CAPSTONE INTERNATIONAL SERIES TRUST, 485BPOS, 1996-02-29

CAPSTONE INTERNATIONAL SERIES TRUST
485BPOS, 1996-02-29

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<PAGE> 1
REGISTRATION NO. 33-6867

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /

Pre-Effective Amendment No. _____ / /

Post-Effective Amendment No. 25 / X /

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / X /

Capstone International Series Trust
on behalf of its series, Capstone New Zealand Fund
- ------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)

5847 San Felipe, Suite 4100, Houston, Texas 77057
- ------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Including Area Code (713) 260-9000
- ------------------------------------------------------------------------------
Allan S. Mostoff, Esq., Dechert Price & Rhoads
- ------------------------------------------------------------------------------
1500 K Street, N.W., Suite 500, Washington, DC 20005
- ------------------------------------------------------------------------------
(Name and Address of Agent for Service)

It is proposed that this filing will become effective (check appropriate box)

/ X / immediately upon filing pursuant to paragraph (b).

/ / on ________________ pursuant to paragraph (b).

/ / 60 days after filing pursuant to paragraph (a).

/ / on (date) pursuant to paragraph (a) of rule 485.

The Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of 1940,
and:

/ X / filed the notice required by that Rule on December 28, 1995; or

/ / intends to file the notice required by that Rule on or about
________________; or

/ / during the most recent fiscal year did not sell any securities
pursuant to Rule 24f-2 under the Investment Company Act of
1940, and, pursuant to Rule 24f-2(b)(2), need not file the
Notice.

Total Pages ______ Exhibit Index Page _______

<PAGE> 2
CAPSTONE INTERNATIONAL SERIES TRUST
CAPSTONE NEW ZEALAND FUND
CROSS REFERENCE SHEET
BETWEEN
ITEMS OF FORM N-1A AND PROSPECTUS
(PART A TO REGISTRATION STATEMENT NO. 33-6867)
<TABLE>
<CAPTION>
Item
Number Form N-1A Heading Caption in Prospectus
- ------ ----------------- ---------------------
<S> <C> <C>
1. Cover Page Prospectus Cover Page

2. Synopsis Prospectus Summary

3. Condensed Financial Information Financial Highlights

4. General Description of Registrant Investment Objective and Policies;
Risk Factors; The New Zealand
Economy and Securities Market;
Risk Factors; Investment
Restrictions; Management of the
Fund; General Information

5. Management of the Fund Management of the Fund

6. Capital Stock and Other Securities General Information; Distributions
and Taxes

7. Purchase of Securities Being Determination of Net Asset Value;
Offered Purchasing Shares

8. Redemption or Repurchase Redemption and Repurchase of Shares

9. Pending Legal Proceedings Inapplicable
</TABLE>

<PAGE> 3
CAPSTONE NEW ZEALAND FUND

A Fund of
Capstone International Series Trust

5847 San Felipe, Suite 4100
Houston, TX 77057
1-800-262-6631

FEBRUARY 29, 1996

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 February
29, 1996 has been filed with the Securities and Exchange Commission and
contains further information about the Fund. A copy of the Statement of
Additional Information may be obtained without charge by calling or writing
the Fund at the telephone number or address listed above. The Statement of
Additional Information is incorporated herein by reference.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
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> 4
CAPSTONE NEW ZEALAND FUND

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 OF CONTENTS

PAGE
----

Prospectus Summary. . . . . . . . . . . . . . . . . .3
Fund Expenses . . . . . . . . . . . . . . . . . . . .5
Financial Highlights. . . . . . . . . . . . . . . . .7
Investment Objective and Policies . . . . . . . . . .8
The New Zealand Economy and Securities Market . . . 10
Risk Factors. . . . . . . . . . . . . . . . . . . . 11
Investment Restrictions . . . . . . . . . . . . . . 12
Performance Information . . . . . . . . . . . . . . 13
Management of the Fund. . . . . . . . . . . . . . . 14
Purchasing Shares . . . . . . . . . . . . . . . . . 17
Distributions and Taxes . . . . . . . . . . . . . . 19
Redemption and Repurchase of Shares . . . . . . . . 20
Determination of Net Asset Value . . . . . . . . . 21
Stockholder Services . . . . . . . . . . . . . . . 22
General Information . . . . . . . . . . . . . . . . 24

No dealer, salesman, or any other person has been authorized to give
any information or to make any representations, other than those contained
in this Prospectus, in connection with the offer contained in this
Prospectus and, if given or made, such other information or representations
must not be relied upon as having been authorized by the Fund or its
Distributor. This Prospectus does not constitute an offer by the Fund or
by the Distributor to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful for the Fund or the Distributor to make such offer or solicitation
in such jurisdiction.

<PAGE> 5
CAPSTONE 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
24)

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 the New
Zealand securities market. (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
Fund is the Adviser's only investment company
client. (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 15)

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
2.52% of its average net assets. (see page 17)

Dividends and . . . . . . . The Fund pays dividends from net investment income
Distributions and distributions from capital gains, if any, at
least annually. (see page 19)

<PAGE> 6

Distributor and Offering. . Shares of the Fund are continuously offered for sale
Price through the Fund's Distributor, Capstone Asset
Planning Company, without a sales load, at the net
asset value next determined after receipt of the
order. The Fund 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 next
determined net asset value, without charge. (see
page 20)

<PAGE> 7
FUND EXPENSES

SHAREHOLDER TRANSACTION EXPENSES

Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) 0%

Maximum Sales Load Imposed on Reinvested
Dividends (as a percentage of offering price) 0%

Deferred Sales Load (as a percentage of
original purchase price or redemption of
proceeds, as applicable) 0%

Redemption Fees (as a percentage of amount
redeemed) 0%

Exchange Fee 0%

ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)

Management and Administration Fees 0.00%
(After expense reimbursements)
12b-1 Fees* 0.25%
Other Expenses 2.19%
(After expense reimbursements)
Total Fund Operating Expenses 2.44%

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: $25 $76 $130 $278
</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").

<PAGE> 8

The purpose of the foregoing table is to assist investors in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. The management 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 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 effective August 21, 1995. The actual amount paid
by the Fund during the fiscal year ended October 31, 1995 was 0.33% of its
average net assets. (Prior to August 21, 1995 the maximum payout permitted
under the 12b-1 Plan was 0.35% of the Fund's average net assets). The 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 3.44% of the Fund's average net
assets, Total Fund Operating Expenses would have been 4.77%, (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 $48,
$144, $240, and $483, 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.

<PAGE> 9
FINANCIAL HIGHLIGHTS

The following table sets forth the per share operating performance
data for a share of capital stock outstanding, total return, ratios to
average net assets and other supplemental data for each year indicated.
This information has been derived from information provided in the Fund's
financial statements which have been examined by Tait, Weller & Baker,
independent certified public accountants. The Fund's Annual Report
contains additional performance information and is available free of charge
upon request by calling the Fund at 800-262-6631.

<TABLE>
<CAPTION>
Year Ended October 31,
-------------------------------------
1995 1994 1993 1992*
---- ---- ---- ----
PER SHARE DATA
<S> <C> <C> <C> <C>
Net asset value at beginning of year . . $10.44 $11.61 $ 9.75 $10.00
------ ------ ------ ------
Income from investment operations:
Net investment income(loss). . . . . . .31 .16 .09 (.06)
Net realized and unrealized
gain(loss) on investments. . . . . . . .90 (1.00) 1.77 (.19)
------ ------ ------ ------
Total from investment operations . . . . 1.21 (.84) 1.86 (.25)
------ ------ ------ ------
Less distributions from:
Net investment income. . . . . . . . . .211 .055 .-- .--
Net realized gain on investments . . . .319 .275 .-- .--
------- ------- ------ ------
Total distributions. . . . . . . . . . . .53 .33 .-- .--
------- ------- ------ ------
Net asset value at end of year . . . . . $11.12 $10.44 $11.61 $ 9.75
====== ====== ====== ======
TOTAL RETURN+. . . . . . . . . . . . . . 12.22% (7.40)% 19.08% (2.50)%

RATIOS/SUPPLEMENTAL DATA
Net assets at end of year (in thousands) $3,494 $3,014 $2,732 $883

RATIOS:
Operating expenses to average net assets:
Before expense reimbursement . . . . . 4.77% 4.40% 8.19% 28.18%
After expense reimbursement. . . . . . 2.52% 2.50% 2.50% 5.18%

Net investment income to average net
assets . . . . . . . . . . . . . . . . 3.06% 1.55% .95% (1.84)%

Portfolio turnover rate. . . . . . . . . 38% 40% 32% 4%
</TABLE>

______________
* November 25, 1991 (commencement of operations) to October 31, 1992.
+ Calculated without sales charge.

<PAGE> 10
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 market. 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. As of the date of this
prospectus, to the best of the knowledge of the Adviser the Fund is the
only U.S.-registered mutual fund that invests primarily 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/earnings 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-

<PAGE> 11
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.

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 Additional Information. For additional
information regarding such instruments, see Appendix B to the Statement of
Additional

<PAGE> 12
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, 1995 and October 31, 1994 was 38% and 40%, respectively.

THE NEW ZEALAND ECONOMY AND SECURITIES MARKET

THE NEW ZEALAND ECONOMY

In January, 1996, New Zealand s foreign currency debt was upgraded by
Standard & Poor s from AA to AA+. Standard and Poor s cited New Zealand s
prudent fiscal and monetary policies, the improved balance of payments
flexibility, a sharp decline in the external public debt burden and the low
likelihood that there will be any substantive changes following the mixed
member proprietary parliamentary election at the end of 1996.

The Quarterly Survey of Business Opinion ( QSBO ) issued by the New
Zealand Institute of Economic Research ( NZIER ) the last quarter of 1995
provides mixed data regarding the current state of the economy. On the
growth side, there are tight capacity conditions and a rebound in business
confidence to modest optimism. On the downside, there is evidence of a
modest inventory build up and a sharp slowdown in price pressures. This
mixture is what one would expect in a soft landing scenario.

The Consumers Price Index showed inflation of 2.9% for the year 1995.
This was in line with the projections of the Reserve Board of New Zealand
( RBNZ ) but a little ahead of the market expectations. Additionally,
recent CPI figures showed that the RBNZ s property sector fears have been
well placed and there has been little clear evidence that pressure is
lessening. A monetary policy easing in the short term has become less
likely, although this may occur if there is weaker growth and labor market
data over the next months.

Unemployment reached a seven year low in the September, 1995 quarter
and, although unemployment is largely ignored by financial markets, the
RBNZ highlighted the labor market sector as an area of inflationary
concern.

In November, 1995, New Zealand was rated the fourth freest state
economy in the world by the U.S. Heritage Foundation. The rating was based
on factors such as trade, monetary policy and regulatory controls.

<PAGE> 13

THE NEW ZEALAND SECURITIES MARKET

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
market is 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 1995 was approximately NZ $13.2
billion (US $9 billion), and average trading volume in value per day
trading day during 1995 was approximately NZ $53 million (U.S. $35
million). The aggregate market capitalization of the securities quoted on
the NZSE at January 15, 1996 was approximately NZ $49 billion (US $32
billion), with the six largest companies accounting for approximately 60%
of the total market capitalization of such securities.

The performance of the New Zealand securities market is measured by
three indices, the NZSE-40, the NZSE-30 and the NZSCI. The NZSE-40 is
composed of a basket of the 40 leading equity securities weighted by their
full market capitalization. During 1995 the NZSE-40 Capital ranged from
1892 to 2220. The NZSE-30 measures the 30 largest issuers by value after
excluding any shares held in ownership blocks of 30% or more. The NZSCI
Capital is composed of approximately 100 small company securities weighted
by their full market capitalization. During 1995 the NZSCI Capital ranged
from 3555 to 4101. Although the Capstone New Zealand Fund invests in the
leading securities, the NZSCI may provide a more meaningful comparison to
the Fund because it more closely resembles the Fund's portfolio mix.

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

<PAGE> 14
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 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:

o 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

<PAGE> 15
instruments of any one issuer, except securities or instruments issued or
guaranteed by the U.S. Government, its agencies or instrumentalities;

o 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;

o 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.

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 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 is based on past performance and is
not a guarantee of future results.

<PAGE> 16
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.

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 only 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 Ivy Realty Trust (an equity real estate investment
trust), 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

<PAGE> 17
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, 1995.

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, TradeStar Investments, Inc.
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 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 receives 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, 1995.

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, 1995.

The Administrator provides administrative and/or investment advisory
services to five other mutual funds: Capstone Nikko Japan Fund, Capstone
Government Income Fund, Capstone Intermediate Government Fund, Capstone
Growth Fund, Inc., 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

<PAGE> 18
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 0.25% of the average net assets of the
Fund. (Prior to August 21, 1995, the maximum payout under the Plan was
0.35% of the average net assets of the Fund.) Of this amount, the
Distributor may reallocate amounts up to 0.25% of the Fund's average net
assets to Service Organizations (which may include the Distributor). Any
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 reimbursement, subject
always to the 0.25% limit, and no interest or carrying charges will be
payable by the Fund on amounts carried forward. During the fiscal year
ended October 31, 1995, the effective rate of servicing fees paid to the
Distributor and other Service Organizations was approximately 0.27% 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 May 7, 1995. 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

<PAGE> 19
broker-dealers to perform administrative and stockholder servicing functions.

EXPENSES

The Fund's expenses are accrued daily and are deducted from its total
income before dividends are paid. 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 re-payment 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, 1995 were 2.52% of
its average net assets.

PURCHASING SHARES

Capstone Asset Planning Company (the "Distributor"), located at
5847 San Felipe, Suite 4100, Houston, Texas 77057, is the principal
underwriter of the Fund and, acting as exclusive agent, sells shares
of the Fund to the public on a continuous basis. Edward L. Jaroski
is President of the Trust, and a Director and President of the
Administrator and the Distributor. Some other 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. Except for the Fund
itself, only the Distributor and investment dealers which have a
sales agreement with the Distributor are authorized to sell shares
of the Fund. For further information, reference is made to the
caption "Distributor" in the Fund's Statement of Additional
Information.

Shares of the Fund are sold at net asset value, without a sales
charge, and will be credited to a stockholder's account at the net asset
value next computed after an order is received. The minimum initial
investment is $200, except for continuous investment plans which have no
minimum, and there is no minimum for subsequent purchases. No stock
certificates representing shares purchased will be issued except upon
written request to the Fund's Transfer Agent. The Fund's management
reserves the right to reject any purchase order if, in its opinion, it is
in the Fund's best interest to do so.

At various times the Distributor may implement programs under which a
dealer's sales force may be eligible to win nominal awards for certain
sales efforts or recognition programs conforming to criteria

<PAGE> 20
established by the Distributor, or participates in sales programs sponsored
by 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.

Payment for all orders to purchase Fund shares must be received by the
Fund's Transfer Agent within three business days after the order was
placed.

INVESTING THROUGH AUTHORIZED DEALERS

If any authorized dealer receives an order of at least $200, the
dealer may contact the Distributor directly. Orders received by dealers by
the close of trading on the New York Stock Exchange on a business day that
are transmitted to the Distributor by 4:00 p.m. Central time on that day
will be effected at the net asset value per share determined as of the
close of trading on the New York Stock Exchange that day. It is the
dealer's responsibility to transmit orders so that they will be received by
the Distributor before 4:00 p.m. Central time.

After each investment, the stockholder and the authorized investment
dealer receive confirmation statements of the number of shares purchased
and owned.

PURCHASES THROUGH THE DISTRIBUTOR

An account may be opened by mailing a check or other negotiable bank
draft (payable to Capstone New Zealand Fund) for $200 or more together with
the completed Investment Application Form 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 effected at the net asset value of Fund shares
next computed following receipt of payment by the Transfer Agent.
Confirmations of the opening of an account and of all subsequent
transactions in the account are forwarded by the Transfer Agent to the
stockholder's address of record.

TELEPHONE PURCHASE AUTHORIZATION (INVESTING BY PHONE)

Stockholders who have completed the Telephone Purchase Authorization
section of the 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 effected at the net asset value next computed after receipt of the call
by the Fund's Transfer Agent. Payment for the telephone purchase must be
received by the Transfer Agent within three business days after the order
is placed. If payment is not received within three business days, the
stockholder will be liable for all losses incurred as a result of the
purchase.

<PAGE> 21
INVESTING BY WIRE

Investors having an account with a commercial bank that is a member of
the Federal Reserve System may purchase shares of the Fund by requesting
their bank to transmit funds by wire to: United Missouri Bank KC NA, ABA
#10-10-00695, For: Fund/Plan Services, Inc., Account #98-7037-0719;
Further Credit Capstone 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 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.

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 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.

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 U.S. 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.

<PAGE> 22
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. Signature guarantees
will be accepted from any eligible guarantor institution which participates
in a signature guarantee program. No signature guarantees for shares for
which no certificates have been issued are required when an application is
on file at the Transfer Agent and payment is to be made to the stockholder
of record at the stockholder's address of record. However, if the proceeds
of the redemption are to be paid to someone other than the registered
holder, or to other than the stockholder's address of record, or the shares
are to be transferred, the owner's signature must be guaranteed as
specified above. The redemption price shall be the net asset value per
share next computed after receipt of the redemption request. See
"Determination of Net Asset Value".

In addition, the Distributor is authorized as agent for the Fund to
offer to repurchase shares which are presented by telephone or telegraph to
the Distributor by authorized investment dealers. The repurchase price is
the net asset value per share next determined after the request is
received. See "Determination of Net Asset Value". Broker-dealers may
charge for their services in connection with the repurchase, but the
Distributor and its affiliates will not charge any fee for such repurchase.
Payment for shares presented for repurchase or redemption by authorized
investment dealers will be made within seven days after receipt by the
Transfer Agent of a written notice and/or certificate in proper order.

The Fund reserves the right to pay any portion of redemption requests
in excess of $1 million in readily marketable securities from the Fund's
portfolio. In this case, the 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

<PAGE> 23
during which the New York Stock Exchange is closed, other than customary
weekend and holiday closings, or when trading on the New York Stock Exchange
is restricted as determined by the Securities and Exchange Commission; during
any period when an emergency as defined by the rules and regulations of the
Securities and Exchange Commission exists; or during any period when the
Securities and Exchange Commission has by order permitted such suspension.
The Fund will not mail redemption proceeds until checks (including certified
checks or cashier's checks) received for the shares purchased have cleared,
which can be as long as 15 days.

The value of shares on repurchase or redemption may be more or less
than the investor's cost depending upon the market value of the Fund's
portfolio securities at the time of redemption. No redemption fee is
charge for the redemption of shares.

EXPEDITED TELEPHONE REDEMPTION

A stockholder redeeming at least $1,000 of shares (for which
certificates have not been issued), and who has authorized expedited
redemption on the application form filed with the 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 sent to the investor on the next business day
following receipt of the telephone redemption request. 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, which may take up to 15 days from the purchase date. 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, 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's net asset value is computed daily, Monday through Friday,
as of the close of regular trading on the New York Stock Exchange, which is
currently 4:00 p.m. Eastern time. 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. 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

<PAGE> 24
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.

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:

o Individual Retirement Accounts (for individuals and their non-
employed spouses who wish to make limited tax deductible
contributions to a tax-deferred account for retirement); and

o Simplified Employee Pension Plans.

Dividends and distributions will be automatically reinvested without a
sales charge. For further details, including fees charged, tax
consequences and redemption information, see the specific plan documents
which can be obtained from the Fund.

Investors should consult with their tax adviser before establishing
any of the tax-deferred retirement plans described above.

<PAGE> 25
EXCHANGE PRIVILEGE

Shares of the Fund which have been outstanding for 15 days or more may
be exchanged for shares of other Capstone Funds at a price based on their
respective net asset values with no sales or administrative charge. Any
exchange must meet applicable minimum investment and other requirements for
the Capstone Fund into which the exchange is requested. A stockholder
requesting such an exchange will be sent a current prospectus for the fund
into which the exchange is requested. Shares held less than 15 days cannot
be exchanged; such shares will be redeemed at the next computed net asset
value.

Purchases, redemptions and exchanges should be made for investment
purposes only. A pattern of frequent exchanges, purchases and sales may be
deemed abusive by the 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 privilege may be exercised
only in those states where shares of the Fund for which shares held are
being exchanged may be legally sold, and the privilege may be amended or
terminated upon 60 days' notice to stockholders.

The stockholder may exercise the following exchange privilege options:

Exchange by Mail - Stockholders may mail a written notice
requesting an exchange to the Fund's Transfer Agent.

Exchange by Telephone - Stockholders must authorize telephone
exchange on the application form filed with the Transfer Agent to
exchange shares by telephone. Telephone exchanges may be made
from 9:30 a.m. to 4:00 p.m. Eastern time, Monday through Friday,
except holidays. If certificates have been issued to the
investor, this procedure may be utilized only if he delivers his
certificates, duly endorsed for transfer, to the Transfer Agent
prior to giving telephone instructions. During periods of
unusual economic or market changes, stockholders may experience
difficulties or delays in effecting telephone exchanges.

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.

<PAGE> 26
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 do not represent a yield or return on investment and
may constitute return of initial capital. In addition, such payments may
deplete or eliminate the investment. Stockholders cannot be assured that
they will receive payment for any specific period because payments will
terminate when all shares have been redeemed. The number of such payments
will depend primarily upon the amount and frequency of payments and the
yield on the remaining shares. Under this plan, any distributions must be
reinvested in additional shares at net asset value.

The Systematic Withdrawal Plan is voluntary, flexible, and under the
stockholder's control and direction at all times, and does not limit or
alter the stockholder's right to redeem shares. Such Plan may be
terminated in writing at any time by either the stockholder or the Fund.
The cost of operating the Systematic Withdrawal Plan is borne by the Fund.

GENERAL INFORMATION

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 The Fifth Third Bank under a
Custodian Agreement with the Fund. Fund/Plan Services, Inc. acts as both
Transfer Agent and dividend paying agent for the Fund.

<PAGE> 27

As of February 6, 1996, the following stockholder owned more than 5%
of the Fund's outstanding shares of beneficial interest: Elaine F.
Shimberg (8.1%).

Stockholders should address inquiries to the Fund at its
address stated on the cover page of this Prospectus.

<PAGE> 28
CAPSTONE INTERNATIONAL SERIES TRUST
CAPSTONE NEW ZEALAND FUND
CROSS REFERENCE SHEET
BETWEEN
ITEMS OF FORM N-1A AND THE
STATEMENT OF ADDITIONAL INFORMATION
(PART B TO REGISTRATION STATEMENT NO. 33-6867)

<TABLE>
<CAPTION>
Item Caption in Statement of
Number Form N-1A Heading Additional Information
- ----- ----------------- -----------------------
<S> <C> <C>
10. Cover Page Cover Page

11. Table of Contents Table of Contents

12. General Information and History General Information

13. Investment Objectives and Policies Investment Practices and
Restrictions

14. Management of the Fund Trustees and Executive Officers

15. Control Persons and Principal Control Persons and Principal
Holders of Securities Holders of Securities

16. Investment Advisory and Other Investment Advisory Agreement;
Services Administration Agreement;
Expenses; Other Information

17. Brokerage Allocation Portfolio Transactions and
Brokerage

18. Capital Stock and Other Securities Inapplicable

19. Purchase, Redemption and Pricing Determination of Net Asset Value;
of Securities Being Offered How to Buy and Redeem Shares

20. Tax Status Taxes

21. Underwriter Distributor

22. Calculation of Performance Data Performance Information

23. Financial Statements Financial Statements
</TABLE>

<PAGE> 29
CAPSTONE NEW ZEALAND FUND

A Fund
of Capstone International Series Trust

STATEMENT OF ADDITIONAL INFORMATION

FEBRUARY 29, 1996

This Statement of Additional Information is not a Prospectus but
contains information in addition to and more detailed than that set forth
in the Prospectus and should be read in conjunction with the Prospectus.
The Statement of Additional Information and the related Prospectus are both
dated February 29, 1996. A Prospectus may be obtained without charge by
contacting Capstone Asset Planning Company, by phone at (800) 262-6631 or
by writing to it at 5847 San Felipe, Suite 4100, Houston, Texas 77057.

TABLE OF CONTENTS

PAGE
----
General Information. . . . . . . . . . . . . . . . . . . . . 2
Investment Policies and Restrictions . . . . . . . . . . . . 2
Performance Information. . . . . . . . . . . . . . . . . . . 7
New Zealand. . . . . . . . . . . . . . . . . . . . . . . . . 9
New Zealand Stock Exchange . . . . . . . . . . . . . . . . . 11
Trustees and Executive Officers. . . . . . . . . . . . . . . 12
Investment Advisory Agreement. . . . . . . . . . . . . . . . 14
Administration Agreement . . . . . . . . . . . . . . . . . . 15
Distributor. . . . . . . . . . . . . . . . . . . . . . . . . 15
Portfolio Transactions and Brokerage . . . . . . . . . . . . 17
Determination of Net Asset Value . . . . . . . . . . . . . . 18
How to Buy and Redeem Shares . . . . . . . . . . . . . . . . 19
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Control Persons and Principal Holders of Securities. . . . . 26
Other Information. . . . . . . . . . . . . . . . . . . . . . 26
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . 27
Appendix B . . . . . . . . . . . . . . . . . . . . . . . . . 29
Financial Statements . . . . . . . . . . . . . . . . . . . . 31

<PAGE> 30
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.

<PAGE> 31
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 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

<PAGE> 32
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.

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.

<PAGE> 33
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.

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

<PAGE> 34
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.

<PAGE> 35
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 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, 1995 was 38%.

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

<PAGE> 36
receive dividends, and
d = the maximum offering price per share on the last day of the
period.

For the 30-day period ended October 31, 1995 the Fund's yield was
2.564%.

Average annual total return and total return figures represent the
increase (or decrease) in the value of an investment in the Fund over a
specified period. Both calculations assume that all income dividends and
capital gains distributions during the period are reinvested at net asset
value in additional Fund shares. Quotations of the average annual total
return reflect the deduction of a proportional share of Fund expenses on an
annual basis. The results, which are annualized, represent an average
annual compounded rate of return on a hypothetical investment in the Fund
over a period of 1, 5 and 10 years ending on the most recent calendar
quarter (but not for a period greater than the life of the Fund),
calculated pursuant to the following formula:

P (1 + T)n= ERV

where P = a hypothetical initial payment of $1,000,
T = the average annual total return,
n = the number of years, and
ERV = the ending redeemable value of a hypothetical $1,000 payment made
at the beginning of the period.

For the fiscal year ended October 31, 1995 and the period November 25,
1991 (commencement of operations) to October 31, 1995, the Fund's average
annual total return was 12.22% and 4.89%, respectively.

Quotations of total return, which are not annualized, represent
historical earnings and asset value fluctuations. For the fiscal year
ended October 31, 1995 and the period November 25, 1991 (commencement of
operations) to October 31, 1995, the Fund's total return was 12.22% and
20.64%, 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.

<PAGE> 37
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 3.6 million and has
been growing at approximately 1.5% over the last three years. Of the total
population, approximately 69% 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 financial
center. The population is approximately 85% of European origin and
approximately 15% Polynesian. English is the official language, although
Maori language is also officially recognized. The labor force of
approximately 1.8 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 44
seats. The Labor Party holds 42 seats, the NZ First has 2 seats, the
Alliance has 2 seats, the Conservatives have 2 seats and the United NZ has
7 seats.

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

<PAGE> 38

government's current term in November, 1996. 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, 1995 was approximately NZ $85
billion.

The New Zealand economy is strongly trade-oriented, with exports of
goods and services totalling 25% of GDP for the year ended March, 1995.
Primary products (principally agriculture, forestry, mining energy, fishing
and horticulture) accounted for approximately 50% 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, 1995 were Australia
(21%), Japan (17%), the United States (10%) and the United Kingdom (6%).
Those countries were also the main sources of imports for the same period:
Australia (21%), the United States (20%), Japan (14%) 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 45% of GDP for the year ended March, 1995. 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.

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

<PAGE> 39
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 3% in
1995. Interest rates have decreased dramatically. The average bank base
lending rate has decreased from over 21% in March 1987 to less than 10.5%
in January 1996 and the 90-day bank bill rate has fallen from over 22% in
March 1986 to under 9% in January 1996 and New Zealand continues to operate
with a government fiscal surplus.

NEW ZEALAND STOCK EXCHANGE

The NZSE currently quotes the securities of more than 130 companies.
Total trading volume in value on the NZSE during 1995 was approximately NZ
$13.2 billion (US $9 billion), and average trading volume in value per
trading day during 1995 was approximately NZ $53 million (US $35 million).
The aggregate market capitalization of the securities quoted on the NZSE at
January 15, 1996 was approximately NZ $49 billion (US $32 billion), with
the 6 largest listed companies accounting for approximately 60% 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 231 members of the
NZSE representing 45 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-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.

<PAGE> 40
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 1995 the NZSE-40 Capital ranged
from 1892 to 2220. The NZSE-30 measures the 30 largest issuers by value
after excluding any shares held in blocks of 30% or more. In April of
1993, a small company index (the "NZSCI") was introduced and is composed of
approximately 100 small company securities weighed by their full market
capitalization. During 1995 the NZSCI Capital ranged from 3555 to 4101.
Although the Capstone New Zealand Fund (the "Fund") invests in the leading
securities, the NZSCI may provide a more meaningful comparison to the Fund
because it more closely resembles the Fund's portfolio mix.

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.

______________
* Trustee who is an interested person as defined in the Investment
Company Act of 1940.

<PAGE> 41
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).

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. Secretary (since February 1996), Assistant Vice President
(1994-1996) and Assistant Secretary (1990-1994) of Capstone Financial
Services, Inc., Capstone Asset Management Company and Capstone Asset
Planning Company; officer of other Capstone Funds.

NORMA R. YBARBO, Assistant Secretary. 5847 San Felipe, Suite 4100,
Houston, Texas 77057. Assistant Compliance Officer (since 1994),
Compliance Analyst (1993-1994) and Compliance Assistant (1987-1993)
of Capstone Financial Services, Inc.; officer of other Capstone
Funds.

LINDA G. GIUFFRE, Treasurer. 5847 San Felipe, Suite 4100, Houston,
Texas 77057. Vice President and Treasurer (since February 1996) of
Capstone Financial Services, Inc., Capstone Asset Management Company
and Capstone Asset Planning Company; Treasurer (1990-1996) and
Secretary (1994-1996) of Capstone Financial Services, Inc. and
Capstone Asset Management Company; Treasurer (1990-1996) and
Secretary (1995-1996) of Capstone Asset Planning Company; officer of
other Capstone Funds.

The 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 $250 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, 1995, the Fund paid or
accrued for the account of the trustees and officers, as a group for
services in all capacities, a total of $3,507.

The following table represents the fees paid during the 1995 calendar
year to the trustees of the Trust and the total compensation each trustee
received during that period from the Capstone Funds complex.

COMPENSATION TABLE

Total
Compensation
From
Aggregate Pension or Registrant
Compensation Retirement Estimated Annual and Fund
From Benefits Accrued Benefits Upon Complex Paid
Name of Person, Position Registrant* As Part of Fund Retirement to Trustees
------------------------ ------------ ---------------- ---------------- -------------
<S> <C> <C> <C> <C>
Eugene W. Potter, Jr., Trustee $ 875 $0 $0 $1,750(1)
Philip C. Smith, Trustee 1,000 0 0 6,750(1)(2)(3)
Bernard J. Vaughan, Trustee 1,125 0 0 6,250(1)(2)

______________
* Amounts do not include deferred compensation.
(1) Trustee of Capstone International Series Trust. - Capstone New Zealand Fund
(2) Director of Capstone Fixed Income Series, Inc. and Capstone Growth Fund, Inc.
(3) Director of Medical Research Investment Fund, Inc.
</TABLE>

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, 1995 the Fund paid
investment advisory fees in the amount of $24,302, 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 7, 1995 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.

<PAGE> 43
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, 1995 the Fund paid administrative fees in
the amount of $8,100, 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, 1995. 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, 1995 totaled $16,602, 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, 1995 the annual total
operating expenses of the Fund prior to and after the reimbursements and
payments by the Adviser and Administrator were 4.77% and 2.52%,
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

<PAGE> 44

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. Prior to August
21, 1995, sales of Fund shares were subject to a sales charge equal to a
percentage of the net asset value of the sales to be purchased. The sales
charge was paid to the Distributor, who reallowed a portion of 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, 1995 the Distributor received $2,478 from the sale of Fund
shares. During the fiscal years ended October 31, 1994 and 1993, the
Distributor received $4,251 and $6,298, respectively, from the sale of Fund
shares.

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.

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 $10,706 in 12b-1 fees during the fiscal
year ended October 31, 1995, of which approximately 17% 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
May 7, 1995. In compliance with the Rule, the trustees, in connection with
both the adoption and continuance of the

<PAGE> 45
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.

The Adviser may effect securities transactions through the
Distributor, TradeStar Investments, Inc. 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

<PAGE> 46
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, 1995, the Fund incurred
brokerage commissions of $14,520 which represented 0.45% of the Fund's
average net assets. Securities transactions effected through brokers who
furnished the Fund with statistical, research and advisory information
amounted to $2,610,162 (100% of the aggregate dollar amount of transactions
executed with a commission), and commissions paid by the Fund on these
trades totaled $14,520 (100% of total commissions). The Fund also executed
trades in the amount of $201,917 in which a "mark up" (the dealer's profit)
was included in the price of the securities.

DETERMINATION OF NET ASSET VALUE

The Fund's net asset value is computed, Monday through Friday, as of
the close of regular trading on the New York Stock Exchange, which is
currently 4:00 p.m. Eastern time. 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. 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

<PAGE> 47
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 without a sales
charge and may be purchased on any business day through authorized dealers,
including Capstone Asset Planning Company. Certain broker-dealers assist
their clients in the purchase of shares from the Distributor and charge a
fee for this service in addition to the Fund's public offering price.

After an order is received by the Distributor, shares will be credited
to a stockholder's account at the net asset value next computed after an
order is received. 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.

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.

<PAGE> 48
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).

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

<PAGE> 49
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, 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

<PAGE> 50
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 paid to
them by the Fund.

Distributions by the Fund reduce the net asset value of the Fund
shares. Should a distribution reduce the net asset value below a
stockholder's cost basis, 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, FUTUREW 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

<PAGE> 51
rules may affect he 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.

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

<PAGE> 52
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 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

<PAGE> 53
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.

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

<PAGE> 54
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

As of February 6, 1996 Elaine F. Shimberg, 611 W. Bay Street, Tampa,
Florida 33606-2703, owned approximately 8.1% of the outstanding shares of
the Fund.

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 The Fifth
Third Bank.

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.

<PAGE> 55
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

<PAGE> 56
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.

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.

RATIONS OF BBB- (LONG-TERM) or A.3 (SHORT-TERM) and above are investment
grade.

<PAGE> 57
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

<PAGE> 58
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.

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.

<PAGE> 59

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 (a series of Capstone International Series Trust),
including the portfolio of investments, as of October 31, 1995 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 disclosure in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995 by correspondence with the custodian and brokers. 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, 1995, 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 20, 1995

<PAGE> 60

PORTFOLIO OF INVESTMENTS - OCTOBER 31, 1995
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
VALUE PERCENTAGE OF
COMMON STOCKS - 88.74% SHARES (NOTE 1-A) NET ASSETS
- ---------------------- ------ ---------- -------------
<S> <C> <C> <C>
AGRICULTURE-PRODUCERS (2.20%)
Applefields, Limited.. . . . . . . . . . 60,000 $ 29,686 0.85%
Dairy Brands Partly Paid SHS . . . . . . 50,000 18,142 0.52
Tasman Agricultural, Limited . . . . . . 30,000 29,093 0.83
-------- -----
76,921 2.20

APPAREL MANUFACTURING (5.94%)
Ceramco Corp., Limited . . . . . . . . . 17,500 23,089 0.66
LWR Industries, Limited. . . . . . . . . 100,000 108,850 3.11
Underground Fashions, Limited. . . . . . 140,000 75,734 2.17
--------- -----
207,673 5.94

AUTOMOTIVE (1.61%)
The Colonial Motor Co., Limited. . . . . 31,600 56,286 1.61

CHEMICALS (6.70%)
Fernz Corporation, Limited . . . . . . . 53,000 156,639 4.48
Nuplex Industries, Limited . . . . . . . 25,000 77,515 2.22
-------- -----
234,154 6.70

COMPUTERS (11.21%)
Advantage HDS Group, Limited . . . . . . 159,000 157,338 4.50
Wang New Zealand Limited . . . . . . . . 187,000 234,391 6.71
-------- -----
391,729 11.21

CONSTRUCTION (1.57%)
Mainzeal Corp., Limited (a). . . . . . . 332,000 54,755 1.57

FARM AND STATION SERVICES (3.92)
Williams & Kettle, Limited . . . . . . . 74,500 113,040 3.23
Wrightson, Limited . . . . . . . . . . . 30,000 24,145 0.69
-------- -----
137,185 3.92

FINANCIAL SERVICES (2.39%)
Baycorp Holdings, Limited (a). . . . . . 66,667 83,562 2.39

FOODS AND BEVERAGES (4.67%)
Fruitfed Supplies, Limited . . . . . . . 65,000 66,465 1.90
Mr. Chips Holdings, Limited. . . . . . . 35,000 13,854 0.40
Progressive Enterprises, Limited . . . . 102,893 82,812 2.37
-------- -----
163,131 4.67

FORESTRY (0.20%)
Paynter Timber Corp. . . . . . . . . . . 20,000 6,993 0.20

HOLDING COMPANY (0.71%)
Broadway Industries, Limited . . . . . . 33,000 24,818 0.71

MANUFACTURING DISTRIBUTION (10.25%)
Cavalier Corporation, Limited. . . . . . 10,000 21,110 .60
Fisher & Paykel Ind. . . . . . . . . . . 55,844 182,359 5.22
PDL Holdings, Limited. . . . . . . . . . 15,100 86,665 2.48
Skellerup Group, Limited . . . . . . . . 50,234 67,936 1.95
--------
358,070 10.25
</TABLE>

<PAGE> 61

PORTFOLIO OF INVESTMENTS - OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

MARKET
VALUE PERCENTAGE OF
SHARES (NOTE 1-A) NET ASSETS
------ ---------- -------------
<S> <C> <C> <C>
MEDIA (3.66%)
Independent Newspapers, Limited. . . . . 19,100 $ 58,213 1.67%
Radio Pacific, Limited . . . . . . . . . 36,700 69,728 1.99
-------- -----
127,941 3.66

MEDICAL SUPPLIES (2.06%)
Zuellig New Zealand, Limited . . . . . . 145,400 71,940 2.06

OIL & GAS (2.33%)
New Zealand Oil & Gas, Limited (a).. . . 125,000 32,985 0.94
New Zealand Refining, Limited. . . . . . 3,000 48,488 1.39
-------- -----
81,473 2.33

REAL ESTATE (4.70%)
New Zealand Guardian Trust (Note 5). . . 91,048 107,852 3.09
Property for Industry, Limited . . . . . 50,000 29,686 0.85
Property for Industry, Limited -
Options (a). . . . . . . . . . . . . . 12,500 1,319 0.04
Shortland Properties, Limited . . . . 42,500 24,392 0.70
Shortland Properties - Rights (a). . . . 34,500 911 0.02
-------- -----
164,160 4.70

RETAIL (3.79%)
Arthur Barnett, Limited. . . . . . . . . 9,300 9,510 0.27
Hallenstein Glasson Holdings, Limited. . 44,900 93,305 2.67
Whitcoulls Group, Limited. . . . . . . . 20,000 29,686 0.85
-------- -----
132,501 3.79

TRANSPORTATION (15.52%)
Helicopter Lines, Limited. . . . . . . . 10,500 30,478 0.87
Northland Port Corp., Limited. . . . . . 44,900 62,796 1.80
Owens Group Limited. . . . . . . . . . . 100,980 136,564 3.91
Ports of Auckland, Limited . . . . . . . 63,500 147,456 4.22
Port of Tauranga, Limited. . . . . . . . 5,000 4,189 0.12
South Port New Zealand, Limited. . . . . 206,500 160,749 4.60
-------- -----
542,232 15.52

WASTE (5.31%)
Waste Management NZ, Limited . . . . . . 34,086 185,514 5.31

TOTAL COMMON STOCKS (Cost $3,057,463) $3,101,038 88.74%

CORPORATE BONDS (3.25%)
Arthur Barnett, 8%, Conv. 12/11/96 . . . 32,500 31,732 0.91
Shortland Properties, 6.375%, Conv.
12/31/98 . . . . . . . . . . . . . . . 26,500 15,035 0.43
State Bank of South Australia, 9%,
07/30/02 . . . . . . . . . . . . . . . 94,000 66,681 1.91
-------- -----
TOTAL CORPORATE BONDS (Cost $106,750) 113,448 3.25

TOTAL INVESTMENTS (Cost $3,164,213) 3,214,486 91.99
OTHER ASSETS, LESS LIABILITIES 279,931 8.01
---------- ------
NET ASSETS $3,494,417 100.00%
========== ======
</TABLE>

(a) Non-income producing security

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

<PAGE> 62

STATEMENT OF ASSETS AND LIABILITIES - OCTOBER 31, 1995
- ------------------------------------------------------------------------------
<TABLE>

ASSETS:
<S> <C>
Investments in securities at market (identified cost
$3,164,213) (Note 1-A). . . . . . . . . . . . . . . . . . . . . $3,214,486
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,396
Foreign currency holdings - New Zealand Dollar account,
at market (Note 1-B). . . . . . . . . . . . . . . . . . . . . . 273,506
Receivables:
Trust shares sold . . . . . . . . . . . . . . . . $ 10,085
Dividends and interest. . . . . . . . . . . . . . 13,422 23,507
--------
Deferred organizational expenses (Note 1-F) . . . . . . . . . . . 2,976
----------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . 3,536,871
----------

LIABILITIES:

Payable for investments purchased. . . . . . . . . . 26,219
Accrued expenses . . . . . . . . . . . . . . . . . . 16,235 42,454
-------- ----------

NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,494,417
==========

NET ASSET VALUE AND REDEMPTION PRICE PER SHARE:
($3,494,417/314,326 shares of beneficial interest outstanding)
$.01 par value, unlimited shares authorized (Note 3) . . . . . $ 11.12
==========

SOURCE OF NET ASSETS:

Paid in capital. . . . . . . . . . . . . . . . . . . . . . . . $3,295,513
Undistributed net investment income. . . . . . . . . . . . . . 73,695
Accumulated net realized gain on investments and currency
transactions . . . . . . . . . . . . . . . . . . . . . . . . 74,145
Net unrealized appreciation of investments and foreign
currencies . . . . . . . . . . . . . . . . . . . . . . . . . 51,064
----------
$3,494,417
==========
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

<PAGE> 63

STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 1995
- ------------------------------------------------------------------------------

<TABLE>
INVESTMENT INCOME:
<S> <C>
Income:
Dividends (net of foreign taxes withheld of $26,680). . . . . . . $146,289
Interest (net of foreign taxes withheld of $2,444). . . . . . . . 34,438
--------
Total Investment Income. . . . . . . . . . . . . . . . . . . . 180,727

Expenses: (Note 2)
Advisory fees . . . . . . . . . . . . . . . . . . . $ 24,302
Administration services . . . . . . . . . . . . . . 32,100
Transfer agent fees . . . . . . . . . . . . . . . . 28,939
Reports and notices to stockholders . . . . . . . . 14,705
Professional fees . . . . . . . . . . . . . . . . . 14,199
Custodian fees. . . . . . . . . . . . . . . . . . . 12,382
Filing and registration fees. . . . . . . . . . . . 12,501
Distribution fees . . . . . . . . . . . . . . . . . 10,706
Trustees' fees and expenses . . . . . . . . . . . . 3,507
Amortization of organization expenses (Note 1-F). . 2,905
Miscellaneous . . . . . . . . . . . . . . . . . . . 1,354
--------
Total Expenses . . . . . . . . . . . . . . . . . 157,600
Less: Expenses waived or reimbursed . . . . . . (73,004)
Custodian fees paid indirectly. . . . . . . . (711)
--------
Net Expenses . . . . . . . . . . . . . . . . . . . . . . 83,885
--------
Net Investment Income. . . . . . . . . . . . . . . . . 96,842
--------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:

Net realized gain from security transactions . . . . . 68,205
Realized gain on foreign currency transactions . . . . 6,524
--------
Net realized gain. . . . . . . . . . . . . . . . . . . . 74,729

Unrealized appreciation of investments and foreign
currencies . . . . . . . . . . . . . . . . . . . . . . . . . 211,847
--------
Net realized and unrealized gain on investments and
foreign currencies . . . . . . . . . . . . . . . . . . 286,576
--------
Net increase in net assets resulting from operations . $383,418
========
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

<PAGE> 64

STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------
<TABLE>
YEAR ENDED OCTOBER 31,
------------------------
1995 1994
---------- ----------
<S> <C> <C>
OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . $ 96,842 $ 46,760
Net change in unrealized appreciation (depreciation)
of investments and foreign currencies. . . . . . . 211,847 (388,809)
Net realized gain on investments and foreign
currency transactions. . . . . . . . . . . . . . . 74,729 93,623
---------- ----------
Net increase (decrease) in net assets resulting
from operations . . . . . . . . . . . . . . . . 383,418 (248,426)

DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income. . . . . . . . . . . . . . . . (62,313) (13,407)
Net realized gains from investment transactions. . . (94,207) (67,021)

TRUST SHARE TRANSACTIONS:
Increase in net assets resulting from Trust share
transactions (Note 3). . . . . . . . . . . . . . . 253,707 610,656
---------- ----------
Net increase in net assets. . . . . . . . . . . . 480,605 281,802

NET ASSETS:
Beginning of year. . . . . . . . . . . . . . . . . . 3,013,812 2,732,010
---------- ----------
End of year (including undistributed net investment
income of $73,695 and $39,166, respectively) . . . $3,494,417 $3,013,812
========== ==========
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 1995
- ------------------------------------------------------------------------------

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 Fund seeks to provide
long-term capital appreciation and current income by investing in equity
securities, debt securities, and securities convertible into common stock of New
Zealand issuers. 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 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. 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 the market prices of the

<PAGE> 65

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, or 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% on the dividends and 10% on interest received.
There is currently no New Zealand tax on capital gains.

E) DIVIDENDS AND 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 1991.

NOTE 2 - INVESTMENT ADVISORY FEES, AND OTHER TRANSACTIONS WITH AFFILIATES

The Investment Adviser, FCA Corp., 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.
The Administrator, Capstone Asset Management Company, 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, 1995, the
Adviser and the Administrator waived their entire fees in the amounts of $24,302
and $32,100, respectively. Also, the Adviser voluntarily reimbursed the Fund
for $16,602 of additional expenses.

Capstone Asset Planning Company ("CAPCO") serves as Underwriter to the Fund.
Effective August 21, 1995, the 4.75% front end sales load applicable to sales
of Fund shares was eliminated. Commissions and underwriting fees earned on
sales of the Fund's shares by CAPCO during the period November 1, 1994 through
August 20, 1995 were $1,325 and $1,153, respectively.

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 the Fund shareholders. Distribution and marketing
expenses include, among other things, printing of prospectuses, advertising
literature and costs of personnel involved with the promotion and distribution
of the Fund's shares. Under the Plan, the Fund pays CAPCO an amount computed
at an annual rate of up to .25% (.35% prior to August 21, 1995) of the Fund's
average net assets (including reinvested dividends paid with respect to those
assets). Of this amount, CAPCO may reallocate to securities dealers (which may
include CAPCO itself) and other financial institutions and organizations
(collectively, Service Organizations ) amounts based on the Fund's average net
assets owned by stockholders for whom the Service Organizations have a servicing
relationship. The Plan permits CAPCO to carry forward for a maximum of twelve
months distribution expenses covered by the Plan for which CAPCO has not yet
received reimbursement. For the year ended October 31, 1995, the Fund paid
$10,706 in 12b-1 fees, of which 17% was paid to Service Organizations other than
CAPCO.

The Fund's Custodian has provided credits in the amount or $711 against
custodian charges based on the uninvested cash balances of the Fund. Had these
cash balances been invested (rather than offsetting custodian charges) they
could possibly have been used to produce income.

The 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,

<PAGE> 66

CAPCO or CFS, received no compensation from the Fund. During the year ended
October 31, 1995 trustees of the Fund who are not "interested persons" received
fees of $2,875.

NOTE 3 -TRUST SHARES

Transactions in Trust shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------------------
1995 1994
------------------ ------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold. . . . . . . . . . . . 52,679 $ 542,209 71,667 $ 808,082
Shares issued to shareholders in
reinvestment of distributions. . 15,508 153,534 7,114 78,968
------ --------- ------ ---------
68,187 695,743 78,781 887,050
Shares redeemed. . . . . . . . . . (42,485) (442,036) (25,536) (276,394)
------ --------- ------ ---------
Net increase . . . . . . . . . . . 25,702 $ 253,707 53,245 $ 610,656
====== ========= ====== =========
</TABLE>

NOTE 4 - PURCHASES AND SALES OF SECURITIES

Purchases and sales of securities aggregated $1,342,590 and $1,170,579,
respectively. At October 31, 1995 the cost of investments for Federal income
tax purposes was $3,164,213. Accumulated net unrealized appreciation on
investments was $50,273, consisting of $420,291 gross unrealized appreciation
and $370,018 of gross unrealized depreciation.

NOTE 5 - RESTRICTED SECURITY

The Fund acquired 91,048 shares of Guardian Property Fund ("Guardian"), a
closed end mutual fund (offered by The New Zealand Guardian Trust Company
Limited), through private placements at a cost of $90,960. The shares, which
were purchased in 1993 and 1994, cannot be sold prior to their valuation date,
which occurs two years after the date of investment. In October 1995, 61,015
Guardian shares were renewed for an additional two years with a new valuation
date of October 15, 1997. The valuation date of the remaining 30,033 shares is
April 4, 1996.

The Guardian shares are valued daily based on a weekly quoted price. At
October 31, 1995, the value of the Guardian investment was $107, 852
representing approximately 3% of the Fund's net assets.

<PAGE> 67
CAPSTONE INTERNATIONAL SERIES TRUST
CAPSTONE NEW ZEALAND FUND
OTHER INFORMATION
(PART C TO REGISTRATION STATEMENT NO. 33-6867)

Item 24. Financial Statements and Exhibits
---------------------------------

Exhibits not incorporated by reference to a prior filing are
designated by an asterisk; all exhibits not so designated are incorporated
hereby by reference to a prior filing as indicated.

(a) Financial Statements of Capstone New Zealand Fund (included in
Parts A and B):

Per Share Data and Ratios for the period ended October
31, 1995 (Part A)
Auditor's Report (Part B)
Statement of Assets and Liabilities at October 31, 1995
(Part B)
Portfolio of Investments in Securities at October 31,
1995 (Part B)
Statement of Operations for the year ended October 31,
1995 (Part B)
Statement of Changes in Net Assets for the period ended
October 31, 1995 (Part B)
Notes to Financial Statements (Part B)

(b) Exhibits:

A. Exhibits filed pursuant to Form N-1A

1 Copy of Declaration of Trust as amended and
restated September 29, 1986; Exhibit 1 to Pre-
Effective Amendment No. 1 to Registration No. 33-
6867.

1(a) Proposed form of Written Instrument of the
Trustees Amending Name of the Trust; Exhibit 1(a)
to Post-Effective Amendment No. 2 to Registration
No. 33-6867.

1(b) Amendment and Restatement to the Declaration of
Trust dated September 19, 1991 to establish and
designate a separate series, New Zealand Fund;
Exhibit 1(b) to Post-Effective Amendment No. 9 to
Registration No. 33-6867.

2(a) Copy of By-Laws; Exhibit 2 to Pre-Effective
Amendment No. 1 to Registration No. 33-6867.

2(b) Copy of Amendment to By-Laws dated July 24, 1989;
Exhibit 2(b) to Post-Effective Amendment No. 5 to
Registration No. 33-6867.

3 None.

4(a) Copy of Specimen Certificate of Beneficial
Interest of The

<PAGE> 68
European Fund; Exhibit 4 to Pre-Effective Amendment
No. 1 to Registration No. 33-6867.

4(b) Copy of Specimen Certificate of Beneficial
Interest of Nikko Japan Tilt Fund; Exhibit 4 to
Post-Effective Amendment No. 5 to Registration No.
33-6867.

4(c) Specimen Certificate of Beneficial Interest of New
Zealand Fund; Exhibit 4(d) to Post-Effective
Amendment No. 9 to Registration No. 33-6867.

5(a) Copy of Investment Advisory Agreement between
Investors International Series Trust, on behalf of
The European Fund, and CCF International Finance
Corp. dated September 29, 1986; Exhibit 5 to Pre-
Effective Amendment No. 1 to Registration No. 33-
6867.

5(b) Copy of Investment Advisory Agreement between
Investors International Series Trust, on behalf of
The European Fund, and CCF International Finance
Corp. dated June 10, 1987; Exhibit 5(b) to Post-
Effective Amendment No. 1 to Registration No. 33-
6867.

5(c) Copy of Investment Advisory Agreement between
Capstone International Series Trust, on behalf of
Nikko Japan Tilt Fund, and NIKKO Capital
Management (U.S.A), Inc. dated April 24, 1989;
Exhibit 5(c) to Post-Effective Amendment No. 3 to
Registration No. 33-6867.

5(d) Proposed form of Investment Advisory Agreement
between Capstone International Series Trust, on
behalf of New Zealand Fund, and FCA Corp; Exhibit
5(e) to Post-Effective Amendment No. 9 to
Registration No. 33-6867.

6(a) Copy of General Distribution Agreement between
Investors International Series Trust, on behalf of
The European Fund, and Tenneco Asset Planning
Company dated September 29, 1986; Exhibit 6 to
Pre-Effective Amendment No. 1 to Registration No.
33-6867.

6(b) Copy of General Distribution Agreement between
Investors International Series Trust, on behalf of
The European Fund, and Capstone Asset Planning
Company dated September 1, 1987; Exhibit 6(b) to
Post-Effective Amendment No. 1 to Registration No.
33-6867.

6(c) Copy of General Distribution Agreement between
Capstone International Series Trust, on behalf of
Nikko Japan Tilt Fund, and Capstone Asset Planning
Company dated April 24, 1989;

<PAGE> 69
Exhibit 6 to Post-Effective Amendment No. 3 to
Registration Statement No. 33-6867.

6(d) Copy of General Distribution Agreement between
Capstone International Series Trust, on behalf of
New Zealand Fund, and Capstone Asset Planning
Company; Exhibit 6(e) to Post-Effective Amendment
No. 9 to Registration No. 33-6867.

6(e) Proposed form of General Distribution Agreement
between Capstone International Series Trust, on
behalf of New Zealand Fund, and Capstone Asset
Planning Company; Exhibit 6(e) to Post-Effective
Amendment No. 19 to Registration No. 33-6867.

6(f) Copy of General Distribution Agreement dated July
31, 1992 between Capstone International Series
Trust, on behalf of Capstone European Fund, and
Capstone Asset Planning Company; Exhibit 6(f) to
Post-Effective Amendment No. 17 to Registration
No. 33-6867.

6(g) Copy of General Distribution Agreement dated
August 10, 1992 between Capstone International
Series Trust, on behalf of Capstone Nikko Japan
Fund, and Capstone Asset Planning Company; Exhibit
6(g) to Post-Effective Amendment No. 18 to
Register State No. 33-6867.

7 None.

8(a) Copy of Custodian Agreement between Investors
International Series Trust, on behalf of The
European Fund, and Credit Commercial de France
dated September 29, 1986; Exhibit 8(a) to Pre-
Effective Amendment No. 1 to Registration No. 33-
6867.

8(b) Copy of Custodian Agreement between Investors
International Series Trust, on behalf of The
European Fund, and First Pennsylvania Bank, N.A.
dated November 1, 1986; Exhibit 8(b) to Pre-
Effective Amendment No. 1 to Registration No. 33-
6867.

8(c) Copy of Custodian Agreement between Capstone
International Series Trust, on behalf of Nikko
Japan Tilt Fund, and The Bank of Tokyo Trust
Company dated July 10, 1989; Exhibit 8(c) to Post-
Effective Amendment No. 5 to Registration No. 33-
6867.

8(d) Copy of Custodian Agreement between Capstone
International Series Trust, on behalf of New
Zealand Fund, and Citibank, N.A.; Exhibit 8(e) to
Post-Effective Amendment No. 9 to Registration No.
33-6867.

9(a)(1) Copy of Administration Agreement between Investors
International Series Trust, on behalf of The European
Fund, and

<PAGE> 70
Tenneco Asset Management Company dated September 29,
1986; Exhibit 9(a) to Pre-Effective Amendment No. 1 to
Registration No. 33-6867.

9(a)(2) Copy of Administration Agreement between Investors
International Series Trust, on behalf of The European
Fund, and Capstone Asset Management Company dated
September 1, 1987; Exhibit 9(a)(2) to Post-Effective
Amendment No. 1 to Registration No. 33-6867.

9(a)(3) Copy of Administration Agreement between Capstone
International Series Trust, on behalf of Nikko Japan
Tilt Fund, and Capstone Asset Management Company dated
April 24, 1989; Exhibit 9(a)(3) to Post-Effective
Amendment No. 3 to Registration No. 33-6867.

9(a)(4) Copy form of Administration Agreement between Capstone
International Series Trust, on behalf of New Zealand
Fund, and Capstone Asset Management Company; Exhibit
9(a)(5) to Post-Effective Amendment No. 9 to
Registration No. 33-6867.

9(b)(1) Copy of Transfer Agency Agreement between Investor
International Series Trust, on behalf of The European
Fund, and Fund/Plan Services, Inc. dated November 1,
1986; Exhibit 9(b) to Pre-Effective Amendment No. 1 to
Registration No. 33-6867.

9(b)(2) Copy of Agency Agreement between Investors
International Series Trust and Capstone Financial
Services, Inc. dated October 2, 1987; Exhibit 9(b)(2)
to Post-Effective Amendment No. 1 to Registration
No. 33-6867.

9(b)(3) Copy of Shareholder Services Agreement between Capstone
International Series Trust and Fund/Plan Services, Inc.
dated February 1, 1991; Exhibit 9(b)(3) to Post-
Effective Amendment No. 7 to Registration No. 33-6867.

10 Opinion of Dechert Price & Rhoads; Exhibit 10 to
Rule 24f-2 Notice dated December 23, 1989.

10(a) Opinion of Dechert Price & Rhoads.

*11(a) Consent of Tait, Weller & Baker, Independent
Certified Public Accountants.

*11(b) Powers of Attorney for Messrs. Eugene W. Potter,
Jr., Philip C. Smith and Bernard J. Vaughan.

____________
* Filed herewith

<PAGE> 71
12 None.

13 None.

14 None.

15 Form of Service and Distribution Plan.

*16 Schedule for Computation of Performance Quotations.

B. Exhibits filed pursuant to Rule 483 of Regulation C under the
Securities Act of 1933, as amended.

Item 25. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------

Registrant does not control and is not under common control with
any person.

Item 26. Number of Holders of Securities
-------------------------------

Number of Record Holders
Title of Class as of February 21, 1996
-------------- ------------------------
Shares of beneficial interest,
par value $0.01 1,218

Item 27. Indemnification
---------------

The Declaration of Trust of the Registrant includes the following:

Section 4.3. Mandatory Indemnification.

(a) Subject to the exceptions and limitations contained in
paragraph (b) below:

(i) every person who is, or has been, a Trustee or
officer of the Trust shall be indemnified by the
Trust to the fullest extent permitted by law
against all liability and against all expenses
reasonably incurred or paid by him in connection
with any claim, action, suit or proceeding in
which he becomes involved as a party or otherwise
by virtue of his being or having been a Trustee or
officer and against amounts paid or incurred by
him in the settlement thereof;

____________
* Filed herewith

<PAGE> 72
(ii) the words "claim", "action", "suit", or
"proceeding" shall apply to all claims, actions,
suits or proceedings (civil, criminal, or other,
including appeals), actual or threatened; and the
words "liability" and "expenses" shall include,
without limitation, attorneys' fees, costs,
judgments, amounts paid in settlement, fines,
penalties and other liabilities.

(b) No indemnification shall be provided hereunder to a
Trustee or officer:

(i) against any liability to the Trust or the
Shareholders by reason of a final adjudication by
the court or other body before which the
proceeding was brought that he engaged in willful
misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the
conduct of his office;

(ii) with respect to any matter as to which he shall
have been finally adjudicated not to have acted in
good faith in the reasonable belief that his
action was in the best interest of the Trust;

(iii) in the event of a settlement or other disposition
not involving a final adjudication as provided in
paragraph (b)(i) resulting in a payment by a
Trustee or officer, unless there has been a
determination that such Trustee or officer did not
engage in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties
involved in the conduct of his office:

(A) By the court or other body approving the
settlement or other disposition; or

(B) based upon a review of readily available
facts (as opposed to a full trial-type
inquiry) by (1) vote of a majority of the
Disinterested Trustees acting on the matter
(provided that a majority of the
Disinterested Trustees then in office act on
the matter) or (2) written opinion of
independent legal counsel.

(c) The rights of indemnification herein provided may be
insured against by policies maintained by the Trust,
shall be severable, shall not affect any other rights to
which any Trustee or officer may now or hereafter be
entitled, shall continue as to a person who has ceased to
be such Trustee or officer and shall inure to the benefit
of the heirs, executors, administrators and assigns of
such a person. Nothing contained herein shall affect any
rights to indemnification to which personnel of the Trust
other than Trustees and officers may be entitled by
contract or otherwise under law.

(d) Expenses of preparation and presentation of a defense to
any claim, action, suit or proceeding of the character
described in paragraph (a) of this Section 4.3 may be
advanced by the Trust prior to final disposition thereof
upon receipt of an undertaking by or on behalf of the
recipient to repay such

<PAGE> 73
amount if it is ultimately determined that he is not entitled
to indemnification under this Section 4.3, provided that
either:

(i) such undertaking is secured by a surety bond or
some other appropriate security provided by the
recipient, or the Trust shall be insured against
losses arising out of any such advances; or

(ii) a majority of the Disinterested Trustees acting on
the matter (provided that a majority of the
Disinterested Trustees act on the matter) or an
independent legal counsel in a written opinion
shall determine, based upon a review of readily
available facts (as opposed to a full trial-type
inquiry), that there is reason to believe that the
recipient ultimately will be found entitled to
indemnification.

As used in this Section 4.3, a "Disinterested Trustee" is
one who is not (i) an "Interested Person" of the Trust
(including anyone who has been exempted from being an
"Interested Person" by any rule, regulation or order of
the Commission), or (ii) involved in the claim, action,
suit or proceeding."

Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised by the Securities and
Exchange Commission that, in the opinion of the Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of
expenses incurred or paid by a trustee, officer or controlling person of
the Registrant in the successful defense of any action, suit or proceeding)
is asserted by such trustee, officer or controlling person in connection
with the securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether or not such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.

To the extent that the Declaration of Trust, By-Laws or any other
instrument pursuant to which the Registrant is organized or administered
indemnify any trustee or officer of the Registrant, or that any contract or
agreement indemnifies any person who undertakes to act as investment
advisor or principal underwriter to the Registrant, any such provision
protecting or purporting to protect such persons against any liability to
the Registrant or its security holders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, or gross negligence,
in the performance of his duties, or by reason of his reckless disregard of
his duties pursuant to the conduct of his office or obligations pursuant to
such contract or agreement, will be interpreted and enforced in a manner
consistent with the provisions of Sections 17(h) and (i) of the Investment
Company Act of 1940, as amended, and Release No. IC-11330 issued
thereunder.

Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------

The only activity of the Registrant's investment adviser, FCA Corp,
prior to the date hereof has been that of investment adviser to pension and
profit sharing plans, educational institutions, charitable institutions,
individuals and corporations.

<PAGE> 74
Set forth below is a list of each officer and director of the
Registrant's investment adviser, indicating each business, profession,
vocation or employment of a substantial nature in which each such person
has been engaged for the past two years, for his own account or in the
capacity of director, officer, partner or trustee.

<TABLE>
<CAPTION>
Other Substantial
Position with Business, Profession,
Name Investment Adviser Vocation or Employment
---- ------------------ ----------------------
<S> <C> <C>
Robert W. Scharar President and Director Senior Financial Planner of FCA Corp

Bill S. Murski Senior Vice President Senior Financial Planner of FCA Corp

Steven A. Estrin Senior Vice President Senior Financial Planner of FCA Corp

Rick Alphonso Assistant Vice President Financial Planner of FCA Corp

Item 29. Principal Underwriters
----------------------

(a) The principal underwriter of the Registrant, Capstone Asset
Planning Company, also acts as principal underwriter for Capstone
Government Income Fund, Capstone Intermediate Government Fund, Capstone
Growth Fund, Inc. Capstone Nikko Japan Fund and Medical Research Investment
Fund, Inc.

(b)

</TABLE>
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- ------------------ --------------------- ---------------------
<S> <C> <C>
Dan E. Watson Chairman of the Board and --
Director

Edward L. Jaroski President and Director Trustee and President of the Trust

Leticia N. Jaroski Vice President --

Janet K. Roberts Assistant Vice President --
Iris R. Clay Secretary Secretary

Norma R. Ybarbo -- Assistant Secretary

_____________

* 5847 San Felipe, Suite 4100, Houston, Texas 77057
</TABLE>

<PAGE> 75

<TABLE>
<CAPTION>
<S> <C> <C>
Linda G. Giuffre Vice President and Treasurer
Treasurer
</TABLE>

Item 30. Location of Accounts and Records

Capstone Asset Management Company, the administrator to the
Registrant, 5847 San Felipe, Suite 4100, Houston, TX 77057, FCA Corp, the
investment adviser of Capstone New Zealand Fund, 5847 San Felipe, Suite
850, Houston, Texas 77057; Citibank, N.A., the custodian of Capstone New
Zealand Fund, 111 Wall Street, New York, New York 10043; and Fund/Plan
Services, Inc., 2 W. Elm Street, Conshohocken, Pennsylvania 19428, maintain
physical possession of each account, book or other document required to be
maintained by Section 31(a) of Investment Company Act of 1940 and the rules
promulgated thereunder.

Item 31. Management Services

Not applicable.

Item 32. Undertakings

Not applicable.

<PAGE> 76

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all
of the requirements for effectiveness of this Registration Statement or
Amendment pursuant to Rule 485(b) under the Securities Act of 1933 and had
duly caused this Registration Statement or Amendment to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Houston, and State of Texas on the 29th day of February, 1996.

CAPSTONE INTERNATIONAL SERIES TRUST
CAPSTONE NEW ZEALAND FUND

Registrant

By: /s/EDWARD L. JAROSKI
------------------------------
Edward L. Jaroski, President

Pursuant to the requirements of the Securities Act of 1933, this
Amendment to Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.

Signatures Title Date
---------- ----- ----

/s/EDWARD L. JAROSKI President and Trustee February 29, 1996
- -------------------------- (Principal Executive
Edward L. Jaroski Officer)

/s/LINDA G. GIUFFRE Treasurer (Principal February 29, 1996
- -------------------------- Financial & Accounting
Linda G. Giuffre Officer)

EUGENE W. POTTER, JR.* Trustee February 29, 1996
- --------------------------
Eugene W. Potter, Jr.

PHILIP C. SMITH* Trustee February 29, 1996
- --------------------------
Philip C. Smith

BERNARD J. VAUGHAN* Trustee February 29, 1996
- --------------------------
Bernard J. Vaughan

* By: /s/EDWARD L. JAROSKI
-----------------------------
Edward L. Jaroski, Attorney-In-Fact

<PAGE> 77
INDEX TO EXHIBITS

Exhibit
Number Description of Exhibits
- ------- -----------------------

11(a) Consent of Tait, Weller & Baker, Independent
Certified Public Accountants

11(b) Powers of Attorney for Messrs. Eugene W. Potter, Jr.,
Philip C. Smith and Bernard J. Vaughan

16 Schedule of Computation of Performance Quotations

<PAGE> 1 EXHIBIT 11.A
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We consent to the reference to our firm in the Registration Statement,
(Form N-1A) and related Statement of Additional Information of Capstone New
Zealand Fund and to the inclusion of our report dated November 20, 1995 to
the Shareholders and Board of Trustees of Capstone New Zealand Fund.

TAIT, WELLER & BAKER

Philadelphia, Pennsylvania
February 22, 1996

<PAGE> 1 EXHIBIT 11.B
POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below appoints Edward L. Jaroski as his true and lawful attorney-
in-fact, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact full power and authority to
do and perform each and every act and thing requisite and necessary to be
done in connection therewith, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.

/s/EUGENE W. POTTER, JR. Trustee February 29, 1996
- --------------------------
Eugene W. Potter, Jr.

/s/PHILIP C. SMITH Trustee February 29, 1996
- --------------------------
Philip C. Smith

/s/BERNARD J. VAUGHAN Trustee February 29, 1996
- --------------------------
Bernard J. Vaughan

<PAGE> 1 EXHIBIT 16
CAPSTONE NEW ZEALAND FUND
SCHEDULE FOR COMPUTATION OF YIELD

Yield = 2[(a - b) + 1)6 - 1]
-----
cd

a = dividends and interest earned during the period,

b = expenses accrued for the period (net of reimbursements),

c = the average daily number of shares outstanding during the
period that were entitled to receive dividends, and

d = the maximum offering price per share on the last day of the
period.

*************************

Yield = 2[(13,399.08 - 5,960.35) + 1)6 - 1]
--------------------
(314,701.751)(11.12)

= 2.565% (for 1 month period ending October 31, 1995)

<PAGE> 2
CAPSTONE NEW ZEALAND FUND
SCHEDULE OF COMPUTATION FOR AVERAGE ANNUAL TOTAL RETURN

P (1 + T)n = ERV

P = a hypothetical initial payment of $1,000,

T = the average annual total return,

n = the number of years,

ERV = the ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the period.

********************

The Fund's average annualized total return for the one year
period ending October 31, 1995 is 12.215%.

$1,000 (1 + .12215)1 = ERV

$1,122.15 = ERV

An initial payment of $1,000 invested on 11/01/94 will result in
95.785 shares. An income distribution of $0.211 and a capital
gain distribution of $0.319 resulted in 5.128 additional shares,
rendering a total of 100.913 shares. On 10/31/95 the net asset
value of the Fund was $11.12 per share, thereby creating a total
market value of $1,122.15 and yielding a return of 12.215%.

********************

The Fund's average annualized total return for the period from
November 1, 1991 to ending October 31, 1995 is 4.884%.

$1,000 (1 + .04884)3.93 = ERV

41,206.36 = ERV

An initial payment of $1,000 invested on 11/25/91 will result in
100.000 shares. Income distributions of $0.266 and capital gain
distributions of $0.594 resulted in 8.486 additional shares,
rendering a total of 108.486 shares. On 10/31/95 the net asset
value of the Fund was $11.12 per share, thereby creating a total
market value of $1,206.36 and yielding a return of 4.884%.

<PAGE> 3
CAPSTONE NEW ZEALAND FUND
SCHEDULE OF COMPUTATION FOR TOTAL RETURN

P(1+T) = ERV

P = a hypothetical initial payment of $1,000,

T = the total return,

ERV = the ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period.

********************

The Fund's total return for the one year period ending October
31, 1995 is 12.215%.

$1,000(1 + .12215) = ERV

$1,122.15 = ERV

********************

The Fund's total return for the period from November 1, 1991 to
October 31, 1995 is 20.636%.

$1,000(1 + .20636) = ERV

$1,206.36 = ERV

WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 6
<LEGEND>
The Annual Report of Capstone New Zealand Fund for the fiscal year ended October
31, 1995.
</LEGEND>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 3,164,213
<INVESTMENTS-AT-VALUE> 3,214,486
<RECEIVABLES> 23,507
<ASSETS-OTHER> 295,902
<OTHER-ITEMS-ASSETS> 2,976
<TOTAL-ASSETS> 3,536,871
<PAYABLE-FOR-SECURITIES> 26,219
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 16,235
<TOTAL-LIABILITIES> 42,454
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,295,513
<SHARES-COMMON-STOCK> 314,326
<SHARES-COMMON-PRIOR> 288,624
<ACCUMULATED-NII-CURRENT> 73,695
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 74,145
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 51,064
<NET-ASSETS> 3,494,417
<DIVIDEND-INCOME> 146,289
<INTEREST-INCOME> 34,438
<OTHER-INCOME> 0
<EXPENSES-NET> 83,885
<NET-INVESTMENT-INCOME> 96,842
<REALIZED-GAINS-CURRENT> 74,729
<APPREC-INCREASE-CURRENT> 211,847
<NET-CHANGE-FROM-OPS> 383,418
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (62,313)
<DISTRIBUTIONS-OF-GAINS> (94,207)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 52,679
<NUMBER-OF-SHARES-REDEEMED> (42,485)
<SHARES-REINVESTED> 15,508
<NET-CHANGE-IN-ASSETS> 25,702
<ACCUMULATED-NII-PRIOR> 39,166
<ACCUMULATED-GAINS-PRIOR> 93,623
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 24,302
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 157,600
<AVERAGE-NET-ASSETS> 3,240,267
<PER-SHARE-NAV-BEGIN> 10.44
<PER-SHARE-NII> .31
<PER-SHARE-GAIN-APPREC> .90
<PER-SHARE-DIVIDEND> .211
<PER-SHARE-DISTRIBUTIONS> .319
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.12
<EXPENSE-RATIO> 2.52
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>