SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check
the appropriate box: [X] Preliminary Proxy Statement [ ] Definitive Proxy
Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant
to Rule 14a-11(c) or Rule 14a-12
Medical Research Investment Fund, Inc.
(Name of Registrant as Specified in Its Charter)
Allison B. Crane
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(j)(2) [ ]
$500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3). [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transactions applies:
3) Per united price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11: (1)
4) Proposed maximum aggregate value of transactions:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
(1) Set forth the amount on which the filing fee is calculated and state how it
was determined
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Preliminary Copy
MEDICAL RESEARCH INVESTMENT FUND, INC.
August 2, 1996
Dear Stockholders:
On August 29, 1996, a Special Meeting of the Stockholders of Medical
Research Investment Fund, Inc. (the "Fund") will be held to vote on several
important proposals. Adoption of these proposals, which the Fund's Board of
Directors has approved and believe will provide significant benefits to the Fund
and its stockholders requires stockholder approval. As a stockholder, you are
entitled to cast one vote for each share that you own.
Voting Only Takes a Few Minutes - Please Respond Promptly.
Your vote is important, no matter how many shares you own. If the
required votes are not received by August 29, 1996, it will be necessary to send
further mailings to secure it. This is a costly process and is paid for by the
Fund. Therefore, you, as a stockholder, ultimately pay for the expense of a
delayed vote. Please sign and return your proxy promptly to avoid this
unnecessary expense.
The primary purpose of the Meeting is to consider proposals that the
Board of Directors believes will position the Fund to achieve higher returns for
stockholders by realizing certain economies of scale and operating efficiencies.
The anticipated effect of these proposals is to enable the Fund and its
stockholders to participate in a much larger investment portfolio with a lower
aggregate expense ratio, broader diversity of securities holdings and improved
stockholder exchange privileges. Current shareholders will not be required to
pay any sales loads on future purchases of shares.
In order to achieve these benefits, the Board of Directors has
appointed Eaton Vance Management as administrator and Eaton Vance Distributors,
Inc. as distributor of the Fund. No change is occurring in the investment focus
of the Fund, the investment adviser, or the underlying portfolio of medical and
health sciences equity securities. G/A Capital Management, Inc. will continue as
the investment adviser, and I will remain as the portfolio manager. However,
certain changes in the legal structure of the Fund require stockholder approval.
Eaton Vance, founded in 1924, advises, administers and distributes more
than 150 mutual funds investing in more than 60 different investment portfolios.
Total assets under management exceed $16 billion. The proposals to be considered
at this Meeting will have the effect of adding the Fund to the 56 mutual funds
that comprise the Eaton Vance Traditional family of funds.
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Other Proposals You are Voting On.
At the Meeting, stockholders will elect Directors and be asked to
approve auditors. Stockholders also will be asked to amend the Fund's investment
objectives and basic investment policies to clarify the management focus of the
Fund. Finally, stockholders will also be asked to amend certain fundamental
investment restrictions to modernize them consistent with current industry
standards.
THIS IS A VERY IMPORTANT MEETING. IF YOU DO NOT PLAN
TO ATTEND IN PERSON, PLEASE SIGN, DATE AND RETURN THE
ENCLOSED PROXY CARD TODAY.
The matters to be presented to the Meeting are described in detail in
the enclosed proxy statement. The Board of Directors believes that all of the
proposals are in the best interests of the Fund and its stockholders. The Board
of Directors believes that restructuring the Fund will not expose stockholders
to significant new risks and will enable them to participate in a larger, more
diversified and potentially more attractive investment portfolio and to achieve
cost savings over time.
For the Board of Directors
Samuel D. Isaly, President and Director
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YOUR BOARD OF DIRECTORS URGES YOU TO VOTE IN FAVOR OF ALL
PROPOSALS, AND LOOKS FORWARD TO RECEIVING YOUR PROXY SO YOUR
SHARES CAN BE VOTED AT THE MEETING. FOR YOUR CONVENIENCE AND TO
SPEED DELIVERY OF YOUR PROXY, PLEASE USE THE ENCLOSED POSTAGE-PAID
ENVELOPE. YOUR PROMPT RESPONSE IS APPRECIATED. THANK YOU.
==============================================================================
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MEDICAL RESEARCH INVESTMENT FUND, INC.
5847 SAN FELIPE, SUITE 4100, HOUSTON, TX 77057
Notice of Special Meeting of Stockholders
To Be Held August 29, 1996
A Special Meeting of Stockholders of Medical Research Investment Fund,
Inc. (the "Fund"), will be held at the offices of Shearman & Sterling, 599
Lexington Avenue, New York, New York on August 29, 1996, commencing at 2:00 P.M.
(Eastern time), for the following purposes:
1. To consider and act upon a proposal to adopt a new investment
policy to authorize the Fund to invest its investable assets
in a specific corresponding open-end management investment
company (the "Portfolio") having substantially the same
investment objective, policies and restrictions as the Fund,
and to supplement investment restrictions to permit such
investment.
2. To consider and act upon a proposal to authorize the Fund to
vote at a meeting of holders of interests in the Portfolio to
(A) elect a board of trustees of the Portfolio; and (B)
approve the Investment Advisory Agreement (as set forth in
Exhibit A to the accompanying Proxy Statement) between the
Portfolio and its investment adviser, G/A Capital Management,
Inc.
3. To fix the number of Directors at six, and to elect a Board
of Directors until their successors are elected and
qualified.
4. To ratify or reject the selection of Tait, Weller & Baker as
the independent certified public accountants to be employed by
the Fund to sign or certify financial statements which may be
filed by the Fund with the Securities and Exchange Commission
in respect of all or any part of its current fiscal year.
5. To consider and act upon a proposal to eliminate, reclassify
and amend the Fund's investment objectives and certain of the
Fund's fundamental investment policies (as set forth in
Exhibit B to the accompanying Proxy Statement).
6. To consider and act upon any matters incidental to the
foregoing purposes or any of them, and any other matters which
may properly come before said meeting or any adjourned session
thereof.
These items are discussed in greater detail in the following pages.
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The meeting is called pursuant to the By-Laws of the Fund. The Board of
Directors of the Fund have fixed the close of business on July 24, 1996 as the
record date for the determination of the stockholders of the Fund entitled to
notice of and to vote at the meeting and any adjournments thereof.
SAMUEL D. ISALY
President
August 2, 1996
IMPORTANT - Stockholders can help the Board of Directors of their Fund avoid the
necessity and additional expense to the Fund of further solicitations to insure
a quorum by promptly returning the enclosed proxy. The enclosed addressed
envelope requires no postage if mailed in the United States and is intended for
your convenience.
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MEDICAL RESEARCH INVESTMENT FUND, INC.
5847 San Felipe, Suite 4100
Houston, TX 77057
August 2, 1996
PROXY STATEMENT
A proxy is enclosed with the foregoing Notice of a Special Meeting of
Stockholders of Medical Research Investment Fund, Inc. (the "Fund"), to be held
August 29, 1996 for the benefit of stockholders who do not expect to be present
at the meeting. This proxy is solicited on behalf of the Board of Directors of
the Fund, and is revocable by the person giving it prior to exercise by a signed
writing filed with the President of the Fund, or by executing and delivering a
later dated proxy, or by attending the meeting and voting your shares in person.
Each proxy will be voted in accordance with its instructions; if no instruction
is given, an executed proxy will authorize the persons named as attorneys, or
any of them, to vote in favor of each such matter. This proxy material is being
mailed to stockholders on or about July 30, 1996.
The Board of Directors of the Fund has fixed the close of business July
24, 1996, as the record date for the determination of the stockholders entitled
to notice of and to vote at the meeting and any adjournments thereof.
Stockholders at the close of business on the record date will be entitled to one
vote for each share held. As of July 24, 1996, there were shares of capital
stock of the Fund outstanding. As of such date, the following stockholders
beneficially owned the following number of shares of the Fund (at least 5% of
outstanding shares): . To the knowledge of the Fund, no other person owns (of
record or beneficially) more than 5% of its outstanding shares.
The Board of Directors of the Fund knows of no business other than that
mentioned in Items 1 through 5 of the Notice of the meeting which will be
presented for consideration. If any other matters are properly presented, as to
such matters, it is the intention of the persons named as attorneys in the
enclosed proxy to vote the proxies in accordance with their judgment.
PROPOSAL 1. TO APPROVE A NEW INVESTMENT POLICY
AND TO SUPPLEMENT INVESTMENT RESTRICTIONS TO
PERMIT A NEW INVESTMENT STRUCTURE
The Board of Directors of the Fund has approved, and is submitting to
the stockholders of the Fund for approval, the adoption of a new investment
policy for the Fund and the addition of a fundamental investment provision to
permit the Fund to invest its "investable assets"
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(portfolio securities and cash) in a corresponding open-end management
investment company, the Worldwide Health Sciences Portfolio (the "Portfolio"),
having substantially the same investment objective, policies and restrictions as
the Fund. The new investment policy and change in the investment restrictions
for the Fund are subject to approval by the Fund's stockholders. If this
Proposal is approved, the Board of Directors will direct that the Fund's
investable assets be invested in the Portfolio, thereby converting the Fund to
the Hub and Spoke(R) structure. (Hub and Spoke(R) is a registered service mark
of Signature Financial Group, Inc.) This will permit the Fund to become a member
of the Eaton Vance family of funds, as discussed in this proxy statement.
Proposals 1, 2A, 2B and 3 are interrelated and will only be implemented if all
are adopted.
New Investment Policy
The Board of Directors recommends that the stockholders of the Fund
approve a new investment policy for the Fund, i.e., to invest its investable
assets in the Portfolio. The Portfolio is a trust which, like the Fund, is
registered as an open-end management company under the Investment Company Act of
1940 (the "Act"). The Portfolio has substantially the same investment objective,
policies and restrictions as the Fund if shareholders approve Proposal 5. G/A
Capital Management, Inc. is currently the investment adviser of the Fund and
will be the investment adviser of the Portfolio if Proposal 2(B) is approved.
Accordingly, by investing in the Portfolio, the Fund would seek its investment
objective through its investment in the Portfolio, rather than through direct
investments in securities. The Portfolio in turn would invest in securities in
accordance with its objective, policies and restrictions.
The Portfolio was organized as a trust under New York law on March 26,
1996. The interests in the Portfolio are not available for purchase by members
of the general public.
By investing the Fund's assets in the Portfolio, the Board of Directors
expects that the Eaton Vance organization ("Eaton Vance"), discussed below, will
be in a position to sponsor other collective investment vehicles that could
invest in the Portfolio. Eaton Vance has employed personnel to develop such new
vehicles. Initially, another domestic and an off-shore fund will be investing in
the Portfolio on or about the date this Proposal is implemented. To the extent
that these strategies are successful, the new Hub and Spoke structure could
enable the Fund to participate in a larger, more diversified and potentially
more attractive investment portfolio. The Fund would be in a position to
benefit, directly or indirectly, from certain economies of scale, based on the
premise that certain of the expenses of operating an investment portfolio are
relatively fixed and that a larger investment portfolio may eventually achieve a
lower ratio of operating expenses to average net assets. The Board of Directors
also believes that investing in the Portfolio may produce other benefits
resulting from such increased asset size such as the ability to purchase
securities in larger amounts than the Fund currently is able to acquire. See the
pro forma expense tables and the discussion provided below. There can be no
assurance that these anticipated benefits will be realized.
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To the extent that the Fund invests its investable assets in the
Portfolio, the Fund would no longer require investment advisory services. For
this reason, if stockholders of the Fund approve the addition to the investment
restrictions and adopt the new investment policy described in this Proposal, and
the Fund invests its investable assets in the Portfolio, the existing investment
advisory agreement of the Fund with the Adviser will be terminated. Currently,
under the existing investment advisory agreement, the Fund pays the Adviser 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.
The Portfolio has an investment advisory agreement with respect to
Portfolio assets pursuant to which G/A will be paid a monthly fee calculated in
the same manner as the fee currently being paid by the Fund, as set forth above,
with two exceptions. First, fee reductions will occur when net assets reach $500
million pursuant to the following schedule:
Annual
Average Daily Net Assets Asset Rate
$500 million but less than $1 billion................ 0.70%
$1 billion but less than $1.5 billion................ 0.65%
$1.5 billion but less than $2 billion................ 0.60%
$2 billion but less than $3 billion.................. 0.55%
$3 billion and over.................................. 0.50%
Second, the foregoing fee will be subject to a performance fee adjustment, as
follows:
After 12 months, the basic advisory fee is subject to upward
or downward adjustment depending upon whether, and to what extent, the
investment performance of the Portfolio differs by at least one
percentage point from the record of the Standard & Poor's Index of 500
Common Stocks over the same period. Each percentage point difference is
multiplied by a performance adjustment rate of 0.025%. The maximum
adjustment plus/minus is 0.25%. One twelfth (1/12) of this adjustment
is applied each month to the average daily net assets of the Portfolio
over the entire performance period. This adjustment shall be based on a
rolling period of up to and including the most recent 36 months.
Performance shall be total return as computed under Rule 482 under the
Securities Act of 1933.
The effect of this performance fee adjustment is that after one year the
advisory fee of the Portfolio could be higher or lower than what the advisory
fee of the Fund would have been.
Upon exchange of the investable assets of the Fund for an interest in
the Portfolio, the Fund will retain the services of Eaton Vance Management
("EVM"), 24 Federal Street, Boston, MA 02110 under a management agreement to act
as administrator of the Fund. Capstone Asset Management Company ("Capstone"),
5847 San Felipe, Suite 4100, Houston, Texas 77507, the
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Fund's current administrator, has consented to this change. Under this
agreement, EVM would provide the Fund with general office facilities and
supervise the overall administration of the Fund. For these services EVM will
receive .25% of average daily net assets, which fee declines if assets grow to
over $500 million. EVM will also receive a fee at the same rate on Portfolio net
assets for administrative services provided to the Portfolio pursuant to an
administration agreement. The administration contract with the Fund's current
administrator, Capstone, will be terminated. Such contract has a fee of .25% of
average daily net assets which does not decline with asset growth. In addition,
Capstone receives $2,000 per month for bookkeeping services for which Eaton
Vance would not be separately compensated.
EVM is a Massachusetts business trust and part of the Eaton Vance
organization. Eaton Vance, its affiliates and its predecessor companies have
been managing assets of individuals and institutions since 1924, and managing
investment companies since 1931. Eaton Vance acts as investment adviser to
investment companies and various individual and institutional clients with
assets under management of over $16 billion. EVM provides administrative and
management services to all of the Eaton Vance funds, as well as The Wright
Managed Income Trust, The Wright Managed Equity Trust, The Wright EquiFund
Equity Trust and The Wright Managed Blue Chip Series Trust. The Wright group of
funds has assets of over $1 billion. Eaton Vance is a wholly-owned subsidiary of
Eaton Vance Corp. ("EVC"), a publicly held holding company, which through its
subsidiaries and affiliates, is primarily engaged in investment management,
administration, and marketing activities. Eaton Vance has utilized the Hub and
Spoke structure since 1992 and currently sponsors over 60 Hub funds and over 150
Spoke funds. The Fund, therefore, would become part of the Eaton Vance family of
funds with an exchange privilege for existing fund shareholders that includes 56
different mutual funds. See "Expanded Exchange Privilege Below".
The Board of Directors has also approved the replacement of Capstone
Asset Planning Company with Eaton Vance Distributors, Inc. ("EVD") as
distributor of the Fund. Capstone has consented to this change. EVD intends to
sponsor both domestic and off-shore investment companies which will invest in
the Portfolio in the fall of 1996. EVD, which has over 100 full-time employees,
acts as Principal Underwriter for over 150 investment companies (or series
thereof), each of which makes a continuous offering of shares. EVD has an
international distribution network and substantial financial resources. EVD has
dealer agreements with over 1,800 U.S. registered broker-dealers, banks and
other financial intermediaries.
EVD also acts as the Placement Agent for the Portfolio. The Placement
Agent Agreement is renewable annually by the Portfolio's Board of trustees
(including a majority of the independent trustees), may be terminated on sixty
days' notice either by such trustees or by vote of a majority of the outstanding
voting securities of the Portfolio or on six months' notice by the Placement
Agent and is automatically terminated upon assignment.
The Portfolio and the Fund, as the case may be, will each be
responsible for all respective costs and expenses not expressly stated to be
payable by the Adviser under the investment advisory agreement with the
Portfolio, by EVM under its administration agreement
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with the Portfolio, or by EVM under its management agreement with the Fund. Such
costs and expenses to be borne by the Portfolio and the Fund, as the case may
be, include, without limitation: custody and transfer agency fees and expenses,
including those incurred for determining net asset value and keeping accounting
books and records; expenses of pricing and valuation services; the cost of share
certificates; membership dues in investment company organizations; expenses of
acquiring, holding and disposing of securities and other investments; fees and
expenses of registering under the securities laws and the governmental fees;
expenses of reporting to stockholders and investors; proxy statements and other
expenses of stockholders' or investors' meetings; insurance premiums; printing
and mailing expenses; interest, taxes and corporate fees; legal and accounting
expenses; compensation and expenses of trustees or Directors, as the case may
be, not affiliated with EVM or G/A; and investment advisory fees. The Portfolio
and the Fund will also each bear expenses incurred in connection with litigation
in which the Portfolio or the Fund, as the case may be, is a party and any legal
obligation to indemnify its respective officers and trustees or Directors, as
the case may be, with respect thereto.
The following table shows the actual expenses of the Fund for the six
months ended February 29, 1996, and a pro forma adjustment thereof assuming the
Fund had invested its investable assets in the Portfolio for the entire period
then ended. The pro forma adjustment does not include the estimated costs of
this proxy solicitation because Eaton Vance will bear such costs, but assumes a
waiver of Fund management fees of .15% of average daily net assets. The pro
forma adjustment assumes that: (i) there were no holders of interests in the
Portfolio other than the Fund; and (ii) the average daily net assets of the Fund
and the Portfolio were equal to the actual average daily net assets of the Fund
during the period.
FUND OPERATING EXPENSES FOR THE SIX MONTHS
ENDED FEBRUARY 29, 1996
(annualized as a percent of average daily net assets)
Pro Forma (assuming that
the average
daily net assets invested
by the Fund
in the Portfolio were
$29,060,000 )
Actual Fund Portfolio Total
Annual Fund Operating Expenses
Investment advisory (and
administration) fees 1.23% 0.10% 1.23% 1.33%
Rule 12b-1 Fees 0.25% 0.25% 0.00% 0.25%
Other expenses
0.53% 0.27% 0.15% 0.42%
----- ----- ----- -----
Total Fund Operating Expenses 2.01% 0.62% 1.38% 2.00%
---- ----- ----- -----
Assuming that the Fund was the only holder of an interest in the
Portfolio and that the Fund was fully invested therein, the net asset value per
share, distributions per share and net
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investment income per share of the Fund would have been about the same on a pro
forma basis as the actual net asset value, distributions and net investment
income per share of the Fund during the period indicated. If the Portfolio's
assets grew so that average daily net assets were $150 million, the projected
total operating expense ratio would be reduced to 1.88%.
Eaton Vance also has agreed to maintain the expenses of the Fund to
ensure they do not exceed 2.0% of average daily net assets through August 31,
1999. Currently, Capstone and G/A have agreed to maintain expenses at 2.50% of
average daily net assets. Through August 31, 1995, the Fund historically has had
an annual expense ratio of no lower than 2.44% since inception.
In recommending that the stockholders authorize the conversion of the
Fund to the Hub and Spoke structure, the Board of Directors has taken into
account and evaluated the possible effects which increased assets in the
Portfolio may have on the expense ratio of the Fund. There is, of course, no
assurance that the net assets of the Portfolio will grow. After carefully
weighing the costs involved against the anticipated benefits of converting the
Fund to the Hub and Spoke structure, the Board of Directors recommends that the
stockholders of the Fund vote to approve Proposal 1.
If Proposal 1 is approved, the Board of Directors expects to implement the
investment policy for the Fund by causing the Fund to exchange its investable
assets (portfolio securities and cash) as well as certain other assets
(including receivables for securities sold from the portfolio and receivables
for interest on portfolio securities) for an interest in the Portfolio. The
proposed transaction will not alter the rights and privileges of stockholders of
the Fund. The value of a stockholder's investment in the Fund will be the same
immediately after the Fund's investment in the Portfolio as immediately before
that investment. Of course, the value of a stockholder's investment in the Fund
may fluctuate thereafter.
The Fund would be able to withdraw its investment in the Portfolio at
any time, if the Directors determine that it is in the best interests of the
Fund to do so. Upon any such withdrawal, the Directors would consider what
action might be taken, including the investment of the investable assets of the
Fund in another pooled investment entity having substantially the same
investment objective as the Fund or the retention of another investment adviser
to manage the Fund's assets in accordance with its investment policies as is
presently the case.
Description of the Portfolio
The investment objective of the Portfolio is the same as the objective
of the Fund, assuming Proposal 5 is approved. The Portfolio seeks to achieve its
investment objective through investments limited to the types of securities in
which the Fund is authorized to invest. The investment restrictions and policies
of the Portfolio are such that the Portfolio may not invest in any security or
engage in any transaction which would not be permitted by the investment
restrictions and policies of the Fund if the Fund were to invest directly in
such a security or engage directly in such a transaction, again assuming
Proposal 5 is approved.
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If the proposed investment in the Portfolio is implemented, the Fund's
assets would no longer be directly invested in a portfolio of securities but
would rather be invested in the securities of a single issuer, i.e., the
Portfolio, which is a New York trust, and is registered as an open-end
management investment company under the Act. Nevertheless, inasmuch as the
assets of the Portfolio would be directly invested in a portfolio of securities,
the Fund believes there are no material risks of investing in the Portfolio that
are different from those to which stockholders of the Fund are currently
subject.
The approval of the Portfolio's investors (i.e., holders of interests
in the Portfolio, such as the Fund) would be required to change certain of its
investment restrictions; however, any change in nonfundamental investment
policies would not require such approval. For a discussion of when Fund
stockholders would be requested to vote on Portfolio matters, see page below.
Like the Fund, the Portfolio determines its net asset value once on
each day the New York Stock Exchange (the "Exchange") is open for trading, as of
the close of regular trading on the Exchange. The Portfolio's net asset value is
computed by determining the value of the Portfolio's total assets (the
securities it holds plus any cash or other assets, including interest accrued
but not yet received), and subtracting all of the Portfolio's liabilities
(including accrued expenses). The Portfolio will value its assets in the same
manner as the Fund.
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 traded on
more than one exchange, the latest price on the exchange where the stock is
primarily traded will be used. 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 Portfolio's net asset value may not take place
contemporaneously with the times noted above for determining the prices of
certain 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 Portfolio's net asset value is calculated, such
securities will be valued at fair value as determined in good faith by the
Trustees. 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 under the supervision and responsibility of the Board of Trustees.
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 Portfolio (including restricted securities) are
valued at fair value as determined in good faith under the supervision and
responsibility of the Board of Trustees. 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.
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The Fund's net asset value is determined at the same time and on the
same days that the net asset value of the Portfolio is calculated. Net asset
value per share is computed by determining the value of the Fund's assets (its
investment in the Portfolio and other assets), subtracting all of the Fund's
liabilities (including accrued expenses), and dividing the result by the total
number of shares outstanding at such time.
Interests in the Portfolio have no pre-emptive or conversion rights,
and are fully paid and non-assessable, except as set forth below. The Portfolio
normally will not hold meetings of holders of such interests except as required
under the Act. The Portfolio would be required to hold a meeting of holders in
the event that at any time less than a majority of the trustees holding office
had been elected by holders. The trustees of the Portfolio continue to hold
office until their successors are elected and have qualified. Holders holding a
specified percentage interest in the Portfolio may call a meeting of holders in
the Portfolio for the purpose of removing any trustee. A trustee of the
Portfolio may be removed upon a majority vote of holders in the Portfolio
qualified to vote in the election. The Act requires the Portfolio to assist its
holders in calling such a meeting. Upon liquidation of the Portfolio, holders in
the Portfolio would be entitled to share pro rata in the net assets of the
Portfolio available for distribution to holders.
Each holder in the Portfolio is entitled to vote in proportion to its
share of the interests in the Portfolio. Except as described below, whenever the
Fund is requested to vote on matters pertaining to the Portfolio, the Fund will
hold a meeting of its stockholders and will cast its votes proportionately as
instructed by Fund stockholders.
Subject to applicable statutory and regulatory requirements, the Fund
would not request a vote of its stockholders with respect to (a) any proposal
relating to the Portfolio, which proposal, if made with respect to the Fund,
would not require the vote of the stockholders of the Fund, or (b) any proposal,
with respect to the Portfolio that is identical, in all material respects, to a
proposal that has previously been approved by stockholders of the Fund. Any
proposal submitted to holders in the Portfolio, and that is not required to be
voted on by stockholders of the Fund, would nonetheless be voted on by the
Directors of the Fund.
Investments in the Portfolio may not be transferred, but a holder may
withdraw all or any portion of its investment at any time at net asset value.
Each holder in the Portfolio, including the Fund, will be liable for all
obligations of the Portfolio. However, the risk of a holder in the Portfolio
incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance exists, and the Portfolio
itself is unable to meet its obligations. Thus, stockholders of the Fund should
not experience losses from the new investment structure itself.
The Portfolio has its own board of trustees, including a majority of
trustees who are not "interested" persons of the Portfolio as defined in the
Act. The present trustees of the Portfolio are identical to the proposed
Directors of the Fund and are listed in Proposal 2A of this Proxy Statement.
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Tax Considerations
The Internal Revenue Service has issued private letter rulings to
numerous investment companies, including EVM sponsored funds, to the effect that
this type of transaction will not result in recognition of capital gains. Such
rulings are not binding on the Service with respect to the Fund. Nevertheless,
the Fund has received an opinion of tax counsel, Brown & Wood, to the effect
that, although there is no judicial authority directly on point, the
contribution of its assets to the Portfolio in exchange for an interest in the
Portfolio will not result in the recognition of gain or loss to the Fund for
federal income tax purposes pursuant to Internal Revenue Code Section 721 and
related authorities. The Fund has not applied for a ruling from the Internal
Revenue Service to the same effect and legal opinions are not binding on the
Service. If it were determined that the transaction was taxable, the Fund would
realize and recognize gain in an amount equal to the appreciation (undiminished
by losses) in the transferred assets as of the date of the transfer (the "deemed
gain"). If the Fund did not make a distribution to its stockholders equal to all
or a portion of the deemed gain, the Fund could be subject to tax (plus interest
and penalties) on all or a portion of the deemed gain. Alternatively, if the
Fund were to make a distribution to its stockholders in an amount equal to all
or a portion of the deemed gain, then its stockholders at the time of such
distribution would be taxed on the amount distributed and the Fund could be
required to pay penalties and/or interest. Depending on the amount and nature of
the deemed gain and the Fund's previous distributions of gains with respect to
the same taxable year, the Fund might be required to make the distribution
described in the preceding sentence in order to preserve its qualification under
the Internal Revenue Code (the "Code") as a regulated investment company.
As of February 29, 1996, the gross unrealized appreciation in the
assets of the Fund on a Federal Income tax basis was $8,011,579. The amount of
gross unrealized appreciation in the assets of the Fund at the time of transfer
of the Fund's assets to the Portfolio may be more or less than the amount
indicated in the preceding sentence, and no assurance can be given as to the
magnitude of such amount at the time of such transfer.
As a regulated investment company under the Code, the Fund does not pay
federal income or excise taxes to the extent that it distributes to stockholders
its net investment income and net realized capital gains in accordance with the
timing requirements imposed by the Code. As a partnership under the Internal
Revenue Code, the Portfolio does not pay federal income or excise taxes.
Provided the Fund qualifies as a regulated investment company for federal income
tax purposes and the Portfolio is treated as a partnership for federal tax
purposes, neither is liable for state income, corporate excise tax or franchise
tax.
Proposed Supplement to Investment Restrictions
Certain of the Fund's investment restrictions must be amended, eliminated
or reclassified in order for the Fund to invest its investable assets in the
Portfolio. (See investment restrictions (1), (4), (8), (11), (12), (14), (15)
and (17) in Exhibit B.) The Board of Directors of the Fund
11
<PAGE>
has approved, subject to a stockholder vote, a supplemental provision to be
added to the investment restrictions of the Fund to permit it to invest its
investable assets in the Portfolio.
The Board of Directors proposes that these restrictions and all other
investment restrictions be supplemented with an additional fundamental
investment provision as follows: "(18) Notwithstanding the investment policies
and restrictions of the Fund, the Fund may invest its assets in an open-end
management investment company with substantially the same investment objective,
policies and restrictions as the Fund."
The additional investment provision would also apply to any conflicting
nonfundamental investment policies. (The current investment restrictions would
also be revised if Proposal 5 is approved.)
Expanded Exchange Privilege
Because the Fund would become a member of the Eaton Vance family of
funds if this Proposal is approved, Fund shareholders would be able to freely
exchange into the following mutual funds without payment of a sales charge or
fund exchange fee:
12
<PAGE>
ELIGIBLE EXCHANGE PRIVILEGE FUNDS
Equity Funds
EV Traditional Asian Small Companies Fund EV Traditional Emerging Markets Fund
EV Traditional Information Age Fund EV Traditional Investors Fund EV Traditional
Greater China Growth Fund EV Traditional Greater India Fund EV Traditional
Growth Fund EV Traditional Special Equities Fund EV Traditional Stock Fund EV
Traditional Tax-Managed Growth Fund EV Traditional Total Return Fund
Income Funds
Eaton Vance Income Fund of Boston
EV Traditional Government Obligations Fund
Money Market Funds
Eaton Vance Cash Management Fund
Eaton Vance Tax Free Reserves
Municipal Bond Funds
Eaton Vance Municipal Bond Fund L.P. EV Traditional Alabama Municipals Fund EV
Traditional Arizona Municipals Fund EV Traditional Arkansas Municipals Fund EV
Traditional California Municipals Fund EV Traditional Colorado Municipals Fund
EV Traditional Connecticut Municipals Fund EV Traditional California Limited
Maturity
Municipals Fund
EV Traditional Connecticut Limited Maturity
Municipals Fund
EV Traditional Florida Insured Municipals
Fund
EV Traditional Florida Limited Maturity
Municipals Fund
Municipal Bond Funds (Continued)
EV Traditional Florida Municipals Fund EV Traditional Georgia Municipals Fund EV
Traditional Hawaii Municipals Fund EV Traditional High Yield Municipals Fund EV
Traditional Kansas Municipals Fund EV Traditional Kentucky Municipals Fund EV
Traditional Louisiana Municipals Fund EV Traditional Maryland Municipals Fund EV
Traditional Massachusetts Municipals Fund EV Traditional Michigan Limited
Maturity
Municipals Fund
EV Traditional Michigan Municipals Fund
EV Traditional Minnesota Municipals Fund
EV Traditional Mississippi Municipals Fund
EV Traditional Missouri Municipals Fund
EV Traditional National Limited Maturity
Municipals Fund
EV Traditional National Municipals Fund
EV Traditional New Jersey Limited Maturity
Municipals Fund
EV Traditional New Jersey Municipals Fund
EV Traditional New York Limited Maturity
Municipals Fund
EV Traditional New York Municipals Fund
EV Traditional North Carolina Municipals
Fund
EV Traditional Ohio Limited Maturity
Municipals Fund
EV Traditional Ohio Municipals Fund
EV Traditional Oregon Municipals Fund
EV Traditional Pennsylvania Municipals Fund
EV Traditional South Carolina Municipals
Fund
EV Traditional Tennessee Municipals Fund
EV Traditional Texas Municipals Fund
EV Traditional Virginia Municipals Fund
EV Traditional West Virginia Municipals Fund
The Fund can change this exchange privilege upon 60 days notice to shareholders.
The new privilege is substantially broader than the current one provided by the
Capstone family of funds which only includes the following five funds: Capstone
Growth Fund, Inc., Capstone Government Income Fund, Capstone Intermediate
Government Fund, Capstone Nikko Japan Fund and Capstone New Zealand Fund.
In addition, shareholders of record on the date of the conversion will
be permitted to purchase additional shares of the Fund without a sales charge
for as long as they remain Fund shareholders.
Evaluation by the Fund's Directors
The Board of Directors of the Fund has carefully considered this
Proposal and its potential benefits, which will in effect authorize the
conversion of the Fund to the Hub and Spoke structure. In this regard, the Board
believes that the Portfolio will attract other collective investment vehicles
which will have investors who would not otherwise be investors in the Fund.
Investors in the Portfolio may include other established investment companies
sponsored by Eaton Vance with substantially the same investment objectives and
policies as the Fund. By adopting the Hub and Spoke structure the Fund can
participate in a larger, more diversified and potentially more attractive
investment portfolio. By this pooling of assets the Portfolio is likely, over
time, to achieve a variety of operating economies. The larger asset size of the
Portfolio, in the Board's view, can be expected to permit the purchase of
investments in larger amounts than the Fund currently is able to purchase, which
may reduce certain operating expenses indirectly borne by the Fund's
stockholders. In general, to the extent that certain operating costs are
relatively fixed and currently are borne by the Fund alone, these expenses would
instead be borne in whole or in part by the Portfolio and shared by the Fund's
stockholders with other investors in the Portfolio. These portfolio benefits and
economies of scale would be likely only if assets of the Portfolio were to grow
through investments in the Portfolio by entities in addition to the Fund. There
can be no assurance that such benefits will be realized.
The Board also considered the comparative skill, experience and
resources of Eaton Vance and Capstone in serving as administrator and
distributor of the Fund especially in the proposed revised structure. The Board
recognized that EVM and G/A could benefit from the proposed structure because
such structure could enable them to increase fee bearing assets through the
development of new vehicles to attract investor assets and that G/A and Capstone
will receive the benefits described in "Related Transactions" below.
The Board of Directors of the Fund believes that over time the
aggregate per share expenses of the Fund and the Portfolio should be less than
the expenses that would be incurred by the Fund if it continued to retain the
services of an investment adviser and to invest directly in securities although
there can be no assurance that such expense savings will be realized. The Board
also considered risks associated with an investment in the Portfolio. The Board
of
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<PAGE>
Directors believes that the Portfolio's investment policies and restrictions
involve substantially the same risks as are associated with the Fund's direct
investment in securities.
The Board also considered the expanded exchange privilege which will be
available to shareholders. The number of available funds that could be exchanged
into will increase from 5 to 56. Although the Eaton Vance family of funds does
not have funds with identical investment objectives and policies to the Capstone
funds, the Board believes the available choices are a substantial improvement.
Based on their consideration, analysis and evaluation of the above
factors and other information deemed by them to be relevant to this Proposal,
the Fund's Board of Directors (including a majority of the Independent
Directors) have concluded that it would be in the best interests of the Fund and
its stockholders to approve a new investment policy and supplement to the
fundamental investment restrictions to enable the Fund to invest its investable
assets in the Portfolio.
Vote Required to Approve Proposal 1
Approval by the stockholders of the Fund of the new investment policy
and supplement to its fundamental investment restrictions requires the
affirmative vote of a majority of the outstanding voting securities of the Fund
which term as used in this Proxy Statement means the vote of the lesser of (a)
more than 50% of the outstanding shares of the Fund, or (b) 67% of the shares of
the Fund present at the meeting if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy at the
meeting.
The Board of Directors of the Fund recommends that the stockholders of
the Fund vote to approve this Proposal. Implementation of this Proposal is
dependent upon approval of Proposals 2 and 5. In the event the stockholders of
the Fund fail to approve this Proposal, the Board would continue to retain the
Adviser as the investment adviser for the Fund to manage the Fund's assets
through direct investments in securities, and the Fund's existing investment
advisory agreement would continue in effect in its current form.
PROPOSAL 2. AUTHORIZATION TO VOTE AT MEETINGS OF
PORTFOLIO INVESTORS
Stockholders of the Fund are being asked to vote on certain matters
with respect to the Portfolio because the Portfolio is expected to call a
meeting of its holders (including the Fund) to vote on such matters.
Specifically, it is expected that the Portfolio will ask its holders to vote at
such meeting to:
(A) Elect a board of trustees of the Portfolio; and
(B) Approve the Investment Advisory Agreement as set forth in
Exhibit A to this Proxy Statement between the Portfolio and
its investment adviser, G/A Capital Management, Inc.
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<PAGE>
The Fund will cast its votes at the meeting of holders of interests in
the Portfolio on each matter in the same proportion as the votes cast by the
Fund's stockholders. Based on the Fund's current net assets, it is anticipated
that the Fund will hold over 99% of the interests in the Portfolio when the
conversion occurs.
PROPOSAL 2(A). ELECTION OF TRUSTEES OF THE PORTFOLIO
It is the present intention that the enclosed proxy will, unless
authority to vote for election of one or more nominees is specifically withheld
by executing the proxy in the manner stated thereon, be used for the purpose of
authorizing the Fund to vote in favor of the election of the following six
nominees indicated below as trustees of the Portfolio, to hold office until
their successors are elected and qualified. Please note that each of the
following nominees is proposed to serve as a Director of the Fund. The nominee
whose name is preceded by an asterisk(*) is an "interested person" (as defined
in the Act), by reason of his affiliation with the Eaton Vance organization.
Name and Principal Occupations Over
Other Information Past Five Years
Donald R. Dwight Mr. Dwight is President of Dwight Partners, Inc.
Age: 65; has been a (a corporate relations and communications company) Board
trustee since founded in 1988; Chairman of the of Newspapers of New
June 24, 1996. England, Inc., since 1982. He also servesas a Director,
Managing General Partner, Director General Partner, or
Trustee of seventy-nine investment companies advised or
administered by EVM or its subsidiary, Boston
Management and Research
("BMR").
*James B. Hawkes President of the Portfolio and a Trustee since inception.
Age 54; has been a Executive Vice President of Eaton Vance Corp. ("EVC"),
trustee since EVM and (the parent of EVM), EVM and EV, Inc.(a sister
March 26, 1996. subsidiary of EVM) and a Director of EVC and EV, Inc. He
also serves as a Director or Trustee and/or Officer of
seventy-two investment companies advised or administered
by EVM or BMR.
Samuel L. Hayes, III Dr. Hayes is the Jacob H. Schiff Professor of Investment
Age: 61; has been a Banking at Harvard Graduate School of Business
trustee since Administration. He also serves as a Director, Managing
June 24, 1996. General Partner, Director General Partner, or Trustee of
eighty-two investment companies advised or administered
by EVM or BMR.
Norton H. Reamer President and a Director of United Asset Management
Age: 60; has been a Corporation, Director, Chairman and President of The Regis
trustee since Fund, Inc., an open-end mutual fund. He also serves as a
June 24, 1996. Director, Managing General Partner, Director General
Partner, or Trustee of seventy-nine investment companies.
advised or administered by EVM or BMR
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<PAGE>
John L. Thorndike Director of Fiduciary Company Incorporated in Boston,
Age 69; has been a Massachusetts; a Trustee of the Boston Symphony Orchestra.
trustee since He also serves as a Director, Managing General Partner,
June 24, 1996. Director General Partner, or Trustee of seventy-nine
investment companies advised or administered by EVM or
BMR.
Jack L. Treynor An investment adviser and consultant. Associate Professor
Age: 66; has been a of Finance, Loyola-Marymount University, Los Angeles,
trustee since California (until May 1989). Mr. Treynor is also a member
June 24, 1996. of the Advisory Board of the Institute of Quantitive
Research in Finance. He also serves as a Director,
Managing General Partner, Director General Partner,
or Trustee of seventy-seven investment companies
advised or administered by EVM or BMR.
As of July 16, 1996, no current or former trustee or officer of the
Portfolio, individually or as a group, directly or indirectly beneficially owned
more than 1% of the Fund's shares then outstanding.
It is not expected that any of the nominees referred to above will
decline or become unavailable for election, but in case this should happen, the
Portfolio may vote for a substitute nominee or nominees (unless authority to
vote for election of all nominees is specifically withheld by executing the
proxy in the manner stated thereon).
Messrs. Thorndike (Chairman), Hayes and Reamer serve as members of the
Special Committee of the board of trustees of the Portfolio. The purpose of the
Special Committee is to consider, evaluate and make recommendations to the full
Board concerning (i) all contractual arrangements with service providers to the
Portfolio, including advisory, administrative, custodial and fund accounting
services, and (ii) all other matters in which Eaton Vance, G/A or their
affiliates have any actual or potential conflict of interest with the Portfolio
or its interestholders.
The Nominating Committee is comprised of four trustees who are not
"interested persons" as that term is defined under the Act. The Committee has
four-year staggered terms, with one member rotating of the committee to be
replaced by another noninterested trustee. Messrs. Hayes (Chairman), Reamer,
Thorndike and Treynor are currently serving on the committee. The purpose of the
Committee is to recommend to the Board nominees for the position of
noninterested trustee and to assure that at least a majority of the Board of
trustees is independent of G/A, Eaton Vance and their affiliates. The Board
will, when a vacancy exists or is anticipated, consider any nominee for trustee
recommended by a shareholder if such recommendation is submitted to the board in
writing and contains sufficient background information concerning the individual
to enable a proper judgment to be made as to such individual's qualifications.
Messrs. Treynor (Chairman) and Dwight serve as members of the Audit
Committee of the board of trustees of the Portfolio. The Audit Committee's
functions include making recommendations to the board regarding the selection of
the independent public accountants, and reviewing with such accountants and the
Treasurer of the Portfolio matters relative to trading
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<PAGE>
and brokerage policies and practices, accounting and auditing practices and
procedures, accounting records, internal accounting controls, and the functions
performed by the custodian, transfer agent and dividend disbursing agent of the
Portfolio.
The fees and expenses of those trustees of the Portfolio who are not
members of the Eaton Vance organization or G/A will be paid by the Portfolio.
For the fiscal year ended October 31, 1996, the proposed Directors of the Fund
will have earned the following compensation in their capacities as trustees of
the Portfolio and other funds in the Eaton Vance fund complex:
Retirement
Benefit Accrued Total
from Compensation
Name Complex Fund Complex(1)
Donald R. Dwight $ 35,000 $ 135,000
Samuel L. Hayes, III 33,750 150,000
Norton H. Reamer -0- 135,000
John L. Thorndike -0- 140,000
Jack L. Treynor -0- 140,000
(1) The Eaton Vance fund complex consists of 211 registered investment
companies or series thereof.
Trustees of the Portfolio that are not affiliated with Eaton Vance may
elect to defer receipt of all or a percentage of their annual fees in accordance
with the terms of a Deferred Compensation Plan (the "Plan"). Under the Plan, an
eligible trustee may elect to have his deferred fees invested by a Portfolio in
the shares of one or more funds in the Eaton Vance Family of Funds, and the
amount paid to the trustees under the Plan will be determined based upon the
performance of such investments. Deferral of trustees' fees in accordance with
the Plan will have a negligible effect on a Portfolio's assets, liabilities, and
net income per share, and will not obligate the Portfolio to retain the services
of any trustee or obligate the Portfolio to pay any particular level of
compensation to the trustee.
It is estimated that the trustees, as a group, will receive
approximately $175 in compensation from the Fund and $450 from the Portfolio in
the next fiscal year of operations. Mr. Hawkes, a trustee of the Portfolio who
is affiliated with EVM is compensated by EVM and does not and will not receive
fees or renumeration directly from the Fund or the Portfolio.
The Board of Directors of the Fund recommends that the stockholders of
the Fund vote to authorize the Fund to elect each nominee as a trustee of the
Portfolio at the meeting of the holders of interests in the Portfolio.
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<PAGE>
PROPOSAL 2(B). APPROVAL OF THE
INVESTMENT ADVISORY AGREEMENT WITH
G/A CAPITAL MANAGEMENT, INC.
G/A Capital Management, Inc. ("G/A"), the Adviser of the Fund, will act
as investment adviser to the Portfolio pursuant to an Investment Advisory
Agreement between G/A and the Portfolio, to be dated the date of the conversion
to the Hub and Spoke structure (the "Agreement"). G/A is located at 41 Madison
Avenue, 40th Floor, New York, New York 10010-2202. G/A was incorporated in
Delaware on February 24, 1989 and is principally owned by Samuel D. Isaly, who
serves as the President of by G/A. Assuming Proposal 1 is implemented, the
Portfolio would be the only investment company registered under the Act advised
by G/A. Investment decisions for the Portfolio would be 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 Mr. Viren Mehta to found the partnership
of Mehta and Isaly. The operations of the combined effort (including G/A and
affiliated entities) 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. G/A is registered with the Securities
and Exchange Commission as an investment adviser.
The Board of Directors of the Fund have reviewed the Agreement and
recommends that the stockholders of the Fund vote to authorize the Fund to
approve the Agreement entered into by the Portfolio at the meeting of holders of
interests in the Portfolio. A copy of the Agreement is attached hereto as
Exhibit A and the discussion of the Agreement herein is qualified in its
entirety by such Agreement.
The Agreement will remain in full force and effect through February 28,
1997, and will continue in full force and effect indefinitely thereafter, but
only so long as such continuance is specifically approved at least annually (i)
by the board of trustees of the Portfolio or by vote of a majority of the
outstanding voting securities (as defined in the Act) of the Portfolio, and (ii)
by the vote of a majority of those trustees of the Portfolio who are not
interested persons (as defined in the Act) of EVM, G/A or the Portfolio cast in
person at a meeting called for the purpose of voting on such approval.
Under the terms of the Agreement, the Portfolio will employ G/A to act
as investment adviser for and to manage the investment and reinvestment of the
assets of the Portfolio, subject to the supervision of its trustees. G/A will
furnish to the Portfolio investment advice and
18
<PAGE>
assistance, and investment advisory, statistical and research facilities, and
has arranged for certain members of the G/A organization to serve without salary
as officers of the Portfolio.
In approving the Agreement for the Portfolio, the trustees of the
Portfolio have taken into account such factors and information as were deemed by
them to be relevant to G/A's investment advisory relationship with the
Portfolio. In their deliberations the trustees have considered: the requirements
and needs of the Portfolio for advisory services and facilities, the nature,
extent and quality of the advisory services and facilities heretofore provided
to the Fund, the ability of G/A's personnel, the fiduciary duties and risks to
be assumed by the G/A organization and its commitment to provide advisory
services and facilities to the Portfolio on a continuing basis, the compensation
and benefits which will be received by the G/A organization pursuant to the
Agreement, the necessity that G/A maintain its ability to retain and attract
capable personnel to service the Portfolio, the continuance of appropriate
incentives to assure that G/A will provide high quality management and
administrative services to the Portfolio, the revenues, expenses, financial
condition, stability and capabilities of G/A, the investment performance of the
Fund since its inception, the various investment strategies and techniques to be
employed by G/A to enhance the Portfolio's investment performance, current
developments and trends in the mutual fund and financial services industries
including the entry of large and highly capitalized companies which are spending
and appear to be prepared to continue to spend substantial amounts to engage
personnel and to provide services for competing mutual funds, and other
information and factors which the trustees believed relevant to the matter.
Pursuant to the Agreement, G/A will provide the Portfolio with
investment research, advice and supervision, will furnish an investment program
and will determine what securities will be purchased, held or sold by the
Portfolio and what portion, if any, of the Portfolio's assets will be held
uninvested. The Agreement requires G/A to pay the salaries and fees of all
officers of the Portfolio who are members of the G/A organization and all
personnel of G/A performing services relating to research and investment
activities. The Agreement provides that the Portfolio will pay all its expenses
other than those expressly stated to be payable by G/A, which expenses payable
by the Portfolio will include, without implied limitation, (i) expenses of
maintaining the Portfolio and continuing its existence, (ii) registration of the
Portfolio under the Act, (iii) commissions, fees and other expenses connected
with the acquisition, holding and disposition of securities and other
investments, (iv) auditing, accounting and legal expenses, (v) taxes and
interest, (vi) governmental fees, (vii) expenses of issue, sale and redemption
of interests in the Portfolio, (viii) expenses of registering and qualifying the
Portfolio and interests in the Portfolio under federal and state securities laws
and of preparing and printing registration statements or other offering
statements or memoranda for such purposes and for distributing the same to
holders and investors, and fees and expenses of registering and maintaining
registrations of the Portfolio and of the Portfolio's placement agent as
broker-dealer or agent under state securities laws, (ix) expenses of reports and
notices to holders and of meetings of holders and proxy solicitations therefor,
(x) expenses of reports to governmental officers and commissions, (xi) insurance
expenses, (xii) association membership dues, (xiii) fees, expenses and
disbursements of custodians and subcustodians for all services to the Portfolio
(including without
19
<PAGE>
limitation safekeeping of funds, securities and other investments, keeping of
books, accounts and records, and determination of net asset values, book capital
account balances and tax capital account balances), (xiv) fees, expenses and
disbursements of transfer agents, dividend disbursing agents, holder servicing
agents and registrars for all services to the Portfolio, (xv) expenses for
servicing the accounts of holders, (xvi) any direct charges to holders approved
by the trustees of the Portfolio, (xvii) compensation and expenses of trustees
of the Portfolio who are not members of G/A's organization, and (xviii) such
non-recurring items as may arise, including expenses incurred in connection with
litigation, proceedings and claims and the obligation of the Portfolio to
indemnify its trustees, officers and holders with respect thereto.
In consideration of the services, payments and facilities to be
furnished by G/A under the Agreement, the Portfolio will pay G/A a monthly
advisory as described under Proposal 1 above. Therefore, there will be no
increase in the schedule of advisory fee rates as a result of the conversion of
the Fund to the Hub and Spoke structure until after one year and then only if
the Fund's performance merits an adjustment. The effective fee rate may also
decline from either growth in assets or performance that is below the benchmark.
The Agreement provides that it may be terminated at any time without
penalty on sixty days' notice by G/A or by the trustees of the Portfolio or by
vote of a majority of the outstanding voting securities of the Portfolio, and
that it shall automatically terminate in the event of its assignment. The
Agreement provides that G/A may render services to others and engage in other
business activities. The Agreement also provides that G/A shall to be liable for
any loss incurred in connection with the performance of its duties, or action
taken or omitted under the Agreement in the absence of willful misfeasance, bad
faith or gross negligence in the performance of its duties or by reason of its
reckless disregard of its obligations and duties thereunder, or for any losses
which may be sustained in the acquisition, holding or disposition of any
security or other investment.
Vote Required to Authorize the Fund to
Approve the Investment Advisory Agreement
Authorization of the Fund to approve the Portfolio's investment
advisory agreement with G/A at the meeting of the holders of interests in the
Portfolio requires the affirmative vote of a majority of the outstanding voting
securities of the Fund as defined in Proposal 1.
The Board of Directors of the Fund recommends that the stockholders of
the Fund vote to approve this Proposal. In the event that the stockholders of
the Fund fail to approve this Proposal, the Directors of the Fund will consider
what further action should be taken.
PROPOSAL 3. ELECTION OF DIRECTORS
It is the present intention that the enclosed proxy will, unless
authority to vote for election to office is specifically withheld by executing
the proxy in the manner stated thereon, be used for the purpose of voting to fix
the number of Directors for the ensuing year at six, and
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<PAGE>
of voting in favor of the election of the nominees named below until their
successors are elected and qualified. The nominee whose names is preceded by an
asterisk(*) is an "interested person" (as defined in the Act) by reason of his
affiliations with Eaton Vance. The biographical information as to each nominee
is provided under Proposal 2(A).
Nominees for Directors
Donald R. Dwight
*James B. Hawkes
Samuel L. Hayes, III
Norton H. Reamer
John L. Thorndike
Jack L. Treynor
As of July 18, 1996, the proposed Directors of the Fund beneficially
owned shares constituting less than 1% of the outstanding shares of the Fund.
It is not expected that any of the nominees referred to above will
decline or become unavailable for election, but in case this should happen, the
discretionary power given in the proxy may be used to vote for a substitute
nominee or nominees or to vote to fix the number of Directors for the ensuing
year at less than six (unless authority to vote for election of all nominees is
specifically withheld by executing the proxy in the manner stated thereon).
Eaton Vance has undertaken to use its best efforts to ensure that for at least
two years after implementation of Proposal 1 at least 75% of the directors will
not be "interested persons" of the Eaton Vance organization or of G/A.
In recommending a change in the Board, the existing Board of Directors
considered various factors, including the substantial knowledge and experience
the nominees have with the master-feeder structure and the Eaton Vance
organization. The existing Directors have resigned subject to implementation of
Proposals 1, 2A and 2B and the election of successors. The existing Directors
and officers are:
Name and Other Percentage Ownership Principal Occupation
Information of Shares Outstanding Over Past Five Years
*Samuel D. Isaly 2.48% Chairman of the Board and
Age: 51; director President. President of G/A
since 1989. Capital Management, Inc.
since 1989; formerly Senior
Vice President of S.G.
Warburg & 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. 0.06% Director and Chairman of the
Age: 53; director Department of Obstetrics and
since 1989. Gynecology at St. 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 0.00% Private investor. Director of
Age: 90; director other Capstone Funds and
since 1989. Lexington Mutual Funds.
Eugene E. Weise, M.D., 0.30% Private medical practice
P.C Age: 57; director since 1972; formerly
since 1989. Assistant Professor of
Ophthalmology at Cornell
University School of Medicine
from 1974 through 1987.
*Edward L. Jaroski 0.01% Vice President. Chairman of
Age: 49; director the Board and Director of the
since 1988. Administrator since 1987;
President and Director of the
Distributor since 1987;
President and Director of
Capstone Financial Services,
Inc. since 1987;
Director/Trustee and Officer
of other Capstone Funds.
*Iris R. Clay 0.00% Secretary. Assistant
Age: 44. Secretary of Capstone
Financial Services, Inc.
since 1990; formerly
Compliance Analyst with
Capstone.
*Linda G. Giuffre 0.00% Treasurer. Treasurer of
Age: 34. Capstone Financial Services,
Inc. since 1990; Treasurer of
other Capstone Funds;
formerly Transfer Agent
Manager with Capstone
Financial Services, Inc. from
1987 through 1990; Accounting
Supervisor with Tenneco
Financial Services, Inc. from
1984 through 1987.
* 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 or her relationship to G/A
or Capstone.
Each Director not affiliated with G/A 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 ending August
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31, 1996, the Fund has paid or accrued for the account of its directors and
officers, as a group for services in all capacities, a total of $4,250.
The following table represents the fees paid or accrued during the 1996
calendar year to the directors of the Fund and the total compensation each
director received for the calendar year 1995 from the Capstone Funds complex.
Aggregate Total
Compensation Compensation
Name From Fund From Complex
Dr. John J. Maggio $ 1,500 $ 1,125
Philip C. Smith 1,500 6,750
Dr. Eugene E. Weise 1,250 1,000
Messrs. Maggio, Smith and Weise serve as members of the audit and
nominating committees. During the current fiscal year, the audit committee had
one meeting and the nominating committee had no meetings. Each director attended
at least 75% of all Board and committee meetings for the year ended August 31,
1995.
4. RATIFICATION OF SELECTION OF ACCOUNTANTS
OF THE FUND
A majority of the members of each Board of Directors who are not
interested persons of a Fund have selected Tait, Weller & Baker, Two Penn Center
Plaza, Suite 700, Philadelphia, PA 191092-1707, as independent certified public
accountants to sign or certify any financial statements which may be filed by
the Fund with the Securities and Exchange commission in respect of all or any
part of the Fund's fiscal year ending August 31, 1996, the employment of such
accountants being expressly conditioned upon the right of the Fund, by vote of a
majority of the outstanding capital stock at any meeting called for the purpose,
to terminate such employment forthwith without any penalty. Such selection was
made pursuant to provisions of Section 32(a) of the Act, and is subject to
ratification or rejection by the stockholders at this meeting. The Fund is
informed that no member of Tait, Weller & Baker has any direct or material
indirect interest in the Fund.
The Fund's independent certified public accountants provide customary
professional services in connection with the audit function for a management
investment company such as the Fund, including services leading to the
expression of opinions on the financial statements included in the Fund's annual
report to stockholders, opinions on financial statements and other data included
in the Fund's annual report to the Securities and Exchange Commission, opinions
on financial statements included in amendments to the Fund's registration
statement, and preparation of the Fund's Federal tax returns. The nature and
scope of the professional services of the accountants have been approved by the
Fund's Board of Directors, which has considered the possible effect thereof on
the independence of the accountants.
Representatives of Tait, Weller & Baker are not expected to be present
at the meeting but have been given the opportunity to make a statement if they
so desire and will be available should any matter arise requiring their
presence.
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<PAGE>
It is intended that proxies not limited to the contrary will be voted
in favor of ratifying the selection of Tait, Weller & Baker, as the independent
certified public accountants to be employed by the Fund to sign or certify
financial statements required to be signed or certified by independent public
accountants and filed with the Securities and Exchange Commission in respect of
all or part of the fiscal year ending August 31, 1996.
PROPOSAL 5. TO APPROVE THE ELIMINATION,
SSIFICATION AND AMENDMENT OF THE FUND'S INVESTMENT OBJECTIVE
AND CERTAIN FUNDAMENTAL INVESTMENT POLICIES
The Act requires a registered investment company like the Fund to have
certain specific investment policies which can be changed only by a shareholder
vote. Investment companies may also elect to designate other policies which may
be changed only by a shareholder vote. Both types of policies are often referred
to as "fundamental" policies. (In this Proxy Statement, the word "restriction"
is sometimes used to describe a policy.) Some fundamental policies have been
adopted in the past by the Fund to reflect certain regulatory, business or
industry conditions which are no longer in effect. Accordingly, the Board of
Directors has approved the simplification and modernization of those policies
which are required to be fundamental, and the elimination as fundamental any
policies which are not required to be fundamental under the positions of the
staff of the Securities and Exchange Commission in interpreting the Act, in
which case, depending on the circumstances, the policy would be reclassified as
a nonfundamental policy in the same or a modified form, or eliminated. The
revised policies must also be in conformity with state securities ("Blue Sky")
laws. Nonfundamental policies can be changed by the Directors without
stockholder approval. Revision of fundamental policies have been approved by
shareholders of numerous other funds administered by EVM, and if these revisions
are approved then the uniformity of such policies would serve to facilitate
EVM's compliance efforts.
This Proposal seeks stockholder approval of changes which are intended
to accomplish the foregoing goals. The proposed changes will not affect current
management of the Fund's portfolio. The proposed changes to the fundamental
policies are discussed in detail below. Please refer to the changes to the
policies as set forth in Exhibit B (which does not include the additional
fundamental investment provision to be added if Proposal 1 is approved). By
reducing to a minimum those policies which can be changed only by stockholder
vote, the Fund may be able to avoid the costs and delay associated with future
stockholder meetings and the Boards of Directors believes that G/A's ability to
manage the Fund's portfolio in a changing regulatory or investment environment
will be enhanced. Accordingly, investment management opportunities will be
increased. The references to the Fund's investment restrictions correspond to
the paragraphs in Exhibit B. If this Proposal is approved, the restrictions
would be reordered.
23
<PAGE>
Reclassification and Amendment of Investment Objectives and
Basic Investment Policies
The Fund's present investment objectives and basic investment policies
are as follows: "The Fund's 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. 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."
It is proposed that the investment objective be modified to express
more explicitly the focus on investing in of stocks of health science companies
which in today's market generally pay little or no dividends. The proposed new
objective is: "long-term capital growth by investing in a global and diversified
portfolio of securities of health science companies." This objective would
remain fundamental. Similarly, the 75% diversification restriction would be
retained as fundamental. The remaining policies would become "nonfundamental"
and would be revised to be as follows: "The Portfolio invests in a global and
diversified portfolio of securities of health science companies. These companies
principally are engaged in the development, production or distribution of
products or services related to scientific advances in healthcare, including
biotechnology, diagnostics, managed healthcare and medical equipment and
supplies, and pharmaceuticals. At the time the Portfolio makes an investment,
50% or more of such a company's sales, earnings or assets will arise from or
will be dedicated to the application of scientific advances related to
healthcare. Under normal market conditions, the Portfolio will invest as least
65% of its assets in securities of health science companies, including common
and preferred stocks; equity interests in partnerships; convertible preferred
stocks; and other convertible instruments". These changes would be made to
improve the marketing appeal of the Fund. The proposed changes would not affect
current portfolio management.
Consistent with these changes and the inclusion of the Fund in the
Eaton Vance family of funds, the Board of Directors has changed the name of the
Fund to "EV Traditional Global Health Sciences Fund" effective upon
implementation of Proposal 1.
Elimination of Certain Restrictions
The Board of Directors proposes to delete Restriction (4) and most of
Restriction (13) because such restrictions are not required to be fundamental
policies under the Act or state "Blue Sky" laws and/or the practices referred to
therein are otherwise governed by the Act.
24
<PAGE>
Restriction (4) concerning investment in other investment companies
prohibits the Fund from investing in securities of other investment companies
and investment funds. Investment in other investment companies is regulated by
the Act and this restriction does not contain all of the provisions in the Act
regarding such investments.
The latter part of Restriction (13) concerning pledging, mortgaging or
hypothecating the assets of the Fund is being deleted as pledging restrictions
are no longer required by state law.
Restriction (6), as revised, contains limitations on leverage.
Reclassification of Certain Restrictions
The Board of Directors also proposes that Restrictions (7), (8), (9),
(10), (14), and (17) and part of Restriction (16) be eliminated as fundamental,
but be retained as nonfundamental policies of the Fund (which could be
thereafter changed or eliminated by Director vote). Each of these restrictions
is required under various state "Blue Sky" laws and/or federal laws, but are not
required to be fundamental policies of the Fund.
Restriction (7) concerning investment in affiliated issuers prohibits
the Fund from purchasing a security where individuals affiliated with the Fund
beneficially own more than 5% of that security. The securities laws have
numerous prohibitions on affiliated transactions and the restriction need not be
fundamental.
Restriction (8) concerning investing for control prohibits the Fund
from investing for control or management of other companies. Such investments
would be difficult because of the Act's diversification requirements contained
in Restrictions (10) and (11), and are regulated by the Act's provisions on
affiliated transactions. Because the Fund focuses on health science companies,
amendment of the restriction if reclassified may be advisable in the future.
Restriction (9) concerns investing in options and futures contracts.
These transactions are of increasing use to portfolio management and any future
need to permit greater use of them with appropriate prospectus disclosure, would
be facilitated by making this restriction nonfundamental.
Restriction (10) concerning warrants and the middle part of Restriction
(16) concerning investment in oil, gas and similar programs are not required to
be fundamental investment policies. No amendment is being proposed.
Restriction (14) concerning investment in restricted securities is
consistent (as revised) with the current position of the staff of the Securities
and Exchange Commission. The flexibility afforded to amend this restriction by
making it nonfundamental may be useful for a health science fund.
25
<PAGE>
Restriction (17) concerns investments in unseasoned issuers with less
than three years continuous operation. This restriction is overly burdensome for
a health science fund and has been amended to permit 5% of total assets to be so
invested.
As a result of this proposed reclassification of certain investment
restrictions as nonfundamental, a future change in any of these restrictions
could be effected by the Directors without stockholder approval if the Directors
determined that such change was appropriate and desirable. The Board of
Directors has no present expectation that the foregoing restrictions which would
be reclassified would be amended or eliminated. The Directors believe, however,
that this reclassification of restrictions will permit the Fund to respond more
rapidly to future changes in the Fund's competitive and regulatory environment.
Amendment of Certain Restrictions
The Board of Directors also proposes the amendment of seven fundamental
policies.
Restriction (1) concerning underwriting is being amended to conform the
wording to that of other Eaton Vance administered funds. There is no substantive
change.
Restriction (2) concerning investments in real estate is being amended
in order to expressly permit the Fund to invest in securities secured by real
estate and securities of companies which invest or deal in real estate, both of
which were previously implied.
Restriction (3) concerning lending has been amended to reflect current
regulatory restraints and recent changes to the lending policy of other Eaton
Vance administered funds. The Fund has no current expectation to lend securities
and is constrained by regulation as to the extent it could do so.
The first part of Restriction (5) concerning short sales has been
revised to permit the Fund to engage in such transactions if they are "against
the box." In a short sale, the Fund would sell a borrowed security with a
corresponding obligation to return the same security. The revision would permit
such transactions only if the Fund owns or has the right to acquire the relevant
security. Such transactions are not currently contemplated and would be engaged
in only if the prospectus is revised. The latter part of Restriction (5)
concerning margin transactions has been clarified to permit expressly ordinary
securities settlements practices.
Restrictions (6) and (13) concerning senior securities and borrowing
have been revised by permitting borrowing and the issuance of senior securities
consistent with the Act. The positions of staff of the Securities and Exchange
Commission on borrowings and senior securities have evolved in recent years with
the development of new investment strategies, such as reverse repurchase
agreements and futures transactions. The Fund would like the ability to consider
use of new investment techniques consistent with the Act as interpretations of
the Act are further developed.
26
<PAGE>
Finally, the wording of Restriction (16) with respect to commodities is
being amended to limit the exception to financial futures contracts, which was
previously implied.
Vote Required to Approve Proposal 5
Approval of each item in this Proposal requires the affirmative vote of
a majority of the outstanding voting securities of the Fund as defined under
Proposal 1. Implementation of this Proposal is not dependent upon any other
proposal herein.
The Board of Directors has considered various factors and believes that
this Proposal will increase investment management flexibility and is in the best
interests of the Fund's stockholders. If the Proposal is not approved, the
Fund's present objectives and fundamental policies and restrictions will remain
in effect and a stockholder vote would be required before the Fund could engage
in activities prohibited by a fundamental restriction. The Board of Directors
recommends that the stockholders vote in favor of the elimination,
reclassification and amendment of the Fund's investment objectives and
restrictions as described above.
RELATED TRANSACTIONS
The proposed restructuring of the Fund described in Proposal 1 and
related changes described in this proxy statement are the result of the decision
of G/A and Eaton Vance to work jointly to improve the distribution, performance
and shareholder servicing of the Fund. To date, these organizations have
formalized this relationship in three respects. First, Eaton Vance has agreed to
pay G/A on the conversion of the Fund to Hub and Spoke the sum of $2 million for
G/A's tradename which may thereafter only be used by G/A with Eaton Vance's
approval and such approval has only been given in connection with services
provided by G/A to Eaton Vance. In addition, Eaton Vance has agreed to pay G/A
the sum of $500,000 if the assets of the Portfolio reach $100 million (excluding
any G/A affiliated investments) within six months after implementation of
Proposal 1 as the result of the services of G/A personnel in assisting in the
marketing of the restructured Fund. Lastly, G/A has agreed to pay Eaton Vance
the equivalent of one-third of its Portfolio advisory fee out of its own
resources to be used by Eaton Vance to pay expenses related to its activities as
Placement Agent of the Portfolio. All of these agreements are designed to enable
Eaton Vance to promote the sale of Fund shares and increase the size of the
Portfolio. As discussed in Proposal 1, asset growth should be beneficial to
shareholders. It is possible G/A and Eaton Vance may enter into other agreements
that directly or indirectly affect the Fund, but none are currently
contemplated.
G/A and Eaton Vance have agreed to make certain payments to Capstone
for services necessary to facilitate the transition of the administration and
distribution functions of the Fund and to provide incentives to Capstone to sell
shares of the Fund. G/A will pay Capstone the sum of $150,000 upon
implementation of Proposal 1 and an amount equal to .05% of the Portfolio's
average daily net assets for two years. (G/A and Eaton Vance will share equally
if such aggregate payments exceed $200,000.) In addition, if the assets of the
Portfolio reach $100
27
<PAGE>
million within six months of the implementation of Proposal 1 (excluding any G/A
affiliated investments), G/A will pay Capstone $150,000. Eaton Vance has agreed
to reimburse Capstone up to $75,000 for expenses of employment severance that
Capstone incurs as a result of the change in Fund service providers and to pay
Capstone $15,000 (plus out-of-pocket costs) for transition related services.
Capstone will become a dealer firm in the EVD distribution network and,
therefore, may receive distribution fees from EVD pursuant to the Fund's Rule
12b-1 distribution plan after the restructuring.
NOTICE TO BANKS AND BROKER/DEALERS
The Fund has previously solicited all Nominee and Broker/Dealer accounts as
to the number of additional proxy statements required to supply owners of
shares. Should additional proxy material be required for beneficial owners,
please forward such requests to: Management Information Systems, Inc. 61 Accord
Park Drive, Norwell, MA 02061.
ADDITIONAL INFORMATION
The expense of preparing, printing and mailing this Proxy Statement and
enclosures and the cost of soliciting proxies on behalf of the Board of
Directors of the Fund will be borne by Eaton Vance. Proxies will be solicited by
mail and may be solicited in person or by telephone or telegraph by officers of
the Fund, by personnel of G/A, EVM, by broker-dealer firms or by Management
Information Systems, Inc., a professional solicitation organization. The
expenses connected with the solicitation of these proxies and with any further
proxies which may be solicited by the Fund's officers, by EVM's personnel or by
broker-dealer firms, in person, by telephone or by telegraph will be borne by
Eaton Vance. EVM will reimburse banks, broker-dealer firms, and other persons
holding shares registered in their names or in the names of their nominees, for
their expenses incurred in sending proxy material to and obtaining proxies from
the beneficial owners of such shares.
All proxy cards solicited by the Board of Directors that are properly
executed and received by the tabulator prior to the meeting, and which are not
revoked, will be voted at the meeting. Shares represented by such proxies will
be voted in accordance with the instructions thereon. If no specification is
made on the proxy card, it will be voted for the matters specified on the proxy
card. All proxies not voted, will not be counted toward establishing a quorum.
Broker non-votes will be counted toward establishing a quorum and for
determining whether sufficient votes have been received for approval of the
Proposal to be acted upon. Stockholders should note that while votes to abstain
will count toward establishing a quorum, passage of any Proposal being
considered at the meeting will occur only if a sufficient number of votes are
cast for the Proposal. Accordingly, votes to abstain, broker non-votes and votes
against will have the same effect in determining whether a Proposal is approved.
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<PAGE>
In the event that sufficient votes by the stockholders of the Fund in
favor of any Proposal set forth in the Notice of this meeting are not received
by August 29, 1996, the persons named as attorneys in the enclosed proxy may
propose one or more adjournments of the meeting to permit further solicitation
of proxies. A stockholder vote may be taken on one or more of the Proposals in
this Proxy Statement prior to such adjournment if sufficient votes have been
received and it is otherwise appropriate. Any such adjournment will require the
affirmative vote of the holders of a majority of the shares present in person or
by proxy at the session of the meeting to be adjourned. The persons named as
attorneys in the enclosed proxy will vote in favor of such adjournment those
proxies which they are entitled to vote in favor of the Proposal for which
further solicitation of proxies is to be made. They will vote against any such
adjournment those proxies required to be voted against such Proposal. The costs
of any such additional solicitation and of any adjourned session will be borne
by the Fund.
Consistent with applicable law, the Fund does not hold annual
stockholders' meetings. Stockholders wishing to submit proposals for inclusion
in a proxy statement for a subsequent meeting should send their proposal to the
Secretary of the Fund. Proposals must be received in advance of a proxy
solicitation to be included and the mere submission of a proposal does not
guarantee inclusion in the proxy statement because certain federal securities
law rules must be complied with.
The Fund will furnish, without charge a copy of the Fund's Annual
Report and its most recent Semi-Annual Report succeeding the Annual Report to
any stockholder upon request. Stockholders desiring to obtain a copy of such
reports should direct all written requests to: Capstone Asset Management
Company, 5847 San Felipe, Suite 4100, Houston, Texas 77057, or should call
Capstone at 1-800-262-6631.
MEDICAL RESEARCH INVESTMENT FUND, INC.
August 2, 1996
29
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EXHIBIT A
WORLDWIDE HEALTH SCIENCES PORTFOLIO
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 24th day of June, 1996, between Worldwide Health
Sciences Portfolio, a New York trust (the "Trust") and G/A Capital Management,
Inc., a Delaware corporation (the "Adviser").
1. Duties of the Adviser. The Trust hereby employs the Adviser to act
as investment adviser for and to manage the investment and reinvestment of the
assets of the Trust, subject to the supervision of the Trustees of the Trust,
for the period and on the terms set forth in this Agreement.
The Adviser hereby accepts such employment and undertakes to afford to
the Trust the advice and assistance of the Adviser's organization in the choice
of investments and in the purchase and sale of securities for the Trust and to
furnish for the use of the Trust office space and all necessary office
facilities, equipment and personnel for servicing the investments of the Trust
and to pay the salaries and fees of all officers and Trustees of the Trust who
are members of the Adviser's organization and all personnel of the Adviser
performing services relating to research and investment activities. The Adviser
shall for all purposes herein be deemed to be independent contractors and shall,
except as otherwise expressly provided or authorized, have no authority to act
for or represent the Trust in any way or otherwise be deemed an agent of the
Trust.
The Adviser shall provide the Trust with such investment management and
supervision as the Trust may from time to time consider necessary for the proper
supervision of the Trust. As investment adviser to the Trust, the Adviser shall
furnish continuously an investment program and shall determine from time to time
what securities and other investments shall be acquired, disposed of or
exchanged and what portion of the Trust's assets shall be held uninvested,
subject always to the applicable restrictions of the Declaration of Trust,
By-Laws and registration statement of the Trust under the Investment Company Act
of 1940, all as from time to time amended. Should the Trustees of the Trust at
any time, however, make any specific determination as to investment policy for
the Trust and notify the Adviser thereof in writing, the Adviser shall be bound
by such determination for the period, if any, specified in such notice or until
similarly notified that such determination has been revoked. The Adviser shall
take, on behalf of the Trust, all actions which they deem necessary or desirable
to implement the investment policies of the Trust.
The Adviser shall place all orders for the purchase or sale of
portfolio securities for the account of the Trust either directly with the
issuer or with brokers or dealers selected by the Adviser, and to that end the
Adviser is authorized as the agent of the Trust to give instructions to the
custodian of the Trust as to deliveries of securities and payments of cash for
the account of the Trust. In connection with the selection of such brokers or
dealers and the placing of such orders, the Adviser shall use its best efforts
to seek to execute security transactions at prices which are advantageous to the
Trust and (when a disclosed commission is being charged) at reasonably
competitive commission rates. In selecting brokers or dealers qualified to
execute a particular transaction, brokers or dealers may be selected who also
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<PAGE>
provide brokerage and research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of 1934) to the Adviser and the Adviser is
expressly authorized to pay any broker or dealer who provides such brokerage and
research services a commission for executing a security transaction which is in
excess of the amount of commission another broker or dealer would have charged
for effecting that transaction if the Adviser determines in good faith that such
amount of commission is reasonable in relation to the value of the brokerage and
research services provided by such broker or dealer, viewed in terms of either
that particular transaction or the overall responsibilities which the Adviser
and its affiliates have with respect to accounts over which they exercise
investment discretion. Subject to the requirement set forth in the second
sentence of this paragraph, the Adviser is authorized to consider, as a factor
in the selection of any broker or dealer with whom purchase or sale orders may
be placed, the fact that such broker or dealer has sold or is selling shares of
any one or more investment companies sponsored by the Adviser, Eaton Vance
Management or their affiliates or shares of any other investment company
investing in the Trust.
The Adviser shall not be responsible for providing certain special
administrative services to the Trust under this Agreement. Eaton Vance
Management, in its capacity as Administrator of the Trust, shall be responsible
for providing such services to the Trust under the Trust's separate
Administration Agreement with the Administrator.
2. Compensation of the Adviser. For the services, payments and
facilities to be furnished hereunder by the Adviser, the Adviser shall be
entitled to receive from the Trust a fee computed daily and payable monthly at
an annual rate of 1.00% of the Trust'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. For assets of $500 million and more,
the advisory fee is as follows:
Annual
Average Daily Net Assets Asset Rate
$500 million but less than $1 billion........................0.70%
$1 billion but less than $1.5 billion. ......................0.65%
$1.5 billion but less than $2 billion........................0.60%
$2 billion but less than $3 billion..........................0.55%
$3 billion and over..........................................0.50%
After 12 months, the basic advisory fee is subject to upward or
downward adjustment depending upon whether, and to what extent, the investment
performance of the Trust differs by at least one percentage point from the
record of the Standard & Poor's Index of 500 Common Stocks over the same period.
Each percentage point difference is multiplied by a performance adjustment rate
of 0.025%. The maximum adjustment plus/minus is 0.25%. One twelfth (1/12) of
this adjustment is applied each month to the average daily net assets of the
Trust over the entire performance period. This adjustment shall be based on a
rolling period of up to and including the most recent 36 months. Trust
performance shall be total return as computed under Rule 482 under the
Securities Act of 1933.
Such advisory fee shall be paid monthly in arrears on the last business
day of each month. The Trust's net asset value shall be computed in accordance
with the Declaration of Trust of the Trust and any applicable votes and
determinations of the Trustees of the Trust. In case of initiation or
termination of the Agreement during any month, the fee for that month shall be
based on the number of calendar days during which it is in effect.
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The Adviser may, from time to time, waive all or a part of the above
compensation to which it is entitled hereunder.
3. Allocation of Charges and Expenses. It is understood that the Trust
will pay all expenses other than those expressly stated to be payable by the
Adviser hereunder, which expenses payable by the Trust shall include, without
implied limitation, (i) expenses of maintaining the Trust and continuing its
existence, (ii) registration of the Trust under the Investment Company Act of
1940, (iii) commissions, fees and other expenses connected with the acquisition,
holding and disposition of securities and other investments, (iv) auditing,
accounting and legal expenses, (v) taxes and interest, (vi) governmental fees,
(vii) expenses of issue, sale, and redemption of Interests in the Trust, (viii)
expenses of registering and qualifying the Trust and Interests in the Trust
under federal and state securities laws and of preparing and printing
registration statements or other offering statements or memoranda for such
purposes and for distributing the same to Holders and investors, and fees and
expenses of registering and maintaining registrations of the Trust and of the
Trust's placement agent as broker-dealer or agent under state securities laws,
(ix) expenses of reports and notices to Holders and of meetings of Holders and
proxy solicitations therefor, (x) expenses of reports to governmental officers
and commissions, (xi) insurance expenses, (xii) association membership dues,
(xiii) fees, expenses and disbursements of custodians and subcustodians for all
services to the Trust (including without limitation safekeeping of funds,
securities and other investments, keeping of books, accounts and records, and
determination of net asset values, book capital account balances and tax capital
account balances), (xiv) fees, expenses and disbursements of transfer agents,
dividend disbursing agents, Holder servicing agents and registrars for all
services to the Trust, (xv) expenses for servicing the account of Holders, (xvi)
any direct charges to Holders approved by the Trustees of the Trust, (xvii)
compensation and expenses of Trustees of the Trust who are not members of one of
the Adviser's organization, and (xviii) such non-recurring items as may arise,
including expenses incurred in connection with litigation, proceedings and
claims and the obligation of the Trust to indemnify its Trustees, officers and
Holders with respect thereto.
4. Other Interests. It is understood that Trustees and officers of the
Trust and Holders of Interests in the Trust are or may be or become interested
in the Adviser as trustees, shareholders or otherwise and that trustees,
officers and shareholders of the Adviser are or may be or become similarly
interested in the Trust, and that the Adviser may be or become interested in the
Trust as Holder or otherwise. It is also understood that trustees, officers,
employees and shareholders of the Adviser may be or become interested (as
directors, trustees, officers, employees, shareholders or otherwise) in other
companies or entities (including, without limitation, other investment
companies) which the Adviser or Eaton Vance Management may organize, sponsor or
acquire, or with which it may merge or consolidate, and that the Adviser or its
subsidiaries or affiliates may enter into advisory or management agreements or
other contracts or relationships with such other companies or entities.
5. Limitation of Liability of the Adviser. The services of the Adviser
to the Trust are not to be deemed to be exclusive, the Adviser being free to
render services to others and engage in other business activities. In the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of obligations or duties hereunder on the part of the Adviser, the
Adviser shall not be subject to liability to the Trust or to any Holder of
Interests in the Trust for any act or omission in the course of, or connected
with, rendering services hereunder or for any losses which may be sustained in
the acquisition, holding or disposition of any security or other investment.
6. Sub-Investment Adviser. The Adviser may employ one or more
sub-investment advisers from time to time to perform such of the acts and
services of the Adviser, including the selection of brokers or dealers to
execute the Trust's portfolio security transactions, and upon such terms and
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conditions as may be agreed upon between the Adviser and such investment adviser
and approved by the Trustees of the Trust, all as permitted by the Investment
Company Act of 1940.
7. Duration and Termination of this Agreement. This Agreement shall
become effective upon the date of its execution, and, unless terminated as
herein provided, shall remain in full force and effect through and including
February 28, 1997 and shall continue in full force and effect indefinitely
thereafter, but only so long as such continuance after February 28, 1997 is
specifically approved at least annually (i) by the Board of Trustees of the
Trust or by vote of a majority of the outstanding voting securities of the Trust
and (ii) by the vote of a majority of those Trustees of the Trust who are not
interested persons of the Adviser or the Trust cast in person at a meeting
called for the purpose of voting on such approval.
Any party hereto may, at any time on sixty (60) days' prior written
notice to the others, terminate that party's obligations hereunder, or, in the
case of the Trust, terminate this Agreement in its entirety, without the payment
of any penalty, by action of Trustees of the Trust or the trustees or directors
of the Adviser, as the case may be, and the Trust may, at any time upon such
written notice to the Adviser, terminate this Agreement with respect to the
Adviser by vote of a majority of the outstanding voting securities of the Trust.
This Agreement shall terminate automatically in the event of its assignment.
8. Amendments of the Agreement. This Agreement may be amended by a
writing signed by all parties hereto, provided that no amendment to this
Agreement shall be effective until approved (i) by the vote of a majority of
those Trustees of the Trust who are not interested persons of an Adviser or the
Trust cast in person at a meeting called for the purpose of voting on such
approval, and (ii) by vote of a majority of the outstanding voting securities of
the Trust.
9. Limitation of Liability. The Adviser expressly acknowledges the
provision in the Declaration of Trust of the Trust (Section 5.2 and 5.6)
limiting the personal liability of the Trustees and officers of the Trust, and
the Adviser hereby agrees that it shall have recourse to the Trust for payment
of claims or obligations as between the Trust and the Adviser arising out of
this Agreement and shall not seek satisfaction from any Trustee or officer of
the Trust.
10. Certain Definitions. The terms "assignment" and "interested
persons" when used herein shall have the respective meanings specified in the
Investment Company Act of 1940 as now in effect or as hereafter amended subject,
however, to such exemptions as may be granted by the Securities and Exchange
Commission by any rule, regulation or order. The term "vote of a majority of the
outstanding voting securities" shall mean the vote, at a meeting of Holders, of
the lesser of (a) 67 per centum or more of the Interests in the Trust present or
represented by proxy at the meeting if the Holders of more than 50 per centum of
the outstanding Interests in the Trust are present or represented by proxy at
the meeting, or (b) more than 50 per centum of the outstanding Interests in the
Trust. The terms "Holders" and "Interests" when used herein shall have the
respective meanings specified in the Declaration of Trust of the Trust.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
WORLDWIDE HEALTH SCIENCES PORTFOLIO
/s/ James B. Hawkes
By:
President
G/A CAPITAL MANAGEMENT, INC.
/s/ Samuel D. Isaly
By:
President
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<PAGE>
EXHIBIT B
INVESTMENT RESTRICTIONS
[Proposed Additions in Italics and Proposed Deletions in Brackets]
As a matter of fundamental policy, the Fund may not:
1. [Act as an underwriter of] Underwrite securities of other
issuers [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] Invest in [the purchase or sale of interests in] real
estate including interests in real estate limited partnerships
(although it may purchase and sell securities which are
secured by real estate and securities of companies which
invest or deal in real estate) [or real estate mortgage
loans];
3. Make loans to any person, except by (a) [that the Fund may
purchases or hold] the acquisition of debt securities and
making portfolio investments [instruments in accordance with
its investment objectives and policies, and may enter] (b)
entering into repurchase agreements and (c) lending portfolio
securities;
4. [Acquire securities of other investment companies registered
under the Investment Company Act of 1940, except in connection
with a merger, consolidation, reorganization or acquisition of
assets];
5. Sell securities short unless at all times when a short
position is open the Fund either owns an equal amount of such
securities or owns securities convertible into or
exchangeable, without payment of any further consideration,
for securities of the same issue as, and equal in amount to,
the securities sold short, or purchase any securities on
margin except that the Fund may obtain such short-term credits
as may be necessary for the clearance of purchases and sales
of securities [may enter into futures contracts and related
options];
6. Issue any senior securities except as permitted by the
Investment Company Act of 1940 [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
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*This restriction would become nonfundamental if Proposal 5 is approved.
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<PAGE>
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;
11. With respect to 75% of its total assets, 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);
12. With respect to 75% of its total assets, invest in the
securities of any issuer if as a result the Fund holds more
than 10% of the outstanding securities of such issuer;
13. Borrow money except as permitted by the Investment Company Act
of 1940 [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 lessor of 10%
of its total assets valued at cost or 5% of its total asset
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];
14. *Invest more than [10% of the value] 15% of its net assets in
[illiquid] securities which are not readily marketable,
including repurchase agreements with remaining maturities in
excess of seven days and securities and [other] restricted
securities [for which market quotations are not readily
available.] Restricted securities for the purposes of this
limitation do not include securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933 and
commercial paper issued pursuant to Section 4(2) of said Act
that the Board of Directors of the Fund, or their delegate,
determines to be liquid.
15. 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;
16. *Purchase or sell commodities or commodity contracts with
respect to physical commodities, or invest in oil, gas or
mineral exploration or development programs [except that the
Fund may enter into futures contracts and related options];
and
17. *Invest in the securities of any issuer (including
predecessors) which has not been in continuous operation for
at least three years if more than 5% of the Fund's total
assets would be invested in such securities.
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* This restriction would become nonfundamental if Proposal 5 is approved.
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<PAGE>
MEDICAL RESEARCH INVESTMENT FUND, INC................THIS PROXY IS SOLICITED ON
BEHALF OF THE BOARD OF
DIRECTORS OF THE FUND
KNOW ALL MEN BY THESE PRESENTS: That the undersigned, revoking previous proxies
for such stock, hereby appoints Samuel D. Isaly and James B. Hawkes, or any of
them, attorneys of the undersigned, with full power of substitution, to vote all
stock of Medical Research Investment Fund, Inc., which the undersigned is
entitled to vote at the Special Meeting of the Stockholders of said Fund to be
held on August 29, 1996 at the offices of Shearman & Sterling, 599 Lexington
Avenue, New York, New York, at 2:00 P.M. (Eastern time), and at any and all
adjournments thereof. Receipt of the Notice of and Proxy Statement for said
Meeting is acknowledged.
The shares represented by this proxy will be voted on the following matters as
specified below and on the reverse side by the undersigned. If no specification
is made, this proxy will be voted in favor of all such matters. Note: This proxy
must be returned in order for your shares to be voted.
1. To approve a new investment policy
and to supplement investment
restrictions to permit a new
investment structure as described
in the Proxy Statement. FOR [ ] AGAINST [ ] ABSTAIN [ ]1
2.A. To authorize the Fund to vote at
a meeting of holders of interests
in the Portfolio to elect six
trustees of the Portfolio. FOR [ ] WITHHOLD [ ] 2A
the nominees AUTHORITY
except those whose to vote for any
names are inserted on of the nominees.
the line below.
D.R. Dwight, J.B. Hawkes, S.L.Hayes, III, N.H. Reamer, J.L.Thorndike,
J.L.Treynor.
2.B. To authorize the Fund to vote
at a meeting of holders of
interests in the Portfolio to
approve the Investment Advisory
Agreement between the Portfolio
and G/A Capital Management, Inc.
as set forth in Exhibit A to
the Proxy Statement. FOR [ ] AGAINST [ ] ABSTAIN [ ]2B
3. To fix the number of Directors
at six, and to elect Directors. FOR [ ] WITHHOLD [ ]3
the nominees AUTHORITY
except those whose to vote for any
names are inserted on of the nominees.
the line below.
Directors - D.R. Dwight, J.B. Hawkes,
S.L. Hayes, III, N.H. Reamer, J.L. Thorndike,
J.L. Treynor
4. To ratify the selection of Tait,
Weller & Baker as independent public
accountants of the Fund for the current
fiscal year. FOR [ ] AGAINST [ ] ABSTAIN [ ]4
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<PAGE>
5. To approve the revision of the
Fund's investment objective and certain
of the Fund's investment policies
as set forth in Exhibit B to the
Proxy Statement as follows:
5.A. Reclassification and Amendment
of the investment objective
and basic policies. FOR [ ] AGAINST [ ] ABSTAIN [ ]5A
5.B. Eliminate the restriction
concerning investment in
other investment companies. FOR [ ] AGAINST [ ] ABSTAIN [ ]5B
5.C. Eliminate the restriction
concerning pledging. FOR [ ] AGAINST [ ] ABSTAIN [ ]5C
5.D. Reclassify the restriction
concerning investment in
affiliated issuers. FOR [ ] AGAINST [ ] ABSTAIN [ ]5D
5.E. Reclassify the restriction
concerning investing for control. FOR [ ] AGAINST [ ] ABSTAIN [ ]5E
5.F. Reclassify the restriction
concerning options and futures. FOR [ ] AGAINST [ ] ABSTAIN [ ]5F
5.G. Reclassify the restriction
concerning warrants. FOR [ ] AGAINST [ ] ABSTAIN [ ]5G
5.H. Reclassify the restriction
concerning exploration programs. FOR [ ] AGAINST [ ] ABSTAIN [ ]5H
5.I. Reclassify and amend the
restriction concerning illiquid
securities. FOR [ ] AGAINST [ ] ABSTAIN [ ]5I
5.J. Reclassify and amend the restriction
concerning unseasoned issuers. FOR [ ] AGAINST [ ] ABSTAIN [ ]5J
5.K. Amend the restriction concerning
underwriting. FOR [ ] AGAINST [ ] ABSTAIN [ ]5K
5.L. Amend the restriction concerning
real estate. FOR [ ] AGAINST [ ] ABSTAIN [ ]5L
5.M. Amend the restriction concerning
lending. FOR [ ] AGAINST [ ] ABSTAIN [ ]5M
5.N. Amend the restriction concerning
short sales. FOR [ ] AGAINST [ ] ABSTAIN [ ]5N
5.O. Amend the restriction concerning
senior securities. FOR [ ] AGAINST [ ] ABSTAIN [ ]5O
5.P. Amend the restriction concerning
borrowing. FOR [ ] AGAINST [ ] ABSTAIN [ ]5P
5.Q. Amend the restriction concerning
commodities. FOR [ ] AGAINST [ ] ABSTAIN [ ]5Q
As to any other matter, or if any of the nominees named in the Proxy Statement
are not available for election, said attorneys shall vote in accordance with
their judgment.
THE BOARD OF DIRECTORS
RECOMMENDS A VOTE
IN FAVOR OF ALL MATTERS
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............................................................
............................................................
Please sign exactly as your name
or names appear at left.
Dated:
, 1996
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