<PAGE> 1
CAPSTONE NEW ZEALAND FUND
A SERIES OF CAPSTONE INTERNATIONAL SERIES TRUST
SUPPLEMENT DATED MAY 24, 1995
TO
PROSPECTUS DATED MARCH 1, 1995
THE FOLLOWING PARAGRAPH IS ADDED TO THE END OF THE PURCHASING SHARES SECTION ON
PAGE 18 OF THE PROSPECTUS:
Effective June 7, 1995, payment for all orders to purchase Fund shares must
be received by the Fund's Transfer Agent within three business days after the
order was placed.
THE FOLLOWING INFORMATION REPLACES THE LAST TWO SENTENCES OF THE TELEPHONE
PURCHASE AUTHORIZATION (INVESTING BY PHONE) SECTION ON PAGE 18 OF THE
PROSPECTUS:
Effective June 7, 1995, payment for the telephone purchase must be received
by the Transfer Agent within three business days after the order is placed. If
payment is not received within three business days after the order is placed,
the stockholder will be liable for all losses incurred as a result of the
purchase. (Prior to June 7, 1995, payment must be received by the Transfer Agent
within 7 days).
<PAGE> 2
CAPSTONE NEW ZEALAND FUND
A FUND OF CAPSTONE INTERNATIONAL SERIES TRUST
5847 San Felipe, Suite 4100
Houston, TX 77057
1-800-262-6631
March 1, 1995
PROSPECTUS
Capstone New Zealand Fund (the "Fund") is a series of Capstone
International Series Trust (the "Trust"), a diversified open-end management
investment company. The Fund seeks to provide long-term capital appreciation and
current income by investing in equity securities, debt securities, securities
convertible into common stock of issuers in New Zealand and local authority and
New Zealand government securities.
The Trust currently has one other series, Capstone Nikko Japan Fund, and
may create additional series in the future. Each existing and future series will
be treated as a separate mutual fund with its own investment objective and
policies.
This Prospectus sets forth certain information about the Trust and the Fund
that a prospective investor should know before investing. Investors should read
and retain this Prospectus for future reference.
A STATEMENT OF ADDITIONAL INFORMATION about the Fund dated March 1, 1995
has been filed with the Securities and Exchange Commission and contains further
information about the Fund. A copy of the Statement of Additional Information
may be obtained without charge by calling or writing the Fund at the telephone
number or address listed above. The Statement of Additional Information is
incorporated herein by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE> 3
CAPSTONE NEW ZEALAND FUND
<TABLE>
<S> <C>
Investment Adviser: Administrator:
FCA Corp Capstone Asset Management Company
5847 San Felipe #850 5847 San Felipe, Suite 4100
Houston, Texas 77057 Houston, Texas 77057
Distributor: Shareholder Servicing Agent:
Capstone Asset Planning Company Fund/Plan Services, Inc.
5847 San Felipe, Suite 4100 P.O. Box 874
Houston, Texas 77057 2 W. Elm Street
1-800-262-6631 Conshohocken, Pennsylvania 19428
</TABLE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................................................... 3
Fund Expenses........................................................ 5
Financial Highlights................................................. 7
Investment Objective and Policies.................................... 8
The New Zealand Economy and Securities Markets....................... 10
Risk Factors......................................................... 11
Investment Restrictions.............................................. 12
Performance Information.............................................. 13
Management of the Fund............................................... 14
Purchasing Shares.................................................... 17
Distributions and Taxes.............................................. 20
Redemption and Repurchase of Shares.................................. 21
Determination of Net Asset Value..................................... 23
Stockholder Services................................................. 24
General Information.................................................. 26
Appendix............................................................. 27
</TABLE>
No dealer, salesman, or any other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus, in connection with the offer contained in this Prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Fund or its Distributor. This Prospectus does
not constitute an offer by the Fund or by the Distributor to sell or a
solicitation of an offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful for the Fund or the
Distributor to make such offer or solicitation in such jurisdiction.
2
<PAGE> 4
CAPSTONE NEW ZEALAND FUND
PROSPECTUS SUMMARY
Type of Company................. The Fund, which commenced operations on
November 25, 1991, is a series of an open-end
diversified management investment company
organized on May 9, 1986 as a Massachusetts
business trust. (see page 26)
Investment Objective............ The primary investment objective of the Fund
is to provide long-term capital appreciation
and current income. It offers investors an
opportunity to pursue this objective by
participating in New Zealand securities
markets. (see page 8)
Investment Policies............. The Fund invests primarily in equity and debt
securities and securities convertible into
common stock of New Zealand issuers including
issuers that are organized under New Zealand
law, issuers that are listed on the New
Zealand Stock Exchange, issuers that derive
50% or more of their total revenues from
goods and/or services produced or sold in New
Zealand, New Zealand government and local
authority securities, and securities
denominated in New Zealand dollars. The Fund
places primary emphasis on those securities
of high quality that afford current income
and which, in the case of equities, in the
opinion of the Fund's Adviser, seem capable
of appreciating. (see page 8)
Investment Adviser.............. FCA Corp (the "Adviser") is the Fund's
investment adviser. The Adviser provides
investment advice and portfolio management
services to the Fund. The Adviser is paid a
monthly fee equal to an annual rate of 0.75%
of the Fund's average net assets. The Adviser
has not previously acted as investment
adviser to a registered investment company.
(see page 14)
Administrator................... Capstone Asset Management Company is the
Fund's administrator (the "Administrator").
The Administrator provides advisory and/or
administrative services to the other mutual
funds in the Capstone Group. The
Administrator is paid a monthly fee equal to
an annual rate of 0.25% of the Fund's average
net assets, plus a monthly fee to reimburse
it for the cost of accounting, bookkeeping
and pricing services it performs for the
Fund. (see page 14)
3
<PAGE> 5
Expenses of the Fund............ For the last fiscal year, the Fund's total
operating expenses, after reimbursements and
voluntary payments by the Adviser and
Administrator, were 2.50% of its average net
assets. (see page 16)
Dividends and Distributions..... The Fund pays dividends from net investment
income and distributions from capital gains,
if any, at least annually. (see page 20)
Offering Price and Sales
Charge.......................... The public offering price of Fund shares is
equal to the net asset value per share plus a
sales charge of up to 4.75% of the public
offering price (up to 4.99% of the amount
invested), reduced on investments of $100,000
or more. The Fund bears certain expenses
pursuant to a written Rule 12b-1 distribution
plan. (see page 17)
Minimum Purchase................ The minimum initial investment, with certain
exceptions, is $200. There is no minimum for
subsequent purchases. (see page 17)
Redemption...................... Shares of the Fund are redeemed at the net
asset value determined as of the close of
trading on the New Zealand Stock Exchange on
the business day following receipt of the
redemption request. (see page 21)
Distributor..................... Capstone Asset Planning Company (the
"Distributor") is the Fund's distributor.
4
<PAGE> 6
FUND EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases 4.75%
(as a percentage of offering price)
Maximum Sales Load Imposed on Reinvested 0%
Dividends (as a percentage of offering
price)
Deferred Sales Load (as a percentage of 0%
original purchase price or redemption of
proceeds, as applicable)
Redemption Fees (as a percentage of amount 0%
redeemed)
Exchange Fee 0%
A 4.75% maximum sales load applies to
exchanges of shares that have not been
outstanding at least 15 days
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management and Administration Fees 0.00%
(After expense reimbursements)
12b-1 Fees* 0.35%
Other Expenses 2.27%
(After expense reimbursements)
Total Fund Operating Expenses 2.62%
</TABLE>
EXAMPLE
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<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: $ 73 $125 $ 180 $329
</TABLE>
---------------
* Under rules of the National Association of Securities Dealers, Inc. (the
"NASD"), a 12b-1 fee may be treated as a sales charge for certain purposes
under those rules. Because the 12b-1 fee is an annual fee charged against the
assets of a Fund, long-term stockholders may pay more in total sales charges
than the economic equivalent of the maximum front-end sales charge permitted
by rules of the NASD (see "Distributor").
The purpose of the foregoing table is to assist investors in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. The information disclosed in the table under the heading
"Shareholder Transaction Expenses" is based on the maximum sales load now in
effect for the Fund. See "Purchasing Shares" and "Redemption and Repurchase of
Shares" below for more complete descriptions of those expenses, including a
description of available reductions in the sales charge. The management and
administration fee information contained in the table reflects expense
reimbursements by the Fund's Adviser and Administrator. Without the expense
reimbursements, the fees paid to the Adviser and Administrator, respectively,
would have
5
<PAGE> 7
amounted to .75% and .25% of the Fund's average net assets. See "Management of
the Fund" for more complete descriptions of the fees paid to the Adviser and
Administrator and of an expense limitation applicable to the Fund. The
information disclosed in the table for "12b-1 Fees" has been restated to reflect
the maximum distribution expense that may be incurred by the Fund. The actual
amount paid by the Fund during the fiscal year ended October 31, 1994 was 0.23%
of its average net assets. The amount of Other Expenses reflects a voluntary
payment to the Fund by the Adviser in excess of the advisory fees received from
the Fund, and reimbursement by the Administrator of the fees received from the
Fund for services related to calculating the Fund's net asset value. Without
these reimbursements, Other Expenses would have amounted to 3.17% of the Fund's
average net assets, Total Fund Operating Expenses would have been 4.40%, (which
is higher than that of most other investment companies), and expenses in the
same 1, 3, 5 and 10 year periods shown in the Example would have been $90, $174,
$260, and $479, respectively. 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 less than those shown in the example or in the table.
6
<PAGE> 8
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 period indicated. This information has been
derived from information provided in the Fund's financial statements which have
been examined by Tait, Weller & Baker, independent certified public accountants.
The Fund's Annual Report contains additional performance information and is
available free of charge upon request by calling the Fund at 800-262-6631.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------
1994 1993 1992*
------ ------ ------
<S> <C> <C> <C>
PER SHARE DATA
Net asset value at beginning of year................................................. $11.61 $ 9.75 $10.00
------ ------ ------
Income from investment operations:
Net investment income (loss)......................................................... .16 .09 (.06)
Net realized and unrealized gain (loss) on investments............................... (1.00) 1.77 (.19)
------ ------ ------
Total from investment operations..................................................... (.84) 1.86 (.25)
------ ------ ------
Less distributions from:
Net investment income................................................................ .055 -- --
Net realized gain on investments..................................................... .275 -- --
------ ------ ------
Total distributions.................................................................. .33 -- --
------ ------ ------
Net asset value at end of year....................................................... $10.44 $11.61 $ 9.75
====== ====== ======
TOTAL RETURN +....................................................................... (7.40)% 19.08% (2.50)%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of year (in thousands)............................................. $3,014 $2,732 $ 883
RATIOS:
Operating expenses to average net assets:
Before expense reimbursement......................................................... 4.40% 8.19% 28.18%
After expense reimbursement.......................................................... 2.50% 2.50% 5.18%
Net investment income to average net assets.......................................... 1.55% .95% (1.84)%
Portfolio turnover rate.............................................................. 40% 32% 4%
</TABLE>
---------------
* November 25, 1991 (commencement of operations) to October 31, 1992
+ Calculated without a sales charge
7
<PAGE> 9
INVESTMENT OBJECTIVE AND POLICIES
The Fund's primary investment objective is to seek long-term capital
appreciation and current income. The Fund provides investors an opportunity to
pursue this objective by participating in the New Zealand securities markets.
The Fund pursues its objective by investing primarily in equity and debt
securities and securities convertible into common stock of New Zealand issuers,
including issuers that are organized under New Zealand law, issuers listed on
the New Zealand Stock Exchange, issuers that derive 50% or more of their total
revenue from goods and/or services produced or sold in New Zealand, New Zealand
government and local authority securities, ADRs of New Zealand companies, and
securities denominated in New Zealand dollars. Under normal circumstances, the
Fund will invest at least 65% of its assets in New Zealand securities. The Fund
may also invest in U.S. securities which will consist primarily of debt and
money market securities. These objectives and policies are not fundamental
policies of the Fund and may be changed without the approval of holders of
shares of beneficial interest of the Fund.
The Fund will invest principally in securities, which in the opinion of the
Fund's Adviser, seem capable of capital appreciation and/or current income. The
Fund seeks to diversify its investments across government issues, industry
groups and companies.
In determining appropriate investments for the Fund, primary emphasis is
placed upon the characteristics of the particular issuer, with macroeconomic
factors assuming a secondary, though still important, role. The Adviser's
investment philosophy for the Fund is that the best value in equity investing
lies in equity securities of quality companies with adequate cash flow,
reasonable price/earning ratios, and current dividend payments. In selecting an
investment for the Fund, the Adviser reviews the earnings power, dividend
payout, cash flow, asset values, and market price of the issuer involved.
Macroeconomic factors that ordinarily are considered by the Adviser in
determining the appropriate distribution of investments among debt and equities
and particular issuers include the prospects for relative economic growth,
expected levels of inflation, government policies influencing business
conditions, the outlook for currency relationships, and the range of individual
investment opportunities available in the New Zealand market.
Securities of issuers in which the Fund may invest include common and
preferred stock, debt convertible into equity, and debt securities. Investments
in debt securities may include obligations of governmental issuers, as well as
obligations of companies having an outstanding debt issue rated A or better by
Moody's Investors Service, Inc. ("Moody's"), A or better by Standard & Poor's
Corporation ("S&P"), A or better by S&P -- Australian Ratings ("S&P
Australian"), or obligations of comparable quality as determined by the Adviser
pursuant to guidelines approved by the Board of Trustees. Many New Zealand debt
securities are not rated, so their quality will be determined in accordance with
such guidelines approved by the Board of Trustees. Debt securities acquired by
the Fund may include, without limitation, conventional fixed and variable rate
bonds and debentures, zero-coupon and original issue discount bonds and warrants
to purchase debt instruments.
In order to have funds available for redemption and investment
opportunities, the Fund may hold a portion of its portfolio in cash or
short-term money market securities of United States and New Zealand issuers. The
Fund may purchase commercial paper rated (at the time of purchase) "A-1" by S&P
or "P-1" by Moody's or "A-1" by S&P Australian or, when deemed advisable by the
Adviser, issues rated "A-2", "P-2" or "A-2" by S&P, Moody's and S&P Australian,
respectively. These rating symbols are described in Appendix A to the Statement
of Additional Information.
8
<PAGE> 10
The Fund may purchase bank obligations, such as certificates of deposit,
bankers' acceptances and time deposits, including U.S. dollar-denominated
instruments issued or supported by the credit of U.S. or New Zealand banks or
savings institutions having total assets at the time of purchase in excess of $1
billion. Investment obligations of New Zealand banks and New Zealand branches of
domestic banks may entail risks that are different from those of investments in
domestic obligations of U.S. banks. These risks may include future unfavorable
political and economic developments, possible withholding taxes on interest
income, seizure or nationalization of foreign deposits, currency controls,
interest limitations, or other governmental restrictions which might affect the
payment of principal or interest on the securities held by the Fund.
Additionally, these institutions may be subject to less stringent reserve
requirements and to different accounting, auditing, reporting and recordkeeping
requirements than those applicable to domestic branches of U.S. banks. The Fund,
however, will invest in obligations of domestic and New Zealand branches of New
Zealand banks, and New Zealand branches of domestic banks, only when the Adviser
believes that the risks associated with such investments are minimal. The Fund
may also make interest-bearing savings deposits in commercial and savings banks
in accounts not in excess of 5% of its total assets.
The Fund may purchase securities on a "when-issued" basis and may purchase
or sell securities on a "forward commitment" basis. These transactions, which
involve a commitment by the Fund to purchase or sell particular securities with
payment and delivery taking place at a future date (perhaps one or two months
later), permit the Fund to lock in a price or yield on a security it owns or
intends to purchase, regardless of future changes in interest rates. When-issued
and forward commitment transactions involve the risk, however, that the price or
yield obtained in a transaction may be less favorable than the price or yield
available in the market when the securities delivery takes place. The Fund's
when-issued purchases and forward commitments are not expected to exceed 25% of
the value of its total assets absent unusual market conditions. The Fund does
not intend to engage in when-issued purchases and forward commitments for
speculative purposes but only in furtherance of its objectives.
To increase income on its investments, the Fund may lend its portfolio
securities to broker-dealers and other institutional investors pursuant to
agreements requiring that the loans be continuously secured by collateral equal
at all times in value to at least the market value of the securities loaned.
Collateral for such loans may include cash, securities of the U.S. Government or
its agencies or instrumentalities or an irrevocable letter of credit issued by a
bank which is deemed creditworthy by the Adviser. It is not anticipated that
loans will involve over 5% of the Fund's total assets. In no event will such
loans be made if, as a result, the aggregate value of securities loaned exceeds
one-third of the value of the Fund's total assets. There may be risks of delay
in receiving additional collateral or in recovering the securities loaned or
even a loss of rights in the collateral should the borrower of the securities
fail financially. However, loans will be made only to borrowers deemed by the
Adviser to be creditworthy and when, in the Adviser's judgment, the income to be
earned from the loan justifies the attendant risks.
Although the Fund has the authority to invest in options on stock and stock
indexes, futures contracts, options on futures contracts and repurchase
agreements, the Fund does not currently intend to trade in such instruments
during the next twelve months and will not trade in such instruments until
appropriate disclosure has been added in the Fund's Prospectus and Statement of
9
<PAGE> 11
Additional Information. For additional information regarding such instruments,
see Appendix B to the Statement of Additional Information.
The ratings referred to in the above description of the Fund's investment
objectives and policies represent the minimum rating of a security in which the
Fund may invest, although the Fund may not necessarily dispose of a security if
it drops below the minimum rating.
The Fund's portfolio turnover rate will not be a factor preventing a sale
or purchase when the Adviser believes investment considerations warrant such
sale or purchase. Portfolio turnover may vary greatly from year to year as well
as within a particular year, subject to restrictions under Federal income tax
laws applicable to regulated investment companies. High portfolio turnover rates
will generally result in higher transaction costs to the Fund. The portfolio
turnover rate for the fiscal years ended October 31, 1994 and October 31, 1993
was 40% and 32%, respectively.
THE NEW ZEALAND ECONOMY AND SECURITIES MARKETS
THE NEW ZEALAND ECONOMY
Whether one chooses to take a macro or micro look at the New Zealand
economy, the picture is impressive. Corporate profits across a broad spectrum
are healthy, business confidence is at its highest level in years and the
economy is growing at an estimated rate of 6.1 percent.
Government financial statements released in October show the surplus for
the fiscal year 1993/94 was NZ $755 million against an estimate of NZ $527
million. The improvement was attributed almost entirely to lower government
spending and to a higher tax take, especially from the commercial sector. In
commenting on these figures, Finance Minister Bill Birch re-affirmed the
government's commitment to repaying foreign debt and potential tax cuts in
1996/97. The forecast for 1994/95 projects a surplus of NZ $2.3 billion (2.7% of
GDP).
A report from Garlick & Co., a New Zealand broker, expects economic growth
to slow in late 1995 and 1996, from real GDP growth of 6.2% forecast for the
year ending March 1995 to 2.8% for the year ending March 1996. However, a
recession or negative economic growth is not expected because of pre-emptive
monetary policy tightening. Tourism continues to be a large generator of foreign
exchange. In the year ended September 30, 1994, tourism was up 14% to 1.28
million visitors over the prior year according to a report issued by Deputy
Government Statistician Dennis Trewin.
THE NEW ZEALAND SECURITIES MARKETS
Securities trading in New Zealand is centralized in the New Zealand Stock
Exchange ("NZSE"), which provides facilities for buying and selling a wide range
of listed government, semi-government, state-owned enterprise and private
corporate securities. Relative to securities markets in the U.S. and in many
European and Asian countries, the New Zealand securities markets are small.
Market capitalization and trading volume is concentrated in a limited number of
New Zealand companies representing a small number of industries.
The NZSE currently quotes the securities of more than 130 companies. Total
trading volume on the NZSE during 1994 was approximately NZ $11.85 billion (US
$7.5 billion), and average trading volume in value per day trading during 1994
was approximately NZ $47.5 million
10
<PAGE> 12
(US $30.2 million). The aggregate market capitalization of the securities quoted
on the NZSE at January 31, 1995 was approximately NZ $42 billion (US $26.5
billion), with the six largest companies accounting for approximately 69% of the
total market capitalization of such securities.
The performance of the New Zealand securities market is measured by two
indices, the NZSE-40 and the NZSE-30. The NZSE-40 is composed of a basket of the
40 leading equity securities weighted by their full market capitalization.
During 1994 the NZSE-40 Capital ranged from 1878 to 2440. The NZSE-30 measures
the 30 largest issuers by value after excluding any shares held in blocks of 30%
or more.
RISK FACTORS
Investments by United States investors in securities of foreign issuers
involve risks not associated with their investments in securities of United
States issuers. Since the Fund will invest heavily in securities denominated or
quoted in New Zealand dollars, the Fund may be affected favorably or unfavorably
by exchange control regulations or changes in the exchange rate between the New
Zealand and the U.S. dollar. Changes in currency exchange rates will influence
values within the portfolio from the perspective of United States investors.
Changes in currency exchange rates may also affect the value of dividends and
interest earned, gains and losses realized on the sale of securities and net
investment income and gains, if any, to be distributed to stockholders of the
Fund. The New Zealand dollar is fully exchangeable into U.S. dollars without
legal restriction and trades on a floating basis against all major currencies.
The rate of exchange between the U.S. dollar and the New Zealand dollar is
determined by the forces of supply and demand in the foreign exchange markets.
These forces are affected by the international balance of payments and other
economic and financial conditions, government intervention, speculation and
other factors. The Fund may, to a limited extent, enter into forward foreign
currency contracts as a hedge against possible variations in the exchange rates
between the U.S. dollar and the New Zealand dollar. Such contracts are
agreements to purchase or sell a specified currency at a specified future date
(up to a year) and price. The Fund's dealings in currency exchange contracts
will be limited to hedging involving either specific transactions or portfolio
positions. The Fund is not obligated to enter into these contracts and there is
no guarantee any such contracts will achieve the desired objective. The Fund
will not enter into or maintain a position in those contracts if their
consummation would obligate the Fund to deliver an amount of New Zealand
currency greater than the value of the Fund's assets denominated or quoted in,
or currency convertible into, such currency.
There may be less publicly available information about New Zealand issuers
than about United States issuers, and New Zealand issuers are subject to uniform
accounting, auditing and financial reporting standards and requirements not
exactly like those of United States issuers. While the New Zealand securities
market is growing, it has substantially less trading volume than United States
markets, and, as a result, securities are generally less liquid and their prices
more volatile than securities of comparable United States issuers.
Brokerage commissions and other transaction costs in New Zealand may be
higher than in the United States. There is generally less government supervision
and regulation of business and industry practices of exchanges, brokers and
issuers in New Zealand than there is in the United States. In particular, delays
in settling securities transactions may occur. This may, at times, make it
difficult for the Fund to liquidate a previously established securities
position. Settlement
11
<PAGE> 13
delays may result in the Fund experiencing delays in the receipt of dividends
and interest. The Fund will rely on the expertise of its custodian bank to help
reduce these delays.
Although New Zealand has a relatively stable and friendly government, there
is the possibility of imposition of exchange controls or other restrictions,
expropriation of assets, confiscatory taxation, imposition of foreign
withholding taxes, political or social instability or diplomatic developments
which could affect investments in New Zealand securities.
The Fund's investment flexibility may be further limited by restrictions on
percentage of ownership by non-New Zealand persons that may be applicable under
New Zealand law or corporate charters with respect to certain New Zealand
companies. Additionally, certain rights offerings to shareholders of New Zealand
companies in which the Fund may invest may not be made available to the Fund as
a U.S. shareholder if such an offer to a U.S. investor would require
registration with the Securities and Exchange Commission.
The operating expense ratio of the Fund can be expected to be higher than
that of an investment company investing exclusively in securities of United
States issuers since the expenses of the Fund (such as custodial, currency
exchange, valuation and communications costs) are higher. Because of its
emphasis on investments in New Zealand issuers, the Fund should be considered as
a vehicle for diversification of investments and not as a balanced investment
program.
INVESTMENT RESTRICTIONS
The Fund has adopted certain investment restrictions which cannot be
changed without approval by a majority of the Fund's stockholders ("fundamental
policies"), and which are designed to enhance the realization of the Fund's
investment objective. Among other things, these restrictions provide that the
Fund may not:
- with respect to 75% of its assets, purchase more than 10% of the voting
securities of any one issuer or invest more than 5% of the value of its
total assets in the securities or instruments of any one issuer, except
securities or instruments issued or guaranteed by the U.S. Government,
its agencies or instrumentalities;
- purchase securities or instruments which would cause 25% or more of the
market value of its total assets at the time of such purchase to be
invested in securities or instruments of one or more issuers having their
principal business activities in the same industry or in securities
issued or guaranteed by a single government or its agencies or
instrumentalities, or with respect to repurchase agreements secured by
such securities or instruments, provided that there is no limit with
respect to investments in the U.S. Government, its agencies and
instrumentalities;
- borrow money, except that as a temporary measure for extraordinary or
emergency purposes it may borrow from banks in an amount not to exceed
1/3 of the value of its net assets, including the amount borrowed.
For a complete list of the Fund's fundamental and non-fundamental policies,
see the Statement of Additional Information.
12
<PAGE> 14
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 will be computed by dividing net
investment income by the maximum 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 average annual total return reflect
deduction of the maximum sales charge and a proportional share of Fund expenses
on an annual basis. The results, which are annualized, represent an average
annual compounded rate of return on a hypothetical investment in the Fund over a
period of 1, 5 and 10 years ending on the most recent calendar quarter (but not
for a period greater than the life of the Fund). Quotations of total return,
which are not annualized, represent historical earnings and asset value
fluctuations. Total return figures used in advertisements or sales literature
will not usually reflect the deduction of the maximum sales charge which if
deducted would reduce the Fund's total return. Total return is based on past
performance and is not a guarantee of future results.
Performance information for the Fund may be compared, in reports and
promotional literature, to those of other mutual funds with similar investment
objectives and to other relevant indices or to ratings prepared by independent
services or other financial or industry publications that monitor the
performance of mutual funds. For example, the total return, average annual total
return and/or yield of the Fund may be compared to data prepared by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. and Weisenberger
Investment Company Service, analytical firms such as Frank Russell Company and
SEI Corporation and with the performances of Standard & Poor's 500 Stock Index
("S&P 500"), Barclays Industrial Share Index, the NZSE-40 Capital, the NZSE-30,
the Dow Jones Industrial Average ("DJIA"), the Shearson Lehman Hutton Government
Corporate Bond Index 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. Total return and yield data as reported in
national financial publications such as Money Magazine, Forbes, Fortune,
Business Review Weekly, The Wall Street Journal and The New York Times, or in
publications of a local or regional nature may also be used in comparing the
performance of 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. For a description of the
methods used to determine the Fund's yield, average annual total return and
total return, see the Statement of Additional Information.
13
<PAGE> 15
MANAGEMENT OF THE FUND
Capstone New Zealand Fund is a series of Capstone International Series
Trust, an open-end diversified management investment company, commonly called a
mutual fund. The management and affairs of the Fund and the Trust are supervised
by the Trust's Board of Trustees. Through the purchase of Fund shares, investors
with goals similar to the investment objective of the Fund can participate in
the investment performance of a diversified portfolio of investments designed to
meet that objective.
ADVISER
FCA Corp (the "Adviser"), a fee-based financial planning and investment
counseling firm located at 5847 San Felipe #850, Houston, Texas 77057, provides
investment advice and portfolio management services to the Fund. FCA was
incorporated in 1983 and its predecessor was formed in 1975.
The Fund is the Adviser's first mutual fund client. The Adviser acts as an
investment adviser to United Investors Realty Trust, an equity real estate
investment trust ("REIT"); First Commonwealth Mortgage Trust, (a mortgage REIT);
and FCA Investment Company (a federally licensed small business investment
corporation) as well as providing investment advice to individual clients.
The Fund is managed by Robert W. Scharar, the President of FCA Corp. In
1975 Mr. Scharar co-founded First Commonwealth Associates, the predecessor to
FCA Corp, which he formed in 1983. Mr. Scharar received an AA from Polk
Community College, a BSBA in Accounting from the University of Florida, an MBA
and JD from Northeastern University, and a LLM in Taxation from Boston
University Law School. He is a member of the Florida and Massachusetts Bars and
is a member of the Florida Institute of Certified Public Accountants. He has
experience as an Accounting Professor at Bentley and Nichols Colleges, and was
an officer of United States Trust Company (Boston) and a tax specialist at
Coopers & Lybrand. Mr. Scharar is a contributing author to the Clark Boardman
Callaghan's publication, "Estate and Personal Financial Planning." His
directorships include the American Association of Attorney-CPA's, First
Commonwealth Mortgage Trust, United Investors Realty Trust and Southwestern
Property Trust.
The Investment Advisory Agreement between the Fund and the Adviser provides
that the Fund pays the Adviser a fee computed daily and payable monthly, equal
to an annual rate of 0.75% of the Fund's average net assets. Pursuant to an
expense limitation discussed below, the Adviser reimbursed all of the advisory
fees received from the Fund during the fiscal year ended October 31, 1994.
Pursuant to the terms of the Investment Advisory Agreement, and subject to
the authority of the Fund's Board of Trustees, the Adviser is responsible for
providing a program of continuous investment management for the Fund in
accordance with the Fund's investment objective, policies and limitations;
making investment decisions for the Fund; and placing orders to purchase and
sell securities for the Fund. Consistent with policies described in the
Statement of Additional Information regarding allocation of the Fund's portfolio
transactions, the Adviser may place orders for portfolio transactions with the
Distributor and Williams McKay Jordan & Mills, Inc. (affiliates of the
Administrator), and may consider sales of Fund shares as a factor in placing
such orders.
ADMINISTRATOR
Capstone Asset Management Company (the "Administrator"), a wholly-owned
subsidiary of Capstone Financial Services, Inc., provides administrative
services for the Fund, supervises the
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<PAGE> 16
Fund's daily business affairs, coordinates the activities of persons providing
services to the Fund, and furnishes office space and equipment to the Fund.
These services are subject to general review by the Trust's Board of Trustees.
As compensation for its services, the Administration Agreement provides
that the Administrator receive from the Fund a fee, computed daily and payable
monthly, at an annual rate of 0.25% of the Fund's average net assets. Pursuant
to an expense limitation discussed below, the Administrator reimbursed all of
the administrative fees received from the Fund during the fiscal year ended
October 31, 1994.
The Administrator also performs certain accounting, bookkeeping and pricing
services. For these services the Administrator receives a monthly fee to
reimburse the Administrator for its costs. This amount is not intended to
include any profit to the Administrator and is in addition to the administrative
fees described above. Although not obligated to do so, the Administrator
reimbursed the fees received from the Fund for these services during the fiscal
year ended October 31, 1994.
The Administrator provides administrative and/or investment advisory
services to five other mutual funds: Capstone Nikko Japan Fund, Capstone
Government Income Fund, Capstone Growth Fund, Inc., Capstone Balanced Fund, and
Medical Research Investment Fund, Inc. (collectively, the "Capstone Funds"), and
to pension and profit sharing accounts, corporations and individuals.
DISTRIBUTOR
Pursuant to a Distribution Agreement with the Trust dated August 10, 1992,
Capstone Asset Planning Company (the "Distributor") is the principal underwriter
of the Fund and, acting as exclusive agent, sells shares of the 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 0.35% 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 remaining amounts not so allocated will be retained by the Distributor for
the purposes described above. The Distributor is permitted to collect the fees
under the Plan on a monthly basis. Any expenditures incurred by the Distributor
in excess of the limitation described above during a given month may be carried
forward up to twelve months for reimburse-
15
<PAGE> 17
ment, subject always to the 0.35% limit, and no interest or carrying charges
will be payable by the Fund on amounts carried forward. During the fiscal year
ended October 31, 1994, the effective rate of servicing fees paid to the
Distributor and other Service Organizations was approximately 0.17% and 0.06%,
respectively, of the Fund's average net assets. 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 approved by the Fund's stockholders on August 10, 1992 and
took effect on September 1, 1992. It was last approved by a majority of the
Fund's Trustees, including a majority of the trustees who have no direct or
indirect financial interest in the operation of the Plan or any of its
agreements ("Plan Trustees") on November 13, 1994. The Plan will be continued
from year to year, provided that such continuance is approved at least annually
by a vote of a majority of the Board of Trustees, including a majority of the
Plan Trustees.
The Glass-Steagall Act and other applicable laws currently prohibit banks
from engaging in the business of underwriting, selling or distributing
securities. Accordingly, unless such laws are changed, if the Fund engages banks
as Service Organizations, the banks would perform only administrative and
stockholder servicing functions. If a bank were prohibited from acting as a
Service Organization, alternative means for continuing the servicing of such
stockholders would be sought. State law may differ from Federal law and banks
and other financial institutions may be required to be registered as
broker-dealers to perform administrative and stockholder servicing functions.
The staff of the SEC has proposed amendments to Rule 12b-1. If the rule is
amended as proposed or in some other manner, it may be necessary for the Fund to
consider amending the Plan and any related agreements.
EXPENSES
The Fund's expenses are accrued daily and are deducted from its total
income before dividends are paid. These expenses include, but are not limited
to: fees paid to the Administrator and the Adviser; taxes; legal fees; custodian
and auditing fees; transfer agent fees; reimbursement of the costs incurred by
the Administrator in providing pricing and accounting services to the Fund; and
printing and other miscellaneous expenses paid by the Fund.
Under the Advisory and Administrative Agreements, if the Fund's ordinary
business expenses exceed the expense limitations of any state having
jurisdiction over the Fund, then the advisory and administration fees will be
reduced pro rata (but not below zero) to the extent necessary to comply with
such expense limitations. The Adviser and the Administrator have each agreed to
bear its pro rata share of any such fee reduction based on the percentage that
such person's fee bears to the total fees paid by the Fund to the Adviser under
the Investment Advisory Agreement and to the Administrator under the
Administration Agreement. Also, effective November 1, 1992 the Adviser has
voluntarily agreed to make additional payments to the Fund if the Fund's
operating expenses exceed 2.5% of its average net assets after reimbursement of
the advisory and administrative fees. The payments will be out of the Adviser's
own resources and will not be subject to repayment by the Fund. The Fund's
annual total operating expenses, after reimbursements from the Adviser and
Administrator and voluntary payments from the Adviser, during the fiscal year
ended October 31, 1994 were 2.50% of its average net assets.
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<PAGE> 18
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 is President of the Trust, and a Director
and President of the Administrator and the Distributor. Some officers of the
Trust are also officers of the Administrator, the Distributor and Capstone
Financial Services, Inc.
Shares of the Fund are sold in a continuous offering and may be purchased
on any business day through authorized investment dealers or directly from the
Fund's Distributor. Only the Distributor and investment dealers which have a
sales agreement with the Distributor are authorized to sell shares of the Fund.
(For further information, reference is made to the caption "Distributor" in the
Fund's Statement of Additional Information.)
After an order is received by the Distributor, shares will be credited to a
stockholder's account at the public offering price computed as of the close of
trading on the New Zealand Stock Exchange the following day. See "Determination
of Net Asset Value". The minimum initial investment is $200, except for
continuous investment plans which have no minimum, and there is no minimum for
subsequent purchases. No stock certificates representing shares purchased will
be issued except upon written request to the Fund's Transfer Agent. The Fund's
management reserves the right to reject any purchase order if, in its opinion,
it is in the Fund's best interest to do so.
The public offering price is the net asset value (see "Determination of Net
Asset Value") plus a sales charge which varies in accordance with the amount of
the purchase as follows:
<TABLE>
<CAPTION>
DEALER
SALES CHARGE AS A REALLOWANCE
PERCENTAGE OF AS A
-------------------- PERCENTAGE
NET OF
OFFERING AMOUNT OFFERING
AMOUNT OF SINGLE TRANSACTION PRICE INVESTED PRICE
---------------------------------------------- -------- -------- ----------
<S> <C> <C> <C>
Less than $100,000............................ 4.75% 4.99% 4.25%
$100,000 but less than $250,000............... 3.50% 3.63% 3.00%
$250,000 but less than $500,000............... 2.50% 2.56% 2.00%
$500,000 but less than $1,000,000............. 2.00% 2.04% 1.75%
$1,000,000 but less than $2,500,000........... 1.00% 1.01% .90%
$2,500,000 but less than $5,000,000........... .50% .50% .45%
$5,000,000 and over........................... .00% .00% .00%*
</TABLE>
---------------
* A negotiated broker commission will be paid by the Distributor.
The size of investment shown in the above table applies to the total amount
being invested by any person in shares of the Fund alone or in any combination
of shares of the Fund and shares of certain other Capstone Funds. See "Reduced
Sales Charges". The Distributor retains the entire sales charge when it makes
sales directly to the public. Dealers who receive 90% or more of the entire
sales charge may be deemed to be underwriters under the Securities Act of 1933.
At various times the Distributor may implement programs under which a
dealer's sales force may be eligible to win nominal awards for certain sales
efforts or under which the Distributor during such programs will reallow an
amount not exceeding the total applicable sales charges on the sales generated
by the dealer to any dealer that sponsors sales contests or recognition programs
conforming to criteria established by the Distributor, or participates in sales
programs sponsored by
17
<PAGE> 19
the Distributor. In addition, the Adviser, the Administrator and/or the
Distributor in their discretion may from time to time, pursuant to objective
criteria established by the Adviser, Administrator and/or the Distributor,
sponsor programs designed to reward selected dealers for certain services or
activities which are primarily intended to result in the sale of shares of the
Fund. Such payments are made out of their own assets, and not out of the assets
of the Fund. These programs will not change the price you pay for your shares or
the amount that the Fund will receive from such sale.
INVESTING THROUGH AUTHORIZED DEALERS
If any authorized dealer receives an order of at least $200, the dealer may
contact the Distributor directly. Orders received by dealers by the close of
trading on the New York Stock Exchange on a business day that are transmitted to
the Distributor by 5:00 p.m. EST on that day will be based on the public
offering price per share determined as of the close of trading on the New
Zealand Exchange on the following business day. See "Determination of Net Asset
Value". It is the dealer's responsibility to transmit orders so that they will
be received by the Distributor before 5:00 p.m. EST.
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 New Zealand Fund) for $200 or more together with the
completed Investment Application Form included in this Prospectus to the Fund's
Transfer Agent: Capstone New Zealand Fund, c/o Fund/Plan Services, Inc., 2 W.
Elm Street, P.O. Box 874, Conshohocken, Pennsylvania 19428. The $200 minimum
initial investment will be waived by the Distributor for plans involving
continuing investments (see "Stockholder Services"). There is no minimum for
subsequent investments, which may be mailed directly to the Transfer Agent. All
such investments are made at the public offering price determined as of the
close of trading on the New Zealand Stock Exchange on the following business day
after receipt of payment by the Transfer Agent. Confirmations of the opening of
an account and of all subsequent transactions in the account are forwarded by
the Transfer Agent to the stockholder's address of record.
TELEPHONE PURCHASE AUTHORIZATION (INVESTING BY PHONE)
Stockholders who have completed the Telephone Purchase Authorization
section of the Investment Application Form may purchase additional shares by
telephoning the Fund's Transfer Agent at (800) 845-2340. The minimum telephone
purchase is $1,000 and the maximum is the greater of $1,000 or five times the
net asset value of shares (for which certificates have not been issued) held by
the stockholder on the day preceding such telephone purchase for which payment
has been received. The telephone purchase will be made at the offering price
computed the next business day after receipt of the call by the Fund's Transfer
Agent. Payment for the telephone purchase must be received by the Transfer Agent
within seven days. If payment is not received within seven days, the stockholder
will be liable for all losses incurred as a result of the purchase.
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:
18
<PAGE> 20
United Missouri Bank KC NA, ABA #10-10-00695, For: Fund/Plan Services, Inc.,
Account #98-7037-0719; Further Credit Capstone New Zealand Fund. 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 New Zealand Fund, c/o Fund/Plan Services, Inc., 2 W. Elm Street, P.O.
Box 874, Conshohocken, Pennsylvania 19428.
Subsequent Purchases -- Additional investments may be made at any time
through the wire procedures described above, which must include the investor's
name and account number. The investor's bank may impose a fee for investments by
wire.
REDUCED SALES CHARGES
Investors can utilize one of the programs described below to reduce the
sales charge on purchases of shares of the Fund alone or on purchases of shares
of the Fund and certain other Capstone Funds.
Quantity Discounts -- Purchases of shares of the Fund and certain other
Capstone Funds made at the same time by a "Purchaser" may be combined to receive
a quantity discount. The term "Purchaser" is defined as:
-- an individual, his/her spouse and children under the age of 21, trust or
custodial accounts established for their sole benefit(s), and any
corporation, partnership or sole proprietorship which is 100% owned,
either alone or in combination, with any of the foregoing;
-- a trustee or other fiduciary purchasing for a single trust estate or a
single fiduciary account; and
-- a "company" as defined in Section 2(a)(8) of the Investment Company Act
of 1940.
Rights of Accumulation -- A Purchaser may also qualify for reduced sales
charges by combining the amount being invested in shares of the Fund and shares
of the Capstone Funds owned by the Purchaser calculated at the then current
offering price. To qualify for obtaining the discount on a particular purchase,
the Purchaser must send the Distributor a list of account numbers and the names
in which such accounts of the Purchaser are registered at the time the purchase
is made. If shares are being purchased through an authorized dealer, such
information must be communicated by the dealer to the Distributor at the time of
purchase.
Letter of Intent -- A Letter of Intent provides an opportunity for a
Purchaser to obtain a reduced sales charge by aggregating the investments in the
Fund and other Capstone Funds over a thirteen-month period to determine the
sales charge applicable to the amount invested. An alternative is to compute the
thirteen-month period starting up to ninety days before the date of the
execution of the Letter of Intent. Each investment made during the period
receives the reduced sales commission applicable to the total amount of the
investment goal. If all shares are not purchased, a price adjustment is made,
depending upon the actual amount invested within the period covered by the
Letter of Intent, by the redemption of sufficient shares held in escrow for the
account of the Purchaser. During the period of the Letter of Intent the Transfer
Agent will hold a portion of the
19
<PAGE> 21
shares purchased in escrow. Those shares will be released upon completion of the
intended investment. Additional information is contained in the Appendix in the
back of the Prospectus.
401(k) Plans -- For information concerning reduced sales charges applicable
to plans qualified under Section 401 of the Internal Revenue Code, reference is
made to the caption "Reduced Sales Charges" in the Fund's Statement of
Additional Information.
SALES AT NET ASSET VALUE
Purchases of the Fund's shares at net asset value without a sales charge
may be made by the following persons: (a) tax-exempt entities whose minimum
initial investment (or whose investment pursuant to a Letter of Intent) is
$250,000 or more, (b) purchases by a bank or trust company in a single account
where such bank or trust company is named as trustee and the minimum initial
investment (or whose investment pursuant to a Letter of Intent) is $250,000 or
more, (c) any current or retired officer, director, trustee or employee, or any
member of the immediate family of such person of the Fund, Adviser,
Administrator, Distributor or its affiliates thereof, (d) the Fund's Adviser,
Administrator, Distributor or any affiliated company thereof, (e) any employee
benefit plan established for employees of the Adviser, Administrator,
Distributor or its affiliates, (f) advisory clients of the Adviser or
Administrator of the Fund, (g) registered representatives and their spouses and
minor children and employees of broker-dealers who have entered into Selling
Group Agreements with the Distributor, (h) separate accounts of life insurance
companies or commingled accounts of financial institutions, (i) Tenneco Inc. and
its affiliates, present, future and retired employees and any employee benefit
plan established for such employees, (j) investors who are clients of recognized
consulting firms which provide consulting services to pension funds or
corporations, state and local governments, Taft-Hartley Plans and foundations
and endowments which have contacted the Fund, the Adviser, the Administrator or
the Distributor with respect to furnishing advice to such clients of such
consulting firm or with respect to distribution of securities of the Fund by
such client or purchase of securities of the Fund by such client, and (k) in
connection with the Fund's merger with or acquisition of any investment company
or trust. In the opinion of the Fund's management these sales will result in
less selling effort and expense.
If purchases by tax-exempt entities, bank or trust companies, separate
accounts or commingled accounts at net asset value are made through dealers who
have executed dealer agreements with respect to the Capstone Funds, the
Distributor may make a payment out of its own resources to such dealers.
DISTRIBUTIONS AND TAXES
PAYMENT OPTIONS
Distributions (whether treated for tax purposes as ordinary income or
long-term capital gains) to the Fund's stockholders 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 contained in 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 dividend and capital gain distributions in cash.
20
<PAGE> 22
The Fund intends to pay any dividends from investment company taxable
income and distributions representing net capital gains at least annually,
usually in December. The Fund will advise each stockholder annually of the
amounts of dividends from investment income and of long-term capital gain
distributions reinvested or paid in cash to the stockholder during the calendar
year.
If you select Option 1 or Option 2 and the U.S. Postal Service cannot
deliver your checks, or if your checks remain uncashed for six months, your
distribution checks will be reinvested in your account at the then-current net
asset value and your election will be converted to the purchase of additional
shares.
TAXES
The Fund intends to qualify as a regulated investment company under the
Federal tax law. As such, the Fund generally will not pay Federal income tax on
the income and gains it pays as dividends to its stockholders. In order to avoid
a 4% Federal excise tax, the Fund intends to distribute each year all of its net
income and gains.
Stockholders will be taxed on dividends received from the Fund, regardless
of whether received in cash or reinvested in additional shares. Stockholders
must treat dividends, other than capital gain dividends, as ordinary income.
Dividends designated as capital gain dividends are taxable to stockholders as
long-term capital gains. Certain dividends declared in October, November or
December of a calendar year are taxable to stockholders as though received on
December 31 of that year if paid to stockholders during January of the following
calendar year. The Fund will advise stockholders annually of the amount and
nature of dividends paid to them.
Investors are advised to consult their tax advisers with respect to the
particular tax consequences to them of an investment in the Fund. A more
detailed description of tax consequences to stockholders is contained in the
Statement of Additional Information.
REDEMPTION AND REPURCHASE OF SHARES
Generally, stockholders may require the Fund to redeem their shares by
sending a written request, signed by the record owner(s), to Capstone New
Zealand Fund, c/o Fund/Plan Services, Inc., 2 W. Elm Street, P.O. Box 874,
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. 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 the shares are
to be transferred, the owner's signature must be
21
<PAGE> 23
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 determined as of the close of trading on the New Zealand
Stock Exchange on the following business day after the request is received. See
"Determination of Net Asset Value". Broker-dealers may charge for their services
in connection with the repurchase, but, except as noted below, 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 redeeming stockholder may incur brokerage charges on the sale
of the securities.
The right of redemption and payment of redemption proceeds are subject to
suspension for any period during which the New York Stock Exchange is closed,
other than customary weekend and holiday closings, or when trading on the New
York Stock Exchange is restricted as determined by the Securities and Exchange
Commission; during any period when an emergency as defined by the rules and
regulations of the Securities and Exchange Commission exists; or during any
period when the Securities and Exchange Commission has by order permitted such
suspension. The 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.
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 Fund's Transfer Agent may at the time of such
redemption request that funds be mailed or wired to the commercial bank or
registered broker-dealer he has previously designated on the application form by
telephoning the Transfer Agent at (800) 845-2340. Redemption proceeds will be
calculated as of the close of trading on the New Zealand Stock Exchange on the
day following receipt of the redemption request, and will be sent to the
investor on the next (second) business day. In order to allow the Adviser to
manage the Fund more effectively, stockholders are strongly urged to initiate
redemptions as early in the day as possible. If a stockholder seeks to use an
expedited method of redemption of shares recently purchased by check, the Fund
may withhold the redemption proceeds until it is reasonably assured of the
collection of the check representing the purchase. 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. At the
present time there is no fee charged for this service. During periods of unusual
economic or market changes, stockholders may experience difficulties or delays
in effecting telephone redemptions.
When exchange or redemption requests are made by telephone, the Fund has
procedures in place designed to give reasonable assurance that such telephone
instructions are genuine,
22
<PAGE> 24
including recording telephone calls and sending written confirmation 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 Fund determines its net asset value per share on each day the New York
Stock Exchange is open for business. The Fund's 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.
Purchase, redemption or repurchase orders properly received by the
Distributor by 4:00 p.m. EST on Monday through Thursday are priced based upon
the net asset value determined as of the close of regular trading on the New
Zealand Stock Exchange (3:30 p.m. New Zealand time) on the following day. Orders
received by the Distributor prior to 4:00 p.m. EST on a Friday will be effected
at the net asset value determined as of the close of regular trading on the New
Zealand Stock Exchange on the following Monday. The Fund will in some cases
value its portfolio securities as of days on which the New Zealand Stock
Exchange is closed for holidays or other reasons. At such times the Fund will
follow such procedures as the trustees have determined to be reasonable.
The Fund's net asset value per share is computed by dividing the value of
the securities held by the Fund plus any cash or other assets (including any
accrued expenses) by the total number of Fund shares outstanding at such time.
To avoid large fluctuations in the computed net asset value, accrued expenses
will be charged against the Fund on a daily basis, i.e. 1/360 of the annual
amount due by the Fund each year.
Any assets or liabilities initially expressed in terms of foreign
currencies are translated into U.S. dollars at the prevailing market rates at
14:00 Greenwich Mean Time on each U.S. business day.
Portfolio securities which are primarily traded on securities exchanges are
valued at the last sale price on that exchange or, if there is no recent last
sale price available, at the last current bid quotation. A security which is
listed or traded on more than one exchange is valued at the quotation on the
exchange determined to be the primary market for such security. All other equity
securities not so traded are valued at the last current bid quotation prior to
the time of valuation.
Debt securities, except short-term obligations, are valued by using market
quotations or independent pricing services which use prices provided by market
makers or estimates of market values obtained from yield data relating to
instruments or securities with similar characteristics. Other securities,
including restricted securities, and other assets are valued at fair value as
determined in good faith by the Board of Trustees. Because of the need to obtain
prices as of the close of trading on the New Zealand Stock Exchange, the
calculation of net asset value does not take place contemporaneously with the
determination of the prices of the majority of the portfolio securities. If an
event were to occur after the value of a Fund instrument was so established but
before the net asset value per share is determined which is likely to materially
change the net asset value, the Fund instrument would be valued using fair value
considerations established by the Board of Trustees.
23
<PAGE> 25
STOCKHOLDER SERVICES
Capstone New Zealand Fund 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:
- 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
- Simplified Employee Pension Plans.
Dividends and distributions will be automatically reinvested without a
sales charge. For further details, including fees charged, tax consequences and
redemption information, see the specific plan documents which can be obtained
from the Fund.
Investors should consult with their tax adviser before establishing any of
the tax-deferred retirement plans described above.
EXCHANGE PRIVILEGE
Shares of the Fund which have been outstanding for 15 days or more may be
exchanged for shares of other Capstone Funds with no administrative charge. The
exchange of shares held 15 days or more will be effected at their relative net
asset values plus an amount equal to the difference, if any, between the sales
charges previously paid or deemed applicable with respect to the shares being
exchanged, and the sales charge payable on shares of the Capstone Fund for which
those shares are being exchanged, determined in accordance with applicable legal
requirements. The Fund reserves the right to reject exchange requests at any
time. A Fund stockholder requesting such an exchange will be sent a current
prospectus for the fund into which the exchange is requested. Shares held less
than 15 days cannot be exchanged. In such instances, the shares will be redeemed
(see "Redemption and Repurchase of Shares") and the entire sales commission paid
on the purchase will be refunded to the investor.
Purchases, redemptions and exchanges should be made for investment purposes
only. A pattern of frequent exchanges, purchases and sales may be deemed abusive
by the Administrator and, at the discretion of the Administrator, can be limited
by the Fund's refusal to accept further purchase and/or exchange orders from the
investor. Although the Administrator will consider all factors it deems relevant
in determining whether a pattern of frequent purchases, redemptions and/or
exchanges by a particular investor is abusive and not in the best interests of
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
24
<PAGE> 26
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.
Under certain circumstances, the sales charge incurred in acquiring shares
of the Fund may not be taken into account in determining the gain or loss on the
disposition of those shares. This rule applies where shares of the Fund are
exchanged within 90 days after the date they were purchased and new shares of a
Capstone Fund or another regulated investment company are acquired without a
sales charge or at a reduced sales charge. In that case, the gain or loss
recognized on the exchange will be determined by excluding from the tax basis of
the shares exchanged all or a portion of the sales charge incurred in acquiring
those shares. This exclusion applies to the extent that the otherwise applicable
sales charge with respect to the newly acquired shares is reduced as a result of
having incurred a sales charge initially. The portion of the sales charge
affected by this rule will be treated as a sales charge paid for the new shares.
The stockholder may exercise the following exchange privilege options:
Exchange by Mail -- Stockholders may mail a written notice requesting
an exchange to the Fund's Transfer Agent.
Exchange by Telephone -- Stockholders must authorize telephone
exchange on the application form filed with the Transfer Agent to exchange
shares by telephone. Telephone exchanges may be made from 9:30 a.m. to 4:00
p.m. Eastern time, Monday through Friday, except holidays. If certificates
have been issued to the investor, this procedure may be utilized only if he
delivers his certificates, duly endorsed for transfer, to the Transfer
Agent prior to giving telephone instructions. During periods of unusual
economic or market changes, stockholders may experience difficulties or
delays in effecting telephone exchanges.
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 confirmation of transactions. The Fund will not be liable for losses due
to unauthorized or fraudulent telephone transactions unless it does not follow
such procedures, in which case it may be liable for such losses.
PRE-AUTHORIZED PAYMENT
A stockholder 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. Pre-Authorized Payment
Forms can be obtained by contacting the Transfer Agent.
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 in the shares of the Fund of $5,000. The minimum amount which may be
withdrawn pursuant to this plan is $50.
These payments may constitute return of initial capital and do not
represent a yield or return on investment. In addition, such payments may
deplete or eliminate the investment. Stockholders
25
<PAGE> 27
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. It would not be advisable for
investors to make purchases of shares involving any sales charge while
participating in the Systematic Withdrawal Plan.
GENERAL INFORMATION
Capstone International Series Trust is an open-end diversified management
investment company, as defined in the Investment Company Act of 1940, as
amended. It was organized in Massachusetts in 1986 as a business trust. The Fund
was established as a separate series of the Trust on November 14, 1990. The
Trust is authorized to issue an unlimited number of shares of beneficial
interest of $0.01 par value and to divide such shares into separate series (or
funds). Stockholders are entitled to one vote for each full share held and to
fractional votes for fractional shares held in the election of Trustees (to the
extent hereafter provided) and on other matters submitted to the vote of
stockholders of the Fund. The Trust is not required to hold regular annual
meetings of stockholders and will do so only when required by law. There are no
cumulative voting rights. In the event additional series are established,
matters submitted to stockholder vote must be approved by each series except (i)
as to matters required by the Investment Company Act of 1940 to be voted on by
all stockholders as a single class and (ii) as to matters determined by the
Trustees not to affect a particular series, which will not be submitted to vote
by stockholders of that series. Stockholders may, in accordance with the
Declaration of Trust, cause a meeting of stockholders to be held for the purpose
of voting on the removal of Trustees. Fund 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.
Under Massachusetts law, stockholders of a business trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. The Declaration of Trust contains an express disclaimer of
stockholder liability for acts or obligations of the Trust. The Declaration of
Trust provides for indemnification out of the Trust's property for any
stockholder held personally liable for the obligations of the Trust. Thus, the
risk of a stockholder's incurring financial loss on account of stockholder's
liability is limited to circumstances in which the Trust itself would be unable
to meet its obligations.
The Fund's securities are held by Citibank, N.A. under a Custodian
Agreement with the Fund. Fund/Plan Services, Inc. acts as both Transfer Agent
and dividend paying agent for the Fund.
As of February 27, 1995, the following stockholders owned more than 5% of
the Fund's outstanding shares of beneficial interest: Elaine F. Shimberg (8.6%);
Charles E. and Jo Johns (5.5%); and John M. Haley, M.D. (5.1%).
Stockholders should address inquiries to the Fund at its address stated on
the cover page of this Prospectus.
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<PAGE> 28
APPENDIX
INFORMATION PERTAINING TO LETTER OF INTENT
Subject to conditions specified below, each purchase during the
thirteen-month period subsequent to the effective date of a Letter of Intent
(the "Letter") will be made at the public offering price applicable to a single
transaction of the dollar amount indicated, as described in the then effective
prospectus. The offering price may be further reduced under the Rights of
Accumulation if the Transfer Agent is advised of any shares previously purchased
and still owned. At any time during the period the investor may revise upward
his stated intention by submitting a written request to that effect. Such
revision shall provide for the escrowing of additional shares. The original
period of the Letter, however, shall remain unchanged. Each separate purchase
made pursuant to the Letter is subject to the terms and conditions contained in
the prospectus in effect at the time of that particular purchase. The Letter
does not constitute a commitment to purchase shares, but if purchases so made
within thirteen months from the date of the Letter do not aggregate the amount
specified, the investor must pay the increased amount of sales charge prescribed
in the terms of escrow. The investor or his dealer must refer to his Letter in
placing each future order for shares while his Letter is in effect. When
remitting funds directly to the Transfer Agent for investment in an account,
specific reference must be made to the Letter.
TERMS OF ESCROW
1. To assure compliance with provisions of the Investment Company Act of
1940, out of the initial purchase (or subsequent purchase if necessary) 5% of
the dollar amount indicated on the application form will be held in escrow in
the form of shares (computed to the nearest full share at the applicable public
offering price) registered in the Purchaser's name. These shares will be held at
the Fund's Transfer Agent and be subject to the terms of escrow.
2. If total purchases pursuant to the Letter equal the amount specified as
the expected aggregate purchases, escrow shares will be released from
restriction.
3. If the total purchases pursuant to the Letter are less than the amount
specified, the Purchaser shall remit to the Distributor an amount equal to the
difference between the dollar amount of sales charge actually paid and the
amount of sales charge which would have been paid on the total purchases if all
such purchases had been made at a single time. If the Distributor, within 10
business days after request, does not receive said difference in sales charge,
it will instruct the Fund's Transfer Agent to redeem an appropriate number of
escrow shares to realize such difference. If the proceeds from this redemption
are inadequate, the Purchaser will be liable to the Distributor for the
difference. The remaining shares after the redemption will be deposited to his
account unless otherwise instructed.
4. Pursuant to the Letter, the Purchaser hereby irrevocably constitutes and
appoints the Fund's Transfer Agent as attorney to surrender for redemption any
or all shares on the books of the Fund, under the conditions previously
outlined, with full powers of substitution in the premises.
REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
As all dividends and/or capital gain distributions are reinvested at net
asset value without sales commissions, shares acquired through reinvestment are
not applied to the Letter of Intent.
PROVISIONS FOR PRICE ADJUSTMENT
If total purchases made under a Letter and the Rights of Accumulation are
large enough to qualify for a lower sales charge than that applicable to the
amount initially specified, or if trades not initially made under a Letter
subsequently qualify for a lower sales charge through the 90-day back-dating
provisions (see "Reduced Sales Charges -- Letter of Intent" in the Prospectus),
an adjustment will be made at the expiration of the Letter to give effect to the
lower charge. Such adjustment in sales charge will be used to purchase
additional shares for the Purchaser.
CANCELLATION OR LIQUIDATION
If at any time prior to or after completion of a Letter of Intent the
Purchaser wishes to cancel the Letter, he must notify the Distributor in
writing. If at any time prior to the completion of a Letter of Intent the
Purchaser requests the Fund's Transfer Agent to liquidate his total shares, a
cancellation of the Letter will automatically be effected. Under either of the
above conditions the total amount purchased pursuant to the Letter may be less
than the amount specified as the expected aggregate purchases. If so, the Fund's
Transfer Agent will redeem an appropriate number of escrowed shares and remit to
the Distributor an amount equal to the difference between the dollar amount of
sales charge actually paid and the amount of sales charge which would have been
paid on the total purchases if all such purchases had been made at a single
time.
27
<PAGE> 29
CAPSTONE NEW ZEALAND FUND
A SERIES OF CAPSTONE INTERNATIONAL SERIES TRUST
SUPPLEMENT DATED MAY 24, 1995
TO
STATEMENT OF ADDITIONAL INFORMATION
DATED MARCH 1, 1995
THE FOLLOWING INFORMATION IS ADDED TO THE END OF THE TRUSTEES AND EXECUTIVE
OFFICERS SECTION ON PAGE 12 OF THE STATEMENT OF ADDITIONAL INFORMATION:
The following table represents the fees paid during the 1994 calendar year
to the trustees of the Trust and the total compensation each trustee received
during that period from the Capstone Fund complex.
COMPENSATION TABLE
<TABLE>
<CAPTION>
PENSION TOTAL
OR COMPENSATION
RETIREMENT FROM
BENEFITS REGISTRANT
ACCRUED ESTIMATED AND FUND
AGGREGATE AS ANNUAL COMPLEX
COMPENSATION PART BENEFITS PAID
NAME OF PERSON, FROM OF UPON TO
POSITION REGISTRANT* FUND RETIREMENT TRUSTEES
------------------------------------------------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
Eugene W. Potter, Jr., Trustee................... $1,000 $ 0 $ 0 $ 2,000(1)
Philip C. Smith, Trustee......................... 1,000 0 0 8,000(1)(2)(3)
Bernard J. Vaughan, Trustee...................... 1,000 0 0 7,000(1)(2)
</TABLE>
---------------
* Amounts do not include deferred compensation.
(1) Trustee of Capstone International Series Trust. -- Capstone Nikko Japan Fund
(2) Director of Capstone Fixed Income Series, Inc., Capstone Series, Inc. and
Capstone Growth Fund, Inc.
(3) Director of Medical Research Investment Fund, Inc.
THE LAST SENTENCE OF THE FIRST PARAGRAPH IN THE PORTFOLIO TRANSACTIONS AND
BROKERAGE SECTION ON PAGE 12 OF THE STATEMENT OF ADDITIONAL INFORMATION IS
AMENDED AS FOLLOWS:
Subject to the Fund's overall brokerage policies, the Adviser may effect
securities transactions through Capstone Asset Planning Company, TradeStar
Investments, Inc. and Williams MacKay Jordan & Mills, Inc., broker-dealer
affiliates of the Administrator, and with The Nikko Securities Company
International, Inc., an affiliate of the Fund's Adviser.
<PAGE> 30
CAPSTONE NEW ZEALAND FUND
A FUND
OF CAPSTONE INTERNATIONAL SERIES TRUST
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 1995
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 March 1,
1995. 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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information................................................... 2
Investment Policies and Restrictions.................................. 2
Performance Information............................................... 6
New Zealand........................................................... 7
New Zealand Stock Exchange............................................ 9
Trustees and Executive Officers....................................... 10
Investment Advisory Agreement......................................... 11
Administration Agreement.............................................. 12
Distributor........................................................... 12
Portfolio Transactions and Brokerage.................................. 13
Determination of Net Asset Value...................................... 15
How to Buy and Redeem Shares.......................................... 15
Reduced Sales Charges................................................. 16
Taxes................................................................. 16
Control Persons and Principal Holders of Securities................... 21
Other Information..................................................... 21
Appendix A............................................................ 22
Appendix B............................................................ 24
Financial Statements.................................................. 26
</TABLE>
<PAGE> 31
GENERAL INFORMATION
Capstone New Zealand Fund (the "Fund") commenced operations on November 25,
1991 as a series (or fund) of Capstone International Series Trust (the "Trust").
The Trust currently has one other active series, Capstone Nikko Japan Fund,
which invests primarily in Japanese securities. The Trust may create additional
series in the future, but each series will be treated as a separate mutual fund.
The Trust was organized as a business trust in Massachusetts on May 9, 1986 and
commenced business shortly thereafter. It is registered as an "open-end
diversified management investment company" under the Investment Company Act of
1940. The Fund is a member of a group of investment companies sponsored by
Capstone Asset Management Company (the "Administrator"), which also provides
administrative services to the Fund. FCA Corp (the "Adviser") serves as the
Fund's Investment Adviser.
INVESTMENT POLICIES AND RESTRICTIONS
OBLIGATIONS OF DOMESTIC BANKS, NEW ZEALAND BANKS AND NEW ZEALAND BRANCHES
OF U.S. BANKS. With respect to bank obligations that may be acquired by the
Fund, the assets of a bank or savings institution will be deemed to include the
assets of its domestic and foreign branches. Thus, in addition to investments in
obligations of U.S. banks and savings institutions and their U.S. and foreign
branches, the Fund's investments in short-term bank obligations may include
obligations of New Zealand and other non-U.S. banks and their branches, wherever
situated.
The Fund may also make overnight deposits denominated in New Zealand
dollars in offshore banking units ("OBUs"), in accordance with the Fund's credit
quality criteria. An OBU is a bank or other financial institution in New Zealand
that is authorized to deal in foreign exchange which the New Zealand government
declares to be an OBU. OBUs are restricted to (i) receiving deposits denominated
in New Zealand dollars from non-residents of New Zealand or deposits in
currencies other than the New Zealand dollar from New Zealand residents and (ii)
lending to non-residents outside New Zealand and to other OBUs. A deposit in an
OBU is similar to a time deposit in a New Zealand bank except that interest
payable to non-residents on an OBU deposit is exempt from withholding tax.
ZERO COUPON BONDS. Although zero coupon securities pay no interest to
holders prior to maturity, interest on these securities is reported as income to
the Fund and distributed to its stockholders. These distributions must be made
from the Fund's cash assets or, if necessary, from the proceeds of sales of
portfolio securities. The Fund will not be able to purchase additional income
producing securities with cash used to make such distributions and its current
income ultimately may be reduced as a result.
U.S. GOVERNMENT OBLIGATIONS. Examples of the types of U.S. Government
obligations which the Fund may hold include U.S. Treasury Bills, Treasury Notes
and Treasury Bonds and the obligations of Federal Home Loan Banks, Federal Farm
Credit Banks, Federal Land Banks, the Federal Housing Administration, Farmers
Home Administration, Export-Import Bank of the United States, Small Business
Administration, Federal National Mortgage Association, Government National
Mortgage Association, General Services Administration, Student Loan Marketing
Association, Central Bank for Cooperatives, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks, Maritime Administration,
International Bank for Reconstruction and Development (the "World Bank"), the
Asian-American Development Bank and the Inter-American Development Bank.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. When the Fund agrees to
purchase securities on a when-issued or forward commitment basis, the custodian
will set aside cash or liquid portfolio securities equal to the amount of the
commitment in a separate account. Normally, the custodian will set aside
portfolio securities to satisfy a purchase commitment, and in such a case the
Fund may be required subsequently to place additional assets in the separate
account in order to ensure that the value of the account remains equal to the
amount of the Fund's commitments. It may be expected that the market value of
the Fund's net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than when it sets aside
cash. Because the Fund's liquidity and ability to manage its portfolio might be
affected when it sets aside cash or portfolio securities to cover such purchase
commitments, the Fund expects that its
2
<PAGE> 32
commitments to purchase when-issued securities and forward commitments will not
exceed 25% of the value of its total assets, absent unusual market conditions.
The Fund will purchase securities on a when-issued or forward commitment
basis only with the intention of completing the transaction and actually
purchasing the securities. If deemed advisable as a matter of investment
strategy, however, the Fund may dispose of or renegotiate a commitment after it
is entered into, and may sell securities it has committed to purchase before
those securities are delivered to the Fund on the settlement date. In these
cases the Fund may realize a taxable capital gain or loss.
When the Fund engages in when-issued and forward commitment transactions,
it relies on the other party to consummate the trade. Failure of such party to
do so may result in the Fund's incurring a loss or missing an opportunity to
obtain a price considered to be advantageous.
The market value of the securities underlying a when-issued purchase or a
forward commitment to purchase securities, and any subsequent fluctuations in
their market value, is taken into account when determining the market value of
the Fund starting on the day the Fund agrees to purchase the securities. The
Fund does not earn interest on the securities it has committed to purchase until
they are paid for and delivered on the settlement date.
FOREIGN CURRENCY TRANSACTIONS. In order to protect against a possible loss
on investments resulting from a decline in the New Zealand dollar against the
U.S. dollar, the Fund is authorized to enter into forward foreign currency
exchange contracts. These contracts involve an obligation to purchase or sell a
specified currency at a future date at a price set at the time of the contract.
Forward currency contracts do not eliminate fluctuations in the values of
portfolio securities but rather allow the Fund to establish a rate of exchange
for a future point in time. The Fund may enter into forward foreign currency
exchange contracts when deemed advisable by its Adviser under two circumstances.
First, when entering into a contract for the purchase or sale of a
security, the Fund may enter into a forward foreign currency exchange contract
for the amount of the purchase or sale price to protect against variations
between the date the security is purchased or sold and the date on which payment
is made or received, in the value of the New Zealand dollar relative to the U.S.
dollar.
Second, the Fund may enter into such a contract when the Adviser
anticipates that the New Zealand dollar may decline substantially relative to
the U.S. dollar, in order to sell, for a fixed amount, the amount of New Zealand
dollars approximating the value of some or all of the Fund's securities
denominated in such New Zealand dollars. The Fund does not intend to enter into
forward contracts under this second circumstance on a regular or continuing
basis and will not do so if, as a result, the Fund will have more than 15% of
the value of its total assets committed to such contracts. With respect to any
forward foreign currency contract, it will not generally be possible to match
precisely the amount covered by that contract and the value of the securities
involved due to the changes in the values of such securities resulting from
market movements between the date the forward contract is entered into and the
date it matures. In addition, while forward contracts may offer protection from
losses resulting from declines in the value of the New Zealand dollar, they also
limit potential gains which might result from increases in the value of the New
Zealand dollar. The Fund will also incur costs in connection with forward
foreign currency exchange contracts and conversions of New Zealand dollars and
U.S. dollars.
A separate account of the Fund consisting of cash or liquid securities
equal to the amount of the Fund's assets that could be required to consummate
any forward contracts entered into under the second circumstance, as set forth
above, will be established with the Fund's custodian. For the purpose of
determining the adequacy of the securities in the account, the deposited
securities will be valued at market or fair value. If the market or fair value
of such securities declines, additional cash or securities will be placed in the
account daily so that the value of the account will equal the amount of such
commitments by the Fund.
YIELDS AND RATINGS. The yields on certain obligations are dependent on a
variety of factors, including general market conditions, conditions in the
particular market for the obligation, the financial condition of the issuer, the
size of the offering, the maturity of the obligation and the ratings of the
issue.
3
<PAGE> 33
The ratings of Moody's Investors Service, Inc. ("Moody's"), Standard &
Poor's Corporation ("S&P") and S&P -- Australian Ratings ("S&P Australian")
represent their respective opinions as to the quality of the obligations they
undertake to rate. (See Appendix A and B). Ratings, however, are general and are
not absolute standards of quality. Consequently, obligations with the same
rating, maturity and interest rate may have different market prices. Subsequent
to its purchase by the Fund, a rated security may cease to be rated. The Adviser
will consider such an event in determining whether the Fund should continue to
hold the security. In the event that the rating of the security is reduced below
the minimum rating required for purchase by the Fund, the Fund's Adviser may,
but will not necessarily, dispose of the security.
New Zealand obligations in which the Fund may invest may not necessarily be
rated by a recognized rating agency. Investments will be made in such
obligations only when they are deemed by the Adviser to meet the quality
standards required by the Fund.
INVESTMENT RESTRICTIONS. The Trust has adopted with respect to the Fund the
following "fundamental" restrictions which cannot be changed without approval by
the holders of a majority of the shares of beneficial interest in the Fund
("Fund shares"). Such majority is defined by the Investment Company Act of 1940
as the lesser of (i) 67% or more of the Fund shares 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. The Fund may not:
1. With respect to 75% of its total assets, purchase more than 10% of
the voting securities of any one issuer or invest more than 5% of the value
of such assets in the securities or instruments of any one issuer, except
securities or instruments issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
2. Purchase securities or instruments which would cause 25% or more of
the market value of the Fund's total assets at the time of such purchase to
be invested in securities or instruments of one or more issuers having
their principal business activities in the same industry or in securities
or instruments issued or guaranteed by a single government or its agencies
or instrumentalities, or with respect to repurchase agreements secured by
such securities or instruments, provided that there is no limit with
respect to investments in the U.S. Government, its agencies and
instrumentalities.
3. Borrow money, except that as a temporary measure for extraordinary
or emergency purposes it may borrow from banks in an amount not to exceed
1/3 of the value of its net assets, including the amount borrowed.
4. Issue any senior securities, except as appropriate to evidence
indebtedness which it is permitted to incur, and provided that collateral
arrangements with respect to forward contracts, futures contracts or
options, including deposits of initial and variation margin, are not
considered to be the issuance of a senior security for purposes of this
restriction.
5. Underwrite securities issued by other persons except to the extent
that in connection with the purchase of portfolio securities and their
later disposition it may be deemed to be an underwriter under the Federal
securities laws.
6. Purchase or sell real estate including limited partnership
interests (except that the Fund may invest in securities of companies which
deal in real estate and securities secured by real estate or interests
therein and the Fund reserves the freedom of action to hold and sell real
estate acquired as a result of the Fund's ownership of securities).
7. Purchase or sell commodities or commodity contracts, except that
the Fund may invest in futures contracts and in options related to such
contracts (for purposes of this restriction, forward foreign currency
exchange contracts are not deemed to be commodities).
8. Make loans to other persons except (a) through the lending of
securities held by it and (b) by the purchase of debt securities in
accordance with its investment policies.
4
<PAGE> 34
The Fund has adopted the following additional restrictions which are not
fundamental and which may be changed without stockholders' approval, to the
extent permitted by applicable law, regulation or regulatory policy. The Fund
may not:
a. Purchase securities on margin, except for such short-term credits
as are necessary for the clearance of transactions and in connection with
entering into futures contracts and related options;
b. Sell securities short or maintain a short position (except as may
be otherwise required in connection with the Fund's transactions in
futures, options or forward transactions or may be necessary in connection
with clearance of Fund transactions);
c. Invest more than 5% of its total assets in the aggregate in
securities of issuers which are not readily marketable, including
securities of issuers which together with any predecessors have a record of
less than three years continuous operation, repurchase agreements not
terminable within 7 days and restricted securities.
d. Invest in securities of other open-end investment companies (other
than in connection with a merger, consolidation, reorganization or
acquisition of assets) and may not invest in closed-end investment
companies if immediately after such investment (i) more than 5% of the
value of the Fund's total assets would be invested in the securities of any
one investment company; (ii) more than 10% of the value of its total assets
would be invested in securities of investment companies; (iii) more than 3%
of the outstanding voting stock of any one investment company would be
owned by the Fund; and (iv) more than 10% of the outstanding voting
securities of a closed-end investment company would be owned by the Fund,
other investment companies having the same investment adviser and companies
controlled by such investment companies;
e. Write put and call options unless the options are "covered," the
underlying securities are ones which the Fund is permitted to purchase and
the option is issued by the Options Clearing Corporation, provided that the
aggregate value of the securities underlying the calls or obligations
underlying the puts determined as of the date the options are sold shall
not exceed 25% of the Fund's net assets;
f. Buy and sell stock index futures, financial futures and put and
call options written by others on securities, stock indexes, stock index
futures and financial futures unless (a) the options or futures are offered
through the facilities of a national securities association which has
obtained applicable regulatory approval or are listed on a national
securities or commodities exchange, (b) the aggregate premiums paid on all
such options held by the Fund at any time do not exceed 20% of its total
net assets and (c) the aggregate margin deposits on all such futures and
premiums on related options held by the Fund at any time do not exceed 5%
of its total assets;
g. Purchase or retain for the Fund the securities of any issuer if
those officers and Trustees of the Trust, or directors and officers of its
investment adviser, who individually own more than 1/2 of 1% of the
outstanding securities of such issuer, together own more than 5% of such
outstanding securities;
h. Invest in oil, gas or other mineral leases or exploration or
development programs (although it may purchase securities of issuers which
own, sponsor or invest in such interests);
i. Pledge, mortgage or hypothecate its assets, except that to secure
permitted borrowings it may pledge securities having a value at the time of
the pledge of not more than 15% of the Fund's total assets taken at cost;
j. Invest more than 5% of the Fund's assets (valued at the lower of
cost or market) in warrants. Included within that amount, but not to exceed
2% of the value of the Fund's net assets, may be warrants which are not
listed on the New York or American Stock Exchange.
For purposes of restriction Nos. 1 and 2, above, a security or instrument
is considered to be issued by the entity (or entities) whose assets and revenues
back the security or instrument. A guarantee of a security or instrument shall
not be deemed to be a security or instrument issued by the guarantor when the
value of all securities and instruments issued and guaranteed by the guarantor,
and owned by the Fund, does not exceed
5
<PAGE> 35
10% of the value of the Fund's total assets. For purposes of restriction No. 2,
above, wholly-owned finance companies will be considered to be in the industries
of their parents if their activities are primarily related to financing the
activities of the parents and utilities will be divided according to their
services. For example, gas, gas transmission, electric and gas, electric and
telephone will each be considered a separate industry.
With regard to non-fundamental restriction No. c., above, included in the
5% limit will be, for purposes of determination of daily net asset value,
securities for which there is no sales price available or securities not quoted
on the New Zealand Stock Exchange or another exchange. The valuation of such
securities will be based on the average of quotations from two leading New
Zealand brokers in the relevant equity or fixed income securities market (see
"Determination of Net Asset Value" in the Prospectus). For purposes of non-
fundamental restriction No. i., above, securities held in escrow or separate
accounts in connection with the Fund's investment practices are not deemed to be
pledged.
Although the foregoing investment limitations would permit the Fund to
invest in options and to sell securities short against the box, the Fund does
not currently intend to trade in such instruments during the next twelve months.
In addition, although the foregoing investment limitations would permit the Fund
to invest in futures contracts and options on futures contracts, the Fund does
not intend to trade in such instruments during the next twelve months. Prior to
making any other such investments, the Fund would notify its stockholders and
add appropriate disclosure concerning the Fund's investment in such instruments
to the Prospectus and this Statement of Additional Information.
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 Fund's portfolio turnover rate for the
fiscal year ended October 31, 1993 was 32%.
PERFORMANCE INFORMATION
The Fund may from time to time include figures indicating its 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 per share earned during the period 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 the 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, 1994 the Fund's yield was 2.176%.
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 the maximum sales charge and a proportional share of Fund expenses on an
annual basis. The results, which are annualized, represent an average annual
compounded rate of return on a hypothetical investment in the Fund over a period
of 1, 5 and 10 years ending
6
<PAGE> 36
on the most recent calendar quarter (but not for a period greater than the life
of the Fund), calculated pursuant to the following formula:
<TABLE>
<S> <C> <C> <C>
P (1 + T)n = ERV
where P = a hypothetical initial payment of $1,000,
T = the average annual total return,
n = the number of years, and
ERV = the ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the period.
</TABLE>
For the fiscal year ended October 31, 1994 and the period November 25, 1991
(commencement of operations) to October 31, 1994, the Fund's average annual
total return was (11.810)% and 2.384%, respectively.
Quotations of total return, which are not annualized, represent historical
earnings and asset value fluctuations. Total return figures used in
advertisements or sales literature will not usually reflect the deduction of the
maximum sales charges which if deducted would reduce the Fund's total return.
For the fiscal year ended October 31, 1994 and the period November 25, 1991
(commencement of operations) to October 31, 1994, the Fund's total return was
(7.403)% and 7.504%, respectively.
Performance information for the Fund may be compared, in reports and
promotional literature, to those of other mutual funds with similar investment
objectives and to other relevant indexes or to ratings prepared by independent
services or other financial or industry publications that monitor the
performance of mutual funds. For example, the total return and/or yield of the
Fund may be compared to data prepared by Lipper Analytical Services, Inc., CDA
Investment Technologies, Inc. and Weisenberger Investment Company Service,
analytical firms such as Frank Russell Company and SEI Corporation and with the
performance of Standard & Poor's 500 Stock Index ("S&P 500"), Barclay's
Industrial Share Index, NZSE - 40, the Dow Jones Industrial Average ("DJIA"),
the Shearson Lehman Hutton Government Corporate Bond Index or other appropriate
unmanaged indexes of performance of various types of investments so that
investors may compare the Fund's results with those of indexes widely regarded
by investors as representative of the securities markets in general. Total
return and yield data as reported in national financial publications such as
Money Magazine, Forbes, Fortune, Business Review Weekly, The Wall Street Journal
and The New York Times, or in publications of a local or regional nature, may
also be used in comparing the performance of the Fund. Unmanaged indexes 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.
NEW ZEALAND
AREA AND POPULATION
New Zealand is located in the South Pacific just west of the International
Dateline. It is about 1,200 miles east of Australia, and approximately 4,000
miles southwest of Hawaii. The country is more than 1,000 miles long, consisting
of the North Island and the South Island and a number of smaller islands. The
total land area of approximately 103,000 square miles is similar in size to the
United Kingdom and Japan.
The population of New Zealand is approximately 3.5 million and has been
growing at approximately 1.2% over the last three years. Of the total
population, approximately 53% live in the five main urban areas of Auckland,
Hamilton, Christchurch, Dunedin and Wellington. Auckland, in the North Island,
is the major population and commercial center and Wellington, in the south of
the North Island, is the nation's capital and
7
<PAGE> 37
financial center. The population is approximately 82% of European origin and
approximately 14% Polynesian. English is the official language, although Maori
language is also officially recognized. The labor force of approximately 1.7
million people is mainly engaged in the services, manufacturing and construction
sectors.
GOVERNMENT
New Zealand is a sovereign state that is part of the British Commonwealth.
Pursuant to the Treaty of Waitangi, the Maori people reached an agreement for
the ongoing governance of New Zealand with the British monarch in 1840. Like
Australia and Canada, the British monarch is the titular Head of State. The
British Queen is represented in New Zealand by the Governor General, appointed
by her on the advice of the New Zealand Government.
New Zealand has a democratic parliamentary government based on the
Westminster system. Legislative power is vested in Parliament, a unicameral body
designated the House of Representatives. The House of Representatives currently
has 99 members who are elected for three-year terms in general elections at
which all residents over 18 years of age are entitled to vote. The executive
government of New Zealand is carried out by the Executive Council, which
consists of the Governor General, the Prime Minister and other Ministers chosen
from elected members of the House of Representatives. Six political parties are
currently represented in the House of Representatives. The National Party headed
by Jim Bolger holds 49 seats. The Labor Party holds 44 seats, the NZ First has 2
seats, Alliance has 2 seats, Right-of-Centre has 1 seat and Future NZ has 1
seat.
Future elections will be held under the mixed member proprietary ("MMP")
system. Loosely modeled after the German parliament, MMP is scheduled to take
effect either at the end of this government's current term in November, 1996 or
after April, 1995 if a general election is held. There will be 120 seats of
which 65 will be electorates and 55 from party lists. Any party receiving over
5% of the vote will receive the same number of seats.
The constitutional basis for government in New Zealand is an accumulation
of convention, precedent and tradition. The judicial system is based on the
British model. By convention, the judiciary is separate from the executive.
ECONOMIC STRUCTURE
New Zealand has a mixed economy that operates on free-market principles. It
has sizable service and manufacturing sectors complementing a large agriculture
sector. Over the past three decades, the New Zealand economy has undergone
significant structural changes marked by a diversification of exports, a shift
away from pastoral agriculture and significant growth in the services sector.
New Zealand's gross domestic product ("GDP") for the year ended March, 1994 was
approximately NZ $80.9 billion.
The New Zealand economy is strongly trade-oriented, with exports of goods
and services totalling 31% of GDP for the year ended March, 1994. Primary
products (principally agriculture, forestry, mining energy, fishing and
horticulture) accounted for approximately 61% of GDP of New Zealand's total
overseas earnings for the year. Exports of non-food manufactured goods and of
services also make large contributions to New Zealand's total exports. Principal
export markets for the year ended June, 1994 were Australia (21%), Japan (15%),
the United States (11%) and the United Kingdom (6%). Those countries were also
the main sources of imports for the same period: Australia (21%), the United
States (18%), Japan (16%) and the United Kingdom (6%). Principal imports are raw
materials and capital goods for manufacturing, followed by minerals, chemicals,
plastics and motor vehicles.
The increase in the complexity of the New Zealand economy has been
accompanied by a steady growth in service industries, which accounted for
approximately 54% of GDP for the year ended March, 1994. Finance, insurance and
real estate services are the largest components of the service industries,
followed by restaurants, hotels, transport and communications. Tourism is an
important source of foreign exchange revenue and a major growth industry in New
Zealand.
8
<PAGE> 38
ECONOMIC DEVELOPMENTS
Following a period of economic expansion after World War II, the New
Zealand economy deteriorated in the late 1960s. Faced with growing balance of
payments problems, successive governments sought to maintain New Zealand's high
standard of living with increased levels of overseas borrowings and increasingly
protective economic policies. Following the sharp increase in oil prices and a
fall in export prices in 1973 and 1974, New Zealand attempted to respond to
changed external circumstances. The policies implemented were aimed at
maintaining a high level of economic activity and led to macroeconomic
imbalances and structural adjustment problems. The successive shifts in oil and
commodity prices in 1979 and 1980 resulted in further economic difficulties.
Since 1984, successive administrations have implemented comprehensive
programs of economic reform. Macroeconomic policies have been directed at
achieving low inflation and fiscal balance. Macroeconomic policies have fostered
competition and efficient operation of markets. Policy-making has also shifted
from short-term to medium-term objectives designed to provide a more stable and
predictable environment for private sector decision-making. Principal reforms
have included: the removal of controls on prices, interest rates and wages;
floating of the exchange rate; abolition of all agricultural subsidies and price
supports; liberalization of banking; deregulation of financial markets;
corporatization and privatization of some state-owned enterprises; elimination
of most import controls and reduction of tariffs; implementation of free trade
with Australia; reform and reduction of business and personal taxes;
introduction of a comprehensive value-added tax; adoption of more flexible labor
laws; extensive deregulation of infrastructure (telecommunications, land
transport and seaports); and widespread reform of the public service sector.
Inflation has been reduced from over 18% in 1986 to less than 2% in 1994.
Interest rates have decreased dramatically. The average bank base lending rate
has decreased from over 21% in March 1987 to less than 12% in January 1995 and
the 90-day bank bill rate has fallen from over 22% in March 1986 to under 9.5%
in January 1995.
NEW ZEALAND STOCK EXCHANGE
The NZSE currently quotes the securities of more than 130 companies. Total
trading volume in value on the NZSE during 1993 was approximately NZ $12.5
billion (US $7.0 billion), and average trading volume in value per trading day
during 1993 was approximately NZ $51.2 million (US $28.7 million). The aggregate
market capitalization of the securities quoted on the NZSE at January 31, 1994
was approximately NZ $45.8 billion (US $25.6 billion), with the 6 largest listed
companies accounting for approximately 65% of the total market capitalization of
such securities.
Holders of securities that are quoted on the NZSE must generally instruct a
stockbroker who is a member of the NZSE to handle transactions in their
securities. Such stockbrokers are obliged to follow the NZSE's rules and
regulations. The members' compliance with the NZSE's regulatory requirements is
monitored by the Disciplinary Committee appointed by the NZSE Board of Directors
and the Board itself. There are 179 members of the NZSE representing 19 firms. A
number of those firms are subsidiaries or affiliates of international brokerage
houses or banks.
Until June 24, 1991, the NZSE operated trading floors in Auckland,
Wellington and Christchurch with trading conducted on an open outcry basis
through its members. The NZSE converted to national computer screen trading on
June 24, 1991. Trading is now conducted during one continuous daily trading
session running from 9:30 a.m. to 3:30 p.m. Bids, offers, the identity of the
prospective buying and selling brokers and recent sales prices of each quoted
security are displayed on the trading screen. There is automatic computer
matching of bids and offers by price and time priority. There are no constraints
on price fluctuations. There are no stamp taxes, levies or charges payable with
respect to trades on the NZSE, other than negotiable brokerage charges.
Trades in securities quotes on the NZSE can be effected outside the NZSE
trading system, outside the NZSE trading sessions, on different terms from sales
made through the NZSE trading system and outside the range of price quotations
for the days on which such trades were made. If such trades are conducted
through a broker who is a member of the NZSE, such trades must be reported to
the NZSE. The NZSE records off-
9
<PAGE> 39
market trades in a special report. As with on-market trades, off-market trades
of securities quoted on the NZSE are generally conducted by stockbrokers that
are members of the NZSE. There is, however, no restriction that prevents private
trades or transactions from being effected by persons who are not members of the
NZSE.
All trades on the NZSE are netted and confirmed daily between the brokers
through the NZSE in a single transaction. Upon consummation of a transaction,
the NZSE computer automatically calculates the amount owing by or to each
broker, offsets the amounts and simultaneously calculates the net overall
settlement of the broker to the NZSE on a daily basis. There is no fixed
settlement date for equity transactions, but NZSE regulations require that all
trades between brokers be settled within 10 business days. Settlements between
brokers are instigated by the selling broker giving notice to the buying broker
that it expects to settle on the next business day. The NZSE publishes a daily
official price list that includes price information on each listed security.
The NZSE generally requires listed companies to report annual and six-month
results in a timely fashion and disclose all capital changes or any significant
matters that may affect the value of the quoted securities. The NZSE also
requires listed companies to comply with certain procedures regarding certain
significant transactions and the issuance of shares. The NZSE has the power, in
certain circumstances, to suspend trading in the shares of a listed company and
to de-list a security.
Until mid-1991, the Barclays Industrial Share Price Index (the "Barclays
Index") was widely used to measure the performance of the New Zealand securities
market. The Barclays Index was composed of a basket of 40 leading equity
securities quoted on the NZSE weighted by their full market capitalization. In
1991, the NZSE introduced two new indices, the NZSE-40 Capital and the NZSE-30.
The NZSE-40 is calculated in the same manner as the prior Barclays Index. During
fiscal 1993 and 1994 the NZSE-40 Capital ranged from 1492 to 2225. The NZSE-30
measures the 30 largest issuers by value after excluding any shares held in
blocks of 30% or more.
TRUSTEES AND EXECUTIVE OFFICERS
The trustees and executive officers of the Trust are listed below. Certain
persons named as trustees also serve in similar capacities for other mutual
funds sponsored by the Distributor as indicated below.
* EDWARD L. JAROSKI, Trustee and President of the Trust. 5847 San Felipe,
Suite 4100, Houston, Texas 77057. Chairman of the Board and Director of
the Administrator since 1992; President and Director of Capstone Asset
Planning Company and Capstone Financial Services, Inc. since 1987;
Director/Trustee and officer of other Capstone Funds.
* SHIGEKAZU KURISHIMA, Trustee and President of Capstone Nikko Japan Fund.
350 Park Avenue, New York, New York 10022. Chairman and President of Nikko
Capital Management (U.S.A.), Inc. since 1991; formerly Adviser to the
Chairman of Wells Fargo Nikko Investment Advisors (1990-1991); General
Manager, Management Office of The Nikko Securities Co., Ltd. (1990); and
General Manager, International Investment Department of Nikko
International Capital Management Co., Ltd. (1987-1990).
EUGENE W. POTTER, JR., Trustee. 43 Elm Lane, Bronxville, New York 10708.
Corporate Director and Private Investor; Director of the Schafer Value
Fund, Inc. and Formula 40 U.S.A., Inc.
PHILIP C. SMITH, Trustee. 87 Lord's Highway, Weston, Connecticut 06880.
Private investor; Director of the Lexington Mutual Funds and other
Capstone Funds.
BERNARD J. VAUGHAN, Trustee. 113 Bryn Mawr Avenue, Bala Cynwyd,
Pennsylvania 19004. Director of other Capstone Funds; formerly Vice
President of Fidelity Bank (1979-1993).
---------------
* Trustee who is an interested person as defined in the Investment Company Act
of 1940.
10
<PAGE> 40
ROBERT W. SCHARAR, President of the Fund. 5847 San Felipe, Suite 850,
Houston, Texas 77057. President and Director of FCA Corp since 1983.
IRIS R. CLAY, Secretary. 5847 San Felipe, Suite 4100, Houston, Texas
77057. Assistant Secretary (1990-1994) and Assistant Vice President (since
1994) of Capstone Financial Services, Inc. and Capstone Asset Management
Company; Assistant Secretary (1990-1994) and Assistant Vice President
(since 1995) of Capstone Asset Planning Company; Manager, Mutual Fund
Administration (since 1993) and Compliance Analyst (1987-1993) with
Capstone Financial Services, Inc.; officer of other Capstone Funds.
NORMA R. YBARBO, Assistant Secretary. 5847 San Felipe, Suite 4100,
Houston, Texas 77057. Compliance Assistant (1987-1993), Compliance Analyst
(1993-1994) and Assistant Compliance Officer (since 1994) of Capstone
Financial Services, Inc.; officer of other Capstone Funds.
LINDA G. GIUFFRE, Treasurer. 5847 San Felipe, Suite 4100, Houston, Texas
77057. Treasurer (since 1990) and Secretary (since 1994) of Capstone
Financial Services, Inc. and Capstone Asset Management Company; Treasurer
(since 1990) and Secretary (since 1995) of Capstone Asset Planning
Company; officer of other Capstone Funds; formerly Transfer Agent Manager
with Capstone Financial Services, Inc. (1987-1990).
The trustees and officers of the Trust as a group own less than one percent
of the outstanding Fund shares. Messrs. Smith and Vaughan also receive
compensation for serving as directors of other investment companies sponsored by
the Administrator.
Each trustee not affiliated with the Adviser or Administrator is entitled
to $125 for each Board meeting attended, and is paid a $1,000 annual retainer.
The trustees and officers of the Trust are also reimbursed for expenses incurred
in attending meetings of the Board of Trustees. For the fiscal year ended
October 31, 1994, the Fund paid or accrued for the account of the trustees and
officers, as a group for services in all capacities, a total of $7,101.
INVESTMENT ADVISORY AGREEMENT
Pursuant to an investment advisory agreement dated November 25, 1991
between FCA Corp (the "Adviser") and Capstone International Series Trust (the
"Trust") with respect to the Fund, (the "Advisory Agreement"), the Adviser
manages the investment of the Fund's assets and places orders for the purchase
and sale of its portfolio securities. In connection with its responsibilities,
the Adviser provides the Fund with research, analysis, advice, and economic and
statistical data and judgments involving individual investments, general
economic conditions and trends, and long-range investment policy.
Under the Advisory Agreement, the Fund pays to the Adviser as compensation
for the services rendered by it a fee, calculated daily and payable monthly,
equal to an annual rate of 0.75% of the average net assets of the Fund. During
the fiscal year ended October 31, 1994 the Fund paid investment advisory fees in
the amount of $22,630, all of which was reimbursed to the Fund pursuant to an
expense limitation (see "Expenses" below).
The Advisory Agreement also provides that the Adviser shall not be liable
to the Fund for any errors or losses unless they result from willful
misfeasance, bad faith, gross negligence or reckless disregard of the Adviser's
duties under the Advisory Agreement.
The Advisory Agreement was last approved by the Board of Trustees on May 2,
1994 and may be continued from year to year if specifically approved at least
annually (a) by the Board of Trustees of the Trust or by vote of a majority of
the Fund's shares and (b) by the affirmative vote of a majority of the trustees
who are not parties to the agreement or interested persons of any such party by
votes cast in person at a meeting called for such purpose. The Advisory
Agreement provides that it shall terminate automatically if assigned and that it
may be terminated without penalty by either party on 60 days' written notice.
11
<PAGE> 41
ADMINISTRATION AGREEMENT
Under an agreement ("Administration Agreement") between the Trust and
Capstone Asset Management Company (the "Administrator"), the Administrator
supervises all aspects of the Fund's operations other than the management of its
investments. As part of these services, it oversees the performance of
administrative and professional services to the Fund by others; provides office
facilities; prepares reports to stockholders and the Securities and Exchange
Commission; and provides personnel for supervisory, administrative and clerical
functions. Except as noted below, the costs of these services are borne by the
Administrator. For the Administrator's services, the Fund will pay to the
Administrator a fee, calculated daily and payable monthly, equal to an annual
rate of 0.25% of the Fund's average net assets. During the fiscal year ended
October 31, 1994 the Fund paid administrative fees in the amount of $7,543, all
of which was reimbursed to the Fund pursuant to an expense limitation (see
"Expenses" below).
Under the Administration Agreement, the Fund bears the cost of its
accounting services, which includes maintaining its financial books and records
and calculating its daily net asset value. The cost of such accounting services,
which is currently $2,000 per month, includes the salaries and overhead expenses
of personnel of the Administrator, office space, facilities and equipment costs
attributable to the provision of accounting services to the Fund. The services
are provided at cost which is allocated among the investment companies
administered by the Administrator. The Administrator voluntarily reimbursed all
of the fees for accounting services it received from the Fund during the fiscal
year ended October 31, 1994. The Fund also pays transfer agency fees, custodian
fees, legal and auditing fees, the costs of printing reports to stockholders and
the Securities and Exchange Commission, and all other ordinary expenses not
specifically borne by the Administrator.
The Adviser and Administrator have each agreed to reduce their fees or to
reimburse the Fund if the ordinary business expenses of the Fund exceed any
expense limitation applicable to the Fund pursuant to the laws or regulations of
any state. Such reduction or reimbursement shall be shared by the Adviser and
the Administrator ratably in proportion to the fees received by or due to them
from the Fund. The most restrictive limitation is equal to the sum of 2 1/2% 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 1/2% of the Fund's average net
assets in excess of $100 million. Also, effective November 1, 1992 the Adviser
has voluntarily agreed to make additional payments to the Fund if the Fund's
operating expenses exceed 2.5% of its average net assets after reimbursement of
the advisory and administrative fees. The payments, which for the fiscal year
ended October 31, 1994 totaled $3,000, are out of the Adviser's own resources
and are not be subject to re-payment by the Fund.
During the fiscal year ended October 31, 1994 the annual total operating
expenses of the Fund prior to and after the reimbursements and payments by the
Adviser and Administrator were 4.40% and 2.50%, respectively.
DISTRIBUTOR
Capstone Asset Planning Company (the "Distributor"), acts as the principal
underwriter of the Fund's shares pursuant to an agreement, dated August 10,
1992, with the Trust (the "Distribution Agreement"). The Distributor has the
exclusive right to distribute Fund shares in a continuous offering through
affiliated and unaffiliated dealers. The Distributor's obligation is a "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. 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. Sales of Fund shares are subject to a sales charge equal to a
percentage of the net asset value of the sales to be purchased. See "Purchasing
Shares" in the Prospectus. The sales charge will be paid to the Distributor, who
is permitted to reallow the sales charge to broker-dealers who have an agreement
with the Distributor to participate in the offering of Fund shares. During the
fiscal year ended October 31, 1994 the Distributor received $4,251 from the sale
of Fund shares.
12
<PAGE> 42
The Distribution Agreement is renewable from year to year if approved (a)
by the Trust's Board of Trustees or by a vote of a majority of the Fund's shares
or (b) by the affirmative vote of a majority of trustees who are not parties to
the Distribution Agreement or interested persons of any party, by votes cast in
person at a meeting called for such purpose. The Distribution Agreement provides
that it will terminate if assigned, and that it may be terminated without
penalty by either party on 60 days' written notice.
Prior to August 11, 1992 the Distributor served as principal underwriter
pursuant to a written agreement with the Trust dated November 25, 1991 ("Old
Distribution Agreement"). The Distribution Agreement and Old Distribution
Agreement are substantially similar except that the Distribution Agreement
incorporates language which discusses adoption by the Fund of a Service and
Distribution Agreement (discussed below).
The Fund adopted, effective September 1, 1992, 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 Plan and related agreements were approved by
a vote of the Fund's Board of Trustees, and by a vote of the trustees 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 Trustees"), and by the Fund's stockholders at the
Special Meeting of Stockholders held August 10, 1992.
As required by Rule 12b-1, the trustees will review quarterly reports
prepared by the Distributor on the amounts expended and the purposes for the
expenditures. The Fund paid $6,828 in 12b-1 fees during the fiscal year ended
October 31, 1994, of which approximately 26% was paid to Service Organizations
other than the Distributor.
The Plan and related agreements may be terminated at any time by a vote of
the Plan Trustees or by a vote of a majority of the Fund's outstanding voting
securities. As required by Rule 12b-1, selection and nomination of the
disinterested trustees for the Fund is committed to the discretion of the
trustees who are not "interested persons" as defined under the 1940 Act.
Any change in the Plan that would materially increase the distribution
expenses of the Fund requires stockholder approval, but otherwise, the Plan may
be amended by the trustees, including a majority of the Plan Trustees.
The Plan will continue in effect for successive one year periods provided
that such continuance is specifically approved by a majority of the trustees,
including a majority of the Plan Trustees. Continuance of the Plan was last
approved by a majority of trustees and Plan Trustees on November 13, 1994. In
compliance with the Rule, the trustees, 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. 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. Except to the
extent that the Fund may pay higher brokerage commissions for brokerage and
research services (as described below) on a portion of its transactions executed
on securities exchanges, 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.
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<PAGE> 43
The Adviser may effect securities transactions through the Distributor and
Williams McKay Jordan & Mills, Inc., broker-dealer affiliates of the
Administrator, provided such placement of orders is consistent with the Fund's
objective of obtaining best price and execution.
Section 28(e) of the Securities Exchange Act of 1934 ("Section 28(e)")
permits an investment adviser, under certain circumstances, to cause an account
to pay a broker or dealer who supplies brokerage and research services a
commission for effecting a securities transaction in excess of the amount of
commission another broker or dealer would have charged for effecting the
transaction. Brokerage and research services include (a) furnishing advice as to
the value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities, (b) furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy, and the performance
of accounts, and (c) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement and custody).
The Trust's Board of Trustees has authorized the Adviser to cause the Fund
to incur brokerage commissions in an amount higher than the lowest available
rate in return for research services provided to the Adviser that provide lawful
and appropriate assistance to the Adviser in the performance of its decision-
making responsibilities. The Adviser is of the opinion that the continued
receipt of supplemental investment research services from dealers is essential
to its provision of high quality portfolio management services to the Fund. The
Adviser undertakes that such higher commissions will not be paid by the Fund
unless (a) the Adviser determines in good faith that the amount is reasonable in
relation to the services in terms of the particular transaction or in terms of
the Adviser's overall responsibilities with respect to the accounts as to which
it exercises investment discretion, (b) such payment is made in compliance with
the provisions of Section 28(e) and other applicable state and Federal laws and
regulations, and (c) in the opinion of the Adviser, the total commissions paid
by the Fund are reasonable in relation to the expected benefits to the Fund over
the long term. The investment advisory fee paid by the Fund under the Advisory
Agreement is not reduced as a result of the Adviser's receipt of research
services.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to seeking best execution and such other
policies as the Board of Trustees may determine, the Adviser may consider sales
of Fund shares as a factor in the selection of dealers to execute portfolio
transactions for the Fund.
The Adviser places portfolio transactions for other advisory accounts.
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. Because the volume and nature of the trading activities of
the accounts are not uniform, the amount of commissions in excess of the lowest
available rate paid by each account for brokerage and research services will
vary. However, in the opinion of the Adviser, such costs to the Fund will not be
disproportionate to the benefits received by the Fund on a continuing basis.
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, 1994, the Fund incurred brokerage
commissions of $15,696 which represented 0.52% of the Fund's average net assets.
Securities transactions effected through brokers who furnished the Fund with
statistical, research and advisory information amounted to $3,034,309 (100% of
the aggregate dollar amount of transactions executed with a commission), and
commissions paid by the Fund on these trades totaled $15,696 (100% of total
commissions). The Fund also executed trades in the amount of $706,795 in which a
"mark up" (the dealer's profit) was included in the price of the securities.
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<PAGE> 44
DETERMINATION OF NET ASSET VALUE
The Fund determines its net asset value per share on each day the New York
Stock Exchange is open for business. The Fund's 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.
Purchase, redemption or repurchase orders properly received by the
Distributor by 4:00 p.m. EST on Monday through Thursday are priced based upon
the net asset value determined as of the close of regular trading on the New
Zealand Stock Exchange (3:30 p.m. New Zealand time) on the following day. Orders
received by the Distributor prior to 4:00 p.m. EST on a Friday will be effected
at the net asset value determined as of the close of regular trading on the New
Zealand Stock Exchange on the following Monday. The Fund will in some cases
value its portfolio securities as of days on which the New Zealand Stock
Exchange is closed for holidays or other reasons. At such times, the Fund will
follow such procedures as the trustees have determined to be reasonable.
The Fund's net asset value per share is computed by dividing the value of
the securities held by the Fund plus any cash or other assets (including any
accrued expenses) by the total number of Fund shares outstanding at such time.
To avoid large fluctuations in the computed net asset value, accrued expenses
will be charged against the Fund on a daily basis, i.e. 1/360 of the annual
amount due by the Fund each year.
Any assets or liabilities initially expressed in terms of foreign
currencies are translated into U.S. dollars at the prevailing market rates at
14:00 Greenwich Mean Time on each U.S. business day.
Portfolio securities which are primarily traded on securities exchanges are
valued at the last sale price on that exchange or, if there is no recent last
sale price available, at the last current bid quotation. A security which is
listed or traded on more than one exchange is valued at the quotation on the
exchange determined to be the primary market for such security. All other equity
securities not so traded are valued at the last current bid quotation prior to
the time of valuation.
Debt securities, except short-term obligations, are valued by using market
quotations or independent pricing services which use prices provided by market
makers or estimates of market values obtained from yield data relating to
instruments or securities with similar characteristics. Other securities,
including restricted securities, and other assets are valued at fair value as
determined in good faith by the Board of Trustees. Because of the need to obtain
prices as of the close of trading on the New Zealand Stock Exchange, the
calculation of net asset value does not take place contemporaneously with the
determination of the prices of the majority of the portfolio securities. If an
event were to occur after the value of a Fund instrument was so established but
before the net asset value per share is determined which is likely to materially
change the net asset value, the Fund instrument would be value using fair value
considerations established by the Board of Trustees.
HOW TO BUY AND REDEEM SHARES
Shares of the Fund are sold in a continuous offering 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 charge a fee for this service in addition to the
Fund's public offering price.
Shares will be credited to a stockholder's account at the public offering
price determined as of the close of trading on the New Zealand Stock Exchange on
the following business day. See "Determination of Net Asset Value". 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.
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<PAGE> 45
Generally, stockholders may require the Fund to redeem their shares by
sending a written request, signed by the record owner(s), to the Capstone New
Zealand Fund, c/o Fund/Plan Services, Inc., P.O. Box 874, 2 W. Elm Street,
Conshohocken, Pennsylvania 19428. In addition, certain expedited redemption
methods are available. See "Redemption and Repurchase of Shares" in the
Prospectus.
REDUCED SALES CHARGES
401(k) Plans -- The schedule of sales charges below applies to sales to
plans qualified under Section 401 of the Internal Revenue Code. The reduced
sales charge, Rights of Accumulation and Letters of Intent, as to Section 401(k)
custodial plans for the account of each group member will be determined on an
individual basis, as will the sales charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS DEALER
A REALLOWANCE
PERCENTAGE OF AS A
--------------- PERCENTAGE
NET OF
OFFERING AMOUNT OFFERING
AMOUNT OF SINGLE TRANSACTION PRICE INVESTED PRICE
--------------------------------------------------------- -------- -------- -----------
<S> <C> <C> <C>
Less than $100,000....................................... 3.75% 3.90% 3.25%
$100,000 but less than $250,000.......................... 2.75% 2.83% 2.25%
$250,000 but less than $500,000.......................... 1.75% 1.78% 1.25%
$500,000 but less than $1,000,000........................ 1.00% 1.01% .90%
$1,000,000 or more....................................... 50% .50% .45%
</TABLE>
Please refer to "Purchasing Shares -- Reduced Sales Charges" in the Fund's
Prospectus for information regarding other programs which allow purchases of
Fund shares with a reduced sales charge.
TAXES
The following discussion summarizes certain U.S. Federal tax considerations
incident to an investment in the Fund. Investors are advised to consult their
own tax advisers with respect to the particular tax consequences to them of an
investment in the Fund.
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, among other
things: (1) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, and gains from
the sale or other disposition of stock, securities or foreign currencies, or
other income derived with respect to its business of investing in stock,
securities or foreign currencies; (2) derive in each taxable year less than 30%
of its gross income from the sale or other disposition of certain assets held
less than three months, namely: (i) stock or securities; (ii) options, futures,
or forward contacts (other than those on foreign currencies; or (iii) foreign
currencies (or options, futures, or forward contracts on foreign currencies)
that are not directly related to the Fund's principal business of investing in
stock or securities (or options and futures with respect to stock or
securities); (3) diversify its holdings so that, at the end of each quarter of
the taxable year (i) at least 50% of the market value of the Fund's assets is
represented by cash, U.S. Government securities, the securities of other
regulated investment companies and other securities, with such other securities
of any one issuer limited for the purposes of this calculation to an amount not
greater than 5% of the value of the Fund's total assets and 10% of the
outstanding voting securities of such issuer and (ii) not more than 25% of the
value of its total assets is invested in the securities of any one issuer (other
than U.S. Government securities or the securities of other regulated investment
companies); and (4) distribute in each taxable year at least 90% of its
investment company taxable income (which includes, among other items, dividends,
interest, certain foreign currency gains and net short-term capital gains in
excess of net long-term capital losses).
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<PAGE> 46
The Treasury Department is authorized to issue regulations to provide that
foreign currency gains that are not directly related to the Fund's principal
business of investing in stock or securities (or options and futures with
respect to stock or securities) may be excluded from the income which qualifies
for purposes of the 90% gross income requirement described above. To date,
however, no regulations have been issued.
As a regulated investment company, the Fund generally will not be subject
to Federal income tax on its investment company taxable income and net capital
gains (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 gains.
The Fund may invest in stocks of foreign companies that are classified
under the Code as passive foreign investment companies ("PFICs"). In general, a
foreign company is classified as a PFIC if at least one-half of its assets
constitute investment-type assets or 75% or more of its gross income is
investment-type income. Under the PFIC rules, an "excess distribution" received
with respect to PFIC stock is treated as having been realized ratably over the
period during which the Fund held the PFIC stock. The Fund itself will be
subject to tax on the portion, if any, of the excess distribution that is
allocated to the Fund's holding period in prior taxable years (and an interest
factor will be added to the tax, as if the tax had actually been payable in such
prior taxable years) even though the Fund distributes the corresponding income
to stockholders. Excess distributions include any gain from the sale of PFIC
stock as well as certain distributions from a PFIC. All excess distributions are
taxable as ordinary income.
The Fund may be able to elect alternative tax treatment with respect to
PFIC stock. Under an election that currently may be available, the Fund
generally would be required to include in its gross income its share of the
earnings of a PFIC on a current basis, regardless of whether any distributions
are received from the PFIC. If this election is made, the special rules,
discussed above, relating to the taxation of excess distributions, would not
apply. Alternatively, the Fund may elect to mark-to-market its PFIC stock,
resulting in the stock being treated as sold at fair market value on the last
business day of each taxable year. Any resulting gain would be reported as
ordinary income, and any resulting loss would not be recognized. If this
election were made, the special rules described above with respect to excess
distributions would still apply. The Fund's intention to qualify annually as a
regulated investment company may limit its elections with respect to PFIC stock.
Because the application of the PFIC rules may affect, among other things,
the character of gains, the amount of gain or loss and the timing of the
recognition of income with respect to PFIC stock, as well as subject the Fund
itself to tax on certain income from PFIC stock, the amount that 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 invest in PFIC stock.
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.
Amounts not distributed by the Fund 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 an amount equal to the sum of: (1) at least 98% of its ordinary
income (not taking into account any capital gains or losses) for the calendar
year; (2) at least 98% of its capital gains in excess of its capital losses for
the twelve month period ending on October 31 of the calendar year (reduced by
certain net operating losses, as prescribed by the Code); and (3) all ordinary
income and capital gain net income from 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 a distribution will be
taxable to stockholders in the calendar year in which it is declared,
17
<PAGE> 47
rather than the calendar year in which it is received. To prevent application of
the excise tax, the Fund intends to make its distributions in accordance with
the calendar year distribution requirement.
If the Fund retains net capital gains for reinvestment (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 net capital gains, would be able to claim their
proportionate share of the Federal income taxes paid by the Fund on such gains
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 stockholders 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 deductions. 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 stockholders whether reinvested in
additional shares of the Fund 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.
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, the 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.
OPTIONS, FUTURES AND FORWARD FOREIGN CURRENCY CONTRACT TRANSACTIONS. Many
of the options, futures and forward foreign currency contracts that may be
entered into by the Fund will be classified as "section 1256 contracts."
Generally, gains or losses on section 1256 contracts are considered to be 60%
long-term and 40% short-term capital gains or losses ("60/40"); however, foreign
currency gains or losses (as discussed below) arising from certain section 1256
contracts may be treated as ordinary income or loss. Also, section 1256
contracts held by the Fund at the end of each taxable year 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 transactions involving options, futures and forward foreign
currency contracts that may be 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 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 transactions in options, futures and forward foreign
currency contracts are not entirely clear. These transactions may increase the
amount of short-term capital gain realized by the Fund, which is taxed as
ordinary income when distributed to stockholders.
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<PAGE> 48
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 defer the recognition of losses and/or 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 transactions.
Certain requirements that must be met in order for the Fund to qualify as a
regulated investment company may limit the extent to which the Fund will be able
to undertake transactions involving options, futures and forward foreign
currency contracts.
FOREIGN CURRENCY GAINS AND LOSSES. Under the Code, gains or losses
attributable to fluctuations in foreign currency exchange rates which occur
between the time the Fund accrues interest or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the time the
Fund actually collects such receivables or pays such liabilities generally are
treated as ordinary income or ordinary loss. Similarly, on the disposition of
debt securities denominated in a foreign currency and on the disposition of
certain options, futures, forward foreign currency contracts and forward
contracts with respect to debt securities, gains or losses attributable to
fluctuations in the value of foreign currency between the date of acquisition of
the security or contract and the date of disposition also are treated as
ordinary gain or loss. These gains or losses, referred to under the Code as
"section 988" gains or losses, may increase or decrease the amount of the Fund's
investment company taxable income to be distributed to its stockholders as
ordinary income.
FOREIGN TAXES. Income received by the Fund from sources within foreign
countries may be subject to withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate these taxes. Under their current income tax treaty, between
the United States and New Zealand, the withholding tax imposed by New Zealand on
dividends from New Zealand sources is generally 15% and the withholding tax on
interest from New Zealand is generally 10%. It is impossible to determine the
rate of foreign tax in advance, since the amount of the Fund's assets to be
invested in various countries is not known.
If more than 50% of the value of the Fund's total assets at the close of
its taxable year consists of securities of foreign corporations, the Fund will
be eligible to elect to "pass-through" to the Fund's stockholders the amount of
foreign income and similar taxes paid by the Fund. If this election is made, a
stockholder will be required to include in gross income (in addition to taxable
dividends actually received) his pro rata share of the foreign income and
similar taxes paid by the Fund, and generally will be entitled either to deduct
(as an itemized deduction) his pro rata share of such foreign taxes in computing
his taxable income or to use it (subject to limitations) as a foreign tax credit
against his Federal income tax liability. Each stockholder will be notified
within 60 days after the close of the Fund's taxable year whether the Fund has
elected to "pass-through" its foreign taxes for that year and, if so, the
relevant amounts of foreign tax and foreign source income to be taken into
account by the stockholder. It cannot be determined in advance whether the Fund
will be eligible to make the foreign tax pass-through election. If the Fund is
ineligible to do so, the foreign income and similar taxes incurred by it
generally will reduce the Fund's investment company taxable income that is
distributable to stockholders.
Generally, a credit for foreign taxes is subject to the limitation that it
may not exceed the stockholder's U.S. Federal income tax attributable to his
total foreign source taxable income. For this purpose, if the pass-through
election is made, the source of the Fund's income will flow through to its
stockholders. With respect to the Fund, gains from the sale of securities
generally will be treated as derived from U.S. sources and certain currency
fluctuation gains, including fluctuation gains from foreign currency denominated
debt securities, receivables and payables will be treated as derived from U.S.
sources. The limitation on the foreign tax credit
19
<PAGE> 49
is applied separately to foreign source passive income and to certain other
types of income. Stockholders may be unable to claim a credit for the full
amount of their proportionate share of foreign taxes paid by the Fund. The
foreign tax credit may offset only 90% of the alternative minimum tax (prior to
reduction for the "regular" tax liability for the year) imposed on corporations
and individuals. In addition, foreign taxes may not be deducted by a stockholder
that is an individual in computing alternative minimum taxable income.
The foregoing is a general description of the foregoing tax credit under
current law. Because application of the credit depends on the particular
circumstances of each stockholder, stockholders are advised to consult their own
tax advisers.
DISPOSITION OF SHARES. Upon a taxable disposition (for example, a
redemption) of Fund shares, a stockholder may realize a taxable gain or loss,
depending upon his basis in his shares. That gain or loss will be a 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 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 distributions of
capital gain dividends received by the stockholder with respect to such shares.
Any 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
date of disposition of the shares. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss.
Under certain circumstances, the sales charge incurred in acquiring shares
of the Fund may not be taken into account in determining the gain or loss on the
disposition of those shares. This rules applies where shares of the Fund are
exchanged within 90 days after the date they were purchased and new shares of a
Capstone Fund or another regulated investment company are acquired without a
sales charge or at a reduced sales charge. In that case, the gain or loss
recognized on the exchange will be determined by excluding from the tax basis of
the shares exchanged all or a portion of the sales charge incurred in acquiring
those shares. This exclusion applies to the extent that the otherwise applicable
sales charge with respect to the newly acquired shares is reduced as a result of
having incurred a sales charge initially. The portion of the sales charge
affected by this rule will be treated as a sales charge for the new shares.
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 the Fund 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 Federal income tax liability.
FOREIGN STOCKHOLDERS -- U.S. FEDERAL INCOME TAXATION. U.S. Federal income
taxation of a stockholder who, as to the United States, is a non-resident alien
individual, a foreign trust or estate, a foreign corporation, or a foreign
partnership (a "foreign stockholder") depends on whether the income from the
Fund is "effectively connected" with a U.S. trade or business carried on by such
stockholder, as discussed generally below. Special U.S. Federal income tax rules
that differ from those described below may apply to foreign persons who invest
in the Fund. For example, the tax consequences to a foreign stockholder entitled
to claim the benefits of an applicable tax treaty may be different from those
described below. Foreign stockholders are advised to consult their own tax
advisers with respect to the particular tax consequences to them of an
investment in the Fund.
FOREIGN STOCKHOLDERS -- INCOME NOT EFFECTIVELY CONNECTED. If the income
from the Fund is not effectively connected with a U.S. trade or business carried
on by the stockholder, distributions of investment company taxable income
generally will be subject to a U.S. Federal withholding tax of 30% (or lower
treaty rate) on the gross amount of the distribution. Foreign stockholders may
also be subject to the U.S Federal withholding tax on the income resulting from
any election by the Fund to treat foreign taxes paid by it as paid by its
stockholders, but foreign stockholders will not be able to claim a credit or
deduction for the foreign taxes treated as having been paid by them.
20
<PAGE> 50
Distributions of net capital gains, if any, designated by the Fund as
capital gain dividends (as well as amounts retained by the Fund which are
designated as undistributed capital gains) and gain realized upon a disposition
of Fund shares generally will not be subject to U.S. Federal income tax unless
the foreign stockholder is a non-resident alien individual and is physically
present in the United States for more than 182 days during the taxable year.
However, this rule only applies in exceptional cases because any individual
present in the United States for more than 182 days during the taxable year
generally is treated as a resident for U.S. Federal income tax purposes and is
taxable on his worldwide income at the graduated rates applicable to U.S.
citizens, rather than the 30% U.S. Federal withholding tax. In the case of
certain foreign stockholders, the Fund may be required to withhold U.S. Federal
income tax at a rate of 31% of distributions of net capital gains and of the
gross proceeds from a redemption of Fund shares unless the stockholder furnishes
the Fund with certifications regarding the stockholder's foreign status. See
"Backup Withholding."
FOREIGN STOCKHOLDERS -- INCOME EFFECTIVELY CONNECTED. If the income from
the Fund is effectively connected with a U.S. trade or business carried on by a
foreign stockholder, then all distributions and any gains realized upon the
disposition of Fund shares will be subject to U.S. Federal income tax at the
graduated rates applicable to U.S. citizens and domestic corporations. Foreign
stockholders that are corporations may also be subject to the branch profits
tax.
FOREIGN STOCKHOLDERS -- ESTATE TAX. Foreign individuals generally are
subject to U.S. Federal estate tax on their U.S. situs property, such as shares
of the Fund, that they own at the time of their death. Certain credits against
such tax and relief under applicable tax treaties may be available.
OTHER TAXES. Distributions and redemption proceeds with respect to the Fund
also may be subject to state, local and foreign taxes, depending upon each
stockholder's particular situation. Stockholders are advised to consult their
tax advisers with respect to the particular tax consequences to them of an
investment in the Fund.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
The following table sets forth information concerning the persons which, to
the knowledge of the Fund's Board of Trustees, owned more than five percent of
the Fund's common stock as of February 27, 1995:
<TABLE>
<CAPTION>
PERCENT
OF
NAME AND ADDRESS OWNERSHIP
-------------------------------------------------------------- ---------
<S> <C>
Elaine F. Shimberg............................................ 8.6%
100 S. Ashley Drive, #820
Tampa, FL 33602-5309
Charles E. and Jo Johns....................................... 5.5%
733 Lakeway
El Paso, TX 79932
John M. Haley, M.D............................................ 5.1%
7149 Hillgreen
Dallas, TX 75214-1933
</TABLE>
OTHER INFORMATION
CUSTODY OF ASSETS. All securities owned by the Fund and cash from the sale
of securities in the Fund's investment portfolio are held by Citibank, N.A.
STOCKHOLDER REPORTS. Semi-annual reports are furnished to stockholders, and
annually the financial statements in such reports are audited by the independent
accountants.
INDEPENDENT ACCOUNTANTS. Tait, Weller & Baker, Two Penn Center Plaza, Suite
700, Philadelphia, PA 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.
21
<PAGE> 51
APPENDIX A
RATING DEFINITIONS
LONG-TERM RATINGS
AAA rated corporations, financial institutions, governments or asset-backed
financing structures (entities) have an extremely strong capacity to pay
interest and repay principal in a timely manner.
AA rated entities have a strong capacity to pay interest and repay
principal in a timely manner and differ from the highest rated entities only in
small degree.
A rated entities have a strong capacity to pay interest and repay principal
in a timely manner although they may be somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than those in higher
rating categories.
BBB rated entities have a satisfactory or adequate capacity to pay interest
and repay principal in a timely manner. Protection levels are more likely to be
weakened by adverse changes in circumstances and economic conditions than for
borrowers in higher rating categories.
Entities rated "BB", "B", "CCC", "CC" and "C" are regarded as having
predominantly speculative characteristics with respect to the capacity to pay
interest and repay principal. "BB" indicates the least degree of speculation and
"C" the highest. While such entities will likely have some quality and
protective characteristics these are outweighed by large uncertainties or major
exposures to adverse conditions.
BB rated entities face ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to a less adequate
capacity to meet timely debt service commitments.
B rated entities are more vulnerable to adverse business, financial or
economic conditions than entities in higher rating categories. This
vulnerability is likely to impair the borrower's capacity or willingness to meet
timely debt service commitments.
CCC rated entities have a currently identifiable vulnerability to default
and are dependent upon favorable business, financial and economic conditions to
meet timely debt service commitments. In the event of adverse business,
financial or economic conditions, they are not likely to have the capacity to
pay interest and repay principal.
CC is typically applied to debt subordinated to senior debt that is
assigned an actual or implied "CCC" rating.
C rated entities have a high risk of default or are reliant on arrangements
with third parties to prevent defaults.
D rated entities are in default. The rating is assigned when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired. The "D" rating is also used upon the
filing of insolvency petition or a request to appoint a receiver if debt service
payments are jeopardized.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
Rating Watch highlights an emerging situation which may materially affect
the profile of a rated corporation.
22
<PAGE> 52
SHORT-TERM RATINGS
INCLUDES COMMERCIAL PAPER (UP TO 12 MONTHS)
A.1 rated entities possess a strong degree of safety regarding timely
payment. Those entities determined to possess extremely strong safety
characteristics are denoted with an "A.1+" designation.
A.2 rated entities have a satisfactory capacity for timely payment.
However, the relative degree of safety is not as high as for those rated "A.1".
A.3 rated entities have an adequate capacity for timely repayment. They are
more vulnerable to the adverse effects of changes in circumstances than
obligations carrying the higher designations.
B rated entities have only a speculative capacity for timely payment. Those
with a "B.1" have a greater capacity to meet obligations and are somewhat less
likely to be weakened by adverse changes in the environment and economic
conditions than those rated "B.2".
C.1 rated entities possess a doubtful capacity for payment.
D.1 rated entities are in default.
RATINGS OF BBB- (LONG-TERM) OR A.3 (SHORT-TERM) AND ABOVE ARE INVESTMENT
GRADE.
23
<PAGE> 53
APPENDIX B
As stated in the Prospectus, the Fund has the authority to invest in
options on stock and stock indexes, futures contracts, options on futures
contracts and repurchase agreements, although the Fund does not currently intend
to trade in such instruments during the next twelve months.
HEDGING TRANSACTIONS. As indicated above, the Fund is authorized to engage
in certain types of hedging practices. These practices, which the Fund will
undertake only for hedging purposes, include entering into interest-rate and
index futures contracts and purchasing and writing put and call options on those
contracts, on individual securities and on stock indexes. It is anticipated that
use of these practices by the Fund will be very limited. In addition, the Fund's
options transactions will be subject to trading and position limits of various
exchanges. Tax considerations also may limit the Fund's ability to engage in
forward contracts and futures and options.
Interest-rate futures contracts create an obligation to purchase or sell
specified amounts of debt securities on a specified future date. Although these
contracts generally call for making or taking delivery of the underlying
securities, the contracts are in most cases closed out before the maturity date
by entering into an offsetting transaction which may result in a profit or loss.
Securities index futures contracts are contracts to buy or sell units of a
particular index of securities at a specified future date for an amount equal to
the difference between the original contract purchase price and the price at the
time the contract is closed out, which may be at maturity or through an earlier
offsetting transaction.
The purchase or writing of put or call options on futures contracts or
individual securities would give the Fund, respectively, the right or obligation
to sell or purchase the underlying futures contract or security at the stated
exercise price any time before the option expires. The purchase or writing of
put and call options on stock indexes would give the Fund, respectively, the
right or obligation to receive or pay a specified amount at any time prior to
expiration of the option. The value of the option varies with aggregate price
movements of the stocks reflected in the index. The Fund's risk in purchasing an
option, if the price of the underlying security or index moves adverse to the
purchaser, is limited to the premium it pays for the option. If price movements
are favorable, on the other hand, the option will increase in value and the Fund
would benefit from sale or exercise of the option. As the writer of an option,
the Fund would receive a premium. The premium would be gain to the Fund if price
movements in the underlying items are favorable to the writer and would reduce
the loss if price movements are unfavorable. Any call options written by the
Fund will be "covered", i.e., backed by securities owned by the Fund. The
writing of a covered call option tends to limit the Fund's opportunity to profit
from an increase in value of the underlying securities to the amount of the
premium.
To the extent required by applicable law and regulatory policy, the Fund
may deal only in options and futures that are traded on exchanges.
These hedging transactions, if any, would involve brokerage costs and
require the Fund to make margin deposits against its performance obligations
under the contracts. The Fund may also be required to segregate assets in an
amount equal to the value of instruments underlying its futures contracts, call
options purchased and put options written; to otherwise "cover" its futures and
options positions; or to limit these transactions so that they are backed to a
level of 300 percent by total Fund assets. The aggregate of initial margin
deposits for futures contracts and related options and premiums paid for open
futures options may not exceed 5 percent of the fair market value of the Fund's
assets.
If the Fund engages in hedging transactions, there can be no assurance that
these transactions will be successful. Securities prices and interest rates may
change in unanticipated manners or may move in ways which do not correlate
closely to movements in the value of securities held by the Fund. Additionally,
there can be no assurance that offsetting transactions will be available at any
given time to enable the Fund to close out particular futures or options
contracts. If these contracts cannot be closed out, the Fund may incur losses in
excess of its initial margin deposit. The bankruptcy of a broker or other person
with whom the Fund has an open futures or options position may also expose the
Fund to risk of losing its margin deposits or collateral.
24
<PAGE> 54
REPURCHASE AGREEMENTS
The Fund may agree to purchase debt securities from financial institutions
subject to the seller's agreement to purchase them at an agreed upon time and
price ("repurchase agreements"). The securities held subject to a repurchase
agreement may have stated maturities exceeding a year, provided the repurchase
agreement itself matures in less than one year. The financial institutions with
whom the Fund may enter into repurchase agreements will be banks, and non-bank
dealers of U.S. Government securities that are listed on the Federal Reserve
Bank of New York's list of reporting dealers, if such banks and non-bank dealers
are deemed creditworthy by the Fund's Adviser. The Adviser will continue to
monitor creditworthiness of the seller under the repurchase agreement, and will
require the seller to maintain during the term of the agreement the value of the
securities subject to the agreement at not less than the repurchase price. In
addition, the Adviser will mark-to-market daily the value of the securities, and
will, if necessary, require the seller to deliver additional securities to
ensure that the value is not less than the repurchase price. Default by or
bankruptcy of the seller would, however, expose the Fund to possible loss
because of adverse market action or delays in connection with the disposition of
the underlying obligations.
25
<PAGE> 55
CAPSTONE NEW ZEALAND FUND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees
of Capstone New Zealand Fund
We have audited the accompanying statement of assets and liabilities of
Capstone New Zealand Fund, including the portfolio of investments, as of October
31, 1994, and the related statement of operations for the year then ended, and
the statement of changes in net assets, for each of the two years in the period
then ended, and financial highlights for the periods presented. 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 the financial statements and financial
highlights are free from material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1994 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 New Zealand Fund as of October 31, 1994, and the results of its
operations, changes in its net assets and financial highlights for the periods
presented, in conformity with generally accepted accounting principles.
Tait, Weller & Baker
Philadelphia, Pennsylvania
November 18, 1994
26
<PAGE> 56
CAPSTONE NEW ZEALAND FUND
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
VALUE PERCENT
COMMON (NOTE OF NET
STOCKS -- 82.62% SHARES 1-A) ASSETS
------------------- ---------- --------- -------
<S> <C> <C> <C> <C>
AGRICULTURE -- 140,000 Huttons Kiwi, Limited................. $ 64,680 2.15%
MANUFACTURERS 2.15%
AGRICULTURE -- 60,000 Applefields, Limited.................. 33,264 1.10
PRODUCERS 45,000 Eastern Equities Corporation,
Limited............................... 35,482 1.18
2.81% 20,000 Tasman Agricultural, Limited.......... 14,784 0.49
10,000 Tasman Agricultural,
Limited -- Rights..................... 1,232 0.04
--------- ------
84,762 2.81
APPAREL 17,500 Ceramco Corp., Limited................ 39,670 1.32
MANUFACTURING 50,000 LWR Industries, Limited............... 63,448 2.10
5.09% 85,000 Underground Fashions, Limited......... 50,266 1.67
--------- ------
153,384 5.09
AUTOMOTIVE 120,000 The Colonial Motor Co., Limited....... 146,362 4.86
4.86%
CHEMICALS 16,000 Fernz Corporation, Limited............ 57,165 1.90
4.02% 25,000 Nuplex Industries, Limited............ 63,910 2.12
--------- ------
121,075 4.02
COMPUTERS 10,000 Advantage HDS Group, Limited.......... 10,410 0.34
3.06% 100,000 Wang New Zealand, Limited............. 81,928 2.72
--------- ------
92,338 3.06
FARM AND 68,700 Williams & Kettle, Limited............ 120,187 3.99
STATION SERVICES 30,000 Wrightson, Limited.................... 22,361 0.74
--------- ------
4.73%
142,548 4.73
FINANCIAL SERVICES 66,667 Baycorp Holdings, Limited(a).......... 51,334 1.70
6.70% 169,550 BNZ Finance Co., Limited.............. 131,598 4.37
20,000 Trust Bank New Zealand, Limited(a).... 19,096 0.63
--------- ------
202,028 6.70
FISHERY 40,000 Regal Salmon, Limited(a).............. 6,899 0.23
0.65% 5,300 Sanford, Limited...................... 12,569 0.42
--------- ------
19,468 0.65
FOOD AND BEVERAGES 75,000 Australian Brewing & Hospitality...... 21,344 0.71
4.24% 35,000 Mr. Chips Holdings, Limited........... 20,913 0.70
100,000 Progressive Enterprises, Limited...... 73,920 2.45
750,000 Wilson Neill, Limited(a).............. 11,550 0.38
--------- ------
127,727 4.24
</TABLE>
27
<PAGE> 57
CAPSTONE NEW ZEALAND FUND
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
VALUE PERCENT
(NOTE OF NET
SHARES 1-A) ASSETS
---------- -------- --------
<S> <C> <C> <C> <C>
FORESTRY 20,000 Paynter Timber Corp................... $ 14,784 0.49%
0.49%
HOLDING COMPANY 33,000 Broadway Industries, Limited.......... 32,525 1.08
1.08%
MANUFACTURING 10,000 Cavalier Corporation, Limited......... 21,375 0.71
DISTRIBUTION 3,000 Ebos Group, Limited................... 4,528 0.15
12.86% 48,753 Fisher & Paykel Ind................... 129,137 4.29
5,000 PDL Holdings, Limited................. 28,644 0.95
34,644 Salmond Smith Biolab, Limited......... 62,527 2.07
95,234 Skellerup Group, Limited.............. 141,379 4.69
--------- ------
387,590 12.86
MEDIA 19,100 Independent Newspapers, Limited....... 57,063 1.89
3.75% 31,300 Radio Pacific, Limited................ 51,094 1.70
975 Wilson & Horton, Limited.............. 4,805 0.16
--------- ------
112,962 3.75
MEDICAL SUPPLIES 145,400 Zuellig New Zealand, Limited.......... 112,854 3.74
3.74%
OIL & GAS 125,000 New Zealand Oil & Gas, Limited(a)..... 35,420 1.18
2.12% 2,000 New Zealand Refining, Limited......... 28,336 0.94
--------- ------
63,756 2.12
REAL ESTATE 88,656 New Zealand Guardian Trust............ 97,193 3.22
3.22%
RETAIL 34,900 Hallenstein Glasson Holdings,
Limited............................... 62,345 2.07
2.45% 5,000 Whitcoulls Group, Limited............. 11,519 0.38
--------- ------
73,864 2.45
TEXTILES 30,000 Designer Textiles, Limited............ 27,720 0.92
0.92%
TRANSPORTATION 10,000 Northland Port Corp., Limited......... 13,552 0.45
8.70% 71,800 Owens Group, Limited.................. 89,342 2.96
63,500 Ports of Auckland, Limited............ 88,011 2.92
95,000 Port of Tauranga, Limited............. 71,395 2.37
--------- ------
262,300 8.70
WASTE 30,458 Waste Management NZ Limited........... 150,097 4.98
--------- ------
4.98%
TOTAL COMMON STOCKS
(Cost $2,650,783)..................... $2,490,017 82.62%
--------- ------
</TABLE>
28
<PAGE> 58
CAPSTONE NEW ZEALAND FUND
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
VALUE PERCENT
(NOTE OF NET
BONDS -- 9.00% SHARES 1-A) ASSETS
------------------- ---------- --------- ------
<S> <C> <C> <C> <C>
CORPORATE $ 94,000 State Bank of South Australia
1.84% 9%, 07/30/02.......................... $ 55,456 1.84%
CONVERTIBLE NOTES 170,000 Corporate Investments Ltd.
7.16% 13.5%, 06/19/95....................... 91,106 3.02
150,000 Natural Gas Corp.
10.5%, 10/14/97....................... 124,740 4.14
--------- ------
215,846 7.16
--------- ------
TOTAL BONDS
(Cost $273,394)....................... 271,302 9.00
TOTAL INVESTMENTS
(Cost $2,924,177)(b).................. 2,761,319 91.62
OTHER ASSETS, LESS LIABILITIES........ 252,492 8.38
--------- ------
NET ASSETS............................ $3,013,811 100.00%
========= ======
</TABLE>
---------------
(a) Non-income producing security.
See Accompanying Notes to Financial Statements
29
<PAGE> 59
CAPSTONE NEW ZEALAND FUND
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities at market (identified cost $2,924,177) (Note
1-A)................................................................. $2,761,319
Cash................................................................... 33,669
Foreign currency holdings -- New Zealand Dollar account, at market
(Note 1-B)........................................................... 128,399
Receivables:
Trust shares sold.................................................... $92,893
Dividends and interest............................................... 5,842
Investment securities sold........................................... 145 98,880
-------
Deferred organizational expenses (Note 1-F)............................ 5,881
----------
Total assets................................................. 3,028,148
LIABILITIES:
Accrued expenses....................................................... 14,337
----------
NET ASSETS............................................................. $3,013,811
=========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE: ($3,013,811 / 288,624
shares of beneficial interest outstanding) $.01 par value, unlimited
shares authorized (Note 3)........................................... $ 10.44
=========
COMPUTATION OF OFFERING PRICE PER SHARE: (Net asset value $10.44 x
100/95.25)........................................................... $ 10.96
=========
SOURCE OF NET ASSETS:
Paid in capital...................................................... $3,041,805
Undistributed net investment income.................................. 39,166
Accumulated net realized gain on investments and currency
transactions...................................................... 93,623
Net unrealized depreciation of investments and foreign currencies.... (160,783)
----------
$3,013,811
=========
</TABLE>
See Accompanying Notes to Financial Statements
30
<PAGE> 60
CAPSTONE NEW ZEALAND FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Dividends (net of foreign taxes withheld of $16,427)................. $ 117,123
Interest (net of foreign taxes withheld of $542)..................... 8,002
----------
Total investment income...................................... 125,125
Expenses:
Advisory fees (Note 2)............................................... $22,630
Administration services (Note 2)..................................... 31,543
Transfer agent fees.................................................. 29,036
Professional fees.................................................... 12,334
Custodian fees....................................................... 9,596
Filing and registration fees......................................... 8,036
Trustees' fees and expenses.......................................... 7,101
Distribution fees (Note 2)........................................... 6,828
Reports and notices to stockholders.................................. 4,923
Amortization of organization expenses (Note 1-F)..................... 2,809
Miscellaneous........................................................ 702
-------
Total expenses............................................... 135,538
Less expenses waived and reimbursed by the Investment Adviser and
Administrator (Note 2)............................................... 57,173
-------
Net expenses................................................. 78,365
----------
Net investment income................................... 46,760
REALIZED AND UNREALIZED GAIN/LOSS ON INVESTMENTS:
Net realized gain from security transactions........................... 91,367
Realized gain on conversion of foreign currencies to U.S. dollars...... 2,256
-------
Net realized gain.................................................... 93,623
Unrealized depreciation of investments and foreign currencies.......... (388,809)
----------
Net realized and unrealized loss on investments and foreign
currencies........................................................ (295,186)
----------
Net decrease in net assets resulting from operations......... $ (248,426)
=========
</TABLE>
See Accompanying Notes to Financial Statements
31
<PAGE> 61
CAPSTONE NEW ZEALAND FUND
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------
1994 1993
--------- ---------
<S> <C> <C>
OPERATIONS:
Net investment income.............................................. $ 46,760 $ 12,815
Net change in unrealized appreciation (depreciation) of investments
and foreign currencies........................................... (388,809) 246,253
Net realized gain on investments and foreign currency
transactions..................................................... 93,623 54,289
--------- ---------
Net increase (decrease) in net assets resulting from
operations............................................. (248,426) 313,357
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.............................................. (13,407) --
Net realized gains from investment transactions.................... (67,021) --
TRUST SHARE TRANSACTIONS:
Increase in net assets resulting from Trust share transactions
(Note 3)......................................................... 610,656 1,535,620
--------- ---------
Net increase in net assets............................... 281,802 1,848,977
NET ASSETS:
Beginning of year.................................................. 2,732,010 883,033
--------- ---------
End of year (including undistributed net investment income of
$39,166 and $15,736, respectively................................ $3,013,812 $2,732,010
========= =========
</TABLE>
See Accompanying Notes to Financial Statements
32
<PAGE> 62
CAPSTONE NEW ZEALAND FUND
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1994
--------------------------------------------------------------------------------
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Capstone New Zealand Fund (the "Fund"), is one of two series of beneficial
interest of Capstone International Series Trust (the "Trust") which is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
a diversified open-end management investment company. The Trust was organized as
a Massachusetts business trust and has an unlimited number of $.01 par value
shares authorized. The following is a summary of significant accounting policies
followed by the Fund.
A) SECURITY VALUATION -- Portfolio securities which are traded on
securities exchanges are valued at the last sales price on that exchange prior
to the relevant closing or, if there is no recent last sales price available, at
the last current bid quotation. A security which is listed or traded on more
than one exchange is valued at the quotation on the exchange determined to be
the primary market for such security. Fixed income securities are valued using
market quotations or pricing services. In the absence of an applicable price,
securities will be valued at a fair value as determined in good faith in
accordance with procedures established by the trustees.
B) CURRENCY TRANSLATION -- For purposes of determining the Fund's net asset
value, all assets and liabilities initially expressed in foreign currency values
are converted into U.S. dollar values at the prevailing market rate at 14:00 GMT
on each U.S. business day, as established by the Board of Trustees. The cost of
securities is determined by using historical exchange rates. Income and expenses
are translated at approximate rates prevailing when accrued or incurred. The
Fund does not isolate that portion of gains and losses on investments which is
due to changes in foreign exchange rates from that which is due to changes in
market prices of the investments. Such fluctuations are included with the net
realized and unrealized gains and losses from investments.
C) ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on
the trade date. Realized gains and losses on security transactions are
determined based on the identified cost method. Dividend income and other
distributions are recorded on the ex-dividend date, except that certain
dividends from foreign securities are recorded as soon as the Fund is informed
after the ex-dividend date. Interest income and expenses are accrued daily.
D) FEDERAL INCOME TAXES -- No provision for Federal income taxes has been
made since it is the Fund's policy to continue to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income and realized capital gains to its
shareholders. Under the United States-New Zealand tax treaty, New Zealand
imposes a withholding tax of 15% of the dividends and 10% on interest. There is
currently no New Zealand tax on capital gains.
E) DISTRIBUTIONS TO SHAREHOLDERS -- The Fund distributes its net investment
income and net realized gains annually. Income and capital gain distributions
are determined in accordance with income tax regulations which may differ from
generally accepted accounting principles.
F) DEFERRED ORGANIZATION EXPENSES -- All expenses of the Fund incurred in
connection with its organization and the public offering of its shares have been
assumed by the Fund. These organization expenses are being amortized over a
five-year period beginning November 25, 1991.
G) RECLASSIFICATIONS -- The Fund has adopted Statement of Position 93-2
Determination, Disclosure, and Financial Presentation of Income, Capital Gain,
and Return of Capital Distributions by Investment Companies. Accordingly,
certain permanent book and tax basis differences relating to foreign currency
transactions and deferred organization costs have been reclassified to paid-in
capital. The cumulative effect of such differences during the current year was
to reclassify $9,922 from undistributed net investment income and $12,731 from
accumulated net realized gain on investments, respectively, to paid-in capital.
Investment income, net realized gain, and net assets were not affected by this
change.
33
<PAGE> 63
CAPSTONE NEW ZEALAND FUND
NOTE 2 -- INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Investment Adviser, FCA Corp (the "Adviser"), is paid a fee, calculated
daily and paid monthly, equal to an annual rate of 0.75% of the average net
assets of the Fund. Capstone Asset Management Company (the "Administrator"), is
paid a fee, calculated daily and paid monthly, equal to an annual rate of 0.25%
of the Fund's average net assets. The Administrator is also entitled to receive
a monthly fee representing the cost of certain accounting and bookkeeping
services, which is presently being waived.
The Adviser and Administrator have agreed to reduce their fees if the
ordinary business expenses of the Fund exceed any expense limitation applicable
to the Fund pursuant to the laws or regulations of any state. The most
restrictive limitation presently applicable to the Fund is equal to the sum of
2.5% of the first $30 million of the Fund's average net assets, 2.0% 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, 1994, the
Adviser and the Administrator waived their fees in the amounts of $22,630 and
$31,543, respectively. Also, the Adviser voluntarily reimbursed the Fund for
$3,000 of additional expenses.
Capstone Asset Planning Company ("CAPCO"), as principal underwriter and
exclusive distributor of the Fund's shares, received $2,498 in commissions and
$1,753 in underwriting fees on sales of the Fund's shares for the year ended
October 31, 1994.
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 the distribution of the
Fund's shares. Under the Plan, the Fund pays CAPCO an amount computed at an
annual rate of up to 0.35% 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 up to 0.25% of 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, 1994, the Fund paid $6,828 in 12b-1 fees, of which
approximately 26% was paid to Service Organizations other than CAPCO.
The Administrator is an affiliate of CAPCO and both are wholly-owned
subsidiaries of Capstone Financial Services, Inc. ("CFS"). Certain officers and
trustees of the Trust and the Fund who are also officers and directors of the
Adviser, the Administrator, CAPCO and CFS, received no compensation from the
Fund. During the year ended October 31, 1994 trustees of the Fund who are not
"interested persons" received fees of $3,000.
NOTE 3 -- TRUST SHARES
Transactions in Trust shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------------------
1994 1993
-------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
------- --------- ------- ----------
<S> <C> <C> <C> <C>
Shares sold..................................... 71,667 $ 808,082 145,782 $1,545,502
Shares issued to shareholders in reinvestment of
distributions................................. 7,114 78,968
------- --------- ------- ----------
78,781 887,050 145,782 1,545,502
Shares redeemed................................. (25,536) (276,394) (940) (9,882)
------- --------- ------- ----------
Net increase.................................... 53,245 $ 610,656 144,842 $1,535,620
======= ========= ======= =========
</TABLE>
34
<PAGE> 64
CAPSTONE NEW ZEALAND FUND
NOTE 4 -- PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term obligations,
aggregated $1,926,195 and $1,161,145, respectively. At October 31, 1994 the cost
of investments for Federal income tax purposes was $2,924,177. Accumulated net
unrealized appreciation on investments was $162,858, consisting of $271,450
gross unrealized appreciation and $434,307 of gross unrealized depreciation.
35
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from (a) the
Annual Report of Capstone New Zealand Fund for the fiscal year ended October 31,
1994.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> CAPSTONE NEW ZEALAND FUND
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-START> NOV-01-1993
<PERIOD-END> OCT-31-1994
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 2,924,177
<INVESTMENTS-AT-VALUE> 2,761,319
<RECEIVABLES> 98,880
<ASSETS-OTHER> 162,068
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,028,148
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 14,337
<TOTAL-LIABILITIES> 14,337
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,041,805
<SHARES-COMMON-STOCK> 288,624
<SHARES-COMMON-PRIOR> 235,379
<ACCUMULATED-NII-CURRENT> 39,166
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 93,623
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (160,783)
<NET-ASSETS> 3,013,811
<DIVIDEND-INCOME> 117,123
<INTEREST-INCOME> 8,002
<OTHER-INCOME> 0
<EXPENSES-NET> 78,365
<NET-INVESTMENT-INCOME> 46,760
<REALIZED-GAINS-CURRENT> 93,623
<APPREC-INCREASE-CURRENT> (388,809)
<NET-CHANGE-FROM-OPS> (248,426)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (13,407)
<DISTRIBUTIONS-OF-GAINS> (67,021)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 71,667
<NUMBER-OF-SHARES-REDEEMED> 25,536
<SHARES-REINVESTED> 7,114
<NET-CHANGE-IN-ASSETS> 53,245
<ACCUMULATED-NII-PRIOR> 15,736
<ACCUMULATED-GAINS-PRIOR> 54,289
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 22,630
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 78,365
<AVERAGE-NET-ASSETS> 3,017,333
<PER-SHARE-NAV-BEGIN> 11.61
<PER-SHARE-NII> .16
<PER-SHARE-GAIN-APPREC> (1.00)
<PER-SHARE-DIVIDEND> .055
<PER-SHARE-DISTRIBUTIONS> .275
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.44
<EXPENSE-RATIO> 2.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
