MEDICAL RESEARCH INVESTMENT FUND INC, 485BPOS, 1995-12-29

MEDICAL RESEARCH INVESTMENT FUND INC
485BPOS, 1995-12-29

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<PAGE> 1
REGISTRATION NO. 2-95103

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. 14 / X /

and/or

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

Medical Research Investment Fund, Inc.
- --------------------------------------------------------------------------------
(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
- --------------------------------------------------------------------------------
500 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.

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 October 27, 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
MEDICAL RESEARCH INVESTMENT FUND, INC.
CROSS REFERENCE SHEET
BETWEEN
ITEMS OF FORM N-1A AND PROSPECTUS
(PART A TO REGISTRATION STATEMENT NO. 2-95103)

<TABLE>
<CAPTION>
Item
Number Form N-1A Heading Caption in Prospectus
- ------ ----------------- ---------------------
<S> <C> <C>
1. Cover Page Prospectus Cover Page

2. Synopsis Prospectus Summary; Fund Expenses; Example

3. Condensed Financial Information Financial Highlights

4. General Description of Registrant Investment Objectives and Policies; Other Investments
and Investment Practices and Asssociated Risks; Special
Considerations and Risks; Investment Restrictions;
Management of the Fund; General Information

5. Management of the Fund Management of the Fund

5A. Management's Discussion of Fund Inapplicable
Performance

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

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

8. Redemption or Repurchase Redemption and Repurchase of Shares

9. Pending Legal Proceedings Inapplicable
</TABLE>

<PAGE> 3
MEDICAL RESEARCH INVESTMENT FUND, INC.

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

DECEMBER 29, 1995

PROSPECTUS

Medical Research Investment Fund, Inc. (the "Fund") is a diversified, open-
end management investment company. The Fund's primary investment objective is
long-term growth of capital, a goal it seeks by investing primarily in common
stocks, and securities (including debt and warrants) convertible into common
stocks, of domestic and foreign companies engaged in medical research and the
health care industry. Current income is a secondary objective. No assurance
can be given that the Fund will realize its objectives. This Prospectus sets
forth certain information about Medical Research Investment Fund, Inc. that a
prospective investor should know before investing. Investors should read and
retain this Prospectus for future reference.

A STATEMENT OF ADDITIONAL INFORMATION about the Fund dated December 29,
1995 has been filed with the Securities and Exchange Commission and contains
further information about the Fund. A copy of the Statement of Additional
Information may be obtained without charge by calling or writing the Fund at the
telephone number or address listed above. The Statement of Additional
Information is incorporated herein by reference.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSIONER NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSIONER PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<PAGE>4
MEDICAL RESEARCH INVESTMENT FUND, INC.

INVESTMENT ADVISER: ADMINISTRATOR:
G/A Capital Management, Inc. Capstone Asset Management Company
41 Madison Avenue, 40th Floor 5847 San Felipe, Suite 4100
New York, New York 10010-2202 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 Objectives and Policies . . . . . . . . . . . . . . . . . . .8
Other Investments and Investment Practices and Associated Risks. . . . .9
Special Considerations and Risks . . . . . . . . . . . . . . . . . . . 13
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . . . 14
Performance Information. . . . . . . . . . . . . . . . . . . . . . . . 14
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . . 15
Purchasing Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Distributions and Taxes. . . . . . . . . . . . . . . . . . . . . . . . 20
Redemption and Repurchase of Shares. . . . . . . . . . . . . . . . . . 23
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . 24
Stockholder Services . . . . . . . . . . . . . . . . . . . . . . . . . 25
General Information. . . . . . . . . . . . . . . . . . . . . . . . . . 27

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
MEDICAL RESEARCH INVESTMENT FUND, INC.

PROSPECTUS SUMMARY

The Fund. . . . . . . . . . . The Fund is an open-end diversified management
investment company. (see page 27)

Investment Objectives . . . . The Fund's primary investment objective is long-
term growth of capital, a goal it seeks by
investing primarily in common stocks, and
securities (including debt and warrants)
convertible into common stocks, of domestic and
foreign companies engaged in medical research and
the health care industry. Current income is a
secondary objective. No assurance can be given
that the Fund will realize its objectives. (see
page 8)

Investment Policies . . . . . The Fund will invest in common stocks and
securities convertible into common stocks, of
domestic and foreign companies which obtain at
least fifty percent of their profits and revenues
from medical research or health care products or
services. Except during temporary defensive
periods, not less than 65% of the Fund's total
assets will be invested in the securities of such
companies and, except during temporary defensive
periods, the Fund would normally expect at least
80% of its total assets to be so invested. (see
page 8)

Special Considerations. . . . Investing in a portfolio consisting primarily of
U.S. and foreign securities issued by companies
engaged in medical research and the health care
industry involves certain risks. Companies in
medical research and health care are generally
subject to greater governmental regulation and
products and services of such companies are also
subject to relatively high risks of rapid
obsolescence. The Fund's foreign investments may
be adversely affected by fluctuations in exchange
rates, revaluation of currencies, political and
economic instability and the imposition of
currency exchange or other foreign governmental
restrictions. (see page 13)

Investment Adviser. . . . . . G/A Capital Management, Inc. (the "Adviser") is
the Fund's investment adviser. (see page 15)

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. (see page 16)

Dividends and Distribution. . The Fund pays any dividends from net investment
income and distributions from capital gains at
least annually. (see page 20)

<PAGE> 6
Distributor and . . . . . . . Shares of the Fund are continuously offered for
Offering Price sale through the Fund's Distributor, Capstone
Asset Planning Company, without a sales load, at
the net asset value next determined after receipt
of the order. The Fund pays certain expenses
pursuant to a written distribution plan. (see
page 18)

Minimum Purchase. . . . . . . The minimum initial investment is $200, except for
continuous investment plans, and there is no
minimum for subsequent purchases. (see page 18)

Redemption. . . . . . . . . . Shares of the Fund can be redeemed at the next
determined net asset value, without charge. (see
page 23)

<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, if applicable) 0%

Exchange Fee 0%

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

Management and Administration Fees 1.25%
12b-1 Fees* 0.25%
Other Expenses 0.94%
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. ("NASD"),
a 12b-1 fee may be treated as a sales charge for certain purposes under those
rules. Because the 12b-1 fee is an annual fee charged against the assets of
a Fund, long-term stockholders may indirectly pay more in total sales charges
than the economic equivalent of the maximum front-end sales charge permitted
by rules of the NASD (see "Distributor").

<PAGE> 8

The purpose of the foregoing table is to assist investors in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. The information disclosed in the table under the heading "Annual
Fund Operating Expenses" is based on expenses actually incurred by the Fund
during its last fiscal year ended August 31, 1995. See "Purchasing Shares" and
"Redemption and Repurchase of Shares" below for more complete descriptions of
those expenses. The management and administration fee information contained in
the table is based on the maximum asset-based fees currently in effect. A
pricing charge is also included in the expense information contained in the
table. See "Management of the Fund" for more complete descriptions of the fees
paid to the Adviser and Administrator. The information disclosed in the table
for "Other Expenses" is based on expenses actually incurred by the Fund during
its last fiscal year ended August 31, 1995.

THE EXAMPLE WHICH IMMEDIATELY FOLLOWS THE TABLE USES THE "TOTAL FUND OPERATING
EXPENSES" FIGURE ABOVE AND ASSUMES IT WILL REMAIN CONSTANT OVER THE ILLUSTRATED
PERIOD. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL FUND EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN IN THE
EXAMPLE OR IN THE TABLE.

<PAGE> 9
FINANCIAL HIGHLIGHTS

The following table sets forth the per share operating performance data for
a share of capital stock outstanding, total return, ratios to average net assets
and other supplemental data for each year indicated. This information has been
derived from information provided in the Fund's financial statements which have
been examined by Tait, Weller & Baker, independent certified public accountants.
The Fund's Annual Report contains additional performance information and is
available free of charge upon request by calling the Fund at 1-800-262-6631.

YEAR ENDED AUGUST 31
<TABLE>
<CAPTION>
1995(1) 1994(1) 1993(1) 1992(1) 1991(1) 1990(1) 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value at beginning of year $18.30 $19.27 $17.94 $17.15 $14.70 $13.92 $10.60 $15.26 $13.65 $10.08

Income from investment operations:
Net investment income (loss) (.34) (.31) (.27) (.26) (.23) (.33) (.86) (.45) (.20) (.45)
Net realized and unrealized gain
(loss) on investments 6.81 0.86 3.72 2.30 4.30 1.83 4.18 (3.17) 2.60 4.07

Total from investment operations 6.47 0.55 3.45 2.04 4.07 1.50 3.32 (3.62) 2.40 3.62

Less distributions from:
Net investment income .00 .00 .00 .00 .00 .00 .00 .05 .00 .00
Net realized gain on investments 1.36 1.52 2.12 1.25 1.62 .72 .00 1.04 .79 .00

Total distributions 1.36 1.52 2.12 1.25 1.62 .72 .00 1.04 .79 .05

Net asset value at end of year $23.41 $18.30 $19.27 $17.94 $17.15 $14.70 $13.92 $10.60 $15.26 $13.65

TOTAL RETURN(2) 38.13% 2.69% 21.37% 12.04% 30.60% 11.13% 31.32% (25.30)% 19.81% 36.04%

RATIOS/SUPPLEMENTAL DATA
Net assets at end of year
(in thousands) $17,690 $13,231 $10,223 $11,415 $6,955 $3,771 $2,754 $2,819 $4,015 $1,623

Ratio of operating expenses to
average net assets (3):
Before expense reimbursement 2.44% 2.67% 2.87% 2.59% 3.74% 4.77% 5.54% 5.71% 6.72% 9.90%
After expense reimbursement N/A 2.50% 2.50% 2.48% 2.50% 3.51% 5.27% 5.59% 6.08% 7.87%

Ratio of net investment loss to
average net assets:
Before expense reimbursement (1.82)% (1.82)% (1.90)% (1.56)% (2.71)% (3.51)% (4.00)% (4.12)% (5.01)% (8.13)%
After expense reimbursement N/A (1.65)% (1.53)% (1.45)% (1.47)% (2.26)% (3.73)% (4.00)% (4.37)% (6.10)%

Portfolio turnover rate 45% 49% 77% 71% 81% 143% 75% 59% 95% 69%
</TABLE>
______________

(1) Based on average month end shares outstanding.
(2) Calculated without a sales load.
(3) Since September, 1989 the Adviser and Administrator have reimbursed a
portion of their fees, when necessary, in order to allow the Fund to
operate within the expense limitation of any state having jurisdiction over
the Fund.

<PAGE> 10
INVESTMENT OBJECTIVES AND POLICIES

The Fund is an open-end diversified management investment company whose
primary objective is long-term growth of capital, a goal it seeks by investing
primarily in common stocks and securities (including debt and warrants)
convertible into common stocks, of domestic and foreign companies engaged in
medical research and the health care industry. Such companies obtain at least
fifty percent of their profits and revenues from medical research or health care
products or services. Current income is a secondary objective. See "Taxes."

Except during temporary defensive periods, not less than 65% of the Fund's
total assets will be invested in the securities of companies primarily engaged
in medical research and the health care industry, and, except during temporary
defensive periods, the Fund would normally expect at least 80% of its total
assets to be so invested. As a diversified investment company, at least 75% of
the Fund's total assets are required to be invested in securities limited in
respect of any one issuer to not more than 5% of the Fund's total assets and to
not more than 10% of the issuer's voting securities. Both the Fund's investment
objectives and these policies are fundamental and may not be changed without the
vote of a majority of the Fund's outstanding shares.

The Adviser believes that favorable investment opportunities are offered by
companies that provide products or services designed for the prevention,
diagnosis and treatment of physical and mental disorders. Both the expanding
world population and the increasing average age of citizens in the
industrialized countries have contributed to dramatic growth in the health care
industry. In addition to the increased demand for health care services,
substantial public and private expenditures on basic medical research and
advances in technology have accelerated the pace of medical discoveries, thereby
offering the prospect of new services, products and markets. Examples of these
developments include improved drugs and delivery systems for treating cancer,
hypertension and heart attacks as well as technological advances in research
such as gene splicing, monoclonal antibodies for diagnosis and therapy and new
imaging devices. Accordingly, the Fund seeks to invest in common stocks, and
securities (including debt) convertible into common stocks, of companies whose
research and development efforts, in the opinion of the Adviser, may result in
higher stock values.

An important yardstick the Adviser employs in making portfolio selections,
in addition to evaluating trends in corporate revenues, earnings and dividends,
is the amount of capital currently being expended on research and development,
and the nature thereof. The Adviser believes that dollars invested in research
and development today frequently have significant bearing on future growth.

Portfolio securities generally will be selected from companies in the
following groups:

PHARMACEUTICALS--Companies involved in the development, manufacture and
sale of pharmaceuticals.

BIOTECHNOLOGY COMPANIES--Companies which are producing or plan to produce
as a result of current research, diagnostic and therapeutic drugs and reagents
based on genetic engineering and the use of monoclonal antibodies; also,
specialty companies catering to the unique requirements of biotechnology
companies such as those providing enzymes, media and purification equipment.

<PAGE> 11
MEDICAL AND DENTAL EQUIPMENT AND SUPPLIERS--Companies engaged in the
manufacture of medical, surgical, laboratory and diagnostic products (ranging
from needles and syringes through kidney dialyses equipment to CAT scanners).

HOSPITAL SUPPLIERS--Companies distributing health care products to
hospitals, physicians and dentists, including intravenous solutions,
pharmaceuticals, diagnostics, laboratory and hospital instruments, eye care
products and capital goods.

HOSPITAL MANAGEMENT COMPANIES--Operators of investor-owned hospital chains
(including acute care psychiatric hospitals) which seek to deliver hospital care
on an efficient cost basis.

NURSING CENTERS--Companies which provide long-term health care for the
rapidly expanding elderly population.

DIAGNOSTIC CENTERS--Private organizations that maintain sophisticated
diagnostic equipment such as CAT scanners and Magnetic Resonance Imaging as well
as urological and serological assays.

FOREIGN SECURITIES

The Fund may purchase securities, including common stocks and convertible
debt securities, of foreign companies engaged in medical research and the health
care industry which are listed on a U.S. or foreign stock exchange. Such
securities may or may not be in the form of American Depository Receipts (ADRs).
ADRs are typically issued by United States banks or trust companies and evidence
ownership of underlying securities issued by a foreign company. ADRs may be
listed on a national securities exchange or traded in the over-the-counter
market. ADR prices are denominated in United States dollars; the underlying
security may be denominated in a foreign currency. Except with respect to the
diversification requirements discussed above, the Fund is subject to no maximum
limit on the amount of foreign securities it may hold.

Although there is no minimum percentage of assets the Fund must invest in
foreign securities, the Fund intends to diversify its investments across a broad
spectrum of countries, including the United States, Canada, Japan, Australia,
the United Kingdom, Holland, Belgium, Denmark, Norway, Sweden, West Germany,
Italy and Switzerland. The Board of Directors of the Adviser believes that the
Fund's international diversification may serve to reduce the investment risk
associated with being invested in the economy of only one country since foreign
markets have generally moved with a degree of independence from the U.S. market.
There is, of course, no assurance that this will occur, and investors should
also be aware of certain risks involved in investing in the securities of
foreign companies. See "Special Considerations."

OTHER INVESTMENTS AND INVESTMENT PRACTICES AND ASSOCIATED RISKS

Due to the changing nature of national economies and market and political
conditions, the Fund may, as a temporary defensive measure, invest without
limitation as to the amount in money market securities of United States and
foreign issuers, including certificates of deposit, bankers' acceptances,
commercial paper and repurchase agreements, debt obligations of the United
States Government or its

<PAGE> 12
political subdivisions, negotiable Eurodollar time deposits, and cash or cash
equivalents, including short-term money market instruments, short-term Treasury
instruments, and certificates of deposit maturing in less than six months, in
United States dollars or foreign currencies.

In order to have funds available for redemption and investment
opportunities, the Fund may also hold a portion of its portfolio in cash or U.S.
and foreign short-term money market instruments. The commercial paper of U.S.
issuers purchased by the Fund will consist of issues rated (at the time of
purchase) A-1 or better by Standard & Poor's Corporation ("S&P") or Prime-1 by
Moody's Investors Service, Inc. ("Moody's"). These rating symbols are described
in Appendix A to the Statement of Additional Information. Certificates of
deposit purchased by the Fund will be those of U.S. or foreign banks having
total assets at the time of purchase in excess of $1 billion, and bankers'
acceptances purchased by the Fund will be guaranteed by U.S. or foreign banks
having total assets at the time of purchase in excess of $1 billion. The Fund
anticipates that not more than 20% of its total assets will be so invested in
money market instruments or held in cash at any given time, except when the Fund
is in a temporary defensive posture. The Fund may invest in debt securities
convertible into common stocks. Debt purchased by the Fund will consist of
obligations of medium grade or higher, having at least adequate capacity to pay
interest and repay principal. Non-convertible debt obligations will be rated
BBB or higher by S&P, or Baa or higher by Moody's. Convertible debt obligations
will be rated B or higher by S&P or B or higher by Moody's. Securities rated
Baa by Moody's are considered by Moody's to be medium grade securities and have
speculative characteristics and securities rated BBB by S&P are regarded by S&P
as having adequate capacity to pay principal and interest. Securities rated B
by S&P are regarded, on balance, as predominately speculative with respect to
capacity to pay interest and repay principal in accordance with the terms of the
obligation. The Fund does not currently intend to invest in convertible or non-
onvertible debt obligations rated lower than B by S&P or Moody's.

The Fund may accrue and report interest income on high-yield bonds such as
zero coupon bonds or pay-in-kind securities, even though the Fund receives no
cash interest until the security's maturity or payment date. In order to
qualify for beneficial tax treatment afforded regulated investment companies,
and to be relieved of Federal tax liabilities, the Fund must distribute
substantially all of its net income to stockholders generally on an annual
basis. Thus, the Fund may have to dispose of portfolio securities under
disadvantageous circumstances to generate cash or leverage itself by borrowing
cash in order to satisfy the distribution requirement.

The Fund does not trade in securities for short-term profits but, when
circumstances warrant, securities may be sold without regard to the length of
time they have been held. The Fund's annual portfolio turnover rate for the
fiscal year ended August 31, 1995 was 45%.

OPTIONS AND FUTURES (DERIVATIVES). To the extent deemed advisable by the
Adviser and for hedging purposes only, the Fund may invest a limited portion of
its assets in covered call options and stock index and foreign currency futures
and related options. The Fund's policy with regard to investing in these
instruments, which are commonly referred to as "derivatives", is discussed in
detail below.

The Fund may write covered call options which are traded on national
securities exchanges and issued by the Options Clearing Corporation, with
respect to foreign or domestic common stocks in its portfolio. The Fund may
write covered call options on the Fund's common stocks in an attempt to realize
a greater current return than would be realized in the securities alone or to
provide greater flexibility in disposing of such securities. In view of its
investment objectives, the Fund generally would write call

<PAGE> 13
options only in circumstances where the Adviser does not anticipate significant
appreciation of the underlying security in the near future or has otherwise
determined to dispose of the security. As the writer of a call option, the Fund
receives a premium for undertaking the obligation to sell the underlying
security at a fixed price during the option period, if the option is exercised.
So long as the Fund remains obligated as a writer of a call, it foregoes the
opportunity to profit from increases in the market price of the underlying
security above the exercise price of the option, except insofar as the premium
represents such a profit, and retains the risk of loss should the value of the
underlying security decline. The writing of call options could result in
increases in the Fund's portfolio turnover rate especially during periods when
market prices of the underlying securities appreciate. See "Taxes." The Fund
may also enter into "closing purchase transactions" in order to terminate its
obligation as a writer of a call option prior to the expiration of the option.
Although the writing of call options only on national securities exchanges
increases the likelihood of the Fund's being able to make closing purchase
transactions, there is no assurance that the Fund will be able to effect such
transactions at any particular time or at an acceptable price.

The Fund may purchase and sell stock index and foreign currency futures
contracts (as well as purchase and sell related options) as a hedge against
changes resulting from market conditions and exchange rates in the values of the
domestic and foreign securities held by the Fund or which the Fund intends to
purchase and where the transactions are economically appropriate for the
reduction of risks inherent in the ongoing management of the Fund. A stock
index futures contract is a bilateral agreement pursuant to which two parties
agree to take or make delivery of an amount of cash equal to a specified dollar
amount times the difference between the stock index value (which assigns
relative values to the stocks included in the index) at the close of the last
trading day of the contract and the price at which the futures contract is
originally struck. No physical delivery of the underlying stocks in the index
is made. A foreign currency futures contract creates an obligation on one party
to deliver, and a corresponding obligation on another party to accept delivery
of, a stated quantity of a foreign currency, for an amount fixed in U.S.
dollars. The Fund may not purchase or sell futures contracts and purchase or
sell related options unless immediately after any such transaction, the
aggregate initial margin that is required to be posted by the Fund under the
rules of the exchange on which the futures contract (or futures option) is
traded, plus any premiums paid by the Fund on its open futures options
positions, does not exceed 5% of the Fund's total assets, after taking into
account any unrealized profits and losses on the Fund's open contracts and
excluding the amount that a futures option is "in-the-money" at the time of
purchase. (An option to buy a futures contract is "in-the-money" if the then
current purchase price of the contract that is subject to the option exceeds the
exercise or strike price; an option to sell a futures contract is "in-the-money"
if the exercise or strike price exceeds the then current purchase price of the
contract that is subject to the option.)

A principal consideration in trading in futures contracts for hedging
urposes is the possibility of an imperfect correlation, or no correlation at
all, between movements in the price of the futures contract and the securities
being hedged. In addition, the ordinary spreads between prices in the
securities and futures markets, due to differences in the nature of those
markets, are subject to distortions (e.g., the margin requirements on futures
nd the relative liquidity of the respective markets). To compensate for the
possibility of imperfect correlations, the Fund may buy or sell futures
contracts in a greater dollar amount than the dollar amount of the securities
being hedged if the historical volatility of the prices of such securities has
been greater than the historical volatility of the futures contracts.
Conversely, the Fund may buy or sell fewer contracts if the historical
volatility of the price of the securities being hedged is less than the
historical volatility of the futures contracts. Another risk assumed in
transactions in

<PAGE> 14
futures contracts is the possibility that the Adviser may be incorrect in its
expectations as to the extent of the various market, currency or interest rate
movements, or the time spans within which the movements take place. Should the
Adviser be incorrect in its predictions, the Fund's return might have been
better had hedging not been attempted. Further, although the Fund intends to
trade in futures and futures options only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or option or at any particular time. Additionally, the liquidity of a
secondary market in a futures contract may be adversely affected by "daily price
fluctuation limits" established by commodity exchanges which limit the amount of
fluctuation in a futures contract price during a single trading day. Once the
daily limit has been reached in the contract, no trades may be entered into at a
price beyond the limit, thus preventing the liquidation of open futures
positions. Finally, it is conceivable that, under certain circumstances, the
Fund would be required to sell portfolio securities at a time when it otherwise
would not do so in order to make margin payments on its futures positions. For
the reasons above, the purchase or sale of a futures contract may result in
losses in excess of the amount invested in the futures contract. Investments in
options on futures contracts involve some of the same considerations that are
involved in connection with investments in futures contracts (for example, the
existence of a liquid secondary market). In addition, the purchase of an option
also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
Depending on the pricing of the option compared to either the futures contract
upon which it is based, or upon the price of the securities being hedged, an
option may or may not be less risky than ownership of the futures contract or
such securities. In general, the market prices of options can be expected to be
more volatile than the market prices on the underlying futures contracts.
Compared to the purchase or sale of futures contracts, however, the purchase of
call or put options on futures contracts may frequently involve less potential
risk to the Fund because the maximum amount at risk is the premium paid for the
options (plus transaction costs). For a more detailed description of futures
contracts and related options and the costs and risks related to such
instruments, see Appendix B to the Statement of Additional Information.

REPURCHASE AGREEMENTS. To the extent deemed advisable by the Adviser, the
Fund may enter into repurchase agreements pursuant to which the Fund would
purchase a security from a financial institution (such as a bank or broker-
ealer) subject to the institution's agreement to repurchase it from the Fund at
a future specified time and price. Generally, the Fund intends to enter into
repurchase agreements which mature within seven days. However, to the extent
that the Fund invests in repurchase agreements maturing in more than seven days,
such investment will be subject to the Fund's policy on illiquid securities
described below. See "Investment Restrictions." The seller under a repurchase
agreement will be required to maintain the value of the securities subject to
the agreement at not less than the repurchase price. If the seller defaulted on
its repurchase obligation, the Fund would suffer a loss on the underlying
securities (including accrued interest) to the extent that the proceeds from a
sale of the underlying securities (including accrued interest) were less than
the repurchase price under the agreement.

In the event that such a defaulting seller was a bank which filed for
bankruptcy or became insolvent, disposition of such securities by the Fund might
be delayed pending court action. There is no controlling legal precedent
confirming that the Fund would be entitled, as against a claim by such bank
seller or its receiver or trustee in bankruptcy, to retain the underlying
securities.

<PAGE> 15
RESTRICTED SECURITIES. The Fund may invest up to 10% of the value of its
net assets in illiquid securities, including securities subject to legal or
contractual restrictions on resale, repurchase agreements with remaining
maturities in excess of seven days, and other securities for which market
quotations are not readily available. Disposition of such securities may
require the Fund to sell such securities at a discount from market prices, to
sell during periods when such disposition is not desirable, or to make many
small sales over a lengthy period of time.

For more information concerning these investment practices, see "Investment
Objectives and Policies" in, and Appendix B to, the Statement of Additional
Information.

SPECIAL CONSIDERATIONS AND RISKS

There can be no assurance that a portfolio consisting primarily of
securities issued by companies engaged in medical research and the health care
industry will achieve the Fund's investment objectives. Because the Fund
concentrates its investments in this area, its shares do not represent a
complete investment program and their value may fluctuate more than shares
invested in a broader range of industries. The value of Fund shares will also
be especially susceptible to factors affecting companies engaged in medical
research and health care. Such companies are generally subject to greater
governmental regulation than those in many other industries. Changes in
governmental policies, such as reductions in the funding of third-party payment
programs, may have a material effect on the demand for particular health care
products and services. Regulatory approvals (often entailing lengthy
application and testing procedures) are also generally required before new drugs
and certain medical devices and procedures may be introduced. Many of the
products and services of companies engaged in medical research and health care
are also subject to relatively high risks of rapid obsolescence caused by
progressive scientific and technological advances.

Investing in securities of foreign issuers involves considerations not
typically associated with investments in domestic companies. The value of the
Fund's foreign investments may be adversely affected by fluctuations in currency
exchange rates, revaluation of currencies, political and economic instability
and the imposition of currency exchange or other foreign governmental
restrictions. Often less information is publicly available with respect to
foreign issuers or foreign companies, which are not generally subject to the
uniform accounting and financial reporting requirements that apply to domestic
companies. Securities of foreign companies may be less liquid and their prices
more volatile than the securities of domestic companies. In buying and selling
securities on foreign exchanges, the Fund will normally pay fixed commissions
that are higher than the negotiated commissions charged in the United States.
The Fund's operating expenses will also tend to be higher than those of
investment companies having portfolios consisting exclusively of domestic
securities because of additional costs associated with maintaining custody of
foreign securities, and transaction costs involved in converting foreign
currency into U.S. dollars. The economies of foreign countries of course may
differ significantly from the United States economy with respect to gross
domestic product, rate of inflation, capital reinvestment, resource self-
ufficiency and balance of payments position. Foreign securities purchased by
the Fund may also be subject to foreign taxes that could reduce their yield.

<PAGE> 16
INVESTMENT RESTRICTIONS

The Fund is subject to certain investment restrictions described here and
in the Statement of Additional Information which may be changed only with the
approval of the holders of a majority of the Fund's outstanding shares.

1. With respect to 75% of its total assets, the Fund will not invest more
than 5% of its assets in the securities of any one issuer (except securities
issued or guaranteed by the U.S. Government, its agencies and
instrumentalities);

2. With respect to 75% of its total assets, the Fund will not invest in
the securities of any issuer if as a result the Fund holds more than 10% of the
outstanding securities or more than 10% of the outstanding voting securities of
such issuer;

3. The Fund will not borrow money or pledge, mortgage or hypothecate its
assets except to facilitate redemption requests which might otherwise require
untimely disposition of portfolio securities and then only from banks and in
amounts not exceeding the lesser of 10% of its total assets valued at cost or 5%
of its total assets valued at market at the time of such borrowing, pledge,
mortgage or hypothecation and except that the Fund may enter into futures
contracts and related options;

4. The Fund will not invest more than 10% of the value of its net assets
in illiquid securities, including repurchase agreements with remaining
maturities in excess of seven days, restricted securities and other securities
for which market quotations are not readily available;

5. The Fund will not invest in the securities of any one industry, except
the medical research and health care industry (and except securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities) if as a
result more than 25% of the Fund's total assets would be invested in the
securities of such industry;

6. The Fund will not purchase or sell commodities or commodity contracts,
or invest in oil, gas or mineral exploration or development programs except that
the Fund may enter into futures contracts and related options; and

7. The Fund will not invest in the securities of any issuer which has not
been in continuous operation for at least three years.

If a percentage limitation is satisfied at the time of investment, a later
increase or decrease in such percentage resulting from a change in value in the
Fund's portfolio securities will not constitute a violation of such limitation.

PERFORMANCE INFORMATION

<PAGE> 17
investment income"), and will be computed by dividing net investment income by
the maximum public offering price per share on the last day of the period.
Average annual total return and total return figures represent the increase
(decrease) in the value of an investment in the Fund over a specified period.
Both calculations assume that all income dividends and capital gain
distributions during the period are reinvested at net asset value in additional
Fund shares. Quotations of the average annual total return reflect the
deduction of a proportional share of Fund expenses on an annual basis. The
results, which are annualized, represent an average annual compounded rate of
return on a hypothetical investment in the Fund over a period of 1, 5 and 10
years ending on the most recent calendar quarter (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.

Performance information for the Fund may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index ("S&P
500"), Dow Jones Industrial Average ("DJIA") and the National Association of
Securities Dealers Automated Quotations ("NASDAQ") Composite Index; (ii) other
groups of mutual funds tracked by Lipper Analytical Services, a widely used
independent research firm which ranks mutual funds by overall performance,
investment objectives, and assets; and (iii) the Consumer Price Index (measure
of inflation) to assess the real rate of return from an investment in the Fund.
Unmanaged indices may assume the reinvestment of dividends but generally do not
reflect deductions for administrative and management costs and expenses.

Performance information for the Fund reflects only the performance of a
hypothetical investment in the Fund during the particular time period on which
the calculations are based. Performance information should be considered in
light of the Fund's investment objectives and polices, 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

The Fund is an open-end diversified management investment company, commonly
called a mutual fund. Through the purchase of shares of the Fund, investors
with goals similar to the investment objectives of the Fund can participate in
the investment performance of the portfolio of investments held by the Fund.
The management and affairs of the Fund are supervised by its Board of Directors
whose names and general background information appear in the Statement of
Additional Information.

ADVISER

G/A Capital Management, Inc. ("G/A"), located at 41 Madison Avenue, 40th
Floor, New York, New York, 10010-2202 serves as the Fund's investment adviser
(the "Adviser"). G/A was incorporated in Delaware on February 24, 1989 and is
principally owned by Samuel D. Isaly, who serves as the President of G/A and
Chairman of the Board and President of the Fund. The Fund is the only
investment company registered under the 1940 Act advised by G/A.

Pursuant to the terms of an Investment Advisory Agreement between the Fund
and G/A which

<PAGE> 18
became effective on August 17, 1989 and was last approved by the Board of
Directors on May 7, 1995, G/A manages the Fund's portfolio in accordance with
the Fund's stated policies, makes investment decisions for the Fund, places
orders to purchase and sell securities, employs at its own expense executive and
clerical personnel for the Fund, and provides office space and services required
for the transaction of business. The Adviser has the authority to place orders
for Fund portfolio transactions with Capstone Asset Planning Company, the Fund's
Distributor, for which the Distributor may receive brokerage commissions from
the Fund. No such orders were placed with the Distributor during the past year.
The Adviser may also consider sales of Fund shares as a factor in selecting
broker-dealers to execute portfolio transactions, subject to best execution.

For its services, G/A receives a fee computed daily and payable monthly at
an annual rate of 1.00% of the Fund's average daily net assets up to $30 million
of such assets, 0.90% of the next $20 million of such assets, and 0.75% on such
assets in excess of $50 million. Effective September 1, 1989 the Adviser has
agreed to reimburse its fees until such time as the Fund can operate within the
expense limitation discussed below. For the fiscal year ended August 31, 1995,
the Fund paid advisory fees to G/A equal to 1.00% of the average net assets of
the Fund.

Investment decisions for the Fund are made by the portfolio manager, Samuel
D. Isaly. Mr. Isaly has been active in international and health care investing
throughout his career, beginning at Chase Manhattan Bank in New York in 1968.
He studied international economics, mathematics and econometrics at Princeton
and the London School of Economics. His company, Gramercy Associates, was the
first to develop an integrated worldwide system of analysis on the 100 leading
worldwide pharmaceutical companies, with investment recommendations conveyed to
50 leading financial institutions in the United States and Europe beginning in
1982. Gramercy Associates was absorbed into S.G. Warburg & Company Inc. in
1986, where Mr. Isaly became a Senior Vice President. In July of 1989, Mr.
Isaly joined with Dr. Viren Mehta to found the partnership of Mehta and Isaly.
The operations of the combined effort are (1) to provide investment ideas to
institutional investors on the subject of worldwide health care, (2) to
undertake cross-border merger and acquisition projects in the industry and (3)
to provide investment management services to selected investors. The latter
activity is undertaken through the legal entity G/A Capital Management, Inc.
which is an SEC-registered investment advisory firm. Since April, 1995, Mehta
and Isaly has served as investment adviser to the Finsbury Worldwide
Pharmaceutical Trust plc, a London Stock Exchange - listed investment trust.

ADMINISTRATOR

Pursuant to an Administration Agreement ("Administration Agreement") dated
March 1, 1988 with the Fund, Capstone Asset Management Company (the
"Administrator"), a wholly-owned subsidiary of Capstone Financial Services,
Inc., provides administrative services for the Fund and supervises the Fund's
daily business affairs, including the activities of persons providing services
to the Fund, and furnishes office space and equipment to the Fund. Such
services are subject to general review by the Board of Directors.

As compensation for the provision of administrative services to the Fund,
the Administrator receives from the Fund at the end of each calendar month a fee
calculated at the annual rate of 0.25% of the Fund's average daily net assets.
Effective September 1, 1989 the Administrator has reimbursed a portion of its
fees until the Fund can operate within the expense limitation discussed below.

<PAGE> 19
The Administrator also performs certain accounting, bookkeeping and pricing
services. For these services the Administrator receives a monthly fee for the
Fund 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 fee described above.

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

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 Adviser and the Administrator; taxes; legal fees;
custodian and auditing 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. The Adviser and
Administrator have agreed that in any fiscal year the aggregate expenses of the
Fund (including advisory, administrative and transfer agency fees, but
excluding, to the extent permitted by applicable state law, interest, local,
state and Federal taxes, sales charges, distribution plan expenses and
extraordinary expenses as determined by the Fund's directors who are not
"interested persons" of the Administrator or the Fund's investment adviser as
defined in the 1940 Act) exceed the expense limitation of any state having
jurisdiction over the Fund, then the fees paid to the Adviser and Administrator
hereunder will be reduced pro rata (but not below zero) to the extent required
by such expense limitation. 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. For the fiscal year ended August 31, 1995 the Fund's
total operating expenses amounted to 2.44% of the average net assets.

DISTRIBUTOR

Pursuant to a Distribution Agreement with the Fund dated April 22, 1988,
Capstone Asset Planning Company (the "Distributor") is the principal underwriter
of the Fund and, acting as exclusive agent, sells shares of the Fund to the
public on a continuous basis.

The Fund has adopted a Service and Distribution Plan ("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
the payment of fees to broker-dealers, financial institutions or other industry
professionals for administrative services, servicing Fund stockholders or
distribution services. Payments under the Plan may also be made to the
Distributor for providing such services. (See below.) In addition, the
Distributor receives the sales charge described under "Purchasing Shares," which
amounts do not offset amounts payable to the Distributor under the Plan.

The Investment Company Act of 1940 prohibits a fund from acting as a
distributor of securities of which it is an issuer, except through an
underwriter or pursuant to a written distribution plan meeting certain
standards. Pursuant to these provisions, the Fund has adopted the Plan, under
which monthly payments made by the Fund to the Distributor may not exceed an
amount computed at an annual rate of

<PAGE> 20
0.25% of the Fund's average net assets. Of this amount, at the end of each
calendar quarter the Distributor may reallocate to broker-dealers (which may
include the Distributor itself), financial institutions or other industry
professionals (collectively, the "Service Organizations") fees at annual rates
of up to 0.25% of the average net assets of Fund shares owned by stockholders
for whom the Service Organizations are the dealers or holders of record and with
whom the Service Organizations have a servicing relationship pursuant to a
Service Agreement or a Dealer Agreement with the Distributor. Normally the
expenses paid by the Distributor will exceed the fees received by the
Distributor under the Plan (said fees will not be offset by any sales charges
received by the Distributor). During the fiscal year ended August 31, 1995, the
effective rate of servicing fees paid by the Fund to Service Organizations
other than Capstone Asset Planning Company was approximately .09% of the Fund's
average net assets. The effective rate of servicing fees paid by the Fund to
Capstone Asset Planning Company and G/A Capital Management was approximately
.10% and .06%, respectively, of the Fund's average net assets.

The Plan was last approved on May 7, 1995 by a majority of the Fund's
directors, including a majority of the directors who have no direct or indirect
financial interest in the operation of the Plan or any of its agreements ("Plan
Directors"). The Plan will continue from year to year, provided that such
continuance is approved at least annually by a vote of a majority of the Board
of Directors, including a majority of the Plan Directors.

The Glass-Steagall Act and other applicable laws currently prohibit banks
from engaging in the usiness of underwriting, selling or distributing
securities. Accordingly, unless such laws are changed, if the Fund engages
banks as Service Organizations, the banks would perform only administrative and
stockholder servicing functions. If a bank were prohibited from acting as a
Service Organization, alternative means for continuing the servicing of such
stockholders would be sought. State law may differ from Federal law and banks
and other financial institutions may be required to be registered as broker-
dealers to perform administrative and stockholder servicing functions.

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. See "Management of the Fund." Edward L. Jaroski, an officer
of the Fund, is a director of the Distributor and the Administrator. In
addition, some other officers of the Fund are also officers of the Distributor
and Administrator and of their parent company, Capstone Financial Services, Inc.

Shares of the Fund are sold in a continuous offering and may be purchased
on any business day through authorized investment dealers or directly from the
Fund's Distributor. Except for the Fund itself, only the Distributor and
investment dealers which have a sales agreement with the Distributor are
authorized to sell shares of the Fund. For further information, reference is
made to the caption "Distributor" in the Fund's Statement of Additional
Information.

Shares of the Fund are sold at net asset value, without a sales charge, and
will be credited to a 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

<PAGE> 21
issued except upon written request to the Fund's Transfer Agent. The Fund's
management reserves the right to reject any purchase order if, in its opinion,
it is in the Fund's best interest to do so.

At various times the Distributor may implement programs under which a
dealer's sales force may be eligible to win nominal awards for certain sales
efforts or recognition programs conforming to criteria established by the
Distributor, or participates in sales programs sponsored by the Distributor. In
addition, the Adviser, the Administrator and/or the Distributor in their
discretion may from time to time, pursuant to objective criteria established by
the Adviser, the 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. 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. Eastern time on that day will be effected at the
net asset value per share determined as of the close of trading on the New York
Stock Exchange on that day. Otherwise, the orders will be effected at the next
determined net asset value. It is the dealer's responsibility to transmit
orders so that they will be received by the Distributor before 4:00 p.m.
Eastern time.

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

PURCHASES THROUGHT THE DISTRIBUTOR

An account may be opened by mailing a check or other negotiable bank draft
(payable to Medical Research Investment Fund, Inc.) for $200 or more together
with the completed investment application form to the Fund's Transfer Agent:
Medical Research Investment Fund, Inc., c/o Fund/Plan Services, Inc., P.O. Box
874, 2 W. Elm Street, Conshohocken, Pennsylvania 19428. The $200 minimum
initial investment may be waived by the Distributor for plans involving
continuing investments (see "Stockholder Services"). There is no minimum for
subsequent investments which may be mailed directly to the Transfer Agent. All
such investments are effected at the net asset value of Fund shares next
computed following receipt of payment by the Transfer Agent. Confirmations of
the opening of an account and of all subsequent transactions in the account are
forwarded by the Transfer Agent to the stockholder's address of record.

TELPEHONE 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

<PAGE> 22
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 after the order is placed, the stockholder
will be liable for all losses incurred as a result of the purchase.

INVESTING BY WIRE

Investors having an account with a commercial bank that is a member of the
Federal Reserve System may purchase shares of the Fund by requesting their bank
to transmit funds by wire to: United Missouri Bank KC NA, ABA #10-10-00695,
For: Fund/Plan Services, Inc., Account #98-7037-0719; Further Credit
Capstone/Medical Research Investment Fund, Inc. The investor's name and account
number must be specified in the wire.

Initial Purchases - Before making an initial investment by wire, an
investor must first telephone (800) 845-2340 to be assigned an account number.
The investor's name, account number, taxpayer identification or social security
number, and address must be specified in the wire. In addition, the investment
application should be promptly forwarded to Medical Research Investment Fund,
Inc., c/o Fund/Plan Services, Inc., P.O. Box 874, 2 W. Elm Street, Conshohocken,
Pennsylvania 19428.

Subsequent Purchases - Additional investments may be made at any time
through the wire procedures described above, which must include the investor's
name and account number. The investor's bank may impose a fee for investments
by wire.

DISTRIBUTIONS AND TAXES

PAYMENT OPTIONS

Distributions (whether treated for tax purposes as ordinary income or long-
erm capital gains) to stockholders of the Fund are paid in additional shares of
the Fund, with no sales charge, based on the Fund's net asset value as of the
close of business on the record date for such distributions. However, a
stockholder may elect on the application form to receive distributions as
follows:

Option 1. To receive income dividends in cash and capital gain
distributions in additional Fund shares, or

Option 2. To receive all income dividends and capital gain distributions in
cash.

The Fund intends to pay any dividends from investment company taxable
income and distributions representing capital gain at least annually, usually in
November. The Fund will advise each stockholder annually of the amounts of
dividends from investment company taxable income and of net capital gain
distributions reinvested or paid 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

<PAGE> 23
shares.

TAXES

The Fund intends to continue to qualify and elect to be taxed as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). In any taxable year in which the Fund so
qualifies and distributes at least 90% of its investment company taxable income
(which includes, among other items, dividends, interest, and the excess of
realized net short-term capital gain over realized net long-term capital loss),
the Fund generally will be relieved of Federal income tax on its investment
company taxable income and net capital gain (the excess of realized net long-
term capital gain over realized net short-term capital loss) distributed to
stockholders. Amounts not distributed on a timely basis in accordance with a
calendar year distribution requirement are also subject to a nondeductible 4%
excise tax. To prevent application of the excise tax, the Fund intends to make
its distributions in accordance with the calendar year distribution requirement.
A distribution will be treated as paid on December 31 of the calendar year if it
is declared by the Fund in October, November or December of that year to
stockholders of record on a date in such a month and paid by the Fund during
January of the following calendar year. Such distributions will be taxable to
stockholders in the calendar year the distributions are declared, rather than
the calendar year in which the distributions are received.

Distributions from investment company taxable income are taxable to
stockholders as ordinary income. Distributions of net capital gain designated
by the Fund as capital gain dividends are taxable as long-term capital gains
regardless of the length of time a stockholder may have held shares of the
Fund. The tax treatment of distributions treated as ordinary income or capital
gain will be the same whether the stockholder reinvests the distributions in
additional shares or elects to receive them in cash.

Stockholders will be notified each year of the amounts and nature of
dividends and distributions, including the amounts (if any) for that year which
have been designated as capital gain distributions. Investors should consult
their tax advisers for specific information on the tax consequences of
particular types of distributions.

Special tax rules may apply to the Fund's purchase of put and call options
and its acquisition of stock index futures and foreign currency futures. Such
rules, among other things: (i) may affect whether gains and losses from such
transactions are considered to be short-term or long-term; (ii) may have the
effect of converting capital gains and losses into ordinary income and losses;
(iii) may have the effect of deferring losses and/or accelerating the
recognition of gains or losses; and (iv) for purposes of qualifying as a
regulated investment company, may limit the extent to which the Fund may be able
to engage in such transactions.

Upon the sale, redemption, or other disposition of shares of the Fund, a
stockholder generally will realize a taxable gain or loss depending upon his
basis in the shares. Such gain or loss will be treated as capital gain or loss
if the shares are capital assets in the stockholder's hands and generally will
be long-term or short-term, depending upon the stockholder's holding period for
the shares. Any loss realized on a sale or exchange will be disallowed to the
extent the shares disposed of are replaced (including shares acquired pursuant
to the reinvestment plan) within a period of 61 days beginning 30 days before
and ending 30 days after the shares are disposed of. In such a case, the basis
of the shares acquired will be adjusted to reflect the disallowed loss. Any
loss realized by a stockholder on a disposition of Fund shares held by the
stockholder for six months or less will be treated as a long-term

<PAGE> 24
capital loss to the extent of any capital gain dividends received by the
stockholder with respect to such shares.

The Fund may be required to withhold Federal income tax at the rate of 31%
of all taxable distributions (including gross proceeds from the redemption of
Fund shares) payable to stockholders who fail to provide the Fund with their
correct taxpayer identification number or to make required certifications, or
where the Fund or the stockholder has been notified by the Internal Revenue
Service that the stockholder is subject to backup withholding. Corporate
stockholders and certain other stockholders specified in the Code generally are
exempt from such backup withholding. Backup withholding is not an additional
tax. Any amounts withheld may be credited against the stockholder's Federal
income tax liability.

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 U.S. may reduce or eliminate such
taxes. In addition, the Adviser will manage the Fund with the intention of
minimizing foreign taxation in cases where it is deemed prudent to do so. If
more than 50% of the value of the Fund's total assets at the close of its
taxable year consists of securities of foreign corporations, the Fund will be
eligible to elect to "pass-through" to the Fund's stockholders the amount of
foreign income and similar taxes paid by the Fund. If this election is made, a
stockholder will be required to include in gross income (in addition to taxable
dividends actually received) his pro rata share of the foreign income and
similar taxes paid by the Fund, and generally will be entitled either to deduct
(as an itemized deduction) his pro rata share of such foreign taxes in computing
his taxable income or to use it (subject to limitations) as a foreign tax credit
against his or her U.S. Federal income tax liability. No deduction for foreign
taxes may be claimed by a stockholder who does not itemize deductions. Each
stockholder will be notified within 60 days after the close of the Fund's
taxable year whether the foreign taxes paid by the Fund will "pass-through" for
that year and, if so, such notification will designate (a) the stockholder's
portion of the foreign taxes paid to foreign countries and (b) the portion of
the dividend which represents income derived from sources outside the U.S.

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 flows through to its
stockholders. With respect to the Fund, gains from the sale of securities 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, such as dividends received from the Fund. Stockholders may be
unable to claim a credit for the full amount of their proportionate share of the
foreign taxes paid by the Fund. In addition, 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 foreign 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.

Distributions also may be subject to additional state, local, and foreign
taxes, depending upon

<PAGE> 25
each stockholder's particular situation. In addition, foreign stockholders may
be subject to Federal income tax rules that differ significantly from those
described above. Stockholders are advised to consult their own tax advisers
with respect to the particular tax consequences to them of an investment in the
Fund.

REDEMPTION AND REPURCHASE OF SHARES

GENERAL

Generally, stockholders may require the Fund to redeem their shares by
sending a written request, signed by the record owner(s), to Medical Research
Investment Fund, Inc., c/o Fund/Plan Services, Inc., P.O. Box 874, 2 W. Elm
Street, Conshohocken, Pennsylvania 19428. In addition, certain expedited
redemption methods described below are available. If stock certificates have
been issued for shares being redeemed, such certificates must accompany the
written request with the stockholder's signature guaranteed by an "eligible
guarantor institution" as defined in Rule 17Ad-15 under the Securities Exchange
Act of 1934. Eligible guarantor institutions include banks, brokers, dealers,
credit unions, national securities exchanges, registered securities
associations, clearing agencies and savings associations. A broker-dealer
guaranteeing signatures must be a member of a clearing corporation or maintain
net capital of at least $100,000. Credit unions must be authorized to issue
signature guarantees. Signature guarantees will be accepted from any eligible
guarantor institution which participates in a signature guarantee program. No
signature guarantees for shares for which no certificates have been issued are
required when an application is on file at the Transfer Agent and payment is to
be made to the stockholder of record at the stockholder's address of record.
However, if the proceeds of the redemption are to be paid to someone other than
the registered holder, or to other than the stockholder's address of record, or
if the shares are to be transferred, the owner's signature must be guaranteed as
specified above. The redemption price shall be the net asset value per share
next computed after receipt of the redemption request. See "Determination of
Net Asset Value".

In addition, the Distributor is authorized as agent for the Fund to offer
to repurchase shares which are presented by telephone or telegraph to the
Distributor by authorized investment dealers. The repurchase price is the net
asset value per share next determined after the request is received. See
"Determination of Net Asset Value". Broker-dealers may charge for their
services in connection with the 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 stockholders may incur brokerage charges on the sale of the
securities.

The right of redemption and payment of redemption proceeds are subject to
suspension for any period during which the New York Stock Exchange is closed,
other than customary weekend and holiday closings, or when trading on the New
York Stock Exchange is restricted as determined by the Securities and Exchange
Commission; during any period when an emergency as defined by the rules and
regulations of the Securities and Exchange Commission exists; or during any
period when the Securities and Exchange Commission has by order permitted such
suspension. The Fund will not mail redemption

<PAGE> 26
proceeds until checks (including certified checks or cashier's checks) received
for the shares purchased have cleared, which can be as long as 15 days.

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

EXPEDITED TELEPHONE REDEMPTION

A stockholder redeeming at least $1,000 of shares (for which certificates
have not been issued), and who has authorized expedited redemption on the
application form filed with the 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 on the next business day following receipt of the telephone redemption
request. If a stockholder seeks to use an expedited method of redemption of
shares recently purchased by check, the Fund may withhold the redemption
proceeds until it is reasonably assured of the collection of the check
representing the purchase. The Fund, Distributor and Transfer Agent reserve the
right at any time to suspend or terminate the expedited redemption procedure or
to impose a fee for this service. 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.

DETERMINATION OF NET ASSET VALUE

The net asset value per share is computed daily, Monday through Friday, as
of the close of regular trading on the New York Stock Exchange, which is
currently 4:00 p.m., Eastern time, except that the net asset value will not be
computed on the following holidays: New Year's Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day. The Fund's net asset value also will be determined on any day in
which there is sufficient trading in its portfolio securities that the net asset
value might be affected materially, but only if on any such day the Fund is
required to sell or redeem shares. The 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 interest and dividends receivable but not yet
received) minus all liabilities (including accrued expenses) by the total number
of Fund shares outstanding at such time. The net asset value so computed will
be used for all purchase orders and redemption requests received between such
computation and the preceding computation.

<PAGE> 27
prices are determined and the time the Fund's net asset value is calculated,
such securities will be valued at fair value as determined in good faith by the
directors. Also, for any security for which application of the preceding
methods of valuation results in a price for a security that is deemed not to be
representative of the market value of such security, the security will be valued
at fair value in the best judgment of the Administrator under the supervision
and responsibility of the Board of Directors.

Futures contracts and call options written on portfolio securities will be
priced at the latest sales price on the principal exchange on which such options
are normally traded or, if there have been no sales on such exchange on that
day, at the closing asked price. Short-term investments having a maturity of 60
days or less are valued on the basis of amortized cost. All other assets and
securities held by the Fund (including restricted securities) are valued at fair
value as determined in good faith by the Administrator under the supervision and
responsibility of the Board of Directors. Any assets that are denominated in a
foreign currency are translated into U.S. dollars at the last quoted spot rate
of exchange prevailing on each valuation date.

STOCKHOLDER SERVICES

Medical Research Investment Fund, Inc. provides its stockholders with a
number of services and conveniences designed to assist investors in the
management of their investments. These stockholder services include the
following:

TAX-DEFERRED RETIREMENT PLANS

Shares may be purchased by virtually all types of tax-deferred retirement
plans. The Distributor or its affiliates make available plan forms and/or
custody agreements for the following:

o Individual Retirement Accounts (for individuals who wish to make
limited contributions (which may be tax deductible in certain
circumstances) to a tax-deferred account for retirement);

o Simplified Employee Pension Plans;

o Self-employed Retirement Plans (Keogh);

o Corporate Defined Contribution 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> 28
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 Adviser and, at the discretion of the Adviser, can be limited by
the Fund's refusal to accept further purchase and/or exchange orders from the
investor. Although the Adviser will consider all factors it deems relevant in
determining whether a pattern of frequent purchases, redemptions and/or
exchanges by a particular investor is abusive and not in the best interests of
the Fund or its other stockholders, as a general policy investors should be
aware that engaging in more than one exchange or purchase-sale transaction
during any thirty-day period with respect to a particular fund may be deemed
abusive and therefore subject to the above restrictions.

An exchange of shares is treated for Federal income tax purposes as a sale
of shares given in exchange and the stockholders may, therefore, realize a
taxable gain or loss. The exchange privilege may be exercised only in those
states where shares of the fund for which shares held are being exchanged may
be legally sold, and the privilege may be amended or terminated upon 60 days'
notice to stockholders.

The stockholder may exercise the following exchange privilege options:

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

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

When exchange or redemption requests are made by telephone, the Fund has
procedures in placede signed to give reasonable assurance that such telephone
instructions are genuine, including recording telephone calls and sending
written confirmations of transactions. The Fund will not be liable for losses
due to unauthorized or fraudulent telephone transactions unless it does not
follow such procedures, in which case it may be liable for such losses.

PRE-AUTHOIRZED PAYMENT

A stockholder may arrange to make regular monthly investments of $25 or
more automatically

<PAGE> 29
from his checking account by authorizing the Fund's Transfer Agent to withdraw
the payment from his checking account. Pre-Authorized Payment Forms can be
obtained by contacting the Transfer Agent.

SYSTEMATIC WITHDRAWAL PLAN

Investors may open a withdrawal plan providing for withdrawals of $50 or
more monthly, quarterly, semi-annually or annually if they have made a minimum
investment in the shares of the Fund of $5,000. The minimum periodic amount
which may be withdrawn pursuant to this plan is $50.

These payments may constitute return of initial capital and do not
represent a yield or return on investment. In addition, such payments may
deplete or eliminate the investment. Stockholders cannot be assured that they
will receive payment for any specific period because payments will 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

Medical Research Investment Fund, Inc. was incorporated in Maryland in
November, 1984 as an open-end diversified management investment company, as
defined in the Investment Company Act of 1940, as amended. Its authorized
capitalization currently consists of one billion full and fractional shares of
Common Stock, $.001 par value per share. The Articles of Incorporation of the
Fund authorize the Board of Directors to classify or reclassify any unissued
shares of the Fund into one or moreadditional classes by setting or changing in
any one or more respects, from time to time before the issuance thereof, their
respective preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualification and terms and conditions of
redemption. All Fund shares are of the same class, with equal rights and
privileges. The Articles of Incorporation further authorize the directors to
classify or reclassify in a similar manner any particular class of Fund shares
into one or more series.

Stockholders are entitled to one vote for each full Fund share held and
fractional votes for fractional Fund shares held. Each Fund share is entitled
to participate equally in any dividend or distribution declared by the Fund's
Board of Directors and in the net distributable assets of the Fund on
liquidation. Fund shares have no preemptive, conversion or exchange rights.
When issued for payment as described in this Prospectus, Fund shares will be
fully paid and nonassessable. Fund shares have noncumulative voting rights and,
accordingly, the holders of more than 50% of the Fund's outstanding shares may
elect all of the directors. The Fund is not required to hold regular annual
meetings, and will do so only when required by law. Stockholders may, in
accordance with the By-Laws of the Fund, cause a meeting of stockholders to be
held for the purpose of voting on the removal of directors.

As of December 19, 1995 Jupiter & Company owned approximately 20.89% of the
outstanding

<PAGE> 30
shares of the Fund.

The Fund's securities are held by The Fifth Third Bank, Cincinnati, Ohio,
under a Custodian Agreement with the Fund. Fund/Plan Services, Inc. acts as
both transfer agent and dividend paying agent for the Fund.

Inquiries by stockholders of the Fund should be addressed to the Fund at
the address stated on the cover page of this Prospectus.

<PAGE> 31
MEDICAL RESEARCH INVESTMENT FUND, INC.
CROSS REFERENCE SHEET
BETWEEN
ITEMS OF FORM N-1A AND THE
STATEMENT OF ADDITIONAL INFORMATION
(PART B TO REGISTRATION STATEMENT NO. 2-95103)

<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 Objectives and Policies; Special
Considerations; Investment Restrictions

14. Management of the Fund Directors and Executive Officers

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

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

17. Brokerage Allocation Portfolio Transactions and Brokerage

18. Capital Stock and Other Securities Inapplicable

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

20. Tax Status Dividends and Distributions; Taxes

21. Underwriter Distributor

22. Calculation of Performance Data Performance Information

23. Financial Statements Financial Statements
</TABLE>

<PAGE> 32
MEDICAL RESEARCH INVESTMENT FUND, INC.

STATEMENT OF ADDITIONAL INFORMATION

December 29, 1995

This Statement of Additional Information is not a Prospectus but contains
information in addition to and more detailed than that set forth in the
Prospectus and should be read in conjunction with the Prospectus. The Statement
of Additional Information and the related Prospectus are both dated December 29,
1995. A Prospectus may be obtained without charge by contacting Capstone Asset
Planning Company, by phone at (800) 262-6631 or by writing to it at 5847 San
Felipe, Suite 4100, Houston, Texas 77057.

TABLE OF CONTENTS

Page

General Information. . . . . . . . . . . . . . . . . . . . . .2
Investment Objectives and Policies . . . . . . . . . . . . . .2
Special Considerations . . . . . . . . . . . . . . . . . . . .3
Investment Restrictions. . . . . . . . . . . . . . . . . . . .5
Performance Information. . . . . . . . . . . . . . . . . . . .6
Directors and Executive Officers . . . . . . . . . . . . . . .8
Investment Advisory Agreement. . . . . . . . . . . . . . . . .9
Administration Agreement . . . . . . . . . . . . . . . . . . 11
Distributor. . . . . . . . . . . . . . . . . . . . . . . . . 11
Portfolio Transactions and Brokerage . . . . . . . . . . . . 13
Determination of Net Asset Value . . . . . . . . . . . . . . 14
How to Buy and Redeem Shares . . . . . . . . . . . . . . . . 15
Dividends and Distributions. . . . . . . . . . . . . . . . . 15
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Control Persons and Principal Holders of Securities. . . . . 21
Other Information. . . . . . . . . . . . . . . . . . . . . . 21
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . 22
Appendix B . . . . . . . . . . . . . . . . . . . . . . . . . 23
Financial Statements . . . . . . . . . . . . . . . . . . . . 27

<PAGE> 33
GENERAL INFORMATION

The Fund was incorporated in Maryland on November 7, 1984 and commenced
business on September 5, 1985. It is an "open-end diversified management
investment company" under the Investment Company Act of 1940, as amended (the
"1940 Act"). The Fund is a member of a family of mutual funds sponsored by
Capstone Asset Management Company (the "Administrator"), which also provides
administrative services to the Fund.

As stated in the Fund's Prospectus, the primary objective of the Fund is
long-term growth of capital, a goal it seeks to achieve by investing primarily
in common stocks, and securities (including debt and warrants) convertible into
common stocks, of domestic and foreign companies engaged in medical research and
the health care industry. Current income is a secondary objective.

INVESTMENT OBJECTIVES AND POLICIES

COVERED CALL OPTIONS. The Fund may write covered call options which are
traded on national securities exchanges with respect to common stocks in its
portfolio (insuring that the Fund at all times will have in its portfolio the
securities which it may be obligated to deliver if the option is exercised).

In view of the Fund's investment objectives, the Fund generally would write
covered call options only in circumstances where G/A Capital Management, Inc.
(the "Adviser") does not anticipate significant appreciation of the underlying
security in the near future or has otherwise determined to dispose of the
security. The writing of call options could increase the Fund's portfolio
turnover rate, especially during periods when market prices of the underlying
securities appreciate.

FUTURES CONTRACTS AND RELATED OPTIONS. The Fund may purchase and sell
stock index and foreign currency futures contracts (as well as purchase and sell
related options) as a hedge against changes resulting from market conditions and
exchange rates in the values of the domestic and foreign securities held by the
Fund or which the Fund intends to purchase and where the transactions are
economically appropriate for the reduction of risks inherent in the ongoing
management of the Fund. See Appendix B.

REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements to
the extent deemed advisable by the Adviser. A repurchase agreement is a
contract under which the Fund acquires a security for a relatively short period
(usually not more than one week) subject to the obligation of the seller to
repurchase and the Fund to resell such security at a fixed time and price
(representing the Fund's cost plus interest). Repurchase agreements may also be
viewed as loans made by the Fund which are collateralized by the securities
subject to repurchase. The value of the underlying securities will be at least
equal at all times to the total amount of the repurchase obligation, including
the accrued interest, and all repurchase agreements must be marked to market
daily. The Fund bears the risk of loss in the event that the other party to the
repurchase agreement defaults on its obligation and the Fund is delayed or
prevented from exercising its rights to dispose of the collateral securities.

RESTRICTED SECURITIES. The Fund may purchase illiquid securities in
amounts not to exceed 10% of the value of the Fund's net assets. Such
securities may be subject to legal or contractual restrictions on their
disposition, and include repurchase agreements with remaining maturities in
excess of seven days

<PAGE> 34
and other securities for which market quotations are not readily available.
Until such time as such securities may be sold publicly, disposition by the Fund
of these securities may require the Fund to sell these securities at a discount
from market prices, to sell during periods when such disposition is undesirable
or to make many small sales over a lengthy period of time. Whether the Fund or
the issuer or seller of the restricted securities will pay the expenses of their
registration under the Securities Act of 1933 will in each case be the subject
of negotiation at the time the securities are purchased.

U.S. GOVERNMENT OBLIGATIONS. Obligations of the U.S. Government, its
agencies and instrumentalities may include Treasury bills, certificates of
indebtedness, notes and bonds, and issues of such entities as the Government
National Mortgage Association, Export-Import Bank of the United States,
Tennessee Valley Authority, Farmers Home Administration, Federal Home Loan
Banks, Federal Intermediate Credit Banks, Federal Farm Credit Banks, Federal
Land Banks, Federal Housing Administration, Federal National Mortgage
Association, Federal Home Loan Mortgage Corporation, and the Student Loan
Marketing Association. Some of these obligations, such as those of the
Government National Mortgage Association, are supported by the full faith and
credit of the U.S. Treasury; others, such as those of the Export-Import Bank of
the United States, are supported by the right of the issuer to borrow from the
Treasury; others, such as those of the Federal National Mortgage Association,
are supported by the discretionary authority of the U.S. Government to purchase
the agency's obligations; still others, such as those of the Student Loan
Marketing Association, are supported only by the credit of the instrumentality.
No assurance can be given that the U.S. Government would provide financial
support to U.S. Government sponsored instrumentalities if it is not obligated to
do so by law.

Like other bond investments, the value of the obligations of the Government
National Mortgage Association and other mortgage-related securities acquired by
the Fund will tend to rise when interest rates fall, and fall when interest
rates rise. Their value may also change because of changes in the markets'
perception of the creditworthiness of the agency or instrumentality that has
issued or guaranteed them. In addition, the mortgage securities market in
general may be adversely affected by changes in governmental regulation or tax
policies. Furthermore, the relationship between mortgage prepayment and
interest rates may give some high-yielding mortgage-related securities less
potential for growth in value than conventional bonds with comparable
maturities. In addition, in periods of falling interest rates, the rate of
mortgage prepayment tends to increase.

SPECIAL CONSIDERATIONS

PURCHAES OF FOREIGN SECURITIES

Investors should be aware of the risks involved in investing in the
securities of foreign companies. Foreign companies are not generally subject to
uniform accounting, auditing and financial reporting requirements. There may be
less publicly available information about them, and their securities may be less
liquid and more volatile than domestic securities. In addition, foreign stock
markets generally have less volume than the New York Stock Exchange and there
may be less government supervision and regulation of stock exchanges, brokers,
and listed companies. Some price spreads on currency exchange (to cover service
charges) may be incurred, particularly when the Fund changes investments from
one country to another or when U.S. dollars are used for the purchase of
securities in foreign countries. The Fund may be affected either favorably or
unfavorably by fluctuations in the relative rates of exchange as between the
currencies of different nations. Income from foreign

<PAGE> 35
securities may be subject to withholding taxes in the country which is the
source of the income. The Fund may also be affected by expropriation or
confiscatory taxation, imposition of other foreign taxes, exchange controls, or
political or social instability within foreign nations.

HEALTH CARE STOCKS

There is no guarantee that a portfolio of investments concentrating in the
health care industry will achieve the Fund's investment objectives of long-term
capital appreciation and current income. Since the Fund concentrates its
investments in a single industry, its shares do not represent a complete
investment program. Therefore, before investing in the Fund, potential
investors should consider the risks involved in seeking long-term capital
appreciation and in the concentration of portfolio investments in a single
industry. A potential investor may wish to consult his financial adviser before
investing in the Fund.

The value of the Fund's shares is especially susceptible to factors
affecting the health care industry, and may fluctuate more widely than the value
of shares invested in a broader range of industries. The health care industry
is generally subject to greater governmental regulation than many other
industries. Changes in governmental policies, such as reduction in the funding
of third party payment programs, may have a material affect on the demand for
the products and services of this industry. Regulatory approvals, which may
often entail lengthy application and testing procedures, are generally required
before new drugs and certain medical devices and procedures may be introduced.
The acquisition of additional facilities and equipment by health care providers
is also subject in certain instances to "determinations of need" and other
regulatory approvals. Many of the products and services of this industry are
subject to risks of rapid obsolescence caused by scientific and technological
advances. These are only examples of certain factors which particularly affect
the health care industry.

LOWER RATED AND NON-INVESMTENT GRADE SECURITIES

The Fund may invest in debt securities convertible into common stock. Debt
purchased by the Fund will consist of obligations of medium grade or higher,
having at least adequate capacity to pay interest and repay principal. Non-
onvertible debt obligations will be rated Baa or higher by Moody's Investors
Service, Inc. ("Moody's") and/or BBB or higher by Standard & Poor's Corporation
("S&P"). Convertible debt obligations will be rated B or higher by Moody's or
S&P. The Fund does not currently intend to invest in securities that, at the
time of investment, are rated less than B by Moody's or S&P. Securities rated
Baa and/or BBB, or lower, entail special risks. A description of the
characteristics of ratings of securities in which the Fund may invest in
attached as Appendix A.

Securities rated below Baa or BBB ("Non-Investment Grade Securities")
involve a high degree of risk. Non-Investment Grade Securities may be issued in
connection with corporate restructurings, such as leveraged buyouts, mergers,
acquisition, debt recapitalizations, or similar events. The issuers of these
securities are often smaller, less creditworthy companies or highly leveraged
(indebted) firms.

Non-Investment Grade Securities are considered by major credit-rating
agencies to be predominantly speculative with respect to the issuer's ability to
meet principal and interest payments, and the issuer's ability to make such
payments is much more sensitive to adverse economic conditions than is the case
with higher rated securities. The contribution of such securities to achieving
the Fund's

<PAGE> 36
investment objective will depend more on the Adviser's own evaluation of the
issuer than is the case with higher rated securities. Efforts by the Fund to
recover in the event of a default in the payment of principal or interest will
involve additional expense to the Fund and may not be successful.

The Adviser uses multiple sources in analyzing an issuer's financial
condition. The ratings of credit agencies, research materials prepared by
independent firms ,annual reports of issuers and financial newspapers and
magazines are sources on which the Adviser relies. Although the Adviser
considers the ratings of credit-rating agencies, the Adviser realizes that
ratings have no value in forecasting market price movements and that credit
quality in the high-yield bond market can change suddenly and unexpectedly. The
Adviser uses all available sources to monitor an issuer's financial condition on
a continuing basis as information is made available. A security will not be
automatically sold if it drops below a certain credit rating.

Non-Investment Grade Securities may be more sensitive to perceived, as well
as to actual, adverse economic or industry conditions, with the result that
their market prices may be more volatile than those of investment grade
securities. Additionally, the illiquidity of the secondary market for Non-
Investment Grade Securities may adversely affect the market price of these
securities. There are fewer dealers in the Non-Investment Grade Securities
market, and the range in purchasers of Non-Investment Grade Securities is
narrower, than for higher rated securities. Both price volatility and
illiquidity will make it difficult for the Fund's Board of Directors to value
certain of these securities at certain times. Adverse market conditions may
also make it difficult at times for the Fund to sell certain of thesesecurities.
Since investment companies are, in the aggregate, substantial investors in Non-
nvestment Grade Securities, significant redemptions by investors in investment
companies which invest heavily in this type of security would depress the market
prices for Non-Investment Grade Securities, with a resulting negative effect on
the Fund's net asset value.

INVESTMENT RESTRICTIONS

The Fund has adopted the following restrictions which, along with its
investment objectives, cannot be changed without approval by the holders of a
majority of its outstanding shares. Such majority is defined by the Investment
Company Act of 1940 as the lesser of (i) 67% or more of the voting securities
present in person or by proxy at a meeting, if the holders of more than 50% of
the outstanding voting securities are present or represented by proxy; or (ii)
more than 50% of the outstanding voting securities. In addition to the
fundamental investment limitations set forth in the Fund's Prospectus, the Fund
may not:

1. Act as an underwriter of securities within the meaning of the
Securities Act of 1933 except insofar as it might be deemed to be an
underwriter upon disposition of certain portfolio securities acquired
within the limitation on purchases of restricted securities;

2. Engage in the purchase or sale of interests in real estate or real
estate mortgage loans;

3. Make loans, except that the Fund may purchase or hold debt instruments
in accordance with its investment objectives and policies, and may
enter into repurchase agreements;

4. Acquire securities of other investment companies registered under the
Investment

<PAGE> 37
Company Act of 1940, except in connection with a merger,
consolidation, reorganization or acquisition of assets;

5. Sell securities short or purchase any securities on margin except that
the Fund may enter into futures contracts and related options;

6. Issue any senior securities except that the Fund may enter into
futures contracts and related options;

7. Purchase or retain the securities of any issuer if to the knowledge of
the Fund any officer or director of the Fund or of its investment
adviser own beneficially more than 1/2 of 1% of the outstanding
securities of such issuer and together they own beneficially more than
5% of the securities of such issuer;

8. Invest in companies for the purpose of exercising control or
management;

9. Invest in or sell put options, call options, straddles, spreads or any
combination thereof, except that the Fund may write covered call
options or enter into closing purchase transactions and except that
the Fund may enter into futures contracts and related options; or

10. Invest in warrants if as a result more than 2% of the value of the
Fund's total assets would be invested in warrants which are not listed
on a recognized stock exchange, or more than 5% of the Fund's total
assets would be invested in warrants regardless of whether listed on
such an exchange.

PERFORMANCE INFORMATION

The Fund may from time to time include figures indicating the Fund's yield,
total return or average annual total return in advertisements or reports to
stockholders or prospective investors. Quotations of the Fund's yield will be
based on all investment income per share earned during a particular 30-day
period (including dividends and interest), less expenses accrued during the
period ("net investment income"), and are computed by dividing net investment
income by the maximum offering price per share (which includes the maximum sales
charge) on the last day of the period, according to the following formula:

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

where a = dividends and interest earned during the period,
b = expenses accrued for the period (net of reimbursements or
waivers),
c = the average daily number of shares outstanding during the

<PAGE> 38
period that were entitled to receive dividends, and
d = the maximum offering price per share on the last day of the
period.

For the 30-day period ended August 31, 1995 the Fund's yield was -1.287%.

Average annual total return and total return figures represent the increase
(or decrease) in the value of an investment in the Fund over a specified period.
Both calculations assume that all income dividends and capital gain
distributions during the period are reinvested at net asset value in additional
Fund shares. Quotations of the average annual total return reflect the
deduction of the maximum sales charge and a proportional share of Fund expenses
on an annual basis. The results, which are annualized, represent an average
annual compounded rate of return on a hypothetical investment in the Fund over a
period of 1, 5 and 10 years ending on the most recent calendar quarter (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 one, five and ten year periods ended August 31, 1995 the Fund's
average annual total return was 38.13%, 20.30% and 16.17%, respectively.

Quotations of total return, which are not annualized, represent historical
earnings and asset value fluctuations. Total return is based on past
performance and is not a guarantee of future results. For the one, five and ten
year periods ended August 31, 1995 the Fund's total return was 38.13, 151.91%
and 347.59% respectively.

Performance information for the Fund may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Price Index
("S&P 500 Index"), Dow Jones Industrial Average ("DJIA"), or other appropriate
unmanaged indices of performance of various types of investments, so that
investors may compare the Fund's results with those of indices widely regarded
by investors as representative of the securities markets in general; (ii) other
groups of mutual funds tracked by Lipper Analytical Services, a widely used
independent research firm which ranks mutual funds by overall performance,
investment objectives, and assets, or tracked by other services, companies,
publications, or persons who rank mutual funds on overall performance or other
criteria; and (iii) the Consumer Price Index (measure for inflation) to assess
the real rate of return from an investment in the Fund. Unmanaged indices may
assume the reinvestment of dividends, but generally do not reflect deductions
for administrative and management costs and expenses.

<PAGE> 39
operating expenses. Such information should not be considered as a
representation of the Fund's future performance.

DIRECTORS AND EXECUTIVE OFFICERS

The names and addresses of the directors and principal officers of the Fund
are set forth below, together with their positions and their principal
occupations during the last five years and, in the case of the directors, their
positions with certain other organizations and companies.

Positions with the Fund, Principal
Name and Address Occupations and Other Affiliations
---------------- ----------------------------------

*Samuel D. Isaly Chairman of the Board and President. President
41 Madison Avenue of G/A Capital Management, Inc. since 1989;
40th floor formerly Senior Vice President of S.G. Warburg &
New York, NY 10010-2202 & Co., Inc. from 1986 through 1989 and President
of Gramercy Associates, a health care industry
consulting firm, from 1983 through 1986.

John J. Maggio, D.O. Director. Director and Chairman of the
205 East 69th Street Department of Obstetrics and Gynecology at St.
New York, NY 10021 Clare's Hospital since 1982; Clinical Associate
Professor of Surgery at New York Medical College
since 1982; and Clinical Associate Professor of
Obstetrics and Gynecology at New York College of
Osteopathic Medicine since 1986.

Philip C. Smith Director. Private investor. Director of other
87 Lord's Highway Capstone Funds and Lexington Mutual Funds.
Weston, CT 06880

Eugene E. Weise, M.D., P.C. Director. Private medical practice since 1972;
115 East 61st Street formerly Assistant Professor of Ophtalmogy at
New York, NY 10021 Cornell University School of Medicine from 1974
through 1987.

*Edward L. Jaroski Vice President. Chairman of the Board and
5847 San Felipe Director of the Administrator since 1987;
Suite 4100 President and Director of the Distributor since
Houston, TX 77057 1987; President and Director of Capstone
Financial Services, Inc. since 1987;
Director/Trustee and Officer of other Capstone
Funds.

Iris R. Clay Secretary. Assistant Secretary of Capstone
5847 San Felipe Financial Services, Inc. since 1990; formerly
Compliance Analyst with Capstone

______________
* May be deemed to be an "interested person" of the Fund as that term is
defined in the Investment Company Act of 1940 because of his relationship to
the Adviser.

<PAGE> 40
Suite 4100 Financial Services, Inc. from 1987 through 1993;
Houston, TX 77057 Secretary of other Capstone Funds.

Norma R. Ybarbo Assistant Secretary. Assistant Compliance
5847 San Felipe Officer (since 1994) of Capstone Financial
Suite 4100 Services, Inc.; Officer of other Capstone Funds;
Houston, TX 77057 formerly Compliance Assistant (1987-1993).

Linda G. Giuffre Treasurer. Treasurer of Capstone Financial
5847 San Felipe Services, Inc. since 1990; Treasurer of other
Suite 4100 Capstone Funds; formerly Transfer Agent Manager
Houston, TX 77057 with Capstone Financial Services, Inc. from 1987
through 1990; Accounting Supervisor with Tenneco
Financial Services Inc. from 1984 through 1987.

Each director not affiliated with the Adviser is entitled to $250 for each
Board meeting attended, and is paid a $500 annual retainer by the Fund. The
directors and officers of the Fund are also reimbursed for expenses incurred in
attending meetings of the Board of Directors. For the fiscal year ended August
31, 1995, the Fund paid or accrued for the account of its directors and
officers, as a group for services in all capacities, a total of $2,750.

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

COMPENSATION TABLE

<TABLE>
<CAPTION>
Total
Compensation
From
Aggregate Pension or Registrant
Compensation Retirement Estimated Annual and Fund
From Benefits Accrued Benefits Upon Complex Paid
Name of Person, Position Registrant* As Part of Fund Retirement to Trustees
- ------------------------ ------------ ---------------- ---------------- -------------
<S> <C> <C> <C> <C>
Dr. John J. Maggio, Director $1,125 $0 $0 $1,125
Philip C. Smith, Director 1,000 0 0 6,750(1,2)
Dr. Eugene E. Weise, Director 1,000 0 0 1,000
______________
* Directors do not receive any deferred compensation.
1 Trustee of Capstone International Series Trust.
2 Director of Capstone Fixed Income Series, Inc. and Capstone Growth Fund, Inc.
</TABLE>

INVESTMENT ADVISORY AGREEMENT

Pursuant to an investment advisory agreement dated August 17, 1989 (the
"Advisory Agreement"), the Fund employs G/A Capital Management, Inc. (the
"Adviser") to furnish investment advisory services. The Adviser, located at 41
Madison Avenue, 40th floor, New York, New York 10010-2202, was incorporated in
Delaware on February 24, 1989 and is principally owned by Samuel D. Isaly,

<PAGE> 41
who serves as the President of G/A Capital Management, Inc. ("G/A") and Chairman
of the Board and President of the Fund. The Fund is the only investment company
registered under the 1940 Act advised by G/A.

The Advisory Agreement requires the Adviser to provide an investment
program within the limitations of the Fund's investment policies and
restrictions, and to furnish services necessary for the transaction of the
Fund's business. The Advisory Agreement may be continued from year to year
provided its renewal is approved at least annually by the vote of the Board of
Directors of the Fund or the holders of a majority of its outstanding shares,
and by a majority of those directors of the Fund who are not parties to the
Advisory Agreement or "interested persons" of such parties as defined under the
1940 Act, by votes cast in person at a meeting called for the purpose of voting
on such Agreement. The Advisory Agreement was last approved by the Board of
Directors on May 7, 1995.

The Adviser provides the Fund with investment supervision and management
services and, at its own expense and without reimbursement from the Fund, bears
the cost of executive and clerical personnel and furnishes office facilities and
equipment. The Adviser may also, out of its own resources, pay unreimbursed
sales promotional expenses of the Fund in addition to those provided under the
distribution plan.

All other expenses not expressly assumed by the Adviser and the Fund's
administrator will be paid by the Fund, including, but not limited to, the fees
of its investment adviser, administrator, distributor, auditor, legal counsel,
custodian and transfer agent, brokerage commissions and distribution plan
payments, the fees and expenses of directors who are not affiliated with the
Adviser, the cost of printing and mailing confirmations, prospectuses, proxies,
notices and reports to existing stockholders, association dues, interest, taxes,
certain insurance premiums, the fees incident to registration and qualification
of the Fund and its shares for distribution under Federal and state securities
laws, and expenses incidental to holding meetings or obtaining ballots of the
Fund's stockholders.

The Adviser and Administrator have agreed that in any fiscal year the
aggregate expenses of the Fund (including advisory, administrative and transfer
agency fees, but excluding, to the extent permitted by applicable state law,
interest, local, state and Federal taxes, sales charges, distribution plan
expenses and extraordinary expenses as determined by the Fund's directors who
are not "interested persons" of the Administrator or the Fund's investment
adviser as defined in the 1940 Act) exceed the expense limitation of any state
having jurisdiction over the Fund, then the fees paid to the Adviser and
Administrator hereunder will be reduced pro rata (but not below zero) to the
extent required by such expense limitation. The Advisory Agreement and
Administration Agreement provide that each party will bear its pro rata share of
any such fee reduction based on the percentage that the Adviser's and
Administrator's fees bear to the total administration and advisory fees paid by
the Fund. The Adviser will reimburse the Fund for such excess expenses when
payment under the Fund's Advisory Agreement is due.

The Fund has agreed to pay the Adviser a fee, as compensation for all
advisory services rendered and expenses assumed, computed daily and paid
monthly, at an annual rate of 1% of the Fund's first $30 million in average net
assets; 0.90% of the next $20 million in average net assets, and 0.75% of
average net assets in excess of $50 million. This fee is higher than that paid
by most investment companies but is deemed appropriate by the Board of Directors
based on the expertise necessary to manage a fund with the same investment
objective as the Fund. Effective September 1, 1989 the Adviser has agreed to
reimburse its fees until such time as the Fund can operate within the expense
limitation discussed above.

<PAGE> 42
During the fiscal year ended August 31, 1995, the Fund paid the Adviser $138,826
in advisory fees. The Adviser received advisory fees of $121,553 and $30,036
during the fiscal years ended August 31, 1994 and 1993, respectively. Pursuant
to the expense limitation discussed above, the Adviser reimbursed $16,868 and
$30,036, respectively, during those periods.

Samuel D. Isaly is the controlling person of the Adviser by reason of his
ownership of voting securities of the Adviser. He is also an affiliated person
of the Fund and the Adviser. For further information, reference is made to
"Directors and Executive Officers."

ADMINISTRATION AGREEMENT

Under an agreement ("Administration Agreement") dated March 1, 1988 between
the Fund and Capstone Asset Management Company (the "Administrator"), the
Administrator supervises all aspects of the Fund's operations other than the
management of its investments. The Administrator is an affiliate of Capstone
Asset Planning Company, the principal underwriter of the Fund, and a wholly-
owned subsidiary of Capstone Financial Services, Inc. ("CFS").

The Administrator 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 .25% of the Fund's average net assets. Effective September 1, 1989
the Administrator has voluntarily agreed to waive its fees until such time as
the Fund can operate within the expense limitation discussed above. The
Administrator was paid $34,707 for its services during the fiscal year ended
August 31, 1995. For the fiscal year ended August 31, 1994, the Administrator
was paid $30,388 of which $4,217 was reimbursed to the Fund.

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 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 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 assumed by the Administrator or the Adviser.

DISTRIBUTOR

Capstone Asset Planning Company (the "Distributor") acts as the principal
underwriter of the Fund's shares pursuant to a written agreement, dated April
22, 1988 (the "Distribution Agreement") which was last approved by the Fund's
Board of Directors, including a majority of the independent directors, on May 7,
1995. The Distributor receives commissions from sales of shares of the Fund,
which amounts are not an expense of the Fund but represent the sales commission
added to the net asset

<PAGE> 43
value of shares purchased from the Fund. The Distributor has the exclusive
right (except for distributions of shares directly by the Fund) to distribute
Fund shares in a continuous offering through affiliated and unaffiliated dealers
The Distributor's obligation is an agency or "best efforts" arrangement under
which the Distributor is required to take and pay for only such Fund shares as
may be sold to the public. The Distributor is not obligated to sell any stated
number of shares. 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. The
Distribution Agreement is renewable from year to year if approved (a) by the
Fund's Board of Directors or by a vote of a majority of the Fund's outstanding
voting securities and (b) by the affirmative vote of a majority of directors who
are not parties to the Distribution Agreement or interested persons of any party
thereto, by votes cast in person at a meeting called for such purpose. The
Distribution Agreement provides that it will terminate if assigned (as defined
in the 1940 Act), and that it may be terminated without penalty by either party
on 60 days' written notice. During the fiscal years ended August 31, 1995 and
August 31, 1994 the Distributor received $9,051 and $19,809, respectively, in
underwriting commissions from sales of the Fund's shares.

On June 11, 1985, the Fund adopted a 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. As required by Rule 12b-1, the Fund's 12b-1 Plan and related agreements
were approved by a vote of the Fund's Board of Directors, and by a vote of the
directors who are not "interested persons" of the Fund as defined under the 1940
Act and have no direct or indirect interest in the operation of the Plan or any
agreements related to the Plan (the "Plan Directors"), and by the Fund's
stockholders at the first meeting of stockholders subsequent to the effective
date of the Fund's registration statement. In compliance with the Rule, the
directors 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. The
Plan was reapproved by directors including a majority of the Plan Directors in
June 1986 and June 1987. In April 1988 the Board of Directors including a
majority of the Plan Directors amended the Plan to reflect the replacement of
Medical Research Management Group, Inc. by Capstone Asset Planning Company and
reapproved the Plan to continue for an additional twelve-month period. The Plan
was last approved by a majority of directors and Plan Directors on May 7, 1995.

As required by Rule 12b-1, the directors review quarterly reports prepared
by the Distributor on the amounts expended and the purposes for the
expenditures.

The Plan and related agreements may be terminated at any time by a vote of
the Plan Directors. As required by Rule 12b-1, selection and nomination of
disinterested directors for the Fund is committed to the discretion of the
directors who are not "interested persons" as defined under the 1940 Act.

The Plan and related agreements may be terminated by a vote of the
stockholders. Any change in the Plan that would materially increase the
distribution expenses of the Fund requires stockholder approval, but otherwise,
the Plan may be amended by the directors, including a majority of the Plan
Directors.

The Plan will continue in effect for successive one year periods provided
that such continuance is specifically approved by a majority of the directors,
including a majority of the Plan Directors.

<PAGE> 44

Pursuant to the Plan, during the fiscal year ended August 31, 1995 the Fund
paid $34,688 in 12b-1 fees. Of this amount fees, fees of approximately $13,182
were reallowed to organizations other than the Distributor, G/A Capital
Management received approximately $7,978 for accounts on which they acted as
service providers, and approximately $13,528 was retained by the Distributor.
During the fiscal years ended August 31, 1994 and August 31, 1993, fees of
$10,800 and $16,467, respectively, were reallowed to organizations other than
the Distributor, and during the same periods the Distributor received fees of
$13,500 and $8,988, respectively.

PORTFOLIO TRANSACTIONS AND BROKERAGE

Subject to the supervision of the Board of Directors of the Fund, the
Adviser manages the Fund's investment portfolio as described in the Prospectus
and this Statement of Additional Information. The Adviser determines which
securities and other investments will be purchased, retained or sold by the
Fund, the portion of its assets to be invested or held uninvested in cash or
cash equivalents, and the portion of Fund assets to be invested in securities of
United States and foreign issuers. The Adviser places orders pursuant to its
investment determinations for the Fund either directly with the issuer or with
any broker or dealer. In placing orders with brokers and dealers, the Adviser
attempts to obtain the best net price and the most favorable execution of its
orders. Insofar as it is consistent with its policy of seeking the best price
and most favorable execution, the Adviser, in its discretion, may effect
transactions in portfolio securities with brokers or dealers who provide the
Fund with research advice or other services such as analyses of industry
segments or issuers and statistical or economic information. Such information
may be used by the Adviser in servicing other clients which it may advise.
Currently, the Adviser does not act as investment adviser for any investment
companies other than the Fund. Subject to the Fund's overall brokerage
policies, the Adviser may effect securities transactions through Capstone Asset
Planning Company, TradeStar Investments, Inc. and Williams McKay Jordan & Mills,
Inc. ("WMJM"), broker-dealer affiliates of the Administrator. WMJM is deemed to
be an affiliated broker since one of the principals of that firm serves as a
director of CFS the parent company of the Administrator and Capstone Asset
Planning Company.

Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to seeking best execution and such other
policies as the Board of Directors may determine, the Adviser may consider sales
of Fund shares as a factor in the selection of dealers to execute portfolio
transaction for the Fund.

During the fiscal year ended August 31, 1995, the Fund incurred brokerage
commissions of $29,541 which represented 0.60% of the assets of the Fund.
During the fiscal years ended August 31, 1994 and August 31, 1993, the Fund paid
$40,651 and $43,706, respectively, in brokerage commissions.

Transactions on United States and some foreign stock exchanges involve the
payment of negotiated brokerage commissions. On exchanges on which commissions
are negotiated, the cost of transactions may vary among different brokers. On
most foreign stock exchanges, commissions are fixed. There is generally no
stated commission in the case of securities traded in the over-the-counter
markets, but the price of those securities includes an undisclosed commission or
mark-up. The cost of securities purchased from underwriters includes an
underwriter's commission or concession, and the price at which securities are
purchased from and sold to dealers includes a dealer's mark-up or mark-down.

<PAGE> 45

The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the particular fiscal year by the
monthly average of the value of the portfolio securities owned by the Fund
during that particular fiscal year (short-term obligations are excluded for
purposes of this calculation). Although the Fund cannot accurately predict its
annual portfolio turnover rate, it is not expected to exceed 100%. The
portfolio turnover rates for the fiscal years ended August 31, 1995 and August
31, 1994 were 45% and 49%, respectively.

DETERMINATION OF NET ASSET VALUE

The net asset value per share is computed daily, Monday through Friday, as
of the close of regular trading the New York Stock Exchange, which is currently
4:00 p.m., Eastern time, except that the net asset value will not be computed on
the following holidays: New Year's Day, President's Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. The
Fund's net asset value also will be determined on any day in which there is
sufficient trading in its portfolio securities that the net asset value might be
affected materially, but only if on any such day the Fund is required to sell or
redeem shares. The 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 interest and dividends receivable but not yet received) minus all
liabilities (including accrued expenses) by the total number of Fund shares
outstanding at such time. The net asset value so computed will be used for all
purchase orders and redemption requests received between such computation and
the preceding computation.

To the extent sales prices are available, securities that are traded on a
recognized stock exchange, whether U.S. or foreign, are valued at the last sale
price on that exchange prior to the time when assets are valued or prior to the
close of trading on the New York Stock Exchange. In the event that there are
no sales, the last available sale price will be used. If a security is trade
on more than one exchange, the Administrator uses the latest price on the
exchange where the stock is primarily traded. If there is no sale that day or
if the security is not listed, the security is valued at its last sale
quotation. The calculation of the Fund's net asset value per share may not take
place contemporaneously with the times noted above for determining the prices of
certain of the Fund's portfolio securities, including foreign securities. If
events materially effecting the value of such securities occur between the time
when their prices are determined and the time the Fund's net asset value is
calculated, such securities will be valued at fair value as determined in good
faith by the directors. Also, for any security for which application of the
preceding methods of valuation results in a price for a security that is deemed
not to be representative of the market value of such security, the security will
be valued at fair value in the best judgment of the Administrator under the
supervision and responsibility of the Board of Directors.

Futures contracts and call options written on portfolio securities will be
priced at the latest sales price on the principal exchange on which such options
are normally traded or, if there have been no sales on such exchange on that
day, at the closing asked price. Short-term investments having a maturity of 60
days or less are valued on the basis of amortized cost. All other assets and
securities held by the Fund (including restricted securities) are valued at fair
value as determined in good faith by the Administrator under the supervision and
responsibility of the Board of Directors. Any assets that are denominated in a
foreign currency are translated into U.S. dollars of the last quoted spot rate
of exchange prevailing on each valuation date.

<PAGE> 46
HOW TO BUY AND REDEEM SHARES

Shares of the Fund are sold in a continuous offering and may be purchased
on any business day through authorized dealers, including Capstone Asset
Planning Company. Certain broker-dealers assist their clients in the purchase
of shares from the Distributor and charge a fee for this service in addition to
the Fund's public offering price.

Shares will be credited to a stockholder's account at the net asset value
next computed after an order is received by the Distributor. Initial purchases
must be at least $200; however, this requirement may be waived by the
Distributor for plans involving continuing investments. There is no minimum for
subsequent purchases of shares. No stock certificates representing shares
purchased will be issued except upon written request to the Fund's Transfer
Agent. The Fund's management reserves the right to reject any purchase order if
in its opinion, it is in the Fund's best interest to do so. See "Purchasing
Shares" in the Prospectus.

DIVIDENDS AND DISTRIBUTIONS

The Fund's policy is to distribute to stockholders substantially all of its
investment company taxable income (which includes, among other items, dividends,
interest and the excess of net short-term capital gains over net long-term
capital losses) in annual dividends. The Fund intends similarly to distribute
to stockholders at least annually any net realized capital gains (the excess of
net long-term capital gains over net short-term capital losses). All income
dividends and capital gain distributions are reinvested in shares of the Fund at
net asset value without sales commission, except that any stockholder may
otherwise instruct the Transfer Agent in writing and receive cash. Stockholders
are informed as to the sources of distributions at the time of payment. Any
dividend or distribution paid shortly after a purchase of shares by an investor
will have the effect of reducing the per share net asset value of his shares by
the amount of the dividend or distribution. All or a portion of any such
dividend or distribution, although in effect a return of capital, may be taxable
as set forth below.

TAXES

The following summary describes some of the more significant Federal income
tax consequences applicable to investors in the Fund based on existing Federal
tax law. New tax laws may be enacted which might affect the tax consequences of
an investment in the Fund. The following discussion is necessarily general, and
prospective investors are urged to consult their own tax advisers with respect
to the particular tax consequences to the investor of an investment in the Fund.

The Fund intends to qualify annually and elect to be taxed as a regulated
investment company

<PAGE> 47
under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code")
Qualification and election to be taxed as a regulated investment company
involves no supervision of management or investment policies or practices by any
government agency. To qualify as a regulated investment company the Fund must,
with respect to each taxable year, distribute to stockholders at least 90% of
its investment company taxable income (which includes, among other items,
dividends, interest, certain foreign currency gains and the excess of net short-
term capital gains over net long-term capital losses) and meet certain
diversification of assets, source of income, and other requirements of the Code.

As a regulated investment company, the Fund generally is not subject to
Federal income tax on its investment company taxable income and net capital gain
(net long-term capital gains in excess of net short-term capital losses), if any
that it distributes to stockholders. The Fund intends to distribute to its
stockholders, at least annually, substantially all of its investment company
taxable income and net capital gain. Amounts not distributed on a timely basis
in accordance with a calendar year distribution requirement are subject to a
nondeductible 4% excise tax. To prevent imposition of the tax, the Fund must
distribute during each calendar year (1) at least 98% of its ordinary income
(not taking into account any capital gains or losses) for the calendar year, (2)
at least 98% of its capital gains in excess of its capital losses for the
twelve-month period ending on October 31 of the calendar year (reduced by
certain net operating losses, as prescribed by the Code), and (3) all ordinary
income and capital gains for previous years that were not distributed during
such years. A distribution will be treated as paid on December 31 of the
calendar year if it is declared by the Fund in October, November or December of
that year to stockholders on a record date in such a month and paid by the Fund
during January of the following calendar year. Such distributions will be
taxable to stockholders in the calendar year the distributions are declared,
rather than the calendar year in which the distributions are received. To
prevent application of the excise tax, the Fund intends to make its
distributions in accordance with the calendar year distribution requirement.

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 stockholders. As a result, the stockholders would be subject to
tax on undistributed capital gain, would be able to claim their proportionate
share of the Federal income taxes paid by the Fund on such gain as a credit
against their own Federal income tax liabilities, and would be entitled to an
increase in their basis in their Fund Shares.

INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES. 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 itsassets or 75% or more of its
gross income is investment-type income. Under the PFIC rules, an "excess
distribution" received with respect to PFIC stock is treated as having been
realized ratably over the period during which the Fund held the PFIC stock. The
Fund itself will be subject to tax on that 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

<PAGE> 48
received from the PFIC. If this election were 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 the Fund's 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.

DISTRIBUTIONS. Dividends paid out of the Fund's investment company taxable
income will be taxable to a stockholder as ordinary income. Distributions of
net capital gains, if any, designated by the Fund as capital gain dividends, are
taxable as long-term capital gains, regardless of how long the stockholder has
held the Fund's shares, and are not eligible for the dividends received
deduction. The alternative minimum tax applicable to corporations may reduce
the benefits of the dividends received deductions.

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
dividends received deduction may be further reduced if the shares of the Fund
are debt-financed or are deemed to have been held less than 46 days.

All distributions are taxable to the stockholder whether reinvested in
additional shares or received in cash. Stockholders receiving distributions in
the form of additional shares will have a cost basis for Federal income tax
purposes in each share received equal to the net asset value of a share of the
Fund on the reinvestment date. Stockholders will be notified annually as to the
Federal tax status of distributions.

Distributions by the Fund reduce the net asset value of the Fund shares.
Should a distribution reduce the net asset value below a stockholder's cost
basis, such distribution nevertheless would be taxable to the stockholder as
ordinary income or capital gain as described above, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares just prior to a distribution by the Fund. The price of shares
purchased at that time includes the amount of the forthcoming distribution, but
the distribution will generally be taxable to them.

HEDGING AND OTHER TRANSACTIONS. Certain options and futures contracts are
"section 1256 contracts." Any gains or losses on section 1256 contracts
generally are considered 60% long-term and

<PAGE> 49
40% short-term capital gains or losses ("60/40"); however, foreign currency
gains or losses (as discussed below) arising from certain 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 (and at certain other times prescribed
pursuant to the Code) are "marked-to-market" with the result that unrealized
gains or losses are treated as though they were realized and the resulting gain
or loss is generally treated as 60/40 gain or loss.

Generally, the hedging transactions undertaken by the Fund may result in
"straddles" for Federal income tax purposes. The straddle rules may affect the
character of gains (or losses) realized by the Fund. In addition, losses
realized by the Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which such losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to the Fund of hedging transactions are not
entirely clear. The hedging transactions may increase the amount of short-term
capital gain realized by the Fund which is taxed as ordinary income when
distributed to stockholders.

The Fund may make one or more of the elections available under the Code
which are applicable to straddles and to certain foreign currency options and
regulated futures contracts. If the Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections
may operate to accelerate the recognition of gains or losses from the affected
straddle positions.

Because application of the straddle rules may affect the character of gains
or losses, defer losses and/or accelerate the recognition of gains or losses
from the affected straddle positions, the amount which must be distributed to
stockholders, and which will be taxed to stockholders as ordinary income or
long-term capital gain, may be increased or decreased substantially as compared
to a fund that did not engage in such hedging transactions.

Because the tax consequences of straddle transactions to the Fund are not
entirely clear, it may ultimately be determined that the Fund's tax accounting
rocedures failed to conform to the straddle rules. Consequently, the Fund may
have inadvertently failed to satisfy one or more of the requirements for
qualification as a regulated investment company. If the Fund has failed to
satisfy the requirement that it distribute at least 90% of its net investment
company taxable income, the Fund may be able to preserve its regulated
investment company status by making a "deficiency dividend" distribution. In
addition, the Fund would have to pay interest and a penalty on the amount of the
deficiency dividend distribution. If the Fund fails to satisfy one of the other
requirements for qualification as a regulated investment company, the Fund would
be taxed as an ordinary corporation, and its distributions, including net
capital gain distributions, would be taxable to stockholders as ordinary
dividends. Moreover, upon any requalification as a regulated investment
company, the Fund might be subject to a corporate-level tax on certain gains.

Certain requirements that must be met under the Code in order for the Fund
to qualify as a regulated investment company may limit the extent to which the
Fund will be able to engage in transactions in options and futures contracts.

FOREIGN CURRENCY EXCHANGES. 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

<PAGE> 50
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 are generally 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 futures contracts and options, 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 and losses, referred to
in 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. For example, fluctuations in exchange rates
may increase the amount of income that the Fund must distribute in order to
qualify for treatment as a regulated investment company and to prevent
application of an excise tax on undistributed income. Alternatively,
fluctuations in exchange rates may decrease or eliminate income available for
distribution. If section 988 losses exceed other investment company taxable
income during a taxable year, the Fund generally would not be able to make
ordinary dividend distributions, or distributions made before the losses were
realized would be recharacterized as return of capital to stockholders for
Federal income tax purposes, rather than as an ordinary dividend, reducing each
stockholder's basis in his Fund shares.

Income received by the Fund from sources within foreign countries may be
subject to withholding and other similar income taxes imposed by such countries.
Tax conventions between certain countries and the U.S. may reduce or eliminate
these taxes. In addition, the Adviser will manage the Fund with the intention
of minimizing foreign taxation in cases where it is deemed prudent to do so. If
more than 50% of the value of the Fund's total assets at the close of its
taxable year consists of securities of foreign corporations, the Fund will be
eligible to elect to "pass-through" to the Fund's stockholders the amount of
such 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 U.S. Federal income tax liability. No deduction for
foreign taxes may be claimed by a stockholder who does not itemize deductions.
Each stockholder will be notified within 60 days after the close of the Fund's
taxable year whether the foreign taxes paid by the Fund will "pass-through" for
that year, and if so, such notification will designate (a) the stockholder's
portion of the foreign taxes paid to foreign countries and (b) the portion of
the dividend which represents income derived from sources outside the U.S.

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 flows 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, such as dividends received from the Fund, and to
certain other types of income. Stockholders may be unable to claim a credit for
the full amount of their proportionate share of the foreign taxes paid by the
Fund. In addition, 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.

<PAGE> 51
The foregoing is a general description of the foreign 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 disposition (by redemption, repurchase, sale
or exchange) of Fund shares, a stockholder will realize a taxable gain or loss
depending upon his basis in his shares. Such gain or loss will be treated as
capital gain or loss if the shares are capital assets in the stockholder's
hands. Such gain or loss will generally be long-term or short-term depending
upon the stockholder's holding period for the shares. However, a loss realized
by a stockholder on the disposition of Fund shares with respect to which capital
gain dividends have been paid will, to the extent of such capital gain
dividends, be treated as long-term capital loss if such shares have been held by
the stockholder for six months or less. Further, a loss realized on a
disposition will be disallowed to the extent the shares disposed of are replaced
(whether by reinvestment of distributions or otherwise) within a period of 61
days beginning 30 days before and ending 30 days after the shares are disposed
of. In such a case, the basis of the shares acquired will be adjusted to
reflect the disallowed loss.

Under certain circumstances, the sales charge incurred in acquiring shares
of the Fund may not be taken into account in determining the gain or loss on the
disposition of those shares. This rule applies where shares of the Fund are
exchanged within 90 days after the date they were purchased and new shares of a
Capstone Fund or another regulated investment company are acquired without a
sales charge or at a reduced sales charge. In that case, the gain or loss
recognized on the exchange will be determined by excluding from the tax basis of
the shares exchanged all or a portion of the sales charge incurred in acquiring
those shares. This exclusion applies to the extent that the otherwise
applicable sales chargewith respect to the newly acquired shares is reduced as a
result of having incurred a sales charge initially. The portion of the sales
charge affected by this rule will be treated as a sales charge paid for the new
shares.

Certain of the debt securities acquired by the Fund may be treated as debt
securities that were originally issued at a discount. Original issue discount
can generally be defined as the difference between the price at which a security
was issued and its stated redemption price at maturity. Although no cash income
is actually received by the Fund, original issue discount on a taxable debt
security earned in a given year generally is treated for Federal income tax
purposes as interest and, therefore, such income would be subject to the
distribution requirements of the Code.

BACKUP WITHHOLDING. The Fund may be required to withhold Federal income
tax at the rate of 31% of all taxable distributions from the Fund and of gross
proceeds from the redemption of shares payable to stockholders who fail to
provide the Fund with their correct taxpayer identification number or to make
required certifications, or who have been notified by the Internal Revenue
Service that they are subject to backup withholding. Corporate stockholders and
certain other stockholders specified in the Code generally are exempt from
backup withholding. Backup withholding is not an additional tax. Any amounts
withheld may be credited against the stockholder's Federal income tax liability.

OTHER TAXES. Distributions also may be subject to additional state, local
and foreign taxes depending on each stockholder's particular situation. Foreign
stockholders may be subject to U.S. tax rules that differ significantly from
those described above, including the likelihood that distributions to them would
be subject to withholding of U.S. tax at a rate of 30% (or at a lower rate under
a tax treaty). Stockholders are advised to consult their own tax advisers with
respect to the particular tax consequences

<PAGE> 52
to them of an investment in the Fund.

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

As of December 19, 1995 Jupiter & Company owned approximately 20.89% of the
outstanding shares of the Fund. The address of Jupiter & Company is c/o
Investors Bank & Trust, P.O. Box 1537 Top 57, Boston, Massachusetts 02205.

OTHER INFORMATION

CUSTODY OF ASSETS. All securities owned by the Fund and all cash,
including proceeds from the sale of shares of the Fund and of securities in the
Fund's investment portfolio, are held by The Fifth Third Bank, 38 Fountain
Square, Cincinnati, Ohio 45263, as custodian.

STOCKHOLDER REPORTS. Semi-annual statements are furnished to stockholders,
and annually such statements are audited by the independent accountants.

INDEPENDENT ACCOUNTANTS. Tait, Weller & Baker, Two Penn Center, Suite 700,
Philadelphia, Pennsylvania 19102-1707, the independent accountants for the
Fund, performs annual audits of the Fund's financial statements.

LEGAL COUNSEL. Dechert, Price & Rhoads, 1500 K Street, N.W., Suite 500,
Washington, D.C. 20005, is legal counsel to the Fund.

<PAGE> 53
APPENDIX A

COMMERCIAL PAPER RATINGS. A commercial paper rating of Standard & Poor's
Corporation ("S&P") is a current assessment of the likelihood of timely payment
of debt having an original maturity of no more than 365 days. Commercial paper
rated A-1 by S&P indicates that the degree of safety regarding timely payment is
either overwhelming or very strong. Those issued determined to possess
overwhelming safety characteristics are denoted A-1+.

Commercial paper ratings by Moody's Investors Service, Inc. ("Moody's") are
opinions of the ability of the issuers to repay punctually promissory
obligations not having an original maturity in excess of nine months. The
rating "Prime-1" is the highest commercial paper rating assigned by Moody's.
Issuers rated "Prime-1" (or related supporting institutions) are considered to
have a superior capacity for repayment of short-term promissory obligations.

CORPORATE BOND RATINGS. Bonds rated Baa by Moody's are judged by Moody's
to be medium grade obligations, i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well.

Bonds rated B by Moody's are judged by Moody's to generally lack
characteristics of the desirable investment. Assurance of interest and
principal payments or of maintenance of other terms of the contract over any
long period of time may be small.

A bond rating of BBB by S&P is regarded as having adequate capacity to pay
principal and interest. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

A bond rating of B is regarded by S&P, on balance, as predominately
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. While such debt will likely have
some quality and protection characteristics, these are outweighed by large
uncertainties or major risk exposure to adverse conditions.

<PAGE> 54
APPENDIX B

As stated in the Fund's Prospectus, the Fund may enter into futures
contracts and may purchase and sell related options for hedging purposes. Such
transactions are described in this Appendix.

I. STOCK INDEX FUTURES CONTRACTS.

A stock index assigns relative values to the stocks included in the index
and the index fluctuates with changes in the market values of the stocks
included. Some stock index futures contracts are based on broad market indexes,
such as the Standard & Poor's 500 or the New York Stock Exchange Composite
Index. In contrast, certain exchanges offer futures contracts on narrower
market indexes, such as the Standard & Poor's 100 or indexes based on an
industry or market segment, such as oil and gas stocks. Futures contracts are
traded on organized exchanges regulated by the Commodity Futures Trading
Commission. Transactions on such exchanges are cleared through a clearing
corporation, which guarantees the performance of the parties to each contract.

The Fund will sell stock index futures contracts in order to offset a
decrease in market value of its portfolio securities that might otherwise result
from a market decline. The Fund may do so either to hedge the value of its
portfolio as a whole, or to protect against declines, occurring prior to sales
of securities, in the value of the securities to be sold. Conversely, the Fund
will purchase stock index futures contracts in anticipation of purchases of
securities. Generally, in a substantial majority of these transactions, the
Fund will purchase such securities upon termination of the long futures
position, but a long futures position may be terminated without a corresponding
purchase of securities.

II. FUTURES CONTRACTS ON FOREIGN CURRENCIES.

A futures contract on foreign currency creates a binding obligation on one
party to deliver, and a corresponding obligation on another party to accept
delivery of, a stated quantity of a foreign currency, for an amount fixed in
U.S. dollars. Foreign currency futures may be used by the Fund to hedge against
exposure to fluctuations in exchange rates between the U.S. dollar and other
currencies arising from multinational transactions.

III. MARGIN PAYMENTS.

Unlike when the Fund purchases or sells a security, no price is paid or
received by the Fund upon the purchase or sale of a futures contract.
Initially, the Fund will be required to deposit with the broker or in a
segregated account with the Fund's custodian an amount of cash or cash
equivalents, the value of which may vary but is generally equal to 10% or less
of the value of the contract. This amount is known as initial margin. The
nature of initial margin in futures transactions is different from that of
margin in security transactions in that futures contract margin does not involve
the borrowing of funds by the customer to finance the transactions. Rather, the
initial margin is in the nature of a performance bond or good faith deposit on
the contract which is returned to the Fund upon termination of the futures
contract assuming all contractual obligations have been satisfied. Subsequent
payments, called variation margin, margin, to and from the broker, will be made
on a daily basis as the price of the underlying instruments fluctuates making
the long and short positions in the futures contract more or less valuable, a
process known as marking-to-market. For example, when the Fund has purchased a
futures contract and the

<PAGE> 55
price of the contract has risen in response to a rise in the underlying
instruments, that position will have increased in value and the Fund will be
entitled to received from the broker a variation margin payment equal to that
increase in value. Conversely, where the Fund has purchased a futures contract
and the price of the future contract has declined in response to a decrease in
the underlying instruments, the position would be less valuable and the Fund
would be required to make a variable margin payment to the broker. At any time
prior to expiration of the futures contract, the Adviser may elect to close the
position by taking an opposite position, subject to the availability of a
secondary market, which will operate to terminate the Fund's position in the
futures contract. A final determination of variation margin is then made,
additional cash is required to be paid by or released to the Fund, and the Fund
realizes a loss or gain.

IV. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS.

There are several risks in connection with the use of futures by the Fund
as a hedging device. One risk arises because of the imperfect correlation
between movements in the price of the future and movements in the price of the
securities which are the subject of the hedge. The price of the future may
move more than or less than the price of the securities being hedged. If the
price of the future moves less than the price of the securities which are the
subject of the hedge, the hedge would not be fully effective but, if the price
of the securities being hedged has moved in an unfavorable direction, the Fund
would be in a better position than if it had not hedged at all. If the price of
the securities being hedged has moved in a favorable direction, this advantage
would be partially offset by the loss on the future. If the price of the future
moves more than the price of the hedged securities, the Fund would experience
either a loss or gain on the futures which will not be completely offset by
movements in the price of the securities which are the subject of the hedge. To
compensate for the imperfect correlation of movements in the price of securities
being hedged and movements in the price of futures contracts, the Fund may buy
or sell futures contracts in a greater dollar amount than the dollar amount of
securities being hedged if the volatility over a particular time period of the
prices of such securities has been greater than the volatility over such time
period of the future, or if otherwise deemed to be appropriate by the investment
adviser. Conversely, the Fund may buy or sell fewer futures contracts if the
volatility over a particular time period of the prices of the securities being
hedged is less than the volatility over such time period of the futures contract
being used, or if otherwise deemed to be appropriate by the investment adviser.
It is also possible that, where the Fund has sold futures to hedge its portfolio
against a decline in the market, the market may advance and the value of
securities held in the Fund may decline. If this occurred, the Fund would lose
money on the future and also experience a decline in value in its portfolio
securities.

Where futures are purchased to hedge against a possible increase in the
price of securities before the Fund is able to invest its cash (or cash
equivalents) in securities (or options) in an orderly fashion, it is possible
that the market may decline instead; if the Fund then concludes not to invest in
securities or options at that time because of concern as to possible further
market decline or for other reasons, the Fund would realize a loss on the
futures contract that is not offset by a reduction in the price of securities
purchased.

In instances involving the purchase of futures contracts by the Fund, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with the Fund's custodian
and/or in a margin account with a broker to collateralize the position and
thereby ensure that the use of such futures is unleveraged.

<PAGE> 56
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the futures and the securities
being hedged, the price of futures may not correlate perfectly with movement in
the cash market due to certain market distortions. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through off-setting transactions which could distort the normal relationship
between the cash and futures markets. Second, with respect to financial futures
contracts, the liquidity of the futures market depends on participants entering
into off-setting transactions rather than making or taking delivery. To the
extent participantsdecide to make or take delivery, liquidity in the futures
market could be reduced thus producing distortions. Third, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may also cause temporary
price distortions. Due to the possibility of price distortion in the futures
market, and because of the imperfect correlation between the movements in the
cash market and movements in the price of futures, a correct forecast of general
market trends or interest rate movements by the Adviser may still not result in
a successful hedging transaction over a short time frame.

Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Fund
intends to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be possible to
close a futures investment position, and in the event of adverse price
movements, the Fund would continue to be required to make daily cash payments of
variation margin. However, in the event futures contracts have been used to
hedge portfolio securities, such securities will generally not be sold until the
futures contract can be terminated. In such circumstances, an increase in the
price of the securities, if any, may partially or completely offset losses on
the futures contract. However, as described above, there is no guarantee that
the price of the securities will in fact correlate with the price movements in
the futures contract and thus provide an offset on a futures contract.

Further, it should be noted that the liquidity of a secondary market in a
futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventingthe liquidation of open futures positions.

Successful use of futures by the Fund is also subject to the Adviser's
ability to predict correctly movements in the direction of the market. For
example, if the Fund has hedged against the possibility of a decline in the
market adversely affecting securities held by it and securities prices increase
instead, theFund would lose part of all of the benefit to the increased value of
its securities which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements. Such sales of securities may be, but will not necessarily be, at
increased prices which reflect the rising market. The Fund may have to sell
securities at a time when it may be disadvantageous to do so.

V. OPTIONS ON FUTURES CONTRACTS.

The Fund may purchase and sell options on the futures contracts described
above. A futures

<PAGE> 57
option gives the holder, in return for the premium paid, the right to buy (call)
from or sell (put) to the writer of the option a futures contract at a specified
price at any time during the period of the option. Upon exercise, the writer of
the option is obligated to pay the difference between the cash value of the
futures contract and the exercise price. Like the buyer or seller of a futures
contract, the holder, or writer, of an option has the right to terminate its
position prior to the scheduled expiration of the option by selling, or
purchasing, an option of the same series, at which time the person entering into
the closing transaction will realize a gain or loss.

Investments in options on futures contracts involve some of the same
considerations that are involved in connection with investments in futures
contracts (for example, the existence of a liquid secondary market). In
addition, the purchase or sale of an option also entails the risk that changes
in the value of the underlying futures contract will not be fully reflected in
the value of the option purchased. Depending on the pricing of the option
compared to either the futures contract upon which it is based, or upon the
price of the securities being hedged, an option may or may not be less risky
than ownership of the futures contract or such securities. In general, the
market prices of options can be expected to be more volatile than the market
prices on the underlying futures contract. Compared to the purchase or sale of
futures contracts, however, the purchase of call or put options on futures
contracts may frequently involve less potential risk to the Fund because the
maximum amount at risk is the premium paid for the options (plus transactions
costs).

VI. OTHER HEDGING TRANSACTIONS.

As noted above, the Fund presently intends to use stock index and foreign
currency futures contracts (and related options) in connection with their
hedging activities. Nevertheless, the Fund is authorized to enter into hedging
transactions in any other futures or options contracts which are currently
traded. Such instruments may be employed in connection with the Fund's hedging
strategies if, in the judgment of the Adviser, transactions therein are
necessary or advisable.

VII. ACCOUNTING.

Accounting for futures contracts and options will be in accordance with
generally accepted accounting principles.

<PAGE> 58

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Shareholders and Board of Directors
of Medical Research Investment Fund, Inc.

We have audited the accompanying statement of assets and liabilities of
Medical Research Investment Fund, Inc., including the portfolio of investments,
as of August 31, 1995, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and financial highlights for each of the 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
principles. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1995 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Medical Research Investment Fund, Inc. as of August 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
September 25, 1995

<PAGE> 59

<TABLE>
PORTFOLIO OF INVESTMENTS - AUGUST 31, 1995
- ------------------------------------------------------------------------------
<CAPTION>
MARKET
VALUE PERCENTAGE
COMMON STOCKS - 100.25% SHARES (NOTE 1-A) OF NET ASSETS
- ----------------------- ------ ---------- -------------
<S> <C> <C> <C>
MAJOR CAPITALIZATION - NORTH AMERICA (7.53%)
Pfizer, Inc. . . . . . . . . . . . . . . 9,800 $ 483,875 2.74%
Upjohn Co. . . . . . . . . . . . . . . . 20,000 847,500 4.79
----------- ----
1,331,375 7.53

SPECIALTY CAPITALIZATION - NORTH AMERICA (49.66%)
Allergan, Inc. . . . . . . . . . . . . . 11,500 349,313 1.98
Agouron Pharmaceuticals, Inc. (a). . . . 25,000 828,125 4.68
BioChem Pharma, Inc. (a) . . . . . . . . 25,000 753,125 4.26
Biogen, Inc. (a) . . . . . . . . . . . . 17,000 930,750 5.26
Chiron Corp. (a) . . . . . . . . . . . . 8,000 718,000 4.06
Cytel Corp. (a). . . . . . . . . . . . . 80,000 710,000 4.01
CytoTherapeutics, Inc. (a) . . . . . . . 66,000 627,000 3.55
Genetics Institute, Inc. (a) . . . . . . 18,000 706,500 3.99
Gensia, Inc. (a) . . . . . . . . . . . .120,000 675,000 3.82
Immunex Corp. (a). . . . . . . . . . . . 55,000 852,500 4.82
Isis Pharmaceuticals, Inc. (a) . . . . . 60,000 727,500 4.11
SangStat Medical Corp. (a) . . . . . . . 50,000 387,500 2.19
Vertex Pharmaceuticals, Inc. (a) . . . . 25,000 518,750 2.93
--------- -----
8,784,063 49.66

MAJOR CAPITALIZATION - EUROPE (7.88%)
Astra "A". . . . . . . . . . . . . . . . 20,000 664,800 3.76
Schering AG. . . . . . . . . . . . . . . 10,000 729,500 4.12
--------- ----
1,394,300 7.88

SPECIALTY CAPITALIZATION - EUROPE (13.79%)
Ares-Serono. . . . . . . . . . . . . . . 1,200 690,156 3.90
Cambridge Antibody Technology, Ltd.
(a)(Note 5). . . . . . . . . . . . . . 9,000 267,300 1.51
Celltech (a) . . . . . . . . . . . . . . 75,000 441,750 2.50
Ethical Holdings ADR (a) . . . . . . . . 60,000 532,500 3.01
Immuno AG. . . . . . . . . . . . . . . . 1,000 506,980 2.87
--------- -----
2,438,686 13.79

MAJOR CAPITALIZATION - FAR EAST (17.21%)
Fujisawa Pharmaceutical Co.. . . . . . . 70,000 703,500 3.98
Sankyo Co. Ltd.. . . . . . . . . . . . . 27,000 603,720 3.41
Taisho Pharmaceutical. . . . . . . . . . 37,000 660,450 3.73
Takeda Chemical Industries . . . . . . . 53,000 717,620 4.06
Teikoku Hormone. . . . . . . . . . . . . 30,000 360,000 2.03
--------- -----
3,045,290 17.21

SPECIALTY CAPITALIZATION - FAR EAST (4.18%)
Biota Holdings Limited (a) . . . . . . 300,000 375,000 2.12
Rohto Pharmaceutical . . . . . . . . . . 45,000 364,500 2.06
------- ----
739,500 4.18

TOTAL INVESTMENTS (COST $13,614,171). . . . 17,733,214 100.25
EXCESS OF LIABILITIES OVER OTHER ASSETS . . (43,514) (0.25)
----------- ------
NET ASSETS. . . . . . . . . . . . . . . . . $17,689,700 100.00%
=========== ======
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

<PAGE> 60

STATEMENT OF ASSETS AND LIABILITIES - AUGUST 31, 1995
- ---------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:

Investments in securities at market (identified cost
$13,614,171)(Note 1-A). . . . . . . . . . . . . . . . . $17,733,214
Receivables:
Dividends . . . . . . . . . . . . . . . . . . . . . . . 15,890
Investment securities sold. . . . . . . . . . . . . . . 9,862
Capital stock sold. . . . . . . . . . . . . . . . . . . 7,167
-----------
Total Assets. . . . . . . . . . . . . . . . . . . . . 17,766,133
-----------

LIABILITIES:

Cash overdraft . . . . . . . . . . . . . . . . . . . . . . 5,005
Accrued advisory and administrative fees . . . . . . . . . 47,938
Other accrued expenses . . . . . . . . . . . . . . . . . . 23,490
-----------

Total Liabilities . . . . . . . . . . . . . . . . . . 76,433
-----------

NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . $17,689,700
===========

NET ASSET VALUE; OFFERING PRICE AND REDEMPTION PRICE PER SHARE:
($17,689,700 / 755,541 shares outstanding) $0.001 par value,
1 billion shares authorized . . . . . . . . . . . . . . . . $ 23.41
===========

SOURCE OF NET ASSETS:

Paid in capital. . . . . . . . . . . . . . . . . . . . . . $11,935,566
Undistributed net investment deficit . . . . . . . . . . . (215,599)
Accumulated net realized gain on investments . . . . . . . 1,850,690
Net unrealized appreciation of investments . . . . . . . . 4,119,043
-----------

$17,689,700
===========
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

<PAGE> 61

<TABLE>
STATEMENT OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 1995
- ----------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:

Income:
Dividends (net of foreign taxes of $10,835) . . . . . . . . . . $ 86,398
------------

Expenses (Note 2):
Investment advisory fees. . . . . . . . . . . . . . . . . . . . 138,826
Administration fees . . . . . . . . . . . . . . . . . . . . . . 58,707
Transfer agent fees . . . . . . . . . . . . . . . . . . . . . . 42,064
Distribution fees . . . . . . . . . . . . . . . . . . . . . . . 34,688
Audit and legal fees. . . . . . . . . . . . . . . . . . . . . . 23,219
Custodian fees. . . . . . . . . . . . . . . . . . . . . . . . . 11,871
Registration fees . . . . . . . . . . . . . . . . . . . . . . . 11,092
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . 18,425
------------
Total Expenses. . . . . . . . . . . . . . . . . . . . . . . . 338,892

Less:
Custodian Cash Balance Credits (Note 4). . . . . . . . . . 1,983
------------

Net Expenses. . . . . . . . . . . . . . . . . . . . . . . . . 336,909
------------

Net investment loss. . . . . . . . . . . . . . . . . . . . (250,511)
------------

REALIZED AND UNREALIZED GAIN ON INVESTMENTS:

Net realized gain on investments . . . . . . . . . . . . . . . . . 1,851,967
Unrealized appreciation of investments:
Beginning of year . . . . . . . . . . . . . $ 956,554
End of year . . . . . . . . . . . . . . . . 4,119,043
-----------
Net increase in unrealized appreciation of investments. . . . 3,162,489
------------

Net realized and unrealized gain on investments. . . . . . 5,014,456
------------

Net increase in net assets resulting from operations . . . $4,763,945

</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

<PAGE> 62

<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------

YEAR ENDED AUGUST 31,
1995 1994
----------- ----------
<S> <C> <C>
OPERATIONS:
Net investment loss . . . . . . . . . . . . . . . . . . $ (250,511) $ (200,080)
Net realized gain on investments. . . . . . . . . . . . 1,851,967 995,595
Net unrealized appreciation (depreciation) of
investments . . . . . . . . . . . . . . . . . . . . . 3,162,489 (621,325)
----------- ----------

Net increase in net assets resulting from operations. 4,763,945 174,190

DISTRIBUTIONS TO SHAREHOLDERS:
Distribution from net realized gains from security
transactions . . . . . . . . . . . . . . . . . . . . (995,491) (820,375)

CAPITAL SHARE TRANSACTIONS:
Increase in net assets resulting from capital share
transactions (Note 3) . . . . . . . . . . . . . . . . 690,545 3,654,122
----------- ----------

Total increase in net assets. . . . . . . . . . . . . 4,458,999 3,007,937

NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . 13,230,701 10,222,764
----------- -----------
End of year (including net investment deficit of
$215,599 and $0, respectively). . . . . . . . . . . . $17,689,700 $13,230,701
=========== ===========

</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

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

Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTANT POLICIES

Medical Research Investment Fund, Inc. (the Fund ) is a diverisifed, open-
end management investment company. The Fund's primary investment objective is
long-term growth of capital, a goal it seeks by investing primarily in common
stocks, and securities convertible into common stocks, of domestic and foreign
companies engaged in medical research and the health care industry. Current
income is a secondary objective. The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of its
financial statements.

A) SECURITY VALUATION - Securities listed on a recognized stock exchange,
whether U.S. or foreign, are valued at the last reported sales price on that
exchange prior to the time when assets are valued or prior to the close of
trading on the New York Stock Exchange. In the event there are no sales, the
last available bid price will be used. If a security is traded on more than one
exchange, the security is valued at the last sales price on the exchange where
the stock is primarily traded.

B) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Substantially all of the
Fund's net investment income, if any, will be distributed to shareholders semi-
nnually and net realized capital gains, if any, will be distributed annually.
Income dividends and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for net
operating losses.

C) FEDERAL INCOME TAXES - No provision is made for Federal income taxes as it
is the Fund s intention to continue to qualify as a regulated investment company
and to make the requisite distribution to its shareholders which will be
sufficient to relieve it from all, or substantially all, Federal income taxes.

<PAGE> 63

D) FOREIGN CURRENCY TRANSLATION - Investments denominated in foreign currencies
are translated into U.S. dollars at the bid price of such currencies against
U.S. dollars last quoted by a major bank on the valuation date. The cost of
foreign portfolio securities is determined using historical exchange rates.

E) OTHER - Security transactions are accounted for on the trade date. The cost
of investments sold is determined by use of the specific identification method
for both financial reporting and income tax purposes. Dividend income is
recorded on the ex-dividend date, except that certain dividends from foreign
securities are recorded on the ex-dividend date or as soon thereafter as the
Fund is informed of the dividend.

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

Pursuant to the Advisory Agreement, G/A Capital Management, Inc. ("G/ACM")
serves as the Investment Adviser of the Fund. Under this agreement, G/ACM
receives a monthly fee at the annual rate of 1% of the Fund s first $30 million
in average net assets, 0.90% of the next $20 million in average net assets, and
0.75% of average net assets in excess of $50 million. The Investment Adviser
has voluntarily agreed to waive its fee until the assets of the Fund reach a
level permitting the Fund to pay these fees and still maintain an expense ratio
of 2.5% or less. For the fiscal year ended August 31, 1995, no waiver was
required pursuant to this provision.

Under an Administration Agreement between the Fund and its Administrator,
Capstone Asset Management Company ("CAMCO"), CAMCO supervises all aspects of the
Fund s operations other than the management of its investments. For its
services, CAMCO is entitled to receive a fee at the annual rate of 0.25% of the
Fund s average daily net assets. CAMCO has voluntarily agreed to waive its fees
until the assets of the Fund reach a level permitting the Fund to pay these fees
and maintain an expense ratio of 2.5% or less. For the fiscal year ended August
31, 1995, no waiver was required pursuant to this provision. In addition, CAMCO

is also paid a monthly fee of $2,000 for costs representing certain accounting
and bookkeeping services. These fees, which amounted to $24,000 for the year
ended August 31, 1995, are not subject to the previously discussed waiver.

Capstone Asset Planning Company ("CAPCO") serves as Distributor and
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 during the period
September 1, 1994 through August 20, 1995 by the Distributor/Underwriter were
$4,608 and $4,443, respectively. CAPCO is an affiliate of CAMCO, and both are
wholly-owned subsidiaries of Capstone Financial Services, Inc. ("CFS").

Pursuant to a distribution plan established in accordance with Rule 12b-1
under the Investment Company Act of 1940, CAPCO pays certain registered broker-
ealers, financial institutions or other industry professionals ( Service
Organizations ), fees at the annual rate of 0.25% of the average daily net
assets of the Fund for whom the Service Organizations are the dealers or owners
of record. The Fund has agreed to reimburse CAPCO for the payment of such fees,
which for the year ended August 31, 1995, amounted to $34,688. Of this amount,
approximately 39% was paid to CAPCO and 23% was paid to G/ACM for accounts on
which they acted as servicers.

Certain officers of the Fund are also officers and directors of G/ACM,
CAMCO, CAPCO and CFS. During the year ended August 31, 1995, Directors of the
Fund who are not "interested persons" received Directors' fees of $2,750. All
other officers and Directors serve without compensation from the Fund.

NOTE 3 - CAPITAL STOCK

Transactions in capital stock were as follows:

<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-------------------------------------------------
1995 1994
---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold. . . . . . . . . . . . . 126,893 $ 2,499,420 229,944 $ 4,367,755
Shares issued to shareholders in
reinvestment of distributions. . . 56,151 958,500 42,418 790,669
------- ----------- ------- -----------
183,044 3,457,920 272,362 5,158,424
Shares redeemed. . . . . . . . . . . (150,422) (2,767,375) (79,869) (1,504,302)
------- ----------- ------- -----------
Net increase . . . . . . . . . . . . 32,622 $ 690,545 192,493 $ 3,654,122
======= =========== ======= ===========
</TABLE>

<PAGE> 64

NOTE 4 - INVESTMENTS/CUSTODY

Purchases and sales of securities other than short-term notes aggregated
$6,206,776 and $6,490,757, respectively. At August 31, 1995 the cost of
investments for Federal income tax purposes was $13,614,171. Accumulated net
unrealized appreciation on investments was $4,119,043 consisting of $4,524,234
gross unrealized appreciation and $405,191 gross unrealized depreciation. The
Fund's Custodian has provided credits in the amount of $1,983 against custodian
charges based on credits on uninvested cash balances of the Fund.

NOTE 5 - RESTRICTED SECURITIES

On February 4, 1993, the Fund acquired 9,000 shares of common stock of
Cambrige Antibody Technology, Ltd. at a cost of $297,000. The value of these
securities at August 31, 1995 represents 1.5% of the Fund's net assets. They
are valued by the Board of Directors at 90% of cost and have not been registered
under the Securities Act of 1933. Accordingly, they may sells these securities,
additional costs for registration may be required.

<PAGE> 65
MEDICAL RESEARCH INVESTMENT FUND, INC.
OTHER INFORMATION
(PART C TO REGISTRATION STATEMENT NO. 2-95103)

Item 24. Financial Statements and Exhibits

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

(a) Financial Statements (included in Parts A and B):

Per Share Data and Ratios (Part A)
Report of Independent Accountants (Part B)
Statement of Assets and Liabilities (Part B)
Portfolio of Investments in Securities (Part B)
Statement of Operations (Part B)
Statement of Changes in Net Assets (Part B)
Notes to Financial Statements (Part B)

(b) Exhibits:

A. Exhibits filed pursuant to Form N-1A

1 Copy of Articles of Incorporation dated November 5,
1984; Exhibit 1 to Pre-Effective Amendment No. 1 to
Form N-1A Registration Statement No. 2-95103.

2 Copy of By-Laws; Exhibit 2 to Pre-Effective Amendment
No. 1 to Form N-1A Registration Statement No. 2-95103.

3 None.

4 Copy of Specimen copy of Share Certificate; Exhibit 4
to Pre-Effective Amendment No. 1 to Form N-1A
Registration Statement No. 2-95103.

5(a) Copy of Investment Advisory Agreement between
Registrant and Medical Research Management Group,
Inc., dated August 10, 1985; Exhibit 5 to Post-
Effective Amendment No. 1 to Form N-1A Registration
Statement No. 2-95103.

5(b) Copy of Investment Advisory Agreement between
Registrant and G/A Capital Management, Inc. dated
August 17, 1989; Exhibit 5(b) to Post-Effective
Amendment No. 9 to Form N-1A Registration Statement
No. 2-95103.

<PAGE> 66
6(a) Copy of Distribution Agreement between Registrant and
Medical Research Management Group, Inc., dated August
10, 1985, as amended on June 25, 1986; Exhibit 6 to
Post-Effective Amendment No. 3.

6(b) Copy of Distribution Agreement between Registrant and
Capstone Asset Planning Company dated April 21, 1988;
Exhibit 6(b) to Post-Effective Amendment No. 5 to Form
N-1A Registration Statement No. 2-95103.

7 None.

8(a)(1) Custodian Agreement between Registrant and Provident
National Bank, dated August 10, 1985, is incorporated
herein by reference to Post-Effective Amendment No. 1
filed March 27, 1986.

8(a)(2) Copy of Custodian Agreement between Registrant and The
First Jersey National bank dated June 3, 1988; Exhibit
8(a)(2) to Post-Effective Amendment No. 5 to Form N-1A
Registration Statement No. 2-95103.

8(b)(1) Sub-Custodian Agreement between Provident National
Bank and The Chase Manhattan Bank, N.A. dated August
10, 1985 is incorporated herein by reference to Post-
Effective Amendment No. 2 filed October 28, 1986.

8(b)(2) Form of Sub-Custodian Agreement among the Registrant,
Chase Manhattan Bank, N.A. and The First Jersey
National Bank dated June, 1988; Exhibit 8(b)(2) to
Post-Effective Amendment No. 5 to Form N-1A
Registration Statement No. 2-95103.

9(a)(1) Administration Agreement between Registrant and
Provident Institutional Management Corporation, dated
August 10, 1985, is incorporated herein by reference
to Post-Effective Amendment No. 1 filed March 27,
1986.

9(a)(2) Copy of Administration Agreement between the
Registrant and Capstone Asset Management Company dated
March 1, 1988; Exhibit 9(a)(2) to Post-Effective
Amendment No. 5 to Form N-1A Registration Statement
No. 2-95103.

9(b)(1) Transfer Agency Agreement between Registrant and
Provident Financial Processing Corporation, dated
August 10, 1985, is incorporated herein by reference
to Post-Effective Amendment No. 1 filed March 27,
1986.

<PAGE> 67
9(b)(2) Copy of Agency Agreement between the Registrant and
Capstone Financial Services, Inc. dated April 21,
1988; Exhibit 9(b)(2) to Post-Effective Amendment No.
5 to Form N-1A Registration Statement No.22-95103.

10 Opinion and consent of counsel; Exhibit 10 to Post-
Effective Amendment No. 12 to Form N-1A Registration
Statement No. 2-95103.

11(a)(1) Consent of Coopers & Lybrand; Exhibit 11(a)(1) to
Post-Effective Amendment No. 5 to Form N-1A
Registration Statement No. 2-95103.

11(a)(2) Consent of Price Waterhouse; Exhibit 11(a)(2) to Post-
Effective Amendment No. 5 to Form N-1A Registration
Statement No. 2-95103.

*11(a)(3) Consent of Tait, Weller & Baker.

11(b) Consent of Drinker Biddle & Reath.

11(c) Consent of Ballard, Spahr, Andrews & Ingersoll.

*11(d) Powers of Attorney of Messrs. Samuel D. Isaly, John J.
Maggio, Philip C. Smith and Eugene E. Weise.

12 None.

13 Agreement made in consideration of providing initial
capital is incorporated herein by reference to Post-
Effective Amendment No. 2 filed October 28, 1986.

14 None.

15(a)(1) Rule 12b-1 Plan as amended on June 25, 1986 is
incorporated herein by reference to Post-Effective
Amendment No. 3 filed December 30, 1986.

15(a)(2) Copy of Service and Distribution Plan as amended on
April 21, 1988; Exhibit 15(a)(2) to Post-Effective
Amendment No. 5 to Form N-1A Registration Statement
No. 2-95103.

15(a)(3) Copy of Service and Distribution Plan as amended on
May 3, 1993; Exhibit 15(a)(3) to Post-Effective
Amendment No. 12 to Form N-1A Registration Statement
No. 2095103.

15(b)(1) Form of Servicing Agreement is incorporated herein by
reference to Post-Effective Amendment No. 2 filed
October 28, 1986.

______________

* Filed herewith

<PAGE> 68
15(b)(2) Form of Service Agreement, as amended; Exhibit
15(b)(2) to Post-Effective Amendment No. 5 to Form
N-1A Registration Statement No.2-95103.

15(c)(1) Form of Selected Dealers Agreement is incorporated
herein by reference to Post-Effective Amendment No. 2
filed October 28, 1986.

15(c)(2) Form of Selling Group Agreement; Exhibit 15(c)(2) to
Post-Effective Amendment No. 5 to Form N-1A
Registration Statement No. 2-95103.

*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

None.

Item 26. Number of Holders of Securities

Number of Record Holders
Title of Class as of December 19, 1995
-------------- ------------------------

Shares of common stock 1,771
par value $.001

Item 27. Indemnification

Article VII(3) of the Registrant's Articles of Incorporation, incorporated
by reference as Exhibit 1 hereto, and Article VI, Section II of the Registrant's
By-Laws incorporated by reference as Exhibit 2 hereto, provide for the
indemnification of the Registrant's principal underwriter, custodian, and
transfer agent is provided for in Section 1.11 of the Distribution Agreement
(incorporated by reference as Exhibit 6 hereto), Section 19 of the Custodian
Agreement (incorporated by reference as Exhibit 8 hereto), and Section 17 of the
Transfer Agency Agreement (incorporated by reference as Exhibit 9(b) hereto),
respectively. In no event will the Registrant indemnify any of its Directors,
officers, employees, or agents against any liability to which such person would
otherwise be subject by reason of his willful misfeasance, bad faith, or gross
negligence in the performance of his duties, or by reason of his reckless
disregard of the duties involved in the conduct of his office or under his
agreement with the Registrant. The Registrant will comply with Rule 484 under
the Securities Act of 1933 and the Release No. 11330 under the Investment
Company Act of 1940 in connection with any indemnification.

______________

* Filed herewith

<PAGE> 69

Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to Directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a Director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
Director, officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issues.

Item 28. Business and Other Connections of Investment Adviser

Uniform Form ADV (File No. 801-34429) for G/A Capital Management, Inc. is
hereby incorporated herein by reference.

Item 29. Principal Underwriters

(a) The principal underwriter of the Registrant, Capstone Asset Planning
Company, also acts as principal underwriter for Capstone Fixed Income Series,
Inc. - Capstone Government Income Fund and Capstone Intermediate Government Fund
Capstone Growth Fund, Inc.; and Capstone International Series Trust - Capstone
New Zealand Fund and Capstone Nikko Japan Fund.

(b)

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

Edward L. Jaroski. . . . . . . President and Director Vice President

Leticia N. Jaroski . . . . . . Vice President --

Janet K. Roberts . . . . . . . Assistant Vice President --

Iris R. Clay . . . . . . . . . Assistant Vice President Secretary

Linda G. Giuffre . . . . . . . Treasurer Treasurer
</TABLE>
______________
* 5847 San Felipe, Suite 4100, Houston, Texas 77057

<PAGE> 70
Item 30. Location of Accounts and Records

G/A Capital Management, Inc., the Investment Adviser to the Registrant, 41
Madison Avenue, 40th floor, New York, New York 10010-2202; Capstone Asset
Management Company, the Administrator of the Registrant, 5847 San Felipe, Suite
4100, Houston, Texas 77057; Fifth Third Bank, the Custodian of the Registrant,
Fifth Third Center, Cincinnati, Ohio 45263; and Fund/Plan Services, Inc., the
transfer agent of the Registrant, 2 W. Elm Street, Conshohocken, Pennsylvania
19428, maintain physical possession of each account, book or other document
required to be maintained by Section 31(a) of Investment Company Act of 1940 and
the rules promulgated thereunder.

Item 31. Management Services

Not applicable

Item 32. Undertakings

Not applicable

<PAGE> 71
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement or Amendment
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Registration Statement or Amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, and State of
Texas on the 29th day of December, 1995.

MEDICAL RESEARCH INVESTMENT FUND, INC.

Registrant

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

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

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

/s/EDWARD L. JAROSKI Vice President (Principal December 29, 1995
- -------------------------
Edward L. Jaroski Executive Officer)

/s/LINDA G. GIUFFRE Treasurer (Principal December 29, 1995
- -------------------------
Linda G. Giuffre Financial & Accounting
Officer)

SAMUEL D. ISALY* Director December 29, 1995
- -------------------------
Samuel D. Isaly

JOHN J. MAGGIO* Director December 29, 1995
- -------------------------
John J. Maggio

PHILIP C. SMITH* Director December 29, 1995
- -------------------------
Philip C. Smith

EUGENE E. WEISE* Director December 29, 1995
- -------------------------
Eugene E. Weise

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

<PAGE> 72
INDEX TO EXHIBITS

Exhibit
Number Description of Exhibits
- ------- -----------------------
11(a)(3) Consent of Tait, Weller & Baker

11(d) Powers of Attorney of Messrs. Samuel D.
Isaly, John J. Maggio, Philip C. Smith
and Eugene E. Weise

16 Copy of Schedule for Computation of
Performance Quotations

27 Financial Data Schedule

<PAGE> 1 EXHIBIT 11.A.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We consent to the reference to our firm in the Post-Effective Amendment No.
14 to the Registration Statement, (Form N-1A) of Medical Research Investment
Fund, Inc. and to the Inclusion of our report dated September 25, 1995 to the
Shareholders and Board of Directors of Medical Research Investment Fund, Inc.

/s/TAIT, WELLER & BAKER
TAIT, WELLER & BAKER

Philadelphia, Pennsylvania
December 27, 1995

<PAGE> 1 EXHIBIT 11.D
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/SAMUEL D. ISALY Director December 29, 1995
- ------------------------------
Samuel D. Isaly

/s/JOHN J. MAGGIO Director December 29, 1995
- ------------------------------
John J. Maggio

/s/PHILIP C. SMITH Director December 29, 1995
- ------------------------------
Philip C. Smith

/s/EUGENE E. WEISE Director December 29, 1995
- ------------------------------
Eugene E. Weise

</TEXT

<PAGE> 1 EXHIBIT 16
MEDICAL RESEARCH INVESTMENT FUND, INC.
SCHEDULE FOR COMPUTATION OF YIELD

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

a = dividends and interest earned during the period,

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

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

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

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

Yield = 2[(11,740.76 - 30,726.88) + 1)6 - 1]
(754,053.64)(23.41)

= (1.287)% (for 1 month period ending August 31, 1995)

<PAGE> 2
MEDICAL RESEARCH INVESTMENT FUND, INC.
SCHEDULE OF COMPUTATION FOR
AVERAGE ANNUAL TOTAL RETURN

P(1 + T)n = ERV

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

T = the average annual total return,

n = the number of years,

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

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

The Fund's average annual total return for the one year period ending August 31,
1995 is 38.131%.

$1,000 (1 - .38131)1 = ERV

$1,381.31 = ERV

An initial payment of $1,000 invested on 09/01/94 will result in 54.645 shares.
A capital gain distribution of $1.362 resulted in 4.360 additional shares,
rendering a total of 59.005 shares. On 08/31/95 the net asset value of Medical
Research Investment Fund, Inc. was $23.41 per share, thereby creating a total
market value of $1,381.31 and yielding a 38.131% return.

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

The Fund's average annual total return for the five year period from September
1, 1990 to August 31, 1995 is 20.295%.

$1,000 (1 + .20295)5 = ERV

$2,519.08 = ERV

An initial payment of $1,000 on 09/01/90 will result in 68.027 shares. Capital
gain distributions of $7.867 for the five year period resulted in 39.580
additional shares, rendering a total of 107.607 shares. At 08/31/95 the net
asset value of Medical Research Investment Fund, Inc. was $23.41 per share,
thereby creating a total market value of $2,519.08 and yielding an average
annual total return of 20.295%.

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

The Fund's average annual total return for the ten year period from September 1,
1985 to August 31, 1995 is 16.168%.

$1,000 (1 + .16168)10 = ERV

$4,475.90 = ERV

An initial payment of $1,000 on 09/01/85 will result in 99.206 shares. An
income distribution of $.047 and capital gain distributions of $10.417 for the
period 09/01/85 through 08/31/95 resulted in 91.990 additional shares, rendering
a total of 191.196 shares. At 08/31/95 the net asset value of Medical Research
Investment Fund, Inc. was $23.41 per share, thereby creating a total market
value of $4,475.90 and yielding an average annual total return of 16.168%.

<PAGE> 3
MEDICAL RESEARCH INVESTMENT FUND, INC.
SCHEDULE OF COMPUTATION FOR TOTAL RETURN

P(1 + T) = ERV

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

T = the average annual 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 August 31, 1995 is
38.131%.

$1,000 (1 + .38131) = ERV

$1,381.31 = ERV

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

The Fund's total return for the five year period from September 1, 1990 to
August 31, 1995 is 151.908%.

$1,000 (1 + 1.51908) = ERV

$2,519.08 = ERV

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

The Fund's total return for the ten year period from September 1, 1985 to August
31, 1995 is 347.590%.

$1,000 (1 + 3.47590) = ERV

$4,475.90 = ERV

An initial payment of $1,000 on 09/01/85 will result in 99.206 shares. An
income distribution of $.047 and capital gain distributions of $10.417 for the
period of 09/01/85 through 08/31/95 resulted in 91.990 additional shares,
rendering a total of 191.196 shares. At 08/31/95 the net asset value of Medical
Research Investment Fund, Inc. was $23.41 per share, thereby creating a total
market value of $4,475.90 and yielding a 347.590% total return.

<ARTICLE> 6
<LEGEND>
The Annual Report of Medical Research Investment Fund, Inc. for the fiscal year
ended August 31, 1995.
</LEGEND>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 13,614,171
<INVESTMENTS-AT-VALUE> 17,733,214
<RECEIVABLES> 32,919
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 17,766,133
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 76,433
<TOTAL-LIABILITIES> 76,433
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,935,566
<SHARES-COMMON-STOCK> 755,541
<SHARES-COMMON-PRIOR> 722,919
<ACCUMULATED-NII-CURRENT> (215,599)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,850,690
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,119,043
<NET-ASSETS> 17,689,700
<DIVIDEND-INCOME> 86,398
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 336,909
<NET-INVESTMENT-INCOME> (250,511)
<REALIZED-GAINS-CURRENT> 1,851,967
<APPREC-INCREASE-CURRENT> 3,162,489
<NET-CHANGE-FROM-OPS> 4,763,945
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (995,491)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 126,893
<NUMBER-OF-SHARES-REDEEMED> (150,422)
<SHARES-REINVESTED> 56,151
<NET-CHANGE-IN-ASSETS> 32,622
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 138,826
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 338,892
<AVERAGE-NET-ASSETS> 13,882,600
<PER-SHARE-NAV-BEGIN> 18.30
<PER-SHARE-NII> (.34)
<PER-SHARE-GAIN-APPREC> 6.81
<PER-SHARE-DIVIDEND> 1.36
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 23.41
<EXPENSE-RATIO> 2.44
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>