advisory Agreement.
<PAGE> 38
The Advisory Agreement will remain in effect from year to year
provided its renewal is specifically approved at least annually (a) by the
Fund's Board of Directors or 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 Fund upon the vote of a majority of the
directors or by vote of the majority of the Fund's outstanding voting
securities, upon 60 days' written notice to the Adviser or (b) by the
Adviser at any time without penalty, upon 60 days' written notice to the
Fund. The Advisory Agreement will also terminate automatically in the
event of its assignment (as defined in the 1940 Act).
The following individuals are affiliated persons of both the Fund and
the Adviser as defined in the 1940 Act: Albert P. Santa Luca, Dan E.
Watson, Edward L. Jaroski, Linda G. Giuffre, Iris R. Clay and Norma R.
Ybarbo. (For further information, reference is made to the caption herein
"Directors and Officers".)
DISTRIBUTOR
Capstone Asset Planning Company (the "Distributor") acts as the
principal underwriter of the Fund's shares pursuant to a written agreement
with the Fund dated May 11, 1992 (the "Distribution Agreement"). The
Distributor has the exclusive right (except for distributions of shares
directly by the Fund) to distribute shares of the Fund 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. Prior to August 21, 1995, the Distributor
received commissions from sales of shares of the Fund, which amounts were
not an expense of the Fund but represented the sales commission added to
the net asset value of shares purchased from the Fund. The sales charge
was paid to the Distributor, who reallowed a portion of the sales charge to
broker-dealers who had an agreement with the Distributor to participate in
the offering of the Fund's shares. During the fiscal year ended October
31, 1995 the Distributor earned $5,056 in commissions on the sale of Fund
shares. For the fiscal years ended October 31, 1994 and 1993 the
Distributor received $1,585 and $3,733, respectively, in commissions from
the sale of Fund shares.
The Distribution Agreement is renewable from year to year if approved
(a) by the Fund's Board of Directors or 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 notice.
On March 1, 1992, the Fund adopted a Service and Distribution Plan
(the "Plan") pursuant to Rule 12b-1 of the Investment Company Act of 1940
which permits the Fund to absorb certain expenses in connection with the
distribution of its shares and provision of certain services to
stockholders. See "Management of the Fund - Distributor" in the Fund's
Prospectus. As required by Rule 12b-1, the Fund's
<PAGE> 39
Plan and related agreements were approved by a vote of the Fund's Board of
Directors, and by a vote of the directors who are not "interested persons"
of the Fund 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"), and by the Fund's stockholders at the Annual Meeting
of Stockholders held February 18, 1992.
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 Fund paid $272,568 in 12b-1 fees during the fiscal
year ended October 31, 1995. Of this amount less than 1% was paid to
outside Service Organizations and the balance was retained by the
Distributor as reimbursement of distribution-related expenses.
The Plan and related agreements may be terminated at any time by a
vote of the Plan Directors or 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 Fund is committed to the
discretion of the directors who are not "interested persons" as defined
under the 1940 Act.
Any change in the Plan that would materially increase the distribution
expenses of the Fund requires stockholder approval, but otherwise, the Plan
may be amended by the directors, including a majority of the Plan
Directors.
The Plan will continue in effect for successive one year periods
provided that such continuance is specifically approved by a majority of
the directors, including a majority of the Plan Directors. Continuance of
the Plan was last approved by a majority of directors and Plan Directors on
May 7, 1995. In compliance with the Rule, the directors, in connection
with both the adoption and continuance of the Plan, requested and evaluated
information they thought necessary to make an informed determination of
whether the Plan and related agreements should be implemented, and
concluded, in the exercise of reasonable business judgment and in light of
their fiduciary duties, that there is a reasonable likelihood that the Plan
and related agreements will benefit the Fund and its stockholders.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser is responsible for decisions to buy and sell securities
for the 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 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 seeks
the best security price at the most favorable commission rate. In
selecting dealers and in negotiating commissions, the Adviser 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 Fund or the Adviser. In addition, the Adviser may
cause the 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 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's overall responsibilities to the Fund and the
Adviser's other clients. Such
<PAGE> 40
research services must provide lawful and appropriate assistance to the
Adviser 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 issues, industries, securities, economic factors and
trends, portfolio strategy and the performance of accounts.
From time to time, the Adviser effects securities transactions through
Capstone Asset Planning Company ("CAPCO"), TradeStar Investments, Inc. and
Williams McKay Jordan & Mills, Inc. ("WMJM"), broker-dealer affiliates of
the Adviser. WMJM is deemed to be an affiliated broker since one of the
principals of that firm serves as a director of Capstone Financial
Services, Inc., the parent company of the Adviser and CAPCO.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. and subject to seeking best execution and such
other policies as the Board of Directors may determine, the Adviser may
consider sales of shares of the Fund as a factor in the selection of
dealers to execute portfolio transactions for the Fund.
The Adviser places portfolio transactions for other advisory accounts
including other investment companies. Research services furnished by firms
through which the Fund effects its securities transactions may be used by
the Adviser in servicing all of its accounts; not all of such services may
be used by the Adviser in connection with the Fund. In the opinion of the
Adviser, the benefits from research services to each of the accounts
(including the Fund) managed by the Adviser cannot be measured separately.
The Adviser seeks to allocate portfolio transactions equitably
whenever concurrent decisions are made to purchase or sell securities by
the Fund and another advisory account. In some cases, this procedure could
have an adverse effect on the price or the amount of securities available
to the Fund. In making such allocations among the Fund and other advisory
accounts, the main factors considered by the Adviser 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.
During the fiscal year ended October 31, 1995, the Fund incurred
brokerage commissions of $311,645, which represented 0.39% of the Fund's
net assets. Securities transactions effected through brokers who furnished
the Fund with statistical, research and advisory information amounted to
$197,312,560 (100% of the aggregate dollar amount of transactions executed
with a commission), and commissions paid by the Fund on these trades
totaled $311,645 (100% of total commissions). The Fund also executed
trades in the amount of $36,779,500 in which a "mark-up" (the dealer's
profit) was included in the price of the securities.
During the fiscal years ended October 31, 1994 and 1993, the Fund paid
$108,908 and $216,759, respectively, in brokerage commissions on portfolio
trades. During these periods, CAPCO received no brokerage commissions.
<PAGE> 41
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 of Fund 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 of the Fund.
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.
During the period a financial futures contact is open, changes in the
value of the contract are recognized as unrealized gain or loss by
"marking-to-market" on a daily basis to reflect the market value of the
contract at the end of each day's trading. Variation margin payments are
received or made daily as unrealized gain or loss is incurred. When the
contract is closed, the Fund records a realized gain or loss equal to the
difference between the proceeds from (or cost of) the closing transaction
and the Fund's basis in the contract.
HOW TO BUY AND REDEEM SHARES
Shares of the 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 the Fund's net asset value.
Shares will be credited to a stockholder's account at the net asset
value next computed after an order is received by the Distributor. Initial
purchases must be at least $200; however, this requirement may be waived by
the Distributor for plans involving continuing investments. There is no
minimum for subsequent purchases of shares. 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. See "Purchasing Shares" in the Prospectus.
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
<PAGE> 42
redemption methods are available. See "Redemption and Repurchase of
Shares" in the Prospectus.
DIVIDENDS AND DISTRIBUTIONS
The Fund's policy is to distribute to stockholders 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) in annual dividends. The Fund intends
similarly to distribute to stockholders at least annually any net realized
capital gains (the excess of net long-term capital gains over net short-
term capital losses). All dividends and capital gain distributions are
reinvested in shares of the Fund at net asset value without sales
commission, except that any stockholder may otherwise instruct the Transfer
Agent in writing and receive cash. Stockholders 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 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
The Fund intends to qualify annually and elect to be treated as a
regulated investment company under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"). Qualification and election to be
taxed as a regulated investment company involves no supervision of
management or investment policies or practices by any government agency.
To qualify as a regulated investment company, the Fund must, with respect
to each taxable year, distribute to stockholders at least 90% of its
investment company taxable income (which includes, among other items,
dividends, interest, certain foreign currency gains and the excess of net
short-term capital gains over net long-term capital losses) and meet
certain diversification of assets, source of income, and other requirements
of the Code.
As a regulated investment company, the Fund generally is not subject
to Federal income tax on its investment company taxable income and net
capital gain (net long-term capital gains in excess of net short-term
capital losses), if any, that it distributes to stockholders. The Fund
intends to distribute to its stockholders, at least annually, substantially
all of its investment company taxable income and net capital gain. Amounts
not distributed on a timely basis in accordance with a calendar year
distribution requirement are subject to a nondeductible 4% excise tax. To
prevent imposition of the tax, the Fund must distribute during each
calendar year (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 for the twelve-
month period ending on October 31 of the calendar year (reduced by certain
ordinary losses, as prescribed by the Code), and (3) all ordinary income
and capital gains for previous years that were not distributed during such
years. 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 on a record 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 the
distributions are declared, rather than the calendar year in which the
distributions are received. To prevent application of the excise tax, the
Fund intends to make its distributions in accordance with the calendar year
distribution requirement.
<PAGE> 43
If the Fund retains its net capital gains, although it has no plans to
do so, the Fund may elect to treat such amounts as having been distributed
to its stockholders. As a result, the stockholders 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 their basis in their Fund shares.
DISTRIBUTIONS. Dividends paid out of the Fund's investment company
taxable income will be taxable to a stockholder as ordinary income.
Distributions of net capital gains, if any, designated by the Fund as
capital gain dividends, are taxable 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.
Dividends received by corporate stockholders may qualify for the
dividends received deduction to the extent the Fund designates its
dividends as derived from dividends from domestic corporations. The amount
designated by the Fund as so qualifying cannot exceed the aggregate amount
of dividends received by the Fund from domestic corporations for the
taxable year. Since the Fund's income may not consist exclusively of
dividends eligible for the corporate dividends received deduction, its
distributions of investment company taxable income likewise may not be
eligible, in whole or in part, for that deduction. The alternative minimum
tax applicable to corporations may reduce the benefits of the dividends
received deduction. The dividends received deduction may be further
reduced if the shares of the Fund are debt-financed or are deemed to have
been held less than 46 days.
All distributions are taxable to the stockholder whether reinvested in
additional shares or received in cash. Stockholders receiving
distributions in the form of additional shares will have a cost basis for
Federal income tax purposes in each share received equal to the net asset
value of a share of the Fund on the reinvestment date. Stockholders will
be notified annually as to the Federal tax status of distributions paid to
them by the Fund.
Distributions by the Fund reduce the net asset value of the Fund
shares. Should a distribution reduce the net asset value below a
stockholder's cost basis, such distribution nevertheless would be taxable
to the stockholder as ordinary income or capital gain as described above,
even though, from an investment standpoint, it may constitute a partial
return of capital. In particular, investors should be careful to consider
the tax implications of buying shares just prior to a distribution by the
Fund. The price of shares purchased at that time includes the amount of
the forthcoming distribution, but the distribution will generally be
taxable to them.
HEDGING AND OTHER TRANSACTIONS. Certain options and futures contracts
are "section 1256 contracts." Any gains or losses on section 1256
contracts generally are considered 60% long-term and 40% short-term capital
gains or losses ("60/40"). Also, section 1256 contracts held by the Fund
at the end of each taxable year (and at other times prescribed pursuant to
the Code) are "marked-to-market" with the result that unrealized gains or
losses are treated as though they were realized and the resulting gain or
loss is generally treated as 60/40 gain or loss.
Generally, the hedging transactions undertaken by the Fund may result
in "straddles" for Federal income tax purposes. The straddle rules may
affect the character of gains (or losses) realized by the Fund. In
addition, 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
<PAGE> 44
taxable year in which such losses are realized. Because only a few
regulations implementing the straddle rules have been promulgated, the tax
consequences to the Fund of hedging transactions are not entirely clear.
The hedging transactions may increase the amount of short-term capital gain
realized by the Fund which is taxed as ordinary income when distributed to
stockholders.
The Fund may make one or more of the elections available under the
Code which are applicable to straddles. If the Fund makes any of the
elections, the amount, character and timing of the recognition of gains or
losses from the affected straddle positions will be determined under rules
that vary according to the election(s) made. The rules applicable under
certain of the elections may operate to accelerate the recognition of gains
or losses from the affected straddle positions.
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 stockholders, and which will be taxed to stockholders 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 hedging
transactions.
Because the tax consequences of straddle transactions to the Fund are
not entirely clear, it may ultimately be determined that the Fund's tax
accounting procedures failed to conform to the straddle rules.
Consequently, the Fund may have inadvertently failed to satisfy one or more
of the requirements for qualification as a regulated investment company.
If the Fund has failed to satisfy the requirement that it distribute at
least 90% of its net investment company taxable income, the Fund may be
able to preserve its regulated investment company status by making a
"deficiency dividend" distribution. In addition, the Fund would have to
pay interest and a penalty on the amount of the deficiency dividend
distribution. If the Fund fails to satisfy one of the other requirements
for qualification as a regulated investment company, the Fund would be
taxed as an ordinary corporation, and its distributions, including net
capital gain distributions, would be taxable to stockholders as ordinary
dividends. Moreover, upon any requalification as a regulated investment
company, the Fund might be subject to a corporate-level tax on certain
gains.
Certain requirements that must be met under the Code in order for the
Fund to qualify as a regulated investment company may limit the extent to
which the Fund will be able to engage in transactions in options and
futures contracts.
DISPOSITION OF SHARES. Upon disposition (by redemption, repurchase,
sale or exchange) of Fund shares, a stockholder will realize a taxable gain
or loss depending upon his basis in his shares. Such gain or loss will be
treated as capital gain or loss if the shares are capital assets in the
stockholder's hands. Such gain or loss will generally be long-term or
short-term depending upon the stockholder's holding period for the shares.
However, a loss realized by a stockholder on the disposition of Fund shares
with respect to which capital gain dividends have been paid will, to the
extent of such capital gain dividends, be treated as long-term capital loss
if such shares have been held by the stockholder for six months or less.
Further, a loss realized on a disposition will be disallowed to the extent
the shares disposed of are replaced (whether by reinvestment of
distributions or otherwise) 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. Exchanges of Fund shares for shares of other funds
generally would be treated as taxable sales of the shares exchanged by the
stockholder.
<PAGE> 45
Certain of the debt securities acquired by the Fund may be treated as
debt securities that were originally issued at a discount. Original issue
discount can generally be defined as the difference between the price at
which a security was issued and its stated redemption price at maturity.
Although no cash income is actually received by the Fund, original issue
discount on a taxable debt security earned 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 of the Code.
BACKUP WITHHOLDING. The Fund may be required to withhold Federal
income tax at the rate of 31% of all taxable distributions from the Fund
and of gross proceeds from the redemption of shares payable to stockholders
who fail to provide the Fund with their correct taxpayer identification
number or to make required certifications, or who have been notified by the
Internal Revenue Service that they are subject to backup withholding.
Corporate stockholders and certain other stockholders specified in the Code
generally are exempt from backup withholding. Backup withholding is not an
additional tax. Any amounts withheld may be credited against the
stockholder's U.S. Federal income tax liability.
OTHER TAXES. Distributions also may be subject to additional state,
local and foreign taxes depending on each stockholder's particular
situation. Foreign stockholders may be subject to U.S. tax rules that
differ significantly from those described 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 at a lower rate under a tax treaty).
Stockholders are advised to consult their own tax advisers with respect to
the particular tax consequences to them of an investment in the Fund.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of February 15, 1996, NationsBank, in its capacity as trustee of
the Tenneco Inc. Thrift Plan, owned approximately 34.5% of the outstanding
shares of common stock of the Fund. The address of NationsBank is 700
Louisiana, Houston, Texas 77002.
PLIFunds Investment Plans, 5847 San Felipe, Suite 4100, Houston, Texas
77057 on February 15, 1996 owned of record and beneficially 7.2% of the
outstanding shares of common stock of the Fund.
OTHER INFORMATION
CUSTODY OF ASSETS. All securities owned by the Fund and all cash,
including proceeds from the sale of shares of the Fund and of securities in
the Fund's investment portfolio, are held by The Fifth Third Bank, 38
Fountain Square, Cincinnati, Ohio 45263, as custodian.
STOCKHOLDER REPORTS. Semi-annual statements are furnished to
stockholders, and annually such statements are audited by the independent
accountants.
INDEPENDENT ACCOUNTANTS. Tait, Weller & Baker, Two Penn Center Plaza,
Suite 700, Philadelphia, Pennsylvania 19102-1707, the independent
accountants for the Fund, performs annual audits of the Fund's financial
statements.
LEGAL COUNSEL. Dechert Price & Rhoads, 1500 K Street, N.W.,
Washington, DC 20005, is legal counsel to the Fund.
<PAGE> 46
CAPSTONE GROWTH FUND, INC.
- ------------------------------------------------------------------------------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
of Capstone Growth Fund, Inc.
We have audited the accompanying statement of assets and liabilities
of Capstone Growth Fund, Inc. including the portfolio of investments, as
of October 31, 1995 and the related statement of operations for the year
then ended, the statement of changes in net assets for each of the two
years in the period then ended, and financial highlights for each of the
five years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether financial statements
and financial highlights are free from material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosure in the financial statements. Our procedures included
confirmation of securities owned as of October 31, 1995 by correspondence
with the custodian. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Capstone Growth Fund, Inc. as of October 31, 1995, the results
of its operations, changes in its net assets and financial highlights for
each of the years presented, in conformity with generally accepted
accounting principles.
Tait, Weller & Baker
Philadelphia, Pennsylvania
November 20, 1995
<PAGE> 47
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 1995
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
VALUE PERCENTAGE OF
COMMON STOCKS - 78.93% SHARES (NOTE 1-A) NET ASSETS
- ---------------------- ------ --------- -------------
<S> <C> <C> <C>
BANKING (.83%)
J. P Morgan. . . . . . . . . . . . . . . . 9,200 $ 709,550 0.83%
BEVERAGE-SOFT DRINKS (4.04%)
Coca-Cola Company. . . . . . . . . . . . .35,000 2,515,625 2.95
Pepsico, Inc.. . . . . . . . . . . . . . .17,700 933,675 1.09
---------- -----
3,449,300 4.04
CHEMICALS (1.40%)
B. F. Goodrich Co... . . . . . . . . . . .18,400 1,197,610 1.40
COMMUNICATIONS EQUIPMENT (.94%)
Motorola, Inc. . . . . . . . . . . . . . .12,300 807,187 0.94
COMPUTERS & BUSINESS EQUIPMENT (3.40%)
Hewlett-Packard Co.. . . . . . . . . . . . 9,700 898,462 1.05
Intel Corp . . . . . . . . . . . . . . . .25,000 852,475 1.00
International Business Machines Corp . . .80,000 1,147,550 1.35
---------- -----
2,898,487 3.40
CONSUMER DRUGS (6.08%)
Abbott Laboratories. . . . . . . . . . . .32,300 1,283,925 1.50
American Home Products Corp. . . . . . . . 8,900 788,762 0.92
Bristol-Myers Squibb Co. . . . . . . . . . 8,100 617,625 0.72
Johnson & Johnson. . . . . . . . . . . . .20,000 1,630,000 1.91
Merck & Co., Inc.. . . . . . . . . . . . .15,300 879,750 1.03
---------- -----
5,200,062 6.08
COSMETICS (2.93%)
Gillette Company . . . . . . . . . . . . .40,000 1,935,000 2.27
Guest Supply, Inc. . . . . . . . . . . . .30,000 566,250 0.66
---------- -----
2,501,250 2.93
DRUGS (1.85%)
Pfizer, Inc. . . . . . . . . . . . . . . .27,600 1,583,550 1.85
ELECTRICAL EQUIPMENT (10.32%)
Arrow Electronics, Inc. (a). . . . . . . .45,000 2,283,750 2.68
General Electric Co. . . . . . . . . . . .80,000 5,060,000 5.93
National Semiconductors (a). . . . . . . .60,000 1,462,500 1.71
---------- -----
8,806,250 10.32
ENERGY (1.75%)
Central & South West Corp. . . . . . . . .26,100 698,175 0.82
Southern Co. . . . . . . . . . . . . . . .33,100 790,262 0.93
---------- -----
1,488,437 1.75
ENTERTAINMENT (2.56%)
King World Prodcutions, Inc. (a).. . . . .36,500 1,272,937 1.49
The Walt Disney Company. . . . . . . . . .15,900 916,237 1.07
---------- -----
2,189,174 2.56
</TABLE>
<PAGE> 48
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 1995
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
VALUE PERCENTAGE OF
SHARES (NOTE 1-A) NET ASSETS
------ ---------- -------------
<S> <C> <C> <C>
FINANCIAL SERVICES (4.92%)
Beneficial Corp. . . . . . . . . . . . . .18,400 $ 901,600 1.06%
Marsh & McLennan Cos . . . . . . . . . . .13,100 1,072,563 1.26
Travelers Group, Inc . . . . . . . . . . .44,000 2,222,000 2.60
---------- -----
4,196,163 4.92
FOODS (3.66%)
Kellogg Co . . . . . . . . . . . . . . . .10,600 765,850 0.90
Philip Morris Companies, Inc . . . . . . .19,500 1,647,750 1.93
Sara Lee Corp. . . . . . . . . . . . . . .24,000 705,000 0.83
---------- -----
3,118,600 3.66
HEALTH CARE (1.65%)
Becton Dickinson & Co. . . . . . . . . . .10,900 708,500 0.83
Columbia/HCA Healthcare . . . . . . . . .14,200 697,575 0.82
---------- -----
1,406,075 1.65
MANUFACTURING (2.28%)
Eastman Kodak Co . . . . . . . . . . . . . 9,900 619,988 0.73
Johnson Controls, Inc . . . . . . . . . .22,700 1,322,275 1.55
---------- -----
1,942,263 2.28
MISCELLANEOUS (4.78%)
Barrick Gold Corp. . . . . . . . . . . . .35,000 809,375 0.95
Diebold, Inc.. . . . . . . . . . . . . . .18,500 980,500 1.15
Newmont Mining Corp. . . . . . . . . . . .20,000 755,000 0.88
Pitney-Bowes, Inc. . . . . . . . . . . . .16,400 715,450 0.84
Wireless One, Inc. (a) . . . . . . . . . .15,000 176,250 0.21
Wolverine Tube, Inc . . . . . . . . . . .17,900 637,688 0.75
---------- -----
4,074,263 4.78
MULTI-LINE INSURANCE (.96%)
American General Corp. . . . . . . . . . .25,000 821,875 0.96
OIL-INTEGRATED DOMESTIC (2.12%)
Amoco Corp . . . . . . . . . . . . . . . .20,000 1,277,500 1.50
Coastal Corp . . . . . . . . . . . . . . .16,300 527,713 0.62
---------- -----
1,805,213 2.12
OIL-INTEGRATED INTERNATIONAL (3.97%)
Chevron, Corp. . . . . . . . . . . . . . .12,600 589,050 0.69
Exxon Corp . . . . . . . . . . . . . . . .10,000 763,750 0.90
Mobil Corp . . . . . . . . . . . . . . . .10,000 1,007,500 1.18
Texaco, Inc. . . . . . . . . . . . . . . .15,000 1,021,875 1.20
---------- -----
3,382,175 3.97
RAILROADS (1.92%)
Union Pacific Corp . . . . . . . . . . . .25,000 1,634,375 1.92
</TABLE>
<PAGE> 49
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 1995
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE PERCENTAGE OF
PAR VALUE (NOTE 1-A) NET ASSETS
--------- ---------- -------------
<S> <C> <C> <C>
RESTAURANTS (2.24%)
Brinker International, Inc . . . . . . . .22,500 $ 272,813 0.32%
McDonald's Corp. . . . . . . . . . . . . .40,000 1,640,000 1.92
---------- -----
1,912,813 2.24
RETAIL (.78%)
Harcourt General, Inc . . . . . . . . . .11,500 455,688 0.53
J. C. Penney Co. . . . . . . . . . . . . . 5,000 210,625 0.25
---------- -----
666,313 .78
SAVINGS & LOAN COMPANIES (2.38%)
Federal National Mortgage Association. . . 6,200 650,225 0.76
First Union Corp . . . . . . . . . . . . .16,600 823,775 0.97
Golden West Financial Corp . . . . . . . .11,100 556,388 0.65
---------- -----
2,030,388 2.38
SOAPS (.84%)
Colgate-Palmolive Co . . . . . . . . . . .10,300 713,275 0.84
TELEPHONE (9.17%)
A T & T Corp . . . . . . . . . . . . . . . 9,900 2,915,200 3.42
Bell Atlantic Corp . . . . . . . . . . . .11,917 758,219 0.89
Bellsouth Corp . . . . . . . . . . . . . .15,800 1,208,700 1.42
G T E Corp . . . . . . . . . . . . . . . .16,000 658,000 0.77
S B C Communications, Inc. . . . . . . . .24,000 1,341,000 1.57
Southern New England Telephone . . . . . .10,000 361,250 0.42
U S West, Inc. . . . . . . . . . . . . . .12,200 581,025 0.68
---------- -----
7,823,394 9.17
TRANSPORTATION (1.16%)
C S X Corp . . . . . . . . . . . . . . . . 6,800 569,500 0.67
Southwest Airlines Co. . . . . . . . . . .21,000 420,000 0.49
---------- -----
989,500 1.16
TOTAL COMMON STOCKS (COST $47,434,381) 67,347,542 78.93
---------- -----
CORPORATE BONDS - .12%
Ford Holdings (9.250% 07-15-97). . . . . . 52,727 0.06
Philip Morris (9.25% 12-01-97) . . . . . . 52,957 0.06
---------- -----
TOTAL CORPORATE BONDS (COST $98,694) 105,684 0.12
---------- -----
U.S. TREASURY NOTE (7.875% 11-15-04)
(Cost $251,328) - .33% 281,563 0.33
---------- -----
</TABLE>
<PAGE> 50
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 1995
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SHORT-TERM CORPORATE NOTES - 16.88%
American General (5.74% 11-07-95) . . . . $ 2,000M $ 2,000,000 2.34%
American Express (5.72% 11-07-95). . . . . 3,000M 3,000,000 3.52
Associates Corp (5.75% 11-07-95). . . . . 2,000M 2,000,000 2.34
Associates Corp. (5.72% 11-10-95). . . . . 1,500M 1,500,000 1.76
Chevron Companies (5.753% 11-07-95) . . . 1,900M 1,900,000 2.23
Prudential Funding (5.74% 11-07-95). . . 4,000M 4,000,000 4.69
----------- -----
TOTAL SHORT-TERM CORPORATED NOTES (COST $14,400,000) 14,400,000 16.88
TOTAL INVESTMENTS (COST $62,184,403) . 82,134,789 96.26
OTHER ASSETS, LESS LIABILITIES . . . . 3,189,111 3.74
----------- -----
NET ASSETS . . . . . . . . . . . . . . $85,323,900 100.00%
=========== ======
(a) Non income producing security.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE> 51
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1995
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
ASSETS:
Investments in securities at market value (identified
cost $62,184,403)(Note 1-A). . . . . . . . . . . . . . . . . . $ 82,134,789
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . 3,509,203
Receivables:
Dividends and interest . . . . . . . . . . . . $ 104,608
Capital stock sold . . . . . . . . . . . . . . 2,839 107,447
---------- -----------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . 85,751,439
LIABILITIES:
Payable for capital stock redeemed . . . . . . . 320,423
Accrued advisory and administration fees . . . . 52,423
Other accrued expenses . . . . . . . . . . . . . 54,693
----------
Total Liabilities . . . . . . . . . . . . . . . . . 427,539
-----------
NET ASSETS:. . . . . . . . . . . . . . . . . . . . . . . $85,323,900
===========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE:
($85,323,900/6,174,844 shares outstanding) $.001 par
value, 150,000,000 shares authorized (Note 3). . . . . . $ 13.82
===========
SOURCE OF NET ASSETS:
Paid in capital. . . . . . . . . . . . . . . . . . . . . $60,520,753
Undistributed net investment income. . . . . . . . . . . 388,096
Accumulated net realized gain on investments . . . . . . 4,464,665
Net unrealized appreciation of investments . . . . . . . 19,950,386
-----------
$85,323,900
===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE> 52
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 1995
- ------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends. . . . . . . . . . . . . . . . . . . . . . . $ 1,573,980
Interest . . . . . . . . . . . . . . . . . . . . . . . 463,022
-------------
Total Investment Income . . . . . . . . . . . . . . 2,037,002
Expenses: (Note 2)
Advisory fees. . . . . . . . . . . . . . . . .$ 560,434
Distribution fees. . . . . . . . . . . . . . . 272,568
Transfer agent fees. . . . . . . . . . . . . . 74,161
Professional fees. . . . . . . . . . . . . . . 33,141
Registration and filing fees . . . . . . . . . 28,104
Administrative services. . . . . . . . . . . . 24,000
Reports and notices to stockholders. . . . . . 23,023
Custodian fees . . . . . . . . . . . . . . . . 17,638
Directors' fees and expenses . . . . . . . . . 11,306
Miscellaneous. . . . . . . . . . . . . . . . . 11,716
----------
Total Operating Expenses. . . . . . . . . . 1,056,091
Less: Custodian fees paid indirectly. . . . 11,943
----------
Net Expenses. . . . . . . . . . . . . . . . . . . . 1,044,148
------------
Net Investment Income . . . . . . . . . . . . . . . 992,854
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: (Note 5)
Net realized gain from security transactions . . . . . . 11,206,356
Increase in unrealized appreciation of investments . . . 587,851
------------
Net realized and unrealized gain on investments . . 11,794,207
------------
Net increase in net assets resulting from operations $ 12,787,061
============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE> 53
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------
<TABLE>
YEAR ENDED OCTOBER 31,
----------------------------
1995 1994
------------ -----------
<S> <C> <C>
OPERATIONS:
Net investment income . . . . . . . . . . . . . $ 992,854 $ 710,509
Net realized gain on investments. . . . . . . . 11,206,356 1,641,917
Net realized loss on futures contracts. . . . . -- (627,234)
Net increase (decrease) in unrealized
appreciation of investments.. . . . . . . . . 587,851 (2,905,082)
------------ -----------
Net increase (decrease) in net assets
resulting from operations. . . . . . . . . 12,787,061 (1,179,890)
NET EQUALIZATION DEBITS (Note 1-D) . . . . . . -- (23,748)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income . . . . . . . . . . . . . (949,953) (875,074)
Net realized gains from investment
transactions. . . . . . . . . . . . . . . . . (7,756,374) (6,318,338)
CAPITAL SHARE TRANSACTIONS:
Increase (decrease) in net assets resulting
from capital share transactions (Note 3). . . 302,063 (7,127,271)
----------- -----------
Total increase (decrease) in net assets . . . 4,382,797 (15,524,321)
NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . 80,941,103 96,465,424
----------- -----------
End of year (including undistributed net
investment income of $388,096 and $345,195,
respectively) . . . . . . . . . . . . . . . . $85,323,900 $80,941,103
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 1995
- ------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Capstone Growth Fund, Inc., formerly Capstone U.S. Trend Fund, Inc. (the
"Fund"), is registered under the Investment Company Act of 1940, as amended (the
"Act"), as a diversified, open-end management investment company. The Fund's
investment objective is to seek long-term capital appreciation by primarily
investing in common stocks. The following is a summary of significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A) VALUATION OF SECURITITES- The Fund's investments in securities are carried
at market value. Securities listed on an exchange or quoted on a national
market system are valued at the last sales price. Other securities are quoted
at the mean between the most recent bid and asked prices. Short-term
obligations are valued at amortized cost. Securities as to which market
quotations are not readily available are valued at their fair value as
determined in good faith by the Board of Directors.
B) FEDERAL INCOME TAXES - No provision has been made for Federal income taxes
since it is the policy of the Fund to distribute all of its taxable income,
including the net realized gains on investments, and to continue to qualify as
a "regulated investment company" under the applicable sections of the Internal
Revenue Code.
C) CASH EQUIVALENTS- Funds on deposit in money market mutual fund accounts are
considered to be a cash equivalent.
<PAGE> 54
D) EQUALIZATION - The Fund followed the accounting practice known as
equalization by which a portion of the proceeds from sales and costs of
repurchases of capital shares, equivalent on a per share basis to the amount
of distributable investment income on the date of transactions, was credited
or charged to undistributed income. As a result, undistributed investment
income per share was unaffected by sales or redemptions of the Fund's shares.
Beginning November 1, 1994 the Fund discontinued computing equalization.
E) FUTURE CONTACTS - Initial margin deposits required upon entering into
futures contracts are made by depositing cash, as collateral, for the account
of the broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the contract are
recognized as unrealized gains or losses by "marking to market" on a daily basis
to reflect the market value of the contract at the end of each day's trading.
Variation margin payments are made or received, depending upon whether
unrealized gains or losses are incurred. When the contract is closed the Fund
records a realized gain or loss equal to the difference between the proceeds
from (or cost of) the closing transaction and the Fund's basis in the contract.
Futures contacts involve credit and market risk in excess of the amounts
reflected in the Statement of Assets and Liabilities. The contract amounts of
these futures contracts reflect the extent of the Fund's exposure to off-balance
sheet risk. The Fund's credit risk is minimized by entering only into futures
contacts which are traded on national futures exchanges and for which there
appears to be a liquid secondary market. The Fund assumes the market risk which
arises from any changes in securities values.
F) OTHER - Investment security transactions are accounted for on a trade date
basis. Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income and expenses are accrued daily. Realized
gains and losses from security transactions are determined on the basis of
identified cost for both financial and Federal income tax reporting purposes.
NOTE 2 - INVESTMENT ADVISORY FEES, ADMINISTRATIV FEES AND OTHER TRANSAACTIONS
WITH AFFILIATES
The Fund retains Capstone Asset Management Company as its Investment
Adviser. Under the Investment Advisory Agreement ( the "Agreement"), the
Adviser is paid a monthly fee based on the average net assets at the annual rate
of .75% on the first $50 million and .60% on the next $150 million. Pursuant
to the Agreement, the Adviser will reimburse the Fund up to an amount equal to
its advisory fees to insure that the Fund's aggregate annual expenses (including
the advisory fee but excluding interest, taxes, brokerage fees and commissions,
litigation costs and certain distribution plan expenses) do not exceed the
expense limitations of any state having jurisdiction over the Fund. Currently,
the strictest expense limitation applicable to the Fund is 2.5% of the first $30
million of the Fund's average net assets, 2% of the next $70 million of the
Fund's average net assets, and 1.5% of the Fund''s average net assets in excess
of $100 million. For the year ended October 31, 1995, no reimbursement was
required pursuant to this provision. The Adviser is also paid a monthly fee of
$2,000 representing the cost of certain accounting and bookkeeping services.
This amount is not intended to include any profit to the Adviser and is in
addition to the advisory fees described above.
Capstone Asset Planning Company ("CAPCO") serves as Distributor and
Underwriter of the Fund. Effective August 21, 1995, the 4.75% front end sales
load applicable to sales of Fund shares was eliminated. Commissions and
underwriting fees earned on sales of the Fund's shares during the period
November 1, 1994 through August 20, 1995 by the Distributor/Underwriter were
$4,630 and $426, respectively. CAPCO is an affiliate of the Adviser, and both
are wholly-owned subsidiaries of Capstone Financial Services, Inc. ("CFS").
The Fund has adopted a Service and Distribution Plan (the "Plan") pursuant
to Rule 12b-1 under the Act whereby Fund assets are used to reimburse CAPCO for
costs and expenses incurred with the distribution and marketing of shares of the
Fund and servicing of Fund shareholders. Distribution and marketing expenses
include, among other things, printing of prospectuses, advertising literature,
and costs of personnel involved with the promotion and distribution of the
Fund's shares. Under the Plan, the Fund pays to CAPCO an amount computed at an
annual rate of up to .25% (.35% prior to August 21, 1995) of the Fund's average
net assets (including reinvested dividends paid with respect to those assets).
Of this amount, CAPCO may reallocate to securities dealers (which may include
CAPCO itself) and other financial institutions and organizations (collectively,
Service Organizations ) amounts based on the Fund's average net assets owned
by shareholders for whom the Service Organizations have a servicing
relationship. The Plan permits CAPCO to carry forward for a maximum of twelve
months distribution expenses covered by the Plan for which CAPCO has not yet
received reimbursement. For the year ended October 31, 1995, the Fund paid
$272,568 in 12b-1 fees. Of this amount less than 1% was paid to Service
Organizations other than CAPCO.
<PAGE> 55
The Fund's Custodian has provided credits in the amount of $11,943 against
custodian charges based on the uninvested cash balances of the Fund. Had these
cash balances been invested (rather than offsetting custodian charges) they
could possibly have been used to produce income.
The Adviser is an affiliate of the Underwriter and both are wholly-owned
subsidiaries of Capstone Financial Services, Inc. ("CFS"). Certain officers and
directors of the Corporation are also officers and directors of the Adviser,
Underwriter and CFS. During the year ended October 31, 1995 Directors of the
Fund who are not "interested persons" received directors' fees of $9,750.
Certain officers and directors of the Fund, who are also officers and directors
of the Adviser, the Underwriter or CFS, received no compensation from the Fund.
NOTE 3 - CAPITAL STOCK
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------------------------
1995 1994
------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold . . . . . . . . . . . . . . 267,373 $ 3,541,972 838,553 $11,369,698
Shares issued to shareholders in
reinvestment of distributions . . . . 627,165 8,000,990 509,170 6,613,689
Shares issued in acquisition of fund
(Note 6). . . . . . . . . . . . . . . 256,477 3,290,596 -- --
--------- ----------- --------- ----------
1,151,015 14,833,558 1,347,723 17,983,387
Shares redeemed . . . . . . . . . . (1,094,860) (14,531,495)(1,913,976) (25,110,658)
--------- ----------- --------- ----------
Net increase(decrease). . . . . . . 56,155 $ 302,063 (566,253) $(7,127,271)
========= =========== ========= ===========
</TABLE>
NOTE 4 - DIVIDEND DISTRIBUTIONS
On November 13, 1995 the Board of Directors declared a distribution of $0.793
a share, consisting of $0.729 from realized gains and $0.064 from ordinary
income. The distribution is payable on November 29, 1995 to shareholders of
record on November 21, 1995.
NONTE5 - PURCHAES AND SALES OF SECURITIESs
Purchases and sales of securities other than U.S. Government obligations
and short-term notes aggregated $84,199,842 and $93,387,972, respectively. At
October 31, 1995, the cost of investments for Federal income tax purposes was
$63,997,454. Accumulated net unrealized appreciation on investments was
$19,950,386 consisting of $20,195,307 gross unrealized appreciation and $244,921
gross unrealized depreciation.
NOTE 6 - ACQUISITION OF CAPSTONE BALANCED FUNDd
On May 31, 1995, Capstone Growth Fund, Inc. acquired all the net assets of
Capstone Balanced Fund ("CBF"), a series of Capstone Series, Inc., pursuant to
an Agreement and Plan of Reorganization approved by CBF shareholders on May 30,
1995. The acquisition was accomplished by a tax-free exchange of 256,477 shares
of Capstone Growth Fund, Inc. (valued at $3,290,596) for the 1,037,029 shares
of CBF outstanding on May 31, 1995. The exchange had no effect on the net asset
value per share of the Capstone Growth Fund, Inc. CBF's net assets at that date
were $3,290,596, consisting of unrealized appreciation on investments of
$1,516,582 and paid in capital of $1,774,014. The aggregate net assets of
Capstone Growth Fund, Inc. immediately after the reorganization was $83,129,841.
<PAGE> 56
CAPSTONE GROWTH FUND, INC.
OTHER INFORMATION
(PART C TO REGISTRATION STATEMENT NO. 2-83397)
Item 24. Financial Statements and Exhibits
---------------------------------
Exhibits not incorporated by reference to a prior filing are
designated by an asterisk; all exhibits not so designated are incorporated
hereby by reference to a prior filing as indicated.
(a) Financial Statements (included in Parts A and B):
Per Share Income and Capital Changes for each of the ten years
in the period ended October 31, 1995 (Part A)
Auditor's Report (Part B)
Statement of Assets and Liabilities at October 31, 1995 (Part B)
Portfolio of Investments in Securities at October 31, 1995
(Part B)
Statement of Operations for the year ended October 31, 1995
(Part B)
Statement of Changes in Net Assets for each of the two years
in the period ended October 31, 1995 (Part B)
Notes to Financial Statements (Part B)
(b) Exhibits:
A. Exhibits filed pursuant to Form N-1A
1(a) Copy of Articles of Incorporation dated October
14, 1966.
1(b) Copy of Articles of Amendment dated February 20,
1969.
1(c) Copy of Articles of Amendment dated February 27,
1970.
1(d) Copy of Articles of Amendment dated February 21,
1974.
1(e) Copy of Articles of Amendment dated April 20,
1986.
1(f) Copy of Articles of Amendment dated May 10, 1988;
Exhibit 1(f) to Post-Effective Amendment No. 6 to
Registration Statement No. 2-83397.
1(g) Copy of Agreement and Articles of Transfer between
Capstone U.S. Trend Fund, Inc. and U.S. Trend
Fund, Inc. dated May 11, 1992; Exhibit 1(g) to
Post-Effective Amendment No. 13 to Registration
Statement No. 2-83397.
1(h) Form of Articles of Incorporation of Capstone U.S.
Trend Fund, Inc.; Exhibit 1(h) to Post-Effective
Amendment No. 12 to Registration Statement No. 2-
83397.
<PAGE> 57
1(i) Copy of Articles of Amendment to Articles of
Incorporation of Capstone Growth Fund, Inc.;
Exhibit 1(i) to Post-Effective Amendment No. 16 to
Registration Statement No. 2-83397.
2(a) Copy of By-Laws, as amended.
2(b) Copy of Amendment to By-Laws, Exhibit 2(a) to
Post-Effective Amendment No. 6 to Registration
Statement No. 2-83397.
2(c) Form of By-Laws of Capstone U.S. Trend Fund, Inc.;
Exhibit 2(c) to Post-Effective Amendment No. 12 to
Registration Statement No. 2-83397.
3 None
4 Copy of Specimen Common Stock Certificate; Exhibit
(4) to Registration No. 2-83397.
5(a) Copy of Investment Advisory Agreement between
Plitrend Fund, Inc. and Capstone Asset Management
Company dated July 26, 1982.
5(b) Copy of Investment Advisory Agreement between U.S.
Trend Fund, Inc. and Capstone Asset Management
Company dated as of September 1, 1987; Exhibit
5(b) to Post-Effective Amendment No. 5 to
Registration No. 2-83397.
5(c) Copy of revised Investment Advisory Agreement
between U.S. Trend Fund, Inc. and Capstone Asset
Management Company dated as of September 1, 1987;
Exhibit 5(c) to Post-Effective Amendment No. 9 to
Registration No. 2-83397.
5(d) Copy of Investment Advisory Agreement between U.S.
Trend Fund, Inc. and Capstone Asset Management
Company dated as of February 19, 1992.; Exhibit
5(d) to Post-Effective Amendment No. 12 to
Registration Statement No. 2-83397.
5(e) Copy of Investment Advisory Agreement between
Capstone U.S. Trend Fund, Inc. and Capstone Asset
Management Company dated May 11, 1992; Exhibit
5(e) to Post-Effective Amendment No. 13 to
Registration Statement No. 2-83397.
6(a) Copy of General Distribution Agreement between
Plitrend Fund, Inc. and Tenneco Asset Planning
Company dated as of September 1, 1984; Exhibit 6
to Post-Effective Amendment No. 3 to Registration
No. 2-83397.
6(b) Copy of General Distribution Agreement between
U.S. Trend, Fund, Inc. and Capstone Asset Planning
Company dated as of
<PAGE> 58
September 1, 1987; Exhibit 6(b) to Post-Effective
Amendment No. 5 to Registration No. 2-83397.
6(c) Copy of Amendment to General Distribution
Agreement between U.S. Trend Fund, Inc. and
Capstone Asset Planning Company dated September 1,
1987; Exhibit 6(c) to Post-Effective Amendment No.
11 to Registration No. 2-83397.
6(d) Copy of General Distribution Agreement between
U.S. Trend Fund, Inc. and Capstone Asset Planning
Company dated March 1, 1992; Exhibit 6(d) to Post-
Effective Amendment No. 12 to Registration
Statement No. 2-83397.
6(e) Copy of General Distribution Agreement between
Capstone U.S. Trend Fund, Inc. and Capstone Asset
Planning Company dated May 11, 1992; Exhibit 6(e)
to Post-Effective Amendment No. 13 to Registration
No. 2-83397.
6(f) Copy of Selling Group Agreement; Exhibit 6(f) to
Post-effective Amendment No. 12 to Registration
Statement No. 2-83397.
7 None
8(a) Copy of Custodian Agreement between Plitrend Fund,
Inc. and First Pennsylvania Bank N.A., dated as of
July 19, 1985; Exhibit 8(a) to Post-Effective
Amendment No. 3 to Registration No. 2-83397.
8(b) Copy of Custody Agreement between Capstone Growth
Fund, Inc. and The Fifth Third Bank dated December
13, 1994; Exhibit 8(b) to Post-Effective Amendment
No. 17 to Registration No. 2-83397.
9(a)(1) Copy of Administration Agreement between Plitrend
Fund, Inc. and First Pennsylvania Bank N.A. as of
May 19, 1982; Exhibit 9(a)(1) to Post-Effective
Amendment No. 3 to Registration No. 2-83397.
9(a)(2) Copy of amendment of the Administration Agreement
between Plitrend Fund, Inc. and First Pennsylvania
Bank N.A. dated as of December 23, 1985; Exhibit
9(a)(2) to Post-Effective Amendment No. 3 to
Registration No. 2-83397.
9(b) Copy of Agency Agreement between U.S. Trend Fund,
Inc. and Capstone Financial Services, Inc. dated
as of October 2, 1987; Exhibit 9(b) to Post-
Effective Amendment No. 5 to Registration No. 2-
83397.
9(c) Copy of Shareholder Services Agreement between
U.S. Trend
<PAGE> 59
Fund, Inc. and Fund/Plan Services, Inc.
dated February 1, 1991; Exhibit 9(c) to Post-
Effective Amendment No. 11 to Registration No.
2-83397.
10 Opinion of Dechert Price & Rhoads.
*11(a) Consent of Tait, Weller & Baker, Independent
Certified Public Accountants.
*11(b) Powers of Attorney of Messrs. James F. Leary, John
R. Parker, Philip C. Smith and Bernard J. Vaughan.
12 None.
13 None.
14(a)(1)Southwestern Life Insurance Company Defined Benefit
Pension Plan and Trust; Exhibit 14(a)(1) to Pre-
Effective Amendment No. 1 to Registration No. 2-99810.
14(a)(2)Adoption Agreement for Southwestern Life Insurance
Company Standardized Integrated Defined Benefit
Pension Plan and Trust (with Pairing Provisions);
Exhibit 14(a)(2) to Pre-Effective Amendment No. 1
to Registration No. 2-99810.
14(a)(3)Adoption Agreement for Southwestern Life Insurance
Company Standardized Non-Integrated Defined Benefit
Pension Plan and Trust (with Pairing Provisions);
Exhibit 14(a)(3) to Pre-Effective Amendment No. 1
to Registration No. 2-99810.
14(a)(4)Adoption Agreement for Southwestern Life Insurance
Company Non-Standardized Integrated Defined Benefit
Pension Plan and Trust; Exhibit 14(a)(4) to Pre-
Effective Amendment No. 1 to Registration No. 2-99810.
14(a)(5)Adoption Agreement for Southwestern Life Insurance
Company Non-Standardized Non-Standardized Non-
Integrated Defined Benefit Pension Plan and Trust;
Exhibit 14(a)(5) to Pre-Effective Amendment
No. 1 to Registration No. 2-99810.
14(b)(1)Southwestern Life Insurance Company Combination Profit
Sharing-Money Purchase Plan and Trust; Exhibit 14(b)(1)
to Pre-Effective Amendment No. 1 to Registration No.
2-99810.
____________
* Filed herewith
<PAGE> 60
14(b)(2)Adoption Agreement for Southwestern Life Insurance
Company Standardized Money Purchase Plan and Trust
(with Pairing Provisions); Exhibit 14(b)(2) to Pre-
Effective Amendment No. 1 to Registration No. 2-99810.
14(b)(3)Adoption Agreement for Southwestern Life Insurance
Company Standardized Profit Sharing Plan and Trust
(with Pairing Provisions); Exhibit 14(b)(3) to Pre-
Effective Amendment No. 1 to Registration No. 2-99810.
14(b)(4)Adoption Agreement for Southwestern Life Insurance
Company Non-Standardized Money Purchase Plan and Trust;
Exhibit 14(b)(4) to Pre-Effective Amendment No. 1 to
Registration No. 2-99810.
14(b)(5)Adoption Agreement for Southwestern Life Insurance
Company Non-Standardized Profit Sharing Plan and Trust;
Exhibit 14(b)(5) to Pre-Effective Amendment No. 1 to
Registration No. 2-99810.
14(c) Form 5305, Simplified Employee Pension-Individual
Retirement Accounts Contribution Agreement;
Exhibit 14(c) to Pre-Effective Amendment No. 1 to
Registration No. 2-99810.
14(d) Form 5305-A, Individual Retirement Custodial
Account; Exhibit 14(d) to Pre-Effective Amendment
No. 1 to Registration No. 2-99810.
14(e)(1)Southwestern Life Insurance Company Tax Deferred
Annuity Program Custodial Agreement; Exhibit 14(e)(1)
to Pre-Effective Amendment No. 1 to Registration No.
2-99810.
14(e)(2)Amendment to Application for Investment Plans under
403(b)(7) Plan; Exhibit 14(e)(2) to Pre-Effective
Amendment No. 1 to Registration No. 2-99810.
14(f)(1)Southwestern Life Insurance Company Salary Reduction
Plan and Trust; Exhibit 14(f)(1) to Post-Effective
Amendment No. 3 to Registration No. 2-83397.
14(f)(2)Adoption Agreement for Southwestern Life Insurance
Company Salary Reduction Plan and Trust; Exhibit
14(1)(2) to Post-Effective Amendment No. 3 to
Registration No. 2-83397.
15(a) Copy of Service and Distribution Plan; Exhibit
15(a) to Post-Effective Amendment No. 12 to
Registration Statement No. 2-83397.
15(b) Copy of Service Agreement; Exhibit 15(b) to Post-
Effective
<PAGE> 61 Amendment No. 12 to Registration No. 2-83397.
*16 Schedule for Computation of Performance Quotations.
B. Exhibits filed pursuant to Rule 483 of Regulation C under
the Securities Act of 1933, as amended.
Item 25. Persons Controlled or under Common Control with Registrant
----------------------------------------------------------
Registrant is controlled by NationsBank (the "Bank"), as trustee of
the Tenneco Inc. Thrift Plan.
Item 26. Number of Holders of Securities
-------------------------------
Number of Record Holders
Title of Class as of February 21, 1996
-------------- ------------------------
Common Stock, par value $0.001 3,088
Item 27. Indemnification
---------------
The Articles of Incorporation include the following:
ARTICLE VII
"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 shall 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."
____________
* Filed herewith
<PAGE> 62
The By-Laws of the Registrant include the following:
ARTICLE VI
INDEMNIFICATION
"The Corporation shall indemnify (a) its Directors and officers,
whether serving the Corporation or at its request any other entity, to the
full extent required or permitted by (i) Maryland law now or hereafter in
force, including the advance of expenses under the procedures and to the
full extent permitted by law, and (ii) the Investment Company Act of 1940,
as amended, and (b) other employees and agents to such extent as shall be
authorized by the Board of Directors and be permitted by law. The
foregoing rights of indemnification shall not be exclusive of any other
rights to which those seeking indemnification may be entitled. The Board
of Directors may take such action as is necessary to carry out these
indemnification provisions and is expressly empowered to adopt, approve and
amend from time to time such resolutions or contracts implementing such
provisions or such further indemnification arrangements as may be permitted
by law."
Insofar as indemnification for liability 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 that in the opinion of the
Securities and Exchange 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 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 advisor or principal underwriter to the Registrant, any such
provisions 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 Section 17(h) and
(i) of the Investment Company Act of 1940, as amended, and Release No. IC-
11330 issued thereunder.
Item 28. Business and other Connections of Investment Adviser
----------------------------------------------------
The investment adviser of the Registrant is also the investment
adviser and/or administrator of five other investment companies: Capstone
Government Income Fund, Capstone Intermediate Government Fund, Capstone
Nikko Japan Fund, Capstone New Zealand Fund, and Medical Research
Investment Fund, Inc. Such adviser also manages private accounts and is an
adviser for a portion of the Tenneco Inc. Pension Plan. For further
information, see "Directors and Officers" in Part B. hereof.
</R.
<PAGE> 63
Item 29. Principal Underwriters
----------------------
(a) The principal underwriter of the Registrant, Capstone Asset
Planning Company, also acts as principal underwriter for Capstone
Government Income Fund, Capstone Intermediate Government Fund, Capstone
Nikko Japan Fund, Capstone New Zealand Fund, and Medical Research
Investment Fund, Inc.
(b)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- ------------------ --------------------- ---------------------
<S> <C> <C>
Dan E. Watson Chairman of the Board President
and Director
Edward L. Jaroski President and Director Executive Vice President
and Chairman of the Board
Albert P. Santa Luca -- Vice President
Leticia N. Jaroski Vice President --
Janet K. Roberts Assistant Vice President --
Iris R. Clay Secretary Secretary
Norma R. Ybarbo -- Assistant Secretary
Linda G. Giuffre Vice President and Treasurer
Treasurer
</TABLE>
Item 30. Location of Accounts and Records
--------------------------------
Capstone Asset Management Company, the investment adviser to the
Registrant, 5847 San Felipe, Suite 4100, Houston, Texas 77057, The Fifth
Third Bank, the custodian of the Registrant, 38 Fountain Square,
Cincinnati, Ohio 45263, and Fund/Plan Services, Inc., the transfer agent of
the Registrant, 2 W. Elm Street, Conshohocken, Pennsylvania 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 31. Management Services
-------------------
Not applicable
Item 32. Undertakings
------------
Not applicable
____________
* 5847 San Felipe, Suite 4100, Houston, Texas 77057
<PAGE> 64
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all
of the requirements for effectiveness of this Registration Statement or
Amendment 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 29th day of February, 1996.
CAPSTONE GROWTH FUND, INC.
Registrant
By: _______________________________
Edward L. Jaroski, Executive Vice President
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.
Signatures Title Date
---------- ----- ----
/s/EDWARD L. JAROSKI Executive Vice President February 29, 1996
- --------------------------- & Director (Principal
Edward L. Jaroski Executive Officer)
/s/LINDA G. GIUFFRE Treasurer (Principal February 29, 1996
- --------------------------- Financial & Accounting
Linda G. Giuffre Officer)
JAMES F. LEARY* Director February 29, 1996
- ---------------------------
James F. Leary
JOHN R. PARKER* Director February 29, 1996
- ---------------------------
John R. Parker
PHILIP C. SMITH* Director February 29, 1996
- ---------------------------
Philip C. Smith
BERNARD J. VAUGHAN* Director February 29, 1996
- ---------------------------
Bernard J. Vaughan
* By: /s/EDWARD L. JAROSKI
--------------------------
Edward L. Jaroski, Attorney-In-Fact
<PAGE> 65
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibits
- ------- -----------------------
11(a) Consent of Tait, Weller & Baker, Independent
Certified Public Accountants
11(b) Powers of Attorney of Messrs. James F. Leary, John R.
Parker, Philip C. Smith and Bernard J. Vaughan
16 Schedule of Computation of Performance Quotations
<PAGE> 1 EXHIBIT 11.A
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm in the Registration Statement,
(Form N-1A) and related Statement of Additional Information of Capstone
Growth Fund, Inc. and to the inclusion of our report dated November 20,
1995 to the Shareholders and Board of Directors of Capstone Growth Fund,
Inc.
/s/TAIT, WELLER & BAKER
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 27, 1996
<PAGE> 1 EXHIBIT 11.B.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below appoints Edward L. Jaroski as his true and lawful attorney-
in-fact, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact full power and authority to
do and perform each and every act and thing requisite and necessary to be
done in connection therewith, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
/s/JAMES F. LEARY Director February 29, 1996
- --------------------------
James F. Leary
/s/JOHN R. PARKER Director February 29, 1996
- --------------------------
John R. Parker
/s/PHILIP C. SMITH Director February 29, 1996
- --------------------------
Philip C. Smith
/s/BERNARD J. VAUGHAN Director February 29, 1996
- --------------------------
Bernard J. Vaughan
<PAGE> 1 EXHIBIT 16
CAPSTONE GROWTH FUND, INC.
SCHEDULE FOR COMPUTATION OF YIELD
Yield = 2[(a - b) + 1)6 - 1]
cd
a = dividends and interest earned during the period,
b = expenses accrued for the period (net of reimbursements),
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends, and
d = the maximum offering price per share on the last day of
the period.
*****************************
Yield = 2[(156,521.55 - 79,308.74) + 1)6 - 1]
----------------------
(6,224,476.046)(13.82)
= 1.0795% (for 1 month period ending October 31, 1995)
<PAGE> 2
CAPSTONE GROWTH FUND, INC.
SCHEDULE OF COMPUTATION FOR AVERAGE ANNUAL TOTAL RETURN
P (1 + T)n = ERV
P = a hypothetical initial payment of $1,000,
T = the average annual total return,
n = the number of years,
ERV = the ending redeemable value of a hypothetical
$1,000 payment made at the beginning of
the period.
********************
The Fund's average annual total return for the one year period
ending October 31, 1995 is 17.035%.
$1,000 (1 + .17035)1 = ERV
$1,170.35 = ERV
An initial payment of $1,000 invested on 11/01/94 will result in
72.411 shares. Income distributions of $0.163 and a capital gain
distribution of $1.35 resulted in 8.639 additional shares,
rendering a total of 84.685 shares. On 10/31/95 the net asset
value of the Fund was $13.82 per share, thereby creating a total
market value of $1,170.35 and yielding a return of 17.035%.
********************
The Fund's average annual total return for the five year period
from November 1, 1990 to October 31, 1995 is 11.960%.
$1,000 (1 + .11960)5 = ERV
$1,759.25 = ERV
An initial payment of $1,000 invested on 11/01/90 will result in
80.192 shares. Income distributions of $0.83 and capital gain
distributions of $2.07 for the five year period resulted in
47.105 additional shares, rendering a total of 127.297 shares.
On 10/31/95 the net asset value of the Fund was $13.82 per share,
thereby creating a total market value of $1,759.25 and yielding a
return of 11.960%.
********************
The Fund's average annual total return for the ten year period
from November 1, 1985 to October 31, 1995 is 11.887%.
$1,000 (1 + .11887)10 = ERV
$3,074.67 = ERV
An initial payment of $1,000 invested on 11/01/85 will result in
77.101 shares. Income distributions of $2.743 and capital gain
distributions of $10.40 for the ten year period resulted in
145.378 additional shares, rendering a total of 222.479 shares.
On 10/31/95 the net asset value of the Fund was $13.82 per share,
thereby creating a total market value of $3,074.67 and yielding a
return of 11.887%.
<PAGE> 3
CAPSTONE GROWTH FUND, INC.
SCHEDULE OF COMPUTATION FOR TOTAL RETURN
P (1 + T) = ERV
P = a hypothetical initial payment of $1,000,
T = the total return,
ERV = the ending redeemable value of a hypothetical
$1,000 payment made at the beginning of
the period.
********************
The Fund's total return for the one year period ending October
31, 1995 is 17.035%.
$1,000 (1 + .17035) = ERV
$1,170.35 = ERV
An initial payment of $1,000 invested on 11/01/95 will result in
76.046 shares. Income distributions of $0.163 and a capital gain
distribution of $1.35 resulted in 8.639 additional shares,
rendering a total of 84.685 shares. On 10/31/95 the net asset
value of the Fund was $13.82 per share, thereby creating a total
market value of $1,170.35 and yielding a return of 17.035%.
********************
The Fund's total return for the five year period from November 1,
1990 to October 31, 1995 is 75.925%.
$1,000 (1 + .75925) = ERV
$1,759.25 = ERV
An initial payment of $1,000 invested on 11/01/90 will result in
84.175 shares. Income distributions of $0.830 and capital gain
distributions of $2.07 for the five year period resulted in
43.165 additional shares, rendering a total of 127.340 shares.
On 10/31/95 the net asset value of the Fund was $13.82 per share,
thereby creating a total market value of $1,759.25 and yielding a
return of 75.925%.
********************
The Fund's total return for the ten year period from November 1,
1985 to October 31, 1995 is 207.467%.
$1,000 (1 + 2.07467) = ERV
$3,074.67 = ERV
An initial payment of $1,000 invested on 11/01/85 will result in
80.972 shares. Income distributions of $2.743 and capital gain
distributions of $10.40 for the ten year period resulted in
141.586 additional shares, rendering a total of 222.558 shares.
On 10/31/95 the net asset value of the Fund was $13.82 per share,
thereby creating a total market value of $3,074.67 and yielding a
return of 207.467%.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
The Annual Report of Capstone Growth Fund, Inc. for the fiscal year ended
October 31, 1995.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 62,184,403
<INVESTMENTS-AT-VALUE> 82,134,789
<RECEIVABLES> 107,447
<ASSETS-OTHER> 3,509,203
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 85,751,439
<PAYABLE-FOR-SECURITIES> 320,423
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 107,116
<TOTAL-LIABILITIES> 427,539
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 60,520,753
<SHARES-COMMON-STOCK> 6,174,844
<SHARES-COMMON-PRIOR> 6,118,689
<ACCUMULATED-NII-CURRENT> 388,096
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,464,665
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 19,950,386
<NET-ASSETS> 85,323,900
<DIVIDEND-INCOME> 1,573,980
<INTEREST-INCOME> 463,022
<OTHER-INCOME> 0
<EXPENSES-NET> 1,044,148
<NET-INVESTMENT-INCOME> 992,854
<REALIZED-GAINS-CURRENT> 11,206,356
<APPREC-INCREASE-CURRENT> 587,851
<NET-CHANGE-FROM-OPS> 12,787,061
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (949,953)
<DISTRIBUTIONS-OF-GAINS> (7,756,374)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 523,850
<NUMBER-OF-SHARES-REDEEMED> 1,094,860
<SHARES-REINVESTED> 627,165
<NET-CHANGE-IN-ASSETS> 56,155
<ACCUMULATED-NII-PRIOR> 345,195
<ACCUMULATED-GAINS-PRIOR> 1,014,683
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 560,434
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,056,091
<AVERAGE-NET-ASSETS> 80,905,676
<PER-SHARE-NAV-BEGIN> 13.23
<PER-SHARE-NII> 0.17
<PER-SHARE-GAIN-APPREC> 1.93
<PER-SHARE-DIVIDEND> 0.16
<PER-SHARE-DISTRIBUTIONS> 1.35
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.82
<EXPENSE-RATIO> 1.31
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
